Last week, actress Scarlett Johansson initiated a lawsuit against Disney over Black Widow's release, after the studio streamed the film on Disney+ at the same time as releasing it at cinemas.
Johansson argues she lost out financially because her pay was linked to cinema box-office takings, but Disney maintains it complied with her contract and didn't have to stick to a theatrical “window” during which the film was only shown at cinemas.
However it is resolved, the lawsuit is unlikely to change the direction of an industry that is already permanently positioning itself for a future centred around streaming services, which involves more of a direct-to-consumer focus, which is more global in nature and which ultimately changes the role of television for advertisers as they have historically known it.
How the film profit “pie” is divided might change, but this may be moot as consumers are increasingly buying dessert buffets
Historically, Hollywood studios, talent, agents and other makers of movies represented the artistic, political and financial power base of the global video-based media industry, which in turn was historically critical to the global advertising industry for large brands.
Over the past couple of decades that power began to erode as pay TV, or cable networks became the primary driver of revenue and profit growth for studios’ parent companies.
And then in recent years prior to the pandemic, the studio business was further subsumed as most of the largest US-based global media conglomerates effectively made their owned and operated streaming services the centrepieces of their corporate strategies.
This was arguably occurring at the expense of other participants in the industry’s ecosystem, including theatre owners, traditional pay TV distributors, and even talent.
Actors, actresses, directors, agents and others may get paid just as well as in the past, but probably lose negotiating leverage when “success” becomes less transparent: only the owner of a streaming service will know exactly how much viewing went to a given piece of content, for the most part, and only they have all of the data to know how much a given content asset contributed to a streaming service’s reduction in churn.
This episode between Johansson and Disney could be viewed as part of a push-back against these trends, but even if she were to secure a meaningful financial and/or legal victory, would it change the direction of travel for Disney or the industry? Almost certainly not.
Changes impacting the industry over next several years took root well before the pandemic
An issue that has been missing in the entertainment industry’s hopes for a resumption of normalcy in cinema-going is that the type of content that US-based studios were “greenlighting” for theatrical release pre-pandemic were films with massive budgets and even bigger expectations for box office returns.
The financial models supporting those films pre-supposed certain levels of revenues from subsequent “windows” of rights (pay per view, premium TV, electronic sell-through, physical DVD sales, basic cable, broadcast, etc.), which are increasingly uncertain and difficult to quantify, especially if rights are intended to stay with a studio’s sibling streaming service in perpetuity.
By contrast, there were fewer and fewer films released with modest budgets and modest expectations. Arguably, that content has been “replaced” in the ecosystem with expensive episodic TV series which mostly run on streaming services.
Integrated company content production and distribution strategies cause more content to go directly to streaming services
This has occurred as media companies increasingly manage their studio businesses in a holistic manner, producing content for all distribution outlets, whether a theatre, a traditional TV network or their owned and operated streaming service.
In the present environment, if a studio has a choice between spending $1bn (£720m) on four $250m films intended to premier through a theatrical release, or to pay for 20 prestige series with individual $50m budgets, which choice will best drive the parent company’s goals? The answer isn’t always going to be the same for every piece of intellectual property, but increasingly resources will be prioritised towards the latter choice.
The theoretical profitability of a content asset developed internally and distributed internally might be more favourable than one which involves a wider range of economic participants, but that’s not the only reason for today’s preferences.
A bigger factor is that investors are far more likely to reward the parent company of a streaming service and studio more favourably when they generate a dollar of revenue at the streaming service than when they generate that dollar from traditional sources.
In part this is because streaming revenues are perceived by investors as recurring and predictable while other revenues are perceived as one-off and unpredictable.
Moreover, for many companies the analyst community focuses on subscriber numbers independent of the revenue those subscribers provide and rewards growth in those numbers even more aggressively than it will revenues, at least at the present time.
Put differently, studios will continue to make blockbuster releases for theatres in the future, but fewer of them will be made. While there may yet be some renegotiations of fees studios pay to ensure they have the rights to distribute theatrical films on their streaming services, in the end those renegotiations won’t make much of a difference to the direction of travel for the industry.
Stronger streaming services = less TV consumption of ad-supported content, impacting the role of TV as advertisers historically knew it
As media companies increase their investments in content for ad-free or ad-light streaming services, they are not only doing so at the expense of theatrically focused films. They are also restricting their investments in content that would have debuted on traditional ad-supported TV networks for many of the same reasons they are constraining investments in traditional theatrical properties.
Combined, these trends reduce the volume of time most consumers will spend exposed to advertising, negatively affecting the capacity of television to cost-effectively provide marketers with the reach and frequency-based media goals they have historically relied on television to provide.
Marketers have opportunities to capitalise on the changes that will occur, whether they want it to happen or not
As a consequence, marketers will increasingly need to change how they decide between finding new ways to make do with less ad-supported television inventory – producing their own content, finding new clever ways to optimise spending to maximise reach through addressable inventory, for example – or look at brand building in different ways.
They may be better off combining budgets related to investments in television with investments in culture through music, sports, events and creative messaging. Alternatively, they may prefer to look at video in a different way, for example by increasingly managing budgets for YouTube and other UGC-based content directly alongside their traditional TV budgets, rather than siloing them, as is common today.
There is an upside to all of these changes that’s worth noting as well. As the global media conglomerates increasingly establish their positions in markets around the world and provide some form of advertising or marketing solutions in each of them, marketers may be better able to establish global best practices to make the most of this new world.
Further, their relationships may become increasingly global rather than established on a country-by-country basis, which could favour global marketers or those marketers which organise their businesses globally.
Put together, the industry is changing for advertisers, just as it is for Hollywood and its talent. To make the most of it, marketers should not fixate too much on the short-term disruptions that are occurring at the present time.
Instead, they have the opportunity to build new strategies which are organised around an industry which becomes more global, more centred around new platforms and requires new definitions of what it takes to be holistic.
Brian Wieser is global president of business intelligence at Group M