Democratization, personalization, monetization: the voracious appetite for content

Programming overload is the result of the overwhelming volume of available entertainment options.  One could not possibly watch all that has been created.

Nonetheless, there is a voracious appetite for content on a global level that has been created by an industry that has gone through a paradigm changing democratization of production and distribution.  This content ranges from the broad mass market to narrow limited niche appeal.  And it will not change in the foreseeable future.

This has created a vast, robust and highly competitive ecosystem to support the growth, on both the horizontal and vertical value chains, raising the stakes as significant money is spent to produce the wide variety of our entertainment content.

In fact, competition is now so robust that the Department of Justice is looking into repealing what is known as the consent decrees.  Those decrees were handed down by the US Supreme Court in 1948 in the United States v. Paramount Pictures, Inc. case.

The decrees by SCOTUS were related to anti-competitive behavior by several of the studios who were horizontally integrated, from production with talent under contract, shooting on the studio lot with company owned equipment and extending through to and including exhibition in studio owned theaters.

Once the decrees were imposed, the industry began a democratization process, starting in the early 1950s and continuing today.  It is now reflected in each of the many distribution windows that exist currently, although only theatrical was a factor at the time of the decrees.

Tracking the numbers indicates that the move to repeal the decrees makes sense.

Democratization – There was a time when newcomers and independents had significant challenges in not just developing and producing content, but in getting effective distribution and monetization as well.  The decrees changed that.

Many consider the democratization of content creation tools to be a phenomenon of the digital era, with digital cameras (including the increasingly sophisticated cameras in smartphones), post production and digital cinema in the theater and home entertainment technology delivering content to the device of our choosing on demand.

Not so.

As a direct result of the decree, studios began to divest themselves of their theaters, contract talent and even some of the equipment they owned and maintained at their facilities.  As a result, independent suppliers became a fundamental part of the ecosystem.

Today, anyone with financing and a script can get a movie, a TV show or a short, produced, whether for a broader audience or one that is personalized to a select niche, targeting the audience segment that would best enable them to profit from the distribution, including one of the key drivers, the theatrical market.

Theatrical – Theatrical drives a large part of the market.  The past year has seen dramatic changes in the global film industry with 2017 experiencing a 3-year low in North America’s box office, yet performance in 2018 at this writing, is up 8% over 2017, with analysts predicting a record or near record year.

Even with the annual fluctuations in North America, the #1 market, the global box office was up 5% in 2017 over 2016 with International totals up 7%.

China, a solid number 2 in the global box office race, is on track to eclipse the North America totals in the next couple of years.  Their dominance has changed the way studios determine which stories they are going to produce, eyeing China as a lucrative market.

Streamers – During the past few years the major streamers, Netflix, Amazon, Hulu, Apple and YouTube, have turned the industry on its head, spending aggressively to produce new and compelling content for their growing, cord cutting and mainstream audiences.

Indicative of the opportunity, a recent study entitled All-Screen Streaming TV Census Report Q2 2018 from @Conviva reported that streaming more than doubled in the past year.

Thus, it is not surprising that the major streamers’ projected total production spending for 2018 is anticipated to be approximately $20 billion, even before distribution costs where they seek a theatrical release in order to compete for Academy Awards.  It will likely be much higher in 2019.

They have disrupted the entire studio ecosystem of movies and TV as the studios and broadcasters attempt to meet the new competition head on with their own direct to consumer offerings.  For example, Disney is spending over $70 billion to acquire Fox as a part of their attempt to beef up production and have access to a sizeable library.

Personalization – Democratization has enabled content producers to go from the broader market to niche target markets, sometimes labeled as microtargeting.  What was once thought would be a 500 channel universe, is now a universe of an infinite number of channels.

Today anyone can become a broadcaster through the use of digital equipment, with programming streamed live through numerous sites, including YouTube, the dominant player in personalization, to Facebook and Twitter, among others and for the content to be recorded and archived for playback seemingly forever under the long tail concept.

Monetization – Monetization does not mean profitability.  Profitability is the ability to derive revenue from the exploitation of programming.  Profitability comes when sufficient revenue is generated to cover production and distribution costs and provides a contribution to overhead and profit.

Revenue is the challenge, but many methods are available in the digital age.  Among the most prevalent are subscriptions as in what Netflix, HBO and others use, and ad supported, the traditional broadcast model.

The current robust economy in the US and globally and high consumer confidence supporting discretionary spending has enabled enhanced monetization.

Future – Data, AI and next gen broadband/5G cellular tech will drive the future of content production and distribution.

Data was highlighted in a recent in Streaming Media Magazine headline which said “Netflix uses data to drive creativity, and it’s terrifying Hollywood.”  While the article goes on to say that Netflix does not use data to make creative decisions, it does use data “to make smart decisions about what genres, directors, and actors we wanted to see, and how to fund each project based on expected viewership.”

 

Initially driven by eliminating anti-competitive behavior, effective modern era democratization has led to a voracious appetite for content and a wide range of suppliers to satiate that appetite.  The highly competitive environment will continue seemingly unabated on a global basis, in the developed countries and increasingly in the developing countries, who leapfrog over old technologies to enter the modern age, all to our collective advantage.

About the author: Marty Shindler is the CEO of iShindler, a husband and wife advisory team with credentials that includes a Big 4 (Coopers of PriceWaterhouseCoopers), top 5 business school (Sloan at MIT) and hands on experience at 20th Century Fox, MGM, Lucasfilm’s Industrial Light & Magic, Kodak’s Cinesite and Bank of America. Mr. Shindler may be reached at Marty@iShindler.com.  Follow him @MartyShindler

© 2018 The Shindler Perspective, Inc.