The Biggest Players in the Global TV Market Ride Waves of Blockbuster Shows But How Long Can It Last as Hollywood Struggles?

As a seasoned observer of the entertainment industry, I find myself intrigued by the current state of Hollywood. The melting ice cube effect is indeed palpable, and it’s a stark reminder that even the mighty can be affected by the relentless tide of change.

Call it media’s butterfly effect.

As a passionate movie enthusiast, I’ve noticed a remarkable expansion in the international landscape of TV and film over the last two decades. The streaming era has transformed our world into a vast, interconnected marketplace, allowing blockbuster series like “House of the Dragon,” “Stranger Things,” “Squid Game,” “The White Lotus,” and “The Mandalorian” to captivate audiences simultaneously across the globe, on-demand. The stage has never been more expansive for global sensations to shine!

In recent times, when there’s been a surge of possibilities for Hollywood, why does it appear to be in a prolonged period of upheaval? Dark clouds had been forming over the future of TV business even before the pandemic, but the combined impact of COVID-19 and last year’s writers’ and actors’ strikes has compelled the industry to address pressing challenges that were once thought to be distant.

Veteran industry leader John Malone, chair of Liberty Media and pioneer of the U.S. cable industry, recently expressed a somber outlook shared by top executives in an interview with analyst Craig Moffett from MoffettNathanson.

As a dedicated cinephile, I can’t help but share my concerns about the future of our beloved cinema industry. In a conversation with Moffett, reported on September 25th, I voiced my apprehension that the path ahead may be nothing but a tough battle for the media companies.

As I eagerly anticipate the yearly pilgrimage of industry professionals to Cannes for Mipcom, it’s clear that Europe’s established media giants have weathered the storm quite well. However, I can’t help but notice that challenging winds seem to be accumulating on the horizon.

The long-established movie giants in Hollywood have experienced a significant shift in their profit strategies due to the surge of streaming platforms. Few predicted the extent of disruption, as consumers rapidly adopted and passionately embraced the benefits of having vast amounts of content readily available at their convenience. However, this unrestricted access to both new and classic content has its costs for Hollywood.

The global reach strategy of streaming giants like Netflix, Amazon, Apple, Disney, and more recently, Disney and Warner Bros. Discovery, in their efforts to attract subscribers worldwide, has significantly disrupted the traditional profit model. This is one reason why Paramount Global, over an almost year-long sale period, attracted numerous budget-oriented bidders, but only a handful of serious offers beyond the Skydance Media deal, which valued the merger with CBS’s parent company (Paramount Pictures, MTV, Nickelodeon, Comedy Central, and BET Networks) at approximately $8 billion.

To date, only the major corporations with substantial resources have managed to thrive in the competitive streaming market.

It appears that streaming services have proven to be profitable ventures, especially for Netflix and soon for Disney, according to analyst Robert Fishman of MoffettNathanson Research. However, unlike traditional linear television, this field is dominated by a few major players – Netflix and Disney in particular – leaving little room for others to thrive. Following the substantial rewards given to these two platforms, it’s challenging to imagine there will be much left for other competitors.

In the United States, traditional cable television is experiencing a decline in viewership and investment. The funds previously allocated for cable are now primarily being channeled into linear sports programming. Unlike popular TV series such as “ER,” “Seinfeld,” “Law & Order,” “CSI,” and “Grey’s Anatomy” that have been sold globally at high prices for decades, linear sports content is less profitable in foreign markets. Even at a local level, television stations are not investing the massive amounts of money they once did to purchase rerun rights for successful shows from networks like ABC, CBS, NBC, and Fox.

The decline of the domestic syndication marketplace presents a conundrum similar to the classic chicken-and-egg dilemma. As the number of successful sitcoms, once a significant source of income for local TV stations, decreased due to audience fragmentation caused by an increase in cable and streaming platforms, there were fewer blockbuster shows like “Friends,” “Home Improvement,” and “Modern Family” – the kind of massive, defining shows that sparked intense bidding wars among local stations. This situation, in turn, led to a reduction in the production of such hit shows.

