21st Century Fox’s valuable position in India

Here’s an interesting data point: 21st Century Fox dominates OTT market share in India through its Hotstar subsidiary, which has 150M MAUs. According to new data from internet service provider Jana, Hotstar accounted for 70% of video streaming app downloads in Q1, compared to 13% for SonyLIV, 11% for Voot (owned by Viacom 18), 5% for Amazon Prime Video, and just 1.4% for Netflix.

Hotstar is part of Star India, a 21CF asset that could generate $1B in EBITDA by 2020. Star India reaches 700M people per month across 60 TV channels, plus has sought-after cricket broadcast rights; it owns 80% of Hotstar (with 150M MAUs). Star India hasn’t gotten much attention in the press coverage of Disney and Comcast’s bids for 21CF but it’s a notable component of the conglomerate and offers substantially more growth than most other divisions of 21CF…it’s the market leader in a massive, rapidly-growing market.

(sources: Variety, WSJ)

 

Spotify starts signing artists directly

The big news today is that Spotify is offering advances (in the hundreds of thousands of dollars range) to select indie musicians and talent managers in exchange for licensing their music directly to Spotify. By direct licensing, they will get up to a 50% share of royalties plus retain all rights to their work. (link)

The streaming platform is asking these artists not to refer to themselves as being “signed by Spotify.” Spotify’s deals with the major labels prohibit it from competing with them in a substantive way, although that leaves a grey area depending on how you define competitive.

There has always been speculation that Spotify would eventually leverage its scale to cut out the major labels – founder/CEO Daniel Ek said as much in his early pitches on the startup’s strategy. The company has always publicly denied that’s the plan when asked about it though. This news doesn’t mean they’re moving in that direction, but it certainly suggests they are looking to test some aspects of the concept.

Most of the revenue that Spotify takes in goes to the labels and publishing companies that own the songs’ copyrights, and only a minority of those royalty payments end up in the pockets of the artists. Cutting out the middleman would be a big financial boost to both Spotify and the artists (of course, labels and publishers reject the characterization of them as mere middlemen).

Spotify needs to play ball with 3 major label groups who control most of the music in the world that consumers care about; if they walk then Spotify loses its whole value proposition (the music). An attempt to compete with them would be very risky.

Stats on teen social media use

A new Pew Research Center survey shows that YouTube is the most popular online platform among US teenagers age 13-17, with 85% using it. Instagram (72%), Snapchat (69%), and Facebook (51%) trail behind. A plurality (35%) say they use Snapchat most often though – followed closely by YouTube (32%) and distantly by Instagram (15%) and Facebook (10%). (link)

Another interesting data point from the survey is that teens from households with income under $30k are twice as likely (70% vs. 36%) as teens from households with income over $75k to use Facebook.

90% of US teens play video games (83% of females, 97% of males).

95% of US teens have access to a smartphone nowadays (it’s above 90% for every demographic).

New Resource: a Database of Media Investors

I have several projects in the works to make Monetizing Media a helpful hub for media entrepreneurs, executives, and investors. The first was the daily MediaDeals newsletter which is going strong. The second has just launched: a crowdsourced database of media investors around the world.

The List of Media Investors is an interactive spreadsheet (powered by Airtable) with both investment firms and the individual investors who work at them. You can browse the whole thing or search by location, investment interests, geographic focus, investment type, etc.

This database will be crowdsourced among the Monetizing Media community, so expect it to get regular updates showing what certain investors are interested in, whether they’ve switched firms, what their twitter handle is, etc.

I encourage you to help make it a great resource for everyone in the industry. Take a look and use the links there to make suggestions or updates!

The Italian Job

(This is an abstract from today’s MediaDeals newsletter.)

Telecom Italia is shaping into an exciting drama. Let’s take a look.

Telecom Italia S.p.A. (aka TIM) is the big telecom in Italy; it’s publicly traded with a €16B market cap, FY17 revenue of €19.8B (and €7.8B in EBITDA), and was formed in 1994 as a roll-up of the state telephone monopoly and several smaller publicly-owned telecoms.

Vivendi, the French media conglomerate (parent of Canal+, Universal Music Group, etc.), is pursuing a strategy to become the dominant media force in southern Europe. It owns a 29% stake in MediaSet, the Italian broadcasting conglomerate founded by former Italian prime minister Silvio Berlusconi who has returned as a leading force in conservative politics. In 2015, Vivendi began building up its 15% stake in Telecom Italia to the current 24% ownership, gaining control of two-thirds of board seats and naming the Vivendi CEO as TIM’s chairman.

