Some Media Predictions for 2017 and Beyond
Some fairly obvious stuff in here. A few more wild predictions. And a few things that will be flat out wrong.
A couple quick notes on latest happenings.
- Industry has long been predicting the “death of linear TV”, but it has been incredibly resilient. In 2016 it finally saw a decline in net subs in the US at 2%. However, revenue grew 5.3%. It is changing, but nowhere near the crash landing many of predicted over the years.
- The “YouTube Generation” started graduating college. By this I mean the teens that grew up with YouTube in the formidable media watching years (ages 11–15) are now 20–24 (YouTube really turned the corner from a video repository to a mass consumption machine after Google bought it in 2006 and made it 2nd biggest search engine on the planet). I believe this is not unrelated to the first ever net sub decrease in linear. These consumers and those younger are true cord nevers. They are finally adults with actual impact on media economics. Tip of the iceberg.
- Facebook ad revenue grew, grew, and then grew some more. This will not slow down. Facebook and Google are simply the two best ad products in the world. Twitter is also an incredible ad tool that doesn’t get the street cred it deserves. Snap isn’t far behind.
- The US output of scripted TV shows continues to rise to 455. In 2011, that number was just 266. This is the Netflix effect. They are forcing all other cable nets to product originals at an unsustainable space and increasing the costs as well. This in turn is forcing cable nets to ask for ownership, not licensing rights, to help offset spending risk, which in turn will hurt studio business models and eventually this bubble will burst leading to trouble for many on both sides. So enjoy the ride for the next few years.
- Most media publishers are getting completely squeezed right now in between the growth of UGC and scripted TV. Those two ends of that spectrum are growing at substantial rates, leaving less room in between. There are way too many players and publishers in that in between space. And everyone outside news/political outlets, thanks to Trump, is struggling for that reason.
#1) Digital and Traditional Publishers alike will have little to no direct sales team within 5 Years
There simply will be nothing to sell other than the high touch / low scale custom, sponsored, branded content. But even that I think is often not worth the price tag for marketers.
Reason being here is that there are 4 platforms that IMO will command 80–90% of all free video content viewing.
Yes I’m including Twitter cause I still think they have massive opportunity around live event programming. Which I wrote about in a previous post.
And I’m talking video here, so not necessarily touching the audio/podcast/music world, or text world, where the cheerleader in me really wants Medium to win and emerge next to these titans. But I think Medium missed the boat on building a business model from the start, and creating tools for publishers to also grow, monetize, create and store assets, and go beyond text. Someone will create a powerful new consumer facing publishing tool in 2017 — be it Facebook’s new standalone offering, Snap breaking out Discover as its own product (which I think they will) or a TBD new entrant.
Why are advertisers going to consolidate spend here? 2 Reasons:
- They will have the most data. And data always wins in creating great ad solutions
- TV is going to massively change in next 10–20 years. I have a piece on the long form, premium TV vision later on below.
Why won’t publishers need Sales Teams?
Easy, because there is simply no practical, business reason for those 4 platforms to let you sell your own inventory. As data and deep learning continue to improve, ad messages will become optimized, customized, and targeted in real time and there will be very little reason to align with a specific publishing brand. Publishers will find that the best way to monetize their own direct distribution from loyal fans — and that will be through an ad-free, micro subscription path, as proven out by the New York Times, RoosterTeeth, and CrunchyRoll.
Any media company O&O distribution will be subscription based ultimately, not ad based. The CPMs and quality of ads outside of the major digital platforms will continue to deteriorate over time.
Yes, there will still be some sponsored and branded content, but not at a crazy scale and you don’t need a massive sales team to support this — just a handful of folks in market.
Overall, I see an opportunity for many publishers to become smaller in size but more profitable in bottom line if they play their cards right. And the smart folks will roll these up to create negotiating leverage with the Big 4 or 5 platforms that will dominate the free to air content space.
#2) Death of Marginal Cable Brands
Even as I was writing this, the death toll started already in 2017 with Esquire. Followed by Viacom shutting down its Tier 2 brands. There is simply no way to compete as a marginal cable brand anymore. In past decades, when cable was the primary and really only source of entertainment for most consumers, this gave rise to hundreds and hundreds of niche providers. I do not think cable companies are dead just because we are spending more and more time on mobile video, I just think the marginal ones will die on the vine.
Look at it this way. Many of these folks are hanging on to their subscriber fees. Even if you are as low as $.20/sub, well if you are in 60 million homes that is $124M/year in subscriber revenue. But you are hurting on every front:
- Advertising dollars continue to shift on linear to tentpole programming (Walking Dead) and live events (which include sports & news). Meanwhile they are also moving to Facebook, Google, Snapchat (more on this below). You lack the precise targeting and optimization capabilities of digital. Your sales team is out fighting with one arm in a way.
- Same trend with that subscription revenue you love. The big providers are going to pay more for the blue-chip ESPNs of the world (yes their cable subs went down, but revenue went UP), and less for you.
