What 2017 Holds for Media & Entertainment

2016 proved to be another tumultuous year in the media and entertainment industry.  We saw a mix of good and bad news. A host of M&A activity, highlighted by the $85 billion merger of AT&T and Time Warner, continued to consolidate content creators and distributors in the market. While the total amount of time spent watching video was up, viewers continued to distribute their time among more networks and SVOD providers, causing average viewership among the top TV series to decline 20%.  The amount of content available to viewers continues to grow with companies like Netflix now outspending broadcast networks on original content development.  And though the TV in the living room still reigns supreme, viewing on digital devices continues to outpace that of any other viewing platform growing 40% month-over-month.

With this as a backdrop, and now that January is in full swing, let’s cast an eye forward to what changes 2017 might hold for the entertainment industry.

Conventional logic says that those driving the industry would like to continue to minimise subscriber/viewer losses and maximise earnings all while trying to figure out how to make the digital platforms more profitable.  However, 2017 is poised to change things up – in a big way.  A host of current and new entrants are looking to disrupt the viewing experience with new platforms, VR/360 degree video experiences and new apps that promise to simplify and curate viewing.  In addition to the continued influx of new content producers and distributors, a new administration is coming into power that favours less regulation which could create significant change to the FCC and existing laws. 

Here is a look at three possible scenarios, and their implications, that could prove to radically shake up the industry as we know it:

The Cliff

Changes in legislation and increased competition could drive up the costs to produce, distribute and consume content until we reach a watershed moment.  The increases in cost could force consumers to drop subscriptions and consolidate spend with the content providers they deem indispensable.  What to expect:

- Negotiations to distribute live and scripted content ramps up even further by big digital media players such as Amazon, Facebook, Google, Netflix, as they look to capture the subscribers dropping traditional cable subscriptions

- This scenario would greatly exacerbate the amount of ad spend shifting to digital and, thus, away from traditional TV.

- Although this would bode well for SVOD providers like Netflix, broadcast and cable networks will suffer as the loss of subscriber fees and advertising dollars mount.

- Programmatic buying would become a necessity due to the complexity of ad models in the broadened “TV” + digital ecosystem.

Mass Consolidation

The size of audiences for any individual MVPD or network is relatively small compared with the audience size of the major digital media platforms.  For example, Comcast has 22.3 million video customers - Netflix has 75 million and Facebook is at 1.8 billion. To compete with the digital media powerhouses, M&A activity would heat up even further as the content creators and distributors merge to create greater scale and push the industry in a direction most beneficial to them – the recent inklings of the Fox/Sky deal point in this direction. What to expect:

- These deals will take a while to close as merging parties must overcome opposition from U.S. antitrust authorities and objections by lawmakers and rivals.  Therefore, the impact will not be seen for 9 – 12 months, or even longer.

- As the mergers progress, relationships between content creation and distribution companies will be strained, due to the competing agendas on ownership of viewer data and creative control for new programming.

- The larger digital media companies will shift focus even more heavily onto live and scripted content in order to create scale on the content side and better compete with the new media behemoths.

- All of the deal making will stifle innovation, leaving viewers to look for more innovative viewing experiences.

- Coming full circle, the ad industry will then likely lobby to recommit to TV as the primary mass audience platform.

Mass Disruption

As the traditional media powerhouses hang onto existing viewing and distribution models, a more nimble company will finally create the 'next' media entertainment experience, making all existing ones seem irrelevant and outdated.  Due to the costs of rights to create and/or distribute content, it’s unlikely that an unknown company would disrupt the whole industry.  Therefore, look for this to come from an established disruptor sitting on a pile of cash.  Google is the sleeper here.  What to expect:

- Presented with a new and compelling option, viewers adopt the new product/service in droves.

- As its audience, cash and influence grows, the disruptor moves to cut out the middle man and source its own content (much like Netflix has done).

- Ad money will begin to flow to the new service, away from traditional network partners, and offer advertisers massive scale, true addressability and trackable advertising.

- Copycats emerge; traditional media companies will then attempt to buy or build competitive services quickly

Whatever 2017 holds for the media and entertainment industry, we can bet that it will not be business as usual.  The industry has done a good job managing disruptors to date and ensuring the existing cabal stays in power, but the cycle of innovation and disruption will eventually have its day.  Next year could see the dawn of that day.