Massive investment in content from OTT players in series such as Stranger Things and Man in a High Castle, as well as from traditional networks competing with them, is great news for content producers, writes Andy Fry, but is there a bubble growing?
The content creation industry is buoyant, driven by original commissions from OTT providers, such as Netflix and Amazon, as well as social media platforms and incumbent networks.
The findings are part of the winter 2017 TV Connect Survey, which asked content creators how their business had performed over the past 12 months. Responses were split evenly between those that felt it had “rocketed” and those that felt it had “stayed the same”. No respondents reported a contraction.
This positive picture reflects the growing amount that leading media players are investing in content origination. In 2016, John Martin, CEO of Time Warner’s Turner Broadcasting, told investors that the original programming part of the company’s content budget is growing in “the strong double-digits annually.”
This trend is also evident at OTT players Netflix, which plans to spend US$6 billion on content in 2017; and at Amazon, which is spending US$3.2 billion, according to Boston Consulting Group and SNL Kagan data.
The largest planned investment, though, comes from ESPN, which spent US$7.3 billion on sports content in 2016 and looks set to invest more in 2017. Discovery, Time Warner, Viacom and Fox are also investing heavily.
Researcher MoffettNathanson estimates that the cost of programming at Discovery’s cable networks, other than sports, grew 55% between 2013 and 2016 to an estimated US$2 billion, while Viacom’s expenses rose more than 25% to US$3.2 billion.
While the industry media have been speculating whether this investment is the spark at the start of a content arms race, survey opinions varied regarding the biggest challenges facing the sector. Those on the budget holder side of the business stressed the difficulty of knowing what to look for when commissioning. There was also some concern among respondents about the issue of digital rights management.
The survey showed a wide variety of opinions about who the top innovators in the content creation sector are – but most of the names selected are familiar ones. Digital disruptors Netflix, Amazon, YouTube and Apple all had their supporters – as did Microsoft. Among content creation studios, FremantleMedia, Red Arrow, ITV, Keshet and Dori Media all rated a mention, the latter two illustrating the big impact Israeli firms are having.
Of these, Netflix has probably had the most dramatic impact on the sector in the past year, expanding into dozens of new territories and commissioning local content in markets like the UK (The Crown), France (Marseilles), Italy (Suburra), Germany (Dark), Scandinavia (The Rain) and Japan (Hibana).
This pattern looks set to continue with its dramatic increase in content spending. However, some analysts are concerned about this turbo-charged investment in origination.
Angel Dobardziev, Consulting Director, Media Entertainment and Consumer at Ovum, said: “Netflix’s business model burns massive and increasing amounts of cash, which we think is not sustainable. We think Netflix will find it near impossible to maintain its subscriber growth while at the same time keeping tight control of the costs that are driving its cash burn. The exuberance surrounding Netflix has parallels with the dot.com boom.”
In future, excessive spend on content by channels and platforms seems to be a general concern among analysts, with several of them warning it may become a permanent drag on profits. Notwithstanding this concern, respondents in this sector are upbeat for the coming year. Asked about top priorities, they identified targets such as “increase convergence”, “increase revenues” and “grow subscriptions”.
Outside continued investment in high-end drama, 2016’s most interesting content trends included incursions into the TV space by VR firm Oculus Rift. A high-profile example of this is Halcyon, a Syfy Channel drama that will have five episodes that are only viewable with an Oculus Rift headset (there will also be a regular run of ten episodes viewable without VR).
Some analysts and companies are sceptical about VR’s likely impact, however, citing cost and the fact it is too immersive. They argue that augmented reality is a better bet, pointing to the success of Pokémon Go as AR in action. Microsoft, for example, has focused its R&D effort on AR devices like its HoloLens.
Also of interest is Vivendi-owned Canal+’s aggressive expansion into short-form video for mobile. “The mobile has become the first screen, the first interface between viewers – especially the millennials,” says Dominique Delport, president of Vivendi Content. “The Vivendi Group is convinced of the relevance of mobile models for the development of a new popular culture,” she says.
This was also reflected by Matthew Corbin, Global Product Marketing at Facebook, who told attendees at OTTtv World Summit in November that “Mobile offers new opportunities. It’s not about TV vs OTT vs mobile, consumption is on the rise. It is peanut butter and chocolate.”
Social media platforms are also seeing massive growth, with Facebook reporting a four-fold increase in live video posted since spring 2016. Speaking at CES in Las Vegas, Facebook’s VP of advertising and business platform Andrew Bosworth said this was a response to the growing professionalisation of non-live video. “The fact that live can’t be so heavily produced is one of the things that makes it so compelling for audiences. It is real and there is no extra editing.”
And Facebook has already set out its stall. As Corbin told delegates: “We are not a broadcast network. We have no intention of becoming a broadcaster. We want to become the world’s largest network of broadcasters.”