The State of Media and Entertainment 2018
In 2017, as existing video platforms such as Amazon and Netflix continued their expansion into new markets and spent even larger amounts commissioning new content, the big questions of the year were how existing content owners would adapt to this new environment and whether new companies entering the fray could make any real impact in a market that, despite only existing for a decade, suddenly appears to have well-established stalwarts.
In terms of the established platforms, Netflix generated over $8 billion in revenue in 2016–17 and looks as if it will exceed $11 billion for 2017–18. Despite an increase in the cost of subscriptions in most territories, Netflix still expects to reach its global operating profit target of 7 percent and now boasts more than 109 million subscribers.
Of course, most of the revenue generated by Netflix goes into content creation, which will be somewhere between $6 and $7 billion in 2017–18. This is a significant change in the market, as we have moved from platforms concerned with acquiring content through licensing to a focus on creating original content as a key differentiator in just the last 4 years. Generating exclusive original content has the advantage of blocking competitors from licensing the same material and ensures viewer loyalty to the platform.
After having been the disruptive force in this industry, it seems as if Netflix has now become the establishment. In Europe, however, Amazon seems to be making inroads into its dominant lead. Research by Parrot Analytics shows that in the 20 major European markets, during the period of January to April 2016, Netflix content saw 235 percent more demand on average than Amazon’s. However, during the same period in 2017, Netflix’s advantage was down to 45 percent even though it has much more content available in Europe than Amazon does.
Europe in general is a mixed bag for both platforms, with Amazon around 3 percent ahead in Germany and 1 percent in Slovenia, whereas in France, demand for Netflix was three times higher than for Amazon.
Netflix generated over $8 billion in revenue in 2016–17, and looks to exceed $11 billion in 2017–18. It now boasts more than 109 million subscribers.
The momentum seems to have irretrievably moved away from traditional media, with Parrot Analytics research suggesting that, as cable and TV channels decline, streaming services will hit their peak in 2020. PWC also forecast that by 2021, the revenue generated by the likes of Amazon and Netflix in the UK would also exceed that generated by the theatrical box office.
The Mouse Challenges the Throne
So with both Amazon and Netflix growing the market and investing huge amounts into original content development, where are the potential challengers to their dominance likely to come from? There are three particular types of challengers: 1) the established media companies such as Disney, BBC, and others that have launched or intend to launch their own platforms, 2) tech companies such as Apple, and 3) social media platforms such as Facebook and Twitter.
All eyes are now on Disney, which is pulling its content from Netflix and launching its own SVOD service in 2018.
In terms of established media companies, Disney is one of the few content owners that has sufficient brand recognition to potentially develop a platform that can hold its own against the big two. Disney is currently developing a series of original television shows that includes a live-action Star Wars series, a new Marvel show, and programmes based on High School Musical and Pixar’s Monsters, Inc. Much of this new programming will be exclusive to a new platform with a planned launch in 2018.
In addition, Disney has also announced it will be winding down the deal that has brought all of the studio’s films exclusively to Netflix since 2012; it will end completely by the end of 2019. Netflix has a good track record of creating quality programming and hopes to make original content half of its catalogue by the end of next year, which is fundamental to making it a self-sustaining platform. In terms of creating compelling content, Disney has an exceptional track record at the box office, having generated more than $5 billion in receipts in 2017, and intends to produce five or six original movies for its service per year. Assuming that at least a couple of those are part of existing franchises, Disney will have some very compelling content propositions.
Disney’s financial muscle may also be able to undercut Netflix on price. Disney CEO Bob Iger recently said on an investor call that “our plan on the Disney side is to price this substantially below where Netflix is.” However, Netflix’s acquisition of Mark Millar’s comic book publishing company enables the service to gain a foothold in the comics industry, allowing it to develop its own comics-inspired properties in-house, suggesting it could be looking to expand the types of content it may offer beyond the film and TV arena. This diversification of content could be a key part of Netflix’s defensive strategy against Disney to counteract the wide range of content the latter is able to offer.
The Rest of the Crowd
Other traditional content creators such as the BBC are beginning to look at their archives as a way to expand their offerings, along with personalisation. The BBC now requires users to log in to the iPlayer, which will not only enable the company to generate more revenue from the licence fee by tracking access to the service, but will also allow it to roll out more personalisation features in 2018. This personalisation will also use the greater depth and breadth of content the iPlayer is beginning to offer by putting older content online as box sets.
The grandaddy of catchup services, the BBC iPlayer, now requires users to log in, enabling the company to generate more revenue from the licence fee by tracking access to the service as well as create more personalisation features.
In terms of other challengers, tech companies—in particular Apple—have begun to lay plans for their own services. Apple’s plans to create original content for its streaming service has long been rumoured; in fact last year’s “State of Media and Entertainment Video” speculated about what shape its launch may take and what impact it may have.
In fact, the launch this year—which couldn’t really be called much more than a very soft launch—has been very low key. Still, it is interesting to examine the structures being built and how they may affect the environment going forward.
Users can buy series and movies via iTunes or stream some of them through an Apple Music subscription. So far, the content comprises two shows: Planet of the Apps, a Dragon’s Den-style show that fared pretty poorly with critics, and Carpool Karaoke, an expanded version of a segment from James Corden’s The Late Late Show.
This is hardly revolutionary in terms of both content and quality, but then Apple is said to be seeking more broad-appeal content such as emotional dramas and comedies. What is perhaps more interesting is the array of talent Apple is assembling to generate original content. In the UK it has hired Jay Hunt, the one-time controller of BBC One and chief creative officer of Channel 4, behind big hitters such as Sherlock as well as Channel 4’s successful acquisition of The Great British Bake Off. This suggests that Apple will invest its content development war chest in not only on-screen content but also in the best creative development talent.
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