Ad funded or…subscription, a difficult conundrum..

Advertisement has been the backbone of the Entertainment business since a while.. Advertisement followed good content and in general the principal stood in good stead for multiple categories of entertainment businesses, whether it was print,broadcast,radio, events or sports though bolstered by the ticketing revenue in some cases. For many years it was a simple business….understanding content and then marrying it with the advertisement dollars. The channels of distribution were well controlled with dedicated measurement metrics and Ad agencies were the major intermediaries which facilitated the content/brand to popularise as well as monetise…Then it all changed! Technology and internet changed and democratised the distribution channels…with control slowly passing to the the hands of the consumer. With digital and streaming on the ascendant, the concept of fixed time viewing changed to anytime anywhere viewing with Mobile as the device of choice…

Change is never easy … and if it is fundamental and rapid as one experienced, its bound to reverberate. Advertisement which was the funding of choice to virtually all categories of Entertainment to fulfil its core purpose to help in the monetisation of consumer brands, then needed to make the choice of moving to where the consumer was moving ie the content of consumer’s liking, decided by them, on the device of their liking and fulfilling the concept of anytime anywhere consumption. The choice was not easy as the building blocks of measurement of choice were not in place. Further the proliferation of broadcast channels as well as devices led to funding content with the lowest common denominator leading to overall lowering of the quality of content. Further complicating the tapestry was the lack of understanding of the digital technology, its reach, its ratings structure, currency as well as pricing for any serious advertiser who would give right value for the content. Ad funded content started to become a problem for entertainment businesses looking for a stable as well as transparent revenue stream for their businesses.. Then .. ‘Netflix’ a video distribution company with their knowledge of choice and distribution decided to launch a digital platform for unlimited choice of content, no rating guideline….but for a ‘subscription’. They disrupted the American market more specifically the entrenched cable distribution initially with a $10 subscription for better and unlimited content on a platform which was digital, anytime anywhere and had substantial choice with more being added every week. With world as its market led by technology it rapidly became the most watched service in the world, with almost 220 million as the subscriber base today and perhaps the most valued entertainment company in the world beating the likes of giants like Disney, Comcast, Sony, Warner and others. Suddenly ‘ Streaming’ and subscription were the buzz words…. The world since then, became more digital, consolidated and increasingly subscription led.

However was it the … ‘Manna’ the industry was looking for? Has Advertisement really become the second tier revenue source…or diminished in importance in current times..? The answer is an emphatic no.. Advertisement still is and will remain the most important as well significant revenue source for entertainment businesses. TV broadcast business is a major chunk of the entertainment business be it news or sports or general entertainment being substantially ad led. Even though the growth may have faltered in recent times vis a vis its digital counterpart, these businesses remain significant.With the content requirement as well as cost going up substantially you require more not less advertisement. With subscription numbers for most of the digital players not achieving their forecasts and with content costs always increasing, the world as well as the key players are quickly realising that they need both the streams. So streaming ( whatever content) is seeing a new ad led or ad subsidised layer to entice subscribers and grow. The awareness now is helping to decide what should be only advertisement led, only subscription led and where you need both ..!

Distribution and how it changed expanded the entertainment market. It also changed the revenue profile of the business. The business as of today seems to be headed where both sources of revenue ie advertisement and subscription are needed. However in this great upheaval one part of the business which to my mind is a clear winner is the… ‘Content’. It was always the king and will remain so in the foreseeable future..!!

Have a wonderful week ahead…!


Sports content could….be the elixir for content stakes in India

There are many factors in play in the Indian markets for the dominant Broadcast sector and also the newer OTT digital play. Broadcast today has a massive 40% share of the E&M market and the subscriber base as well as the advertisement dollars continue to support such that it continues to flourish despite greater growth as well as shift to the digital medium. However it will continue to shrink in the total percentage market largely because the dynamics of the markets are changing. The industry has roughly a connected base of 180 million homes for Pay TV which remains intact though the character has changed. The higher paying subscribers have shifted to the subscription based digital offerings and the mass based subscribers are opting for advertisement based free channels. The growth for the large broadcast networks specially the GEC has largely been limited from Hindi and now regional content markets. However one content type which has stood its ground is the Sports content and that too ‘Cricket’ in India.

