By reading this article you will learn:
- The biggest lessons and trends of 2022 and the biggest predictions for 2023.
- How Hollywood will address seasonality and scheduling of high-demand content when there's more volume of titles than ever.
- How the streaming industry will readjust after Wall Street soured on the SVOD business model in 2022
- What major companies can do to grow if content is no longer king
To say that a lot has happened to the entertainment industry and, subsequently, the streaming revolution, would be the definition of an understatement.
Netflix produced nearly 60% of its most in-demand premieres in 2022, and also saw its market cap fall more than $120 billion as Wall Street changed the fundamentals for measuring streaming success. Former Disney CEO Bob Iger returned as current CEO, with Bob Chapek leaving the company on the heels of Strange Worlds recording a $100 million loss, streaming costs bubbling up to $4.5 billion, and a 100% Hulu ownership on the horizon. Paramount+ and Peacock ushered in a return to live programming, instituting new strategies that will ideally separate them from other offerings. Apple TV+ started to find its groove, and Amazon Prime Video added to its franchise pile with new spinoffs of The Boys and The Lord of the Rings: The Power of the Rings.
FAST and AVOD continued to make dents in streaming market share, theatricality rebounded compared to 2021 (although still lags behind 2019), and social video platforms like TikTok and YouTube continued to give traditional entertainment a run for its money when it comes to attention, but also helped create global zeitgeist moments that drove the success for several series, including Netflix’s Wednesday.
As we head into 2023, everything is going to become more turbulent. The ad market is softening as a recession looms over the United States and other parts of the globe. Cord cutting is accelerating, which removes the most sustainable part of revenue for many of these companies at a time when streaming is growing but not profitable. Stronger competition means that churn rates are increasing, going from 3% in January 2019 to 6% in September 2022. Higher interest rates amidst strong inflation means customers may have to make decisions about what streaming platforms to keep, which ones to get, and whether it’s time to cut cable.
A big part of looking forward is looking back and reflecting. Parrot Analytics’ Brandon Katz, Industry Strategist, and Julia Alexander, Director of Strategy, write on the Biggest Trends and Biggest Lessons of 2022 and Biggest Projections for 2023.
Death of Seasonality
Churn rates increased across nearly every major streaming service in the United States in 2022. The one exception was HBO Max, which saw a decline of more than 25% in churn compared to its 2021 average monthly churn rate, according to research firm Antenna. Big players that made headline stories with record viewership, including Disney+ and Netflix, continued to battle increased churn rates. Netflix saw a record high of 3.5%, up from 2% in Q1 2021.
It isn’t challenging to track the uptick in churn to a continued decrease in demand share for originals and programming amongst some of the most notable streaming platforms. Netflix has seen a continued decline in demand share globally since Q1 2020, and only just recently saw an uptick in US demand. Disney+’s platform demand share remained stagnant between its third and fourth quarter. The streamer has also seen a consistent decline in demand share for originals between Q3 2021 and Q4 2022, dropping from 9.2% to 8.5%.
A big part of the issue is continuing to chase seasonality instead of aiming for consistency across breadth of projects. It’s determining the difference in relying on a central title or two each quarter versus planning support for those key titles. Disney+ often relies on one key Marvel or Star Wars project to drive consistent engagement and subscriber growth, meaning it only takes disinterest from a segment of customers for churn to increase. Similarly, if Netflix drops a key show all at once, and all within one key quarter, there aren’t enough similar hits or appealing supporting series and films to keep customers engaged. With a significant increase in competition and fragmented platforms creating fragmented audiences, customers will go elsewhere.
When comparing the demand data for global series by month over the last five years, it’s clear that peaks and valleys which once defined television releases have changed. It’s far less mountainous. Instead, as more series from key genres are released all year round to match consumer interest and the quality of streaming titles continues to increase, it becomes far more necessary to stretch out tentpole series and plan for supplementary viewing. This is a trend we’ve seen in film over the last few years, with winter months producing more hits and the “Summer Blockbuster” season beginning earlier each year. This balances incremental customer acquisition and, more importantly, leads to reduced churn.
