2023 will be about entertainment

        (Source: Ben-Hur, MGM)

“It goes on. It goes on, Judah. The race… the race… is not… over!”—Messala, Ben-Hur, MGM, 1959

It’s probably best to think of 2022 as a recovery/realignment placeholder between 2020/21 and 2023, rather than an actual measurable period of progress. The content creation/distribution industry spent most of the year realigning its long-range goals, perfecting and using their new tools/toys and trying to come to grips with the new facts of marketplace life in the year or so ahead:

  • There is a functional difference between movies and movies that award folks, and theater owners are trying to qualify which will define the market’s growth and profits.
  • Linear/pay-TV is living on borrowed time in developed countries, with only modest growth in emerging countries.
  • The streaming industry is focusing on a balance of realistic, profitable global growth, pricing ceilings (subscription/ad cost), and the cost of audience retention.
  • There is a thinning of the content creation herd.

Suffering from an overabundance of screens (more than 208,000 globally) and an undersupply of “gotta see in a dark room with strangers” content, the theatrical industry teetered on bankruptcy until the middle of last year. It was only the availability of a few long-awaited franchise tentpoles that made theater owners think survival, even prosperity, might be on the horizon for the greasy popcorn houses.

Tom Cruise’s Top Gun: Maverick hit the screens almost everywhere midyear—with the notable exception of Chinese screens. That was followed by some decent seat-filling events. And with James Cameron’s Avatar: The Way of Water ending 2022, folks like AMC’s Adam Aron, Cineworld’s Mooky Greidinger, NATO (North American Theater Owners), and other movie house owners gained faint hopes that the audiences would return… in droves.

It ain’t gonna happen!

It’s true, 2022 ended with theater owners worldwide bringing in an estimated $26 billion, according to Gower Street… thanks to the tentpoles. Analysts project that 2023 ticket sales should increase to nearly $30 billion, up 12% over 2022. But that’s well below 2019’s $42.5 billion, which has been part of shrinking movie theater attendance since 2012.

While the Americas are the largest ticket sales area—accounting for 40% of revenues—the second largest market (China) has almost literally closed its doors to US projects. Avatar: The Way of Water was one of the few American projects to be shown on the country’s screens. This helped James Cameron hold three of the top five global earning spots. The other two were Avatar and Titanic. Black Panther: Wakanda Forever and Top Gun: Maverick were both banned from the Middle Kingdom, as Hollywood’s Chinese market share dropped from 45% to just about 8% this year.

China has been developing/refining its film production industry since 2015, but the pandemic moved it into high gear, delivering better and better films (we’re told) for the country’s audiences like The Wandering Earth and The Battle at Lake Changjin. While the government and the film approval organization allowed a minimum number of international projects to be shown locally to meet basic WTO (World Trade Organization) requirements, few of their own projects are shown outside the country. But there are signs that Chinese theaters may need Hollywood films more than studios need the Chinese audience. China’s screens are now just “nice to have,” rather than a necessity.

The problem for the global theater market is the fact that there simply aren’t enough door-busting projects to steadily fill seats, and most studios also have their own direct-to-consumer (DTC) pipelines to fill. Tentpoles—with $100 million-plus marketing—attract ticket buyers in droves, but a studio can only afford one to two a year. Few midrange films of $30 million to $50 million are made because it’s tough to second-guess ticket buyers.

Lots of $10 million-plus projects are made because there’s a ready market for them—a limited theatrical window followed by posting on their own or other streaming service. Yes, this is the year that DTC content delivery gets serious, as pay-TV continues its slow, mixed-message slide into an entertainment afterthought.

Peak TV (day/time viewing) has steadily declined in the Americas from a high of 91% of the households down to 66% last year, and will dip below 50% by the end of 2023. Across the globe, pay-TV will continue to be strong—about 1 billion households—thanks to the penetration in developing countries of high-speed connectivity and low annual subscription costs. To compensate for the steady subscription slide in the Americas, cable services slowly, steadily increased their monthly connectivity charges and increased their ad loads from 5 to 10–20 minutes per hour. In addition, they expanded their connectivity service for the household, adding smart home services. 

