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The Medium identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the rapidly and dramatically changing media marketplace. The key trends help you answer a simple question: "What's next for media, and where's it all going? How are the pieces lining up for business models to evolve, succeed, or fail?"
Read the three key trends The Medium will be focused on in Q3 2023.
Author's Note: Thursday’s essay will reveal The Medium’s key trends for Q4 2023. Look for my latest Medium Shift column for The Information to be published mid-week.
The end of the writers’ strike marks a new era in Hollywood. Deadline reported the television industry is anticipating “accelerated contraction, more competition, reeled-in budgets, fewer overall deals and possibly more cancellations}”. In other words, “Peak TV Is Over” and we are likely to see total productions fall substantially from the peak of nearly 600 shows in production.
In the film industry, there are studio projects with mid- and lower-tier budgets facing “tough choices” due to the conflicting commitments of talent. Movie productions slated for 2024 focus on finishing productions and hitting their pre-announced release dates, and that means talent will be scarce.
So, “contraction” applies beyond the TV industry: Fewer titles in theaters, fewer shows on linear TV, and fewer movies and TV shows on streaming services. There will also be a contraction in the linear business. The obvious culprit are trends that are driving the total number of linear households below 50 million. But also, Disney’s recent deal with Charter eliminated eight cable networks from Spectrum TV packages, and is now considered precedent for all other cable network conglomerates. . So, in one sense, contraction simply means marketplaces operating at a smaller scale than they did before.
“Contraction” will also inevitably play out in streaming: reduced content supply will result in weaker direct-to-consumer value propositions. Bloomberg recently reported that Disney projected it will fall tens of millions subscribers short of its September 2024 target of 215 million to 245 million subscribers. That projection reflects both Disney’s execution, to date, and the impact of the strikes.
This is the basic story we have for how contraction will play out on the supply side. On the demand side, Nielsen’s most recent The Gauge shows YouTube taking an increasing percentage of TV viewing time away from competitive subscription streaming services: It now has 9X the usage of each of Paramount+ (1.1%), Peacock (1.2%) and Max (1.3%). This is a strong signal that YouTube is driving the contraction in demand for these services, but the exercise of searching for other signals highlights the challenges with trying to understand this market contraction will play out.
Key Takeaway
There is a broad market trend of contraction of both the supply and consumer demand for legacy media content. Media coverage is telling the supply side story. There is an argument to be made that YouTube is driving the demand side contraction.
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Total time reading: 4 minutes
YouTube
Last Thursday I wrote:
[YouTube] is not only capturing multiples of audience attention per month across devices in the U.S. YouTube also captures additional household spend on top of a subscription when a YouTube Premium subscriber pays for any one of the creator offerings. If the pie seems smaller as YouTube takes more share of streaming consumption in the U.S., the pie feels even smaller as the economics of the creator economy kick in.
This was a nuanced point that lacks data because YouTube will not share it and it is a walled garden that limits third-party observers. A consumer who has a choice between devoting their time and attention to YouTube or a legacy media streaming service is more likely and/or more often to choose YouTube. That is also a question of spend: YouTube Premium subscribers (an estimated 40 million in the U.S.) have already allocated $120 annually or $11.99 per month to YouTube over another option.
Also, at least 50% of content consumed on YouTube is creator content (as YouTube's former CEO Susan Wojcicki revealed to YouTuber Hank Green in a 2020 interview). So, YouTube’s creator monetization tools invite additional spend from consumers, and 50% of all consumption engages in additional creator-led conversion funnels (e.g., content purchases or channel memberships). In other words, there are marginal dollars that could go to other streaming service subscriptions that YouTube has given the tools to creators to capture from YouTube creators.
The better YouTube’s app performs on TVs, the more demand is created for creators in YouTube’s Partner Program. There are over two million creators in that program, but let’s say we simplified that to Forbes’ list of the top 50 creators. That is still 50 other choices for consumers to spend on creators on TVs, alone. The more demand those 50 creators create for their content, the more spend that could go to legacy streamers will not. And, the better YouTube performs on TVs relative to every other competitive streaming platform, including Netflix, the less consumer spend will be available for those competitors.
This may be the market dynamic that Warner Bros. Discovery CFO Gunnar Wiedenfels was describing recently: consumers signing up for a subscription VOD service for two or three weeks, “going through an enormous amount of content and then mov[ing] on.” In other words, there simply is not enough “bang” for the buck in a legacy media streaming service. Consumers have more and better choices for spending money in exchange for delight across YouTube.
A Problem of Transparency
So, we can actually see the business logic of contraction of consumer demand for legacy media content is there. We can identify the drivers. The question is whether that is actually happening, and that is a question of transparency.
There is zero incentive for legacy media executives to admit to shareholders this contraction in demand is happening because of YouTube. The data-sharing that the writer’s strike has accomplished will not shed much insight. The AMPTP agreed that streaming services would confidentially share the total number of hours streamed for top-performing programs with up to six people at the WGA. But that is for the purposes of providing the basis for a new viewership-based residual — or "performance-metric bonus."
As for YouTube, there is not much data they share beyond the $50 billion they have distributed to influencers or what they have learned in research studies by Think With Google or Oxford Economics. Effectively, the story is implied by Nielsen's The Gauge and imagining how consumers are behaving within the YouTube ecosystem based on YouTube's shared research.
