Investment in independent streaming TV/film shows grows despite obstacles 

Any fears that TV and movie content might have been dethroned in the entertainment kingdom in today’s Streaming Age have been dispelled in a new hard-hitting report.

Compiled by Purely Streamonomics, a division of UK-based fin-tech company Purely, the study confirms audio-visual content is still king and rules supreme for audiences and investors.

At a time when music creators internationally are questioning whether their artistry is valued on streaming services, the amount of money spent by subscription-funded streaming operators (SVOD), like Netflix, Disney+ and Amazon Prime Video, on TV and film production and licensing zoomed to an eye-watering US$220.2bn in 2020.

Streamonomics estimates that expenditure will jump by 13.5% to US$250bn-plus by this year’s end. And those findings exclude moneys spent on sports media rights and the emerging advertising-funded (AVOD) streaming ventures.

But all is not that straightforward in this content’s empire.

The producers of the hottest TV/movie hits in the aggressively competitive global streaming space fall into two main camps: on the one side, there are the companies that are owned or supported by major television businesses such as UK media giants the BBC and ITV, the Hollywood studios like Sony and The Walt Disney Company; and, on the other side, there are the independents.

The independents are not awash with the huge sums earned by the big corporations with multiple revenue streams. Having relied on banks and private investors for funding, they have also found their business plans burdened with unwieldy repayment conditions. To make matters worse, the streaming services commissioning the shows rarely pay up on delivery and, instead, pay independent producers in instalments over three to five years.

Purely, Streamonomics’ parent company, steps in by effectively buying out the independents’ contracts. This gives them the cash flow to work on their next potential hits and Purely gets its money back by collecting the royalties directly from the streaming-service owners.

That experience has given Purely’s CEO Wayne Marc Godfrey (pictured, below) insights into the complex business of financing in-demand content for streaming services and the way creators are rewarded. He shares his thoughts with MediaTainment Finance (MTF) below.

Purely’s Wayne Marc Godfrey

MTF: What inspired the research in the first place?
Godfrey: It’s common to hear about the big figures relating to the sheer volume of money spent annually on content. Indeed, the streamers release this information quarterly. While these figures are undeniably impressive on their own, we wanted to dig deeper into how the money was split between studio and independent film; and where the money was being spent around the world. In understanding the demographic, we get a clearer picture of the size and location of the market.

Studio movies typically do not require receivables acceleration (speedy payments for what they are owed), as they have access to cheap capital. However, independent producers or distributors not based in Los Angeles rarely have significant finance lines backing them nor access to affordable capital. This is where Purely comes in. We wanted to articulate how much of the US$250bn in global annual spend (see infographics below) was spent on independents who can reap the cashflow benefit of accelerating their receivables with us and get paid today.

Infographics: Purely study on streaming TV/film expenditure

MTF: A sign of things to come could be seen in the US$1bn Amazon was prepared to pay for the TV rights to Lord of the Rings in 2017 and US$8.45bn for MGM this year. Meanwhile, NBCUniversal/Peacock are to invest US$400m in a new series based on The Exorcist – a record-breaking sum for a Hollywood company. But a tech giant like Amazon has more lucrative income sources than a Hollywood studio Why is all this happening now?
Godfrey: Jeff Bezos is famously quoted for saying: “When we win a Golden Globe, it helps us sell more shoes…Because if you look at Prime members, they buy more on Amazon than non-Prime members, and one of the reasons they do that is once they pay their annual fee, they’re looking around to see ‘how can I get more value out of the programme.’”

This is just one of the many reasons Amazon is investing heavily in Prime Video as, at the end of the day, content is king. When you have established intellectual property (IP) such as Lord of the Rings or the MGM-owned James Bond franchise, winning new customers is a breeze. In addition, by buying MGM, Amazon gains a 100-year-old library with the rights to remake or spin off all the golden classics that people know and love. This will give users a good reason to stick around and, maybe, they’ll even buy some more shoes in the process.