- Good luck marketing direct to consumer when you are stuck in a subset of mega bundles that consumers no longer want.
So what are your options? Well you have 3
- Take a big swing and spend on premium programming to stay valuable to providers and advertisers. But understand this has a 90% chance of failure. You don’t have the runway to miss so you better get it right.
- Unwind completely and shed those linear subscription fees , but keep their distribution on-demand. Lower your burden of programming a 24-hour feed. And either go the niche, direct to consumer paid route (see below), or the diversified
#3) All Mass Market, Premium/High-End Storytelling will live on less than 10 Networks within 10 Years
Netflix has forever changed the TV business. Amazon is further accelerating that. I’m talking premium, long form shows here. (and no, this is NOT the place where Facebook or Snap are going to live.)
There is zero reason to tie great programming to traditional cable bundles from in theory. In practice, this won’t happen immediately. But for everyone outside of Netflix, Amazon, and HBO (the 3 titans of premium content IMO), the process will follow something like:
- This bubble of doubling and tripling down in original programming to keep up with the Jones’ will catch up with everyone. Carriage fees are dipping slightly while programming costs go up and ads continue to shift Google and Facebook’s way. This is a bad paradigm. Many cable networks are going to be underwater financially in due time, like the movie studios today.
- When this hits a breaking point, they will have no choice but embrace direct to consumer and give up those lucrative carriage fees. Cable as we know it will be primarily be sports and live events and OTT networks of your choice sitting on top of broadband and data packages, which are the only true underlying value of AT&T, Comcast, Verizon, etc..
- By this point, Netflix, Amazon and HBO will have further expanded their own market share and content libraries. No way any individual cable network will be able to stand up to them toe to toe
- Factor in my point in next section on the continued growth of UGC and its command of our free time, we as consumers will still love and crave premium storytelling but don’t need such insane volumes of it.
- Which will bring a wave of consolidation.
In the end, we will have maximum 10 (and maybe less) primary players in long form premium content distribution. And these will be available both direct to consumer, or add-ons to broadband/data services.
- Fox (the combined strength of FX, Fox, Fox Sports, and Fox News gives them a leg up)
Those are the only 4 I feel are shoe ins. ESPN will be even bigger than it is today but they get to live in their own category a bit below. Turner, the Viacom networks, Hulu, Disney Channel/FreeForm, etc….all could join that list if they play it right in the years ahead.
But I fundamentally believe that someone like Viacom could just as easily be one of these 10 premium networks as they could just a collection of studios/content providers for these 10 depending on the decisions they make and how quickly they are willing to absorb short term losses in carriage fees to gain long term momentum in this new world.
#4) UGC will continue to grow and grow. We are only at the beginning
AR is going to usher in a massive new wave of UGC in terms of creation tools.
Our phones are going to get more and more powerful on data processing, graphic rendering, and camera quality.
Deep learning will usher in new ways of automated video editing and optimization.
Point being — we haven’t come close to seeing what UGC is capable of. It will command more and more of our attention. It will live on the same dominant platforms I discussed above — Facebook/IG, Google/YT, Snap — along with likely a one or two more TBD players dedicated to this space.
From a UGC perspective, 360 video is a fad and has no sustainable value IMO. True immersive VR is absolutely for real but will have limited scale and take real investment to make properly.
However, AR & Deep Learning & Camera Tech will continue to pave the way for more and more growth in UGC.
#5) Future of Sports Programming
I’m going to dedicate a stand-alone post to this soon, cause it is way too complicated and convoluted to detail here. Suffice for now to say the following:
- Overall Live Sports Revenue is only going to grow as they become the last beacon of concurrent viewing (and yes this includes Twitch & eSports).
- They will also continue to monetize via subscription revenue, slowly moving from carriage fees to direct to consumer. I have no doubt sports fans will pay $40-$70/month for live sports alone across the board when its all said and done.
- Major national and playoff games will continue to be free to air, commanding massive ad dollars, even when offered from an otherwise pay TV provider.
- The leagues themselves hold all the power. Not ESPN. Not AT&T. Not LeBron James. As Riot is proving in the early days of eSports growth, controlling the league allows you to dictate the broader business model. They still get massive checks for dishing out broadcast rights, but are increasingly monetizing direct to consumer during regular seasons.
#6) The Deal that shakes and course corrects the movie industry
The movie industry had its heyday from the early 80s through the late 2000s. It was a massive 30 year window of enormous studio profits and fat cat producers. The last 5–8 years have seen massive change however:
- The revenue growth of TV/Cable/OTT has commanded more of the top creative talent to bring their ideas to series over films
- The ancillary revenue streams of movies, that famous windowing system, has really dried up — from DVDs to Pay-Per-View to TV licensing
- Mobile/UGC continues to command an increased share of our leisure time, which does have an indirect effect here
- The distribution to market mix is COMPLETELY out of whack. By this I mean movies spend all their marketing dollars upfront when distribution is limited- only a fraction of folks are going to take the time to go to a theater to see it even if interested. Then by the time it is widely distributed on digital, there is little to no marketing spend. This makes zero sense. It drives me nuts.
