Focus on the exporting
To help understand the current film/TV landscape, one can look to an analogy from a much more vital industry: energy.
When a country produces a valuable commodity — whether oil or wheat — it implicitly makes a daily choice of keeping it within the bounds of its geography, only to be bought and consumed by its citizens, or exporting it to the highest buyer in the free market globally. Frequently, factors outside of pure economics (technology, defense, politics, etc) can influence such a decision and drive monumental changes to the prior administration’s implementation. For instance, the United States banned exports of oil for 40 years until the ban was lifted in 2015 amidst significant political pressure and surging domestic production. In 2022, a different wave of political pressure returned, urging the administration to reverse the ban once again amidst high gasoline prices.
A similar, but inverse, phenomenon is occurring in the filmed entertainment industry. For many decades, the largest producers of content happily licensed their IP to third parties, including direct competitors. Then as the push to video streaming swept across the industry, studios began to hoard content to feed their own streaming platforms. But now, signs point to the “export ban” gradually lifting.
Most recently, Warner/Discovery has led the efforts to externally exploit even their core IP such as Batman and Lord of the Rings by licensing it outside of the borders of its crown jewel service HBO Max. Skeptics, akin to supporters of the oil export ban, paint this action as breaking the commitment to a direct-to-consumer future of the industry. Supporters, on the other hand, laud the diversification benefits and the near-term profit maximizing logic of the approach.
We believe the levee will break and content licensing will make a resurgence. For buyers of content, this would imply more third-party supply and lower cost/risk vs. investments in original programming amidst a more normalized, if not deteriorating, growth environment. For owners of content, we foresee the realization that only a few can have a mass-market DTC streaming platform as the primary source of income. Without the pressures of geopolitics and national security, the decision here will ultimately be guided by economics alone.
