Content Insider #884 – Storms
By Andy Marken – andy@markencom.com
“I can’t compete with this. I don’t even know where to start.” – Melissa, “Twister,” 1996, Universal
Pictures
Okay, we’re going to lay out a brutal truth – no one is good at everything.
Ted isn’t, Bob isn’t, Sheri isn’t, David isn’t; and very reluctantly, we admit we aren’t.
But that doesn’t stop the rest of them at Netflix, Disney, National Amusements (Paramount), WBD or the head of any movie/show studio/streaming folks from trying the big dog in the entertainment industry.
Outside of the US, creative production and distribution folks tend to stay in their own lanes.
Like content production – Cincitti, Fracas, Savage, LeFilm de Fleuve, Ramoji, Hauxi, Asia Film and more in 190+ countries.
Or content distribution – ITV/IPTV, Canal+ IQIYI, HOOQ, Youku, Reliance, Endemol, Balaji, BBC, RTL, Sky, SBC Broadcasting, ZEE Entertainment, Sun TV, SMEG, Eros and a whole lot more.
But not in the US.
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Cutting Move – Breaking up the old Hollywood control of entertainment opened up new opportunities and new challenges in every segment of the industry.
Back in 1948, when the supreme court put an end to the movie barons’ control on entertainment, they said that vertical integration – owning the food chain from beginning to end – was not cool.
Since then, the government has kept a watchful eye on who does what to/with whom to the point you could be paranoid about talking to anyone.
But the Americas’ entertainment market represents the place where everyone wants to have a stake in … as big as possible.
Growth – The media and entertainment industry continues to grow and broaden as some studios rush to catch up with the growing wave of global content streaming.
The global M&E market is valued at roughly $2.5T + with the Americas representing about 43 percent of the total, Asia/Oceania 25 percent and Western Europe 18 percent.
The problem with the content industry is that it always looks like the other guy’s job is so easy.
Make movies, put them in theaters, make money, pedal them to TV nets, make money, put them back in the vault for a while, make a deal with some streamer, make money.
Better Profits – The biggest problem with most of the players in the entertainment industry is they pay too much attention to Wall Street’s demand for growth at all costs and measureable profits. It’s tough to be all things to all people.
Of course, it’s always the other guy (or gal) who’s making all the money!
Somehow, somewhere along the line the industry lost sight of the base on which the industry is built … IP.
Only a few of the US studios understand that good intellectual property (IP) is where it all begins.
Studios came about by knowing how to pick good IP, develop/create it and then present it or get it presented to … an audience.
Creative Growth – While many studios have a strong degree of Disney envy, the profitable organizations focus on what they do best, content creation. They not only produce more films, they focus on profitable films.
Despite its growing diversity, Disney seems to have been able to stay (fairly) true to its founding that it’s all about creative content.
Universal (now a part of Comcast/NBC) still focuses on IP which is made available to the appropriate (profitable) distribution channel.
Lionsgate has had steady success by profitably placing its IP.
While not on the above chart, A24 remains an independent entertainment company that focuses on film and TV production and their project, Civil War, made us think and worry. Remaining true to carefully selecting and producing solid IP, they have become a force in the industry.
NEON is a relatively new production/distribution company that has followed in A24’s footsteps, making some great films.
But perhaps – just perhaps – the best example of knowing what you do best and focusing on it has been Sony Group – games, TV shows, films.
We’re a little cautious about asking our gaming experts their opinions on the new Sony Interactive, Ghost of Tsushima, because they’ll probably say it’s “only” a PlayStation and not a PC game.
Even though they’re tough to execute well, we like films that are based on game IP like Uncharted, Gran Turismo, The Last of US and sometime in the future, The Ghost will emerge from the studio.
Sony Group’s entertainment segment – films, TV, games, animation, anime – generated about 70 percent of the organization’s total profits, well ahead of its electronics sales.
They have a long history of profitably supplying movies to cinemas and broadcasters. Ticket sales are flat/down but their TV production has grown by about 50 percent. At the same time, they are doing business with almost all of the major streaming services.
For them, it’s all about maximizing their IP and focusing on what they do best and doing it economically.
IP is nice but it’s not something that Wall Street pushers understand and it’s nothing they can buy/sell until it has delivered an audience and then their return isn’t any good because they’re waiting for the next great thing.
And there were a number of potentially great things at this summer’s Allen & Co annual summer camp for billionaires in Sun Valley when media and tech moguls came to talk about trends and possible deals.
Summer Break – Fresh from her negotiations with Skydance to sell Paramount, National Amuesement’s Shari Redstone (l) and David Zaslav, head of WBD, were both anxious to step away from the hard jobs of reshaping their organizations and commiserate with other entertainment industry billionaires on building and tearing apart studios and entertainment services.
More than 165 private jets brought the industry elite to the annual weeklong event where they could connect/reconnect, explore global issues/trends and begin discussions on billion-dollar deals.