To achieve sustainability, it requires rethinking some of the more core aspects of programming:
- When a title is released
- How a title is released
- Who a title is designed to engage
- What else should be released throughout the show length period
Let’s take an example like Euphoria and Peacemaker, both released in January 2022, both on HBO Max. Euphoria ran from January 9th through February 27th, while Peacemaker ran from January 13th through February 17th. These appeal to two different audiences: Euphoria is 72% female and overwhelmingly Gen Z (47%), while Peacemaker is 81% male and overwhelmingly millennial (40%). In the same month, HBO also debuted The Gilded Age, which has an audience of 65% female and sits predominantly within the Gen X demographic (35%). All while movies like Moonfall hit the platform, which over-index with men (70% and Gen X audiences (32%).
These titles all debuted in January, typically a dead month for both television and movies. Traditional seasonality would have deemed that Euphoria, an Emmy winning series with significant buzz, return in September. Peacemaker, a show based on Suicide Squad characters, should have gone to summer. You see the point. By not adhering to traditional seasonality rules, HBO Max manages to find hits within all four quadrants of its subscriber pie — men and women, over and under the age of 25 — that helps to generate significant demand.
Now that HBO Max has four different core audiences engaged with tentpole offerings, there’s a question about how to release them. Demand for series dictates that one-and-done approaches aren’t necessarily worse than weekly, nor are weekly releases designed to always generate the strongest return. It’s dependent on the series. Comedies lend themselves to binge viewing or more ambience experiences (I also refer to this as “Snackable TV” that people often have on in the background), while gritty dramas may be more emotionally taxing. Consumers want it their preferred way, but there’s always a business case.
For HBO Max, two series are also available on the linear network (Euphoria and The Gilded Age) making it difficult to drop it simultaneously. Peacemaker is an in-demand superhero show that can create strong counter-programming competition for players like Disney and Netflix in their fourth and first quarters. Since January and February are also typically slower months for film releases, having a fun blockbuster like Moonfall can help curb the winter blahs. Knowing why a customer may be seeking out something, and planning to be the home for that customer instead of a competitor is key. This is true for content acquisition, of course, but it’s also true for planning. This used to rely on having the better show on Thursday nights between September and May; now it’s about engaging those same customers all year round.
All of which leads to the most important part: supplementary programming. When programming for linear, engagement is the most crucial metric. The goal is to plan for the hours beyond the first hour. NBC does this on Wednesdays and Thursdays with its Chicago and Law & Order lineups. By having Chicago Med, Chicago P.D., and Chicago Fire airing right after the other, it creates a highly engaged block. Demand data for the three series shows just how in conjunction the three series are to one another.
Supplementary programming for an SVOD platform is reliant on two core facets: contextual algorithms and affinity. The former is more difficult to create, but it effectively takes into account sentimentality toward series and human wants. For example, if a customer finishes watchingThe Handmaid’s Tale, they may be recommended similar dystopian dramas despite them wanting the exact opposite of this. Algorithmic recommendations use customer history and metadata to recommend something that statistically may interest you. It’s how YouTube and TikTok got so powerful, it’s what makes Netflix unbeatable today.
But when creating supplementary programming to keep customers engaged and opening the app as often as possible, it’s about determining a wider scope and understanding what to recommend and when to recommend it. This is the nuance that human touch can deploy but remains AI’s blindspot currently.
The latter explores keen connective tissue between the title that a customer opens the app for or comes to the platform to watch and their journey. This can get complicated when trying to navigate closed gardens. Platform operators know exactly what customers are watching on their platform, but the more important question is what they’re watching on other platforms. By looking at it from the top down, the funnel of interests and viewing habits emerges, creating a complex vortex of behavior that can be used to predict the best recommendation pathway for audiences. I refer to this as the Referral Vortex, and it’s crucial to the consumer journey.
By utilizing these two aspects, and foregoing the restraints of seasonality, tentpole series and films can release throughout the year with supporting fair that increases the discovery potential and visibility of all titles involved. Adhering to strict guidelines based on dates and windows built around antiquated concepts like award shows, summer blockbusters, or fall television doesn’t work with audiences’ newfound habits — ones that have become irrevocable in the streaming age.
Click here for Brandon Katz's biggest lessons from 2022.