MTF: Where is all this content-investment money coming from, especially as there is a slow-down in linear-TV advertising, pay-TV subscriptions, cinema audiences – all of which have been exacerbated by the pandemic.
Godfrey: Streaming has benefitted from the stay-at-home orders during the pandemic, with all platforms seeing an uptick in user growth and subscriber revenues over the lockdown period. This has naturally increased investment potential, especially for the majors. But let’s not forget, new players like Disney+ were already extremely wealthy, with swollen coffers built up on years of movie revenues, international TV sales and theme-park receipts. In addition, the direct-to-consumer nature of SVOD services, where the number of middlemen taking a cut is dramatically reduced, also enhances the investment pot.

However, content spend had been increasing year-on-year pre-pandemic in a bid to feed services, create differentiation, attract talent and build meaningful brands. And we can point to two main factors: 1) The cost of talent is high, especially to compensate talent where fees are not based on performance at the box office upside; 2) Significant competition is driving up the cost of assets with big media and tech companies all trying to out-spend each other and create bigger and better shows.

MTF: After combining the new streaming-TV and movie originals and catalogue content, is there a danger of there being too much audio-visual entertainment to be funded by streaming revenues alone?
Godfrey: There is a wide pool of new and library content available at any given moment. However, only a fraction lands on a streaming service. The advent of streaming has grown the market, but we still have successful Public Service Broadcasters and linear TV-channel brands around the world commissioning and acquiring content. So, while there is still demand, there is no risk that we will run out of content. In addition, film and TV assets are typically licensed only for a window of time – with the average term ranging from 12-24 months. So, content is continually being replaced for viewers always looking for something new.

One of the major advantages streaming has over linear-TV or traditional cinema is the technology to understand who the viewer is and precisely target their niche with content they will enjoy (and pay for). So now content is made for every possible niche and delivered to them directly. Where there is an audience willing to pay for content and the technology to deliver it, there will not be any shortage of money to pay for that content, whether by per-view, subscription or advertising.

MTF: Is there a danger of there being too much audio-visual entertainment for audiences to have time for?
Godfrey: We’ve not yet seen the natural limit of how much content subscribers are willing to consume, although from personal experience I can say, it’s certainly getting harder and harder to choose what to watch; there is just so much great content out there.

The bigger question is perhaps how many services are consumers willing to pay for over time with more entering both the global and domestic markets? Nobody will subscribe to everything; they’ll choose their favourites. Down the line, we may see consolidation/acquisition and certainly more entrants to the market like Struum, who are aggregating content from smaller SVOD services and offering it to subscribers via a ‘ClassPass’ model.

MTF: Are regions like Africa, Middle East, Eastern Europe, Latin America going to benefit from streaming – since the infrastructure for traditional TV was already woeful and, just as mobile telephony bypassed fixed-line telephony in those regions, streaming might bypass linear?
Godfrey: Absolutely. There is a direct correlation between access to cheap mobile data and consumption of content, a fact the streamers services are all too aware of. Take ViacomCBS, for example, which launched Paramount+ and Pluto TV in Latin America in 2020. They know there is a vast audience there, willing and able to access and pay for content. It’s a race as to who can play in those markets first. From our own research, we can see that content spend in these regions has already jumped up in 2020 in Latin America and Middle East, with a year-on-year increase of 32% and 46% respectively.

MTF: Do you see what is happening with TV and movies on streaming platforms affecting the investments that might go into music, games and sports? Microsoft is  paying $7.5bn for ZeniMax, a games studio, compared to the not that much more at US$8bn+ that Amazon is prepared to pay for a Hollywood studio MGM. Unimaginable a couple of decades back. Is someone going to get financially burned in a few years’ time?
Godfrey: It’s possible, but we are talking about some of the largest media and tech companies in the world, with all but Netflix sourcing huge revenue from multiple streams. As leader of the streaming Video-on-Demand world, Netflix is acutely aware of its position in the market and the intense competition it now faces from all angles. It has always been a smart operator and has developed into a major brand quickly. So, it wouldn’t be surprising to see Netflix break out into music or games – or even extend its brand into something else related to entertainment in the home – sometime soon.