It is by now extremely clear that Big Tech is forcing the media world to change. Google and Facebook have been conquering the advertising market at an unimaginable pace for a decade, and Netflix in particular has shown the way to the new way of television viewing. The consequences are enormous, and that awareness is all too present in the boardrooms of media companies today. The example of the music industry, which has finally re-established itself after many years of crisis, speaks volumes. Under pressure everything becomes liquid, and that means that the media companies are prepared to take very drastic steps.
After all, almost all 'traditional' media companies are under pressure. The broadcasters (whether they are public or commercial) have to fight for the young viewer, who increasingly ignores television. The commercial broadcasters have to fight for their advertising share, because digital/online is growing fast, while television is stagnating. And at the ever very profitable cable companies, dark clouds are also starting to loom in the sky: cord cutting is already an important phenomenon in the United States and the first signs of this are also surfacing in Europe. In short, all traditional players see their activities threatened.
The way in which this is responded to is different. The online VOD initiatives of media companies tumble over each other: from Disney+ to Peacock, from Videoland to Streamz, from Joyn to Discovery+, from Viaplay to Paramount+, the number of new initiatives is almost over the top. Public broadcasters are also involved in the fight with mostly local initiatives. But by far the most important development is that media companies will defend themselves by working together on a large scale; the merger initiatives fly around our ears.
Amazon's acquisition of MGM is of course of a different nature, but it does indicate that the panels are definitively shifting. The biggest news this year was that AT&T decided to divest Warner Media, which had just been purchased a year earlier, and merge with Discovery.
Super interesting is also what happened in France. The eternal rivals TF1 and M6 decided to merge. This is the ultimate signal that things-are-a-changing, because until recently the leaders of these companies were still competing heavily. In apparently perfect harmony, a groundbreaking deal was forged, which was undoubtedly sanctioned by the top of French politics early in trial in the Elysée Palace. L'exception Française isn't it? Soon thereafter, the merger between Talpa and RTL in the Netherlands was announced. There is no doubt that a similar exercise is on the cards in Germany, which would really be significant.
The conclusion: consolidation in the media world is starting to gain pace. The threats of Big Tech have led to a new phenomenon: the development of Big Media!
The COVID crisis hit many parts of the media sector hard over the past year. It was no different in the field of sports rights, which involved enormous amounts. It is logical that sports organizations do everything they can to organize major tournaments such as the Olympic Games and the European Football Championship a year later: one simply cannot afford to let the enormous rights income flow once. This income forms the oxygen or perhaps also the opium for sports organizations and clubs.
It is no different in the regular competitions, especially in the field of football. Whereas in the Netherlands the media revenues still represent a relatively modest part of the turnover of the sector, this interest has grown enormously in the 5 major European countries. The pressure to finish competitions was therefore enormous. This was not possible in France, so rights holders negotiated substantial discounts on the agreed amounts. In England, Germany, Italy and Spain the competitions were still played out and the damage was not too bad.
However, the COVID specter does affect media rights: new deals appear to be significantly lower than the old ones at first glance. Initially, the flag went out in France when the amount of rights more than doubled when La Ligue (the umbrella organization of French football) switched from Canal + to the Spanish Mediapro. It soon became apparent that Mediapro could no longer afford the rights, after which La Ligue had no choice and again tendered the rights. Canal + has recaptured the rights for a fraction of the original rights amount until the end of this season. But as is the case, the French clubs had already invested on the higher amount of rights: French professional football is therefore in a major financial crisis.
It is no different in Italy. The current rights deal will expire at the end of the season and the bids from Sky Italia on the one hand and the consortium DAZN and telecom company TIM on the other still leave something to be desired. It is the first time that DAZN, which likes to advertise itself as the Netflix of the Sport, is fully bidding on the rights at the highest level. It is a break in the trend that the new rights deal seems to be closed lower than the previous one. After all, the trees of pay-TV no longer grow to the sky, foreign consumers seem to have become accustomed to lower prices for digital video.
It is extremely interesting to see what the future development of supply and demand in the sports rights market will look like. New digital players such as DAZN and Eleven Sports have entered the arena and Amazon is also participating a bit. History shows that new entrants make the current parties (usually Pay TV providers) nervous and still drive up the price for sports rights. It only takes 2 to tango and the rights holders are warm again!