Rise of AVOD and Live
In 2022, larger percentages of consumers were tuning into FAST, AVOD, and virtual multi video channel personal distributor (vMPVD, or “virtual TV services”). Platforms like Pluto TV appeared on US measurement tracking systems, while increases in live events — from the Olympics in February to the 2022 midterm elections, the return of the NFL and the recent World Cup — gave viewers a reason to turn to live programming.
The issue with live programming is typically the cost associated with programming. While platforms that carry live programming come with a heightened sense of value amongst some consumer bases, the relationship between the cost of a platform and the demand for product creates the line between being overpriced or creating the biggest bang for your buck. For example, when looking at the platform demand for movies and television series on US SVOD platforms and their ad supported tiers, Paramount+ and Hulu both sit atop the value line, while Peacock sits below the line. All three of these services offer live programming as a key element of their services, but when it’s not complimented by strong catalog offerings, live programming can become an unnecessary cost, especially when finding illegal livestreams is easier than ever despite efforts from search engines like Google and forums like Reddit to temper down results.
There are two key characteristics driving live usage in a pivot-to-SVOD age more than anything else: sports and simplicity.
The first one is the most obvious. Sports are primarily enjoyed as a live offering. This is true for the biggest sports in the US — NFL, NBA, NHL, and MLB — but also for more niche events like UFC and WWE. This is why ESPN+, Hulu, Paramount+, and Peacock have all started simulcasting games they own the rights to, in order to meet consumers on their turf while being the sole operator of that live event. Sports also maintain some of the most expensive rights, making investment a more difficult decision. The NBA was valuing itself at $75 billion ahead of its next rights deals; a number that even Warner Bros. Discovery hit pause on after years of an ongoing relationship with the NBA and TNT.
Those costs exist for a reason: sports are consistently the most watched form of live entertainment globally, with the largest events bringing in numbers comparable to Stranger Things 4 or Monster: The Jeffrey Dahmer Story, which currently sit at just above 112 million household views in 60 days. The 2022 Super Bowl brought in just under 100 million live household views in the United States, according to various measurement companies and the NFL. Similarly, demand for Snoop Dogg (94.1x), Eminem (142.8x), Aaron Rodgers (69.2x), and Dr. Dre (58x) all increased dramatically due to the Super Bowl.
Not only is this key for advertisers when trying to determine where to place their spending, but understanding talent demand, and which talent is more likely to draw viewers can help with knowing what athletes, musicians, actors, and other personalities to include in the live show to expand the total addressable market beyond those already tuning in.
The stronger co-relation there is between sports (seasonal) and content (non-seasonal), the stronger the value perception of a product based on building demand across the entire platform. For example, F1 saw an increase in viewership during the 2021 season in Bahrain thanks to exponential demand tied to Netflix’s Drive to Survive documentary series. Sky Sports recorded the highest viewing numbers for the Grand Prix ever on its channel, according to local reports, with a high of 2.23M. ESPN saw an average of 879,000 — higher than the entire 2020 season. To put that into context, demand for Drive to Survive skyrocket, as did demand for Lewis Hamilton and Max Verstappen.
As a result, rights fees for F1 jumped more than 1500% between 2017 and 2022, going from $15 million to $75 million — and it explains why Netflix was part of the conversations. Netflix reportedly wants to own a smaller sports league, which makes sense when we consider the value proposition that live sports can have on content and vice versa. But Netflix owning a league means that all revenue, from the original programming that can expand the total addressable market for the league, advertising, merchandise, and live events, comes under Netflix. It’s not just carrying live matches or races that help create appointment TV, but building out an entire ecosystem that puts the content first, builds up the league, and doubles down over the course of the year through bringing in additional fans. While the league is seasonal, the content works throughout the year to expand.
Then there’s simplicity. This is a product feature, but choice paralysis causes consumers to spend up to eight minutes on average looking for a title, according to studies. This is driven by Hick’s Law — the more content there is to choose from, the more time it takes to make a choice, and the more overwhelming and frustrated a person becomes. Both contextual and algorithmic recommendations can only do so much. Live presents the opportunity to jump into something already happening, something that is unifying (like a live event), and takes care of that choice paradox. Although this is a more difficult issue to solve, utilizing the supply and demand side to better incorporate responsive metadata that works with shifting demand habits is crucial. This is especially true as global entertainment begins to travel more, and as closed gardens make it difficult to track the supply and the demand side.
