5 Things....Prognostications

The three pieces in this series that Courtney and I have published to date (5 Things That Will Change Forever, 5 Things That Will Morph and 5 Things About Job Market That Have Changed ) have focused on where the TV industry is today and what is already transforming. Not content with just sharing our perspective of the changes underway now, we thought we would use our years of watching and being directly involved with earnest ‘game changing’ moments in the industry to provide a peek into the future by sharing some predictions for the next 12 months and just beyond. In order to lend credibility to the exercise, we conscripted one of our incredibly smart friends.  

David Smyth is an international film and TV executive and consultant who spent over 10 years at Twentieth Century Fox as MD and SVP of Sales and Development. Before that he held senior roles at BSkyB, BBC and J Walter Thompson. In other words, he’s been around the block and seen a thing or two on both sides of the content aisle.

With me in Los Angeles and David and Courtney in London, we narrowed things down to the following five areas and, as you’ll see, we don’t always agree on our predictions…

#1 3D Adoption Fizzles; 8K Could Leapfrog 4K 

David: 3D and 4K, in my view, are two highly touted innovations that have not lived up to their promise. Just because you have the technology to build something, doesn’t mean consumers want to consume it. Both of those innovations tended to overestimate the mass consumer audience’s desire to be completely immersed in the experience. We should remember that for the vast majority of viewers and the shows they love, the TV is not meant to be a completely immersive experience. It is something used to relax and to punctuate the day. It forms your social regime as a family. I know my family has been brought closer together by shared viewing experiences - things like “Love Island”. I can’t imagine us doing that, or sharing another experience with other people the same way when you have to put glasses on, excluding everyone in the room. Or indeed 4K, where if you are going to notice the difference, you have to have a TV set that is so massive and sit so close to it. 

Patricia: I’ve always felt 3D was for a select group of consumers and not for the mass market. I’m not sure I totally agree about 4K however. I was working with companies 10-15 years ago that were extolling the virtues of HD and a lot of people were resistant to it. It took a long time to take hold, but eventually, people became so accustomed to that exceptional picture quality that standard definition paled by comparison. In the case of image resolution, adoption follows the sale of hardware. All new smart TVs are 4K -- with 8K starting to enter the market too. The VIZIOs, Samsungs and Xumos of the world are keen to show off that technology so more and more 4K will make its way into homes. Like HD, I think consumers will come to appreciate the superior quality and it will be difficult to go back.

And now, thanks to the pandemic, so many people are watching theatrical films and amazing productions like Hamilton on their TVs at home and the quality is pretty compelling when you watch a film or live event in 4K; enough to maybe forego the risks and expense of going to a theater. I think it might be the tipping point for 4K, with 8K not far behind.

Courtney: I think that 4K, particularly with the dynamic up-conversion capabilities now available on phones and TV sets is no longer a meaningful selling point. 8K is the new HD and given the decreasing cost of sets and the increasing amount of time people are staying at home, 8K adoption will quickly leapfrog 4K.  

#2 Home Cinema Will Experience a Revival, Accelerated by PVOD and Straight-to-SVOD Releases 

David: A lot of people decide to go to the movies before they decide what they want to watch. There is something in the decision to share a cinematic, or theatre, experience in a building with a bunch of other people in the dark that is appealing. Now with COVID-19, I think people are afraid to go back to the cinema and I don’t think it will suddenly roar back to life. But I do think there will be a place for people watching movies in places other than their homes.

Patricia: Jeff Bezos is betting that you’re right on that, David, because he has decided to buy a number of drive-in movie theaters. In California, as least, the drive in business is booming. I think there will always be that desire to enjoy a communal big-screen experience. Whether it is the resurgence of the drive-in, or roof-top cinema clubs, I think other types of cinematic viewing experiences will crop up. But recent theatrical films that have debuted via SVODs -- Roma, Frozen 2, Hamilton - may lead people back to the 80s “home cinema” craze. It’s a pretty nice experience to watch those films in the comfort of your own home -- especially with a great Smart TV and surround sound. 