We have seen many changes in the industry in recent times to counter the natural drift of eyeballs either because of the digital phenomenon or the cost of the cord or the likely investments needed by the traditional broadcasters to hold onto their audiences as well as income flow. The consolidation of few key players like Sony-Zee recently and earlier it was Disney Star bringing their digital as well as linear offerings under the same entity have been steps essentially to guard against such drift and essentially to fund superior or better content. The need for content however remains paramount. Sports Content is an area which continues to be important to the broadcasting community as it continues to attract both digital as well as linear viewership and is amenable to both the subscription as well as ad funded models, the only real problem being its upfront license cost which can be substantial and can be difficult to recover in the license period …We have the India’s biggest and among the world’s biggest properties ..the IPL league which goes under the hammer very soon for the next 5 years and I suspect that all fears are going to be disregarded for bidding for this very coveted prize… Let’s discuss why and who could be the suitors..?

The reasons first as to why is it ‘Coveted’ … and then who would be the players vying for the sweepstakes. The reasons are not difficult to find and the easiest one is that ‘it’s cricket’. For the South Asian diaspora more specifically India it is religion.. just like Soccer is to the rest of the world. But this is not the only one….this league is international, high paying, has consistently grown earnings for advertisers, participants team owners and sponsors across the years and is a proven bet even during covid times. For the broadcasting world it has been a consistent winner, and for many players, transmissibility of content has engendered their entry into the digital world of OTT, the case in point being the success of “HOTSTAR’ , now in the Disney stable. Clearly its hot property… and the larger the interest the higher the purse this time! Who ….then are the likely gladiators ..??

Let’s start with the current players … the known one’s and they are Disney-Hotstar for sure as its their prime property and they will go the distance to protect it since it also contributes substantially to the subscriber base of Disney+ worldwide. The other significant player is Sony-Zee after their combination. Sony will look to get back its initial property and the the newly infused cash in the joint entity will help. Before I move to the other players there is the third large broadcaster Reliance- Viacom which desperately needs a content boost to its currently declining standing and IPL could be the answer. With the recent newspaper reports suggesting collaboration and coinvestment with Reliance by Mr Uday Shankar ( the key architect for Disney earlier) along with James Murdock, for this coveted property the contest will be riveting. Besides these three key interests… the others with substantial moneybags like Amazon Prime, Netflix could also be in the fray…. The contest as I said earlier will be riveting though the increased cost will be a dampener for returns even though the eyeballs are assured.

The most important question then is that what do we think the value will be this time both for broadcast as well as the digital rights. The winning bid last time was Rs 16000crs ($2billion approx). What will it be this time..? Have a feeling its likely to double or more…! Lalit Modi needs to take a bow for being the mentor of such a property …. For the rest of us lets enjoy the action and of course the game!!

It’s starting to change….

Welcome to the new paradigm..!

Last few years have been momentous in the Entertainment and Media industry. Not only has the character of the business changed but now the change on the category as well as the form of players that will be key and dominate is starting to take shape. This change is true across the world and India as it grows to stature of a key market. It is and will most likely be affected by these changes in the world order. Had written about the change on August 9 in one of my earlier blogs and it continues to be a reality. Latest instalment is the just announced merger of the Indian entertainment behemoth ZEE with SONY business in India. This will, if consummated,create the largest network of channels in India both entertainment as well as sports, main line as well as regional with substantial inroads in the streaming space. If the prism is the India Entertainment scene then this is a major event which will change the way industry invests as well as functions in probably the largest upcoming market in the world.