Most people in the media world are happy that 2020 is over. The COVID crisis hit employees and employers hard in the past year, apart from a few. Fortunately, there has been some recovery in the last two quarters, which seems to have been the worst. The advertising market recovered and productions could be restarted, albeit with restrictions. It is time to look to the future again and then 3 trends stand out in particular.
First of all, the "traditional" media companies defend themselves by setting up VOD initiatives themselves. Global players such as Disney and Discovery do this by coming up with their own SVOD proposition, which is complementary to what Netflix and Amazon have to offer. Both companies did this by putting + behind the name and behind this there are very ambitious plans. Disney uses its extensive kids catalog and does not hesitate to use major films such as the Star Wars series. Discovery positions itself as a factual expert, and in some regions (such as Europe) also focuses on Sport. It is almost impossible for both initiatives to be very successful this year. Broadcasters also start up national VOD activities, whether or not in a mix of AVOD and SVOD. I have already skewed about that in my column in October last year.
The second trend is a very striking one: Studios are about to stop premiere films, but to introduce them directly on their own SVOD platforms. This makes the need (after all, going to the cinema has been banned worldwide for months) into a virtue: big, new titles continue to attract a large audience. Disney has embraced this strategy, but the most aggressive player appears to be Warner Media, which has shifted many premieres to its SVOD platform HBO Max. Only time will tell if this is a wise strategy, because the international box office has been a cashcow for blockbuster films for decades. At the end of the year, we will be able to assess whether this bold strategy has been successful.
The third trend: local governments are very concerned about the increasing importance of Big Tech. In addition to the initiatives to divide these companies into pieces (which will take a long time), national governments are increasingly looking at how to protect their own media industry. On the one hand, this will be done by allowing scaling-up in the media. It is not without reason that Thomas Raabe, the CEO of RTL, bombarded the competition authorities with the idea that advertising markets should be viewed as a whole. This could pave the way for national media mergers. The British government is also engaged in a consultation (called Small Screen, Big Debate) to see whether the BBC should be given more opportunities in the online field. I would not be surprised if in the future this debate also started to erupt in the rest of Europe, which would be good news for every European public broadcaster.
It is now clear to everyone that the media world is fundamentally changing. The corona crisis deepens this development, because traditional television is increasingly coming under pressure from streaming video. It is nice to see how new brand names pop up left and right. We are now used to Google, YouTube, Facebook and all other digital giants, but many of those names are barely 10 years old. What is interesting is how traditional media companies are re-profiling themselves by choosing new names: new SVOD initiatives seldom have the name of the "old" parent company anymore.
RTL was the first to do this through the acquisition of Videoland, but that was still a coincidence because the name came along with an acquisition. Furthermore, new (marketing) thinking has taken hold everywhere, especially in the field of streaming services. ProSieben and Discovery launched Joyn, VTM and Telenet are coming with Streamz, the BBC and RTL have been back with Britbox a few years ago and Peacock, the new streaming service of mega company Comcast, is currently being launched.
However, it is also interesting that old brand names are going under. Who did not know Endemol and Shine? Endemol was the personification of the rise of the international television production companies. The company grew through a sophisticated global acquisition strategy. The companies that were taken over were almost immediately renamed Endemol: Endemol Italia originally saw the light of day under the name Aran, Endemol France as AFP and I can go on and on. Liz Murdoch's Shine grew more independently and opted for the Shine brand name in all countries where it invested. 21st Century Fox was a household name in film production and was also active in television. With sales of more than $ 20 billion, it was one of the majors that ruled the international media world.
All these illustrious names of yesteryear are thrown away by the new owners of these companies. After the takeover of Endemol and Shine (which has now become a single brand name), Banijay immediately decided to continue using the Banijay name. No half-hearted measures here, but equal clarity: the Endemol and Shine brand names are gradually being removed through the back door. Disney is going to do exactly the same with 21st Century Fox: the name Fox will be radically removed and it will also be a matter of time that channels that still carry the Fox name (especially the sports channels) will be renamed.
