Home Analysis Global media groups seek control over the content value chain

Global media groups seek control over the content value chain

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As if it needed underlining, the recent announcements that Netflix is moving into Shepperton Studios and Sky is creating a new Europe-wide development and production capability called Sky Studios demonstrate that we are in the midst of a golden age of TV content production. These moves also indicate a rethink of many of the basics of how media businesses manage their content pipeline.

“Competition for content is at unprecedented levels, driving stakeholders to be involved earlier in the process,” says Jack Davison, EVP, Consultancy at the content consulting firm 3Vision. “The traditional TV market structure continues to evolve from what was once nation-based TV services to truly global media groups, controlling all stages of the content value chain,” adds Richard Cooper, Research Director at Ampere Analysis.

Netflix has sought economies of scale in taking permanent and exclusive production space at Pinewood’s Shepperton stages near London. The long-term lease, reportedly over a decade, is a vote of confidence in the viability of the UK’s film and TV tax breaks, as well as a sign that the streamer plans to double-down on its originals content strategy.

“Netflix is increasing its production presence around the world, with a view to not only satisfying local market tastes and demand, but also producing content with international appeal,” says David Sidebottom, Principal Analyst at Futuresource Consulting, the market research and insights firm.

Netflix ordered 153 original shows from European producers in 2019, double that of 2018, and 221 productions in total from a budget north of $1bn. Netflix’s annual spend of $12bn has forced other media companies to invest more on making shows in order to keep up.

Among them is pan-European Pay TV giant Sky which, with the backing of Comcast, will double its investment in original programming from £500m ($650m) to £1bn+ over the next few years. This will be delivered by Sky Studios, a new Europe-wide development and production unit that will create productions for Sky channels, NBC broadcast and cable, and Universal Pictures, as well as for other distribution outlets.

“Sky’s originals strategy was driven by a desire to secure great content but through its distribution arm and European platforms it can make the ROI calculation easier,” says Davison. “Now, as part of the NBCU family, there are even more ways to justify its content investment.”

Sky must strive to compete with the seemingly bottomless pockets of the global tech-giants to create the bingeworthy international programming that is essential for subscriber acquisition and retention for its Pay TV platforms and SVOD services. Cooper argues, “Through deepening investment in content creation, Sky becomes less dependent for high-quality, high-profile programming from what are increasingly its direct competition.”

Disney, WarnerMedia and Apple are among the companies building SVOD services that compete, armed with exclusive and fresh content. In the case of Disney and WarnerMedia these services will also use content that has been repatriated from Netflix (though Pay TV deals with the likes of Sky remain).

AT&T will launch HBO Max next spring with content like Friends from the WarnerMedia stable returned at vast expense from Netflix, plus seven original series including a Dune spin-off from Blade Runner: 2049 director Denis Villeneuve.

While Netflix’s content acquisition (as opposed to production) had slowed even before studios started withdrawing content from the market, 3Vision thinks there will still be plenty of opportunities for the SVOD pioneer to find and acquire third-party content. “New window continuums, co-exclusivity and straightforward deals are likely to still be possible for many,” says Davison.

Sidebottom predicts: “Moving forwards, non-scripted content may become more relevant, whilst the sports rights battleground will be redefined. Both [content categories] face the challenge of moving beyond local relevance and rights, to global.”

With competition ramping up, the multi-billion dollar outlays will be unsustainable for some. While subscribers are already paying for multiple SVOD bundles, the industry should be braced for push-back. Ampere suggests that the dominant players —Netflix, Amazon Prime Video and Hulu—are already stretching people’s spending limits and so creating the risk of viewer payment fatigue.

An emerging strategy to deal with this is more ad-supported services. Amazon’s rebrand of its IMDB movies and TV service, now called Freedive and ad-supported, is an example.

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