WILL PEAK TV BURST the VIDEO CONTENT BUBBLE? by Mallikarjun Vaddi
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WILL PEAK TV BURST THE VIDEO CONTENT BUBBLE? By Mallikarjun Vaddi round 2015, people in the media burst—or at least deflate? What will be Aindustry started using the term “peak the impact on various market participants TV” to describe the point at which no more if it does? TV shows could possibly be created. Five years later, this hasn’t happened. The Bubble Is Still Expanding Instead, those five years have been a very In the last 15 years, several waves of new good time for most of the participants in players entering the space have inflated the video content ecosystem, starting with the video content bubble. The first was the consumers, who have had more high- rise of digital platforms built around quality content to choose from than ever user-generated content, such as YouTube, before. Content creators and producers Dailymotion, and Youku in China. The next have ridden strong demand to new heights. wave saw the surge in over-the-top (OTT) Broadcasters and streaming players have video providers such as Netflix, Amazon had to manage the fast-rising costs of de- Prime, Hulu, iQIYI, and Viaplay. The most veloping and acquiring new content to stay recent wave saw the expansion of the OTT ahead of the curve and the competition, universe as both tech companies and but they have also enjoyed strong demand traditional media companies have gone from viewers. The pandemic has provided direct to the consumer with their own OTT an extra boost as consumers look for new launches (Apple TV, Disney+, and HBO sources of entertainment and diversion. Max). They have been joined by short- format specialists such as TikTok and That said, as content producers deal with Quibi, and networks such as WWE, ESPN+, the production constraints that COVID-19 and Shudder. has imposed, and as content buyers assess the shape of a post-pandemic video Streaming content has become a major marketplace, the question of peak TV has market force. Social media and livestream- reemerged. Is the bubble finally set to ing platforms, such as Facebook, Twitter, Twitch, and Cheddar, have attracted Spain is another fast-rising production millions (in some cases, billions) of viewers. center for multiple reasons, including As of February 2020, the top 20 global relatively low costs, tax incentives, a wide commissioners of scripted content included variety of geographic locations, good infra- nine OTT companies. And the lines have structure, and a deep talent pool. Netflix blurred, with OTT platforms such as Ten- chose Spain as its first international pro- cent and iQYI also becoming big buyers of duction hub and increased its Spanish-lan- scripted TV shows. Netflix set a record for guage content by nearly 30,000 hours from Emmy nominations in 2020 with 160. 2018 to 2019. The numbers are enormous. Netflix’s 2020 estimated content budget of $17.5 billion is The Rising Costs of Too Much bigger than the GDP of 75 countries. New Choice launches are adding to the deluge: three Global spending for content has skyrocket- new US OTT services (Peacock, HBO Max, ed, almost doubling from $87 billion in and the forthcoming Paramount+) are ex- 2010 to $160 billion in 2020, with $39 bil- pected to add 44,000 hours of film and TV lion paid for sports rights, $52 billion for programming to the 53,000 hours available film and TV rights, and $69 billion for orig- from Hulu and the 44,000 available from inal content (up from $47 billion 10 years Netflix, along with those available from earlier). Broadcasters’ (including public other providers. broadcasters) share of spending has shrunk from 90% to 65%. OTT services now repre- Content production has become an increas- sent 17% of all content spending. ingly global business. Turkey is now the second largest exporter of TV content after Two factors point to the possibility of trou- the US. Turkish TV shows are currently be- ble in this high-priced paradise. One is con- ing broadcast in some 150 countries. Kore- sumer exhaustion. The other is that con- an-made content has developed substantial tent buyers have a tough time making diversity and depth and has been reaching money as costs continue to rise. audiences across Asia and beyond. The Ko- rean movie, Parasite, is the first non- The sheer volume of video content is English language film to win Best Picture giving signs of overwhelming consumers, at the Academy Awards. In 2019, Netflix who are resorting to known quantities. (See signed long-term contracts with two Korean Exhibit 1.) Pre-pandemic (2019) data from production companies. Nielsen in the US showed that viewers Exhibit 1 | Overwhelmed With Options, Consumers Turn Back to Familiar Shows V 7 646,152 58% channels inutes The number of unique The average number Approimate amount o Share o S adults who program titles available o TV channels that time US adults spend say they go back to their to American viewers in Americans watch, which searching for content on favorite traditional TV across TV channels represents only o streaming platorms channels i they are not and streaming services the that are available. able to find content within minutes Sources: Nielsen Total Audience Report,2019; BCG analysis. Boston Consulting Group | Will Peak TV Burst the Video Content Bubble? 