APOS 2020 Virtual Series Recap

Part one of the APOS 2020 Virtual Series included insights from ViacomCBS’s Bob Bakish, Raine’s Joe Ravitch, Disney’s Uday Shankar, Discovery’s JB Perrette, VICE’s Nancy Dubuc, Nine’s Hugh Marks, iQiyi’s Yang Xianghua and Viu’s Janice Lee, among many others.

Initially slated to take place in Bali in April, APOS 2020 opted to go online for this year’s edition with two virtual series, one last week and the other set to be held in September. The annual gathering has become known for its high caliber of speakers and this year was no exception, with senior execs from local, regional and global companies convening to discuss the challenges and future catalysts for growth and investment in the media business.

The Virtual Series opened with a detailed presentation by Vivek Couto, executive director of Media Partners Asia (MPA), the organizer of APOS, outlining the key trends at play in the AsiaPac video business. Video industry revenues region-wide will drop by 3 percent this year amid the pandemic, with online subscriptions partially offsetting the “significant declines in advertising and a relatively flat overall subscription pie.”

The gap continues to close between TV and online video advertising: five years ago it was almost $50 billion; this will narrow to $30 billion this year and then $15 billion in 2025. The overall ad pie will lose $8 billion in value this year, Couto said, with TV down 16 percent to $42 billion and no significant recovery in sight: “By 2025, due to various structural factors, the APAC [TV] advertising pie is only expected to reach $41 billion,” Couto noted.

On the SVOD front, MPA indicates that just under 90 million net new customers will be paying for online services by the end of the calendar year in the Asia Pacific. In 2021, net new additions to SVOD platforms will slow to 76 million “but there is still significant growth,” Couto said. Dynamics will also change as Disney+ arrives in key markets across Southeast Asia and iQiyi and Tencent’s WeTV expand outside of China. To expand their reach, platforms are making “aggressive investments” in local content, Couto said. OTTs are expected to invest $700 million in 2020, scaling up to $1.1 billion in 2022.

“The future of TV across Asia is online,” Couto said, “but global brands overly reliant on export rather than immersing themselves in local content ecosystems risk capping their upside in some of the key markets in this region from India through to Japan and Korea and taking in Indonesia, Thailand and other markets as well.”

Opening day also included an in-depth Q&A with Bob Bakish, ViacomCBS’s president and CEO, outlining the company’s streaming strategy. “OTT streaming is an incredible growth and value creation opportunity for ViacomCBS,” he said. The company’s streaming strategy is built around Pluto TV in free, with the service expanding beyond the U.S. into Europe and LatAm; and CBS All Access in SVOD, which is being transformed into a “broad, super service, through the addition of content from the Viacom flagship brands, Paramount and Smithsonian.” These are rounded out by Showtime OTT, Noggin and BET+ in the SVOD space.

Bakish stressed that ViacomCBS also remains a key supplier to third-party platforms, “so we do have to make decisions about what we license, really rent, to someone for a period versus keeping it for our own properties. We look at it strategically, financially and through the filter of partnerships. Strategically we look at a piece of IP and say, How can that piece of IP drive value creation and subscriber growth for our own ecosystem?” The SpongeBob Movie: Sponge on the Run, for example, “will be a subscriber acquisition vehicle” for CBS All Access. For other properties, a licensing deal may be more beneficial. “The third party might drive broader awareness.”

He added, “We will not license critical mass of any of our key programming areas—kids, preschool, procedurals, unscripted—to any single player. We will selectively license, but we won’t allow any player to have a critical mass of our areas of strength.”

Day one also saw Joe Ravitch, co-founder and partner at The Raine Group, discussing the state of the global media and tech businesses. COVID-19, Ravitch said, hasn’t so much changed the media business as it has accelerated preexisting trends. The impact on theatrical windows is a key example, with studios now delivering more digital premieres with cinemas shuttered due to the pandemic. “The protection that cinemas had with a theatrical window I think is gone and will never be reclaimed” now that consumers are becoming accustomed to watching new releases at home.

Addressing the pay-TV business in general, Ravitch said, “The cable TV companies in the U.S. make a better margin on a broadband-only subscriber than they do on a bundled subscriber. So many of the U.S. cable companies are not that unhappy with video cord-cutting. The people who will suffer are going to be some of the pay-TV channel providers that depended on being in a big basic package and generating substantial affiliate fees. They’re the ones most at risk as we transition a mass audience to a streaming world.”

