*What a trove of weird, dry industry jargon that is. And wow, that TV industry sure is in for some turmoil, especially if you're a creative and you just wanna make a massively popular TV show that entertains people.
Big, but diverse and precarious
By MATTHEW BALL & TAL SHACHAR March 9, 2016
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What Happens If You Don’t Own a Scale Feed?
The scale feeds of tomorrow will be far more powerful than the dominant video feed owners of today. Not only will they be bigger and more influential, they’ll also be more rare – which means life as a content producer will inevitably become less profitable and stable than it is today. Without feed ownership, independent content companies are relegated to an input – and a highly modularized one at that. Knockout television series (such as Game of Thrones) will remain extremely valuable, of course, but virtually all other content will become a commodity. Consider the following from Netflix’s “Top Investor Questions” page:
Q: How do you evaluate new content deals or renewals?
We utilize detailed statistical models to determine expected hours of viewing for each piece of content over its license period. We compare cost per hour viewed against other “like” content deals (i.e. exclusive versus non-exclusive, TV versus movies, etc.). We look for high engagement and cost efficiency. For renewals, we look to renew content that performs well (based on hours generated relative to the cost) and do not renew content where the price doesn’t make sense relative to the value generated. We feel we have good breadth of content so that no specific title or set of titles is must-renew.
This advantage comes from several structural changes to the video market; each of which disadvantages suppliers. First, we’re not just in an age of content oversupply, we’re in one where video content is much easier and cheaper to produce than at any other time in history. As a result, those with histories in video content production and access to capital have lost much of their effective monopoly on high-quality programming.
In addition, services like Twitch, YouTube and Vine have shown that so-called “premium” or “produced” content has no inherent advantage over supposedly simpler forms of video entertainment. And although power laws suggest scale feeds will be able to pay more than almost any other buyer in history, that doesn’t means they’ll pay a “high” price. In fact, it makes a bargain all the more likely.
Core to the supplier-scale feed negotiating imbalance is not just relative size, but also immense information asymmetry. In most instances, scale feeds will have a far more accurate view to historical and/or likely title value than the actual right-holders themselves – especially when compared to other investments (i.e., the feed’s alternatives).
Is the license coming to an end? A scale feed can algorithmically push the title six months early to maximize value, and then pull back on recommendations to ensure that users don’t miss it when it’s gone. Making matters worse is the fact that OTT subscriber dynamics (as described above) will make transitioning audiences across services profoundly difficult.
If a licensor opts to use a Netflix-built audience to shift content to a smaller-scale feed or owned-and-operated platform, they’ll likely incur a substantial drop in viewers – thereby eroding the very value they sought to capture. And at the end of the day, rights holders are subject to immense disintermediation risk. Last year, Netflix announced a partnership with Silverback films for a sequel to Planet Earth, a much-lauded nature documentary series that was originally produced and distributed by BBC/Discovery, but was particularly popular on Netflix. Not long after, Netflix did the same with Black Mirror. Under the scale feed model, intermediary rights owners add far more cost than they do value...