By leaning on elements of live that have continuously worked, including on SVOD, these issues become opportunities. Sports leagues that can be helped by continuous content, a system that alleviates choice paralysis, and finding ways to create unifying moments that translates to social media interactions revolving around what people are watching will help bring more engagement and higher perceived value to SVOD platforms. This is already happening on the AVOD and FAST side, but as bigger SVOD plays from conglomerates start to incorporate advertising and live events into their programming, including sports, determining the best way to tag, recommend, surface, and engage audiences across live and on-demand content becomes much more key to sustained usage and reduced churn.
This isn’t to discount the meteoric rise of FAST services, nor the importance of AVOD. FAST can be beneficial as a standalone product as well as an avenue for larger conglomerates that own notable networks, studios, and brands to leverage additional revenue for content they’ve already made money on. For example, there’s no reason that a Netflix or HBO couldn’t have a FAST channel on platforms like Pluto TV or Freevee without sacrificing the main identity of the brand. For example, instead of pulling off Westworld and The Nevers from HBO Max entirely, creating a channel and deal with Tubi or Pluto TV can help generate meaningful revenue without sacrificing the home advantage.
Two important data points have emerged over the last couple of years: FAST and AVOD usage has increased and SVOD pricing has increased. Audiences want cheap programming, and they want to feel like they have access to “always on” content that’s a combination of live and feels like it’s live. Perhaps just as important, interests in subgenres and subcultures have grown as user generated content platforms have proliferated, causing new scenes to bubble up and find audiences. FAST revenue is likely to double between 2021 and 2023, according to nMedia, growing from $2.1 billion in the US to $4.1 billion.
This also includes interests in older programming, which is the average FAST title and where there is consistent demand. There are homes for these types of interests that may not facilitate best use on SVOD platforms but can add to free ad-streaming models. For example, VTubers found an entire audience on YouTube thanks to the company’s recommendation energy and easy-to-contribute-to culture. Netflix, in turn, started creating VTuber series that overlapped with its anime content to reach the right audience in the right place.
Since FAST and AVOD networks don’t have the same cost concerns as pure-SVOD driven properties, there’s an ability to tap into advertisers who want to appear on more targeted content. This is where PlutoTV, Tubi, and Freevee can thrive. Alongside the in-demand scripted series and unscripted content, doubling down on subgenres like Japanese game shows or video game content that leverages fandoms on Twitch — all built into a digital first audience base — and all designed to be enjoyed for free can take a percentage of the market share for streaming attention and consumption without seeing significant cost increases.
There’s no doubt that mainstream hits are crucial, as is library programming, but the difference in perceived value and demand for free programming that people put on in the background, or for speciality content done well, does create a new opportunity. The internet promised virtually borderless programming. Anime saw its rise in the West thanks to YouTube and online manga reading sites that pulled from Japanese collections. It’s here that FAST and SVOD have opportunities to cut out key corners for themselves, and appeal to a sense of easy to discovery, “always on” entertainment that audiences are seeking out.
Click here for Brandon Katz's biggest trends of 2022.
Shifting Theatricality Waves
All eyes are on 2023 to see if the theatrical industry will ever rebound to pre-2020 numbers. In 2019, the global box office hit a 15 year high with more than $42 billion in revenue. This was driven by strongly in-demand franchise installments, including Avengers: Endgame, Frozen II, and The Rise of Skywalker. Disney netted more than $13.2 billion and record number of films that generated $1 billion in a single year in 2019. In 2021, the first year that the theatricality sort of returned following COVID’s entrance in 2020, the global box office made just under 50% less than 2019. While 2022 is performing better than 2021, it still looks like it may close down 25% compared to 2019.
(We’ll see how Avatar: The Way of Water plays into it all.) At the same time, per capita admissions declined by 1.6% per year on average over nearly two decades in the United States.
Theatricality is unlikely to return to pre-2019 numbers for a little bit, but 2023 is shaping up to be stronger than 2022. There’s a wider breadth of more in-demand movies, fronted by a strong cast, with highly sought after sequels. A new Ant-Man that ties into Loki; a Barbie movie from Greta Gerwig on the same day as Christopher Nolan’s Oppenheimer. A sequel to Spider-Man: Into the Spider-Verse. DC’s The Flash. And Avatar: Way of the Water will still be kicking around.
