In Q2 2023, PARQOR will be focusing on three trends. This essay covers "'premium content' is being redefined by creators, tech companies and 10 million emerging advertisers."
To remind you, PARQOR identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the media marketplace. Must-read stories or market developments are not always obvious from press reports or research analysis, and often require a deeper dive. PARQOR’s analysis questions established ideas and common wisdom, reassesses the moving pieces, and reveals the potential in the media marketplace in 2023.
It has been a while since I last looked at the marketplace through the lens of PARQOR’s Curse of the Mogul framework. The framework highlights instances where media company CEOs may be rewarding content creators at the expense of shareholder value.
But investors lost confidence in Paramount Global this week, driving a sales frenzy Thursday morning that left the stock price nearly 30% lower than before the earnings call. That dip primarily reflected the company’s decision to cut its dividend by 80%, so in all likelihood any shareholder who had relied on that dividend in their portfolio cut bait that day.
So, for Paramount investors opting not to sell, how will management deliver shareholder value? A Wall Street Journal piece last week highlighted how “Yellowstone” creator Taylor Sheridan writes most of Paramount Global’s hits (“1883”, “1923”), for which Paramount $500 million per year, and that has given him “the clout to dominate the big-budget productions through his network of commercial projects, pushing costs to among the highest in Hollywood.”
This suggests Paramount CEO Bob Bakish has bet too heavily on Taylor Sheridan’s creative universe and therefore fallen into the trap of the Curse of the Mogul. In turn, Sheridan seems like he is making it extraordinarily expensive for Bakish to both pursue growth and create shareholder value in Paramount’s day-to-day business.
That is an overstatement — 77 million Paramount+ subscribers worldwide are not all "Yellowstone" fans. But, Sheridan’s spending excess is a counterintuitive narrative in the context of the writer’s strike, which began last Tuesday and is protesting how studios and streamers are sharing revenues with writers. This particular story helps to reveal three disconnects between writers, studios and audiences that aren't being discussed.
Key Takeaway
The uncomfortable question facing everyone is, if franchises from studios and streamers are ultimately a weak strategy and YouTube is trending towards taking more audience share and advertiser dollars, what is going to be left for the writers?
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Disconnect #1: Writers
Sheridan is one exception to the rule of why “television no longer provides a living for many of the people who write it”. Culture columnist and critic Mary McNamara of The Los Angeles Times observed how and why this has become the rule last week, and that “it is deeply unfair and, more critically, unsustainable” for writers to pursue their vocation in the streaming era. “A loss of residuals, shortened seasons, smaller writers rooms, commissions for entire seasons” are all examples of the “substantial and quantifiable cost” of the “Peak TV” era.
The result has been the Curse of the Mogul, which she implicitly described but did not name:
“While the merchants of streaming made billions (some of which they chose to spend unwisely), many of the people who wrote the series that created TV’s latest Golden Age were seeing their remunerative gold turn into silver. As in 1849, some writers struck it rich, accumulating success and landing deals that turned them into multimillionaires. Most, however, did not.”
Through McNamara’s eyes, Sheridan’s fortunes have been a predictable outcome: his “Yellowstone” universe is a hit in large part because it is so unique in attracting both coastal and rural U.S. viewers. It also seems to rely almost entirely on Sheridan, as a Paramount spokeswoman told the Wall Street Journal, “If we could do three more partnerships with people as successful, creative and prolific as Taylor, we’d do it in a heartbeat.”
But, the strike and McNamara’s perspective suggest that there are few writers who studios and streamers value to deliver hits that are also “differentiated” to audiences in the marketplace.
Disconnect #2: Studios & streamers
Both McNamara's essay and the WSJ piece on Sheridan arrive at a time when studios and streaming services face the growing question of what the allocation between “general entertainment” and core franchises and brands should be.
Disney CEO Robert Iger recently framed this dynamic for investors on Disney’s FY Q1 2023 earnings call: “general entertainment is generally undifferentiated as opposed to our core franchises and our brands which because of their differentiation and their quality have delivered higher returns for us over the years.”
Iger was effectively conceding that the reason why we are seeing Curse of the Mogul outcomes like Taylor Sheridan and Paramount — or Disney’s pivoting to core franchises and brands — is that they may be the only reliable means for delivering much-needed hits in an extremely competitive, high churn marketplace. This is why, across the marketplace, writers like Sheridan who succeed in building franchises for streamers and studios — Ryan Murphy with both Netflix (“Monster”, “Ratched”) and FX/Hulu (“American Horror Story”), Shonda Rhimes with Netflix (“Bridgerton”), Tyler Perry with Paramount’s BET+— have reaped nine-figure deals.
They have proven they can deliver hits, and in a hit-driven business, they win the spoils and writers who cannot deliver the hits will not share in the spoils.
Disconnect #3: Audiences
Perhaps the biggest disconnect lies with audience consumption trends. After core franchises and brands, the returns on investing in “general entertainment” are insufficient enough to justify a major expense. Content spend will inevitably need to be reduced and become more focused on core brands and franchises because the risk/reward ratio in other genres is too risky.
But, even this approach is flawed, as Doug Shapiro, Senior Advisor at BCG, argued last month:
“The problem is that everyone is pursuing the same strategy. It may not be a race to the bottom, but it is a race to the familiar. When everything is a franchise, franchises no longer stand out.”
Meaning, audiences are getting franchise fatigue (something Disney has been navigating increasingly as of late), so the future of streaming may rely less on franchises and more on whether a streamer can deliver what the consumer *needs* in the moment. To date, Nielsen’s The Gauge has showing that Netflix, YouTube and Hulu are consistently U.S. TV viewers’ first, second and third solutions to that problem.
