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Kevin MacLellan, chairman of global distribution and international at NBCUniversal, will give a keynote at the Banff World Media Festival in the Canadian Rockies on Monday about the future of global TV distribution.
He is responsible for oversight of NBCUniversal’s global distribution and international new media and TV businesses, as well as identifying growth opportunities outside the United States.
Before heading to the Canadian Rockies, he talked to THR international business editor Georg Szalai in London about ABC’s decision to cancel Roseanne after a racist tweet from star Roseanne Barr, the rise of streaming services and changing distribution strategies in TV, the future of NBCUniversal’s international TV studio operations, growing international reality streaming service Hayu and his take on the peak TV debate.
Your Banff keynote will focus on the future of global distribution. What are the major challenges and opportunities for global distribution?
The challenges are that the windows we have traditionally used are changing so dramatically. In the past, when we always put product through a series of windows, starting with premium pay and going all the way through to sort of basic library, that was a dependable model by which we could put together a potential profit or monetization scheme for product even before it was produced. Now that model has changed so dramatically.
I don’t, however, think that it has shrunk. It has just changed as to where the money is coming from. So there may be fewer windows in that some product is going directly to digital and is staying there exclusively for a long period of time, but the price point is enough to make up for collapsing several of those windows. So there is a different windowing strategy, but I see it as just as valuable as the previous one.
The way that we adapt is really about leaning into digital, whether it is proprietary or third-party digital. As a studio, we have been pretty neutral about where we are selling our product. We have’t done what some other studios have and said quite specifically we are going directly to our own services only or we’re being exclusively third-party. We are doing a little bit of both, and it’s really on a show-by-show basis that we are making these decisions.
Every day, my team and I decide where would this product get the best promotion, the best shot at success, what is best for that particular brand? We work closely with the creators of the shows to decide where the product sits best as well. It’s a complex model compared to what we used to do, because there is so much back-and-forth on the options for what to do with it instead of just putting it through the standard windowing process, but it’s also one that is very profitable. We have seen signifcant growth in this world of digital in the last seven years since Comcast acquired NBCUniversal.
Do you see Netflix and Amazon more of a threat or partners that provide opportunities?
To be honest, I try not to think about it from the company perspective – who we are selling the product to. I try really hard to think about it from the consumer’s perspective. Whether it’s sold to Netflix, Amazon or a broadcast network, the decision we try to make is what is going to be the right viewing platform for this particular show that is going to drive the greatest success for the show and thereby the greatest monetization. There is certain product we have that we understand will do much better and have a broader reach in the broadcast sphere, and there is other product, namely more specialized product, that we think will have a better chance of being seen by more people on a digital platform.
What we have seen financially is that net-net you can get to the same place. So then the decision you need to make is what is best for the program itself, what will allow it to be seen by the most people, give it the best shot for getting additional seasons and give the creator the best shot to achieve their goals.
What are examples of shows that make more sense to put on a network or on a streaming service?
For example, Downton Abbey was a show that in hindsight could have easily been seen as a show that could have sat on digital platforms, a specialized british period drama. It would have done very well, I’m sure, in that sphere. I don’t think it would have gotten anywhere near the exposure that it ended up getting or the number of people or built the brand that it did if we had simply sold it to an SVOD player. The fact that it aired on numerous broadcast networks around the world and was a top 5 show in most of those territories meant that on a weekly basis it got tens if not hundreds of millions of viewers around the world.
Another show, for example one of our Syfy shows, probably wouldn’t achieve a broad appeal, but will get a deeper audience on an SVOD platform. People who love sci-fi will engage with that product on a more frequent basis on an SVOD platform.
What’s your take on the peak TV debate? Is TV oversaturated with original content at this point? Is there too much TV programming?
I don’t think there is too much TV. I know a lot of people feel that way. Once people were given the capacity to enjoy television and watch storytelling anywhere and everywhere, it opened up a massive amount of more time for them to do so. And obviously the interest is there, or we wouldn’t make as much as we do. So I do think people are watching more and are using more of their free time to do so.
I have not seen The Americans, for example. I just began watching it on the plane, and I really enjoyed the epsiode, so I am certain I will watch several seasons of The Americans now. And I think many viewers are repeating that. So there will be this trove of great storytelling.
When you remove some of the firction points of television, meaning now I can watch it anywhere and any time that I want, I’ll view more of it, and we have seen more people doing more of it, whether it’s bingewatching or more frequently going to the content. As a result of that, I am spending less time doing other things. So I am curious to see what other pastimes are going to see less time spent.
Will that be social media? We all believed rather that would be the one that took away from the television industry. Or will we actually see that come back the other direction – will people spend less time on social media, because now you have taken away a bunch of the friction points. Becausefundamentally as human beings we have all been addicted to storytelling from as far back as you can remember. From cavemen drawing paintings on cave walls, storytelling has been a fundament part of who we are. I think it is biologically part of us. It will be interesting to see if now that we remove some of the friction points of watching TV and people are watching more of it, where are they going to take that free time from.
I believe we will continue to make the amount ofytelevision we make and more if possible and expose people to programming not just from Hollywood and New York, but from all over the world.
You launched international reality streaming service Hayu a few years ago and have rolled it out in several markets. Can you share how it has been doing and how many subscribers it has reached?
