The solutions are there: now let’s see who can put this in practice!
One of the biggest threats to media organizations is the churn rate, the extent to which consumers end their relationship with a media company. For years, the term was only used in pay-TV, but lately it can be seen in a much broader context. It is the silent killer behind the performance of media companies: after all, everyone likes to report a growing customer base and then churn is the big enemy.
A special form of churn is the decreasing viewing time of linear television. We know of course that viewing time of the traditional consumer is decreasing, a deadly development for 'ordinary' linear television. The biggest danger is that there are also few new viewers, because young people turn away from television. The rinsing is getting thinner and thinner. Broadcasters therefore started developing on-demand initiatives a long time ago. But for the time being, commercial broadcasters are still enjoying the enormous recovery of the advertising market. And as it goes, that reduces the urgency to change quickly.
Distribution companies must deal with churn too. They give this phenomenon the name cord cutting: the extent to which consumers watch media 'over-the-top' and refrain from cable subscriptions. This phenomenon is particularly noticeable in the United States, but it is also beginning to gain foothold in Europe. Because young people tend to turn to over-the-top, churn in the distribution world is starting to hurt. However, the operating margins of cable companies are so enormous that they continue to yield good returns in the short term, and here too this means that there is no need for major change in the short term.
In the VOD markets, churn is obviously the biggest threat. After all, the business model is often based on subscriptions, similar to the model of pay-TV. With the increase in the number of providers, churn is becoming an increasing risk. Acquiring new customers is a costly affair, which is why retaining existing customers is of vital importance. Netflix and Disney seem to be succeeding quite well in retaining customers, but it is questionable whether other providers will also succeed. With some new VOD platforms, the number of new customers is disappointing: the first hairline cracks are already noticeable at providers such as French Salto, German Joyn and Flemish Streamz. The shareholders of the first two companies are already openly doubting whether they should not get out now.
What media companies should do above all is increase the stickyness of their products: captivate customers so much that they do not think about running away. For broadcasters, this is possible through live events, blockbusters, urgent programming, with distribution companies through excellent service and high bandwidths and with VOD providers through exclusive programming, an intuitive and personal viewing experience and sophisticated marketing. The solutions are there: now let’s see who can put this in practice!
The streaming market is gradually becoming mature. There will still be significant growth, but the tumultuous numbers from the early phase are now behind us. The number of new entrants of any significant size is also drying up, so we can gradually begin to take stock: which companies will survive, which will fail, and what new developments can we still expect?
Let's start with the latter. A few years ago, it seemed that local players could only compete with the big American Tech competitors by working together intensively. In hindsight, this has not materialized at all. Initiatives like the French Salto went under, Britbox eventually became a ‘BBC only’ endeavor (ITV sold its share), we hear little about the Flemish Streamz, and NLZiet in the Netherlands is now cleverly positioned as an alternative to cable, while NPO and RTL are building their own streaming platforms.
Most broadcasters have now realized the critical importance of their brand and are eager to add a +, Play, or MAX behind their names to establish their presence in the digital world. By using the content budget both analog and digital and coming up with smart combinations, they are able to create a new future. With good technology now widely available and no longer a significant barrier, there is no doubt that local broadcasters take charge of their own digital future to survive. The latest in that lineup is Channel 5 in the United Kingdom, which is going to exploit all digital activities under one brand name, 5.
Moreover, the major international media players face significant challenges in keeping their traditional businesses afloat. The write-offs that Paramount and Warner Discovery (WBD) have taken in recent months (each amounting to nearly ten billion dollars!) speak volumes. The traditional business is increasingly under pressure, and investors see that too. For instance, WBD’s stock received a downgrade from Standard & Poor's (to negative). That must cause a lot of pain in the boardrooms.
What does all this mean for the streaming market? First of all, it means that many more local brands will survive than previously thought. All traditional broadcasters are rapidly transforming into digital media companies because they know that otherwise their days are numbered. While the number of local players increases, the number of international players will, however, shrink. The large American media companies are under immense pressure and can no longer afford the investments needed to build international streaming services.
Who will be left standing? Netflix, of course, which systematically expands its first-mover advantage. Prime Video, backed by Amazon's commercial engine. Disney, naturally, with its broad portfolio, will survive despite the painful managerial road it has traveled. And the aforementioned WBD, which continues to invest heavily in (HBO)MAX. Finally, DAZN, though it is still burning through cash. With Apple, you never know. But the other international players are not going to make it. That is certainly something few could have predicted three years ago...
It seems that the media sector is resisting the attack of Big Tech by the media sector successfully. Netflix and Amazon completely dominated the fast-growing streaming market and had strategically maneuvered themselves into an excellent position. After all, streaming was going to claim a share of the viewership market for itself, especially the younger audience. Streaming now has a share of more than a quarter in many countries and that has actually happened incredibly quickly.
In addition, the American majors were feasting on the new customers they could serve. From my own experience, I know that Netflix will became one of Warner Bros' most important customers. It seemed more and more that the media companies were going to make themselves dependent on the new streams. Until Netflix came up with its 'originals' strategy and most content providers immediately understood the threat.
The result is known. Each self-respecting media company started its own streaming service with Disney as the big pacesetter. Many other companies followed and now the average consumer can no longer see the wood through the trees. Should you subscribe to HBO Max, Viaplay, Peacock Discovery+? Most of these newcomers have deep pockets through their parent companies. But it is inevitable that, when the marketing money runs out, there will be casualties. There is no room for all these newcomers and it is only a matter of time until the first companies will have to drastically reduce their investments.
In order to provide its own streaming service with enough content and to cope with the Techcompanies, a true takeover boom has taken place in recent years. Who doesn't remember the deal of the century, when Disney acquired Fox Studios. Comcast's mega acquisition of Sky isn't that long ago either. The pinnacle passed the past year: Warner Media, which was acquired by telco AT&T two years ago, was resold to Discovery. Officially, this is a merger, but if you look through the deal, you will see that Discovery is in charge in the new organization. The new boss of this consortium, David Zavlav, comes from the Discovery stable and takes hard decisions in Warner house.
These days, this led to new victims of the stormy developments in the media sector, the top and middle management of the acquired companies. The Murdochs sacrificed their own families in the deal between Fox and Disney. The acquisition of Shine Endemol by Banijay also led to a true exodus of management. The way Discovery decimates the number of Warner managers appeals even more to the imagination. CEO Jason Kielar disappeared quickly and behind him a series of other managers, especially from the distribution organization. To the surprise of many, Discovery cut into its own meat this month, when Benelux CEO Suzanne Aigner had to leave the group. Good news this time for the people on the shop floor: so much has to be produced that their jobs are preserved. There are already victims enough…
Tina Nijkamp will join 3Rivers media management consultants as senior advisor as of January 1, 2022. Tina has many years of experience in the field of both television production and broadcasting. For many years, with remarkable success, she was program director at SBS in the Netherlands and has great insights in how a channel or platform should reach its viewers. Tina was voted Broadcasting Woman of the Year in 2008 and under her leadership SBS6 was awarded twice the title ‘strongest media brand in the Netherlands’. She also has in-depth knowledge of the way in which television programs should be made. In recent years she has guided program makers in the development of their ideas and productions.
Oege Boonstra, partner 3Rivers: "We are pleased that Tina is joining our team with her broadknowledge and experience. She provides very valuable expertise to our team, especially in contentproduction and content marketing." Tina: "3Rivers is a wonderful company with an excellent reputation in the media both nationally and internationally. I'm really looking forward to this new challenge."