An even bigger disconnect with audiences emerged this week at the Interactive Advertising Bureau’s Newfronts presentations. As The Information’s Sahil Patel reported last week, YouTube’s “internal data indicate that close to 45% of overall YouTube viewing in the U.S. today is happening on TV screens, according to people familiar with the matter, compared with well below 30% in 2020.” The majority of that viewing — 7.8% of all watch time on TVs, the largest streaming audience in the U.S.— is the YouTube app on TVs, while the YouTube TV app gets a small portion of that.
This means that the franchise-as-a-solution strategy faces two challenges. First, in the U.S. at least, franchise strategies are increasingly competing with and losing to YouTube. As I wrote last month, “today, more than 500 hours of content are uploaded to YouTube every minute. Over 50% of content consumed on YouTube is creator content, and there are over 2 million creators in its Partner Program which launched in 2007.” YouTube is a niche behavior relative to broadcast and linear consumption, as I argued last month. But in streaming, odds are creator content is increasingly being consumed more than franchises.
Second, Patel reported that YouTube envisions it will land well north of $7 billion in ad-spending commitments. Demand for video inventory is shifting to connected TV — the IAB estimates CTV ad spend is projected to grow 21% in 2023— 61% faster than other digital video. And, YouTube is capturing more of that spend from linear channels and legacy media streaming.
So, the bets on return on investment that Paramount, Disney and others have made by investing in expensive franchises now face growing headwinds from YouTube’s (and Netflix’s) growing ability to capture ad dollars on increasingly valuable connected TVs.
YouTube & the irony of all ironies
In light of Paramount’s Curse of the Mogul-type challenges, this outcome is the irony of all ironies: YouTube’s model is purposefully designed for the creator to capture more of the economics. Creators in the Partner Program capture 55% of advertising revenues and are offered additional means of monetization, including merch sales and user tipping. In theory, that model has delivered returns to shareholders as YouTube revenues have almost doubled between 2019 and 2022. However, Alphabet does not break out profits and losses for YouTube.
The creators benefitting as much as if not more than shareholders is an intentional aspect of the YouTube model, not an accidental consequence of management's strategy. As the writers on strike start taking a closer look at media CEO salaries — as Bloomberg’s Lucas Shaw reported last night — it seems notable that the creator-friendly model of YouTube is increasingly winning and the legacy media model is losing with both the old reliable franchise playbook and skyrocketing CEO salaries.
The uncomfortable question facing everyone right now is, if YouTube is trending towards taking more audience share and advertiser dollars, and franchise fatigue is growing with audiences, what opportunities and revenues are going to be left for the writers?
Must-Read Monday AM Articles
* Max and its money-losing competition must thread the needle between charging a premium for what they view as valuable content, convincing consumers to pay up without heavy discounting or expensive marketing and growing their direct-to-consumer businesses to a scale where, like Netflix, they can start spinning out Wall Street-pleasing profits.
* Increasingly many TV providers have started to look at TV and ask themselves if cable TV is worth the cost of the service.
* Netflix's new $2.5 billion multi-year commitment in South Korea is one of the largest it's ever announced to one region.
* Netflix will have invested almost $6 billion in UK content over four years by the end of 2023, the streamer has revealed.
* NBA fans will soon watch the sport differently, and change has already begun
* NFL CMO Tim Ellis on why content creators are leading the league’s Gen Z-focused strategy
* The NFL’s Roger Goodell and Comcast’s Brian Roberts got on the phone last week to work out a deal to keep NFL Network and NFL RedZone up-and-running on Comcast’s Xfinity cable systems.
* Warner Bros. Discovery has signed a long-term and exclusive licensing deal with Bell Media in Canada to make its Crave streamer the exclusive home of content from the Hollywood studio.
* Broadcasters are betting that antennas and modern DVRs will help them stay relevant. But a stalled transition to ATSC 3.0 and massive growth of linear streaming services could throw a wrench into those plans.
Newfronts
* IAB NewFronts showcases video platforms armed for ‘challenging and unpredictable times’
* YouTube used its NewFronts presentation Monday in New York to share a slew of new ad formats available across Shorts.
* Despite progress in new kinds of audience metrics, Nielsen’s old-school viewer panel will remain the mode of choice for this year’s TV upfront buying season. ($ - paywalled)
* Roku is reinvesting in — and bulking up — its originals lineup, announcing a new season of “The Great American Baking Show” and an unscripted comedy featuring singer-songwriter Charlie Puth among the shows coming to the Roku Channel.
* Two-thirds of Peacock’s 22 million subscribers have watched a recent Universal theatrical film, the NBCUniversal streaming service announced at its NewFronts presentation Tuesday. Also, NBCUniversal rolled out new commercial formats aimed at giving sponsors more attention and a better opportunity to interact with viewers.
* Amazon said this season Thursday Night Football sponsors will be able to send different creative messages to different targeted audience groups within the same 30-second commercial position. Fire TV is gaining a set of new FAST channels from NHL, Xbox, and TMZ, as well as a new Travel category featuring content from Tastemade Travel, “Rick Steves’ Europe,” “Travel Hacks,” and soon, Condé Nast Traveler.
* Amazon says that it will take 100 Amazon Originals from its Prime Video SVOD service and make them available on Freevee this year. Among the projects making the move to Amazon’s free ad-supported streaming service are The Wheel of Time, Reacher, A League of Their Own, The Grand Tour, Lizzo’s Watch Out for the Big Grrrls, Modern Love and others.
* Sea of FAST content not at saturation point, Samsung, Plex, Vevo execs say
* TikTok, Meta, Vevo announce new ad products and planning tools on NewFronts’ final day