WILL PEAK TV BURST THE VIDEO CONTENT BUBBLE? - BCG
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WILL PEAK TV BURST THE
VIDEO CONTENT BUBBLE?
By Mallikarjun Vaddi
A round 2015, people in the media
industry started using the term “peak
TV” to describe the point at which no more
burst—or at least deflate? What will be
the impact on various market participants
if it does?
TV shows could possibly be created. Five
years later, this hasn’t happened.
The Bubble Is Still Expanding
Instead, those five years have been a very In the last 15 years, several waves of new
good time for most of the participants in players entering the space have inflated
the video content ecosystem, starting with the video content bubble. The first was the
consumers, who have had more high- rise of digital platforms built around
quality content to choose from than ever user-generated content, such as YouTube,
before. Content creators and producers Dailymotion, and Youku in China. The next
have ridden strong demand to new heights. wave saw the surge in over-the-top (OTT)
Broadcasters and streaming players have video providers such as Netflix, Amazon
had to manage the fast-rising costs of de- Prime, Hulu, iQIYI, and Viaplay. The most
veloping and acquiring new content to stay recent wave saw the expansion of the OTT
ahead of the curve and the competition, universe as both tech companies and
but they have also enjoyed strong demand traditional media companies have gone
from viewers. The pandemic has provided direct to the consumer with their own OTT
an extra boost as consumers look for new launches (Apple TV, Disney+, and HBO
sources of entertainment and diversion. Max). They have been joined by short-
format specialists such as TikTok and
That said, as content producers deal with Quibi, and networks such as WWE, ESPN+,
the production constraints that COVID-19 and Shudder.
has imposed, and as content buyers assess
the shape of a post-pandemic video Streaming content has become a major
marketplace, the question of peak TV has market force. Social media and livestream-
reemerged. Is the bubble finally set to ing platforms, such as Facebook, Twitter,Twitch, and Cheddar, have attracted Spain is another fast-rising production
millions (in some cases, billions) of viewers. center for multiple reasons, including
As of February 2020, the top 20 global relatively low costs, tax incentives, a wide
commissioners of scripted content included variety of geographic locations, good infra-
nine OTT companies. And the lines have structure, and a deep talent pool. Netflix
blurred, with OTT platforms such as Ten- chose Spain as its first international pro-
cent and iQYI also becoming big buyers of duction hub and increased its Spanish-lan-
scripted TV shows. Netflix set a record for guage content by nearly 30,000 hours from
Emmy nominations in 2020 with 160. 2018 to 2019.
The numbers are enormous. Netflix’s 2020
estimated content budget of $17.5 billion is The Rising Costs of Too Much
bigger than the GDP of 75 countries. New Choice
launches are adding to the deluge: three Global spending for content has skyrocket-
new US OTT services (Peacock, HBO Max, ed, almost doubling from $87 billion in
and the forthcoming Paramount+) are ex- 2010 to $160 billion in 2020, with $39 bil-
pected to add 44,000 hours of film and TV lion paid for sports rights, $52 billion for
programming to the 53,000 hours available film and TV rights, and $69 billion for orig-
from Hulu and the 44,000 available from inal content (up from $47 billion 10 years
Netflix, along with those available from earlier). Broadcasters’ (including public
other providers. broadcasters) share of spending has shrunk
from 90% to 65%. OTT services now repre-
Content production has become an increas- sent 17% of all content spending.
ingly global business. Turkey is now the
second largest exporter of TV content after Two factors point to the possibility of trou-
the US. Turkish TV shows are currently be- ble in this high-priced paradise. One is con-
ing broadcast in some 150 countries. Kore- sumer exhaustion. The other is that con-
an-made content has developed substantial tent buyers have a tough time making
diversity and depth and has been reaching money as costs continue to rise.
audiences across Asia and beyond. The Ko-
rean movie, Parasite, is the first non- The sheer volume of video content is
English language film to win Best Picture giving signs of overwhelming consumers,
at the Academy Awards. In 2019, Netflix who are resorting to known quantities. (See
signed long-term contracts with two Korean Exhibit 1.) Pre-pandemic (2019) data from
production companies. Nielsen in the US showed that viewers
Exhibit 1 | Overwhelmed With Options, Consumers Turn Back to Familiar Shows
13 TV 7
646,152 58%
channels minutes
The number of unique The average number Approximate amount of Share of US adults who
program titles available of TV channels that time US adults spend say they go back to their
to American viewers in Americans watch, which searching for content on favorite traditional TV
2019 across TV channels represents only 6% of streaming platforms channels if they are not
and streaming services the 200 that are available. able to find content
within 7 minutes
Sources: Nielsen Total Audience Report,2019; BCG analysis.