2 could choose from more than 600,000 maintain continuous pipeline of new unique program titles offered by TV chan- content to attract new subscribers. nels and streaming services. But the aver- age US adult spends only about 7 minutes searching content on streaming platforms, COVID-19’s Near- and Long- after which 58% said they go back to their Term Impact favorite traditional TV channels if they are In the short run, the pandemic has both not able to find new content that appeals disrupted the availability of event-based to them. Our own consumer research programming (such as sports and concerts) during the pandemic found that the big and boosted consumer demand for pro- OTT players were gaining disproportionate- gramming of all types. Live sports may be ly over niche OTT providers. Of the total the hardest-hit segment, with major profes- number of new OTT subscriptions from sional leagues truncating or reconfiguring December 2019 through April 2020, Netflix their schedules to try to save some of their had taken 24%, Amazon 16%, Disney+ 15%, seasons. The longer the lockdown, the and Hulu 14%. While niche services also greater the exposure for the owners of saw traction, no single service gained more sports rights as more events are canceled than 5% of the total share. and the price of rights comes under pres- sure as compensation negotiations begin to Profitability pressures are likely to be a remunerate buyers for lost sporting events. continuing problem for all but the biggest or most diversified players. Major OTT For other types of content, the lack of new companies such as Amazon and Apple can commissions and production delays will subsidize content cost increases on the affect program slates for the balance of backs of other revenue streams, and inves- 2020 and 2021. The delays in production tors are often more focused on other met- and release could lead to shortages in the rics, such as customer growth, over profit- near term and oversupply when things ability. For others, though, hit shows that return to normal. produce continuing revenue streams are harder to come by. Success rates are low Long term, delays in both new movie and falling. Research by SNL Financial releases and original content production found that from 1991 through 2000 29% of affects most players. Among subscription shows on US premium networks, such as services, delays to production are causing HBO, Showtime, and Starz, made it to a new-release shortfalls in the medium term, sixth season. For shows premiering from and long production cycles mean greater 2001 through 2010, this rate of success was exposure to potential content shortages 19%. For shows airing from 2010 through moving into 2021. 2019, the success rate had dropped to 4%. Even as production halts cause new One reason is that the original streaming content shortfalls, broadcasters continue to model favored by OTT companies (led by experience loss of advertising revenue, Netflix) prioritizes variety over longevity, which puts added pressure on budgets. which leads to more shows of shorter dura- Cord cutting linked to consumer economic tion. Original streaming shows have an av- pressures and the lack of sports hurts cable erage lifespan of two seasons compared and other pay-TV providers. with four seasons for shows on cable networks and 6.5 seasons for broadcast network programming. Netflix and others Content Strategies Going often end a show after few seasons to Forward avoid the cost increases that typically take Even before COVID-19, the combination of place after the third season and because rising costs and consumers consolidating most streaming shows don’t attract a big viewing around a few favorites was leading enough audience to continue driving content buyers to separate into distinct subscriptions. OTT providers prefer to camps according to content type and Boston Consulting Group | Will Peak TV Burst the Video Content Bubble? 3 business model. (See Exhibit 2.) While the continuous succession of high-quality pandemic has expanded viewership across programming is at the core of their strate- all categories, absent a second major wave gies. Costs are unlikely to dip. Going into of the disease, we expect demand to flatten the pandemic, multiyear deals for top or contract in the next few quarters as peo- behind-the-camera creative talent involving ple return to work and school and life paydays of $30 million to $100 million a adapts to a more normal routine.