D2C has remained a major priority for all players in the content ecosystem in recent years, and continues to make up a substantial portion of the market for Studios when it comes to their content distribution. But with doubts over whether they can achieve good enough scale to fight with the likes of Netflix for subscribers, Studios are more focused on reaching profitability, and that includes finding ways to sell more content to third parties.
Last week at the 2024's Connected TV World Summit, I hosted a talk looking at how the focus on profit impacts content strategies at Studio / Channel Groups with ,vertical integration, changes in co-exclusivity and third party licensing, and the favouring of D2C offers over volume deals.
Finding the balance between D2C and third-party sales
Over the past few years, D2C initiatives have gained a significant presence in the service ecosystem with 63% of 1st window Studio sales having gone to their own platforms in 2023, a rise from 56% in 2022.
Its too soon to see if the D2C focus trend will change in 2024, but we can expect the amount that studios vertically integrate their content to go down year-on-year as they look to optimise revenues. Whilst this number varies between Studios and by country, there are clear signs that they’re exploring other ways to sell content, with library sales a key feature of 2023 and Warner Bros. Discovery’s sale of shows to Netflix being a key turning point. According to Nielsen, this shift can be seen clearly in the top ten streaming shows that have been shared with Netflix (E.g. NBCU’s Suits being the top show of the year) and the presence overall of acquired TV shows.
Which content will be sold to third parties?
Studios are working out how to best utilise and sequence their core and non-core content, with the key pivot in 2023 being with library content. In 2023, Studios were generally limiting third party sales to non-core content, yet despite them still taking a considered approach to which shows they are happy to do this with, there are now more instances where they are selling content to third parties in both the 1st and 2nd windows. We have seen a number of notable first window shows betraying the normal vertically integrated paths and being sold straight to third parties, with more content starting to appear on a co-exclusive basis. This is true of Max in the US now allowing their movies to go co-exclusive with third parties 6-months after they have premiered the title.
Securing strong rights will be essential for studios
In this fast moving environment there is undoubtedly a requirement for Studios to establish the correct set of rights and usage to grow their third-party content sales more significantly, especially when it comes to second windows.
Whilst Studios can build a strategy around this, they’ll need to be realistic about the preferences and requirements of potential buyers. It's clear that Free TV broadcasters have leaned heavily into digital services and therefore require a good set of rights, including the ability to offer as a box set. In 2023, only 17% of premieres by Free TV owned businesses were accompanied by a basic set of catch-up rights, with the remainder appearing as some form of boxset during their license. Strong rights will be essential for studios to ensure that content in the second window is attractive to buyers, and reluctance to offer such rights in order to protect the value of their own SVOD window could significantly impact sales revenue.
The growing importance of hybrid relationships
In addition to basic content sales, more hybrid relationships are launching, with Studios looking to bundle SVOD services with Pay TV operators and share content in a way that can in reality be only marginally different from traditional TV sales deals. Paramount and Sky in the UK share a very close relationship, with the service offered free to all Sky Cinema subscribers and the movies available across Paramount+ and Sky in most instances. What is interesting to see is that they are often sharing the pipeline, with Sky taking premieres of some key titles (most notable the recent Mission Impossible premiere) ahead of Paramount+. (CHART 21).
Paramount’s recent deal with M-net in Africa is another good example of a bundled deal where the pipeline of content will actually see little change. With the service partnership in place, the actual flow of content will not change at all, after M-net owned services previously being the key buyer of their content anyway.
On the FAST side of things, one of the key characteristics of the market in 2023 was the improvement in quality of channels. This includes Studios getting more involved in the world of FAST, launching channels in the US and some other global markets. With the US a key opportunity for content owners to unlock new revenues it is not surprising to see the Studios enter a market that is steadily progressing through the typical stages of development. Whilst the US was not the only area of activity last year in the second half of 2023 Studios represented 22% of all new channels launches, as they looked to monetise content in one of the newest emerging sectors.
Conclusion
Monetising content in multiple ways has historically been the key strength of Studios, but after major focus on D2C they are clearly revisiting strategies to effectively monetise content across multiple windows which includes their own services, whilst also exploring innovative partnerships within various markets that will enable them to take a hybrid approach.
In our 2024 TV Industry Trends & Predictions Report, we asked our wide network of industry stakeholders about this particular area. Whilst there wasn’t a perfect agreement across the topic, there was a broad understanding that Studios’ strategies will change in 2024 as they lean away from restricting third party content sales. 82% felt Studios will need to grant a better set of rights when selling 2nd windows post SVOD and 81% felt they will sell more content to 3rd parties after using their own D2C services. Whilst not as high there was also agreement that content should also go straight to third parties, with 67% feeling Studios will also sell more content to 3rd parties versus premiering on their own D2C services - with all in agreement that more will be done with 3rd parties. Lastly only 28% felt Studios will limit third party activity to the selling of non-core assets.
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