That said, as behaviors change, so does theatricality. In a recent poll from Bloomberg, most executives said they didn’t believe theatricality would return to pre-2020 demand. There are films that will over-index with audiences, and films that might best be suited elsewhere. This will be a core facet of distribution decisions in 2023: instead of everything going to theaters for a pre-determined amount of time or everything going to streaming exclusively or everything staying in house, understanding the value of a title and it’s affinity to an audience will help determine the release. This may mean more movies end up back in theaters, but we’re likely to see a hybrid approach from every major studio.
To understand the future of theatricality, let’s go back. The overarching question hanging over the entertainment industry heading into the 2000s was one that never posed an issue before: how to make hundreds of millions of people actually want to go to movie theaters more than a few times a year. It was an existential question posed by the introduction of groundbreaking technology, yes, but the answer is in understanding the foundational changes in consumer behavior. A few important data points emerged over the last 20 years painting a picture of where the theatrical industry was headed when it came to feature film releases.
Gradually, and then all at once, everything shifted; but the biggest takeaways from two of the most transformative (if subtly at times) decades in cinema reverberated into our modern day dilemma.
- More affordable, high quality home technology created a fantastic atmosphere to experience many types of movies previously experienced at cinemas.
- Rapid adoption of VHS, DVD, and Blu-ray technology, in conjunction with retailers like Blockbuster and quick delivery services like Netflix, made watching relatively new movies or ones skipped in theaters much cheaper. (In the 2000s, and the birth of iTunes, studios started shrinking theatrical windows on some titles and positioning the idea of day-and-date releases to keep up with this shift in consumer behavior.)
- Films that capitalized on state-of-the-art technology, A-list casts, or belonged to a readily proven franchise saw strong box office results despite actual ticket purchases stagnating.
- Television was on the brink of producing some of the most sought after storytelling that would forever shift notions of what distribution method constituted prestige.
Each point is necessary to understanding that radical shifts borne out of technological advances and consumer behavior patterns aren’t going to change. Audiences aren’t suddenly going to stop streaming original movies — it’ll only accelerate. Between 2006 and 2022, broadband adoption increased from 50% of households to just under 90Q%. Streaming services like Netflix have conditioned subscribers to expect a new movie every week, on top of new television shows. Mobile social networks like TikTok and YouTube take up larger percentages of daily consumption time. Demand for certain genres as theatrical exclusives continues to diminish. There were some key moments that brought us here:
- Apple’s launch of the App Store in 2008 — and the true birth of the mobile internet — broke down the barrier of access between consumers and content even more. Netflix launched on the App Store in 2010, just a few years after offering a streaming option and three years before getting into original programming.
- PC and console gaming continued to accelerate. The gaming industry saw $145.7 billion in revenue in 2019, greatly surpassing $42.5 billion in box office revenue.
- In 2000, superhero movies made up just over 3% of the total market share from a creative perspective. There were three movies released — including Fox’s X-Men — but this was hardly a key strategic force in Hollywood. Instead, the majority share of the box office belonged to drama films, which made up 21% of the market share. (Creative fiction made up 50.80% of total marketshare.)
- By 2019, the last year before COVID-19 hit, drama made up 12.3% of total market share despite being the genre with the most releases. Action and adventure combined made up just under 60% of the total box office market share, with half of the number of total movies that fell into the genre category. By 2021, drama made up just over 5% of total market share. Action and adventure films, led by superhero movies, made up just under 70% of total box office share.
- Lastly, but intertwined with the above point, the “Golden Age” of television transformed into the era of “Peak TV” as the number of scripted and unscripted series order hit north of 500 series for the first time in 2019. That’s a jump of more than 150% compared to 2009 when there were 210 shows. More entrants in the space, most notably Netflix, Amazon, and Hulu, saw jumps in content spend, shows ordered and, most importantly, consumer attention and spending.
Cumulative ticket sales for theatrical releases has diminished, but focused demand for certain films has increased. Attendance at theaters even pre-pandemic was down 1.2% per capita over the last two decades. Box office performance for the most successful films, however, has increased. While the number of tickets to theaters has fallen, box office revenue has grown for the most part based on the success of massive action franchises (mostly driven by superhero films and established IP) has increased. 60% of 2022’s most in-demand films that were released globally between January 1st and December 13th fall into this bucket.
