The roaring twenties

January 1, 2020
It will be a very interesting media decade!

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!

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Burn rate and quicksand

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.

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Bold predictions for 2023

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....

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Jonatan de Boer joins 3Rivers

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.

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