REVEALING INSIGHTS
PARQOR is the handbook every media and technology executive needs to navigate the seismic shifts underway in the media business.
Four Key Themes for Q4 2022
1. Media companies have consumer credit cards on file. What happens next?
CDP is software that combines data from multiple tools to create a single centralized customer database of data from all consumer touch points and interactions with a product or service.
But that may be one step ahead of where media business models are. Legacy media companies with streaming services now face the question from Wall Street: “OK, you have consumers’ credit cards. Can you milk these cash cows?” Meaning, they can monetize them with streaming, what else can these companies get their consumers to pay for?
PARQOR labels this challenge “CDP business logic”. CDP software is arguably the best software and operating model available for media companies to monetize consumers as they pivot towards direct-to-consumer (DTC) business models. But, a Forrester study commissioned by Zeta Global in January 2022 found that only 10% of CDP owners today feel their CDP meets all needs. That number drops to 1% who believe their CDP can address future requirements.
In other words, even if a CDP is the future of media business models in DTC, it’s currently a suboptimal solution and we’re very much in the early days. As Wall Street demands more average revenue per user (ARPU), a CDP is a solution that helps us to understand what media businesses should look like as they pivot to DTC models, and why some are closer to that outcome than others.
2. Linear channels seem doomed. What happens next?
To date, much of the market focus has been on the impact of cord-cutting on legacy media: as these trends continue (down 6.1% overall in Q2, according to Moffett Nathanson), and all prime time ratings drop except for NFL viewing, there is the looming question of when the model stops making sense. Except, “linear TV is still paying the bills. Linear TV revenue, at $86.3 billion, is nearly four times that of streaming ($22.6 billion)”, as analyst Craig Moffett recently told NextTV’s Mike Farrell.
In the meantime, Peak TV production continues – last December 2021, Ampere Analysis projected total global content investment will exceed $230 billion, and Morgan Stanley forecast that the top spending Hollywood giants — Disney, Comcast, Warner Bros. Discovery, Amazon, Netflix, Paramount, Fox, Apple, Lionsgate and AMC Networks — would collectively spend north of $140 billion across entertainment and sports content in 2022.
The question is, what happens when Peak TV production hits a wall because of cord-cutting. Or, as an executive told me, the question is when an AMC Networks or a Paramount network disappears due to lack of demand, how will the post-production marketplace adapt to the sudden drop in productions?
That question, on its own, is interesting. But then there are three additional levels to it.
- As gaming production ramps up for larger audiences, those resources will compete for visual effects editors schooled in Unreal Engine.
- Artificial intelligence is beginning to disrupt what we understand to be a produced video; and,
- The NFL and sports betting will keep linear alive
What makes all of these dynamics fascinating is that they’re all playing out *now*.
3. There is no such thing as a CTV household, what happens next?
Back in August, PARQOR framed this question as “How do we think about the future of TV advertising when the TV is no longer the center of the living room, but eMarketer and Nielsen are telling us it is?”
There are two obvious answers:
- One answer is the service with the most scale and the best first-party data will win. That may be YouTube with 135MM CTV users, or the smart TV operating systems with the most penetration (Amazon, Comcast, Roku or Samsung); or,
- The other answer is that the future of TV in the home trends towards fragmentation and finding audiences across devices beyond the TV because Connected TV advertising is such a mess.
A third results from the ad marketplace increasingly being shaped by Apple’s Anti-Tracking Transparency (ATT) initiative, which has killed the value of third-party cookies and boosted the value of first-party data.
So, there is an emerging tension between the narrative around CTV solving for the “attribution gap”, CTV not always solving for that, and the problems emerging from ATT. The answer lies in other devices in the living room, but there is no consensus yet as to the most optimal means of reaching consumers in a post-ATT world.
4. Hollywood’s future lies in the creator economy, what happens next?
Again, YouTube and now YouTube Shorts reaches 135MM Connected TV users. TikTok has over 1B users worldwide, and 136.5MM users in the U.S. So they have achieved enormous scale.
They also create a difficult challenge for YouTube: creators like Jimmy Donaldson aka MrBeasat and YouTube’s Partner Program are actively flipping and evolving the definition of premium content, as are TikTok creators.
A paradox has emerged for legacy media and Hollywood especially, “The Netflix Paradox”, “’The Office’ Paradox” or “The YouTube Paradox”:
- Streaming services have invested billions into exclusive IP libraries at a time where the value of IP is fragmenting across platforms;
- The best business models for monetizing this IP should be PARQOR Hypothesis businesses because they centralize the value of IP and monetize it in multiple ways; but,
- Without a centralized model for the IP, the YouTube ecosystem and algorithm may be more valuable to building fan bases for IP than the exclusivity of a “walled garden”.
Moreover, PARQOR has highlighted how YouTube creators like CocoMelon are finding success on Netflix, and creators like MrBeast are beginning to see opportunities for hit-making on Netflix.