The change has been largely dictated by the changing world which world over is moving away from Cable network business into OTT or the streaming business. Netflix is probably the pioneer of this business being the largest and having a market cap of almost USD 280 billion and having the largest subscriber base of over 200 million paying customers. With mobile as well as internet as the primary distribution medium, it has changed the very shape of the entertainment industry. OTT has changed the funding mix with subscription now being an important component rather than just being substantially advertisement led. It has also enabled different content from across the world to be seen, accessible through subtitles, dubbing and adaption of formats more suitable for the market it is accessed in. Not looking at content through an ad related vision also means better content that engenders a democratic choice, a paradigm shift from the menu driven choice earlier and probably the norm in the foreseeable future. Future also means the digitisation of the entertainment medium, death of some older methods of distribution and a massive jump in the outlay in both quality as well as quantity in content production which now will be made for worldwide audiences. With the revenue partly tied to subscriber base and not only advertisement, the linkage between subscriber as well as the content not being direct, the outlays huge with outcomes uncertain, substantially raises the risk of managing a platform for smaller networks. Therefore the likely content spend, the changing distribution parameters may be some of the core ideas behind the likely combination of ZEE and SONY.

However the change to my mind does not stop here. Combination of two large TV content and distribution networks is certainly a step in the logical direction but perhaps is not the end. My view is that with the tech giants like Apple, Google, Facebook, or for that matter Amazon having wide capabilities of reaching the actual consumer, slowly getting the the majority of the advertisement kitty and having massive other cash resources, their propensity’s to spend for good content far exceeds anybody else at present. While they do consume as well as produce content today too but largely procured through entertainment networks. What stops them from taking over the full activity of production of content too? Entertainment content and other content is a logical addition as a front end activity for the big tech companies. It’s a matter of time before big global networks like Disney, HBO or even Netflix could be looked at as a welcome addition or adjunct to achieve the likely tech led dominance of the Entertainment and Media sector. India also then would have to follow suit and not look very different.

Change therefore is something that one needs to expect in this ever changing world. Every big network whether in India or the world needs to look at this probable eventuality as they move forward. Entertainment and content in particular is still king but depends which throne will it climb..!! Something to think about…

Entertainment business…at the crossroad!

A new future for Entertainment industry is unfolding…

Entertainment just like travel is intrinsic to the human psyche and its safe for me to say its need is never going to go away. However, the form and shape of the businesses, whether content or its distribution can and will change. Many years the character of the business never changed but then technology specially digital transmission provided the first significant and major change in doing this business. Change did not come without warning but one does not want to change or adopt new ways unless that new way is perhaps the only way left to do business. Distribution changed character first with music, which is now completely digitised and has followed up with other content like news and now sports as well as entertainment. Mobile, anytime anywhere, customer choice are the buzzwords we have heard in the last decade or more and they have all materialised and how! The business changed leaving most of the companies in a dilemma as to what their real activity was… or where their future lay. That dilemma is real.. as the leaders in this business are beginning to find out whether they were the leaders in the print business ie the Washington Post or the New York Times or the Times group in India or now the TV conglomerates like Star, the Zee group or Disney for that matter. We need to delve a little more as the change is not over… just paused!

Business of Entertainment and Media is a relatively simple business. It’s core is the collection or production of content which the audiences across the world want to consume and pay for. Content took the shape of stories whether drama or cinema, serials,music or for that matter sporting events. The content was then distributed through newspapers, magazines,theatres, broadcast Tv, discs both video and audio and now through digital means. The revenue was largely through Advertisement (substantial percentage for print and broadcast) and to a lesser extent through subscriptions and ticket sales. The revenue profile remains largely the same and so does content production but what has changed is the distribution. There is a saying in the entertainment business that ‘Content is king and Distribution is God’. Unfortunately the God changed and how..! Predictable lines of expected revenue have vanished, choice has become more difficult to decipher as well as measure and rates for advertisement are in the form of metrics which are difficult to fathom. No wonder the dilemma continues…!!

