MAD Perspectives Blog

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 The Power of Original Content

Peggy Dau - Monday, April 03, 2017

What did you watch on 'TV' last night? Did you watch it on your TV or on your device? Was it live, recorded or streaming? Actually, it doesn't matter. There is a lot of powerful original scripted content being created and delivered into our homes. Despite the rise of reality TV that is cheaper to produce, consumers are enjoying great dramatic series. Just look at the 2016 Emmys nominees for Best Drama:  Game of Thrones (winner), The Americans, House of Cards, Downton Abbey, Better Call Saul, Mr. Robot and Homeland. These series represent “addictive” content with passionate fans that consume each episode live and on-demand. 

Boston Consulting Group (BCG) has noted the rise of content creation in their September 2016 The Future of Television report. The report reflects upon the disruption of the Free-to-Air/Pay TV business model by the s Direct-to-Consumer (D2C) distribution of video via OTT channels. As OTT providers have grown in popularity, so has the demand for flexibility and volume of scripted content. While broadcast TV depends on a combination of scripted, sports and entertainment content, it is the entertainment programming that drives the bulk of broadcaster or Pay TV operator revenue. Additionally, BCG notes the increased value of top tier content, namely sports and scripted or unscripted entertainment content.

Content budgets are on the rise. Netflix has announced an anticipated spend of over $7B on original content creation in 2017. Amazon is on track for the same amount, while broadcasters NBC and CBS will each spend over $4B. It is the lifetime value of scripted content that is not only benefiting the producers and rights holders of that content, but also the consumer.

As a consumer, I find myself recording more broadcast programming even as I stream content online. For me it is about convenience. I can watch this season’s episodes of Scandal live or on-demand, based on my schedule. Or, I can binge watch past seasons of Scandal (as if I could wait that long!) on Netflix. However, content is big business for distributors and rights holders. The traditional broadcast revenue model is dependent on advertising, while content producers generate revenue from licensing. Often the broadcaster (e.g., CBS, NBC, ABC, FOX) is also the content producer. Top tier content creates greater long-term revenue than sub-par content.

Of course hugely popular content drives up advertising rates, but it also increases licensing revenue. While advertising revenue is tied to a specific broadcast season, licensing revenue is recurring. For example, the NBC hit Friends, which ran from 1994-2004, is still in syndication. Warner Brothers earns ~$1B per year in syndication rights for Friends. 

Accenture’s The Future of Broadcasting V report notes the economic value of original content. Broadcasters such as the UK’s ITV have shifted their revenue strategies to place more emphasis on content and reduce their dependency on advertising revenue. In 2008, advertising represented almost 69% of ITV’s revenue. By strategic investment in its content production subsidiary, ITV Studios, and acquiring other content production companies, ITV has increased both their domestic and international content licensing revenue. A focused content strategy has diversified their revenue flow and potentially improved their overall financial performance.

Accenture has also found that broadcasters who earn at least 20% of their revenue from content production and licensing outperform peers who rely on ad income alone. They achieve better capital efficiency and larger operating margins. It’s no wonder that content production is on the rise. Libraries of original scripted content not only improve long-term revenue projections, they send a message to consumers about the broadcaster’s commitment to providing their audience with quality content. 

Content IS King.

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