According to Rose Oberman, media and entertainment director at S&P Global Ratings, we’ve moved from an era of expansion to stabilization. She predicts a decrease in both revenue and cash flow for the businesses they assess worldwide. However, she emphasizes that these companies are still considered viable. There aren’t any imminent threats or major drops foreseen within the next few years. Instead, the decline is expected to be slow and steady.

However, it’s important to note that the rapid melting of ice cubes serves as a metaphor for the financial strain faced by Hollywood. While new income streams from subscriptions and advertising on streaming platforms are increasing, they aren’t growing quickly enough to compensate for the gradual decrease in advertising and licensing revenue that once funded Malibu mansions, private jets, and other luxuries that were previously considered a natural outcome of Hollywood success.

As a movie enthusiast, I’ve noticed a shift in the landscape of television. With Netflix and other streaming services firmly established, it seems like the pool of shows available for secondary (or even tertiary) monetization through syndication and international licensing has all but dried up. The biggest productions from studios like Disney, Warner Bros., and NBCUniversal are increasingly being funneled towards these streaming platforms that hold onto their content’s rights for extended periods.

In a conversation with Moffett, Malone mentioned that the biggest European television companies have managed to withstand the same challenges that are affecting the leading US media giants.

According to Moffett’s paraphrase, Malone noted that the large European broadcasters such as BBC and ITV from the UK, RTL and Pro Sieben from Germany, TF1 from France, RAI from Italy, and Antena 3 from Spain are still quite robust, and the trend of cord-cutting is moving at a slower pace. Moffett wrote that most traditional media companies have likely grasped the concept of direct-to-consumer, in Dr. Malone’s opinion, so they now have the flexibility to innovate and test ideas that, particularly on an international scale, necessitate a stable and long-term wholesale/retail distribution system.

Indeed, this dynamic presents a significant advantage for Warner Bros. Discovery, as they navigate the delicate task of investing in their Max streaming platform while still leveraging traditional methods to generate revenue. The Max platform can be accessed both independently and through various cable and satellite providers. However, in the U.S., securing such deals has been challenging for both Disney and Warner Bros. Discovery, as cable operators view streaming services as competitors that erode their video subscriber base. Nevertheless, this trend is beginning to shift, partially due to agreements like the one recently made by WBD with cable titan Charter Spectrum, where Malone also holds investments.

The significant portion (85% – 90%) of WBD’s earnings so far comes from the US and Canada, providing them with a substantial degree of flexibility.

Malone shared with Moffett that they still have a significant distance to cover when it comes to earning revenue from international markets, but they boast an impressive pool of creative abilities.

Contrary to pessimistic forecasts, Warner Bros. Discovery (WBD) is operating from a robust standpoint according to Malone. Although the 2022 merger with WarnerMedia has left the company with over $50 billion in debt (currently around $40 billion), it possesses sufficient resilience to navigate through current challenges. In Malone’s words, their financial status is “quite fortified,” implying that they are unlikely to run out of funds imminently. As a result, they can afford to wait and observe the ongoing consolidation within the industry unfold without feeling compelled to act immediately.

Essentially, as TV business expands globally, it’s starting to resemble a power struggle similar to the fictional “Game of Thrones,” where only those with significant strength can endure. Smaller players might find themselves in a position analogous to being an “arms merchant,” producing content for a limited number of dominant global buyers, many of whom are tech giants such as Amazon and Apple.

Malone stated that without global reach, you can’t generate revenue from self-distribution,” he told Moffett. “This means you revert back to selling weapons, and while there’s profit in that line of work, it’s not substantial enough to satisfy the ambitions of the [WBD] leadership.

2024-10-18 19:17

The Biggest Players in the Global TV Market Ride Waves of Blockbuster Shows But How Long Can It Last as Hollywood Struggles?

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