If the change was limited to this, the Entertainment giants, who were a few, would have figured out a way to sustain the pie and that too within the cosy club. They had huge social power to dominate though not the money power. The bigger change is the entry of Big Tech in the entertainment business. They not only brought in the knowledge of pathbreaking technology for digital distribution but came equipped with Balance Sheets which far exceed any regular business and the investors judge them not for their profitability but for reach. They can not only distribute but fund content without immediate risk of acceptance or non acceptance by the consumer. Their metrics of performance is not a hit or a flop but acquiring customers on the back of which they can distribute other products besides entertainment content. In addition they have garnered a lions share of the advertisement pie that was otherwise the preserve of the entertainment companies. Big tech dominates the Wall Street as well other bourses across the world… No wonder the world has changed!

A tech company like Netflix is valued higher than the traditional giants like Disney whose brand value as well the value of its library was unparalleled. Most of the media conglomerates whether its Murdoch, Bertelsmann, Sony,Discovery/HBO,Comcast or for that matter Times Group in India are in the crossroads of their life. They are likely to be nowhere near to the market capitalisations of Google, Apple or for that matter Facebook. Can we call this the tech takeover….maybe or maybe we will let the future unfold!

Have a great week..

A league extraordinaire…..

It’s never over till its over!

With little over a decade under its belt it is of recent vintage. However ever since its launch in April/May 2008, it has captured the imagination of all the cricket crazy populations not only in India but across the world. It’s the biggest cricket league in the world, perhaps the richest and has developed itself a brand pull which any brand finds it hard to ignore. It’s the IPL, the Indian Premier League, and the launch of its 12th edition earlier this month brought a round of welcome cheer in this Covid induced comatose in the populations across the world specially in India. Being held in UAE, without the voiceferous crowds, and other restrictions but welcomed nonetheless by all starved of competitive sport for the last seven months. Admit I like cricket and that India is a cricket crazy nation, but still its current edition launch came as a breadth of fresh hope for millions amidst the anxiousness witnessed over the last few months. Lure and the fable continues to get stronger and one wonders .. what makes it tick?

Brainchild of Mr Lalit Modi and modelled on the English Premier league (EPL), having cricket as its main content, it quickly dominated the imagination of fans in India and around the world. Two months of world class cricket in the 20/20 format, most of the international stars, club loyalty, money power, laced with entertainment made IPL the ‘happening’ league across the world and numero uno in India. It’s also the hottest TV property with ever increasing TVC ratings every year, TV being its largest contributor in terms of revenue besides tickets and now digital as well as other ancillary income. It’s a go to property for any brand launch, ask OPPO. Vodaphone, Havell’s, car brands and now digital brands like Byju’s as well as Dream 11. It has made money for BCCI, the club owners, the players and provided Indian cricket with a match ready bench strength incomparable in the world. Virtually every cricket playing nation now has a 20/20 league of its own but IPL still remains gold standard. 12 years of its existence has also seen some downsides like its tryst with match fixing, drug infused parties and betting but the brand has survived and come out stronger!

So what makes it tick… ? The answer lies in the content on offer. If one has witnessed the match on this Sunday between Rajasthan Royal’s and Kings Eleven Punjab and last night beween Mumbai and RCB Bangalore, one would know. Both were high scoring matches but with twists exemplifying the unwritten rule that cricket is by chance and it is never over till it is over. Sunday match saw a relatively new player arrive at the crease, nervous, overawed, and waste almost 20 deliveries in trying to get an impossible ask of almost a 100 runs in the 6 overs remaining. When we thought all was lost…. Rahul Tewatia, the player unleashes 5 sixes in one over scoring 53 in 30 balls in the impossible win! He set the TV audiences and the Twitter on fire and became an overnight star. Yesterday Mumbai came back from behind to score 89 runs in 30 deliveries to level the score, though they eventually lost. Where would you be if you were watching these matches ….. at the edge! Audiences across the world were too with pandemic receding to background recesses of the mind.

