Streaming, the latest disruption of the entertainment market
USC Trojan Entertainment Network (TEN) & USC Gould School of Law partnered up for an insightful discussion about the recent challenges in the world of entertainment and the legal implications that follow.
The event took place on December 5th, 2019 at DLA Piper in Los Angeles. It was a fantastic panel and mixer with an amazing group of Gould alumni. I am particularly delighted about the turnout as I was one of the TEN board members who helped organize.
Streaming, The New Disruption
Throughout the entertainment industry’s history, technological advancements have disrupted business models on a quite regular basis. Those shifts have and certainly will continue to cause uproar in the market.
Professor Barnett kicked off the discussion by laying out the 4 major types of disruption:
- Content production & distribution
- Media companies becoming tech companies and tech companies becoming content companies
- Content production for international markets
- Talent – producer relationship and revenue streams
Effects On The Industry
Shift from the “defecit” to the “cost-plus” model
Financing models are changing as there are more buyers interested in new content which is getting more expensive. Streaming companies are interested in exclusivity of their original IP because of their subscription models which provides them much more opportunity to sell their content over and over.
This has lead to the so-called “cost-plus” model. The streamer calculates all costs, fixed and variable that have or will incur producing the project and then applies a markup percentage to the costs to estimate the asking price. That way the production cost and more is covered (such deal can get about 30% on top of the production costs). But, creators of those shows sign awat most of their future revenue opportunities so that those IP rights are exclusively bound to the streamer.
Compare that to the traditional television licensing – “deficit” – models where the networks paid only 60 to 70% of the show’s production cost to air the first run. Studios then need to enter into as many licensing and syndication deals, etc. as possible to earn back the costs and make money off of a show.
That model allows also smaller production companies, like Anonymous Content to enter the market offering content. Consequently, there are more players on the market creating a highly competitive environment. This all has lead to all the mergers and acquisitions we have seen lately with companies forming mega media conglomerates.
It should be noted that it must be distinguished between the film and TV business; while for features, the business models are still more traditional with a higher risk not to recoup the costs of production, the TV business is more predictable due to the cost-plus model.
Star quality of brand name showrunners involved with the original programs of streaming platforms also has become more important these days. Risk tolerance when partnering with showrunners as they almost guarantee eyeballs and subscribers.
Demographics are opened up to an even broader audience through growing international distributions as well as internatilzation of production which allows for entertainment companies to exploit their IP even more. However, just because a production works in one territory, it doesn’t necessarily work in another country. Thus, creators/producers must still adopt to the market and the market’s taste.
Revenue for talent has shifted to higher upfront compensation rather than backend participation when the deal is directly between the talent and the streamer. Streamers don’t want to be transparent with making the costs and budgets public. However, when dealing with a studio, a writer for instance, will still see backend participation because the old formulas are still used.