Friday, November 7, 2014

The Fog of war when Media Titans do Battle...

When trying to figure out the future for content providers, I strongly suggest you read more than just what's reported in the daily media. 
Below is an article, reprinted in its entirety, where the writer completely missed what is ESSENTIAL INFORMATION for EVERYONE WHO CREATES CONTENT as a PROFESSIONAL WRITER for FILM or TV. 

Big Media Shot Itself In The Foot By Selling Shows To Netflix: Analyst

By David Lieberman (on Oct 31, 2014)

Major studio and network owners’ decision to sell shows to Netflix might go down as one of the biggest strategic blunders they’ve ever made, if Bernstein Research’s Todd Juenger’s compelling report today is correct. Like a lot of analysts, he’s alarmed by what he calls the “unprecedented” drop in C3 ratings across ad-supported TV,  especially among 18 to 49-year-olds. He figures that the 4% decline in total day TV viewing vs the same period last year equals about 13 minutes per day. And he concludes it’s not a blip: They’ve gone to subscription video-on-demand services led by Netflix and its shrewd CEO Reed Hastings. Its viewing has increased about 12 minutes a day, to 95 minutes, as its audience has grown and each subscriber spends more time with it.
So — contrary to the party line in media — Netflix viewing is a substitute for traditional TV, not a supplement. And “we don’t think those viewers are coming back. The trend is more likely to accelerate than decline,” Juenger says. That means Big Media companies are screwed. They can “stop licensing to SVOD, or face years of declining audiences.” But if they stop licensing, then that “would cause a material drop in immediate earnings” — which investors won’t accept. That’s why Juenger believes they’ll continue to play a short term game and “increase the amount of content they license to SVOD, to make up for the lost advertising revenue. Which will only make the problem worse.”
But wait: Wasn’t the recent drop in TV ratings mostly due to Nielsen’s slowness to count people who still watch mainstream TV but on tablets and smartphones? Juenger says no. “Nobody’s going to sit on their couch and watch video on their cell phone while keeping their TV set turned off. Most of this viewing is very likely to have come from ‘found time’when the main TV screen is not accessible or is already on.”
How about the growing use of DVRs or VOD? Again, no. Although DVR penetration is growing, that’s been “offset by declining usage.” (Early adopters are usually most enthusiastic about a technology.) And VOD still accounts for less than 1% of total viewing. “So even huge increases would not have a significant impact on total viewing.”
Juenger says that Disney, Fox, Time Warner, and Discovery are probably OK for now. He’s less confident about AMC Networks, Viacom, CBS, and Scripps Networks. The last three “have the most exposure to U.S. advertising revenue, and therefore are most exposed to the SVOD risk.”

Everyone reading the above article should be aware of what the writer misses. And its hard to give David Lieberman the benefit of doubt when it seems like he can’t even connect his own dots. This is the part of the article where he lays out the facts, but misses the essential underlying issue –

Juenger says that Disney, Fox, Time Warner, and Discovery are probably OK for now. He’s less confident about AMC Networks, Viacom, CBS, and Scripps Networks.

Could it be the companies mentioned as "OK" are not only owners of networks, but more meaningfully -- CONTENT PROVIDERS.  
The list of corporations (who may be in trouble) are predominately made up of advertised-based-networks. 
Viacom, is the only corporation on the second list that some might see as inconsistent with my point. But Viacom belongs there because it is indeed vulnerable. Yes, Viacom owns Paramount (a film studio, not advertiser based) but the other companies underneath the corporation umbrella are pretty much in the advertiser reliant Network Business. Meaning their cash revenue relies on the content provided by third party companies that they do not have a financial stake in. 

The connection of the dots becomes complete only when you look at the rise of Netflix as nothing too different than what occurs as part of an historically proven flow of economic marketplace dynamics taught in Econ-101 at any major university. 
In the marketplace there will always be upstart companies exploiting a niche in the hope they will become a viable entity. If this upstart company also possesses other elements such as at least competent/or visionary leadership; forward thinking/original intellectual property; and marketplace good timing/luck -- the upstart might very well completely overturn the apple cart. 

In our ever changing times – driven by technological innovation and the shrinking of the world into one huge marketplace – a loaded upstart company has the capability of not only upturning the apple cart, but completely re-inventing it.

But no one should mistake these turn of events regarding Netflix to believe for a moment that the major media corporations were completely caught by surprise. 
That would be na├»ve. 

If you were, let’s say, running Disney, wouldn’t it be just fine to let a Netflix spend all the money doing the R & D & Marketing costs to establish themselves in the brave new world of Internet streaming? Of course you don’t remain completely on the sidelines, you try here and there to establish your own beach head in this undiscovered country, but your main strategy is to allow for the inevitable play – there’s probably a smaller, hungrier company willing to do what it takes to blaze the new frontier. 
You know that when it all plays out, your company, Disney, will be able to make their play and seize control of the real estate after the thick foliage obscuring the path through the jungle has been cleared away by someone else.
And your strategy makes sense when you ask yourself -- what’s the worse that can happen?
Disney is still getting money on their content used by a netflix or amazon. Sure, shareholders carp about how Disney isn’t doing enough about “the future.” But when you have a ton of money, and a huge library, the carping is something that becomes more of an annoyance rather than a real existential corporation  challenge.  
Best case scenario is you watch as another company must endure all the pitfalls of streaming to a new generation of viewers. You avoid all the speed bumps of incorporating new technology in a transitional way, and just wait as the lay of the land becomes more clear because the dust has settled, the initial fighting is over, and the lay of the land can now be seen clearly. 
Let the upstart companies like Netflix go through the turbulence because that’s the only way they can prove themselves in the long run on the media spectrum. As long as we get cash for our content, how are we hurt? Content doesn’t grow over night. It takes decades to build library of content. Technology is the part of the equation that seemingly grows… overnight. 
I know I’m right about the above because people smarter than me have already made their moves. Netflix and amazon are in their second cycle of creating original programing. They know that after blazing the trail, the studios will now rush past them like prospectors looking to strike it rich after the original founders drew the map. 
This is an important story, and I wanted to offer my take on what’s happening so if the writer of the article above is clueless about what’s really going on, the rest of us know what is happening. It may come off as a game of musical chairs, where someone must leave the contest because they no longer have a chair to sit in. But trust me, the corporations with the content have seat-fillers holding their chair until they return from the restroom.