Islands In The Streams
Lucy Savage has got plenty of experience in both the independent sector and beyond, with a CV that takes in senior roles at the likes of Studiocanal, Kaleidoscope and Revolver. Now set up as a consultant working across all forms of distribution within the home entertainment sector, with a focus on digital sales and marketing, strategy and contracts, with a hefty contacts book and in-depth knowledge of the acquisitions sector, rights and digital and distribution agreements, she’s taken out time from her work to look at the year-end figures for the UK and beyond, the digital explosion and what the svod boom means for both the majors and independents, here and internationally… There’s also a closer look at how Sky’s Buy and Keep system has changed the face of distribution – both physical and digital…
The Digital World
2015 revenue results, SVOD, EST and other thoughts about SVOD……..
It’s all about streaming now?
Now the stats are filtering through and, perhaps not unsurprisingly, the physical home entertainment market continued to decrease by 14.7 per cent year on year while digital revenues continued to increase by 30.3 per cent. But how much digital revenue was attributed to subscription video on demand (svod)? For these subscription film and TV services, often viewed as a threat to the digital home entertainment revenues, are needed to make up for physical’s decline and vastly reduced TV slots once available. Svod revenue grew dramatically by 57 per cent in 2015, with revenues of £479 million making up 44 per cent of overall digital sales; in 2014 svod made up 47 per cent of the overall digital revenues. In the US consumer spending on home entertainment in 2015 inched up one per cent on 2014 at $18 billion. Digital revenues increased 16.4 per cent on 2014, with DVD declining by 12 per cent to $6.1 billion. Streaming services generated $5 billion, up 25 per cent, representing more than half of the overall digital revenues of $8.9 billion. Svod is also deemed a threat to the wider content ecosystem, from major studios to TV platforms, MSOs (multi-service operators) and linear TV viewing in general.
So how worried should we be by the stratospheric rise in a low-priced subscription content product? Svod presents a new viewing experience unconstrained by schedules; multi-episode availability and flexible options to subscribe and unsubscribe, providing consumers with an alternative to the previous status quo of high price content packages over long-licence periods. A third of UK broadband households subscribed to an over-the-top (OTT) video service as of Q3 2015 but just 15 per cent of pay TV households in the UK subscribe to premium movie channels. Svod services are primarily made up of Netflix, Amazon Prime’s competing service or Sky’s Now TV package – OTT services, delivered direct to the customer via the Internet.
This direct to consumer proposition is, many observers believe, the new holy grail – one which enables an operator to collect data about its customers and their viewing habits. All the better to determine, with algorithm accuracy, what customers will want to watch next and what Netflix and its contemporaries should spend big dollars making their next exclusive about. Pay TV, cable and satellite platforms with hefty monthly charges and linear TV corporations with schedules all surely should be threatened by an all you can eat, easily accessed content proposition? This led by a company, (Netflix) who also want to close up those awkward theatrical windows in order to stream content as early as possible and have your films and TV shows available at the same time in all the countries it streams (currently most of the politically correct world by the way).
While we in the UK were still munching on stale mince pies and dreading the first days back in the office, the Consumer Electronic Show (CES) in Las Vegas burst into action with all its shiny consumer tech predictions. It also played host to Netflix’s ceo Reed Hastings proclaiming the launch of Netflix into a further 130 countries taking its tally to 190. “Today you are witnessing the birth of a new global Internet TV network,” Hastings said. “With this launch, consumers around the world — from Singapore to St. Petersburg, from San Francisco to Sao Paulo — will be able to enjoy TV shows and movies simultaneously — no more waiting. With the help of the Internet, we are putting power in consumers’ hands to watch whenever, wherever and on whatever device.” International Netflix membership has already reached 30.02m with the number of US subscribers at 44.74m. In short US subscriptions have slowed down so Netflix are all about International expansion.
But where does this leave not only the major corporations and studios but independent distributors/sales agents alike? And where does it also leave them when Hastings also pointedly said “nearly every new dollar” Netflix spends is for “global content and global rights” and that regional differences between Netflix offerings “will narrow out of existence over time”? With words such as TV, global, simultaneously and the watch whenever, everywhere bit being bandied around, you’d be forgiven for thinking that come January we had entered a world devoid of independent territorially driven content distribution and that, with the European Commission’s initiative to create a Digital Single Market in Europe, it’s a wonder independent distribution has a rosy future at all. So SVOD must be an enemy of the most boutique’ist of indie distributor and the biggest entertainment corporation alike.