To add: the number of films released theatrically for independent studios and non-major independent studios has increased between 2000 and 2019 (before COVID hit), but the majority of revenue made at the box office has shrunk to just a handful of major distributors: Disney (including 20th Century Fox), Warner Bros., Sony, Universal, and Paramount. Again, the vast majority of this revenue comes from $150M+ action/adventure blockbusters and sequels within popular IP (including horror films).
We can see these trends in question by looking at the collected demand data below. The charts looks at average demand for different types of films released theatrically in 2022. While Don’t Worry Darling and Elvis have outstanding demand averages (10x and 21x the average demand of films in the United States respectively), they can’t compete with installments in popular IP franchises like The Batman (78.2x the average demand) and highly buzzed about action movies like Everything Everywhere All At Once (46.6x the average demand). These films are in the exceptional bucket, which consists of the top 0.2% of all films released in 2022 in the US.
We saw the same thing happen in 2021 with releases like House of Gucci and The Last Duel. In those specific cases, we could also see the lack of demand translate directly to seen in their box office performance. Despite having a big name director attached (Ridley Scott directed both), A-list talent, and full theatrical release, they couldn’t cross $50 million. Alternatively, in that same year, both Spider-Man: No Way Home and Ghostbusters: Afterlife did that within their first and second week, respectively.
What we can also see in the talent demand charts below is that while Harry Styles boasts exceptional demand status in 2022, that doesn’t necessarily translate into Don’t Worry, Darling having an exuberantly successful box office run. Similarly, demand for Austin Butler in 2022 outpaced Robert Pattinson, but The Batman far outpaced Elvis at the box office. What this illustrates is that while certain talent is beneficial for long term success of a franchise or for at-home entertainment, it doesn’t necessarily translate into getting bodies into seats at a theater.
Again, we see this play out in 2021. Despite a worse performance at the box office than Ghostbusters: Afterlife, Halloween Kills, and The Many Saints of Newark, House of Gucci’s talent demand was still much greater than its peers. When it comes to box office success, the stronger the brand or IP, the less impact talent may have on the overall performance — people are coming out to see James Bond, Spider-Man, or a new installment in their favorite franchise, not necessarily the star power behind it.
Where talent demand can really help, however, is within streaming where there is a plethora of titles that can consume audiences’ time. It’s here that having in-demand star power, like in Elvis or Don’t Worry, Darling can separate a title from the rest of the library, and become an incredibly valuable title to a new batch of companies.
The bottom line question going into a format decision is where the title is bound to have the most impact. This breaks down into a couple of different aspects to keep in mind:
- upfront revenue for the studio and distributor
- biggest target audience market potential
- value of a title or genre on a streaming platform
Within each of these questions lie datasets and trends that can help make the most informed decision to maximize each option. For example, action is still the most dominant genre in terms of overall box office revenue, but requires a high production and marketing budget — and even then, it’s getting harder for original action movies to make a dent without being associated with a known IP (both within and outside the “superhero” subcategory). Of the films released in the dates examined by Parrot Analytics, horror sees the most return in opening weekend box office revenue compared to production budgets.
Dramas, however, have seen consistent decline as a genre regarding box office returns, but have proven to be more valuable to streaming partners. This may lead to co-financing with major SVOD partners or pre-emptively selling the global rights to an SVOD partner (alongside marketing costs and responsibilities) to ensure the studio receives a guaranteed return on investment.
The chart above, taken from Parrot Analytics’ content valuation measurement system, outlines the value of a dollar for a title on streaming compared to the box office when looking at total production budget. Most dramas earn between $1-5 in streaming value a year per every dollar they make at the box office. Plus, demand for dramas increases slightly on streaming services as audiences seek out a wider array of film available to them as part of the overarching bundle presented. The same goes for thrillers, which sees up to $8 per every $1 at the box office.
Mergers & Acquisitions
Despite macroeconomic fears, the TMT sector’s share price slide will present discounted value deals in the M&A market for companies with cash on hand. At least one of AMC Networks, Lionsgate, Paramount Global, Warner Bros. Discovery, Roku, or Netflix will be sold in the next 18 to 36 months.
