Netflix has done an incredible job over the last two years of establishing itself as a creative powerhouse akin to HBO in their glory days. However, original content like House of Cards and Orange is the New Black doesn’t come cheap and it is already having a negative impact on profit margins, even with 50 million paying subscribers globally.
The marketplace for other content is also going to increase in cost driven by competition from all fronts including Amazon, there is only so much watchable stuff in the marketplace. With more than $8 billion in short and long term content cost obligations on their books it might make sense to move to a PBS model where certain programming is underwritten by a brand sponsor in order to keep their per monthly subscription cost below $10. I don’t think they would ever try to sell traditional :30 interruptions during a program. The caveat for Netflix would be having to share how many people stream each program which they now closely guard as a negotiating tactic with content suppliers. I think there would be a huge market to advertise on their platform and the market will eventually make this a no brainer option for them to offset the coming tidal wave of content costs.
The NBA reached a new 10 year rights agreement with Disney/ESPN and Time Warner/Turner over the weekend that will at least double and possibly triple the current annual rights fee paid to the league. The most interesting aspect of the deal is the de-bundling of at least some games from cable TV packages. From the Wall Street Journal:
“The league also laid plans in partnership with ESPN for a new online video service that would show live regular season games, the people said. In a significant move for ESPN, which derives its huge profits from the pay-TV ecosystem, that service will be open to people who aren’t cable or satellite TV customers.”
This is a big risk for their current business model as they derive around 60% of their revenue from cable TV providers as part of your cable package. However, it is where the market is going and the potential revenue from a la carte purchases (buying a game or a package of games) and more targeted advertising could bring in much greater revenue that the current business structure. What happens when people can consume content without a cable package? What could make up the revenue shortfall?
First, these assumptions can be made about where the market is going:
- Video on demand is driving content consumption. This can be live or recorded and through an internet or cable connection. The channel and time driven tune in window programming format is on the way out.
- More targeted advertising through programmatic buying platforms has re-shaped how internet advertising is purchased. Big spending advertisers will demand that TV eventually be sold the same way. 65% of advertising on the internet is now purchased on a performance based model.
As smart set top boxes evolve, “smart TV” penetrates more households and more content is consumed on mobile devices the opportunity for hyper-targted advertising through TV/video will become the standard in the marketplace. The tools marketers that use to build deep data profiles constructed by piecing together a consumer’s engagement across multiple touch points that live in the cloud driven by Adobe, IBM, SalesForce, Oracle and SAP will drive more change in the $75 billion dollar TV advertising business than anything else in the last 60+ years.
I firmly believe that video is the best way for brands to engage their audience. With the convergence of internet and TV, programmatic buying platforms, marketing cloud solutions that create deep consumer profiles and branded content as a pillar of a solid marketing plan I think it is time to re-think how we look at video ad units and consider everything branded content to sell your story. Each of these units has a place in the consumer’s journey and some make more sense for a brand depending on what you are selling and how considered the purchase is. Free organic reach is quickly going away so thinking about your content creative in the context of everything as a paid ad makes more and more sense. Here are the definitions I am going to start to use:
- Less than 1 minute – Short Form
- old definition “TV ad or pre-roll video unit”
- 1 – 25 minutes – Long Form
- old definition “branded video”
- 25 minutes+ – Programming
- old definition “infomercials”
In the context of a campaign you might buy short form to generate awareness to drive the consumer to long form to complete the path to purchase. If you think of this as one big story across multiple media platforms creative consistency across all of the touch points becomes even more essential for the story to make sense.
iPhone 6 orders are forecast to be the most in demand product in the 38 year history of the brand. Just last year analysts and journalists were bemoaning the death of the brand with the passing of Steve Jobs. What they didn’t account for was the culture he created and the empowerment he entrusted with Tim Cook to make the brand his own. When a real sense of mortality and reality set in with Jobs he seemingly spent a lot more of his genius focused on creating not just a new iPhone but a company culture inspired by his values of the intersection of art, technological innovation and emotive marketing. If you look at the list of recent hires from Dr. Dre, Jimmy Iovine, Angela Ahrendts, Marc Newson, Ben Shaffer, etc. Tim Cook is creating an unparalleled culture of creativity all built around the values Steve Job espoused and created the most interesting company training program in the world. In any business your most valuable asset is the team of people who work there, I think Tim Cook’s roster of talent may exceed the current market capitalization that is already the most valuable in the world.
Has any sports league imploded faster than the NFL over the last week? The Ray Rice video and the Adrian Peterson child abuse charges certainly seem like the tipping point in negative public sentiment against a league that has been bullet proof as a money minting machine. The big question is when will people stop watching? As a father of three daughters I find the whole week disturbingly repulsive and will skip football this Sunday for the first time in thirty or so years. I think that is the only way the owners will come to their senses and make a change at the top by firing Roger Goodell, unless they are unexpectedly influenced by Bill Simmon’s mailbag column. The only thing these guys understand is money and with the unforgettable video and graphic images of abuse how can the league ever recover?
Vice now has $500 million to build the next iteration of their business. It will be interesting to see where they go beyond expanding their footprint by covering different subjects and opening up new audience targets. Their core business is selling ads around video and delivering branded content targeting under 40 year old males, which is a valuable demographic (just look at NFL TV rights), how does this model scale beyond their current $2.5 billion valuation? From the previous investment by A&E and failed negotiations with Turner it was rumored they want to run a cable TV channel. My question is why? The shift towards on demand programming is moving at a rapid pace and the revenue model where cable providers pay high carriage fees is on the way out. There is also the high cost of creating enough TV quality content to fill a network schedule, their margins would unquestionably suffer. As eyeballs shift towards mobile devices (especially phones) it would make sense for them to focus on what has been delivering staggering growth at high margins in the near term. Regardless of how they move forward it will be one of the most interesting things to watch in the media and advertising space.
This Wall Street Journal article really got me thinking about whether there is a ceiling on all things sports related in the US market target both men and women. TV ratings continue to climb in the NFL, NCAA football, EPL soccer and the NBA in the face of double digit ratings declines for traditional TV programming. Next season Kevin Durant will earn more from Nike than he does playing for the Thunder. What will the ceiling be on all things sports related? Are yoga pants now considered business casual? How much will LeBron James demand if he hits the open market on his next Nike deal?