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…!

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Published by eyeonmediablog

Professional Chartered Accountant and presently the founder and chairman of Sapphire Professional Services Pvt Ltd - a boutique advisory firm in M&A,Strategy and Structuring ( www.sapphire-pro.co.in ). Previously a senior partner with PwC and leader of the Entertainment & Media industry in India for 7 years.

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