The brand IPL has shown resilience, a right offering at the right time. In today’s depressive induced thinking and insipid news and other TV content, this league is manna from heaven. Inspite of not having live viewing possible this year, its tv as well as digital audiences will far overshoot expectations. Already looking forward to the next match today and really does not matter who is playing as all teams are well balanced. Will just enjoy the spectacle!

Take care and stay safe.

Creative excellence is the soul of the business of Entertainment…

Creation is the soul of good content

Business of Entertainment and Media attracts a lot of eyeballs, in fact more than its due share and that is the reason it front ends in current times in marketing some of the other business endeavours. It may not be financially the most prudent or efficient and yet it carries an overweight in terms of eyeballs. What is the enduring lure over generations and what makes it so popular? Content of course as we all know is at the heart of this business and we talk of this every time we discuss entertainment. Content is not something that is availiable off the shelf, whether it be written, spoken, on the video or integrated into a story. It has to be created and that creation involves ideas, writing, direction, photographic skills, story telling and presentation skills which then allow it to become a whole. This is true of content of any kind, whether it is live action, written content, a podcast, video or filmed content.This is the edifice on which the whole business of Entertainment stands. Some say distribution is also key and while I agree but its the basic content which has to be there first to distribute. We sometimes pay significant attention to the distribution and economics ignoring the other factors. It is in fact the excellence of the creative team which is key, as its creative vision is the soul of the content which as we know is at the heart of this business. How does one put a value to this creative excellence?

It’s clearly a very difficult task to discover value in a creative endeavour. It’s not a simple calculation of time and costs like any other input for the real value in this case lies in the eyes of the beholder which is the public or the audience. Also what pulls in the audience is also unclear. Is it the star cast, is it the story or the photography or the combination of all? Audience polls in recent times have been employed as indicators of audience acceptance but how reliable are they is again unclear. Besides these actions, putting a value to the artistic or creative endeavour is difficult. A good creative endeavour not only generates money but also can turn ordinary mortals into stars overnight. How does one put a value to that? That is one of the reason why economics of any entertainment enterprise is fraught with risk. Therefore we can have a windfall or we can be in depth of a deep crevice based on how we assess and price our content. India makes 1000 plus movies every year besides other video content and yet what is the success ratio? Very little despite the experience!

We probably are never going to be able to judge a true worth of a piece of content or for that matter a piece of creative art.For all the art conossieurs, this is a known fact through many centuries and should be true for other areas of artistic or creative excellence. There is always going to be an element of luck or probability as part of this process and if one is to be in this business then one needs to recognise the same. All good content may not be a success and all bad content is not necessarily unsuccessful. Though one thing is for certain, more investment as well as appreciation needs to go into the creative endeavours. Besides the stars, more incentive needs to be built for writers, directors, technicians who are the real part of a creative vision which is the soul of the entertainment business!!

Entertainment business has never been easy but always enjoyable. As one enjoys one’s next instalment, appreciate the creative rigour that goes behind it and if one does that, this article would have served its intent. Have a lovely weekend and stay safe!

Change is the only Constant……

Change is the second name for life and one needs to endure and accept it as a rule rather than an exception. However nobody could have anticipated a change that we are currently seeing due to Covid 19 challenge. This is true for every facet of life as we have known and the Entertainment & Media is not different , in fact more accentuated than some of the other business sectors. Move towards Digital and video is the change and while this move was already apparent before this lockdown, the resultant pace has quickened manifold. The areas which have really started to pose existential questions is the ticketed live events, theatrical distribution of movies and the print business. Print business has been in decline the world over though India, because of regional languages and rural penetration, it was still showing a single digit growth which may now have premature decline should the lockdowns continue for sometime. Let’s go a little deeper into the discussion on the theatrical distribution of filmed content which is hot topic of discussion the world over including India and then look at the ticketed Live events.

