Most FANGAs have rapidly seized power in the media world, mainly through their breakthrough technology and focus on consumer desires.
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… ..
Around the turn of the millennium, there was a frenzy of investment in companies that were known as "new media". Some of these companies are the tech giants we know today: Amazon, Facebook, Google... resounding successes that created enormous shareholder value. But there were also many companies that didn’t make it and went bankrupt. What was remarkable at that time was that large risks were being rewarded with additional investments. It was during this period that the concept of burn rate emerged: the amount of money a company loses per unit of time (a day, a month, or a year). You might think it couldn't get any crazier, but that is how it was at the time.
The recent streaming boom in the media world seemed to be following a similar pattern. Driven by the new Holy Grail, subscriber growth, streamers have been investing aggressively in content. Billions of dollars were available for creators, seemingly without a limit. Due to the success of Netflix, traditional media companies began to believe that investing in direct-to-consumer activities was a wise investment. With the exception of a few good examples (early entrants like RTL Netherlands with Videoland), this has slowly turned into a disaster. After all, companies everywhere are bleeding money, especially those who arrived late to the game.
Since traditional media companies do not like burn rates, there will be heavy cost-cutting this year. Warner Discovery was the first to announce a cost-cutting package of $3.5 billion (!), and Disney now is following suit and is even going further. CEO Bob Iger, who has returned to the company, has announced a whopping $5.5 billion in budget cuts, with 7,000 jobs being eliminated. These are tough measures, that are being appreciated by the shareholders of these companies.
However, there is a world where losses are still an accepted phenomenon. The sports world has its own rules, especially with regards to soccer. In the American system, club owners of the major American sports (baseball, basketball) are somewhat restrained by fair play rules. Apparently in soccer, other laws apply, where club losses are compensated for by owners who legally and often illegally supplement the club's coffers. Soccer club owners seem to have no problem with the burn rate of their plaything.
At the top of the list is sports streamer DAZN. Launched about 6 years ago by Russian billionaire Len Blavatnik as “the Netflix of Sports”, the company recently published results that broke all records. On a revenue of $1.6 billion, it suffered a loss of $2.9 billion in 2021. Given that sports rights are only an expensive loan, as they always belong to someone else, one can imagine that DAZN is built on quicksand. The planned IPO was canceled, but CEO Segev insists that he is sitting on a goldmine. "The Netflix story, the Amazon story — I think DAZN is going there as well." However, an adventure built on the quicksand of a magnificent burn rate will most likely not succeed.
Predicting the future of media is just like predicting the weather: the truth all too often overtakes the forecast. Last year, I made some tentative attempts to predict the future in a number of columns and - to my relief - those were more often right than wrong. That's why I've gained just enough confidence to look into the future again...
The first one is rather safe: AVOD is going to make a massive breakthrough this year. All major SVOD players are heading in that direction and eventually it will become roughly one-third of their revenue. Remarkably enough, VOD is starting to look more and more like commercial television in this way. Allowing advertisements on the platform used to be a taboo for Netflix a few years ago, but the market leader cannot avoid it, in a time when consumer purchasing power is so heavily affected. Co-market leader Disney is also going to embrace AVOD.
The next prediction is a more bold one. Currently, on-demand accounts for around 30% of the consumer viewing behaviour. I previously argued that the tipping point has already taken place and that the shift to on-demand viewing is going to accelerate significantly. I think major players like Amazon, Apple and Google will invest massively in sports rights, while DAZN will also stay very active. Sports are one of the mainstays for public -, commercial - and pay television: the above-mentioned trend will hit traditional television hard. At the end of 2023, more than half of the viewing time will be spent online, I think.
A few years ago, broadcasters took the initiative to cooperate more closely in order to withstand - in particular - the American Tech threat. I think this development will stop in 2023. Broadcasters have understood that they will have to protect their brand and that this is incompatible with common VOD activities. ITV has already launched ITVX in the UK and similar situations will emerge at local media companies in other countries. Salto and Britbox will gradually be suffocated in their own national market in the coming year.
The increase in scale of media companies will also be brought to a halt. There will be no more major mergers. Only in the production market there will still occasionally be a takeover, but mega deals like the Discovery - Warner merger are a thing of the past. 2023 will be the year of operational excellence. The merger plans of RTL and Talpa will falter because ACM is an obstacle. Thomas Raabe, the CEO of RTL and Bertelsmann, can forget about his dream deal in Germany, a merger between RTL and P7S1.
And finally: the growth will cease in the production market. The marketing efforts of VOD players dry up: the focus will shift from subscriber growth to profitability. The production market will decline by around 10% and will stabilize at that level. In and of itself, this already is fantastic news for producers, because this is still well above the market size of 5 years ago. There still glows a little hope because TikTok is going to invest in long-form content and YouTube will have to participate. Well, we'll see....
.jpeg)
Jonatan de Boer will join the 3Rivers team on 1 December 2022. Jonatan has been working in the Dutch media industry for more than 10 years and is a specialist in the field ofsocial media, online video and influencer marketing. He started the Dutch branch of Mediakraft, was managing director of the online branch of Medialane and led the tech startup Bird. Jonathan has specialized in social media analyses, online video productions and influencer marketing campaigns on all major socialmedia platforms. At 3Rivers he will mainly focus on media projects from a social media and online media perspective.
Oege Boonstra, partner 3Rivers: "We are pleased that Jonatan with his broad knowledge and experience in the field of social media will join our team. He has gained meaningful experience early in his career and can serve our clientele with a new service. He can demystify social media like no other and advise customers practically." Jonatan: "3Rivers is a wonderful company with a great reputation in the media, both nationally and internationally. I look forward to working with my new colleagues to achieve even more impact in the ever-changing media landscape."
3Rivers deals with strategic and organizational issues for media companies from an operational perspective. The company's consultants have all long-standing experience in the media world and have carried out projects all over the world with the aim of making media companies function more effectively.