Digital Natives

Children in the U.K. spend about two hours online in a typical day, 20 minutes more than they spend in front of a TV set, British media regulator Ofcom reported in a study earlier this year.

Perhaps the most significant finding in the detailed study, which measured viewing habits in that busy children’s broadcasting market, was that while time spent online had stayed the same from the previous year, TV-viewing time fell from about 2 hours to 1 hour and 52 minutes. YouTube is the primary online destination, with about 80 percent of respondents having used the platform. In terms of SVOD, nearly 50 percent of kids and 32 percent of preschoolers watch services such as Netflix, Amazon Prime Video and NOW TV. Will Disney+ soon be part of that mix? Perhaps. The platform is set for a U.S. launch later this year. International expansion is likely, but no details have emerged yet.

The tidal wave of on-demand launches has caused enormous upheavals across the traditional kids’ TV landscape, changing viewing patterns and disrupting revenue streams in its wake.

As Dominic Gardiner, the CEO at Jetpack Distribution, points out, it’s hard to overestimate the impact of OTT. “There used to be only three main commercial competitors—Disney, Turner and Nickelodeon. Suddenly, there are two other major players in Netflix and Amazon, which have succeeded in changing the landscape. It doesn’t matter what market you are in—kids’ TV or car manufacturing—if you suddenly get two new competitors on your doorstep, it gets everybody thinking.”

YouTube is just another complication, Gardiner adds. “Three years ago, ratings suddenly fell off a cliff. What happened? Well, in a nutshell, half of the world’s kids—in the West, at least—inherited an iPad. This had an immediate knock-on impact in lost revenue. Plus, established players are now confronted with having to spend less on content and more on technical development to compete.”

In part, lost revenues on linear platforms have been offset by the growth in distribution and commissioning opportunities on the new platforms.

Dorian Bühr, the head of global distribution at Studio 100 Media and m4e,  explains, “The arrival of the OTT platforms resulted in a shift within the home-entertainment business from physical towards digital sales. These new revenues have not replaced the loss from the DVD market yet, but still make a substantial contribution and show immense potential for further growth in the near future. Not counting AVOD revenues, we now generate approximately one-quarter of our distribution revenues from OTT/digital platforms.”

Mediatoon Distribution also reports a dramatic redistribution in revenues, with DVD falling fast and digital on the up. Jérôme Alby, the company’s managing director, says that revenues from OTT are growing. “In 2008 it made up 2 percent to 3 percent; in 2018 it was up to a third. But DVD revenues are going down fast.”

At CAKE, OTT revenues are increasing year on year. For the last two years they have made up over 50 percent of the company’s revenues.

While the growth curves of platforms such as Netflix are widely predicted to plateau soon, OTT/digital share will continue to increase as linear broadcasters evolve in the face of the on-demand challenge.

At 9 Story Media Group, OTT/digital now accounts for over a third of revenues, but in time, the distinction will become irrelevant, predicts the company’s chief strategy officer, Natalie Osborne. “What we expect to see going forward is a second wave of digital proliferation, as traditional free- and pay-TV channels launch their own OTT platforms. Disney, Nickelodeon, France Télévisions, BBC, ITV and many others are all launching their own services. Linear and OTT are now converging, so more and more, we are looking at this as part of the same revenue stream.”

For linear platforms, adding a digital offering isn’t really a choice anymore, insists Ed Galton, the chief commercial officer and managing director at CAKE. “Delivery systems are collapsing, and traditional channels need to find new opportunities to stay relevant, with many now offering an on-demand service of their own. With more platforms launching, there is a greater demand for these rights, and we foresee continued growth.”

Another factor fueling the growth of digital is the fact that launching an OTT service has never been easier. In the early days of streaming platforms, players would need to acquire or produce content, create a bespoke app and then organize the distribution, as well as find a content delivery network, all of which had the potential to be a very expensive process, especially since costs were a lot higher back then.

Fast forward to today. Content delivery costs have plummeted and there are many different ways to enter the market. No longer do IP owners have to produce their own app or build an end-to-end SVOD service from scratch. They can choose to launch on preexisting distribution platforms, a useful option for those who feel they may struggle to scale up quickly or for those who do not have the funds to do so on their own.

Lower barriers to launching an on-demand service have also resulted in a new generation of niche services such as ad-free preschool pay platforms Hopster, PlayKids and Azoomee. “It’s admirable what they are doing, and we are looking at content deals with them,” Jetpack’s Gardiner notes. “For these players, the name of the game is all about distribution—getting kids or their parents to download their apps.”

Given the proliferation of new services, are linear platforms still relevant in an increasingly on-demand world? For the time being, at least, the answer appears to be yes.

“For now, a linear TV launch is still the gold standard for a successful L&M campaign,” says 9 Story’s Osborne. “That being said, it is possible that OTT will be able to anchor an L&M success in the future.”

Studio 100 Media’s Bühr adds, “We still need our traditional linear partners to finance our shows and to build strong L&M campaigns. These linear partners are, however, not always happy to share rights with OTT platforms. If there is an opportunity to sell in a second window, we prefer to work with the bigger platforms on a non-exclusive basis, allowing us to make deals with smaller local players in the market. For bigger brands, we tend towards exclusive deals with bigger platforms, in as far as our linear broadcast deals allow for it.”

CAKE’s Galton adds that the contribution of a linear TV launch to audience numbers and brand awareness continues to be substantial and is certainly one of the elements that helps to build a strong campaign.

“However, a ‘Netflix Original’ is also a valuable brand endorsement, which can reap huge rewards,” Galton notes. “In addition, retailers are understanding the growing significance of YouTube and are specifically asking about exposure on the platform. Lucas the Spider, an original series of YouTube shorts, achieved significant numbers, helping to shift 40,000 plushies in just over ten days. So, while a linear TV launch can play a significant part, it is no longer the only route to market.”