Boston Consulting Group | Will Peak TV Burst the Video Content Bubble? 2could choose from more than 600,000 maintain continuous pipeline of new
unique program titles offered by TV chan- content to attract new subscribers.
nels and streaming services. But the aver-
age US adult spends only about 7 minutes
searching content on streaming platforms, COVID-19’s Near- and Long-
after which 58% said they go back to their Term Impact
favorite traditional TV channels if they are In the short run, the pandemic has both
not able to find new content that appeals disrupted the availability of event-based
to them. Our own consumer research programming (such as sports and concerts)
during the pandemic found that the big and boosted consumer demand for pro-
OTT players were gaining disproportionate- gramming of all types. Live sports may be
ly over niche OTT providers. Of the total the hardest-hit segment, with major profes-
number of new OTT subscriptions from sional leagues truncating or reconfiguring
December 2019 through April 2020, Netflix their schedules to try to save some of their
had taken 24%, Amazon 16%, Disney+ 15%, seasons. The longer the lockdown, the
and Hulu 14%. While niche services also greater the exposure for the owners of
saw traction, no single service gained more sports rights as more events are canceled
than 5% of the total share. and the price of rights comes under pres-
sure as compensation negotiations begin to
Profitability pressures are likely to be a remunerate buyers for lost sporting events.
continuing problem for all but the biggest
or most diversified players. Major OTT For other types of content, the lack of new
companies such as Amazon and Apple can commissions and production delays will
subsidize content cost increases on the affect program slates for the balance of
backs of other revenue streams, and inves- 2020 and 2021. The delays in production
tors are often more focused on other met- and release could lead to shortages in the
rics, such as customer growth, over profit- near term and oversupply when things
ability. For others, though, hit shows that return to normal.
produce continuing revenue streams are
harder to come by. Success rates are low Long term, delays in both new movie
and falling. Research by SNL Financial releases and original content production
found that from 1991 through 2000 29% of affects most players. Among subscription
shows on US premium networks, such as services, delays to production are causing
HBO, Showtime, and Starz, made it to a new-release shortfalls in the medium term,
sixth season. For shows premiering from and long production cycles mean greater
2001 through 2010, this rate of success was exposure to potential content shortages
19%. For shows airing from 2010 through moving into 2021.
2019, the success rate had dropped to 4%.
Even as production halts cause new
One reason is that the original streaming content shortfalls, broadcasters continue to
model favored by OTT companies (led by experience loss of advertising revenue,
Netflix) prioritizes variety over longevity, which puts added pressure on budgets.
which leads to more shows of shorter dura- Cord cutting linked to consumer economic
tion. Original streaming shows have an av- pressures and the lack of sports hurts cable
erage lifespan of two seasons compared and other pay-TV providers.
with four seasons for shows on cable
networks and 6.5 seasons for broadcast
network programming. Netflix and others Content Strategies Going
often end a show after few seasons to Forward
avoid the cost increases that typically take Even before COVID-19, the combination of
place after the third season and because rising costs and consumers consolidating
most streaming shows don’t attract a big viewing around a few favorites was leading
enough audience to continue driving content buyers to separate into distinct
subscriptions. OTT providers prefer to camps according to content type and
Boston Consulting Group | Will Peak TV Burst the Video Content Bubble? 3 usiness model. (See Exhibit 2.) While the
b continuous succession of high-quality
pandemic has expanded viewership across programming is at the core of their strate-
all categories, absent a second major wave gies. Costs are unlikely to dip. Going into
of the disease, we expect demand to flatten the pandemic, multiyear deals for top
or contract in the next few quarters as peo- behind-the-camera creative talent involving
ple return to work and school and life paydays of $30 million to $100 million a
adapts to a more normal routine. This does year were increasingly common. Companies
not mean the content bubble will burst, need these deals to pay off. Premium
however. More likely, it will change shape programming now has production budgets
and size, growing in some areas while of $10 million to $15 million per episode
shrinking in others, in line with shifting (compared with an average of $3 million to
viewer patterns. It is quite possible that the $4 million for US cable-TV shows). Viewers
combination of viewer demand and have come to expect streaming TV that
big-player strategies will prevent us from looks and acts a lot like high-budget Holly-
ever reaching peak TV. As a result, cost wood films. That bar will be hard to bring
pressures will continue on most if not all down. The strong push by deep-pocketed
companies and heighten the importance of players such as Apple and Warner Media
well-focused content strategies and busi- into the high-end market portends an
ness models. increase in the intensity of the competition
that will be great for consumers, albeit
Each market will chart its own trajectory, tough on the companies involved.
of course, but as the largest single market,
the US will set the pace. Here’s a look at Mass-Market TV. Broadcasters and
the major content categories. mass-market cable companies face more in-
tense competition for a shrinking pool
High-End Scripted Film and TV. The advertising dollars. Digital ad spending is
heavyweights—Netflix, Amazon Prime, and expected to increase from 61% of total
Disney+, among others—will continue to media spending in 2020 in the US to 71%
slug it out. Providing subscribers with a in 2024, according to Magna Global. Cord
Exhibit 2 | Strategies Are Diverging According to Content and Business Model
Subscription
Mainstream Media
Tech
SVOD conglomerate
player
No demand from Mainstream
SVOD Niche SVOD
consumers
US cable-TV
network
US
Business model broadcaster
Potential space if
Short-form AVOD AVOD monetization
content evolves
Social media UGC platform
Advertising
Mass-market Premium
Content type
Source: BCG analysis.