Vivendi’s control has been controversial in Italy – including calls by some political figures to intervene – and with the elections last weekend showing a huge surge in support for nationalist candidates on the right (like Berlusconi) that’s unlikely to disappear. Meanwhile, TIM’s performance has been lackluster (with 1/3 of its market cap lost since 2015 and 3 CEOs over 2 years), and Vivendi has been unsuccessful in creating synergies between itself, MediaSet, and TIM as hoped. MediaSet and Berlusconi’s family office Fininvest are suing Vivendi for backing out of a €800M agreement to acquire its pay-TV division; Vivendi is trying to settle the dispute while getting MediaSet to join its proposed JV with TIM for exclusive content production and distribution to TIM customers…but that is on the rocks now as well.

Enter activist Paul Singer and his Elliott Management hedge fund ($34B AUM) which just revealed it has a stake in TIM and hopes to make changes to the board, although we’ve no details yet. Elliott blocked TIM from a merger 15 years ago. Vivendi CEO / TIM Chairman Arnaud de Puyfontaine has not talked to Elliott and says he’s not concerned about pressure to change strategy or leadership. Yesterday, however, TIM released a 3-year plan focused on digitalization with promises of increased shareholder value, plus it announced it will spin out its fixed-line division as a separate subsidiary in order to placate regulators.

Elliott’s strategy could be to improve performance by negotiating changes to management and strategy by gaining 1/3 of the board seats. Or, buying into some rumors that Vivendi ultimately sees TIM as a trading chip in global media consolidation, Elliott could try to engineer a sale of the telecom.

SVOD and Protectionism

The Dutch Culture Council recently asked legislators to require SVOD services operating in the country to maintain libraries with at least 15% Dutch content and apply a 2-5% tax on all revenue derived from foreign content streamed in the country. It’s a protectionist move both to nurture the Dutch film/TV industry in a competitive global market and to protect Dutch culture from the overwhelming pop culture influence of Hollywood. It’s also increasingly common around the world.

Local content quotas have long existed in television. Now that governments are wrapping their head around online streaming – and especially amid the surge of nationalist populism – clampdowns are coming.

The EU Parliament voted last year on a mandate that 30% of content on VOD platforms be European (FYI: Netflix’s library in Europe is already ~20% European). National governments are layering national quotas over that. Italy raised its local content quota on TV (which is supposed to include SVOD) to 60%. France already has a 60% quota on TV and is pressuring VOD platforms to substantially increase quotas as well, with Netflix CEO Reed Hastings committing to increase the company’s French content production by 40% in 2018.

In China, 70% of content on SVODs must be Chinese (hence why Netflix doesn’t operate there and instead signed a distribution deal with Baidu-owned iQiyi).

The net effect is a limitation on the amount of international content made available to subscribers in these countries and an increase in local content that doesn’t meet the bar for quality those platforms otherwise require. But the concerns are legitimate. The dynamic of online streaming platforms is a hits business. As Netflix and Amazon Prime Video expand globally, their hit shows become the hit shows across every geography. And the resources these SVOD platforms have to invest in their own content dwarfs that of local studios; even Rupert Murdoch felt 21st Century Fox wasn’t big enough to compete on its own. Local content quotas (and potentially streaming taxes) help nurture the local media industry to produce local hits (and sometimes global hits), which is important economically and culturally.

I wonder, however, how feasible content quotas are outside censorship-heavy states like China. How do you define regulated streaming content vs. content that’s just part of the broader internet (like Youtube videos)? What about SVOD services whose entire niche is to share a certain culture’s content with people abroad, like BritBox – a 250,000-subscriber service entirely dedicated to British TV shows and classic British films? If they’re restricted enough, won’t Europeans just use VPNs to access content that Netflix subscribers get in the US?

(This post is an abstract from today’s MediaDeals newsletter.)

New models for storytelling: Skam case study

There’s a new storytelling format I’m excited to see experimentation with: narratives that unfold across both traditional media and social media, blurring the line between reality and fiction. The hit Norwegian TV show SKAM is a case study here. It followed a (fictional) group of high school students through assorted teen drama (compare it to the British show Skins).

SKAM characters had real-world social media accounts that interacted with each other in alignment with the plot leading up to each week’s TV episode: a scene at a party gets posted by one of the relevant characters at 2am on a Saturday when it’s supposed to really be happening; a scene in the school cafeteria gets posted at noon on a Wednesday. Characters interact online (with tweets, posts, photos, comments) as you’d expect them to based on the plot. The high-production-quality videos then got compiled into the TV episode of the week, which acted as a recap providing extra context. The plot unfolds in a world broader than just the TV episodes and intertwines with real social media interactions. Watching the TV episodes was only part of watching the show.

The low-production-budget show broke viewership records in Norway, Denmark, and Sweden and gained a large online following around the world. It ended after 4 seasons due to what creator Julie Andem framed as the exhaustion of running a show that’s constantly unfolding every day. Simon Fuller’s XIX Entertainment is producing a US remake of the show, which will launch on Facebook Watch, and local adaptations are in the works in 5 other European countries.

