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With spend on content projected to reach an astonishing $230
billion globally in 2022, is a new formula needed to justify its value?
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Consultancy PwC thinks so and has come up with a three-point
plan. It’s broad and will vary from streamer to streamer, and even market by
market, but the prevailing approach won’t guarantee success — or even survival
— as the streaming wars rage on.
“With rights holders pulling their content from streaming
services in droves to offer it on their own, the rules of content ROI have
changed dramatically,” PwC execs Kim David Greenwood, Kate Kennard and Chris
Mowry state.
“The days when companies could count on a stream of revenue
during theatrical ‘windows’ — box office, DVD, premium and basic cable,
broadcast syndication — are coming to an end. So are the cushy licensing deals
that allowed poorer-performing titles to be packaged with blockbusters.
“In this new world, every content asset matters. One clunker
can mean a mass subscriber exodus. That’s why we created a three-pronged
formula for content valuation that can help drive meaningful and sustainable ROI.”
The formula is simple and consists of three variables:
demand, expansion and exclusivity.
Demand
Understanding demand in the era of streaming is not easy.
Most platforms opt not to make detailed viewership data public. There are
independent analytics from firms like Ampere and Parrot, however, and these can
serve as a good starting point, says PwC.
The next step, as PwC outlines, is to aggregate all
forecasted and actual revenue-based metrics (such as ticket sales and total
views) together with social-impact metrics (such as social media impressions)
and quality metrics (such as awards). That will help create your own demand
metric for current and future content.
Expansion
Content that can be expanded into sequels, spin-offs, and TV
series tends to be more valuable than “one-and-done” shows and films. As PwC
wittily observes, Titanic may have taken $2.2 billion at the box
office but it hasn’t sold a lot of merch. Harry Potter on the other
hand is a multi-billion dollar bonanza that keeps on giving.
“In an industry projected to spend $230 billion on
content globally in 2022, megadeals have become routine salvos in the fight for
streaming customers.”
Examples include: Netflix shelling out $450 million for the
rights to Knives Out 2 and 3; Universal Pictures and
NBCU’s $400 million purchase of the rights for a new franchise of The
Exorcist, for Peacock; and ViacomCBS spending $900 million on another six
seasons of South Park, as well as 14 movies set in the South
Park universe.
IP like this can be mined for years and it pulls in the
punters. PwC notes that 29% of Disney+ subscribers who signed up during the
launch of The Mandalorian’s second season had previously
subscribed to Disney+, concluding: these customers were joining back up to
watch one particular show that held the promise of more to come.
Exclusivity
The third prong in the accountant’s formula is exclusivity.
This continues to play a major role in helping companies attract customers to
their streaming platforms. Disney, for instance, pulled Marvel content from
Netflix in late 2019, which became a huge driver of customer acquisitions for
Disney+.
Applying This Formula to the Streamers
PwC indicates that content will be valued by streamers
differently according to their business model strategies. Some companies will
offer content for free with the goal of increasing viewership and merchandising
sales. Others, for example, will only want to increase subscriber revenue.
Taking just Netflix, which is still the streaming king with
222 million subscribers compared to Amazon Prime Video’s 175 million, followed
by Disney+ with 120 million, and Peacock’s roughly 54 million. PwC is
projecting Netflix to spend more than $17 billion on content in 2022, a 25%
increase from 2021 and a 57% increase from 2020. Yet even with hit shows
like Glee and The Office disappearing from
the platform, Netflix still has the largest and most robust content library in the
world.
The streaming giant’s strategy is to continue building that
library with its own content, particularly shows tailored for international
customers like Narcos: Mexico and Money Heist.
PwC’s free advice: “For every content investment made,
Netflix must ask itself: Can this piece of content be expanded to realize its
full value? Can it drive higher ARPU via other revenue streams such as
merchandising and new experiences? In saturated markets like North America,
where Netflix already has more than 75 million subscribers, expansion is the
most important variable: Netflix must find new opportunities for growth beyond
monthly subscriptions.”
Netflix recently launched an online shop for branded
merchandise like Stranger Things hoodies. That could boost
revenue in saturated markets. In markets where Netflix is still trying to add
subscribers, the demand and exclusivity variables take on greater importance.
PwC brackets Disney+, HBO Max and Peacock into a group it
calls “nostalgists.”
“Whether it’s Disney+ with Star Wars, HBO Max
with The Sopranos, or Peacock with The Office, the
formula revolves around the sure and familiar comfort of hit shows and movies.
The nostalgic appeal of such content is also multigenerational: Star
Wars pulls in older viewers who fondly remember the original 1977 film
while simultaneously hooking younger fans with The Mandalorian.”
So, per PwC, while demand and exclusivity matter to this
group, expansion is the most important variable: “Proven hits have established
universes of fans ready to give up their time and money for spin-offs, sequels,
and merchandise.”
A third group including Meta, Apple, Google and Amazon see
content as a means to an end. They aren’t concerned with viewership as much as
how that viewership translates to other outcomes, such as customer interaction
on their platforms.
“The Ecosystem Techies are focused on a new phase of
streaming growth — one that’s more centered on improving customer experience,
building communities around universes of content, and retaining and creating
value from their immense subscriber bases and troves of subscriber data. Demand
is the most critical variable. More eyeballs translate to a larger ecosystem.
Exclusivity is far less important.”
A New Equation
According to PwC, “Proper content valuation represents a
fundamental strategic choice for the future.” The key, it insists, is not
seeing this formula as the answer in and of itself, but rather as a tool in the
arsenal. “When used effectively, the formula can help dictate and frame the
considerations and the choices made about content acquisition and development.”
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