Day two kicked off with Uday Shankar, president of The Walt Disney Company APAC & chairman of Star & Disney India, discussing the early success of Disney+ Hotstar and weighing in on the impact of COVID-19 on the media business. “There are two or three areas of opportunity,” Shankar said. “The dependence in India and other parts of the world on ad sales was very high. People will have to think of different business models to make money.”

An even greater opportunity lies in the approach to content creation itself, Shankar said. “Investment of cash has become a substitute for creativity in general. There’s so much money that’s been going into creating content. That makes the breakeven cost of a business so high that the market cannot sustain it. This is an opportunity for everyone to revisit the cost model. The use of technology has been brought front and center. How do we use this technology, not just as an input, but to reinvent our business model, our broader approach to product and creativity, keeping new technology at the center?”

Asked about what success means for Disney in the streaming space in AsiaPac, Shankar responded, “We are very clear that in this part of the world, a price-sensitive part of the world, the biggest metric of success is how many subscribers can you get. The Walt Disney Company’s digital initiatives in this part of the world, between Hotstar and Disney+, are off to a great start.

“I think we are well-positioned for The Walt Disney Company to create a completely different level of digital ecosystem. The only benchmark is, can Disney+ Hotstar compete with our television channels in terms of their reach, delivery and consumption? I think eventually if streaming has to become really mainstream and has to serve the local population at scale and has to become sustainable in business terms, that’s the only metric everyone will have to follow. Can it become a real alternative to pay TV and broadcasting?”

Next up, JB Perrette, president and CEO of Discovery Networks International, discussed the company’s strategy for its digital and traditional linear assets. Audience share has grown amid COVID-19, Perrette said, but ad sales have taken a hit. “We are seeing it come back, not yet to 2019 levels but the third quarter is looking better.”

The distribution business has been relatively stable, “but we’re seeing some volatility in subscriber churn.” The DTC products, meanwhile, “have seen a great surge,” Perrette said.

While streaming is growing, “there’s also a sizable portion of people still watching linear television.” Germany, for example, “is still a highly traditional linear-channel-watching business.” In that market, Discovery operates a JV with ProSiebenSat.1 for Joyn. “Over 50 percent of the streaming in terms of minutes watched is on linear feeds.”

“We continue to see opportunities to invest, at the right price, in linear channels businesses, because we think that distribution is still worth something to a customer segment that is still meaningful. Albeit over time it will continue to shrink. We acknowledge that.”

Another core strategy for Discovery is local IP, Perrette said. “In every local market there are going to be one or two strong local champions. We want to be one of them.”

Traditional pay TV is in structural decline, he continued, but Discovery continues to see opportunities to partner with its long-term distribution partners, such as Sky. The long-term deal with Sky is a “blueprint for how successful distributor-programmer relationships need to evolve. We said, let’s do a long-term deal on our traditional linear package and secure their access to it, secure the economics for us in a healthy way, but at the end of the day also start pivoting to this new world and developing a new revenue stream on top of that. A big part of the conversation with them was leaning into these new DTC products. Instead of the traditional wholesale model of, you pay me a flat fee, you take all the content and pay me per sub, moving to more of a retail model, where ultimately they help us resell our DTC products and take a piece as part of a rev share.”

On DTC, Perrette said, “There are a lot of people trying to out-Netflix Netflix. While they’ve done an amazing job, that business from an economic standpoint is still, on a cash-flow basis, pretty unappealing. Their valuation is very appealing, so people have been chasing that model. I think there’s going to be a fair amount of carnage. The amount of money being spent to chase that model in the scripted space is eye-watering. We’ve said, that’s not our DNA, we’re not a scripted company. So let’s not chase that.”

There are three tiers to the DTC international strategy at Discovery. In markets where the company has considerable scale, such as Europe, the company is looking at partnerships to develop streaming businesses in key markets that can be champions of local IP, such as Joyn in Germany, delivering a broad mix of content. The second tier is a strong factual streaming product that will serve as a complement to the likes of Netflix and Amazon, rather than a competitor. The third tier is “view-and-do experiences, which are less driven by video entertainment and more by functional usage.” This includes the Food Network Kitchen app in the U.S.