The clearest lens is a hypothesis of how technological disruption, one which The Chernin Group founder Peter Chernin has held and tested for the past two decades: "Content will aggregate at two extremes: the big blockbuster hits and niche products." Niches are "easier to reach", according to Chernin. He and his team have proven that hypothesis with bets on brands like Barstool Sports and Food52. But, the math of his hypothesis and YouTube's creator program (2 million creators, where the top 0.1% total 2,000) suggests there are many, many more out there.
So, over the next fiscal quarter and next year, the dominant theme of media business stories will tell the story of a supply side contraction. But the YouTube story is one of demand not only moving towards more niches, but also spending more in new and different ways. There are good reasons YouTube will not tell this story given it still has business relationships with these media companies: "You need us while we are killing your demand" is obviously a suboptimal pitch. We would have a more accurate picture of the coming contraction on the demand side of media consumption if they did.
Must-Read Monday AM Articles
* SAG-AFTRA members have voted overwhelmingly to authorize a strike against 10 of the major video game companies. The vote was 98.32% in favor. I wrote about this challenge in August's "Hollywood Actors Face A Bigger AI Threat From Gaming".
* 2024 will be “a massive year for new video games”
The demand for “premium content” is being redefined by creators, tech companies and 10 million emerging advertisers.
* Vulture’s Joe Adalian wrote about “a sense of disbelief — and even anger — [in Hollywood] that it took 148 days of collective misery to arrive at an agreement whose specifics were hammered out in less than a week of actual bargaining.”
* Former YouTube Originals Chief Susanne Daniels wrote an opinion piece on How The Development Process Should Change after the strikes.
* According to research by Oxford Economics, YouTube’s creator economy contributed over £2 billion to the UK’s GDP (annual GDP of $3.1 trillion) and created over 45K full time equivalent (FTE) jobs in 2022.
* “In many ways, the iPhone reminds me of another groundbreaking camera: the Brownie.”
* Disney’s password-sharing crackdown has begun
* According to a new study, teenagers are only spending 3% of their screen time on Snapchat
AI & cloud computing applications and services are increasingly dictating content consumption
* Tubi is using ChatGPT to give its users better movie recommendations
* A Bain & Co report says studios "should spurn that path" of using Artificial Intelligence to replace creative processes, and outlines ways that it can be used for cost-savings throughout a production.
Legacy media companies are throwing in the towel on their bets to own the consumer relationship in streaming and beyond.
* Media groups are looking to offload traditional broadcasting operations, but it's not clear that is a bull signal for streaming ($ - paywalled)
* Hollywood is paying a steep price for never really figuring out the streaming model
* The challenges with all the talk of bundling in streaming from Paramount and Warner Bros. Discovery management teams.
* Bundled offerings like Amazon Prime and Apple One complicate the WGA's new streaming success metric.
* What Pluto TV has figured out, according to Paramount Ad Sales Chief John Halley
* TiVo’s ‘Q2 Quarter Video Trends Report’ says that 23% of U.S. and Canadian survey respondents have canceled an SVOD service in the last year
Other
* Insider Intelligence projects that Netflix CPMs will be $47 by the end of this year, far less than the $60 Netflix was asking for when it launched ads in November. Disney+ is due for a less extreme dip, down from $50 CPMs at launch in December to just under $47 by later this year.
* CNN’s incoming CEO, Mark Thompson will focus on building digital subscription businesses around CNN.com and creating programming for a younger audience on CNN Max, the network’s live news service on Warner Bros. Discovery’s “Max” streaming service
* Key takeaways from the U.S. Department of Justice battle with Google that advertisers really should know
* Janko Roettgers wrote about the behind-the-scenes innovation of Netflix’s DVD business, which shut down last week
* Four size iterations (43-, 50-, 55- and 65-inch) of 4K smart TVs under the Pioneer brand and featuring Xumo's TVOS will join Xumo sets from Element and Hisense.
* There were nearly 130 launches of new pay TV platforms built around Google's Android TV operator tier from 2020-2021. Since the beginning of 2022, however, there have been only 38 such deployments.
* Google Podcasts is going away, with YouTube to get all its shows and users
* As regulators consider new laws for the digital era, streamers focused on premium content have formed a trade group to ensure they're not being held to the same legal standards as user-generated content platforms, like TikTok or Meta.
* Apple is reportedly considering an offer worth about $2 billion per year, which would eventually make Apple the exclusive streaming rights holder of Formula 1 racing.
* Inside Apple’s Plan to Change the Way We Watch Sports
* Apple’s expanding ad ambitions: A closer look at its journey toward a comprehensive ad tech stack
* Should Diamond Sports Group, the bankrupt Sinclair subsidiary that manages the Bally channels, not reach a deal with the top pay TV operator by Saturday, "the whole enterprise could come down pretty fast"
* Utah Jazz DTC platform Jazz+ features a broad range of consumer flexibility, letting Jazz fans merely pay $5 to stream an individual game (with Spanish-language simulcast), pay $15.50 for an entire month of games, or cough up $125.50 for a full season.
* Spotify is testing out a way for podcasters to reach listeners in different languages, using artificial-intelligence technology that emulates the podcaster’s own voice.