Media, Tech and the Fight for Your Time and Money

Theatrical will shrink, Apple will buy big, TikTok challenges Meta and huge content spend will be monetized on Connected TV: The headline analysis from Variety Intelligence Platform (VIP+) and its lead analysts speaking at SXSW.

Setting the scene was Andrew Wallenstein, president of VIP+, who declared media and tech to be one converged industry going after mindshare and attention.

“They want your subscription dollars and your advertising dollars, and they are all going direct-to-consumer around the globe.”

Going into more detail on the key findings they shared:

Cinema Rebound a Mirage

The $11.3 billion final gross of 2016’s box office is likely to be the best for Hollywood’s checkbook. Period. Everything from then on has seen exhibition takings in decline. It’s not terminal for cinema screens, but Variety thinks business will shrink drastically, on a domestic and global level.

2022 US box office receipts are expected to be $8-9 billion at best. “That’s a lot of money that is getting lost and exhibitors are freaking out about that and it’s really starting some existential questions,” says Wallenstein. “I’m not say the movie business is gonna die. I do think the footprint of theaters is going to shrink in the coming years.”

It’s a reflection of the fact that, for the most part, blockbuster movies — the Marvels of the world — will continue to do well at the cinema while non-studio fare will be sidelined onto streamers.

“The theatrical play for most mid-low budget art house movies is going to shrink dramatically over time and… streaming is going to be the big beneficiary of that trend.”

Consolidation of exhibition chains — as recently occurred in India — is likely, they predict. In addition, cinemas will be more experimental in pricing with tentpoles perhaps commanding a premium ticket.

“A lot of exhibitors are going to do what they haven’t done before, which is certain bigger movies may command a higher price. It used to always be no matter what movie you watched, it was the same price. Now, you’re gonna see a lot more experimentation. And that may be the very thing that actually helps the exhibitors get over this shortfall that is inevitably going to happen.”

Wallenstein added, “I’m very much predicting that movie theaters are going to have a secular decline, not necessarily extinction, but some serious shrinkage.”

TikTok is a Digital Ad Powerhouse

Meta and Alphabet currently control over 50% of digital advertising dollars. That’s no coincidence since the pandemic effectively “killed a bunch of ad categories,” leaving digital advertising to a double-digit growth. Meta makes 98% of its revenue from advertising, for alphabet that’s 81%.

“They are tremendously dependent on it. The pandemic not only helped it basically accelerated the eCommerce business.”

Social eCommerce is growing to the extent that the Meta/Alphabet lock-in is being cracked open by Amazon and TikTok.

“Amazon is growing and growing fast. So, I think we’re probably on the verge of a Tripoly. In addition, Amazon is one of a number of retail media networks — companies that you don’t think of as being in digital advertising like Walmart and Target, they are leveraging their consumer data in a way that is making them significant market shareholders.”

In terms of global downloads, TikTok is growing faster than everyone else. Facebook still takes top spot, but it is TikTok not Meta which at the “epicenter of youth culture.”

“There’s simply nothing like TikTok out there as a cultural force. I think it has a lot to do with their secret sauce, that content recommendation algorithm that is so powerful.”

Social commerce — using video to sell products — is set to explode, and TikTok is going to lead the way. The only cloud hanging over all these players — and it’s a pretty big one — is regulation.

“There are dozens of bills right now in Congress that are aimed at curbing the big problems of information, data, transparency and protecting consumer privacy. Once the midterm elections happen, that’s when you’re going to start to see some real activity. And, of course, who wins the houses will depend on what direction that activity takes.”

M&A — Watch Out for Apple

If traditional media companies want to compete with the sheer scale of the audiences that the tech companies serve, then they’re going to have to combine and pool their audiences. The latest major consolidation is Warner Media/Discovery but it’s not going to stop there.

“A certain breed of smaller media company are ripe for the picking because the smallest companies simply have to combine with others to survive another potential deal,” he says.

Targets for acquisition would be Lionsgate, AMC networks, Viacom, CBS, and NBC universal: “their products in the streaming war are not hitting the first tier of competitors. I would guarantee that by the end of the year, you’re going to see at least one of those companies get acquired.”

“A certain breed of smaller media company are ripe for the picking because the smallest companies simply have to combine with others to survive another potential deal.”