If Netflix requires global rights and the ability for its subscribers to watch the same content at the same time, how can it buy svod rights for independent films? Not least premium indie product which could already have embedded broadcast partners as early as script stage requiring the all important first-run rights and way before any market or sales market presence? If Netflix does pre-buy, what territories would then be willing to take on any remaining rights? Home entertainment might be more likely but if there’s little or no theatrical and prohibitive windows until the home entertainment release, what is the point? This hasn’t however prevented Netflix from making some early pick-ups and for seeking out exclusive rights. In the past few years Netflix has bought Beasts Of No Nation at an eye watering price, thought be around $12 million, bought high profile documentaries (upping its arthouse credentials as well as purchase prices), inked a four film deal with Adam Sandler and one with The Weinstein Company. Recently announced pick-ups include worldwide rights on The Fundamentals Of Caring, starring Paul Rudd, following a deal last week with CAA and UTA and the previously acquired Tallulah from ICM Partners. Netflix wants global svod rights then any remaining rights can be all but redundant and this in parallel with helping to inflate the value of rights, makes it doubly hard for independent distributors to pick up premium films.
But also what became of the enthusiastic pick-up of svod rights prior to launch from a wide variety of independent UK distributors? With the exception of the Studiocanal, eOne and Lionsgate output deals with Amazon and Netflix, which have a few years to run, it seems harder for independent film distributors to get svod deals these days. With Netflix’s spend on its own produced content continuing on the stratospheric rise, (31 originals announced for 2016 with an estimated overall content budget in 2016 set at $5 billion), coupled with the set up and marketing costs in the new International territories, is it any wonder pick-up has declined?
Just last week I read a rumour that Apple might buy HBO to assist its entry into the video subscription world in similar fashion to its acquisition of Beats to kickstart its music streaming service. (Apple’s relatively late to market subscription streaming music service still managed to attract 10 million sunbscribers in its first six months of operation.) This would signal the next phase of major entrants into the svod video market, along with YouTube’s recent product launch of YouTube Red in October 2014 in the US. Amazon has launched an interesting B2B model which puts the power and connection of Amazon’s Prime customer base into third parties hands, (much the same way Amazon marketplace and Play.com did for physical goods). A content owner and distributor can set up a direct to consumer digital store or subscription service. A neat initiative for those previously prohibited to deal direct to consumers due to lack of knowledge and or high set up costs.
Major corporations, (I include here not just the major studios and entertainment companies but MSOs/cable/satellite companies etc) who have been paying or are being paid healthily for premium rights for some time and if they have the platforms, audience and ad revenues, have no reason not to continue their arrangements. So they have the content but instead of signing up, (their rights) with the new svod platforms, in some cases they are choosing to go it alone.
Just this month CBS and Time Warner announced plans to extricate Netflix from their joint venture (CW network’s new streaming service), which once Netflix’s rights expire, the studios will once again represent. Others have launched their own svod platforms. Universal launched PictureBox as far back as 2006, offering catalogue movies and announced last week the launch of the first in a portfolio of smaller, niche and lower cost OTT content bundles to compete with Netflix. Seeso presents comedy content aimed at a younger audience and priced at $3.99 per month. HBO leads the ‘keep the content in the family home’ directive by launching its own stand-alone svod platform HBO Now, as well as continuing to serve Pay TV platforms world-wide (the best of both worlds). In fact if you did a study of all major territories, you will find svod services either set up by incumbent TV companies and MSOs before Netflix entered their market or ones that are doing so in a response to the company’s plans.
Rather than take the money from Netflix (albeit in a later window), why not just build or support your own platforms and distribute yourself? You become the gatekeeper of the customer and the all-important collector of the data and guess what? DATA RULES! How do we know this? Because Netflix told us so… According to its corporate blog, Netflix considers data visualisation to be of paramount importance. Chief content officer Ted Sarandos recently said of Netflix’s originals strategy: “Big data is a very important resource to allow us to see how much to invest in a project but we don’t try to reverse-engineer,” adding that commissioning decisions are more like “70 per cent science and 30 per cent art”.