It’s a fascinating case of blending reality and fiction, something we’ll see a major way when augmented reality finds widespread consumer adoption. And it offers potential for a dynamic production format that’s about storytelling through low-cost daily activity on social media rather than in neatly defined episodes. Why not have fictional characters be real-world social media influencers? Those become channels to monetize too through product placement, etc.

(This is an abstract from today’s MediaDeals newsletter.)

Cineplex and the Future of Exhibitors

Amid the global shift to streaming video, are exhibitors (aka movie theater companies) doomed?

Let’s step back: what role do exhibitors play in the market? 1) They curate and host Hollywood’s new releases so mass audiences know what to see; 2) they provide social, in-person media experiences for the family, for dates, for fun; 3) they deliver digital ads to captive, in-person audiences.

I look to Toronto-based Cineplex as a hint at how an exhibitor can continue to play this role in an evolving industry. (It’s more than just offering 3D glasses, recliner seats, and beer.)

Cineplex is the largest exhibitor in Canada, with 163 cinemas. Its box office revenue and concessions revenue are roughly equal (as is normal) and like competitors, they’ve added non-traditional programming like live streams of the opera and boxing matches plus films/livestreams for large immigrant populations. But that’s just the start. Cineplex is seizing opportunities that fit the broader definition above.

  • Decide you want to stay in for the night? Cineplex offers TVOD films to stream right there on their website, continuing to guide you to new(er) releases from Hollywood.
  • Want to go out but not to the movies? Cineplex has The Rec Room, Playdium, upcoming TopGolf venues, and other physical restaurant-and-entertainment experiences.
  • More of a gamer than a cinephile? Cineplex now owns an esports tournament organizer (online and offline), WGN. And it recently opened VR experiences in two of its Toronto and Ottawa theaters.
  • Regularly do any of these? The SCENE rewards program has you covered with discounts and other membership perks. It has 9M members in a country of 36M people.
  • Want to sell digital ads to in-person audiences? Cineplex has that covered too. They handle the ads not only in their theatres but in most of their competitors, reaching 94% of Canadian movie-goers. And they’re leveraging their expertise to expand digital ad units in malls, banks, quick service restaurants, and other public locations around North America.

In the short term, most exhibitors are enhancing the cinema experience in incremental ways so the corresponding increase in ticket prices for a luxurious experience makes up for the decline in attendees. But ultimately the opportunity is in evolving the whole business like Cineplex is doing. (Many exhibitors won’t stay ahead of the curve, of course, but that’s an opportunity for entrepreneurs and activist investors.)

Over the next 5 years, expect social AR and VR experiences to be particularly transformational for exhibitors smart enough to recognize the market that will arise there (already visible with VR arcades in China).

(This is an abstract from today’s MediaDeals newsletter.)

Why People Aren’t Paying for Your Content

Reliance on advertising is often a way to mask the fact that a media property hasn’t found “product-market fit”.

To find success in any market, you need to offer a product that’s 1) compelling and 2) differentiated. A compelling product adds value to the consumer: it offers a functional benefit and/or emotional stimulation that they place value on. A differentiated product is something they can’t get elsewhere…the brand, the technology, the affordable price point, the geographic focus, or whatever else is fairly unique.

A product that’s differentiated but not compelling is just something no one wants – there’s no market for it. Alternatively, a product that’s compelling but not differentiated has no wedge to break into a market and no sustainable business. You have a commodity product so consumers will just go with whoever offers the same thing for cheapest or who they’ve already been buying from.

Entrepreneurs know they have a product that’s both compelling and differentiated when they receive consistent enthusiasm from customers willing to pay a sustainable price. So when an entrepreneur puts a product out and few people are willing to pay for it, it sends them back to the drawing board. They iterate until they finally find “product-market fit” or run out of money and stop.

In media, there’s a common opt-out here. Media entrepreneurs will produce content that’s compelling but not differentiated; there’s an audience but they’re not willing to pay for it. Rather than iterating to find product-market fit, they sing the common – but false – refrain that “people won’t pay for content anymore” and turn to advertising as a way to monetize the initial audience. It’s the fallback option. But in doing so they’ve moved out of media and into the advertising business…the attention business, the quantity-over-quality business. The content they produce gradually reflects this goal (see The Problem with Advertising). The problem is worst in news publishing, where – since the internet has removed mere geographic location as a differentiator – most publishers produce the same news stories without unique voice or analysis.

The reality is that if people won’t pay for your content it is, simply enough, because they don’t think it’s worth paying for. It doesn’t mean the content isn’t compelling, it might just not be differentiated from what can easily be found elsewhere. In the media industry, there’s not enough pressure to confront this reality and find product-market fit because advertising offers a short-term escape route.