Monday, August 28, 2017

Big Blurring of Lines Between "Networks" and "Distributors"

Disney’s move to create its own streaming service sheds light on how the content business has changed from its former pattern. In the past, some companies or people developed and created content; others bundled it (networks) while other firms distributed the content (TV stations, cable TV companies).

The big distinctions, maintained in law, were that entities involved in one part of the ecosystem could not also be owners of assets in other parts of the ecosystem. So movie studios were barred from being theater owners and big networks could not own large shares of the distribution market (networks owning local broadcast outlets).

Over time, some of those restrictions have been eased. And though ecosystem includes both retail subscriptions, advertising, on-demand content purchases (including movie theater tickets, home video). For the most part, advertising and subscriptions drive distributor revenues, while content licenses and advertising drive bundler revenues. Content creator revenue is generated primarily by sales of intellectual property.


The continuing debate within the ecosystem is the relative balance of value and therefore power between content bundlers (networks) and distributors (primarily video subscription providers, both linear and on-demand). Roughly speaking, revenue generated by video advertising supports both bundlers and distributors, though advertising is a bigger contributor for networks than licensing fees; while distributor business models range from “mostly advertising” to “subscription only” and mixed models based on both revenue streams.


But there is a new reality to the older debate about where value lies. Traditionally, the issue was whether the content bundlers (networks) or the distributors (cable TV, other providers) had more power within the ecosystem.

The new change is that “distribution” itself has changed, from those with actual physical networks, and those distributing “over the top” (Netflix, Hulu, Amazon Prime). These days, some distributors own and operate physical access networks, while others do not.

In fact, the line between “networks” and “distributors” is blurring. Netflix aims  to increase the percentage of “owned” versus “licensed” content to 50 percent. In other words, Netflix plans to become as much a network, with original programming, as a distributor.

Disney, on the other hand, owns 75 percent of BAMTech, a platform for streaming video distribution. That, plus its announced intention to create its own streaming service means Disney also will become a distributor.

In fact, market share within the “distribution” segment itself is changing, as fewer customers buy “big bundle” subscriptions, while more embrace streaming services of various types. As Netflix shows, the emerging model might well be networks that also are distributors, bypassing or augmenting many other existing distribution vehicles.



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