Changing Directions

As the content business undergoes a dramatic reset, leading IP owners weigh in on charting a course through the disruption.

Executives in the media business are no strangers to having to face disruption, but the perfect storm that the industry has found itself in has left an overarching sense that the sky might be falling. The pandemic-spurred demand for content has burst, consumers are tired of spending way too much money on streaming services, the economic malaise has hit the ad sector, AI is terrifying almost everyone, and the impact of the Hollywood strikes is still being felt. But for many distributors, there are reasons to be optimistic that there is light at the end of the tunnel.

“After a challenging 2023 in many territories, distribution remains difficult in 2024 due to slow economic growth, high interest rates and geopol­itical uncertainties as well as an oversupply of programs, combined with a slowdown in demand,” observes Dr. Markus Schäfer, president and CEO of ZDF Studios.

“The distribution business is going through a transitional phase globally,” says Nadav Palti, president and CEO of Dori Media Group. “For a company like ours, it’s very important to be present and active in all phases of the industry triangle—creative, production and distribution. There are good opportunities in distribution, but it’s hard to get good content if you don’t create and produce your own. The triangle maintains its value even when the market is not as strong as the current state of the industry. So, it is imperative that we operate in all three phases, and that’s what we are doing at Dori Media.”

Tony Vassiliadis, executive VP of FOX Entertainment Global (FEG) and COO of MarVista Entertainment, notes, “Content consumption and audience composition are changing at such a pace that the importance of collaboration between buyer and seller couldn’t be more crucial. Essentially, distributors who determine how to best utilize their content to serve buyers’ audience needs will rise to the top.”

Béatrice Nouh, head of sales at Onza Distribution, sees the current landscape as being both filled with opportunity and increasingly complex, stating: “With the multiplication of windows, there is a bigger need for content. The public is now used to different languages throughout the world, so the opportunities are really international, but at the same time, between the frenzy for original content (which is partly resorbing itself now) and the fact that companies like Disney have gone back to licensing content, there may be less space for independent content than a few years back. In general, distribution is not dead at all, but you need to make your space and exist to make your content exist, too.”

Scott Kirkpatrick, executive VP of distribution and co-productions at Nicely Entertainment, refers to the distribution market at present as being “a bit strange,” noting, “For some distributors, business has never been better, yet for others, the market has been relentlessly cruel. The SAG and WGA strikes caused a major standstill for major U.S. broadcasters and studios, which delayed their 2024 strategies; this has had ripple effects not only across the U.S. market but internationally as well. Interest rates remain high, which has disrupted cash flow patterns. Major mergers and acquisitions are taking place among industry giants (and mid-tier companies), and the cord-cutting trend has now officially taken hold in Europe. However, streaming numbers are going through the roof—and the demand for content is there—but the dollars that are required to produce fresh content remain scarce (or at below-market levels). These are all symptoms of a market in transition, which is probably the best word to describe 2024 as a whole. That said, I’m very bullish on AVOD and connected TV. Although I do expect 2024 to continue its rocky path, things will pan out for a very lucrative future for the companies that get their streaming strategies into shape.”

AVOD is certainly proving to be a bright spot for many companies amid SVOD fatigue. “If there is growth in the market, it can be found in AVOD,” says Schäfer.

Vassiliadis is particularly bullish on ad-supported media, an area the company knows well given its position within FOX Entertainment, boasting a broadcast network (FOX) and AVOD streamer (Tubi) as sister companies.

“In the past, we would look at a very traditional approach of an initial off-net sale of successful IP to a lone buyer,” he says. “Now, AVOD is giving distributors multiple opportunities to monetize their content more widely and allowing more audience engagement with it. There’s still a premium on exclusivity for new content. But longer term, we do not believe it’s cannibalistic for our customers to have non-exclusive library content because it allows more viewers to discover and engage with FOX content and get excited about the new exclusive programming we have in store for our buyers and audiences.”

AVOD is playing a greater role for Nicely Entertainment, but the producer and distributor has long been bullish on this sector, Kirkpatrick says. “Nicely has been progressively evolving its overall AVOD strategy, and it’s been a priority for the company since it was founded. When I joined the company, one of my first priorities was to level up our streaming initiatives. We’ve seen major revenue coming in from AVOD, and I only see those numbers growing over the next decade. As a U.S.-based company, we’re well positioned to enjoy North America’s high CPMs coupled with its connected audience base. But we see that trend starting to grow in Europe, LatAm and Asia as well. AVOD outlets are where eyeballs are looking; this is especially telling when every major SVOD outlet has added an ad component to their platforms.”

Dori Media’s Palti says that AVOD revenues are “nice to have,” but they don’t currently play a huge role in the company’s overall operations. “We have a very large library of programming that we sell, but the revenues that we are seeing right now from AVOD are not significant,” he observes.

