Television will eventually lose out to on-demand video.
This COVID year will be a financially disastrous year for most economic sectors. It is no different in the media: one large media company after another has already indicated that it looks bad. No wonder: the advertising market collapsed like a house of cards, productions were stopped en masse and all related activities in which the sector invests (such as Disney theme parks) suffered even more from the lockdown. The suffering seems to have been over now, as the advertising market recovered at a miraculous pace and most productions have been restarted.
The more cyclical crisis we are now in, however, hides the fact that there is much more going on. In a remarkable analysis, Doug Shapiro, former Head of Strategy at Turner Broadcast System and now an advisor to many major US media companies, explains this month why earnings expectations in the sector are under severe pressure. Part of his analysis has to do with the specific conditions in the US. Cable channels make up a relatively large part of the operating profit of US media companies. Because cord cutting, the termination of cable subscriptions by consumers, continues unabated, this source of profit is starting to dry up. This phenomenon is also starting to emerge in Europe, but for the time being the consequences are not too bad.
At the heart of Shapiro's analysis touches the fundamental development that is now taking place worldwide. Television will eventually lose out to on-demand video. Consumers have discovered the convenience of VOD en masse. Television will no doubt continue to play a role, particularly in news, sports and live events. But the trend is towards online video. This has some remarkable potential effects.
An important effect is unbundling. Consumers are still used to cable subscriptions with a large number of channels. But everyone is familiar with the phenomenon that 90% of the channels in those packages are not watched. In addition, many consumers spend a considerable amount on pay channels: the ARPU (the average amount a consumer pays for a subscription) has skyrocketed in recent years. Because a lot of content becomes available over the top, consumers have more freedom of choice. Canceling bundled subscriptions will cost the sector a lot of margin.
In addition, Shapiro expects operating margins to shrink. Cable channels and larger broadcasters are used to profit margins of 30% and more. The margins at SVOD are considerably lower and at the moment even negative due to the high investments in content and marketing. Disney does not expect to make a profit in the next 3 years with its not inconsiderable successes in this area (Disney + already has 73 million subscribers, Hulu 30 million and ESPN + tripled to 10 million). The margins at market leaders Netflix and Amazon are also very low.
Shapiro comes to the conclusion that the structural development towards online video has a major victim: the profit expectations of media companies. Only time will tell: in about 5 years we will be able to assess whether this actually happened.
The Battle for the Eyeballs (2016-2017)
Fast forward to 2016, we entered a new battle of attention; the Creator Economy. Suddenly, it wasn't just YouTube, but also Instagram, Snapchat, and a newcomer called Musical.ly (later TikTok) marked the start of platform cannibalization. TikTok and Instagram weren't just eating into the remaining linear TV time; they were fighting YouTube for every second of the youth's attention. YouTube’s monopoly on digital video was over, while older audiences were finally discovering YouTube, the kids were moving toward hyper-short-form.
This was the moment 'traditional' YouTube videos (the 10-to-20-minute formats) were suddenly seen as 'Long-form.' The definition of patience was definitely changing. And not just among the younger demographic.
Convergence
Today, we see a fascinating (and perhaps slightly alarming) trend: Platform Convergence. Every platform is starting to look exactly like its competitor. YouTube has Shorts, Instagram has Reels, TikTok is pushing into longform, Netflix is experimenting with short clips and Spotify is actively pushing video content. Everyone is fighting for the same 'scroll.'
Simultaneously, the high-end VOD market, with Netflix, HBO, Disney+, Prime Video and Apple TV exploded, alongside the renaissance of audio through podcasts and audiobooks. We are consuming more content than ever before in human history, but it is more fragmented than we could ever imagine just one decade ago.
This leads us to a question we frequently discuss at 3Rivers: (How) can traditional media companies keep up with this velocity?
If broadcasters and production houses are still struggling with a 'Streaming First' mindset, how will they survive this “attention Economy” reality? Take the BBC, for example. Just recently, they announced a landmark partnership with YouTube to produce bespoke, original programming specifically for the platform. Not just clips, but full shows designed for a YouTube-native audience.
When the world's leading public broadcaster admits they can no longer reach the next generation through their own front door, you know the gatekeeper era is officially over. They aren't just 'posting' on YouTube anymore; they are building for it. And it’s not just about content; it’s about infrastructure...
In the US, YouTube is effectively becoming the new 'Cable Company.' Through YouTube TV, they are bundling over 100 linear channels, and by poaching the NFL Sunday Ticket from traditional satellite TV, they’ve secured the ultimate 'must-have' content. They aren't just competing with broadcasters anymore; they are replacing the entire distribution chain.
And we haven't even seen the full storm yet. We are looking at:
These are not just experiments. The micro-drama industry alone is projected to reach $26 billion in annual revenue by 2030. We are seeing startups in this space valued at hundreds of millions of dollars before they even have a full library.