Of course, a lot of buzz/questions at the event centered on the state of Paramount and WBD.
Shari Redstone, who had gotten the ball rolling to merge Paramount with David Ellison’s Skydance, probably wanted to assure her counterparts that what she was doing would save the floundering media company and make it – and the world – a better place to make, distribute and enjoy content.
Ellison and former NBCUniversal CEO Jeff Shell are focused on rebuilding the Paramount+ platform and add heavy doses of technology to the firm’s activities. Ellison, the son of Oracle’s founder Larry Ellison, want to revamp the service’s recommendation engine, improve advertising tech and move key components to a unified global cloud.
At the same time, they will have to rebuild and strengthen CBS for the long term in payTV.
Fortunately, Paramount Studios remains one of the few bright spots of potential in the entertainment bundle.
They already have a new logo and the tri-headed president group Redstone put in charge will probably be gone before the acquisition ink is dry.
The biggest problem with these kinds of things is that they just take too d*** long to close as they jump through all the regulatory hoops.
In the meantime, the “new” organization can refocus on a great studio and can realign its appointment TV assets to meet the new lower market projections and set a viable and realistic path for its streaming assets.
Folks don’t expect a done deal until mid-next year, which weighs heavily on the people working there, advertisers and growth/expansion plans.
Warner Bros David Zaslav probably had as many questions as answers at the conference as he bounced off “what if” scenarios on how he was going to simultaneously strengthen/slim down, focus/refocus and right the lagging Warner Bros. Discovery.
WBD continues to lean into its commitment to Wall Street to improve profits by cutting costs/people, reducing legacy TV and streaming programming spend, cancelling/shelving film/TV projects and increasing subscriptions on their streaming service.
The company’s sports and news pillars of strength have “suffered” with management’s focus on satisfying investors and Wall Street.
They have already begun licensing some of their premium content library to Netflix, which has given added exposure to the projects to a new and enthusiastic audience while their own streaming service is only marginally profitable.
Yeah, there was a lot to talk about/think about at the annual getaway that seemed to focus more on entertainment and this year, added attention on AI.
All of the glamor and noise around M&E focuses on video content/creation/distribution which is in disarray. Film production/distribution will struggle to take in $31.5B while traditional TV will still produce about $385B and OTT will increase to about $316.5B
The numbers look good but it’s bad and good news.
Shifting Production – Costs and delays as well as incentives and tax breaks have encouraged content creators to “shop around” for their production locations as the industry continues to invest in new films/shows.
Production in the US in the studios’ backyard has dropped considerably while production in developing and other developed countries has increased.
Sure, cinema attendance is down but that decline has been going on for years even as ticket/concession costs have steadily increased, buoying theater total sales/profits.
What has changed is that their “secondary” markets, notably traditional TV, have become more cost/price sensitive and more adverse to taking costly risks. As a result, you see an increase in the investments in reality, game and unscripted shows rather than scripted projects.
Numbers Game – While broadcast TV has reached its pinnacle, streaming viewership still has a long way to go in reaching its fullest potential. The challenge is to do it profitably.
According to Nielsen, nearly 50 percent of American households still view broadcast and cable TV.
Globally transactional TV will remain relatively constant in the years ahead with a slow decline.
What does that mean?
It’s not a growth entertainment segment but it will continue to be a source of news, sports and entertainment for years to come. Organizations will have to deal with the new environment different from one of dynamic growth potential to maintain/retain the audience and optimize their balance sheets.
Many industry analysts intimate that because of the high cost of cable bundles, households discard their cable viewing and move all of their entertainment interests to streaming services.
It ain’t necessarily so!
Growth vs. Profits – New things are always more exciting than those that have been around for a long time; but while the numbers of streaming services grow, managed pay TV will continue to be profitable for a long time.
Parks Associates has noted that at least 50 percent of cable TV subscribers have one or more streaming services, and the number of streaming services households subscribe to is growing rapidly.
The average number of services subscribed to has risen to 5.8 per household according to Ampere Analytics.
Once Netflix showed other streamers that they wouldn’t lose subscribers by prohibiting password sharing and offering tiered services/pricing. (Netflix estimated that 5M of the company’s 247M subscribers at the time were using “borrowed” passwords).
The problem wasn’t unique to Netflix, but they and the other services wrote the lost income off as a marketing cost.
Everyone – competitors and Wall Street – expected Netflix subscriptions to take a nosedive (there was a slight short-term dip); but instead, they showed an added 8M plus subscription increase in the next reporting period.
Yeah, everyone followed suit, some saying it was their idea to get tough on password sharing.
Today, there is an estimated 210M SVOD subscribes with more than 90 percent of US households paying for at least one streaming service (usually Netflix) with additional services added. And once specific movies/shows were watched, they were cancelled until the next “crop” of new material appeared and folks signed up again.
