“Talking about a revolution”: The inside track from the latest PwC Media briefing
August 07, 2017
On July 6th we held a breakfast briefing for the media industry, focused on content, specifically on its value in the television and music sectors. Given the critical role platforms like Netflix and Spotify are now playing, we were delighted to have Will Page, Director of Economics at Spotify, alongside our guest speaker William Bush, Executive Director at the Premier League, and Ruth Berry, Managing Director at ITV Global Entertainment.
Digital has been great for consumers: more channels, more choice, more content. The impact on the creators and owners of that content has not always been so happy; in the early years far too many people were accessing content illegally or on free platforms, which paid very little or nothing to artists or rights owners. Music was especially badly affected (“the first lemming off the cliff” as one of our speakers put it), and no sub-segment has been entirely immune.
But now, that seems to be changing and we appear to be in the midst of a ‘content revolution’. Based on our latest Entertainment and Media outlook, the digital sector is forecast to grow twice as fast as UK GDP. Television is one of the pillars of the UK creative industries, exports are booming and it is the 4th largest TV industry in the world, outstripped by the USA, China and Japan. Increasingly content is being accessed across a huge range of devices and some consumers are prepared to pay for a whole range of subscriptions to get the exact combination they want.
So what is the impact of the digital platforms? Netflix and Amazon, for example, are commissioning content of their own: up to 20% of the forecast $6bn Netflix will spend on content this year is expected to go on ‘Netflix originals’. This can make for a complex relationship with broadcasters, for whom streaming platforms are increasingly important customers, but who they also compete with for viewers. Digital platforms have increased demand, and the value of content has risen as their commissioning levels have increased. The near-global reach has been good news for both producers of blockbuster shows and owners of niche content, as it’s much easier to get to the specific audiences who want it. Dealing with the streaming platforms can be complex – rights owners are more likely to do global deals now, which may mean derisking the deal for their content at the expense of further potential upside for the back end.
There’s a parallel trend in music, too. Even if revenues from other formats are falling, streaming is more than making up for it: the UK recorded music industry is forecast to grow at a CAGR of 5% overall over the next 5 years, streaming is also expected to grow at 22% annually. Hence the burgeoning investor appetite for back catalogues with the potential for valuations to rise even more if streaming really does take off.
There is some discontent in this revolution too. Not all content creators believe that they get a good enough deal –some music artists for example, and given the upfront required investment for scripted content, it is disappointing to note that the bottom 20% of scripted shows in the US average only around 400,000 viewers, compared to 10 million for the top 20%. Likewise, even though the new model is ‘paid for not pirated’, piracy is far from dead, especially in the emerging markets where digital platforms still have patchier coverage, and where they will have to look for the next phase of growth.
The amount of content could continue to grow exponentially, but the amount of time and money people have to consume it may not. So how much is too much? And how will people find the specific content they want, when there is so much else to choose from? Will they redistribute their viewing time or cut down on some subscriptions? Nonetheless, there’s little doubt that those who own high-quality content should continue to reap the rewards. Digital platforms are creating new opportunities for owners of music and TV content, and we believe valuations will continue to reflect that.