Why Waste A Perfectly Good Media Recession

Choppy waters now lie ahead for the Media and Entertainment industry after an unprecedented 10 year boom which has seen global spend on video content more than double to $230 billion.

The success of new streaming services and strong underlying consumer demand has both propelled the media sector, and temporarily shielded many businesses from the full force of industry disruption.  

But as ‘peak content‘ ends and we head into a potential recession, protective cover will be harder to find, as a cyclical downturn in demand will coincide with a period of unparalleled structural change in the media and entertainment industry.  

Whilst crystal ball gazing is a dangerous game, my bet is we’ll see three big trends playing out in the next 3 years:

1. The shift to digital consumption of media content accelerating 

Expect to see SVoD Streaming accounting for the majority of global pay TV consumption in the US and other territories, with sports content providing the next battleground for viewers ( with YouTube, Amazon and Apple all recently signaling their intent to bid for top sports rights).  

The linear TV ad market being disrupted by a proliferation of global (ref Freevee ) and local (ref.ITVx ) premium AVoD platforms offering audiences outstanding content selection and advertisers more personalisation & better ROI (P&G’s  recent announcement that it is actively shifting linear TV budgets to digital  is the shape of things to come)

Cloud and AI technologies transforming media production workflows making it less expensive to produce premium TV content.  The November launch of Chat GPT  shows how fast the industry is moving and the disruptive potential of new AI technology. Whilst Chatbots aren’t going to replace us anytime soon, many media production workflows are sufficiently straightforward to be automated by AI.

Growing convergence between the TV, movie and games industries.  Expect to see the first hit immersive media franchise, blending gaming and movie storytelling, delivered by a partnership of games and movie industry pioneers (HBO’s new hit show The Last of Us and the accompanying console game is a glimpse into this future)

2. An industry wide shake-up correcting market oversupply and taking out weaker players.  

In SVoD, we’ll see more mergers and market exits and a move to more sustainable industry economics, with Paramount, Warner Discovery and perhaps even Netflix at risk of being acquired or broken up in the next phase of consolidation.  Big Tech companies ( Microsoft and Apple) and media behemoths  (Disney and Comcast) could be the potential consolidators.

In linear TV, a number of big name local brands outside of the US will disappear as consumer spending is squeezed, ad revenues come under pressure, cord cutting accelerates, and production cost inflation continues.

In Media Production, industry consolidation will accelerate, as we reach ‘peak content’ spend after unprecedented recent growth (with mid size studio/ broadcasters like AMC struggling to remain independent.)

Whilst in the digital innovation space, a sizable portion of promising scale ups will run out of cash , creating opportunities to buy leading edge businesses on the cheap (EMX is a recent example)

3. The emergence of a new playbook for monetising media content

As the SVoD market consolidates, cord cutting accelerates and linear TV weakens, Media businesses will need to find new ways to commercialise their IP.

As the industry moves into a new phase, the next generation of multi $ billion media businesses will be built by nurturing and monetising fandom and influence.  

Pioneers like kids media company  Moonbug Entertainment  (sold for $3 billion in 2021),  MrBeast  (worth an reported  $1.5 billion )  and UK YouTube influencer group  The Sidemen  (with a sell out soft drink brand in  Prime ) show there is a new model for building ventures leveraging IP with scaled fanbases.

Whilst life will no doubt be more ‘difficult ’ in this period of  industry disruption and macro economic recession , the 2023 media downturn offers a generational opportunity for Operators who have the stomach to be bold.

Businesses willing to place strategic bets (e.g to lead industry consolidation, to bolster their digital offer and to build fan franchises)  will strengthen their position in a fast changing market, and gain advantage versus competitors that falsely believe they are playing it safe by solely focusing on cutting costs and preserving cash to weather the recessionary storm.

The path to making these strategic bets will not be straight forward, as it will be harder to fund investment in the downturn, with cashflows impacted by lower demand  and professional investors nervous about deal making following the recent collapse in media industry valuations ($500 billion wiped off media company value).

However by doubling down in two key areas, Operators can find a path through these obstacles.  

Firstly Strategic Partnerships 

Strategic Partnerships will enable savvy operators to tackle business challenges with additional firepower, to build more competitive scale, to develop truly ‘world class’ digital capability and to make pricey strategic investments more affordable by sharing risk and upside.   

Expect to see progressive businesses:

• Joining forces with their peers to build winning digital products and to establish industry  standards in areas such as audience measurement, content and ad formats (RTL and Proseiben’s 2022  addressable TV joint venture  is one example of this growing trend)

• Developing ‘risk & reward sharing’  technology partnerships that plug capability gaps in areas such as ad tech, analytics, subscriber management, and application development (Netflix and Microsoft’s  ad tech and sales partnership shows that even global digital platforms need to be strategic about plugging capability gaps )

Getting these partnerships to work is not straight forward.  Smart operators will be successful by putting partnerships at the top of their strategic agenda, by embedding partners into the guts of their business operations and by rewarding leaders for making partnerships a success.

Secondly Business Diversification.

Business Diversification provides a path for forward thinking organisations to build growth momentum and improve their cash position in the downturn, helping them to enhance their competitive edge, and to be on the front foot as the industry enters a new phase of disruption and consolidation.

The opportunity that lies ahead is to deepen engagement with audiences by offering them more ways to enjoy their favourite media brands, across a wider range of formats, platforms & experiences, and in so doing penetrate new, adjacent commercial markets (in social commerce, digital subscriptions and digital goods).

By following this path media companies have the potential to build much more valuable franchises, and a new cohort of West Coast innovators provide a blueprint on how to do this.

Next Generation Media businesses like The Meat Eater  (a destination for hunting and fishing enthusiasts backed by The Chernin Group ) are building consumer brands that ‘super serve’ targeted audiences not only with video, audio & social media  content, but also with real world experiences and curated consumer products, in one joined up customer experience.  

By nurturing large, engaged fanbases on social media these businesses are developing digital destinations audiences gravitate to, to spend time and money. 

These influencer led IP ventures are different from what we’ve seen in the past, as they are supported with VC cash & commercial infrastructure and have better underling economics than comparable businesses (as fans require minimal marketing to convince them to buy ancillary products)

To execute on the opportunity, Operators need to develop IP in a way that supports a much more expansive set of experiences, build infrastructure to grow fandom on social platforms, and build the capabilities (via partnerships and M&A) to enable market adjacencies to be penetrated (in areas such as social commerce, digital goods, subscription apps, live events and interactive entertainment) 

A number of enlightened media companies (such a Fox) have recognised the value of building fan franchises as a means of business diversification but expect to see many more following this approach.

Winston Churchill  famously quipped   ‘never let a good crisis go to waste’   His insight was that a crisis is not only a turning point, but  also an opportunity to reset  and to do things differently.  

The 2023 shake up, like any perfectly good crisis, will see tremendous change, turbulence and dislocation and opportunity for those are willing to capitalise on it.