It might be fair to say that video entertainment distributors and content providers face business model challenges that rival those faced by publishers decades ago, when digital media disrupted physical media.
For example, total revenue for newspaper publishers dropped significantly from $46.2 billion in 2002 to $22.1 billion in 2020, a 52 percent decline, according to the U.S. Census Bureau. Estimated revenue for periodical publishing, which includes magazines, fell by 40.5 percent over the same period.
U.S. Census Bureau
Print advertising revenue saw a significant decline, from $73.2 billion in 2000 to $6 billion in 2023.
Similar damage was seen in the video on demand business, where video tape and disc rental revenue decreased by 88.5 percent.
The point is that advertising revenue began a long shift to digital and online media after 1996, now perhaps representing 75 percent of all U.S. advertising.
source: Omdia
How suppliers of linear video products will fare is the issue. Warner Brothers Discovery just booked a $9 billion impairment charge, while Paramount took a charge of about $6 billion, for example, reflecting a devaluation of linear video asset value.
And while it is easy to note that video streaming is the successor product to linear TV, the business models remain challenged, for distributors and content suppliers.
Distributor revenue is an issue, as linear TV could count on both advertising and subscription revenues, while video streaming services mostly rely on subscriptions, though ad support is growing.
The other revenue issues are lower average revenue per user or per account, compared to linear TV and high subscriber churn.
Also, content costs have been higher than for linear services, as original content uniqueness has been more important than for most linear channels. Customer acquisition costs and marketing expenses also are higher in a direct-to-consumer environment.
Video content providers also face significant business model challenges as the industry shifts away from traditional linear distribution, in large part because carriage fees paid to content owners by distributors are not available, while the core revenue model shifts from reliance on distributors to a “direct-to-consumer” model.
The linear model provided large potential audiences with a wholesale sales model, where the customer was the video distributor. The DTC model has to be created from scratch, and requires actual retail sales.
Also, up to this point revenue has been based on subscriber fees, and most streaming services have struggled to gain scale.
Linear video also featured a clear windowing strategy and revenue opportunities (when content was made available theatrically, then to broadcast, followed by cable and then syndication). Steaming is much more complex, with less certain revenue upside.
In principle, linear programming formats were geared to large audiences while much streaming content is aimed at niches and segments. That arguably represents higher risk and higher unit costs.
Using the prior example of what happened with print content as online content grew, we might well expect profit margins for linear media to decline as content consumption shifts to streaming formats and linear scale is lost.
We should also see a shift of market share from legacy providers to upstarts, with perhaps the greatest pressure on niche or specialty formats such as industry specific sources. At some point, as legacy industries consolidate and shrink, there is less need for specialized media or conferences, for example.
The demise of virtually all the former telecom industry; personal computer and enterprise computing events and business media provide an example.
Content producer shares also could shift. We already have seen new “studios” including Netflix, Amazon Prime, Apple TV and others arise, for example.
To the extent they were able to survive, print media had to innovate revenue models, moving from print advertising and subscriptions to digital ads and paywalls, though the scale of the new businesses was less than the former business models.
Similarly, video streaming services are exploring tiered subscriptions, ad-supported models, and content bundling, though we might speculate that the new business could well be smaller than the former industry. Some degree of fragmentation should be expected, where the legacy providers have less scale than before.
All that could lead to a “professional” video entertainment industry that is smaller than it has been in the past, as hard as that might be to imagine. The model there is the growth of social media and user-generated content revenues compared to “professional” content provider revenues.
For example, it is possible that digital platforms--Netflix, Prime Video and others--replace the traditional “TV broadcasters” or “cable TV networks” as the dominant “channels.”
It also is conceivable that the content producers (studios) emerge as dominant in their “direct to consumer” roles, disintermediating the present distributors (TV broadcast networks, cable TV networks). Or, legacy networks and distributors might find some way to continue leading the market, as unlikely as some believe that is to happen.
In the medium term, we might see a pattern similar to the former “print” industry, where a few legacy providers continue to have significant share, but where upstart new providers also have arisen. The legacy video networks might continue to represent venues for highly-viewed events, although much of the rest of viewing is fragmented among many suppliers.
If the earlier transformation of “print” content is relevant for video entertainment, legacy businesses might never again be as large or important as they once were.
