What will drive media sector growth?

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Media Sector – Opportunity !

Digital communication was anyway becoming the way of life, a reality that has accelerated amid the COVID19 crisis.

Amid the lockdown in India which is our primary market, people have been spending more time on digital media. As we enter 2020, it’s clear that the growth of video streaming will continue to explode. In fact, in most recent Digital Media Trends Survey, more respondents indicated that they have at least one streaming video subscription (69%) than possess a traditional pay-TV subscription (65%).

At the same time, an all-out streaming war is underway, with virtually every media company looking to establish direct relationships with consumers. It now appears that all major US TV networks and studios will have a stand-alone direct-to-consumer streaming service by mid-2020. As they launch their services, the big studios are withdrawing content rights from third-party streaming platforms. Hence, it has become almost impossible for platforms to bring all major studios or networks under one umbrella.

As a result, many US consumers are growing frustrated with having to manage and pay for multiple subscriptions to watch what they want. Research suggests that consumers are willing to pay only for a certain number of streaming services. Its found that consumers have an average of three streaming video services, a number that has remained steady for two years.

In the end, streaming services that offer the best and broadest content libraries will likely own the inside track to success. One method of getting there is re-aggregation (or re-bundling) of streaming offerings an approach pioneered by players like Amazon and Netflix. Providers have an opportunity to offer highly customized packages of content that, in addition to video, could include streaming of music and games, as well as the option for customers to accept ad-supported video: advertising in exchange for “free” (non-subscription) content.

Ad-supported video has already become the dominant model of delivering streaming video to consumers in China, India, and throughout the Asia-Pacific region. Sometimes it is combined with subscription services; in other cases, revenue comes from ads alone. Ads also provide much-needed revenue for streaming providers that seek to expand into different services, such as gaming and music.

In the United States, by contrast, most direct-to-consumer video offerings are pursuing the ad-free subscription model that Netflix has used to dominate the American market. US consumers like to avoid ads: 44% say an ad-free experience is a top reason they signed up for a streaming service. Yet, as more TV networks, film studios, and tech companies launch their own subscription services, it’s likely that only a handful can thrive in a subscription-only model, and many may offer ad-supported options.

Bargaining power is shifting across the entertainment industry in a lockdown world. This is not just about the growth of streaming and Netflix. The larger story involves a fundamental rejig in bargaining power across the entertainment value chain.

This version of the newsletter looks at one of the biggest shifts in entertainment, currently underway:

1. Why in-home entertainment is poised for it’s biggest shift in content programming? 

2. But the largest shifts will be seen in the entertainment value chain

3. Why local cables become more important in a world of Zoom and Netflix? 

4. Disney – Reimagining the amusement park

And right at the very end, you can access the Covid19 access codes for The Platform Institute.

Source: FIPP Global Digital Subscription Snapshot

Just Netflix , Prime videos , Hotstar disney , Alt Balaji Everyone seems to be on some or the other platforms, we’ve all seen the growth graphs by now. Streaming is going to increase. We don’t need to look beyond the present to see that there’s a mass conditioning underway as people stuck at home binge-watch content. But it’s usually the less obvious shifts that are more interesting.

Streaming is poised to win big during lockdown not just because of demand-side effects but also supply-side effects.

With lockdowns, two key sources of content production are out.

First, TV networks primarily differentiate themselves through live content like sports and concerts. With live events out, the content edge for traditional TV will likely go down further as users migrate to streaming platforms. 
Second, studio production of content is at a standstill. TV networks will likely have to rely on Amazon and Netflix for their content library as well during this period, exposing the streaming platforms to more non-users and traditional TV consumers. Both of these factors will quite likely drive new user acquisition beyond what we’ve seen so far in the first few weeks.

Always look for the value chain impact . A shift in consumer behavior can often impact bargaining power between actors across the value chain. We’re going to see some of that happen here as well. For one, the closure of movie theatres during lockdown could potentially increase bargaining power for streaming sites.

The closure of major theater chains across the country is driving studios to break what’s known in the industry as the “window” – the three-month period between when a movie hits the big screen, and when it’s offered for video on demand purchase or rental, and then on streaming devices.

Studios are already moving titles to streaming channels. Universal was the first studio to take these steps, announcing on Monday that it will make movies available at home on the same day as their global theatrical release, starting with “Trolls World Tour,” which had been scheduled to open April 10 in the U.S. 

Three Universal films that had been in theaters before they closed — “The Hunt,” “The Invisible Man,” and “Emma” — will be available for a 48-hour rental starting Friday. This isn’t your average temporary channel shift. The “window” is the one big moat protecting theatre revenues. By eroding the “window” even for a bounded period:

1. Studios will get to test success of movie releases on streaming platforms and use that to negotiate post-lockdown. Though theatres won’t go away, their negotiating power certainly will.

2. The longer the lockdown, and the more the hits released away from the theatres, the more likely we are to see new social viewing use cases develop around movie releases. We’re likely going to see new revenue models emerge as well.

Of course, targeted advertising relies on providers’ ability to extend highly relevant offers to consumers. This requires a deep understanding of customers’ interests and buying behavior. To gain these insights, providers should deliver value in exchange for the personal data consumers need to share for targeted advertising to work. Unfortunately, too many providers still haven’t figured out how to address this challenge.

There is a sizable audience awaiting providers who do. For example, among millennials who stream video, 29% of their streaming time is spent watching video content on free, ad-supported sites like YouTube and Sony Crackle. By comparison, these millennials spend 46 percent of their streaming time viewing content from paid services.

Netflix and Amazon are also producing more and more original local content to win viewers in India, where increased use of mobile data and smartphones is supporting demand for their services.

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Netflix, which last year said India could deliver its next 100 million subscribers, recently rolled out a monthly mobile-only plan in India for 199 rupees ($2.80), less than half the price of its cheapest standard plan at 499 rupees.

This isn’t just Netflix’s moment, or Disney Plus’ time to shine, or Twitch’s breakthrough into the mainstream. This is it. If every streaming launch or direct-to-consumer pivot was a preamble teasing what streaming could do, our reality right now is a clear depiction of what it’s like when more people are forced to rely on entertainment they can access inside their homes. 

Streaming increasingly putting a strain on broadband services isn’t just a concern for people trying to binge a show on Netflix. Internet service providers are seeing big surges in people using the internet to work and study from home or communicate with friends and family over video chat. AT&T’s mobile Wi-Fi calling is up 100%, while mobile data is up 40%.

Opportunities abound in the time of crisis. And this one comes with a massive user base under lockdown, being daily conditioned to new use cases. That’s a lot of cognitive surplus, and a lot of boredom, that will be monetized through a platform that aggregates the attention. We are going to see the rise of new consumption habits, shift in bargaining power across the value chain, and eventually the rise of entirely new business models.

References: Statista.com

                    Exchange4media

                   Deloitte Research Report

                   Pipeline to platforms

                   Media Research Reports

                  Emarkete

                                   Shuchi.P.Nahar

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Shuchi Nahar
Shuchi is NISM Certified Equity Research Analyst, CFA - Level 1, a student of Law and Finance, and an aspiring CS.
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