The major changes in the media world can also be seen in the brand names. Iconic brands are disappearing, new brand names are taking their place. The next phase is already coming: in the fight against the American streaming platforms, national media companies should be able to merge, as I mentioned in my previous column
The Corona crisis has once again made it clear that Big Tech's business model is particularly strong. Amazon, Google, Facebook, Netflix: they all continue to thrive. Netflix shows its best side by supporting the local media world in various countries. But the really big boys keep going the old way: maximizing profit by exploiting scalability to the maximum and paying little or no tax in the countries where they operate. The Australian government has had enough of that and is starting in-depth investigations into the tax behavior of these dominant companies.
While Big Tech rages on, the mostly nationally organized media companies are having a hard time. Advertising markets are collapsing everywhere: the Australians are still on the right side of the coin with a 25% drop in turnover, in Europe a drop in turnover of 40% is no exception. The mostly nationally organized media companies have insufficient economies of scale to survive in these tough market conditions. No wonder that people are increasingly looking for forms of cooperation to keep their heads above water.
The most logical form of collaboration can be observed in the field of video-on-demand streaming. National champions are emerging, who together try to face Netflix and Disney+. Examples abound: Britbox in the United Kingdom and Salto in France are examples of broad cooperation between all public and commercial broadcasters. BBC, ITV, Channel 4, TF1, Television Française, M6: they all embrace this form of collaboration. In addition, there are also joint ventures with a limited number of partners: Telenet and VTM will start a joint video service in Belgium in September in Belgium. Discovery is working on new forms of cooperation in several countries. In Germany, the JV with ProSieben has existed for a year with the appealing name Joyn, this year a joint platform with Polsat will start in Poland.
A second form of cooperation is realized by merging the commercial activities. RTL now has a sales house in the Netherlands that carries out sales activities for a series of media companies. The Russian commercial broadcasters went even further and combine all sales activities in one joint venture. The two commercial ruffs in Germany Pro Sieben and RTL started a joint initiative last year, the ad-tech company D-Force. The fact that the German Kartellamt had no objections to this characterizes the changing thinking among the regulators. It was different a few years ago.
A next, more daring step could be for media companies to merge all activities and create local champions who really have a chance against the invasion of Big Tech. Thomas Rabe, the CEO of Bertelsmann and RTL, already threw a ball in the Frankfurter Allgemeine for a few months. According to him, it would not be illogical to merge RTL Germany and Pro Sieben, a remarkable observation. The time seems right, regulators are also aware that the US dominance in the advertising markets is worrying. I am curious whether this will actually become a theme in the boardrooms.
At the time of writing this column I should have been on the train from Zermatt to Geneva to catch a plane to Amsterdam. Up and down to address the International Top Media Convention, which 3Rivers has been organizing together with Broadcast Magazine for years.
We would be talking about the great time we have in the audiovisual media. The dynamics have never been greater: the impetus that direct-to-consumer activities give to our industry is unparalleled. After all, at least $ 20 billion extra is spent worldwide on content production, especially scripted programming. Market leader Netflix and a long list of other SVOD operators are investing large sums in brand new productions of a high level. Broadcasters are also showing signs of defending their position by investing more in local programming. Where in the past roughly 1/3 of the program budget was spent on international series, much more is now invested in local programming. Not only local drama, but also entertainment and factual shows are in great demand. The result is a dynamic market and that picture is almost the same all over the world.
At the IMTC we would talk about this fantastic development. Netflix manager Lina Brouneus would talk about the development that Netflix is going through. Where does the company come from in its content strategy and, above all, where is it going in the coming years. Markus Schaeffer, CEO of All3 Media in Germany and Christophe Thoral, CEO of Lagardère, would be present to share their vision on the Dutch TV production market. After all, their companies own IDTV and Skyhigh TV respectively and have invested years ago in the Netherlands. At the same time, they would also discuss specific developments in their own countries: the steps that the French government is taking to force international players to invest maximally in the French market (yes, the exception Francaise from the film world is also entering TV production. ) and the fundamental change in the German scripted market, which was always so conventionally and purely aimed at Germany and now also reaches an international audience with productions like Dark and Deutschland 1983.
The highlight of the evening would be Marco Bassetti, who will lead the largest TV production company in the world this year. After all, Banijay (crammed with ex-Endemol managers) will take over Endemol Shine if the European Commission approves. This creates the largest TV production company in the world with a turnover of almost 3 billion euros. Discussion leader Rick Nieman would interview him extensively about how he will implement the integration of these companies.
