Published on March 1, 2014
Managing Media Companies (B) Paid for Feature Film Content An Analysis of the US, UK, French and Chinese Markets Project for NBC Universal Professor: Annet Aris Lindsay Nieman Libert Froidmont
AGENDA 1. Introduction to industry changes 2. Types of players and advantages for each 3. Main differences between key territories 4. Assessment Framework 5. Analysis of market players in each territory 6. Hypothesis of who the winners will be per territory
FILM DISTRIBUTION: INDUSTRY CHANGES Consumption patterns are changing in how people watch films and in how they are released Traditional Release Windows Theatrical Release Linear Pay TV DVD Sale/ Rental VoD SVoD Free to Air TV Industry Changes Release windows are narrowing both in medium and territory Warner Brothers will release movies for VoD same day they are Released for DVD Consumers are expecting films to be available on every platform (PC/ Mobile/ TV) at the same time Lionsgate Starting to bundle iTunes digital download with DVD purchase DVD sales are dropping DVD sales fell more than 5% in 2012
TYPES OF PAID-FOR FILM DISTRUBTORS It’s an uneven playing field, where different business models converge into similar service offering Type Examples Advantages Challenges Trends OTT – Subscription Based Netflix • Streamed so limits piracy • Regular revenue stream • Easier to strike deals with studios due to security • Exclusive agreements • Window framing • Many companies are leaning towards this model (ex YouTube and independent channels) OTT – Transaction Based (EST) iTunes • More profit per download/ stream • Quicker access to new releases • More expensive for the consumer • Competing with iTunes • Many companies are leaning towards this model (ex YouTube and independent channels) Managed Network Distributor Comcast/ Sky/ Orange Fr • As media controllers they can create rules as have say in where the content goes • Imbedded subscriber base • Unlimited broadband width • Balancing channel business and online business / subscription business and transaction business without jeopardizing the other • The creation of their own OTT SVoD channels Ad-funded content portal YouTube/ Youku Tudou • Already popular and widely used for short-form content • Achieving studio deals and alleviating concerns for piracy • Moving to subscription based model Studio backed channel Epix • Content deals already in place • Brand name • Changing business model from licensing out content to licensing content • Slow movement in developing better OTT capabilities
MAIN DIFFERENCES IN EACH TERRITORY VOD and SVOD are not a one-fit-all solution • • • Market Leader in terms of film content and film distribution Equal strength in SVoD and VoD markets Managed network distributors have high power • • • • Delayed content availability due to window framing is customer pain point VoD market is stronger than SVoD market Hunger for Hollywood New Release repertoire Managed network distributors have high power • • • • Local/ European content is still important SVoD market isn’t successful Many US players haven’t entered market Managed network distributors have high power • • • • Monopoly market – Youku Tudou High demand for online content portals – very connected market Hollywood & Local repertoire is important Potential space for a Chinese company to export platform globally
ASSESSMENT FRAMEWORK Evaluation of a company’s competitive position are based on five factors relating to content, user experience, and sustainability of business model Factor Determining Success Evaluation Criteria Quality of Interface • • • • Screen/ Video quality Ease of use/ Speed of use Search/ Recommender functionality Platform/ Channel availability Number of Users/ Monetization • • • Current popularity/ market sizing Customer purchasing power Sustainability of business model Deep Pockets • • Money to secure content deals Ability to invest in growth Content Deals in place • • Relationships with major studios Type of relationships (exclusive/ nonexclusive) Future Game Changers • • Scenarios in which future growth may occur Scenarios in which business model will be weakened
