Capitalizing and Controlling Content in 2020 (Part 1)
The Top 3 Things the Media & Entertainment Industry Needs to Know Today
The media and entertainment industry is filled with brilliant and creative minds. Yet as a whole, it is not keeping up with making the sweeping changes that are essential to fully exploit the value of the content they are creating, selling, leasing, buying, and/or licensing. As 2020 approaches it is imperative that our industry acts now to put the right systems and business models in place to stay competitive.
In this two part blog series, we’ll discuss three things the industry needs to know to ensure that it succeeds in this rapidly changing and highly volatile environment.
More than ever before, when it comes to content, consumers want it “their way.” Thanks to advances in mobile, video, and wireless technologies, they now enjoy an abundance of options to watch and enjoy. As a result, the popularity of streaming services continues to explode. According to Deloitte’s 2018 Digital Media Trends survey, each week 70% of Gen Z and millennials stream movies and 69% of Gen Z and 66% of millennials stream TV shows. 2018 was a tipping point in terms of media usage trends, and with 5G’s arrival, there’s more disruption to come.
In the future the line between reality and virtual reality will become increasingly blurred, and new media and entertainment options will emerge that we have not yet imagined. 5G will undoubtedly accelerate content consumption and improve experiences across a broad range of mobile devices. This emerging landscape allows the consumer to interact with an unlimited number of digital, sharable environments, objects, and scenarios-on-demand.
High-quality content will always be in demand. The challenge for media and entertainment companies as we head towards 2020 is twofold: maintaining or even increasing content quality, while also finding ways to extract maximum value for that content. It is important to recognize that whoever can monetize across the hierarchy of content from top tier to mid to library to user generated content, will be the financial winner.
1. Direct-to-consumer (DTC) content relationships are evolving and the optimized infrastructure required to capture the connected consumer has significant complexity.
In 2018, Deloitte’s Digital Media Trends Survey reported that, for the first time, more than half (69%) of U.S. households are subscribed to at least one video streaming service, and the average subscriber pays for three services. It also reported that 88% of millennial households have a video streaming subscription with 71% subscribing because of access to original content. The proliferation of streaming video options has changed the entertainment landscape forever – consumers have a dizzying array of choices from streaming giants like Netflix, Amazon, and Hulu to network aggregators and virtual MVPDs like DirecTV Now, Sling, and Sony Vue TV to emerging direct-to-consumer platforms like ESPN+ and HBO Now.
By 2020, even more studios, broadcasters and cable networks will jump into the streaming pool. The recent acquisition by Disney of Fox’s movie and TV studios, the FX cable networks and its 60% stake in Hulu will likely mean that Hulu will have a stronger content portfolio and will become the combined company’s primary vehicle for broad-based streaming entertainment. Additional new offerings on the horizon include Disney’s subscription movie service, Disney+, and Fox News’ Fox Nation (still owned by News Corporation’s 21st Century Fox). Significantly, according to media research company The Diffusion Group, all the major US broadcast networks will have an OTT streaming service by 2022.
In 2020, it’s also likely that we will see media companies complete even more deals with telecommunications companies. Telecoms like AT&T, which in 2015 bought DirecTV and in 2018 bought Time Warner’s content portfolio, are increasingly looking to become horizontally integrated, re-aggregators of content. Many telcos also view high-quality content as a critical means of differentiating themselves from their competition, helping them woo more customers.
It is expected that most content traditionally delivered via MVPDs will be available direct-to-consumer as well as by virtual MPVDs. Navigating these changing business models will require not only nerves of steel, but new capabilities, willingness to take risks and less certain revenue streams than the old traditional business models.
Beyond the obvious infrastructure requirements, what other challenges will these content providers face as they embark on the DTC journey? There are three critical areas which cannot be overlooked to ensure success and minimize risk related to content portfolio management, intracompany content settlements, and the content supply chain ecosystem.
Managing the DTC content ecosystem and the collapsing of the video supply chain actually increases complexity for content providers. Operating a DTC business has major complications beyond just delivering bits and bytes. A significant challenge is the requirement to automate the internal content flows that can handle the massive variability in today’s and tomorrow’s storefront platforms, while managing rights in different territories that may see different content offerings. Netflix has spent more than a decade delivering this seamless experience to consumers – to do it at that level on “Day One” will be incredibly difficult. New entrants need to work with best of breed partners to develop and evolve their platforms, so that they can actualize legal rights while understanding the technical capabilities of the devices consumers use.
Content portfolio management becomes incredibly important in this new world. For most content providers, their distribution business is a significant portion of revenue and profit – this cannot go to zero overnight, so they will continue to be in the distribution game. WarnerMedia’s recent decision to license “Seinfeld” to Netflix for an additional year is a good example. Deal terms will continue to shorten as content providers look to maximize profit without locking themselves in. These companies will need the data infrastructures and licensing flexibility to drive which content they exploit internally and externally.
Finally, financial settlements are going to be a critical factor in ensuring that creators and talent continue to be attracted to content provider projects. If participating talent just sees a nice royalty stream like Netflix turned off in an instant through the content provider’s decision, they will be up in arms unless the content provider has a fair, transparent transfer pricing mechanism between the DTC entity and the production entity. There will be ongoing complexity to ensure that this transfer pricing fairly accounts for license and performance royalty revenue in a way that is discoverable, auditable, and defensible.
It is critical that content providers drive convergence on their internal content management and external distribution ecosystems to handle the challenges of a DTC business model. On the internal side, a seamless automated connection between distribution, marketing, legal, and financial business processes is essential. On the external side, a 360° loop that automates
the flow of content availability from providers to platforms and tracks consumption will give providers the intelligence they need to continue to maximize the value of content consumed through partners as their DTC offering evolves.
As companies go big on direct-to-consumer 2019 should be the year to set up the right processes and proven infrastructure that will support the evolving internal and external business models. The media and entertainment organizations that use data to move from a content-centric to a customer-centric approach will ultimately prevail.
In next and last part of this blog series, we’ll look at the other two things the industry needs to know to ensure that it succeeds in this rapidly changing and highly volatile environment.