David: I think blockbuster films still need to be released in theaters just to recoup their investment -- assuming that is still an imperative for the studios. But that may not necessarily be as important today because it may be more important to develop a customer relationship to monetize. Studios with the very deepest of pockets could continue to produce $150M films and simply not release them through theaters but instead release them through their own direct-to-consumer services.

Patricia: Hamilton, the movie, was supposed to be released in theaters next year. But it was released on Disney+ on the July 4 weekend and wound up boosting Disney + sign ups by 72%. Making it a requirement to have a paid subscription (not a freebie or trial) to watch it certainly demonstrated content’s ability to drive consumers.

Courtney: You both make good points. COVID-19 has clearly demonstrated that there is a premium TVOD (or PVOD, as it’s now being dubbed) window. I don’t think it’s going to be controlled by another box - sorry Sean Parker. I think it’s going to be a normal aspect of content consumption accelerated by the fact that consumers now accept different price points for different facets: convenience, immediacy, etc.. Would you prefer to take 10 kids to see “Frozen 2” for a birthday, or pay $30 to have it on in your living room where you can sit in the other room and shut the door?

David: That’s right and there must be choice and price sensitivities. If fewer films are going to make it to theaters because their pathway is destined to go straight to streaming services or it's not feasible to cover the costs of theatrical distribution, then other avenues will have to open up. It could fuel demand for local production. If you’re Sky and more of the films that you would have otherwise licensed through your output deals are going to wind up going to Disney+, HBO Max and so on, you still have a movie service and subscribers you have to satisfy so you have to offer something new, relevant and worth paying for.  

Independents and distributors of smaller films and films aimed at a more adult audience, have already been bypassing cinemas completely or being produced for the likes of Netflix or possibly Sky and other premium pay operators. Perhaps we will see an upswing of smaller theatrical releases and a lot more experimentation with windows.

#3 Unbundling will lead to Rebundling of AVOD and SVOD services by MVPDs

Patricia: There was a time when MVPDs were resistant to the concept of “a la carte” pricing. Remember that? Cable and satellite companies couldn’t have people picking and choosing what they want and paying one price for it! They had to give us a bundle. We would get 50 channels we’d never watch just to get the six we would. Because the consumer has become more powerful now in this whole equation, I wonder if the MVPDs will have to go toward more of an a la carte offering for consumers in order to attract and keep them on their platforms.

David: Unbundling tends to happen not because MVPDs want to sell services individually, but because they want to bundle them in a new way. There’s a lot of research suggesting that from a customer perspective, buying SVOD services is not a forever elastic concept. People tend to get a nose bleed above $20 and pass out above $30. Looking at the various offerings out there now, it’s very, very easy to see how you race past that point. There isn’t enough room for them all to exist going direct-to-consumer. The rebuilding back onto MVPDs is going to happen because that’s where there is a huge available paying audience and much stickier subscribers – churn is kryptonite for SVOD. So really, really rapidly all of these services will be made available via a single subscription because that’s what customers want. It’s boring to have to buy four, five different SVODs, but if you want them all, you’ll find a way of voicing your view: ‘Can somebody just give me one price for all the things I want?!’ That means the SVODs become the new basic channels -- as exemplified by Disney in the UK shutting it’s kids channel down and putting all their content into Disney+. 

Courtney: I think industry insiders often place too much emphasis on the cultural capacity of the consumer. Typically, simple and easy to access wins out -- I totally agree with you there -- and they don’t want to have to pay 42 bills. But within that, you have interesting trends. 

If you look at the latest Amazon Prime UI refresh, for example, they’ve gone and interspersed the content you get as a subscriber with content that you have to pay extra for. It is annoying! You are in a mixed pay environment, when you’re scrolling across and you have two seasons of something but you want to see the third and then you gotta pay extra or subscribe to Starz or MGM or Acorn or whatever…! 

Patricia: That’s why there will be rebundling. The basic tier is essentially free. So there’s going to be a re-pricing of a lot of these SVODs and aggregation within MVPD’s and vMVPD’s as a basic tier and a mini-basic or entry package, which is going to be the AVODs. This will be dramatically sped up by the economic strain put on families during the pandemic and these consumers will want to pay one price they’re comfortable with to get what they want and not potentially over-spend on their entertainment services.

