Adam Rubins, chief executive at Way To Blue, considers the potential impact of Over The Top streaming services on the advertising industry...
Make no mistake about it, this year we will embark on the biggest change the entertainment industry has ever seen. Of course, the Entertainment sector is not special, we’re all experiencing change be it social, political, or economic. Business owners are looking to the political climate and the smarter amongst us are starting to plan for a wide variety of eventualities. Brand marketers are looking for ways to cut through the noise and find audiences through an absurd level of proliferated channels, which leaves agencies having to re-define themselves structurally, culturally, even morally. If you are resistant to change, now is perhaps a good time to lock the doors and put your fingers in your ears.
This change we are seeing in entertainment is one of commercial focus, structure, the nature of content and how we engage with it as well as how we market content to reach its intended audience. I have worked in the film and entertainment business for over twenty years, so I have experienced the film business becoming a franchise led business, the Home Entertainment business losing its punch and the TV business becoming a streaming business (OTT or Over The Top). We are moving from a business structure that has very traditionally been modelled around creating awareness (if you build it, they will come) to one that is multi-faceted, fragmented and data driven, putting an even keener focus on conversion.
Conversely UK cinemas enjoyed a small rebound in 2018 with its best year since 1970 (177 million admissions). This is a stark contrast to the all-time low in 1984 (54 million), but also a long way from the post-war high in 1946 (1.64 billion). That said, cinema’s performance is at the behest of its product so maintaining that growth is very much down to the ongoing quality of franchise product, stable ticket pricing and competition for our most valuable commodity - time.
But to all those businesses committed to change, committed to re-commercialising their business and exploring other avenues for ancillary revenue streams I have one message. The most important message. The consumer always decides.
Consolidation makes sense for the entertainment world. There is a responsibility towards shareholders for big companies to become bigger and that doesn’t happen organically any more given we are running out of organic fuel (screen growth, market growth, dilution through competition). Growth has to happen either through acquisition, or via consolidation and in some cases, this means the same thing. Time Warner are now under new ownership - AT&T. NBC Universal is driving international business for its US owners Comcast expanding on that with the acquisition of SKY. Disney and Fox have merged with the promise of upwards of $2bn in ‘synergies’. Sadly, we know that consolidation often leads to a reduced work force but whilst some businesses are consolidating, others are doubling down with Netflix investing significantly and new players set to launch into the market (Apple, YouTube).
Today’s play is for the global streaming market and there’s no surprise given the appeal of replicating the Netflix model which has around 150 million subscribers worldwide, although 40% of them are US based. We are currently seeing a 3-way fight for India, which is where Netflix expect its next 100 million subscribers to be located. That said, it is charging four times the rate of local platform Hotstar (now owned by Disney) and five times that of Amazon. But let’s play this forward. Disney, Warner and NBCU decide to stop licensing content to Netflix and build their own platform. Will there be any appetite from the consumer to subscribe to SKY, Apple, Prime, Disney+, Hulu and Warner (just so you can access Friends and Game of Thrones)? Fragmentation feels like a short-term play. The consumer may well decide they want to dip in and out. We may see tiered models, we may see the likes of Netflix turn into an Advertising Video On Demand (AVOD) service to deliver personalised marketing messages in line with consumers individuals tastes.
OTT (Over The Top) will unquestionably continue to grow as a category. However, what’s interesting is how this will impact advertising. Anyone investing in this space is doing it primarily to grow a global subscription base, but also to monetise through reach. Yet we have a broad range of commercial models from transactional video on demand (iTunes) to subscription (Netflix), to advertising (YouTube). On Hulu, you can pay more to subscribe without adverts which is surely where Netflix will go once its subscription base subsides.
One important play will be versatility. Apple is rumoured to be looking at subscription packages that offer music, film, TV, magazines and news. Perhaps the consumer will care less about the volume of services available if the brands can capture everything they are buying. Ultimately, the likelihood is that the content bundlers will win. Are these the new media owners? Instead of harnessing your relationship with Bauer or Global Radio, will advertisers become focused on developing their relationships with Apple or Netflix? Digital media is becoming more convoluted as we have publishers behaving like ad tech companies and ad tech companies behaving like publishers.
So, what can we expect to see in the short term? To keep up with the entertainment giants’ marketers should expect their advertising to be more personalised through these platforms who can deliver targeted and relevant advertising to the audience they know so well. That’s where the entertainment sector could be seen to rule over others in the future given they know their audience so well… Netflix targets you with personalised content defined by your interests - there is absolutely no reason why advertising can’t work that way and these platforms could be the key to creating that model. Consolidation with small-medium businesses being assumed by the bigger players for growth will no doubt be visible this year. We should also expect some of the bigger businesses to be acquired with Disney a key target, possibly for Apple.
Of course, we should also possibly expect the consumer to decide they don’t want any of this, which, will require yet another pivot from an industry that doesn’t typically like to do so. This will give marketers more gears to shift up and down in the coming 12 months and so we must all keep evolving. The business that listens to its audience and pivots the best could win. Enter Amazon?
Adam Rubins is chief executive at Way To Blue
This article originally appeared in The Drum Network's latest Entertainment special publication. To find out more about how The Drum Network can help your agency, click here.