Meanwhile, the recent sale of 60% of Brad Pitt’s production banner Plan B in a deal that valued the company at $300 million underscores the emphasis still being placed on smaller content funnels with proven track records and infrastructure. This opens the door for similar companies such as A24, Imagine Entertainment, Bron Media, NEON and others to potential explore a sale. At the same time, gaming remains the next big battleground of Hollywood, representing scale opportunities for several companies.
A record $3 trillion in monetary volume involved in spin-offs or split-offs was announced in connection to 2021 merger and acquisition activity. This is particularly relevant to major companies such as Paramount Global (CBS) and NBCU (NBC) as they would potentially be required to separate from broadcast networks to receive regulatory approval for future deals. Elsewhere, Lionsgate has previously explored shedding Starz while Discovery was only able to scoop up Warner Bros. after AT&T spun-off the media company.
NBCU owner Comcast is potentially waiting until Discovery makes Warner Bros. available in yet again in two years. AMC Networks’ TV audience — comprised of 52% male viewers while millennials (33%) and Gen X+ (28%) are the two largest age demographics — pairs nicely with Paramount’s 53% female audience with a strong overlap in GenX+ (29%). Though Netflix isn’t interested in linear attachments, its 54% female audience stronger showing with Gen Z (24%) and Zennials (27%) would complement AMC’s footprint with slightly older viewers.
On the movie side, Lionsgate — home of the John Wick and Hunger Games franchise and long thought to be a potential acquisition target — has a 56% male movie audience with strong affinity in the millennial (30%) and Gen Z (26%) demos. As YouTube, TikTok and other short form content platforms continue to soak up attention marketshare, finding traditional media that appeals to younger viewers becomes increasingly valuable. Its library might be a fit with Netflix, whose movie audience skews female (51%) and surprisingly older (Gen X+ represents the platform’s largest movie audience share at 27%).
Disney has tried and failed in its prior forays into gaming which, along with succession, remains the one pock mark on Bob Iger’s resume. Before his exit in two years, this could be a rough patch he looks to rectify to further monetize Disney’s war chest of franchise IP. Nintendo’s $40 billion in enterprise value may be too large to swallow for Disney’s debt load (not to mention regulators), so taking Netflix’s more focused route of snatching up a handful of moderately priced gaming studios could be the the desired strategy. Outside of gaming, Iger could bring former Disney execs Kevin Mayer and Tom Staggs back into the fold by acquiring their Candle Media.
Toy company Hasbro ($12 billion enterprise value) recently put up TV and film outfit eOne for sale. The former would immediately boost any company’s merchandise and consumer products division while the latter is a niche company with its hand in recent hits such as Yellowjackets, Naked and Afraid and The Woman King.
As the ad market continues to weaken, Roku and its army of hardware alongside a sliding stock price will make a lot of sense for a bigger media player.
Carta data suggests the startup M&A market is still active, mostly concentrated in the $25 million-$100 million and $100 million-plus ranges (with under $5 million decreasing from Q1-Q3, though still heavy). It’s worth noting that withdrawn volume accounted for around $700 billion in 2021, surpassing 2020, 2019 and the last five-year average ($628 billion) as more large deals face regulatory scrutiny, per JP Morgan. But 2023 can remain active in the smaller ranges with a select few grand scale deals.
Click here for Brandon Katz's biggest predictions for 2023.
Last year was one of great transition for the entertainment media industry. The status quo of the last several years, which saw streaming occupy the bulk of major media’s core strategy, endured a massive reset. Though progress was made in certain sectors as the industry continues to recover from the pandemic, concern blankets many other crucial areas. Perhaps the defining trait of this past year was the pervading sense of uncertainty it cast on the future. Can streaming ever be profitable enough to offset the decline of legacy TV? Where does content fit in the hierarchy of this new world order? What is the future of theatrical? Questions abound.
If the industry can learn from the biggest trends and lessons of the past 12 months, then 2023 can be a pivotal step forward. Carefully calculated scheduling and genre/sub-genre expansion in key markets, additional streaming tiers that provide financial flexibility rolled up into creative bundling, strategic consolidation and focus. The seeds of long term new visions realities will be watered in the upcoming year.