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Theatrical will shrink, Apple will buy big, TikTok
challenges Meta and huge content spend will be monetized on Connected TV: The
headline analysis from Variety Intelligence Platform (VIP+) and its
lead analysts speaking at SXSW.
Setting the scene was Andrew Wallenstein, president of VIP+,
who declared media and tech to be one converged industry going after mindshare
and attention.
“They want your subscription dollars and your advertising
dollars, and they are all going direct-to-consumer around the globe.”
Going into more detail on the key findings they shared:
Cinema Rebound a Mirage
The $11.3 billion final gross of 2016’s box office is likely
to be the best for Hollywood’s checkbook. Period. Everything from then on has
seen exhibition takings in decline. It’s not terminal for cinema screens, but
Variety thinks business will shrink drastically, on a domestic and global
level.
2022 US box office receipts are expected to be $8-9 billion
at best. “That’s a lot of money that is getting lost and exhibitors are freaking
out about that and it’s really starting some existential questions,” says
Wallenstein. “I’m not say the movie business is gonna die. I do think the
footprint of theaters is going to shrink in the coming years.”
It’s a reflection of the fact that, for the most part,
blockbuster movies — the Marvels of the world — will continue to do well at the
cinema while non-studio fare will be sidelined onto streamers.
“The theatrical play for most mid-low budget art house
movies is going to shrink dramatically over time and… streaming is going to be
the big beneficiary of that trend.”
Consolidation of exhibition chains — as recently occurred in
India — is likely, they predict. In addition, cinemas will be more experimental
in pricing with tentpoles perhaps commanding a premium ticket.
“A lot of exhibitors are going to do what they haven’t done
before, which is certain bigger movies may command a higher price. It used to
always be no matter what movie you watched, it was the same price. Now, you’re
gonna see a lot more experimentation. And that may be the very thing that
actually helps the exhibitors get over this shortfall that is inevitably going
to happen.”
Wallenstein added, “I’m very much predicting that movie
theaters are going to have a secular decline, not necessarily extinction, but
some serious shrinkage.”
TikTok is a Digital Ad Powerhouse
Meta and Alphabet currently control over 50% of digital
advertising dollars. That’s no coincidence since the pandemic effectively
“killed a bunch of ad categories,” leaving digital advertising to a
double-digit growth. Meta makes 98% of its revenue from advertising, for
alphabet that’s 81%.
“They are tremendously dependent on it. The pandemic not
only helped it basically accelerated the eCommerce business.”
Social eCommerce is growing to the extent that the
Meta/Alphabet lock-in is being cracked open by Amazon and TikTok.
“Amazon is growing and growing fast. So, I think we’re
probably on the verge of a Tripoly. In addition, Amazon is one of a number of
retail media networks — companies that you don’t think of as being in digital
advertising like Walmart and Target, they are leveraging their consumer data in
a way that is making them significant market shareholders.”
In terms of global downloads, TikTok is growing faster than
everyone else. Facebook still takes top spot, but it is TikTok not Meta which
at the “epicenter of youth culture.”
“There’s simply nothing like TikTok out there as a cultural
force. I think it has a lot to do with their secret sauce, that content
recommendation algorithm that is so powerful.”
Social commerce — using video to sell products — is set to
explode, and TikTok is going to lead the way. The only cloud hanging over all
these players — and it’s a pretty big one — is regulation.
“There are dozens of bills right now in Congress that are
aimed at curbing the big problems of information, data, transparency and
protecting consumer privacy. Once the midterm elections happen, that’s when
you’re going to start to see some real activity. And, of course, who wins the
houses will depend on what direction that activity takes.”
M&A — Watch Out for Apple
If traditional media companies want to compete with the
sheer scale of the audiences that the tech companies serve, then they’re going
to have to combine and pool their audiences. The latest major consolidation is
Warner Media/Discovery but it’s not going to stop there.
“A certain breed of smaller media company are ripe for the
picking because the smallest companies simply have to combine with others to survive
another potential deal,” he says.
Targets for acquisition would be Lionsgate, AMC networks,
Viacom, CBS, and NBC universal: “their products in the streaming war are not
hitting the first tier of competitors. I would guarantee that by the end of the
year, you’re going to see at least one of those companies get acquired.”
