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Digital Drivers: The Race for Consumers

24 Apr, 2017 By: Stephanie Prange, Erik Gruenwedel



Consumers continued their love affair with digital content in 2016, while content owners and digital services — some producing content of their own — vied for their attention.

Digital delivery numbers in 2016 showed subscription streaming continued its explosive growth. Subscription streaming and video-on-demand generated a combined $8.3 billion — a gain of 17.8%, according the DEG: The Digital Entertainment Group. Streaming alone, much of it through OTT leader Netflix, rose 22.6% to $6.23 billion. Meanwhile, digital ownership growth slackened a bit. The sales growth of digital downloads, or electronic sellthrough (EST), which had been in the double digits over the past few years, slowed — with DEG numbers showing overall digital download sales for the year grew 5.42% — dragged down by an anemic 0.26% in the fourth quarter.

Still, the overall digital consumption arrow continued to point up.

“We are now seeing roughly 60% of total consumer spending on digital content in the home entertainment category,” said Amy Jo Smith, president of DEG: The Digital Entertainment Group. “A key driver of this growth for the past year has been the collaborative efforts by the studios and their key retail distribution partners to create new ways for consumers to engage with their favorite content earlier and more deeply than ever.”

In addition to advance digital release before disc — a robust driver of EST growth — the studios began to beef up EST offerings with extra features and virtual reality. They also explored new ways to reach the digital buyer, buoyed by strong growth in the new-release and film segment.

“While SVOD had another year of tremendous growth, consumer enthusiasm for ownership continues to be strong, with EST spending on films up 18% last year,” said Tripp Wood, SVP of digital sales and distribution, domestic, for Paramount Pictures Home Media Distribution. “Key drivers of digital spending include increased consumer comfort with the concept of digital ownership, simplified interfaces, improved access to digital libraries in the cloud, and new digital storefronts like Comcast’s Xfinity, which brought the opportunity to purchase right where people are watching — on the television.  As more cable, satellite and telco providers expand their services to offer EST, we see the potential for additional significant growth.”

Studios also turned their focus to extra digital content for EST releases, among other enticements.

“SPHE is constantly striving to improve the consumer experience, and make owning and collecting movies and TV a more compelling proposition,” said Jason Spivak, EVP of worldwide digital distribution and North American sales for Sony Pictures Home Entertainment. “In this multi-platform era, that means innovating across physical and digital products, from new digital distribution models, to Ultra HD Discs, to immersive virtual reality experiences.”

“The market continues to grow, but continued investment and innovation in the consumer experience remains critical to the long-term health of the business,” said Michael Bonner, EVP of digital distribution for Universal Pictures Home Entertainment.

“At Paramount we’re constantly exploring ways to drive digital ownership through new avenues such as Extra Content Pages with Comcast’s Xfinity, My Offers with Vudu, and Prime Member discounts on Amazon,” added Paramount’s Wood. “We also maximize consumer excitement surrounding new theatrical releases by offering preorder discounts on Vudu and SuperTickets with Cineplex in Canada, as well as ‘Catch Up Weekends’ on FandangoNow.”

Fresh off the acquisition of Starz, Lionsgate executives look forward to exploiting a deep library that they say comprises a 12% home entertainment market share.

“We bring to our digital consumers a growing portfolio of content driven by a dynamic slate of star-driven event films, a 16,000-title film and TV library, one of the largest independent television businesses in the world and a deep roster of Starz programming,” said Jim Packer, president of worldwide television and digital distribution for Lionsgate.  “This wealth of content gives us the opportunity to expand our global footprint and allows us to get creative with our digital distribution strategies.”

Mike Takac, EVP of sales for Warner Bros. Home Entertainment, is optimistic about the digital future, assured that the studio’s strategy will bear fruit.

“I really feel like 2016 was a game changer for our digital initiatives,” he said. “All the pieces are coming together and we are on the precipice of technological change that will enable full utilization of our vast range of content and Warner Bros. is excited to work with our partners to realize the potential.”

“Industry leadership is now defined through innovation and a heightened focus on the intersection of content and digital distribution," said Mike Dunn, president of product strategy and consumer business development, 20th Century Fox. "The possibilities and opportunities for accessing and enjoying entertainment are ever-evolving, providing unlimited new methods to reach consumers from traditional cable to 4K Ultra HD, VR and more.” 

On the digital services side, subscription leaders Netflix, Amazon Prime Video and Hulu continued to nurture the SVOD business model. Among the milestones:

• Netflix CEO Reed Hastings said the subscription streaming video pioneer would surpass 100 million global streaming subscribers in April, an impressive milestone considering Netflix totaled just 22 million streaming subs five years ago.

• The NFL earlier this month announced a $50 million, one-year deal with Amazon to stream 10 Thursday night games exclusive for its Prime Video subscribers, making it the second SVOD service (after CBS All Access) to acquire rights to a U.S. professional sports league.

• Hulu announced a licensing agreement giving it exclusive pay-one window streaming rights to movies released by Annapurna Pictures, the production company behind critically-acclaimed films Zero Dark Thirty, American Hustle, Her, The Master and Sausage Party.

SVOD subscribers collectively dwarf linear pay-TV, with Netflix and Amazon Prime Video now worldwide operations.
“We see that the Internet is just a phenomenal opportunity,” Hastings said on a April 17 fiscal webcast. “We definitely see a big opportunity around the world to just continue to do what we've been doing, which is make fantastic content, get people really excited about that content, and then we're just continuing to grow."

With a global footprint, Netflix, Amazon and Hulu are spending big on content, standing alongside major studios during the annual awards season.

Netflix is expected to spend $6 billion this year creating about 1,000 hours of original content, according to Boston Consulting Group and SNL Kagan. Amazon reportedly spent $3.2 billion on content in 2016. The e-commerce behemoth doesn’t disclose actual figures, but did say it plans to double content spending this year, including tripling spending on original fare in the second half of the year. Indeed, when Prime Video went global last December, it did so on the back of a reported $200 million, three-year investment in “The Grand Tour,” a reboot of BBC’s popular “Top Gear” motoring show. Speaking at MIPTV 2017 in Cannes, France, Roy Price, head of content at Amazon Studios, said Prime added 20 million members in 2016 — the membership service’s largest annual growth, saying original content was a key driver.

“In the SVOD business, the thing that is going to make the most difference is a show people are talking about,” Price said.

Hulu, which boasts more than 15 million subscribers, benefits from deep-pocketed corporate parents (Disney, Fox, Comcast, Time Warner) willing to spend on content, including original series. Last year, Hulu secured access to more than 2,000 movies through Epix after the latter didn’t renew a license agreement with Netflix.

In May, Hulu will swing for the fences, bowing a $40 monthly online TV service to compete against Sling TV, DirecTV Now, YouTube TV and PlayStation Vue. It recently licensed rights to six pay-TV channels from A+E Networks, while reportedly declining channels from Viacom. The move comes as pay-TV networks scramble to find seats on the burgeoning online TV bandwagon launched two years ago by Sling TV.
Digital services are forging new markets for content owners and distributors.

"The digital landscape continues to be very dynamic creating new opportunities to make content available including the launch of skinny bundles and niche SVOD channels while also creating more upstream competition for new content,” said Andrea Downing, co-president of PBS Distribution, adding the content owner is constantly “exploring innovative new strategies to expand licensing of our content.”
 


Disney/ABC Home Entertainment and Television Distribution

Paramount Pictures

Sony Pictures

20th Century Fox

Universal

Warner Bros.

Lionsgate

Independents

Retail/Technology/Other


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