Filmed content since time immemorial has been characterised by theatrical distribution of the same. There is certain mystique of larger than life characterisations which can best be enjoyed in a theatre setting with large curved 70mm screens, Dolby sound and 3D effects. It gives the actors larger than life personas making them stars enjoying a fan following either local or international not rivalled by any other video medium. Theatrical exhibition is unique combination of prime real estate, good content and in house dining which has been the defacto standard for long. The current pandemic has hit hard. With real perceived threat of being conduits of infection either through close contact, the air one breathes in air conditioned places, they were the first to be shut down and they still remain closed. Filmed entertainment suddenly found itself without an exhibition vehicle with some digital alternatives but not equal to the style, panache and the financial feasibility of a theatrical release. The lockdown and the pandemic will ease with time and a vaccine sometime in the future but will the theatrical business come back to its preeminent place in the chain, may not be a certainty, specially with fear still pervading the consumers mind. The ticketed live theatre and live events whether sports, music or other content are affected similarly as the theatrical films business. Risk of infection, fear surrounding the same and the fact that the facilities are closed is likely to change this business, the question remains for how long and whether there are any alternatives.

If one were to look at the precedence,the current disruption and the crystal ball, the following facts become apparent –

1. The theatrical business is still the vehicle that defines enjoyment of content whether it is a film or a music concert or a sporting event. The core is watching the content live, with people as well as friends which may not be replicable with any other mode at present. The experience of watching a movie made on a grand scale needs to be in the theatres equipped to give you that experience with real life like effects and sound systems. Pandemic has put a temperory stop to that experience but unless the same is incurable for a long time, the same will be back bigger and better as soon as the things stabilise. The question should be how does one survive till the pandemic goes away and not whether it will be there in the future or not. Costs of real estate, the cost of the workforce should be the topics to worry on for the theatre owners while the money riding on the content made for this medium and its currency should be content owners worry.

2. While the theatrical release is life blood for a movie content and other live content, the cost of putting up new theatres/screens with access had become a drain even before the pandemic. India has been stuck with around 10000 screens for a while now with new screens not being added in adequate numbers. Digital distribution of content, though not the epitome of grandness has made significant strides in making that content accessible in every home and on every screen big or small. It has been an additional revenue generating platform though not the primary one. With its ever increasing technological features, artificial intelligence and global coverage it slowly has gained precedence. Netflix , is today a highly valued digital OTT platform which is dominating attention of all the large players having bested the capabilies of the traditional TV platforms both as a distributor and producer of content across geographies. Regardless of what our feelings are about the theatrical distribution,digital distribution of movies is an event whose time has come. It may not be apparent for the live theatre or the events but they may not be far behind. It’s possible that these systems will exist side by side but it is starting to happen and will get mainstream with time.

3. Two other changes again which have been on the anvil will now accelerate. The first change will be the merging of the two distribution systems with both theatres and the digital channels releasing content simultaneously or with reduced intervals. It’s already happening in the US with one of the large theatre chain AMC having reached agreement with the digital side for reducing the interval to 17 days from 70. The second change is the rapid rise of tech behemoths first as providers of technology and now slowly as producers and distributors of content. The real change is the strength of their balance sheets and the inexhaustible ability to spend on content. They are the new entertainment moguls and with this disruption, there is all likelihood that it will happen much sooner than expected.

4. While the digital systems still are not completely transparent on the profitability, probably because profitability is not a criteria but domination of market and subscribers is. I believe that here too change will happen and soon. We are already seeing the pay per view models emerging with one having been launched in India by Shemaroo. There will be more

Change has been the only constant and it’s time to realise that the world has changed. Time to change our thinking and actions too to welcome the new world.

OTT play ….is content the only differentiator?

Entertainment has changed with many parts specially distribution rapidly becoming digital in recent times. The current lockdown across the world markets will further hasten the process across all facets of the business. With physical access curtailed, the large venue based entertainment be it filmed entertainment or live events has stalled and the recovery to their pre lockdown business is looking sometime away with restrictions and fear being the big reasons. OTT and surprisingly Television have been the gainers though advertisement the major source of revenue for TV still down in the negative territory.  Filmed entertainment it seems will revive its theatre led viewing in sometime but is slowly starting to consider the digital alternative. The business of entertainment is clearly at the crossroads of change though the demand for good content remains firm.