Would. Because we all know it by now, Corona is ending the event. The studio in the Hallen will remain empty tonight. Just like so many other studios will be vacant in the coming months. Emptiness reigns: all developments that we would discuss tonight are on hold. 2020 seems to be a written off year for all TV production companies, the tide can turn that quickly.
2019 ended with dignity in December with the multi-billion dollar acquisition of Entertainment One by Hasbro. The massive takeover of Time Warner by AT&T and the nearly equal acquisition of Fox by Disney are still fresh in our minds. Of course, these mega transactions have everything to do with the rapidly changing media landscape, in which the battle for the consumer predominates. This dynamic is the prelude to fundamental changes in the next decade, which is already announcing itself as the Roaring Twenties.
A number of developments that are already observable will come to fruition in this decade. The first and most fundamental is that the consumer and not the provider will determine the media business. The distribution options will be (literally) broader in the coming years with all investments in fiber and 5G. Anyone who manages to reach the consumer with the right content in these times of oversupply will be the winner. This makes effective marketing, according to Meindert Landsmeer, my colleague and analytical anchor, fundamental in the media business. An example is the new role of the traditional program director, who will increasingly function as a marketer, that transformation will be complete by the end of this decade.
Streaming and broadcasting will increasingly become intertwined. Broadcasters are going to set up streaming activities en masse, streamers are increasingly getting involved in broadcast activities. Amazon's deal in Germany, where it snatched some of the Champions League rights to Sky, is the harbinger of what lies ahead. Media companies, whether of digital or analogue origin, will become all-round. Predecessor Netflix will be part of an integrated media company in 10 years' time or has taken over other types of media companies, perhaps large content providers. The consolidation trend that has been going on for so long will lead to the emergence of a small number of media companies in the next decade to dominate the international media world.
The global advertising market, so important to commercial television, will be increasingly dominated by online. The question is whether this will also lead to a shrinkage of the traditional television market. It seems logical that this will happen in the longer term when the TV shy youth of the moment becomes the most important target group for the advertiser. The panels will then undoubtedly continue to move online, a development that, according to the British research agency Ampère, will lead to strong growth of AVOD in the short term. In any case, broadcasters and pay TV providers will have an even harder time and will have to diversify or merge. It will be a true battlefield in the field of commercial television.
How will public broadcasters fare? Many will think that by the end of the Roaring Twenties, many public broadcasters will have ceased to exist. I don't think this will happen: in this case the consumer is not about it, but politics. If independent and multiform journalism and locally produced content continues to be important, the position of the European public broadcaster, in whatever form, will be maintained.
It will be a very interesting media decade!
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 great attack by the super-rich Silicon Valley companies on traditional media organizations is taking epic proportions. Apple + is the latest addition to all the initiatives from the famous San Francisco valley: for the Cupertino company, this investment is of some strategic nature, but on the balance sheet of the company a piece of cake.
The answer of the traditional media industry (to which I also originally assign distribution companies such as Comcast) is scaling up. The deals in recent months have been unprecedented: Disney acquired Fox, AT&T bought Time Warner, Comcast acquired Universal a few years ago and most recently Sky.
Multiple deals are still in the works, Mediaset, for example, is building a significant stake in ProSiebenSat1. The result of all this? The debt of the acquiring companies is growing to alarming levels. The SEC in the US published the debts of these companies in the middle of this year. Sony and Viacom are still refraining from large transactions and have debt positions to be used (USD 5.2 and 9 billion respectively). But others are building massive debt positions: Disney $ 57 billion, Comcast $ 101 billion, and AT&T, $ 170 billion!
Now money is unimaginably cheap right now, so now is the time for these types of transactions. These debt positions are often still within the applicable limits. These are usually calculated as the ratio of the debt position (minus cash) to the profitability of the organization (usually expressed as the EBITDA figure). In almost all cases, this figure remains below 4 for these companies. But when times change, interest rates rise and profits shrink during a recession, Leiden is immediately in trouble. In short, Hollywood takes a fair amount of risk.
A good example of what debt can do to a company is Endemol. Before and after the merger with Shine, the company was crammed with debt by its owners. The debt position was approximately $ 1.8 billion, giving a ratio of approximately 10. A company can simply no longer pay the interest on this type of debt. The result of such a situation is that in these circumstances companies cannot invest enough to grow and expand the position. Banijay is now taking over the debts of EndemolShine and, if not careful, will also take (too) great a risk.
