This year’s crystal ball is primarily focused on delivery systems, as this is the next big hump for the film and television industry. In fact, once over this hump, I suspect that we will see a much more stable business for at least a decade before some other form of interruption arrives.
First Window is still very, very important, in both film and television, but the future is being re-ordered by what happens after that First Window. Networks, as we knew them, are on their last legs as what they were. They will, I think, continue on as gathering places for, primarily, First Window content. They will be marketing brands that can then be sold by subscription. They are already – in the last few years – being sold “by subscription” to the cable and satellite packagers.
Cable/Satellite is probably the best place to describe this massive change. And for the sake of sanity, I will make the evolution of cable/satellite model into The Sheep instead of The Wolf it started out as a sidebar.
The overall point of that sidebar is that the game is going to continue to change. Sports is 95% a First Window business. Movies and television for Post-Theatrical are not. There is a lot of money in film/tv product long after First Window.
Both film and television are desperately looking for ways to increase revenue from the Post-Theatrical Window after the popping of the DVD bubble and now, the death of DVD as it is replaced by internet-based options and some wire-based VOD. And so, in spite of endless attacks on the integrity (multiple meanings) of Theatrical, the industry is creating more windows, not fewer, to create more revenues.
In terms of the studios, Warner Bros was most aggressive and Fox the most passive… just as with DVD. WB bought Flixster (and with it, Rotten Tomatoes, which they should liberate from the company, holding some benefits… best to Amazon, which could pair it with imdb, which would be smart) and is now branding with it for streaming, especially via Ultraviolet. Meanwhile, Warner is sucking some dollars out of Netflix to tide them over until they are able to match or surpass the price Netflix is paying them yearly via their own direct streaming arm.
Disney has also taken a big bite of Netflix. About $300m a year, which is more than I even imagined. But Netflix has been suffering under the weight of change, so it needs to overspend to keep from drowning. Still, I expect that the end of 2013 could see a deal for Disney to purchase Netflix outright. And if not, to do so in 2014. I expect that Apple will never want to become a one-studio business with iTunes and as a result, Disney too will have to find its own brand. Netflix is ripe for the taking for the acquisitive Disney under Iger.
Sony is the next studio with big changes due. Perhaps this is the moment to say, before getting to my projections for Sony’s Home Ent strategy, that 3D TV is stillborn. The “next big thing” is 4k television. Sony invested heavily in 3D TV and is now the leader in 4K. The big difference is that 4k is progress without glasses. It will work with every show/film. And it will, like Blu-ray has, create another platform for every studio to both re-sell their libraries and/or create a premium tier for streaming. The technology will require downloading films rather than straight streaming. I think it will be years before all but a few of the most effectively wired will be able to stream files that large. And the experience of watching sports in 4k will, it seems, be even more exciting than sports in 3D.
Back to Sony Home Entertainment… I believe the company will reinvest in streaming, probably re-branding Crackle as well as re-introducing the PS3 as the best set-top box for streaming.
I expect Universal/Comcast to launch its own streaming brand soon… perhaps in specific association with Comcast.
I expect Paramount to take greater control of EPIX and not only to focus on streaming a la HBO Go, but to become the first full-out subscription-based monthly streaming outlet that you don’t need to have on your cable/satellite to receive. Like Netflix or Hulu $7 – $8 a month to stream premium cable window product from Paramount and Lionsgate as well as a lot of stuff from the back catalogs of both studios.
That leaves Fox… waiting for 2014. At that point, I would guess that the communal idea of Ultraviolet starts to break down seriously and maybe Fox takes that over whole.
The overall point is that all 6 majors will likely have individualized streaming businesses by this time next year or soon thereafter. Subscription is the future for Post-Theatrical. There will be some kind of cross-breeding with the cable/satellite elements as well. But the key will be expanding the base of subscribers, not selling individual products. 80 million households spending $5 a month is a $4.8 billion piece of business. Until the studios are comfortable that they can at least double the number of subscribers currently with Netflix, they probably won’t jump. But that day is coming and it’s coming surprisingly fast.
In the Independent world, I would expect that when Disney does eat Netflix, it will spin off the independent arm and the children’s only arm. In other words, you would be able to buy Netflix or Netflix Indie or Netflix kids for $8 a month and then if you wanted to add the other 2 brands, you could do it for, say, $2 a month. So the whole thing for $12 a month, but nothing sold for less than $8 a month.
Someone will get smart and create The VOD Channel, across all platforms, but importantly targeting both the streaming and Cable/Satellite worlds. In this marketplace, Sundance and IFC have been struggling to find the perfect balance for years. But now, with so much product going to VOD, there needs to be some consortium that changes the target from individual films to a – for lack of a better word – channel. Imagine a channel/streamer that openly offers 50 new films every month with holdover product for a 6 month window. So, subscribers would have 300 films of less than a year of public age at any time, including 50 brand new films each month. For this, a $5 a month charge for the cable channel ($3.50 back to the channel) with a target of 10 million subscribers… which would be about 8% of the market… making a $400m a year business. Take $100m off the top for operations and that’s an average of $500k per film for this narrow window which would still allow for DVD, theatrical (as it now operates with VOD), and ongoing freedom for the filmmakers to make ongoing deals with Netflix or whomever. And, of course, the payments per film could scale, so the “bigger” films could be paid a million or two and the smaller ones could be paid $50k or $100k… but something of a legitimate amount.
This is not a completely new idea… except for the scale. The Sundance Now Doc Club charges about $1.50 a month over a year for 5 – 10 docs – some old, some new – each month, all online. I am suggesting paying 3x as much for about 7x the content, but all new.
In other, non-home content delivery predictions…
SEE PART TWO