ANALYSIS OF US PLAYERS (TIER 1) Apple and Netflix have clear lead for now but a further analysis on key parameters shows that Netflix’s position is fragile and is depending on the other players movements Netfix Apple X-Box ComCast +/- + + +/- # of users / monetization + + +/- + Deep pockets - + + + +/- + +/- + Smart UI Ability to potentially direct traffic to Xfinity through it's broadband capabilities Quality of Interface Content deals in place Future game changers Being bought by a bigger player iTV
ANALYSIS OF US PLAYERS (TIER 2) Although Amazon and YouTube are presently not market leaders, our analysis shows that they could pose a serious competitive threat YouTube Samsung Epix Amazon +/- + - - # of users / monetization + +/- - - Deep pockets + + +/- + Content deals in place - - + + Increased mobile viewing Rather than licencing their content with Amazon (previously Netflix), might decide to further invest in their own O.T.T capability Enhanced utilization of recommender system Quality of Interface Future game changers Paid channel subscription/ Focus on long-form content
ANALYSIS OF UK PLAYERS Broadband and TV broadcaster, Sky, still holds dominant position, however a strong movement from Amazon or another large US player could change the landscape Netflix Sky YouTube LOVEFiLM Quality of Interface + + +/- + # of users / monetization + + + + Deep pockets + + - +/- +/- + - + Now TV Paid channel subscription/ Focus on long-form content The level of backing from Amazon to help secure studio deals Content deals in place Future game changers Level of investment in European territories
ANALYSIS OF FRENCH PLAYERS ISPs are likely to keep their lead in the VOD segment in the shortrun, with Apple keeping up with its steady grow. The SVOD will remain an unattractive market as long as there is no change in French regulation (chronology law) Local ISP provider (Orange) Local SVOD (Canalplay) Apple International OTT players (Netflix, Amazon, Youtube) +/- - +/- + # of users / monetization + +/- + N/A Deep pockets + - + - Content deals in place + + + + Future game changers Orange, as an ISP can technically put bandwidth limits or request for a fee to OTT players for their use of bandwith (breaking net neutrality). Orange already reached a deal with Google for the traffic incurred on their network. Local SVoD players are trying to get a foothold in the market before new international players but with limited traction so far. A change of the chronology laws for release of content might help them taking more share from Free and Paid TV iTunes can lever technogical and financial power to negotiate exclusive international rights contract Their entry in the French market will definitely shake up the current state of the market. However the French SVOD market is very competitive and traction is still low which might explain the reticence of international players to enter. Quality of Interface
ANALYSIS OF CHINESE PLAYERS Seen as a viable answer against content piracy, Video on Demand has gained momentum in China. Some large local players are now competing to take the lead in the market. Whether they will decide to go international at some point is a question mark. Youku Tudou Baidu You On Demand Cable Operators Quality of Interface + + ? - # of users / monetization + + - +/- Deep pockets +/- + - +/- + +/- + - If it can get traction from Chinese viewers, this become an very interesting alternative for US studios A consolidation of the cable operators could end in a entity that would the potential to challenge the supremacy of the existing OTT player if they begin to offer the movies over the top as well as through broadcast. Content deals in place Future game changers Ability of leverage its position as the chinese Youtube to growth its subscription based business and increase the bottom line. It will take time for Baidu to integrate completely into video streaming but if they manage to do so it will probably give them the lead in the market (also an opportunity for them to strenghen their mobile offer which is one the current weakness of Baidu).
