When we embarked on our journey at VUULR we heard time and time again about “Industry Norms” that would never change. Understanding that the industry is almost 100 years old, and given that for all that time the way that Content Rights are bought and sold has hardly changed, this mantra came as no surprise.
Changing Norm 1: Output Deals
“But the majors (big content creators and big buyers of content) put in place output deals, where the slate of the next (3/5/10) titles are pre-committed. Buyers will not want to buy “a la cart” on a marketplace. “
Well, when a deal takes a huge amount of time (6 months plus) and manual effort then of course the trend is to “buy in bulk, even if that means buying sight unseen”.
But as the friction of doing a deal is removed, then the economic rational (acquisition efficiency) is also removed, and all that is left is risk i.e. buying content sight unseen. Also, as the cost of content goes up, then so does too the risk of buying content “sight unseen”. Even big name, hit producing star teams have their flops.
So, our view, and also from the lens of a behavioural economist, is that “Output-Deals” are now subject to huge economic forces to drive change; and will begin to disappear in the digital transformation of the industry.
In her LA Screenings Recap on World Screen, highly respected industry watcher Elizabeth Guilder (20 Years @ Hollywood Reporter, 6 years @ Variety and now contributing editor @ “World Screen”) notes that these changes that are already starting to appear in acquisition teams …
“They no longer want to buy in bulk from their U.S. suppliers; rather, like the handful of top British buyers have always done, they increasingly cherry-pick the one, or two, or three shows…”
Changing Norm 2: Flat Licence Fees vs Performance Based Pricing
Historically, the near bottomless pit of ad dollars from brands eager to use TV to reach huge mass audiences, has meant that TV operators have been happy to pay fixed, flat rate licence fees for content. This has been enabled by the sense of security from unwieldy, coarse grained audience statistics that “hid” poor performing content. But things are changing with license fee structures too.
Lead by the OTTs who have the benefit of “per user per second” granularity data on watching habits there has been a small but growing momentum towards (licence) pricing models for finished content, that shares the risk between the “exhibitor” (ie the broadcaster/PayTV/OTT) and the content owner.
Whilst this is shocking for the industry, it is hardly shocking if you look outside the industry. Performance based remuneration has become the norm for many other industries that have digitally transformed and, have as a result, access to the data that enables it.
The PayTV sector of the industry is in an interesting phase at the moment; from having been the high growth, highly profitable “new kid on the block” to which many industry stalwarts flocked, it has now become the industry segment most under pressure from change. Despite being staffed by these stalwarts who cut their teeth on the flat licence fee model, they too, are now looking to change due to that economic pressure they face.
“Rising Fees, Falling Audiences Highlight Pay TV Dilemma” is the headline. With the dramatic visualisation below … (these are US skewed examples, but the trend is global)
The article by Information highlights the key takeaway:
“ Cable channels such as ESPN, TNT and USA have sharply raised the price they charge pay TV operators even as their audiences have shrunk. That is widening a gap between audience and cost and is driving AT&T’s push for paying channels based on the size of their audience.”
Remember that AT&T own/have stakes in DirectTV & WarnerMedia & Turner & Sky (LatAm) & Comcast & HBO & more. So they have a powerful voice and, although this is a fundamental change to industry practise, with support from heavyweights like AT&T, the rate of change is likely to accelerate.
In conclusion we see these changes as positive and inevitable disruption to the industry that will yield benefits to the industry as a whole.
In open, digital, transparent markets, great content gets found and bought, wherever it comes from and from whomever. Small companies are enabled to compete with large on the basis of the quality of content they make. Broadcasters benefit, as less of their budget gets spent on the cost of the transaction.
And finally and most importantly, we the audience win as we get more and better content to watch on “what-used-to-be-called-TV”.