Those risks can only be accounted for if the acquirer has a clear strategy and rigorously implements this strategy. Disney seems to have done that: the company will immediately serve the consumer (with which it already has experience via the theme parks) with its range of VOD brands. The launch of Disney + was successful despite the necessary flaws and ESPN (Disney's sports brand) also seems to be doing well. The company is managed very tightly and will survive despite the great risks.
But in many other cases, the focus is only on the transaction and the top of the organization forgets the execution. The lesson of practice is that many takeovers are not that successful at all and end in failure. Usually this is simply due to the execution: management is a craft and that is sometimes lacking in the media. Formulating a clear plan of action and then executing it is not at all sexy and is often forgotten. In those cases, a mountain of debt really becomes a problem!
Everyone in the media world has now realized that it will be exciting this autumn. The streaming wars are announcing themselves. Silicon Valley took the initiative and became a great new customer for Hollywood. But when Netflix and Amazon came up with their own originals, love quickly cooled off. As usual, the American studios were slow to come up with a new answer, but Disney led the way. Disney +, ESPN +, Hulu, Peacock (from NBCU), HBO Max, and so much more: the number of new streaming services is skyrocketing. Big Tech is also launching through Apple TV + and consumers can no longer see the forest for the trees….
In the midst of all this American violence, broadcasters, who almost all serve a local market, have to find a new answer. For many, that means setting up their own streaming service. Broadcasters have to transform themselves from business-to-business to business-to-consumer companies and that is a completely different game. Painful reforms are the result, whereby these companies have to cut their own flesh and set up entirely new business activities at the same time. Without a doubt a complex operation.
The big question is of course how relatively small local players can hold out against the big Americans. Not only Big Tech is coming in, Hollywood is also pushing at the gate. This was clear to a number of Dutch visionaries years ago: especially Bert Habets and Henk Hagoort immediately understood that they had to join forces to fight Big Tech and Big Hollywood together. But they did it in a polder, without harming their own interests, and did not step over their own shadow. NLZIET was born, but it is a half-hearted product in which the individual organizations mainly continue to promote their own services (Videoland, NPO Start, Kijk).
How different things are now in neighboring countries. Britbox will be launched in Great Britain this autumn. After several years of practice in the United States, this new service is being launched on a grand scale. Not a portal that facilitates the individual, national SVOD platforms: an entirely new company is being created that brings the best of British television directly to the consumer. The majority of the local players have now changed tack and are participating in this admirable initiative. After all, they know: only by making substantial change can they face Big Tech and Big Hollywood!
Things are going a bit slower at our Eastern neighbors, mainly because the legislator forbade cooperation between P7S1 and RTL for a long time. But P7S1 also jumped over its own shadow and started the new platform Joyn together with Discovery this summer. ZDF also joins this consortium with its content, which proves once again that commercial and public organizations can work well together when it really gets tough. The superlative: in France, TF1, M6 (the local RTL channel group) and the public broadcaster start the joint streaming platform Salto. For a long time, the legislator was an obstacle, but in the end understood that local players will not survive without such partnerships. In the fight against Big Tech and Big Hollywood, the French government discarded earlier principles and gave this initiative the green light.
It is all the stranger that in the puny Netherlands the three broadcasters self-interest prevail over the common. NLZIET is in danger of becoming a stillborn child because the three players would rather compete with each other than arm themselves against Big Tech and Big Hollywood. Maybe the parties will change their mind, but now it looks like a missed opportunity. That must be possible in the Netherlands with its strong creative industry.
Broadcast Magazine has been around for 30 years. In the still young media industry, the magazine is a survivor, because several revolutions have taken place during this period. Time for a look back.
Commercial TV changed fundamentally in the years that this magazine was founded. In the United States, the triopoly of CBS, NBC and ABC was broken. These companies had built up unprecedented market power in the 1970s and 1980s and ruled the media. This kingdom suddenly collapsed phenomenally, not least because of the arrogance of the networks themselves. The book Three blind mice described this development clearly and should still be mandatory for today's broadcasters. At the same time, commercial TV broke through in Europe, with American managers such as Harry Sloan (the founder of SBS) playing an important role in addition to new European media companies. The first revolution, set in the 1990s when the world economy developed phenomenally, was dominated by commercial TV.
