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Last week, I was quoted in an Observer article—”As Superman and Batman Enter the Public Domain, Hollywood Faces Opportunities and Risks”— by Brandon Katz, Senior Entertainment Industry Strategist at Parrot Analytics. He interviewed a few of my favorite experts in the media space and went deeper into some of the ideas I had laid out in “Monetizing Mickey Mouse, ‘Superman’ and ‘Batman’ In The Public Domain” and “How Generative AI Threatens Hollywood’s Walled Gardens”.
Ten years is a ways away—back in June 2014, TikTok did not yet exist and Netflix had 36.2 million subscribers, or 12% of its current reach. Also, the past is precedent: Media conglomerates have struggled to adapt to new technologies like streaming or digital advertising over the past three decades. There are too many reasons to be skeptical that anyone—including the ambitious management teams of merger partners Paramount and Skydance—will build an alternate future anytime soon. It may be premature to ask how intellectual property (IP) entering the public domain a decade from now will threaten Hollywood.
Over the holiday I spoke with a former entrepreneur who had built and sold a B2B mobile wireless services business back in the 2000s. He noted that a key reason to be skeptical is that licensing deals with media conglomerates have always been complicated: The most in-demand IP was the hardest for technology companies to license.
Disney’s legal team has built trademark and copyright obstacles that narrow the use cases of “Steamboat Willie”, the first version of Mickey Mouse which entered the public domain in January. It is reasonable to expect Warner Bros. Discovery to follow suit with Superman and Batman IP. If media conglomerates create the same legal obstacles around their IP in 2024 as they did in 2005, then there is a real question of whether emerging technologies will be able to extract value from the IP, whether from licensing deals or via the public domain.
Assuming the past is precedent, is it worth betting on the future of valuable movie and TV IP in new technologies? Or are the technologies better investments than the IP?
Key Takeaway
The “medium is the message” and therefore the IP simply may not be as valuable in platforms outside of the film and TV business models. The complex question is whether the decision to invest in these emerging technologies where the IP might be valuable is a better model than continuing to invest in the IP.
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The Future is Spotify-like
I concluded in March’s “Disney, Epic Games, "Steamboat Willie" and Creators”: “In some ways, ‘Steamboat Willie’ Mickey in the public domain suggests there is a better business case to put Disney IP in the hands of its fans (with more parameters than ‘Steamboat Willie’ Mickey will have) and figuring out the business model than to bet on fans making purchases within a virtual theme park.”
I later argued in May’s “Goodbye Media Conglomerates, Hello Spotify for IP (?)” that—because there is a growing demand for IP outside of the walled gardens—”media conglomerates may inevitably need a Spotify-like solution for licensing IP to ensure they get paid by creators, gaming companies and generative AI platforms alike.”
Total streaming revenues— paid subscription and advertising-supported tiers—rose 10% to $19.3 billion to make up 67% of worldwide recorded music sales, which was flat year-over-year from 2022. Paid subscriptions alone now account for almost 50% of all music sales and grew 11.2% in 2023. It has grown over 13.5x since 2013, when streaming revenues totaled $1.44 billion, or 67% of CD album sales that year. The next year streaming surpassed CD sales by 2% ($1.87 billion to $1.83 billion).
The implication is that—if the past is precedent and the precedent from music applies to TV and film IP—anyone investing in a Spotify-type licensing model now will see 10x returns on their investment within a decade (or sooner). Two labels—Sony Music Entertainment and Universal Music Group—jointly continue to own between six percent and seven percent of Spotify, so conglomerates looking to the future could both ensure they get healthy returns from the licensing (rights holders get 70% of total revenue) and from the growth of the Spotify stock (up 114% since its IPO in 2018).
Three Problems
There are three problems with this path. The first is that public markets tend not to look 10 years ahead but only two fiscal quarters ahead. So, as promising as the Spotify precedent may be, it is a nice idea for both public investors and current management teams at media conglomerates. The latter need more immediate wins to reverse declining investor sentiments. Even the Paramount Global stock is down 5% as of this essay, and that is after Skydance and Paramount Global management presented their sales pitch to investors for the on-again merger.
The second problem is that "a Spotify for licensing" may not be the best investment opportunity. It may not even be an investment opportunity given that Spotify and YouTube already have licensing solutions in place. There may be no need to reinvent the wheel. As I argued in April’s “How Valuable IP Will Succeed Beyond The Walled Gardens of Media Conglomerates” that four business models are being funded by investors both private and public that seem more promising:
Gaming (e.g., licensed third-party character “skins” in online games like Fortnite and Roblox)
Blockchain (e.g., non-fungible tokens (NFTs), memecoins)
Generative AI tools (e.g, learning language models that learn from data and produce content autonomously); and,
Creator economy (e.g., media companies partnering with influencers for promotion)
These four business models each offer media conglomerates opportunities for greater returns than from allowing their IP to be discounted walled gardens. Whether they are more promising than a Spotify model is still anyone's guess.
Tech > IP
The third problem may be the biggest one, and also one to consider for the Paramount-Skydance merger: The “medium is the message” and therefore the IP may not be as valuable in platforms outside of the film and TV business models. So, there are declining benefits in owning a library. The IP, alone, is not worth the investment. It is worth investing in the tech, too.
The complex question is whether the decision to invest in these emerging technologies where the IP might be valuable is a better model than continuing to invest in the IP. Sony has clearly stated it believes that IP has value and maximizing the value of that IP is the optimal strategy over the next five to ten years. But, it is also a technology company with multiple technologies that enable it to monetize that IP (e.g., Sony Playstation).
Other media conglomerates have alternate channels in theme parks (Disney, NBCUniversal) while most are limited to streaming. There may be higher returns in becoming technology investors and content licensors than in content licensors, only. That was certainly the rationale behind Disney's $1.5 billion investment in Epic Games in March. But, it seems to be the exception to the rule. That deal enables Disney to be licensor and owner.
As the value of IP declines both within and beyond walled gardens, the question is whether Disney's bet on Epic Games will be the new precedent. Because there do not seem to be any other compelling business models for IP lurking out there.