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This story first appeared in the Dec. 11 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
“R.I.P. Network Television: 1948-2015.”
So said writer-producer Chuck Lorre on a Nov. 19 vanity card that flashed at the end of his CBS sitcom The Big Bang Theory. “CBS recently announced that it was bringing back the series Star Trek, but not for the CBS network, for a streaming on-demand system called CBS All Access,” the card read. “In lieu of flowers, CBS has requested that mourners send them six bucks a month.”
Lorre was joking (presumably), but he’s joined by a growing number of executives who worry that too much great content already has been licensed to Netflix, Amazon Prime and their ilk. The solution, some analysts argue: Cut ’em off. Now.
Time Warner CEO Jeffrey Bewkes hinted at a willingness to engage in such a strategy Nov. 4 when he said he was “evaluating whether to retain our rights for a longer period of time and forgo or delay certain content licensing.” A day later, Disney CEO Robert Iger stressed he’ll remain flexible with SVOD providers but added, “If we see it’s doing damage long term, we’ll cut back.”
Those remarks, and similar comments from other executives, caused a flurry of commentary from Wall Street analysts fixated on the push-pull between traditional television and developing digital outlets. Some argue that third-party SVOD licenses, which have been a key revenue source as the TV syndication market has shrunk, are too important to ignore. But many now believe that, for the good of the industry’s long-term health, licensing should be dialed down. “Content owners have (finally) signaled they plan to hold back rights,” wrote Omar Sheikh of Credit Suisse, almost gleefully. Added analyst Todd Juenger of Bernstein & Co.: “SVOD is cannibalizing conventional TV viewership and training viewers that they don’t have to watch ads.”
While Americans are spending less time watching traditional TV, down 8 percent in the past four years, viewership of digital on-demand content has surged 210 percent, according to eMarketer. OTT (over the top) viewing is mainstream, with 181 million Americans engaging in it this year, making it all the more difficult for media conglomerates to wean themselves from the easy money. Netflix alone has 43.3 million paying subscribers in the U.S., which will lead 63 percent of the 322 million people living in the country to watch a TV show or movie on the service this year, says eMarketer.
Conglomerates don’t break out such data, but Juenger estimates that CBS, Fox, Time Warner, Disney and NBCUniversal each will generate $600 million in SVOD revenue this year while Viacom gets $300 million. Add in AMC Networks, Discovery Communications and Scripps Networks, and the total could top $3.5 billion for the industry’s most active licensors. “When we have run those estimates by company management, the usual response is, ‘Our SVOD revenue is higher than that,’ ” wrote Juenger in a new report.
Creating their own paid services would soften the blow from scaling back from Netflix and its ilk (Netflix and others are creating their own fare in preparation for such a day). Hulu already is owned by Disney, Fox and NBCU, and Time Warner, which already launched the popular HBO Now streaming service, is mulling a Hulu investment. Sony has PlayStation Vue, Showtime has a stand-alone service, and Disney bowed DisneyLife in Europe. Iger, it seems, is thinking about an OTT service in the U.S. that includes content from ESPN, ABC and Disney Channel, though nothing is imminent. “As more great content from Disney and others flow onto SVOD platforms, more time shifts away from live, linear TV, accelerating ratings declines,” notes BTIG analyst Rich Greenfield.
“We’re not sure the industry has the resolve to act drastically enough,” says Juenger, who notes that advertising revenue was better than expected for TV companies in the third quarter, leading some to assume the industry is healthier than it is. But 59 percent of the quarter’s ad growth came from numerous commercials for daily fantasy football, an industry poised to cut back dramatically under legal pressure. Dig deeper, say these analysts, and it’s clear that ad dollars are flowing away from TV and toward digital platforms, even as the biggest OTT platforms remain ad-free. Digital video has a 4.3 percent ad-spending share today, and it will grow to 5.9 percent in 2017, according to eMarketer, while TV shrinks from 40.5 percent now to 38.5 percent in 2017.
“The content suppliers will have to evolve and migrate as the big bundle dissolves very slowly…to me, the biggest issue is advertising,” Liberty Media chairman John Malone said Nov. 12.
None of this is to suggest Hollywood will be monolithic in its evolving approach to SVOD. Viacom CEO Philippe Dauman, for example, boasts of using “strategically developed and chosen windows,” even if it means having less content on Netflix than do his competitors, while CBS chief Leslie Moonves said Nov. 11, “We don’t feel like Netflix is the Antichrist.”
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