Hayu is doing incredibly well. We are super happy with it. We are not releasing subscriber numbers, but I can tell you that it’s beating plan quite significantly. Quite frankly we are thrilled with Hayu. We initially started with the U.K. and Australia. Then we launched it in the Nodics in the beginning part of the year. And we have announced that we would be bringing it to Canada as well, so we are continuing the rollout globally. Beyond Canada, there will be several other markets next year that we will launch it in. We are extremely pleased with the results so far. The number of subscribers that we are adding to the service per day is substantial and greater than we expected.
The churn levels were very high to begin with, but we got really smart about how we manage churn. The more subscribers you have, the better the data, so the decisionmaking process around marketing and churn reduction gets better and better. The first year was a huge learning curve for us. Despite that, we ended up beating plan in terms of the number of subs. We made some very simple mistakes in the beginning around things like payment schemes and credit card analysis, which caused unintentional churn. Now that we figured that out, we no longer see that.
From a product view, Hayu has been widely accepted and praised by subscribers. There are over 6,000 hours of reality television on the platform, and we add 700-1,000 hours a year because we produce so much of it. So there’s no question that people are feeling like they are constantly getting fresh content.
Will you launch more OTT and direct-to-consumer services? And do you expect that OTT services will replace linear networks?
Watching consumer behavior, you would have to say direct-to-consumer is a business we have to be in. So, yes, we do believe we will continue to launch direct-to-consumer services. And no, we don’t believe that they will completely replace linear networks, at least not in the foreseeable future.
We are still believers in linear networks. We are seeing a lot of success with our NBC network. Frankly, it’s more of a hybrid of the two. If you are a broadcast network, the road to success is the largest number of people possibly engaging with your product and you being able to monetize their engagement, whether that is through an initial broadcast on the linear network and then more viewing on catch-up services and your ability to monetize through advertising and subscriptions, or potentially micro-transactions. Or if you are a distributor, in some cases we produce content that doesn’t go on our networks at all and I’m just distributing that content, the smae goes for that. The shows we make the most money on are the shows that you can sell into a digital and a broadcast and a library window.
So I don’t think there’s a single production or distribution company that wants to see linear networks go away. If anything, we want them to find their place in the consumers’ decisionmaking matrix. Broadcast and linear should have a place, linear should have a place, and the two should marry nicely, and at the end of the day, we will all see more money from that.
What’s your key focus for NBCUniversal International Studios and do you plan more acquisitions?
The intention for the studio is to expand pretty dramatically internationally. Our goal is really to grow our international production capabilities. However, we don’t look at that strategy in one particular way, meaning we are not just looking at M&A. What we are trying to do is identify the best talent and figure out the deal that will work best for them.
So for example in the case of [Downton Abbey producer] Carnival Films, which has been a really successful business for us, we acquired it. That was the right decision. In the case of David Heyman and Heyday, we entered into a joint venture. So we didn’t acquire a business, we set up a business with him. The same goes for Working Title, which is a business that we obviously are closely associated with in film. We went to (Working Title co-chairs) Tim (Bevan) and Eric (Fellner) and said how would we best be suited to be in partnership with you in television, and that was also a joint venture. In terms of Monkey Kingdom, an unscripted business [in the U.K.] that has done very well for us as well, we acquired. In the case of Lark, which is a Canadian company that we have done well with, we gave them funding and took a minority stake and manage their distribution. So we are open to numerous models. The idea is you want to base it on who the best creators are and create an environment for them that’s comfortable.
Our goal is not necessarily to go out and buy more. It’s not a sausage factory. Our goal is really to go out and identify who we want to be working with and approach them with multiple models. The difference today is that we have stayed pretty essentially in the English-language markets. But more and more, as people are creating more fantastic foreign-language product that has an ability to travel, Gomorrah, for example, or Dark, there are opportunities for us in foreign-language markets as well.
Have Netflix’s and Amazon’s big creator deals made things more competitive or changed your focus?
The greatest and probably rarest commodity in the world is true creativity. But I don’t think that just the biggest names in the industry who have had the biggest hits are the only talented people in the industry. Where it gets harder is finding somebody who is ready to break, and it’s also in many ways more fun. When you found somebody who has maybe only had one or two TV shows or films or even shorts under their belts, and you can actually offer them an infrastructure, guidance, funding – the things they didn’t have before. That’s a really fun creative process to be able to work through.
We’re still very interested in the David Heymans and Working Titles of the world, but one of our goals now is actually identifying people who have not yet had that first big break, but we believe have that talent. NBC and Universal in L.A. have both set up writers on the verge-type development projects, and we’re working on something similar in the international space as well to find people who are ready to be the next big thing.
As geographic boundaries begin to disappear as a result of over-the-top digital services that are truly global, the idea that a German or Argentinian or Chinese creator will have the ability to create global hits is more and more reality than it ever was before. And a company our size with the infrastructure we have and the production capacity is a really nice place for them to come and be cradled in a sense.
Did ABC make the right call canceling Roseanne?
It was a very difficult call on ABC’s part from a financial perspective. But from an ethical perspective, It think it was the only call to make. So in one way it’s difficult, because it’s very hard to find a hit, and you find one and then you have this problem presented to you. That’s a moment’s difficulty. But when you look at the ethical issues at play, there was no other decision to be made. I applaud ABC for their decision, and I think it was the right one.
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