The first decade of this century marked the breakthrough of large-scale TV production. Endemol reached its current (!) Size, Fremantle emerged from the womb of Pearson and CLT-UFA and a number of ITV executives founded All3 Media. It was the second great revolution, the emergence of the Superindies. Every self-respecting media company has now set up its own studio and we live in a world where television production has taken off unprecedented.
The first major transition took place in adjacent markets in these years. Publishers saw their position weaken and the music industry underwent a fundamental change. This first form of disruption had enormous consequences for these sectors, but television continued to develop relatively slowly. Until large numbers of governments started to wonder (after the great financial crisis at the end of the first decade) why people invested so much in public broadcasting. Budgets were cut almost everywhere in Europe and with the exception of a single southern European country (such as Greece, where the existing public broadcaster ERT was even discontinued, there is now a successor), the Netherlands was even a leader in cutbacks. It was the third revolution, the fundamentally different, suspicious view of public broadcasting in Europe.
However, all these revolutions are dwarfed by the massive disruption that is taking place at the moment, the digital media revolution. It all started (as it often does) in the US and reached Europe via Scandinavia. The emergence of new digital players, both in the field of social media and online video, has had an unimaginable impact. Most FANGAs have rapidly seized power in the media world, mainly through their breakthrough technology and focus on consumer desires. Traditional media outlets are trying to fend off these new developments and perhaps, contrary to what happened in the music industry, are doing the right thing. They are adopting a new digital strategy and increasing their scale through massive transactions. Examples abound in the last 2 years: the takeover of Time Warner by AT&T, of Sky by Comcast, of Scripps by Discovery and the merger between CBS and Viacom this summer. These companies are now also targeting consumers directly, with Disney impressing most with a range of SVOD initiatives, from Disney + to Hulu and ESPN.
Four major revolutions in 30 years, no wonder it is so interesting to work in the media. I am curious about the outcome of the latest revolution (which according to colleague Mark Ramakers will result in world domination of only a few companies) and I am eagerly looking forward to the fifth… ..
You may wonder at the number in this heading whether it is about John de Mol's latest earn-out or about the shrinking budget of the Dutch public broadcaster. The interesting thing is that it is not about money but about the number of SVOD subscribers worldwide. Before the summer recess, a large number of research agencies will provide the latest data on the growth of the global audiovisual market, including perspectives for the next 5 years. Digital TV Research came up with a new sum and predicted that by 2024 1 billion people will use SVOD. What an incredible growth market!
The researchers made predictions about the number of users per VOD provider and came to the conclusion that Netflix would reach a market share of just under 25%. Amazon would remain a solid second at around 15%, while Disney would grow from 0 to 75 million users and eventually achieve a global market share of 10%. Those figures are backed up by the excellent London-based research firm Ampère, which reported this week that 22% of Americans will subscribe to Disney +. If we subtract China (which is more of a "local" market served by "local" players, who "serve" only "300 million people), there remains a market for over 200 million" other "suppliers. There are of course Americans such as Comcast / Universal and AT & T / Warner with mixed AVOD and SVOD models, but also many local players who serve their own market.
It has been argued so often here: for broadcasters, who generally operate in one country, it is very important to build a significant VOD business. AVOD is usually available in-house, but because it is so important to build a direct relationship with the consumer / viewer, an SVOD operation becomes essential. RTL Nederland realized this early on, the acquisition of Videoland is still etched in our memory and it seems to be heading in the right direction with this proposition. Other good examples are Nine in Australia, which has a very successful service in house with Stan. But otherwise developments are going too slowly.
This is all the more convincing after the analyzes published by PwC in its annual media outlook. The television advertising market is going to crumble and may even shrink worldwide in the coming years. Broadcasters can therefore only achieve growth from new business ventures and VOD is of course the most attractive opportunity. Developing multiple propositions per country will be difficult, because consumers are only willing to take out a few subscriptions and not an infinitely long series. Collaboration is essential and that seems to be difficult to achieve: Britbox of ITV and BBC is struggling to get off the ground, the frustrations among the participants in the French Salto are increasing and NL Ziet in the Netherlands also seems more and more like a stillborn child. .