Similarly, at Onza, Nouh says the company has generally shied away from rev-share licensing models in AVOD “where in the end the distributor delivering materials loses time and money—they take all the risks and have no idea beforehand how worth it it will be. At the same time, there is a trend where some channels are now investing in their FVOD or AVOD platforms to offer content that probably would not be strong enough marketing-wise for TV broadcast, and it gives independent content visibility. So, we sometimes make exceptions when we think the best local option for our content is an AVOD platform. Also, we sometimes license to a client who has both TV and [a digital] platform, and we can include these rights if we feel this is key in the negotiation or that it will be to the benefit of the program.”

FAST channels have become key propositions for many AVOD platforms. How best to work in that space is evolving for distributors.

“FAST channels are fantastic verticals for superfans and can generate very strong revenue if managed well—but that doesn’t mean they’re for every distributor to get behind,” Nicely’s Kirkpatrick says. “The problem is there are so many FAST channels littered across the streaming landscape that platforms must prune their offerings (or enormous amounts of cash must be spent in order to make the channel rise to the surface). We’ve been successful focusing on one title at a time, making the effort to grow each one directly across each platform and not getting into the cycle of acquiring titles just to keep a FAST channel’s cycle rate high. Our library is growing, but it’s growing with films we know are completely on point for us.”

After all the energy around FAST last year, FEG’s Vassiliadis says the sector is undergoing some “growing pains” at the moment. “Like many new entertainment-oriented products in the digital space, awareness and understanding are a slow build, and FAST is no exception. FAST is a viable business. But it’s experiencing understandable growing pains simply because of the sheer volume of platforms that are launching FAST channels. What will assist in the evolution and adoption of FAST will be the simplification of discovery and distinctive brands that stand out and establish crystal clear, easy-to-find lanes of programming that drive consumer engagement.”

At legacy broadcasters, meanwhile, the consensus is that there has been some pressure on licensing fees given the current market conditions and an “oversupply” of content, ZDF Studios’ Schäfer says. “However, good content remains able to achieve adequate and stable license fees.”

Kirkpatrick adds: “License fees have stagnated if you’re lucky, but many are dealing with downgraded license fees. This is even more problematic as the costs associated with production have increased (and companies pay over longer periods, which only compounds interest in a negative direction). All of this erodes profit margins. Nicely’s growth in the digital realm has been an illuminating experience; we’ve seen AVOD numbers exceed traditional license fees (all while allowing our rights to remain non-exclusive to us without holdbacks). This has given us the incredible freedom to explore new opportunities in the digital space, allowing us to finance our new productions without the need for a prebuy necessarily.”

Asked for his take on licensing fees, FEG’s Vassiliadis notes: “Early windows matter more, so having the right IP that a partner can commit to as early as possible is more important than ever. That said, exclusivity on library content is not as important as it was when output deals were the norm. Today’s licensing fees are reflective of distributors providing curated packages of content to platforms, enabling us to best leverage IP where and when it’s most valuable across the ecosystem.”

As for what buyers are looking for, risk mitigation appears to be the clearest answer. “Low-risk content, ideally based on known, proven IP,” ZDF Studios’ Schäfer says.

Dori Media’s Palti reports: “Given the marketplace, many buyers are interested in taking fewer risks and greenlighting series they believe have the best chance at success. To reduce the risks, many are buying finished products or producing remakes of series that have already proven to be successful.”

“Everyone is looking for content that is going to differentiate themselves, and platforms are focused on what audience segments aren’t engaging with their service and opportunities to draw them in,” Vassiliadis adds. “What is unique about FOX Entertainment content is it is broad and commercial in appeal, fundamentally designed for linear, but it also performs extremely well on streaming. We’re constantly thinking about viewer behavior and how we can best help platforms acquire and retain viewers. To do that, a complementary roster of original series and acquired IP will better prepare platforms for long-term growth and success. But, of course, it takes only one ‘noisy’ hit to make an impact with audiences and put a content provider on the map in a more meaningful way.”

Of course, with a sea of content out there, discoverability remains the biggest challenge, and distributors are increasingly finding themselves with a role to play on that front.

“Most distributors have had to pivot slightly, taking on D2C marketing efforts in addition to B2B,” Kirkpatrick says. “Some see this as a burden, but at Nicely, we see so much opportunity in taking on this D2C marketing role. As streaming continues to become the dominant mode of content viewership, we actually get to directly increase watch hours and improve our impression ratios. It’s incredible. I think a solid D2C strategy will be a filter between those companies that flourish over the next five to seven years compared to those that flounder. At Nicely, we’ve been diving headfirst into growing our D2C initiatives and have seen some incredible results thus far.”

Ultimately, Vassiliadis says, it comes down to simply having the best content. “Creative always wins, so, as IP owners, it’s incumbent on us to get our content to the right partners who understand their customers’ needs best. That way, everyone wins.”