We are left then with a mix of repeated blockbusters that have build in marketing value and passion projects from courageous independents have trouble finding audiences.
I have many thoughts on this business as it is a burning, personal passion. But there is one key deal that I think would have a domino impact across the medium.
The Big 5 studios in the US need to get with the Big 4 (or is it 3 now)Theater Chains and strike the following deal:
- Allow all movies outside of a select 3–4 titles per studio to be released day and date across theaters and digital
- The studios create a shared revenue pool across those first 30 days of digital monetization that will be given to the theaters to allow this to happen. That will get allocated based on corresponding the theatrical revenue each one brings.
- The theaters need to commit to invest in growing their experiences to truly stand out from a living room offering. If they do not meet minimum requirements then they are penalized through their 30-day digital rev share.
- The 3–4 titles per studio reserved for theatrical release only need to be collapsed to 30 day windows themselves, and then the 30 day rev share on digital for the theaters kicks in thereafter.
In short, we need to make movies more accessible in terms of initial distribution. The “sampling” cost of trying a new movie is way too high compared to that of TV episode. Nobody is fooled anymore by trailers. This evens out the distribution to marketing mix and can bring this medium back to the forefront.
#7) IRL Here to Stay
If you have not yet read the book “Revenge of the Analog”, please do. Yes vinyl has resurged. But more importantly, so as IRL (in-real-life).
Music is making MASSIVE money in live events. Publishers and media companies are turning to live events to extend their businesses (ComplexCon for example). Broadway is stronger than ever (big thanks to Hamilton of course)
This is part of a deeper piece I want write on Millennials vs. Gen Z. But as a teaser — Millennials are the digital only generation. They are the broadcast, individual, on-demand now now now consumer. Gen Z, though even younger, is actually quite different. They are more pack oriented vs. individual, they want to communicate with their friends vs. broadcasting for all (Snap vs. Facebook), and they actually crave live, concurrent engagement. This can come in the form of digital/virtual like House Party, or in actual physical events. From pop-up shopping experiences to concerts to even movies.
Drive-in movies are next after vinyl.
#8) Audio Revolution
We are entering an era of audio and voice like we’ve never seen before. From the growth of podcasts to Siri to Google Home and Amazon Echo — we will talk and listen to our machines more and more in the years ahead.
I love what Spotify is doing in diversifying beyond music into other forms of audio content. I’m not even sure why they need the investment in video to be honest other than a temporary marketing vehicle.
I think we will see more and more publishing brands turning audio as a stronger revenue stream behind video, and ahead of text/editorial.
From a technology standpoint, I think the breakthrough wearable are not smart watches or wristbands or eyeglasses. But a nearly invisible, bluetooth enabled silicon ear cup that you can comfortably wear without even realizing its there, and is only visible to those within a couple feet of you. This breakthrough will increase the usage of audio content 5–10x.
#9) Music Streaming
Spotify. Apple Music. SoundCloud. Pandora. Amazon. Google/YT. iHeart. Tidal.
No shortage of folks vying for the music streaming space. And you are going to need deep pockets to play, cause everyone loses money today.
It’s a rough business. Margins are rail thin. Custom acquisition costs are high. Although I suspect LTV is fairly strong due to high retention. Still, brutal space to be in. Even scary now that Amazon has entered because they can do what they have done to TV — pay content providers their markets and offer it to consumers for no direct incremental costs because of Prime. Amazon is scary in this way. Which is why I literally have 1/3 of my net worth in their stock.
They are all using original content to try and differentiate now. Which tells me they will all build their own unique brands and voices. I’m guessing we will see some consolidation over time as well. YouTube buys SoundCloud. Spotify and iHeart merge. Amazon buys Pandora. Apple buys Tidal.
#10) There will be complete consolidation in Cable/Broadband in next 5 years
In the end, we will only have the following left standing:
One of these 4 will provide you with your Broadband/Data services. All the fringe & regional players — from Charter to Cox and so forth — will just get gobbled up by these 4.
Their premium cable bundles will keep getting skinnier and skinnier. They won’t completely disappear for ~15–20 years, but this will all eventually converge to consumers having full and complete optionality on what they subscribe to and pay for. And I think they will be able to do this with limitless choice through these big 4.
#11) Small to Midsize Publishers Diversify to Survive
From live events to commerce to subscriptions/fan clubs, small to mid size publishers will be forced to diversity to survive. They simply won’t be able to monetize purely through advertising as more and more of that market shifts to the dominant platforms. Those platforms will pay out some rev shares to these folks no doubt, but with total control in how and where that gets sold. Putting a cap on ad earnings and forcing folks to monetize in new ways. The good news is, a strong brand can do so. And a weak brand that has built businesses on click bait and SEM we are glad to see die on the vine anyhow.