HYPOTHESIZED WINNERS PER TERRITORY
Appendix 1. Detailed analysis of US players 2. Detailed analysis of UK players 3. Detailed analysis of French players 4. Detailed analysis of Chinese players
Analysis of the US players (Tier 1) Netfix Apple X-box ComCast Quality of Interface - Customers complain about the interface ' Recommender system is based on ratings and what you've watched before - High Level of Customer Satisfaction - Easy connectivity with TV ability to see what's trending at the moment on TV/ VOD - Voice conrol Interactive features - easy to uese: all in entertainment set - Currently a bit outdated but comcast is rolling out X2 interface # of users / monetization -Netflix has over half of the streaming video rentals, according to NDP’s VideoWatch in Q1 2013 Netflix dominated with 90% of video-streaming units. - winner in the EST model iTunes representing 65% of total turnover of film purchases online - X box one will be released in 21 countries - 23% of VoD movie rental market Deep pockets - Independently owned - Apple is the richest U.S company - Backed by Microsoft - Recently purchased GE's share of NBC Universal for $16.7 billion - Deals in place with 6 major studios - exclusive deal with Dreamworks - For iTunes good deals are in place but in their subscription model they are reliant on Netflix - Netflix, iTunes and Amazon apps as well as own content deals - Managed network distributor - Smart UI - Technologically advanced X-box One - Ability to potentially direct traffic to Xfinity through it's broadband capabilities Content deals in place Future game changers -Being bought by a bigger player - iTV
Analysis of the US players (Tier 2) YouTube Quality of Interface # of users / monetization Deep pockets Content deals in place Future game changers Samsung Epix Amazon - Not easy to navigate but familiar to users for short form content purposes - Still in launch phase - focus is going towards enhanced recommender systems - Only available through several carriers - Customers think that interface is ugly - Commands 27% of all downstream traffic - 17% of the connected Internet TV market - More Samsung phone users than iPhone users, but less use it for content currently - 30 million pay-tv subscribers (but behind Showtime, Starz & HBO) - Amazon Prime currently comes in with only 1.31% of web traffic. - Owned by Google - Investment through content acquistions, i.e. mSpot - Content seller not buyer - Amazon spent $1billion on content for Amazon Prime and Netflix believes that they will spend $2.17 billion on content licensing Amazon now has an exclusive EPIX deal (which used to be Netflix's) - Netflix Reed Hastings said they could be losing as much as $1 billion a year on their streaming service (but will continue to spend until profitable) - Will come with paid channels - Youtube is investing in own content' -Transactional model means that exclusivity agreements aren't as relevant - Though still deals with 5 of 6 Major studios - Backed by Lionsgate, Viocom's Paramount and MGM -On May 16, 2013 Amazon announced a new TV content deal with NBCUniversal to make available NBCUniversal’s biggest TV shows such as Covert Affairs, Grimm, and Suits, etc. Amazon is also the exclusive online subscription home for PBS’s Downtown Abbey and now for CBS’s “Under The Dome”. According to the website, over 40,000 films and TV shows are available to their Prime customers. - Paid channel subscription YouTube has released 60 new channels , each with a price of $2 a month per channel. / Focus on Long-form content - Move to mobile content consumotion could potentially leave Samsung in a more powerful position - Proper launch of O.T.T service - Enhanced utilization of recommender system
Analysis of the UK players Netflix Sky YouTube LOVEFiLM Quality of Interface - Customers complain about delayed availability of US films Recommender system is based on ratings and what you've watched before - Customers are overall satisfied but many still have low awareness of Now TV - Not easy to navigate but familiar to users for short form content purposes - Interface is very similar to Netflix rated easier to browse # of users / monetization -Netflix has over half of the streaming video rentals, according to NDP’s VideoWatch in Q1 2013 Netflix dominated with 90% of videostreaming units. - over 5 Million subscribers - Commands 27% of all downstream traffic - 17% of the connected Internet TV market - 2 million subscribers Deep pockets - Independently owned - Leading UK channel - Owned by Google - Amazon backed but separate operation - It holds the largest body of rights to distribute movies through its subscription video on demand (SVOD) online services including Sky Go and Now TV, and through its 11 linear movie channels via its satellite platform and finally through wholesale agreements with Virgin Media - Will come with paid channels Youtube is investing in own content' - Rated better newer content than Netflix - Deal with Disney - - Now TV - Paid channel subscription YouTube has released 60 new channels , each with a price of $2 a month per channel. / Focus on Long-form content -The level of backing from Amazon to help secure Studio deals Content deals in place Future game changers - Deals in place with 6 major studios - Exclusive deal with dreamworks - Level of investment in European territories
