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Recalculating the new math in media
Hollywood strikes and content production costs incompatible with consumption
A few weeks ago, Disney’s boomerang CEO Bob Iger casually mentioned that Disney may sell off some of its linear TV divisions. Linear TV was once the very foundation of Disney’s content distribution strategy, but Iger said it may no longer be core to its business. That those previously prime assets are now clearly stagnating (at best) says a lot about the state of media today.
Individual media consumption patterns in the digital media era have been changing steadily since the advent of the mobile phone. Now we've reached a tipping point that is manifesting across different media channels. Prime examples include the writers' and actors' strikes, made possible by their powerful unions; publishers' growing use of AI to generate content; and the demise of BuzzFeed News and Vice Media.
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We're facing a massive imbalance in how much it costs to produce the media we consume vs. the financial rewards for those that produce it. The math in media has changed, and everyone is in a period of recalculation. Every part of the media ecosystem is facing a variant of this problem.
Take local news. Local media has been in trouble for years. One count last summer estimated that two local newspapers close every week in the US, and about 20% of US counties are at risk of becoming news deserts. Local broadcast stations are under threat and feeling the pressure from the rise of cord-cutting and streaming TV. That’s because in 2014, the FCC began requiring traditional TV providers to negotiate directly with local broadcasters to carry their stations, but that rule doesn't apply to streaming TV providers like YouTube TV and Hulu + Live TV, which can bypass those distribution negotiations. Local TV stations have banded together and say that without the ability to negotiate directly with streaming services, they aren't being properly compensated in a way that can "sustain their substantial investments in local news."
Local media as a whole is very impactful to the way we live, because if you don't have strong local news, with some investigative reporting capabilities, local corruption and other problems can go unchallenged. But at the same time, local newsrooms can't be the same size as they were 15-20 years ago, because the economics of the local paper are very different today. We haven't found a sustainable path forward.
This presents a different way of thinking about sustainability. Rather than focusing on reducing your company’s carbon footprint and ticking that ESG box, we believe there’s a sustainability case to be made that also extends to media production.
What does sustainable media mean? We think of it as the ability to professionally produce content and generate sufficient revenue to fund the operation without paying workers poverty wages or having to secure hundreds of millions of dollars of funding to sustain operations. (We’re looking at you, Vice.) What does profitability of a media asset look like today, whether part of it is supported by subscriptions, funded by advertising, or maybe other forms of sponsored content? How can media companies create a more sustainable and symbiotic relationship with the advertisers that fund their content development or the users who fund content development through subscriptions or memberships?
As our attention shifts en-masse, following desired content across new types of distribution channels such as streaming, the decline of traditional forms of media consumption is also happening but now seemingly more rapidly. It was never going to be a one-to-one shift, where cable subscribers were going to cut the cord and redirect that $100 formerly spent on cable every month to streaming TV bundles. That's the crux of the problem. Pay TV was a very structured way to understand the revenue being generated and how to compensate creators downstream, but that scenario is no longer feasible because of shifting consumer behavior (away from cable and toward streaming, where similarly lucrative commercial arrangements for everyone involved in production aren’t present).
People are still consuming media, but their habits are different. Mid-tier publishers are wondering where their audiences have gone, but they're not the only game in town anymore. Many people in the US want less news, less cable TV, and more streaming TV, although even that channel is experiencing increased competition and fragmentation. Streaming TV has been enormously disruptive, because most entertainment folks were still working off old contracts designed for a television era, where compensation for things like residuals doesn't translate easily into the streaming universe.
Media companies are trying to adjust, but their efforts are just not able to keep pace with key paradigm shifts. As Ben Thompson in Stratchery notes, the last time actors and screenwriters went on strike at the same time was in 1960, when the world witnessed another technological paradigm shift: the rise of television. Actors also went on strike in 1980, during the rise of home video. And in 2023, we’re once again seeing that same pattern.