David: We probably need to focus on the idea that consumers - who unlike us don’t obsess about these things – aren’t going to pay a lot of attention to the fact that there are so many different SVODs available - it’s all too much. They want to say here’s ￡20 or ￡25, I need you to give me three or four of those services and why don’t you throw in another couple for a year. That’s likely to be how it shakes out.

#4 Content ‘discovery’ becomes less of a problem for consumers, but remains an issue for producers 

Courtney: I agree that there will be a ‘re-alignment’ of packages, bundles and payment strategies, partially because it was a bit of a false flag with a lot of the recent uptake on free trials, three month subscriptions. So far people have been willing to pay high prices for general entertainment platforms saying ‘$15.99 for Netflix, that’s fine because there must be something on there and I can’t run out of things to watch. Now, I’m drowning in free time and I realize I’m paying $60 a month for four services, on top of other costs, and I have watched everything I want. I can’t find anything else to watch and I would rather watch live congressional sessions than have to search the third page of the carousel.  

Patricia: Courtney, you’re right which is why for a number of years people have been saying that whoever solves the discoverability of content question is going to be a rock star.

Courtney: Yeah, I don’t even know if that’s true anymore. I think what people are waking up to is that it is not about content discoverability it is about audience understanding and pointing the appropriate content at the appropriate taste clusters. And doing this before a subscriber is even exposed to the algo’s running the recommendations on the platforms. So . . . within 12 months we won’t talk about discoverability as key anymore.

David: I am not sure that I agree with you, I think content producers care. There’s so much new content being released that if you launch your show on Netflix, say, if it hasn’t found its target audience within its first week, it won’t even touch the sides on its way down. If you are a producer, the idea that you cannot gain traction because of the massive volume of content and the difficulty of audiences finding that content, I think it’s an issue and one which needs to be addressed not only in the subscriber acquisition efforts but also in the retention efforts at platforms.

#5 Library sales values exceed current / slate output values going forward

Patricia: With the proliferation of services - and certainly AVODs now -- will some of the older catalogs that filled in the gaps of the free TV schedules but maybe fell dormant during Peak TV see a resurgence? We might start seeing the big acquisition deals we saw a few years back when cable channels were trying to get exclusive windows for movies.

David: Ultimately, yes, because the demand for content is there. Who doesn’t want to watch the original Miami Vice or Spartacus? If you check out W4Free here in the UK they have a ton of films; a deep library. Those are films that have an outlet now that might not have before. AVOD is a consumption-based business and that’s going to send buying decisions to where the money is. So if audiences are watching content, it will be bought, but if they're not and advertisers aren’t interested in those audiences, then it won’t. Because it’s a consumption business, it’s going to behave more like free TV but in a very, very fragmented way.

Courtney: Running a cable channel like Sky One or Ovation, it is much more difficult to identify the cost and its amortization on a per sub basis, whereas on an AVOD platform, I can accurately understand my costs for each additional subscriber as each one has its own direct unit cost. So as long as my additional ad sales revenue is better than my cost, I’m winning. If I’m running a linear channel, I’m paying for satellite (or other distribution) capacity whether anybody’s subscribing to or watching it or advertisers are paying or not. So just from a purely commercial or economic perspective, going back to your point Patricia, are people going to be buying hundreds of titles? I think as an AVOD player you’ll throw a lot of stuff at the wall, especially if there isn’t a huge cost to it and it fits within your curation criteria, but I think very quickly you won’t renew those things that have no traction.  

David: Exactly right. It’s a consumption based business. You will follow the money. And with the high-value, new titles from the studios primarily being driven straight to their platforms and European co-productions and independent producers not being able to keep up with the needs of either volume or quality, you will see more and more library deals happening - non-exclusively - which will shift the internal balance of revenue drivers at big distributors from new titles to library product. This was already beginning to happen before production was shut down globally for nearly four months and, while opening up, it is still very uncertain. Long may the great libraries live!

Thanks to David Smyth for joining us this week. More soon...

Patricia and Courtney