This week in The Institutional Risk Analyst, Emmy award winning composer and music executive Michael Whalen gives us the update on the slow and steady fragmentation of what we used to call television. Michael called this trend years ago and takes particular relish in describing the latest changes in the industry.
By Michael Whalen
Making predictions is dangerous and arrogant. Making predictions almost ensures that the future you see will never actually happen, right? I know. Maybe I have had one too many nights in “self-isolation” during this year’s pandemic staring at a huge screen in my living room…
But, for those of you who are interested in the future of media here in America and you’re not afraid of outrageous statements — even after three and half years of President Donald Trump — here comes one more outrageous statement.
Prediction: The three “traditional” US television networks (CBS, ABC, NBC) will merge their enormous oceans of content to survive in a brutally tough video streaming environment. And, the merger will happen much sooner than you think: my prediction: 3–5 years.
Let me be clear: I am not saying CBS, ABC and NBC will merge their companies, but I do believe that they will merge their content to compete in today’s vicious online streaming environment.
Let that sink in for a minute…
Given the recent launches of “Peacock” (NBC), HBO MAX, Disney+ and yes, YouTube Live into a crowded field of video streamers that include Netflix, Amazon Prime, Apple TV+, Hulu, Crackle, Sling TV, Crunchy Roll and many others. You might have noticed that we here in the United States have a plethora of “choices” for our video content. Or… do we?
Even though it’s (almost) 2021, we as a media culture are still dealing with a huge number of legacy video carriage agreements and licenses left over from the TV and cable days. Because of the bizarre eccentricities of these contracts, we TV streamers must manage and sidestep these prehistoric contracts even though we are “cord cutters”. You’re someone who has “cut the cord” with your cable company, right? No..?
“Cord cutting” (watching television via Internet only) now accounts for 19.9% of US households in 2020, raising their numbers to a staggering total of 25.3 million. In 2018, there were 90.3 million US households subscribed to (Cable/Satellite) TV, with that number dropping by almost 4 million this year to 86.5 million.
Here’s the basic problem: in the cable television era we had ONE place that provided hundreds of channels of content where the copyright issues and residuals were transparent to the masses who surfed channels the offerings of the moment. As of the end of 2019, seventy percent of U.S. households have at least one subscription to a streaming video platform, compared with just 40 percent of U.K. homes.
The average American video subscriber watches 3.4 services. For each one, they pay an average $8.53 per month. If you annualize this average, it’s $102.36 a year. This total is less than the cost of most premium cable packages across the United States. The average cable bill in the United States is: $217.42.
Now with these new streaming services coming on-line, Americans will be evaluating whether they are getting value for their streaming dollar. These first few years of video streaming demanded much of us early cord cutters. But now, streaming is all the “rage.”
Now old fashioned TV networks scramble to be relevant in an environment that feels more like the Wild West of the 1800s rather than the streamlined technology-driven future utopias detailed on TV shows like “Star Trek”.
Are Americans getting “value” from their streaming dollars? The answer so far is….. no. Like, really no
This “no” response will force copyright holders to make some strange (read: desperate) decisions. Said another way, I won’t pay $9.99/month for the non-ad version of Peacock (NBC) so I can watch episodes of “Saturday Night Live” from 45 years ago. The data is only now starting to dribble in, but Americans have reached their limit with content subscriptions and feeling ripped-off because the video platform they signed up for has very finite amounts of content.
Also, the COVID-19 pandemic has Americas very scared as for the first time since the 1980s consumer savings is going up and personal debt is going down. People are very wary of being “nibbled to death” by 10 or more small automatic subscriptions a month for music and video content.
If you go to business school, day one they define “value” as: “in the absence of value; price matters.” In this very bizarre and unsettled environment, price matters. This is the impetus that will drive the “big three” to consider merging their catalogs, creating a pool of co-produced content and to do battle with: Apple, YouTube, Netflix and Amazon Prime.
Let’s pause for a second and talk about the genius of Amazon Prime: tying a video streaming subscription with free shipping (and other stuff) from the biggest on-line market in the world is very, very smart. Bundling these services masks the sting that would occur if consumers were asked to pay for these items separately.
Look to see bundling of services coming very soon from Apple, Google and others. Amazon also only produces a tiny percentage of original content versus the licensed content that they have online. Again, they’ve made a smart decision not to do battle with Netflix in the content wars. They pick their shows and they produce a surprising number of “hits” on their own ecosystem.
Creating your own audience ecosystem versus trying to fight the fight of video streaming apps on consumer’s home systems will be THE reason that the TV networks will merge into one streaming platform. Netflix knew early on that if you had compelling content you could keep your audience in your ecosystem, market to them and you were more or less “protected” from the brutal winds of companies trying to create an audience of their own.
Sadly, the analysts at UBS just downgraded Netflix stock because of fears of “tough subscriber comparisons”. In English, this means there is a ton of competition and Netflix is losing its grip on its once bulletproof subscriber ecosystem.
Again, let me be clear: I am not saying CBS, ABC and NBC will merge their companies. Combining those three cultures, real estate, facilities, union agreements and complex infrastructures would be an Olympian effort. I believe that these three traditional broadcast media companies will merge their content, market it and even co-produce new content to help offset the spiraling cost of high end-television production (read: “Game of Thrones”).
Remember that these networks own cable divisions that could contribute even more content. When CBS launched their “All-access” streaming service with every episode of every show they’ve produced they were sure that consumers would be amazed at their choices. It took about a weekend for America to look at their offerings and respond with a shrug and “so what?”
For those of you reading carefully, you might ask: “ABC is owned by Disney and why wouldn’t Disney simply put ABC content on their own successfully launched streaming platform?” Consider that ABC is an outdated albatross in the Disney content world which also includes the Marvel franchise, Star Wars, Pixar and others. We are talking about the survival of ABC and Disney isn’t willing to be taken down with that ship.
Placing ABC inside the Disney platform would be Disney and ABC surrendering to a not-so-obvious truth of television in 2020: network television content doesn’t age well on streaming platforms and it is very tough to market “older shows” (especially to a younger audience).
This is to say nothing of the hidden costs associated with network shows that any producer working on a Netflix show would laugh at: mostly the reliance on only using union talent and production people. There were decades when the intellectual property of the “big three” television networks were some of the most valuable assets in all of entertainment. Those days are long gone.
There are some network shows: “Friends”, “Seinfeld” “The Gilmore Girls” and about a dozen others that have aged better than most on streaming platforms. However, all of this is just furthering my argument that “birds of a feather flock together” and these three networks know each other and by and large have similar older audiences. Therefore, having them huddle together to survive a relentless race for audience share and relevance makes sense, right? Maybe my prediction isn’t so “outrageous”?
Time will tell if I am right or even partially right. However, the streaming wars are far from over. We are just getting to the really brutal and bloody part of the streaming wars. Stay tuned…
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