The bright spots for pay-TV will be sports/live events, news, and an aging population that is accustomed to regularly scheduled entertainment. The increase in easy streaming support to smart TV as well as the ability to use their streaming services across all devices (browsers, connected TV, game consoles, mobile, and smart TV) has encouraged Americans to shift and/or add three to four content services.  

While Netflix started the streaming industry in 2007, followed shortly after by Amazon, it took until the pre-pandemic to convince providers that the direct connection with the consumer could be the smart—and profitable—solution to the constantly rising charges of pay-TV bundlers. When Netflix and Amazon hit the subscription service ceiling in the Americas, they broadened their subscriber potential and content supply options in 190 countries.

Predictably, with other tech companies and studios entering the race in the Americas, churn became the word of the day last year as financial and market analysts quickly realized households wouldn’t continue to sign up for new services, regardless of the number they had or the total monthly cost. To retain subscribers and profits, the previously ad-free subscription services determined perhaps the subscriber wouldn’t mind exchanging a little time—3–4 minutes per hour—for subscription cost savings.

In 2023, SVOD and AVOD will become more intertwined as Netflix, Disney+, Paramount+, and Hulu fully address the ad market, the complexities of ad management/tracking, and a shift in domestic subscribers’ interest in international content. While they have tapped into global content since the beginning, we measure Amazon and Apple by different content/subscription guidelines than the other services. Not only are they global in reach, but they have a range of personal/home services that buffers them from the ups and downs of the entertainment-viewing market.

Hybrid services have shifted the attention from monthly subscription numbers to average subscription rate (ASR) and weekly/content ratings. The program ratings are one of the key reasons Netflix continues to be the most widely recognized service and the last one subscribers said they would drop for another service. The platform consistently dominates the top foreign-language streaming originals list, with 8 out of 10 shows.

A steady flow of such shows as Somebody, Spirit Rangers, Missing, Arcane, Kipo, Cyberpunk, Bridgerton, Stranger Things, Squid Game, Kaleidoscope, Vikings, Beef, and a range of new films/shows from Japan, South Korea, Europe, and, most recently, Africa, have given Netflix, Disney, Amazon, Apple, and Paramount a breath of uniqueness and consumer demand. That internationally created content will account for more than 18% of consumer demand in the Americas this coming year, compared to only 8% in 2022

With Iger returning as CEO of Disney, the company will reprioritize its creative content development/delivery, surpass Netflix’s global subscribers, and develop a more solid/focused path to tomorrow. And yes, Iger and the board will train his replacement for the years ahead. Perhaps most important will be the company’s move to finally bring Hulu fully under the Disney umbrella.

The time is right for Comcast, the world’s largest cable/broadband service provider, to sell Disney their 30% ownership of Hulu so they can focus on more fertile opportunities. This will give Comcast’s boss, Brian Roberts, the freedom to buy some—if not all—of Warner Bros.’ shattered pieces, showing the FCC that the rescue will be in the best interest of the industry and the consumer.

For the past two years, Warner Bros. Discovery’s David Zaslav has been focusing on reducing/hopefully eliminating the huge $50 billion debt he inherited by every means necessary—content impairments/write-offs and staff termination costs—while justifying his modest $246 million annual compensation. About the only segment that hasn’t gone untouched has been Discovery’s reality fix ’em up and cooking projects, which have been inexpensive, popular, and profitable. A firm believer in Jack “Sledgehammer” Welch’s business techniques, his improvements have included wide and deep staff, team, and project cuts at Warner Bros., shedding/retiring films/series from HBO/Max, and marginalizing CNN shows and news gathering.

(Source: Brooksfilms)

Zaslav tapped the team of James Gunn and Peter Safran to disassemble and rebuild the DC Extended Universe (DCEU). This included the shelving/shutting down of nearly all pre-Zaslav titles and projects, and developing a comprehensive 10-year plan to make DC the center of the superhero universe. The plan must be good because Gunn assigned the first major project, the reimaging of Superman, to himself to write.

Out of the rubble, Roberts sees potential for Comcast, NBCUniversal, Sky, and a major boost for Peacock streaming. By 2024 (just around the corner), Zaslav will be free to “consider” transactions, and the content world will be ready for a pleasant change.

2023 is going to be… entertaining!