With thousands, not hundreds, of channels available today and millennials (young folks) consuming mostly OTT, brand loyalty is becoming less important, a hotly discussed topic at CES. Steve Canepa, general manager of global media and entertainment for IBM, said part of the challenge the industry is facing is that old Hollywood hasn’t adjusted to the onslaught of consumer data that has recently become available. Studios are so focused on the content, they still haven’t fully embraced the consumer, he added. “With all these new devices and services, the only thing that hasn’t changed is the amount of time we have to consume,” he said. “Consumers pick and choose what they consume and traditional media companies don’t have data at the centre of what they do, while the disruptors — the Facebooks and the Googles — do.” Other behemoth technology companies with a direct relationship to users have successfully mined them and collected vast ad revenues in doing so. In just one quarter in 2014, Facebook made more than $4 billion in ad revenue alone. It is this valuable data which traditional entertainment companies are lacking and that it is important that they too develop direct to consumer propositions.
A study released this month by global strategy consultancy L.E.K. Consulting takes an in-depth analysis of UK millennials’ media habits by life stage, from living with their parents to starting their own families. It found that major UK TV companies face the growing threat of the millennial generation’s preference for new media channels. One of the most important challenges comes from millennials’ planned reduction in spend on pay TV and switch to internet-based OTT services like Amazon Prime and Netflix. “45 per cent of millennials pre-family and 56 per cent of millennials with children currently have a pay TV subscription, and 45 per cent of them either have or expect to have an OTT subscription in the next year, with two thirds of those planning to cancel or reduce their pay TV spend.”
But what of digital downloads?
The combined revenues of DVD and downloads last year totalled £1.26 billion which represented 56.5 per cent of the overall home entertainment market. Not to be written off therefore is the contribution from EST in 2015. EST revenues were up 50 per cent and represented £100m, about 10 per cent of overall digital revenues and 10 per cent of DVD revenues. (DVD revenues totalled £1.08 billion.)
Some 57 per cent of entertainment consumers polled recently said they’d rather own a copy of a film or TV show, whether it be a disc or download. EST still remains a crucial, in fact critical part of digital’s revenue and studios and indies alike, who equally are painfully aware that pricing for such higher margined products should be protected.
In the UK who would have thought Sky would enter the home entertainment market, and to have made it a success in such short a time? Not content with buying into telecommunications to gain that all important direct to consumer OTT relationship, Sky then acquired svod rights to stream on demand content, be it films or TV and then finally became a distributor through its Buy and Keep service launched in the spring of 2014. Not to forget Sky’s stand alone svod service ‘Now TV’, you needn’t subscribe to a Sky Satellite TV package to be a Sky customer and access their premium content, be it films, TV or sport which has driven Sky’s Pay TV offering to date.
Maximising the already established premium early EST window before DVD, (typically between one and two weeks), means Sky can deliver a digital file to consumers instantly while the DVD takes up to a few weeks to get delivered – surely a win-win consumer proposition. The film is ready to watch instantly on the big telly box, accessible on other portable devices, and Sky will also send you a DVD, (which you could then give away as a birthday present, no-one will know). Word has it files and DVDs are shifting very well and, mentioning no titles, a major studio said a third of its week 1 overall sales (EST/DVD) were sold via Sky’s Buy and Keep service (the release had the all-important early two-week EST window.
However much content owners and platforms might support full downloads, digital rentals are very popular, not least in the land of Sky, whose customer base exceeds 10m and with film rentals in its DNA (even when they were scheduled). Rental revenues at Sky will outweigh EST for the foreseeable future and also certain genres seem to skew heavily towards rental in any case (thriller and horror for example), with family entertainment very EST friendly, (repeat, repeat viewing). The digital revenue figures of 2015 suggest rental revenues made up almost 50 per cent of overall digital revenues, still a significant percentage.
Finally, I predict – and hope – to see more major entrants into the svod eco-system (not least, Apple) primarily to see more films being made available to audiences once served by DVD, which for many films is not a viable business anymore. EST and VOD can only make up some of this lost revenue. Netflix and similarly minded service providers must make peace with content owners (OK the major studios) and the content community at large and find a place for all to reap shared benefits. The major corporations will not stand by but will need to evolve and adapt, not least by embracing OTT. The independent world will also have to adapt but does not deserve to have the heart ripped out of its business, which gives local audiences local product and also the exotic and unusual product. Oh and not always delivered at the same time.
• You can find out more about Lucy Savage’s consultancy here and get in touch with her by emailing firstname.lastname@example.org
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