— Andrew Wallenstein

The most likely buyer is Apple, which has so far kept its power dry but has “the billions of dollars of cashflow to snap up every company in this space,” had they a mind to. “In the longer term, I expect apple to make a major deal,” Wallenstein said.

Ad Supported Content Growth

The leading US-based entertainment companies alone spent a combined $107 billion on content in 2020, a figure predicted to reach $172 billion in 2025. There’s a number of factors driving this.

“Several of these media businesses are competing on multiple fronts,” said Gavin Bridge, senior media analyst at VIP+. “They’re trying to keep their traditional TV business alive while shifting some resources over to streaming in order to compete with the big boys like Netflix.

“If you want to compete on a global scale, you need to spend like Netflix, but you may not have the money to spend like Netflix, which is kind of a Catch-22. The deeper pocketed firms — Disney, Amazon, Apple — could do it… but with so many streaming services means we’re coming into an issue of subscriber scarcity. Netflix really is the bellwether of the market here [having just announced a quarterly subscriber loss].”

The way to look at this, said Bridge, is to take a sober view of the market than those crying that streaming is over.

“If you want to compete on a global scale, you need to spend like Netflix, but you may not have the money to spend like Netflix, which is kind of a Catch-22.”

— Gavin Bridge

“Netflix doesn’t actually speak for the entire market anymore, but it’s becoming very important because the value of these companies is based on this premise of unrelenting growth. Perhaps investors want Netflix to have half a billion or a billion subscribers, which probably isn’t possible. If you’re in this Catch-22 situation where you need to get more revenue, but you may not be able to grow your subscribers as much, then you need to retain your current subscribers, hence the increased content spend. You want to keep them staying around.”

He outlined a couple of options for streamers to grow revenue. One is to enter new geographic regions (though Netflix is already in almost every one). Or you can create an ad supported tier (Disney even plans one).

“You can actually make more money on a cheaper (to subscribers) ad supported tier than the more expensive (to subscribers) non-ad supported tier. So, we’re talking about the ad supported tier of SVODs moving into Connected TV (the industry term for any sort of revenue derived from combining streaming and advertising).”

Connected TV advertising spend is estimated by e-marketer to grow to 24 billion in 2025. This explains why big tech companies like Amazon and Samsung are also making a play for this market and why a purchase of Roku is attractive (perhaps to a company like Apple).

Sports, Drama, News — It’s All on CTV

All of this is fueled by content. 2021 was a record year for new TV series (1,923 shows across streaming and TV). Variety predicts that this will exceed 2000 this year.

“We’re going to hit a new pinnacle for television. Last year was the first year where streaming actually made more shows than TV. We’ve reached the tipping point. Streaming is now the premier creator of content.”

Variety’s definition of TV shows includes sports — and that’s important since it is sports which it says is fueling the move to streaming. Some 96 of the top 100 shows watched in the US last year were sports (83 of those were NFL games).

Bridge said, “These are huge magnets for viewers and the sports leagues know their worth. That’s why in recent rights negotiations the NFL doubled their value to 10 billion a year just for their TV rights.”

Except the upcoming bid for NFL Sunday to include strong interest from Apple. “The biggest sports deal to keep your eye on is the only major league to not be renewed in recent years: the NBA. Even on cable the NBA draws one to 2 million viewers a week. These are primarily 18 to 40-year-olds. Key marketing targets. It’s very valuable.”

News is Synonymous with Entertainment

Bridge also pointed out that news is another driver for streaming services, and in the process, news becomes less about live fact-based reporting and more just another entertainment play.

“News is becoming synonymous with entertainment across digital and TV. Twenty-two of the top 25 most watched news sites saw a decline. It’s not something that people are just tuning into to see the facts. Most of the time, these days, it’s more like an echo chamber.”

National news network like ABC, NBC, Fox, CBS have all launched national news streaming channels. Some 200 local news channels are now available on streaming fast services too.

“We’re actually seeing an embrace of digital, trying to sort of at least stay relevant and take the plunge, which is a smart move.”

Rather depressingly, he added: “What is the future of news? A quasi-news entertainment podcast, like the Joe Rogan Experience which has absolutely eclipsed standard news networks in viewer numbers.”

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