Pro Sieben Sat1 and Discovery do put in the pass and have already brought ZDF on board. The new Joyn must become the German alternative to Netflix and Amazon. Because there is still plenty of growth in this market segment, this new service will soon gain momentum, while RTL Germany chooses a completely different course and builds its own SVOD service. In short, it is a true spectacle in this large growth market. Different choices are made in each territory and new players emerge. The FANGAs will play their own worldwide game here, but there will be plenty of room left for local players. They have to act in the short term to attract some of those more than 200 million potential users.
The time has come: the United Kingdom is leaving the EU. The "process," as they say here in London, "is a mess," but the divorce comes, hard or soft. Media companies have only started to realize what that will mean for them in recent months: the short-term willingness to take action (as so often in the media) is suddenly high. International players who felt comfortable in London for years seem to be moving quickly and are leaving the perfidious Albion. The British media watchdog Ofcom only calculated that British TV and film production had reached a value of more than 3 billion euros. So there is quite a lot at stake ...
The greatest impact is expected from television channels. The British government has been very liberal with broadcasting permits since the Thatcher era. I myself have experienced in several meetings with British media authorities how British TV channels were tightly restricted in the field of product placement, for example. However, little was done in the way of foreign TV channels. The famous U-turn was already "sold" by the British to foreign TV channels before it came into being in Luxembourg. Particularly in Scandinavia, this was used enthusiastically. SBS and Viasat / TV3 are the best-known examples of channels that established themselves in London, just as RTL Nederland chose Luxembourg as their location.
In addition, most American channel groups found London a pleasant location. Discovery and Viacom, especially through its subsidiary MTV, were examples of media companies settling in London. Ofcom has now issued more than 1000 broadcasting licenses, of which more than 700 are aimed at abroad! In the wake of these broadcasters, many foreign producers also settled in London. I also enjoyed this myself when I was asked by Ronald Goes to assist in setting up Warner Bros' international TV production operations from London, a great adventure. Universal, Sony, and many others also established their European headquarters in London. This makes sense, because the ties between the UK and the US are still close and the American top managers felt more at home in London than in Paris or Luxembourg.
In addition, London became the epicenter for the trade in TV programs and formats. Almost every international player has established its distribution activities in London, including European producers. British companies had, of course, been doing this for years, were well acquainted with the international channels and had tremendous success in exporting British content around the world. A very lucrative business was thus developed, the United Kingdom rivals the United States market leader.
Is this unique ecosystem endangered by Brexit? The international channels seem to choose their eggs for their money and apply for broadcasting licenses en masse in other countries. Discovery opted especially for Bavaria and received permits for 19 TV channels within a month. Turner and Universal followed. Discovery also opened a dependence in Amsterdam. MTV has already migrated some of its channels to the Netherlands and seems to choose our country. On top of it all is the BBC: natural overspill is a thing of the past, Auntie Beep is also going to apply for European broadcasting licenses. The battle seems to be between Amsterdam and Brussels.
International media players will also be hosting their IP catalogs outside the UK. The Netherlands has long been a favorite location in this field and will remain so in the future. It will not surprise anyone if international distribution activities leave London in its wake. It is already clear: the London media world will also be predominantly British after Brexit.
The media world is changing at a tremendous pace. Sometimes that sounds like a cliché, but it is undeniably true. World Screen News, an excellent source of information for many media experts, only once listed what happened in our world in 2018. It is too much to mention and of an unimaginable scale. There is no doubt: the media world has never been so fundamentally in flux.
First of all, take the unimaginable growth of streaming video. It has taken a considerable number of years for video-on-demand to break through, but now that technological barriers are increasingly disappearing, growth is unstoppable. Growth rates of 60% and more are measured in some parts of the world. Netflix and Amazon are leading the way, but there are an incredible number of new players who want to claim a share of the market. First of all, these are the existing broadcasters and pay-TV operators, but also all kinds of niche players that focus on a smaller market segment. However, the unprecedented possibilities of streaming video mainly mean that the FANGA companies are marching into our world at great speed.
