If studio groups want to stop licensing content to third-parties and give up their Pay TV channel revenues in order to drive all their content output into their own direct-to-consumer streaming services, they will need 180-200 million subscribers in order to replace the lost income. That is the headline figure from a report written recently by Guy Bisson, Research Director at Ampere Analysis, who was analysing the strength of studio groups in the transition to direct-to-consumer and looking at the degree to which we need to rethink all legacy media because of D2C.
This 180-200m subscriber figure applies to every major studio group and takes into account their different D2C pricing, although Disney is viewed as two studios that are effectively merged into one, so their subscriber break-even figure has to be doubled. The model is based on replacing content licensing and pay channel income from every window. Advertising revenues were not included in the modelling.
As Bisson explained at Connected TV World Summit two weeks ago: “This is a theoretical model where a studio needs to replace its entire revenue stream from cinema onwards, covering all the content it owns and licenses to anyone and all its Pay TV channel business including affiliate fees and any other income from Pay TV channels, with the exception of ad-supported TV. Bear in mind that each of the studios has gone to market with very different price points yet there was an amazing consistency to the subscriber figures that allows them to say goodbye to their entire legacy business outside of free TV networks, and it is 180-200 million.”
Bisson stressed that Ampere Analysis is not saying that studios are going to try to replace their third-party licensing and Pay TV channel business by feeding all their output into owned D2C services, however. The emphasis here is on the theory of revenue replacement: the size of D2C service a studio would need before this becomes a viable strategy choice.
Ampere Analysis has previously modelled the viability of studios skipping the theatrical window in order to boost premium VOD or feed movies exclusively to their own services, and the conclusion was that they will make more money using a hybrid approach. The likely outcome [for theatrical] is that in key markets where a D2C service is in early growth stages and there is a keen focus on customer acquisition, we could see films released to D2C services at the same time as theatrical, or one or two lower-budget movies could go direct-to-D2C as streaming service exclusives. “The bulk of movies, especially the higher budget ones, will still go through theatrical windows” Bisson predicts.
Bisson was surprised at how quickly Disney+ reached 100 million subscribers (one year) and he sees this as evidence that it will be possible for the studio groups to gain ground on the likes of Netflix and Amazon despite lacking first-mover advantage. And that is mainly because of content.
“Some commentators were writing off so-called legacy media [the studios and channel owners] and saying that technology companies would blow them out of the water because they have much more money, but what the technology companies do not have is content – ownership of Intellectual Property, production facilities and expertise in managing talent and selling Pay TV channels globally, and the expertise that enables the platform deals that are vital to growing streaming services from a standing start.”
He also pointed out that D2C is a long-term play for the studios, and they do not need to reach 200 million subscribers a year from now, and it could be five, eight or ten years before, according to his modelling, they could then use D2C to fully replace their traditional revenue streams.
Faced with the possibility that major studio groups could, at some point, become financially independent of third-parties, how will the rest of the media business respond? As Bisson noted, “What we are effectively talking about is restricting the flow of content from the traditional chain of exploitation that starts with cinema and moves through packaged media and on-demand into Pay TV and then into free television. “If the major [content] suppliers squeeze the head of this chain, it forces change on everyone.”
That change is already evident, with Netflix, Sky and others all making more of their own content. And Pay TV operators may lose some linear channels; Disney has announced it will close linear channels in various markets to prioritise Disney+, for example (although at Connected TV World Summit, both Discovery and ViacomCBS confirmed their commitment to linear, with Lydia Fairfax, SVP Commercial Partnerships, EMEA at Discovery, making it clear that linear is helping to grow their D2C offering, discovery+).
As Bisson pointed out, all-or-nothing makes for good headlines but the reality is usually nuanced and hybrid. And that includes the fact that the content supply chain stretches beyond the major studios and includes large TV production houses and independent film studios who will continue to feed the rest of the ecosystem.
Want to hear more about content, D2C and super-aggregation?
You can see all the on-demand content from this year’s Connected TV World Summit, and it is totally free. This includes interviews with Discovery and ViacomCBS about their digital and distribution strategies, Virgin Media and Vodafone Spain about super-aggregation and the future of the user experience, and a discussion about super-aggregation featuring Swisscom, Tele2 and the U.S. public service broadcaster PBS. This event also addressed how we maximise the value of content.
Connected TV World Summit 2021 – full agenda