Today, streaming and AI are at the heart of the dispute. It's not clear how TV streaming providers are calculating residuals, but those who are receiving them know that they're much lower than they were for cable and TV. (You may have recently seen actors publicly showing off their residual checks, which can somehow have negative dollar amounts.) This is a common trend across various types of content creation. Previously desirable jobs such as TV writer or journalist are essentially going extinct and being priced out of existence. A change in the distribution system is challenging the very concept of residuals and one's ability to earn a viable living by writing. The same thing happened when news shifted from print to online and Craigslist killed the print industry's classified-ads cash cow.
The per-show compensation for writers and actors is not aligned with the economics of TV streaming, which, as we've previously written, is incredibly expensive. Other than Netflix, the media owners that have pivoted to streaming have taken on huge costs at the same time they are managing the decline of their legacy media businesses. And then the next thing we know, Disney wants to sell off its linear TV assets.
As a result of the actors' and writers' strikes, we'll be seeing less new content coming from the US, but that won't stop production at some of the more prolific studios in other parts of the world, such as Turkey, which produces a lot of content that is watched across Southeast Asia and in Muslim countries; the Latin American programming aimed at both US Hispanic audiences and the entirety of the Spanish-speaking world; not to mention production in Nigeria (Nollywood), India (Bollywood), Scandinavia (Nordic noir), and the rest of Europe. Lest we forget, the last writers’ strike from 2007-2008 is credited with the acceleration of reality television, quite simply because it is much cheaper to produce but can be monetized in the same way as polished TV shows. That race to the bottom extends to news, where we saw the rise of opinion hosts in the same time frame.
Unfortunately when trash and quality are monetized the same way, trash will always win.
A path forward
It was once possible for media and entertainment companies to focus on content creation, while someone else took care of the distribution, monetization, and other commercial aspects; for example, Hollywood’s studio system is entirely predicated on this idea. Now with streaming, that model has flattened, with platforms such as Netflix or YouTube handling everything, while someone like A24 is free to explore hybrid models including super-fan subscriptions.
For any type of media platform, there must be some way of monetizing content and incentivizing creators to create that content. Everyone needs content. The platforms that make it easy for talented creators to monetize that content and maybe make a business out of that production are going to be more successful. That's why we're seeing more emphasis on ways for highly prolific content creators to get rewarded by their social media platforms of choice. YouTube, for example, has great monetization options for people with smaller followings, but they're particularly strong for those with large followings.
In the future, we could imagine a new model where companies reserve a portion of their equity for employees, which, in the past, was limited to stars who could drive box offices for some fraction of film revenue of a film. That’s a bit like the newish production company Artists Equity, which was launched last year by Ben Affleck and Matt Damon. The "artist-led studio" bills itself as an intellectual property monetization platform that gives everyone in the production value chain a cut of profits. It seems only fair that if media companies want to be perceived as technology companies, they should also adopt some of tech’s compensation practices.
It's clear that there's an opportunity around local news, where we all have an intuitive sense of its importance and what's at stake if it's lost. Some have even tried to quantify the loss: In communities without a local newspaper, the poverty rate is 16%, compared to the national average of 11%.
But finding viable pathways to media sustainability will take new ways of thinking, likely from a new generation of leaders. Many media leaders today are experienced in managing the decline of their stagnating assets, which is a different business challenge than building for growth. Trying to achieve media sustainability against a backdrop of old business models isn't a promising proposition. Some may remember that once early digital businesses hit some sort of real traction, the executives who were put in charge of the P&L came from the television industry, rather than digital backgrounds. Many tried to shoehorn what worked well in TV into these new digital models that had very different underlying assumptions and content consumption patterns.
That slowed progress we could have made in finding sustainable ways to produce content. The perennial challenge now is to make the numbers pencil out so that we can have thriving local media — or specialist media like National Geographic, which recently laid off its entire staff in favor of a freelancer-only model. Or will our only viable media be people who are already wealthy and with a strong voice on at least one other platform, like the Kardashians, who can parlay their already large media platforms into new media platforms?
In this landscape we’ve created, what flavor of media will we have in the future?
What does true sustainability look like in your industry, and how do you recognize decline?
Thanks for reading,
Ana, Maja, and the Sparrow team
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