Media Companies and the Search for Profitability

Early in the streaming market, content and service providers focused on building subscriber bases through exclusives and original content, but production of such content is extremely costly. For instance, Netflix spent $17.5 billion and Apple TV+ spent $6.5 billion on content production in 2022 alone. Today, the market has clearly shifted to a need for return on investment – and GAI can be leveraged in several areas as a tool to help reduce production and operational costs.

Pay TV in Decline

The acceleration of OTT services led to a greater divide between online video and more traditional pay-TV offerings. This shift forced many traditional players to rethink how to do modern business to meet new consumer expectations, else risk reduced relevance and possible collapse.

Just 5% of US internet households rely only on a pay-TV service subscription with no streaming services versus 40% almost 10 years ago, and 36% of internet households use streaming services only, with no traditional pay-TV service.

?From Content to Cost: Pricing Shifts and Bundles

Content is a key driver in consumer preferences for video services. Rising content costs for service providers are driving a surge in service consolidations and higher subscription costs for consumers.

Consumers spend $73 per month on average on streaming services, which resembles the costs of traditional pay TV that many have left behind.[BC2]?

Streaming providers rely on original content to differentiate and attract new subscribers, but this has turned them into production companies. As subscriber numbers level off and production costs rise, the absence of profitability is clear. Examples of price increases and reports of losses are pervasive for service providers:

• In October 2023, Disney+ raised prices for the second time in less than a year; this is in the wake of a 12 million subscriber loss for Q3 2023 and a reported $512M loss in its fiscal third quarter.
• Peacock expects to reach “peak losses” of $3 billion in 2023 but remains positive for 2024 onward.[1]

Generative AI Promises Efficiencies

To counteract these losses, companies are evaluating how they can strategically employ generative AI. Uses of GAI can include providing a natural language interface for editors and content curators, or creating content descriptions of different lengths for different platforms/applications. GAI can even create different images for more targeted advertising or write personalized news articles. The automation afforded by GAI can easily shave off many hours of work for individual contributors – and many dollars of expense for companies.

Generative AI Across the Content Lifecycle

There are multiple GAI tools available that assist both creatives and executives across the media supply chain, with even more in development. This technology can help companies gain cost advantages, increase speed to market, and strengthen customer loyalty. Generative AI often builds upon a machine-learning foundation, but also introduces novel applications, promising substantial impacts on how content is created, distributed, and monetized and how entertainment organizations operate.

This is an excerpt from Parks Associates white paper Maximizing Returns: Generative AI’s Impact on Entertainment, written in partnership with FPT Software. This white paper examines the emergence and explosion of GAI and its potential impacts on the entertainment industry including efficiencies and automations within the media supply chain and opportunities to boost revenue. It highlights concerns around copyright and human rights issues with using GAI, particularly in the media ecosystem. Finally, it highlights examples of GAI tools already available for use in entertainment and offers guidance on steps media companies can take now to be ready to implement GAI as these models and tools mature, such as building private LLMs, offering 24/7 customer service, focusing on using GAI to enhance rather than replace, and to be mindful of intellectual property protections when creating content.

The applications and possibilities that GAI can create are virtually endless. There are numerous GAI solutions available today and many current and pending legal considerations for its use. The world of AI is evolving quickly and those that evolve along with it will be able to transform their business.

[1] Comcast says 2023 will see 'peak losses' for Peacock after losing $978M in Q4 (yahoo.com)