Under this pressure, the existing players in the media world are switching to an old strategy: to achieve as much economies of scale as possible. The takeover battle has never been so fierce. AT&T acquired Warner, Disney acquired much of Fox's assets, Comcast acquired Sky. These mega transactions, each more than $ 50 billion (!), Are the tip of a big iceberg. It does not seem unlikely that this trend will continue, although the impending Brexit and the fragile world economy could of course throw a spanner in the works. But one big deal already seems to be coming: after the fall of obstacle Les Moonves, CBS and Viacom could indeed merge this year.
Because new and old players strive for the favor of the viewer (rather read in the current era consumer), content providers are rubbing their hands. It is all hands on deck for producers, which is why this part of our industry focuses less on acquisitions: none of the larger players ventured into the tasty snack called Shine Endemol. The focus is entirely on finding and developing the right stories and the right talent to write and produce those stories. Not to mention the acting talent that these productions must credibly present to the viewer.
Finally, cable companies and telcos are increasingly focusing on a mix of distribution, exploitation and content. The huge deals from AT&T and Comcast have already been mentioned, but other companies have also been involved. BT is in a frenetic battle over sports rights with Sky in the UK, Swedish Telia acquired Bonnier Broadcasting and giants like Deutsche Telekom and Telefonica continued to invest in content exploitation and production. Apparently, people in all management offices have come to the conclusion that as a (media) company you can only be successful as a fully integrated party (which controls as many parts of the value chain as possible). John de Mol does this "in miniature" in the Netherlands.
Overlooking this battlefield, the big question is of course what 2019 will bring us. Many strategists overlook this, especially given the uncertain times in the world economy as a result of slow growth, trade wars and Brexit. It is clear to media companies that a standstill means a considerable decline. There are still a number of major acquisitions on the way, streaming video continues to grow rapidly and the first providers in this field are going under. A major shake-out / consolidation awaits us in the coming years, starting in 2019.
I have already argued it a few times here: broadcasters are going to convert from business-to-business to business-to-consumer organizations in the coming years. During the last IMTC, Casten Almqvist, CEO of the Swedish Bonnier Broadcasting, gave a very interesting lecture on what all this means for an organization.
The arrival of Netflix and Amazon in Scandinavia fundamentally shook up the media landscape and immediately created the need for broadcasters to profoundly adjust their strategy. Almqvist single-handedly converted the Swedish channel TV4 into a B2C company, but it took about five years to do so. However, the champion of change from traditional media companies is not in Scandinavia, but in the United States. Disney is fundamentally transforming itself into a primarily B2C-oriented organization. Now, of course, the owner of Mickey Mouse already had an edge over other media companies through its extensive theme park operations, where Disney has already gained significant experience in consumer marketing. But the vast majority of Disney's revenue is in its movie and television production and channel portfolio, with ABC and ESPN being its best-known brands.
Until two years ago, Disney followed the same strategy as other media companies. It welcomed streamers like Netflix and Amazon and made a lot of money from these new customers. As with many American studios, Netflix quickly became one of the biggest customers. However, the growth of the streamers began to gnaw at the Disney top management, who had to grind their teeth as American audiences increasingly turned their backs on traditional TV channels. Viewing time on the new platforms increased exponentially and this led to the insight at Disney that with its (top) content new, major competitors of its TV channels were being built up.
It has to be said, CEO Bob Iger and his team took no half measures. Disney announced first of all that it would remove all of its content from Netflix. Of course, that didn't happen overnight, but in the coming year, Disney will be releasing its own products on its own streaming service. In addition, the company realized that it needed more volume to compete with Netflix. The 21st Century Fox content library was acquired in March this year, bringing a large number of interesting titles into the hands of the expanding media group.
It is a mega debt burden, because Disney did not just have a good seventy billion in cash to finance this acquisition. Subsequently, preparations were made to set up its own streaming service called Disney +. This will start in the second half of the year for a price of 6.99. But it does not stop there: ESPN, the champion of the sports subscription channels, is also starting with an SVOD offer. In addition, Disney now owns 60% of Hulu, one of the fastest growing media companies in the United States.
In an investor call this month, the company confirmed aggressive targets for the number of subscribers it wants to achieve: in five years, Disney + should have 60-90 million subscribers, ESPN 10 million and Hulu 60 million, but there is a big catch and hot loss. Disney expects that these streaming activities will not become profitable for another five years, and the company has a vision, for sure. Let's hope that the investors also give the company the time to execute this logical, but also daring strategy to the last gasp.