Luma Partners on Future of TV

Slideshow Makes for Essential Reading

Terence Kawaja of Luma Partners has posted a brilliant deck on Slideshare covering the current state and future of the “television” industry (or whatever we call longer form video content in a cross-platform paradigm). Some of the key points are as follows:

• Digital and TV both continue to grow.
• There is anticipated convergence and blurring of the lines between “traditional” and “digital,” whereby legacy and digital media brands deliver content to a largely device agnostic audience, and there is “little distinction” between the two.
• Outlets and viewership will continue to fragment, as audiences expect to view content on an on-demand basis on their devices of choice.
• Strategies of media companies vary. Apple, Comcast, Google, Amazon perhaps best positioned in terms of overall preparedness in categories of hardware, software, content control/ownership and commerce platforms.
• Production costs have come down substantially for digital/OTT content (see note below).
• Use of data in creating content reduces risk (see note below).
• YouTube’s dominance may have “dampening” effect on video ecosystem; may be helpful if there were competitors (Luma suggests Facebook could be the next big player).
• Digital will improve user navigation/discovery experience.
• TV and digital buying functions will converge (especially after a ratings standard is established).
• M&A activity will drive convergence.

The slideshow is considerate and insightful and well worth checking out in full, particularly since it resists making dramatic and premature statements regarding the death of traditional television.

There are a couple of points in the deck that I think require some discussion. The first is the assertion that content production costs have come down. The slideshow cites online video as currently costing ~$60,000/hour, versus $3-5m for traditional television. However, as online video revenues rise, I suspect that this gap will close somewhat — at least for online video that garners a modicum of popularity. Star talent will start becoming properly represented and will likely begin demanding higher fixed fees in addition to a revenue share. Additionally, crews will stop working for free and, in some instances, online video may become subject to guild jurisdiction which could significantly drive up costs. Budgets will never reach TV network levels, but it’s highly possible that they could rise to the low to mid six figures. Also, it’s worth noting that premium OTT series such as House of Cards are in a different category altogether and should be viewed as comparable to premium cable or network shows. That’s my position when negotiating fees and passives on behalf of talent and underlying rights holders, and obviously the major guilds have begun to address such shows directly in their new basic agreements.

The second point in the Luma Partners deck which I think may be problematic if taken out of context is the statement that a data-driven development model based upon crowdsourcing and consumer feedback mitigates risk. The oft-discussed approaches of both Netflix and Amazon in this space are fascinating and may well prove successful. On its face, the traditional pilot process does seem incredibly wasteful and the idea that user preference data will yield better, less expensive and more relevant television shows is attractive.

However, it has yet to be demonstrated that data can support the creation of great TV on a consistent basis (for context, Amazon does not yet have a “hit”), and of course, the intangible properties of great content — taste, talent, chemistry and execution — are harder to pin down (although, to be fair, Luma Partners acknowledges this by referencing the fact that most of the major digital players are partnering with what it calls “tier 1 talent”). Luma’s principal thesis of “convergence” fits well here — data may not replace the traditional process altogether, but rather simply make it more efficient.