Profit Education – Advertising with streaming services is only in its infancy and it will take marketers some time to change their understanding of ad reach and influence. But in the long term, it will be more profitable for streaming services than their subscription numbers.
The entire process – churn – was costly to the services so they added an ad-supported tier (AVOD).
Friends who have become accustomed to watching their movies/shows uninterrupted are vigorously opposed to switching to AVOD, even though it is only 3-4 min per hour of ads compared to pay TVs 18-20 min of boring, repeated ads.
And often the ad volume is even less than the advertised maximum.
Don’t blame the AVOD services for the lack of ads but rather the fact that advertisers and agencies still have difficulty understanding the new ad numbers compared to the old ones.
Previously, you measured ad reach in CPM (cost per thousand) of households. Now advertisers can carefully describe the prospective customer and services can insert their ads only in that person’s/household’s ad grouping.
In addition, with the viewer data services, advertisers can select the type of content they want to/don’t want to be associated with.
It takes time.
But while all of this is going on, studios and streamers are struggling to expand globally and some are simply struggling to survive and show improvements in their film groups and broadcast networks.
Beefing Up – All of the studios want to beef up their streaming video image and consumer reach to be as strong as Netflix but sometimes it’s better to find a niche and be strong in that area rather than bleed money when there are smarter options.
It’s not easy, especially when you’re really good at slashing/burning and cost cutting instead of juggling.
Netflix is considered inside/outside the industry as the streaming leader.
Amazon Prime and Apple TV remain in good shape in the industry but then they also both have healthy sales/profits outside the industry so just not doing anything wrong means they’re doing everything right as far as consumers are concerned.
WBD/HBO and “the new Paramount” are still struggling in their own mud puddles, trying to determine when/if they get out of their current messes.
Comcast’s Paramount + would be smart to focus on being #1 in the second tier streaming services (there are more than 200 of these many profitably specializing in specific genre and/or market areas).
Disney’s Igor is one of the few company heads who has learned how to manage and delegate in the key areas. With the acquisition of Hulu, it now has 20 plus percent of the US/global streaming marketplace as well as a manageable film production and TV organization.
That helps everyone but … the consumer!
Bundle Up – Consumers don’t just want the video content available on one service but juggling a bunch of the 200 plus available services is difficult and expensive so folks constantly add/drop services. Bundles of services may produce less initial profits for the services but it also eliminates the in/out shrink which is more valuable in the long term.
Yeah, we really want an all-in-one easy to access, easy to use, easy to afford bundle.
Disney, Fox and WBD recently rolled out their sports bundle, Venu, for $50/mo.; but since WBD lost NBA to Amazon Prime, the service has a big hole in its offering.
Also available are:
- Disney+, Hulu, Max with ads bundle – $6.99/mo.
- Walmart +/Paramount + -$12.99/mo.
- Xfinity Streamsaver – Apple TV+, Netflix, Peacock – $35/mo.
- Verizon – Netflix/Max w ads – $10
Oh, there will be more, and folks will constantly move the options around until they find the one that best resonates with them.
But …
First Stop – Rather than jumping into and out of their video subscription services to find a specific movie/show or simply locate something you’re interested in is time consuming and ftrustrating. Fortunately, there are services that allow viewers to peruse the available content and go directly to something they really want to see.
The bundles are kind of nice but it’s impossible to just look across each service and find a movie/show that looks … okay.
To do that, you need something more and fortunately, it’s free!
Both Reelgood and JustWatch are good ways to begin your streaming video journey. They can help you find specific shows/movies and you can even leave yourself reminders of subscription/free projects you want to watch later.
That’s rather important because the broadcast and streaming industry is so “unsteady” today as studios try to figure out what they do best so they can get focused on how they’re going to profitably serve the viewing public rather than Wall Street.
Executives are slowly/painfully finding that the video entertainment industry isn’t … entertaining.
And just because you’re good at one thing doesn’t mean you’re going to be good at all of it.
Universal and Sony know there’s still a lot of money to be made at theaters and in offering the older stuff to streamers to find/entertain new audiences.
The broadcast/cable bundles will continue to have a long run and it will probably be very profitable because only an idiot would start a new network from scratch in a fading market.
Not every streaming service will be in the top four all-service services. Those that refocus on specialty areas can be very strong and profitable.
But there’s always someone who looks at the top tier folks and thinks the leaders aren’t any smarter/better than they are.
The entertainment industry is in the midst of a major maelstrom, and some will get hurt – badly – by trying to win it all, all at once.
As Bill said in Twister, “Things go wrong. You can’t explain it, you can’t predict it.”
Sometimes the best thing to do is hunker down and focus.
Andy Marken – andy@markencom.com – is an author of more than 800 articles on management, marketing, communications, industry trends in media & entertainment, consumer electronics, software and applications. An internationally recognized marketing/communications consultant with a broad range of technical and industry expertise especially in storage, storage management and film/video production fields. Extended range of relationships with business, industry trade press, online media and industry analysts/consultants.