Talking to an executive at a major U.S. production company, I begin to feel like a therapist. The patient has very complicated feelings about a relationship. On the one hand, he loves Netflix. Netflix is great to work with, offers a ton of creative freedom — and is happy to pay a premium for shows that it really wants.
But this executive also knows that sometimes he is leaving more money on the table by taking his show to Netflix, which prefers to buy shows outright (hence the premium). By doing this, he has to forego money on the back-end from reruns and global distribution.
Then there’s the fact that Netflix is growing its own studio, which raises the risk that one day Netflix might not even need his company anymore.
And let’s not even talk about Netflix’s debt. What if Netflix’s spending catches up with the company? That would reverberate across the entertainment industry, which has been spending more on content than ever before.
“They have broken the mold and upended TV, so much so that Disney is changing its entire business model,” says this executive. “I have a healthy amount of respect for what they do — and we want to continue doing business with them — but it’s tough times if you’re in traditional TV.”
The feeling is existential. And while Netflix is a big reason for the drama, it’s clear that the entertainment industry is feeling the heat from all of FAANG, the industry term for Facebook, Amazon, Apple, Netflix, Google. That fear of tech has driven some major mergers, including AT&T-Time Warner and Disney-21st Century Fox, and a push from these new “vertical media giants” to control everything from content production to distribution.
But that leaves a certain class of companies in a precarious position: as media giants become bigger in an attempt to compete with the deep-pocketed tech giants, what happens to the production companies and TV networks that don’t have the luxury of being owned by a bigger entity? In TV and entertainment’s race to the top, who gets left behind?
The definition of big has changed
Lionsgate is a huge supplier of original and licensed TV shows for TV networks and streaming platforms. In the most recent quarter, the company’s TV production arm, which is behind “Orange Is the New Black” on Netflix and “Fear of the Walking Dead” on AMC Networks, generated $216.5 million in revenue.
Now, Lionsgate benefits from owning Starz, which ended 2018 with 25.1 million TV subscribers, and a media networks business that generated $366.8 million in revenue in the last three months of 2018. And Lionsgate produces shows such as “Outlander” for Starz, which has a subscription OTT channel business that includes a Starz-branded streaming channel, Tribeca Shortlist and BeFit. The main Starz-branded streaming channel is estimated to have roughly 3.7 million subscribers, according to BMO Capital Markets.
For all intents and purposes, Lionsgate is big — but by old entertainment standards. And now it’s going up against competition that is only getting bigger and better funded. HBO’s quarterly revenues got close to $1.7 billion in the last three months of 2018; and AT&T and WarnerMedia reportedly plan to raise HBO’s annual content budget, of $2 billion, as the brand becomes the center point of an all-new streaming service. Disney, too, is spending big bucks: a new “Star Wars”-based series will reportedly cost $100 million for 10 episodes.
“It creates an upward pressure,” says Peter Csathy, founder of entertainment advisory firm Creatv Media. “And there is the danger of your brands and content being lost in this increasing noise. This requires building a brand for an engaged audience that will seek the brand out and stick with them — and in this new landscape, that will be costly.”
Pure production companies are feeling the squeeze
For major production companies that do not have the premium cable networks that Lionsgate does, there will be even more pressure to produce hits — especially as Netflix focuses on IP ownership and long licenses.
“For the middlemen producers, they will have to keep hitting consistent doubles to stay alive,” says Chris Erwin, principal at entertainment firm Doing Work As. “One bad inning, and their razor-thin production margins could mean they’re out of the game for good. That doesn’t sound like a fun way to operate.”
In this environment, it’s arguably easier to be a smaller production outfit, says the aforementioned TV executive. “When you’re small, it can work because you don’t have as many mouths to feed.”
“But you’re still investing in development, and pitching and building relationships and doing reels,” he adds.
There is some hope. It’s expected that as WarnerMedia, Disney and other media giants go direct to consumer, there will be more places to pitch and sell content to. But even here, it’s expected that these media giants will favor their own studios and production entities whenever possible. Everyone else will have to deal with a much narrower window for developing, pitching and selling content.
“The middle is going to struggle,” says the production company executive. “Everyone will struggle unless they own something, and own something that the consumer is interested in. But that’s tough to do when you’re a pure production company.”
Can Snap make it as an AR company?
The real question Snap faces is whether adding AR elements to its platform will help it continue growing in the face of competition and uncertainty.
How NFTs could evolve for brands — now that marketers know what they actually are
NFTs are finally growing out of crypto novelty into next-gen loyalty tools. Tyler Moebius, founder and CEO of SmartMedia Technologies, explains where else they can go.
Why digital clutter is driving brands to rethink the value of newspapers advertising
GE, Equinox, Take 5 Oil and agency TBWA New York are among those investing in newspaper ads to generate social media buzz in an ever-more cluttered digital environment.
SponsoredHow ad tech is tackling waste by optimizing supply chains
Sponsored by Bidtellect The programmatic and digital advertising industry is well aware of the inefficiencies in buying and selling — from auction duplication and volume bias to multi-integrations and reselling — but how did it get this out of control? How can we fix it? A redundant, multiple-step process to ad delivery has become the norm, […]
The ‘retirement’ of M&M spokescandies raises questions about viral marketing, edgy content
Marketers have mixed feelings and questions about the value of viral, stunt marketing after M&M's "retirement" of its spokescandies.
With TikTok’s growing list of issues, should marketers think twice about the platform?
There is a growing list of issues that TikTok needs to resolve, but marketers seem unfazed and continue to be enthralled by the platform.