In her keynote session, VICE Media’s CEO, Nancy Dubuc, discussed the global reach of the company and the strength of its diversified portfolio, including its VICE Studios and Pulse Films businesses. VICE’s five different businesses—news, TV, digital publishing, the creative agency and the studios—“all have a different profile during this crisis. We’re very fortunate to be about 30 percent ad-supported and the rest is other income. That does insulate us a bit from what’s going on.”

Investing in content creation via VICE Studios and Pulse Films has been a key initiative for the company, with successes like Gangs of London on Sky. Pulse also has series in production or development with Netflix and Amazon globally. “There’s a huge appetite for quality content. While we may have had our challenges over the years at VICE, with operational issues or other cultural issues, one area we have been steadfast in is the quality content we create, regardless of the situation we’re faced with. Being able to tell great stories consistently, with the lens we have and the quality of storytelling we have, is one of our superpowers.”

Hugh Marks, CEO of Nine Entertainment, spoke about the gains the company has seen in its BVOD and SVOD businesses in Australia. “We’ve seen consumption grow through COVID across pretty much all of our platforms,” Marks said.

On transitioning from a legacy broadcaster to a multiplatform environment, Marks noted, “We’re increasingly looking at our television business as one business. You’re acquiring or creating content, distributing that to an audience, and you’re shifting your behavior to those platforms as audience behavior changes. We’ve seen over the last five years a decline in linear viewing, but we’ve seen some reasonably strong growth in the BVOD space and the SVOD space. Despite the rise of Netflix and other players in the market, Nine’s share of viewing across those platforms has stayed the same if not grown. [You have to] manage the cost base of that change; so we’re dropping costs in linear while cost is coming in to BVOD and SVOD. If you can match the two, if not do a bit better than that, and you can grow audience, you can grow profitability across the whole business. That’s the way people have to look at these things now. So you’re protecting profitability in your legacy assets and growing revenue and profitability in the growth assets. If you can manage that that transition, all you’re doing is responding to audience behavior over time.”

On the SVOD front, Stan’s growth trajectory has continued despite the arrival of new players such as Disney+ and Foxtel’s Binge, with coronavirus stay-at-home measures providing a significant boost. “Will there be a leveling off of those growth rates, post-COVID? Or is it an acceleration of the trend to on-demand viewing and those businesses have taken a step change through COVID? My view is the latter. I think what’s happening is a growth in SVOD subscriptions per household, and I suspect that’s a permanent shift.”

The last day of the APOS 2020 Virtual Series included two major Asian OTT platforms taking center stage: iQiyi and Viu.

Yang Xianghua, the president of the membership and overseas business group at Chinese video streaming giant iQiyi, discussed the platform’s international aspirations. “We have operations in most of the Southeast Asian area, such as Singapore, Indonesia, Malaysia, Thailand and the Philippines. We have limited operations in North America, Australia and Europe. In the coming months, we will open our service in Korea, Japan and other territories like the Middle East.”

As for the content strategy outside of China, Yang said, “We will be a video platform focused on Asian content, not just Chinese content. It might take a few years to establish the relationship with local content providers. We respect artists and creative production companies. Our role is to let them do what they are best at. We are here to support and help with that. In the past decade, we have established great relationships with Chinese artists, and moving forward we are trying to build our own production team in Korea, in Japan, and hope to cooperate with artists closely all around the world.”

Viu has a footprint that covers 16 markets across AsiaPac and the Middle East and like iQiyi has found success with a dual AVOD and SVOD model. Janice Lee, CEO of Viu and managing director of the PCCW Media Group, noted that the company has been “firing up our subscription engine more,” since last year, putting more content behind a paywall; a move that has been beneficial following the impact of COVID-19 on the ad market.

“During the first half of the year, we’ve all seen tremendous usage growth. But none of us are immune to the impact of COVID. Usage shot through the roof but the advertisers’ reaction was to defer some of their spending. The fact that we beefed up our subscription offering meant we were able to more than make up for that slowdown in the advertising market. We grew by more than 50 percent in terms of our subscription revenue in the first few months of the year compared with last year.”

In this highly competitive landscape, Lee said Viu is focused on “building high user engagement. It’s not just how many users but how much they use our service. Secondly, it’s building that robust monetization model, because it has to be sustainable. In that first phase of our launch, we were really focused on building scale and a robust monetization engine that is SVOD and AVOD. In this current phase, it’s all about how to realize the assets we’ve built, how to drive the unit economics, how to improve our decision making, which is enabled by the data we’ve gathered. That will help us drive the long-term growth of our business.”