So If YouTube is the new cable company, Netflix is not slowing down, TikTok stars are the new Hollywood studios and drama is shortened to 1 minute vertical content... then where does that leave the traditional industry? That’s the question I’ll be tackling this year for us and our clients. A fascinating puzzle, and I’m enjoying every piece of it.
In December, the international creative community gathers in London to take the temperature of the industry: debating trends, forging partnerships, and hunting for the next big format. In recent years, a new fixture has joined the global circuit of media markets: Content London. C21, once primarily a publisher, now increasingly a heavyweight conference organizer, is steadily tightening its grip on streamers, producers, and broadcasters.
The British creative sector, meanwhile, has reason to celebrate. In 2003, a landmark change in legislation granted producers ownership of the IP they create. It transformed the industry. Since then, the UK’s creative economy has expanded at remarkable speed. This year alone, more than two billion £ worth of formats, finished program sales (these days more often counted as library sales), and consumer products will leave the country. For the UK, the United States has long been a natural export market (the absence of a language barrier helps) and nearly half of all international sales continue to flow across the Atlantic.
This success is anything but accidental. Investors are lining up to back creative talent, the government actively supports the production ecosystem, and the talent pool seems endlessly replenished. More than forty new production companies launch each year, even as the domestic market stagnates. The UK advertising market may be under pressure, but the country’s robust export pipeline more than compensates. I’ve worked in this sector for around fifteen years, and its consistent level of creative excellence never ceases to impress.
The framework may have been shaped by government policy, but it is creative entrepreneurs who continue to push the industry forward. Take Richard McKerrow, founder of Love Productions and the mind behind The Great British Bake Off. Or Stephen Lambert, creator of Gogglebox and Undercover Boss and founder of Studio Lambert. Lambert has built a powerhouse team capable of elevating even externally conceived IP, The Traitors being the most striking example, to extraordinary global success. Each year brings a new wave of talent with ideas that spark fresh energy across the industry.
Driving it all is the British audience itself: curious, loyal, and accustomed to high-quality homegrown programming. Every genre thrives; from soaps (yes, Coronation Street is still going strong) to prestige drama, from factual to entertainment. Anyone wanting to understand what true creative entrepreneurship looks like need only spend some time in the capital of the audiovisual world.
Skeptics might point to turbulence: the challenges at the BBC and Channel 4, Sky’s bid for ITV, or the looming saturation of the streaming market. The rules of the audiovisual landscape are indeed being rewritten. But the British creative engine shows little sign of slowing. It continues to do what it has always done best: turn ideas into global successes.
Do you remember that video from 2006 featuring YouTube founders Chad Hurley and Steve Chen? The two young men addressed the 'YouTube Community' with promises of continued innovation and product development. But after just two and a half minutes, they could no longer keep a straight face. They had just sold their barely 18-month-old, loss-making company to Google for a staggering 1.65 billion dollars.
At the time, many thought Google had lost its mind for paying such an astronomical amount for a fledgling startup. But it quickly became clear that the tech giant had placed a calculated bet. The modest YouTube maintained its position as the market leader in online video, while Google's own platform never gained traction. The team at Google had already recognized that video would become the next killer application on the Internet. Instead of competing, they acquired the persistent rival that was standing in their way, regardless of the cost. The rest is history. According to social media expert Jonatan de Boer, YouTube now generates over 36 billion dollars in annual revenue.
Today, YouTube is unquestionably the largest video platform in the world. Monthly views are measured in the trillions, and the number of active channels approaches 5 million. What stands out is that, according to a recent report by Evan Shapiro, nearly 95 percent of all views come from just the top 10 channels. What began as a platform for short-form, user-generated content is now evolving into a wide-reaching video ecosystem. And increasingly, major media companies are embracing it.
Just a decade ago, traditional broadcasters were extremely hesitant to publish content on YouTube. The Dutch public broadcaster NPO offers a striking example. Acting under the leadership of then-chairman Henk Hagoort, the organization tightly controlled content distribution and explicitly forbade its affiliated broadcasters from using YouTube.
The situation today could not be more different. YouTube is now seen as an ideal platform to promote television programs. An additional reason has emerged as well. YouTube attracts a predominantly younger audience, which gives media companies a valuable opportunity to connect with a harder-to-reach demographic.
Channel 4 in the United Kingdom was among the first broadcasters to recognize the platform’s potential. After a test phase, they decided last year to start publishing long-form content on YouTube. They were also allowed to manage advertising on their Channel 4 YouTube page themselves, with a share of the revenue naturally going to Google.
This created a win-win situation. The broadcaster gained additional reach. YouTube gained more compelling content for its viewers. And both parties benefited from the resulting revenue. YouTube is now often watched on television screens, competes directly with Netflix, and even commands more viewing time in the United States, with 12 percent compared to Netflix’s 7.5 percent. ITV has already followed with a similar deal, and it seems inevitable that others will join. All of this continues to strengthen YouTube's already dominant position: in just 20 years, the once awkward underdog has grown into a mighty media giant.