Linear platforms still have a few significant advantages, such as the almost-universal approval of preschool parents. With many parents perceiving the digital world as a kind of unregulated Wild West, the safety issue is one that some popular online platforms—notably YouTube—are struggling with. Stories of kids encountering inappropriate content and advertising are common. This is not the case for SVOD providers such as Netflix, Hopster and Azoomee.

Bühr acknowledges that the security of content and safety of viewers can’t be taken for granted. “We create and manage our YouTube content and channels ourselves. That’s still the best way to control what happens with your content.”

CAKE’s Galton adds that there’s plenty that producers and distributors can do to ensure that content remains in a “brand-safe” environment. “Multichannel services try to put provisions in their agreements enabling them to have the choice to broadcast on all platforms. However, in our agreements, we restrict broadcast to kids’-specific platforms only. We manage our own YouTube channels through our digital arm, Popcorn Digital, and although advertising placement is done by YouTube using algorithms and is therefore difficult to control directly, we take care to make sure that all our content is fully optimized to help ensure it is recognized as family content. We also work closely with YouTube to make sure that our titles are exposed to family-friendly advertisements and are specifically available in the YouTube Kids app.”

Osborne points out that 9 Story employs specific controls to safeguard content. “We block ads by sensitive categories to make sure appropriate and brand-safe ads run in the content. In light of recent YouTube events, we’ve ensured stricter controls by further refining our comment filters and manually reviewing all comments made on our official channels.”

She adds, “For additional digital platforms that run on an AVOD model, we make sure that the streaming services are kidSAFE COPPA and GDPR compliant. The onus is on the platform to ensure advertising that is completely appropriate, and we’ve seen successful results. For closed VOD systems such as SVOD and TVOD, we research and vet the platforms to make sure that their offering is reputable for our content to sit alongside the entire portfolio.”

While three or four years ago OTT players were buying bulkier preschool packages to beef up their schedules, now they are selecting shows with more caution.

As Mediatoon’s Alby points out, “All channels at launch need a lot of content fast. The difference is that with a linear broadcaster, at least half of the shows they take are likely to work well, and you can be pretty sure that many of our successful shows, like Garfield, will be renewed.”

Nonlinear platforms might initially take bigger packages of shows to build up their inventories, but when the rights expire and renewal comes, they are much choosier. “And when it comes to taking new shows, it becomes much harder because now those OTT platforms are pickier,” Alby says. “They are more aware of what is working on their platforms.”

Volume certainly helps in the new landscape, Alby states. “Our catalog has grown a lot over the last few years. It’s about 3,000 hours of animated TV shows and movies. That’s both from our internal production studios and third-party agreements. That allows Mediatoon Distribution to release a great diversity of shows.”

That mix includes shows of varying lengths, with the proliferation of digital platforms encouraging producers to venture out of traditional episode durations. For example, this year, Mediatoon is rolling out Garfield Originals, consisting of 3-minute shorts, commissioned by France Télévisions.

The way the OTTs work is very different from traditional broadcasters, adds Jetpack’s Gardiner. “Because they are primarily tech companies, their approach to content is very scientific. It’s all about metrics, audience measurements, performance and brand-awareness scores. They are very clued-up on what works and what doesn’t and are much more mature and selective. Effectively, they have gone all ‘nouvelle cuisine’ on us.”

CAKE’s Galton observes that there is “no hard-and-fast rule to the deals you can do. It will depend on the territory and competition in the marketplace, but as a general rule, the more new platforms grow and mature, the more influence they have.”

Galton adds that CAKE is developing a number of shows with global SVOD platforms that insist on exclusivity to all rights. He adds that while traditional broadcasters are currently reluctant to option second windows on digital-first content, they may ultimately have to change tack and work with the new ecosystem of rights.

“As platforms grow and command more influence, broadcasters may have to put aside their resistance,” he declares. “We are now in the process of launching our YouTube original series Angry Birds On the Run. A fantastic response from fans made us feel that there were additional distribution opportunities to be had, leading us to reformat the series into longer-form specials with the view of introducing to broadcasters and platforms. As we move increasingly into producing original content for YouTube, we think that some content may translate and migrate effectively onto linear channels.”

9 Story’s Osborne notes the uptick in global SVOD deals on the kids’ side. “We’ve had a number of series greenlit by Netflix in the last few years, including The Magic School Bus Rides Again, Charlie’s Colorforms City and the holiday special Angela’s Christmas.”

Allspark, formerly Hasbro Studios, used a digital-first strategy for Hanazuki: Full of Treasures, which premiered on YouTube. It was the company’s first original IP not based on an existing toy or gaming brand. “It was a really interesting experiment to see if we could launch a new property on a digital platform like YouTube and actually get the audience,” says Finn Arnesen, the senior VP of international distribution and development. “We now have a second window on linear. So we flipped the rollout model around. We’re always trying to find new ways to bring things to market and innovate in terms of where our audiences engage with our properties.”

Allspark is also deploying new distribution strategies with Equestria Girls, an older-skewing spin-off of My Little Pony. A digital series premiered on YouTube and is being re-versioned for the linear-TV market.

The future of distribution will be dealing with a mixed economy of OTT players and traditional brands with their own SVOD options, insists Mediatoon’s Alby.  “At the end of the day, the decision about how to launch or distribute a new show will always be about numbers. The winner will be the platform that comes up with the best deal and the best promotion offered around your brand.”

Osborne concludes, “A key consideration going forward will be making sure content is available wherever kids are watching, and that might be on YouTube, Netflix and a traditional linear channel. Plus, it’s important to remember that, irrespective of platform, licensing success is only possible if you have great content.”

Pictured: A family using Hopster.