Analysis of the French players Local ISP provider (Orange) International OTT players (Netflix, Amazon, Youtube) Local SVOD (Canalplay) Apple Some issues reported by French consumers on SVOD services are: - Difficulties to view content (bugs) - Technical quality of some programs is not as expected (e.g. issue with subtitles) - Weak recommendation functionalities - overall, interfaces are seen as slow. - No proper recommender system - Limited effort to adapt iTunes to film content - No social tools Orange is the clear leader on the VOD segment, with a 38% market share. Combined, ISPs represents 65% of the VOD market. Still low after 2 years in operation: 200.000 subscribers for CanalPlay the current leader in French SVOD iTunes Video is capturing 2030% of the French VOD market accroding to estimation Orange is one of the biggest ISPs in Europe (revenue of EUR 23 Bn in France for 2010) and has been investing a lot on their VOD offering Owned by Canal+ group, the biggest Pay-TV players in France. However, so far, investments to promote the offering have been limited. Apple has the financial resource to invest further in the French market if it decides to. Will depend on each player whether they can and want to invest into the French. It hasn't been a priority for them so far. Content deals in place Orange has rights agreements with Warner Bros, HBO and local broadcasters (TF1, France Television, M6) 4.000 movies and TV series including catalog from Warner, Pathé (French producer) et Studio Canal (part of Canal+). iTunes has good deal in place and is able to provide most of the international and local movie content. Will be able to rely on their portfolio of international rights. Future game changers Orange, as an ISP can technically put bandwidth limits or request for a fee to OTT players for their use of bandwith (breaking net neutrality). Orange already reached a deal with Google for the traffic incurred on their network. Local SVoD players are trying to get a foothold in the market before new international players but with limited traction so far. A change of the chronology laws for release of content might help them taking more share from Free and Paid TV iTunes can lever technogical and financial power to negotiate exclusive international rights contract Their entry in the French market will definitely shake up the current state of the market. However the French SVOD market is very competitive and traction is still low which might explain the reticence of international players to enter. Quality of Interface # of users / monetization Deep pockets - The strenght of ISPs is that the can provide an "All inOne" solution making life of viewer easier (TV/VOD/Internet) - It appears nonetheless that the quality of the interfaces can be improved (slow, bugs, no proper recommender system) Overall, better interface than local players No (S)VOD offering in France yet
Analysis of the Chinese players Youku Tudou Quality of Interface Baidu You On Demand Cable Operators Similar to youtube Similar to youtube Not tested Scarce offering at the moment # of users / monetization Has currently the largest customer base in the online video business in China Can lever its large customer base from its established "big boy" position in the search engine market Still low Potential customer base of 200 million cable homes Deep pockets Neither Youku nor Tudou were profitable pre-merger and it's highly probable will not generate positive net profit before 2013. This might impact the ability of the new to highly invest in VOD infrastracture and content As the largest online player in China, has the ability to invest further in VOD as highlighted by the recent acquisition of PPS Stream for USD 370 million Limited compare to its chinese competitors. The cable operators are still fragmented so far. Considered as the chinese OTT partner for video content by most US studios. Lot of local content + also self-produced programs Qiyi's (VOD channel of Baidu) have started the process of removing illegitimate TV series and entire movies (both Chinese and Hollywood/US content) from their vaults, in a process of going legit. This will probably result in more content agreements with local and hollywood studios. Content deals in place Future game changers Ability of leverage its position as the chinese Youtube to growth its subscription based business and increase the bottom line. It will take time for Baidu to integrate completely into video streaming but if they manage to do so it will probably give them the lead in the market (also an opportunity for them to strenghen their mobile offer which is one the current weakness of Baidu). Have support of most of the notable Hollywood studios as well as agreements with Chinese content providers If it can get traction from Chinese viewers, this become an very interesting alternative for US studios Low on international content A consolidation of the cable operators could end in a entity that would the potential to challenge the supremacy of the existing OTT player if they begin to offer the movies over the top as well as through broadcast.
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