Note: AVOD=advertising video on demand. SVOD=subscription video on demand. UGC=user generated content.
Boston Consulting Group | Will Peak TV Burst the Video Content Bubble? 4cutting will continue. The number of roots. User-provided and unscripted
households with pay-TV is forecast to content, sports and live events, and shows
decline from about 83 million to about 73 built around personalities and celebrities
million, while the number of cord-cutters are likely to dominate. This mix keeps costs
and “cord-nevers” will increase from 44 low. The category’s popularity with millen-
million to 56 million over the same period, nials along with the rising use of small-
according to eMarketer. Basic cable net- screen devices for streaming should keep
works have been reducing their production viewership levels strong.
of scripted content as it has become too
expensive. If an advertising-model provider Niche TV. Niche players face a struggle for
pays $500,000 to $600,000 for a half-hour viability, and it’s unlikely that all will
episode, with six to eight minutes of survive the shakeout. Our research indi-
advertising time built in, the show requires cates that much of the post-coronavirus
2 million to 3 million viewers tuning in churn will be driven by the simple fact that
regularly in order to break even. These consumers will not watch as much TV
economics are one reason that in 2019, when they return to more regular patterns
scripted series represented just 24% of the of activity. More than a third of viewers we
25 highest-rated original series on cable, surveyed during the COVID-19 crisis said
down from 50% five years ago. they expect to have less time for television
post-pandemic. These numbers suggest
Sports. Sports has been the last bastion of that subscribers will make choices about
appointment viewing and is perhaps the which services to keep, and that as long as
category with the most pent-up demand. they have something they would like to
That said, as live sporting events have continue watching, they’ll continue to
returned to TV, haltingly and surrounded subscribe. This bodes well for providers
by controversy, ratings for professional that have built strong niche franchises
baseball, basketball, and football have around a particular type of programming
been uneven and generally lower than in (such as Acorn TV, Crunchyroll, and Mubi),
2019. NHL ratings were up, albeit from a but more broad-based players that are
smaller base. It’s too early to predict competing directly with the heavyweight
longer-term trends, and few doubt the subscription services could be in for a
continuing value of live sports program- tough ride.
ming to both broadcast and streaming TV,
but it may be difficult for leagues and
teams to justify the continuing upward- Getting the Mix Right
only trajectory in rights pricing. For players in all segments, a critical
success factor will be getting the content
Short-Form and User-Generated Content. blend right. This means aligning the mix
This may be the most dynamic of video with strategy and target audiences (such as
categories, in part because of its “social” parents, children, teens, and younger
nature and content that is democratic and adults) and also striking the optimal bal-
anything but curated. Another reason is ance between cost and high ratings poten-
the ability of a surprise newcomer in the tial. (See Exhibit 3.)
category, such as TikTok, to go from oddity
to major market player in the flash of a Assuming the bubble does not truly burst,
smartphone screen. Like the marketplace costs will not deflate much, and the need
for scripted content, this category is domi- to strike a profitable balance between high-
nated by heavyweight players such as and low-cost content will only increase as
YouTube and Facebook, although well- penetration rates mature and competition
backed newcomers (such as Quibi) are intensifies. Trial and error as well as the
making a big push for prominence. The ability to make flexible deals and adjust on
market leaders, which had experimented the fly may also become important corpo-
with scripted programming, are returning rate capabilities for media companies as
to their social media and user-generated the post-pandemic new reality takes shape.
Boston Consulting Group | Will Peak TV Burst the Video Content Bubble? 5Exhibit 3 | Providers Need a Balanced Mix of Low- and High-Cost Content
High rating
High-return content, increase View through strategic lens
investment • High-cost, high-ratings content can
• Increase spending on low-cost, have a strategic place in the
high-ratings content programming grid (prime time)
View through strategic lens Low-return content, cut spending
• Low-cost, low-ratings content can • Cut high-cost, low-ratings content to
have a strategic place in the free up the budget for programming
programming grid (daytime) with high ROI and strategic
investments
Low rating
Low cost High cost
Source: BCG analysis.
About the Author
Mallikarjun Vaddi is a knowledge expert and team manager in the Bengaluru office of Boston Consult-
ing Group. You may contact him by email at vaddi.mallikarjun@bcg.com.
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