The most likely buyer is Apple, which has so far kept its
power dry but has “the billions of dollars of cashflow to snap up every company
in this space,” had they a mind to. “In the longer term, I expect apple to make
a major deal,” Wallenstein said.
Ad Supported Content Growth
The leading US-based entertainment companies alone spent a
combined $107 billion on content in 2020, a figure predicted to reach $172
billion in 2025. There’s a number of factors driving this.
“Several of these media businesses are competing on multiple
fronts,” said Gavin Bridge, senior media analyst at VIP+. “They’re trying to
keep their traditional TV business alive while shifting some resources over to
streaming in order to compete with the big boys like Netflix.
“If you want to compete on a global scale, you need to spend
like Netflix, but you may not have the money to spend like Netflix, which is
kind of a Catch-22. The deeper pocketed firms — Disney, Amazon, Apple — could
do it… but with so many streaming services means we’re coming into an issue of
subscriber scarcity. Netflix really is the bellwether of the market here
[having just announced a quarterly subscriber loss].”
The way to look at this, said Bridge, is to take a sober
view of the market than those crying that streaming is over.
“Netflix doesn’t actually speak for the entire market
anymore, but it’s becoming very important because the value of these companies
is based on this premise of unrelenting growth. Perhaps investors want Netflix
to have half a billion or a billion subscribers, which probably isn’t possible.
If you’re in this Catch-22 situation where you need to get more revenue, but
you may not be able to grow your subscribers as much, then you need to retain
your current subscribers, hence the increased content spend. You want to keep
them staying around.”
He outlined a couple of options for streamers to grow revenue.
One is to enter new geographic regions (though Netflix is already in almost
every one). Or you can create an ad supported tier (Disney even plans one).
“You can actually make more money on a cheaper (to
subscribers) ad supported tier than the more expensive (to subscribers) non-ad
supported tier. So, we’re talking about the ad supported tier of SVODs moving
into Connected TV (the industry term for any sort of revenue derived from
combining streaming and advertising).”
Connected TV advertising spend is estimated by e-marketer to
grow to 24 billion in 2025. This explains why big tech companies like Amazon
and Samsung are also making a play for this market and why a purchase of Roku
is attractive (perhaps to a company like Apple).
Sports, Drama, News — It’s All on CTV
All of this is fueled by content. 2021 was a record year for
new TV series (1,923 shows across streaming and TV). Variety predicts that this
will exceed 2000 this year.
“We’re going to hit a new pinnacle for television. Last year
was the first year where streaming actually made more shows than TV. We’ve
reached the tipping point. Streaming is now the premier creator of content.”
Variety’s definition of TV shows includes sports — and
that’s important since it is sports which it says is fueling the move to
streaming. Some 96 of the top 100 shows watched in the US last year were sports
(83 of those were NFL games).
Bridge said, “These are huge magnets for viewers and the
sports leagues know their worth. That’s why in recent rights negotiations the
NFL doubled their value to 10 billion a year just for their TV rights.”
Except the upcoming bid for NFL Sunday to include strong
interest from Apple. “The biggest sports deal to keep your eye on is the only
major league to not be renewed in recent years: the NBA. Even on cable the NBA
draws one to 2 million viewers a week. These are primarily 18 to 40-year-olds.
Key marketing targets. It’s very valuable.”
News is Synonymous with Entertainment
Bridge also pointed out that news is another driver for
streaming services, and in the process, news becomes less about live fact-based
reporting and more just another entertainment play.
“News is becoming synonymous with entertainment across
digital and TV. Twenty-two of the top 25 most watched news sites saw a decline.
It’s not something that people are just tuning into to see the facts. Most of
the time, these days, it’s more like an echo chamber.”
National news network like ABC, NBC, Fox, CBS have all
launched national news streaming channels. Some 200 local news channels are now
available on streaming fast services too.
“We’re actually seeing an embrace of digital, trying to sort
of at least stay relevant and take the plunge, which is a smart move.”
Rather depressingly, he added: “What is the future of news?
A quasi-news entertainment podcast, like the Joe Rogan Experience which has
absolutely eclipsed standard news networks in viewer numbers.”
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