Content therefore and superlative video content is the new flavour with OTT platforms willing to allot large budgets for the same. Netflix started the trend of differentiated content through a subscription based service which led it to become the numerouno in the valuation sweepstakes though maybe not so on the profitability front. The success of Netflix in attracting subscribers has encouraged a number of other entertainment companies who now have launched their own OTT platforms. Worldwide we have Disney+, Viacom-CBS, HBO and Comcast with Discovery as the latest entrant for the sweepstakes. In addition you have Amazon, Apple and now also Microsoft getting into the act but not only as producers, as aggregators of content too. Domestically also there are number of platforms with strong domestic distribution like Hotstar (now a Disney venture), Sony LIV,  Voot, Zee5 and Eros Now. Each of these players are looking to produce content as everybody has the mantra that original content sells. Content therefore is set to explode with substantial money chasing it. 

While this is good news for the Content producers, I wonder if it is good news for the OTT platforms. OTT  which started of as a mixture of new content and catch up shows to lure subscribers are now increasingly relying on new content as their prime attraction for new subscribers. The number for investment is huge in billions of dollars. The question which now becoming pertinent is that with that kind of investment when and how do the platforms make money? How much of new content is enough to sustain an OTT ? Since most of the OTT rely on subscription and that too monthly or yearly how do you correlate the success of their content to the revenue? Is it a matrix of simple net growth of paying subscribers year on year? What is the role of the content libraries one holds and how does one monetise those? All key questions but not with clear answers, specially when most of the platforms along with a leader like Netflix are still in an investment mode. What is a profitable business model here then ?

New content,many argue,is a must have it but how much? What is equally necessary are the digital systems which allow the customer a choice as well as access. If one dumps reams of content on the subscriber, how is he supposed to make a choice? Video content choice is basically through short trailers where Netflix still has the best technology. We will fast reach that time of content overload and if we still do not have a clear model of profitable existence then the whole industry is in trouble. Volume of content versus watch ability will be the choice. Many believe that future will change ie the number of players will consolidate or there could be different set of offerings for ad led content or subscription led model. Netflix is already beginning to cut the number of titles to reduce overload according to sources. There is also a growing view that companies like Disney plus or Comcast have better chance of success than pure play OTT which have other businesses like Content or Parks in this instance.

While content clearly will the central theme, the successful digital model is still a mystery. Therefore welcome to the world of uncertainty in the digital world!

There is a the Advertisement Pie!

If one follows, tracks or works in Entertainment and Media (E&M) businesses, one knows that they need to follow the trend for advertisement to know how the sector is doing.  Understanding advertisement revenue and forecasting its trend line is the gold standard in managing E&M businesses worldwide. While other forms of revenue do contribute but clearly it’s the advertisement revenue which is, has always been and will be the key for the foreseeable future of this business. This is not the only determinant of health of a successful business, the other key determinants being content as well as distribution. Excellent content and distribution sometimes also cannot save the business in an advertisement downcycle. What is behind this revenue stream and why is this important? Also why this discussion today??

Simply put, E&M businesses have in general two key streams of revenue ie Adverisement or Subscription which also includes your cost for ticketed events like movies or events. A large part of the business is advertisement led and that includes businesses like print-both news as well as magazines, OHH, TV, a large part of events and now a large part of digital streaming too though subscription does contribute on the digital side. Therefore the advertisement trend line for this revenue stream is very important for the media businesses across the world. The world has been lucky except for thr stock market crash in 2008/2009 to have witnessed a steady growth in this revenue trend line across the years. An average growth between 3 to 4% across the world has been the norm with countries like India,China and the Middle East being the new developing markets clocking 10 to 11% growth on an average. Well, then COVID 19 happened, the world and all businesses closed and now it seems the good run is about to terminate! All advertisement related businesses are under a massive threat in the short to medium turn. There has been and there will be a massive turn towards digital but the revenue shortfall may be substantial. There are already reports that suggest that giants like Google, Facebook and Microsoft which are digital have also lost upto 20% in advertisement revenue in the current crisis. Some thoughts as follows on the extent of the problem, when can normal return or whether there is likely to be new normal..

