1. The definition of scarcity is continuously evolving away from linear and towards walled gardens.

Scarcity is the linear distribution model’s historical moat — the linear model enabled multichannel video programming distributors (MVPDs) to aggregate millions of households locally, regionally and later nationally.

As I wrote last year, scarcity as a value proposition poses a problem for investors and advertisers in 2023: “the technological, operational and financial structures required to create scarcity don’t seem to have an obvious business logic to them.  And therefore, it’s no longer clear what the role of a gatekeeper is in media outside of Amazon’s and YouTube’s business models.” 

Newfronts and Upfronts will take place in May with the backdrop of broadcast and linear viewership declining. But Upfronts are projected to be normal year-over-year, while the scatter market — where advertisers can buy TV inventory in real-time — is projected to remain soft. In this context, it is worth remembering Procter & Gamble telling investors last year that it is “actively shifting” its spending away from linear non-targeted TV into programmatic and digital spend. That should point to a boost in CTV spend instead of linear, and ad spend is projected to grow between 10% and 27% in 2023. 

To counter these trends, legacy media companies are increasingly packaging video-based ad inventory across multiple channels and platforms. There remains the open question of whether CTV revenues will make up for lost traditional TV advertising revenue, which is projected to decline by 4.4% in 2023. 

There is also a “misalignment” in the streaming marketplace leading up to upfronts. That misalignment is summed up by the interplay of three forces:

1. Linear networks continue to sell linear inventory while lacking sophisticated ad targeting solutions;
2. Tech companies are increasingly disrupting both the linear distribution model and the market definition of “premium content”. and
3. Major marketers like P&G are shifting spending away from Upfronts into real-time and programmatic.

The first and second forces are pulling away from each other, and the third force — ad spend — seems to be accelerating the rate at which tech companies are succeeding at the expense of linear companies. Notably, both tech and linear companies are walled gardens, making it harder for the marketplace to deliver solutions across both tech and linear ad inventories.

2. Media companies have millions of consumer credit cards on file. What are they building for their customers?

I wrote two essays (in February and again in March) answering the question, “Why Don’t We See More Crunchyrolls?” Both essays were built upon the same observation: because media companies have millions of credit cards on file, they should be able to figure out additional direct to consumer models. So why is that not happening? Why aren’t there more companies imitating Sony, which has put together the pieces of an anime “flywheel” around streaming service Crunchyroll through mergers and acquisitions and turned it into a growth machine?

Returning Disney CEO Robert Iger has seemingly dismissed that flywheel approach — an incentives-driven model across the Disney ecosystem and built upon Disney+ by his successor and predecessor Bob Chapek, or “Disney Prime” — as “marketing”. But if one subscribes to the Crunchyroll model, Chapek was building the foundation of a business model much more robust than “marketing”. At the same time, Iger has openly stated that the value of Owned IP to a legacy media streaming business is greater than the value of Licensed IP. That would imply that Disney’s value proposition in streaming is more niche, and therefore any flywheels that hyper-serve that fandom are better than a model that aims to entertain everyone. 

WWE CEO Nick Khan flipped the script on this point last week, as I wrote in Monday’s essay. He highlighted the “stickiness” of WWE on Peacock, and that it has been “significantly helpful” for WWE viewers that Peacock also offers the Spanish language World Cup rights, Yellowstone licensed from Paramount, and English Premier League (EPL) matches. In short, Khan’s pitch is that WWE was a better “glue” for tying together NBCU’s most expensive investments ($22.5 billion in content spend overall, $3 billion on Peacock) in streaming than NBCU’s content strategy and tactics for Peacock.

This pitch flipped any perception that NBCUniversal may be subsidizing the WWE. Instead, WWE content seems necessary for the Peacock ecosystem to work the way NBCUniversal intends it to. This reads like a sales pitch, but data from last weekend’s Wrestlemania 39 backs him up: NBCUniversal said the event delivered Peacock’s “highest weekend usage ever and generated the most hours watched of any live event on Peacock with the exception of the Super Bowl, according to NBCUniversal.” WWE seems to believe it will be able to extract better dollars from NBCUniversal when its linear TV rights deal with NBCUniversal expires next year and its streaming deal with NBCUniversal’s Peacock expires in 2026. Its recently announced merger with Endeavor and the UFC seems to be a play for better leverage in these negotiations.  

At the same time, Khan is reinforcing Iger’s point: it is more important for streamers to fund content that matches to the affinities of the most passionate and engaged consumers than to invest in “general entertainment”.

3. “Premium content” is being redefined by creators, tech companies and 10 million emerging advertisers

I asked in December’s opinion column:

“Who is the “someone else” with the next exciting, premium-quality story to tell at extraordinary scale? The math of blockbuster hits (1%) tells us there should be as many as 20,000 creators in MrBeast’s league. But it’s not clear there are even 2,000.” 

I could continue to ask this question in Q2, but a recent letter to creators from new YouTube CEO Neal Mohan changed my mind. First, it still seems difficult to name 2,000 creators who could be considered to be in the same league as Jimmy Donaldson aka MrBeast. YouTube’s blog frequently highlights creators who have recently reached 1 million subscribers, but it’s not clear whether those creators are closer to MrBeast (141 million subscribers) or closer to the bottom half of the 2 million creators YouTube funds in its Partner Program. 

Second, Mohan’s letter focused on how “YouTube offers the biggest creative canvas of any platform” and is expanding the number of formats it serves: Shorts, podcasts, and PrimeTime Channels. It also noted, “TV was our fastest growing screen last year, and we’re seeing growth and momentum internationally.” YouTube reaches 135 million monthly connected TV users in the U.S. and has begun to dominate Nielsen’s The Gauge, a measure of total TV and streaming consumption in the U.S. per month. 

Third, users are also consuming creator content on Meta’s Facebook and Instagram, and Snapchat and TikTok, suggesting tech companies offer more content that both users and advertisers are increasingly comfortable considering as premium content. As Brian Wieser, former Global President of Business Intelligence for GroupM, recently wrote in an essay on upfronts and reach: “YouTube, properties from Meta and TikTok (at least for now) provide video-based ad inventory that, with the right assumptions, can help a marketer satisfy reach and frequency-based goals, albeit with a wide range of quality of video-based content.” 

Last, Robert Iger’s distinction between “undifferentiated” general entertainment and Disney’s core franchises and brands also plays into the picture here. I argued that point was ultimately a challenge to Disney management to recognize the threat of free ad-supported TV services (FASTs): “Why are we spending billions to compete with and lose share to free services with a similar value proposition?” 

Meaning, what the linear ad market has treated as premium content is increasingly found on FASTs — Roku is now distributing HBO titles “Westworld,” “The Nevers” and “Raised by Wolves” and other Warner Bros. Discovery content on 14 new free, ad-supported channels. Tubi and Pluto TV are now showing up in the most-consumed streaming services on The Gauge. “Premium content” is being redefined by creators and tech companies before our eyes.

As for the 10 million emerging advertisers, I am referring to “The 200 vs. The 10 Million”, or the emerging dynamic in advertising of competing demand for CTV inventory between the 200 “retail-cartel” advertisers supplying 88% of U.S. network television revenue (the term “retail-cartel” applies to the brick-and-mortar retailers who have historically bought from networks), and many of the 10MM or so advertisers who buy from Google and Facebook. The more “premium content” inventory becomes programmatic, the more those 10MM or so advertisers will be impacting this debate on “premium content.”