Advertisement in general has a strong correlation with the GDP. The different rates of growth have aligned with the GDP of the countries and are always a couple of points higher than the stated GDP. When India grew at 7 or 8%, the growth in advertisement was between 9 and 10%. This is natural as the key advertisement dollars come from the health of the underlying businesses. Key sectors which largely contribute to the advertisement are Auto, FMCG, Real Estate, Education, and other sectors where brand is key. India was on a brink of a decline in many of these sectors and the COVID 19 lockdown is likely to increase that stress manifold. There are various versions on the recovery after the lockdown, but none of them are optimistic or give a sense that things will be back to normal soon. Some industry insiders feel that the year 2020/21 will see a negative growth in the traditional media while digital media will be at par or with a small uptick of a couple of percentage points if we are lucky. The overall pie will certainly be smaller. Macros presently do not look good!

What lockdown has done is put the focus on the digital capabilities of the business. Our dependence on the Internet and data has gone up manifold whether it is to communicate, entertain ourselves, buy and sell goods or get information. I’m afraid that this dependence will be inculcated as a habit post lockdown and with increased suite of services will start to replace some of the traditional way of doing business. Advertisement also tends to go where the eyeballs shift as it is the nature of the beast. Therefore largely physical businesses like newspapers, magazines or other parts of print will possibly see an accelerated shift of its key revenue stream to digital. Coupled with strained distribution chain their ability to attract new readers will also be under question. TV and broadcast has kept its viewing intact initially though the parts of the broadcast businesses are likely to be impacted with no fresh content and the uncertainty when that will be normalised. News broadcast businesses have seen a new lease of life but it is difficult to judge for how long?

Digital distribution of content will be possibly the new mantra for the E&M businesses, with good content being the only imperative. One assumes though that the large advertisement dollars once the economy recovers will be directed to digital rather than physical mediums.  However this assumption is also tenuous as value wise the digital piece is still far less remunerative than the traditional media with virtually very little data as well as impact assessment available for rational decision making. One cannot therefore say that it will only be digital in future as I think there is still sometime both will coexist. However what is certain is that near term assessment for advertisement led businesses is not good and that the shift to digital will accelerate faster than ever. 

The earlier we come to terms with the above reality the better as the pie does have a hole!!

Content, yes but economics?

Content is no doubt the key to hold the audience attention. The demand for video content with the proliferation of TV, OTT and other platforms vying for consumer connect is set to boom. Therefore and rightly so access to content is key to any successful venture in the Entertainment and Media space.

The expansion in the content marketplace has not only led to new content producers but also significantly added to the quality of content that would be availiable. Platform players while they would be happy with more productions will also have to contend with higher cost. Producing content both for web series, short movies and movies for OTT is vastly different from the massy advertisement led content produced for TV at least in India. Therefore the content costs have risen or are set to rise exponentially over the next few years. Without the comfort of advertisement and the level of subscriptions low and not growing in tandem, is the industry in danger of outspending itself into oblivion?? Problem is very real with only a likelihood of a few winners and many losers.

The Producers on the other side are likely to multiply as they sense a lucrative opportunity over the next few years. With platforms like Netflix , Apple,Amazon, Hotstar , MX2, budgeting huge amounts for acquisition of content it’s clearly boom time.

However Indian content houses have typically done TV content on a cost plus basis and that too massy as well as not of particularly high quality. To improve and deliver in the new world will require origination skills besides pure production not to mention the ability to sell. Much of the value for content lies in their IPR’s which presently are not retained by the content producers. They will need to keep that in mind if they are to create wealth for their stakeholders.

Will be interesting to observe how the business models develop. However both the platforms and the content producers will have to work at the ‘Economics‘ to create value!

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