Tuesday, March 22, 2011

Now Is The Time To Create Quality Programming

An exciting trend is quickly developing in the entertainment business.  We are at the beginning of a new period of opportunity for creators of quality films and programming.

It seemed for the past several years, the quality of content was of marginal concern.  Certainly many good films and programs were getting made, but the business and technical aspects of the industry seemed to be more important.  As new companies used the Internet to create new doors into the business, the talk was about superior technology and innovative delivery and pricing strategies and convergence and brand integration and HD and 3D, and on and on.  Everyone still recognized the need for good content, but it wasn't viewed as a key differentiator between the various competitors.

While many of those "new media" conversations are still taking place, something else interesting has happened in the past couple of weeks.  Consider these developments:

As Amazon and Facebook joined Hulu, Vudu and others in attacking Netflix' growing dominance in home video, Netflix saw the writing on the wall.  Prices for existing films in the 3rd or 4th window will inevitably increase.  (That's certainly what the studios are planning.)  As a result, the quality of the Netflix streaming catalog would become more expensive to maintain, and consumers wouldn't care as much.  With more streaming options available, and the collective film library spread across so many companies, consumers would probably just start looking for the best deal.  That means Netflix would be spending more and making less while trying to hang on to its customers.  Not a pretty picture.

In response, Netflix recognized what HBO had seen years before.  The way to differentiate in a competitive market is to have something that no one else can offer.  That means original, exclusive, appealing programming.  So, last week Netflix made the House of Cards deal which will give it exclusive first window rights on the David Fincher/Kevin Spacey collaboration.  If anyone wants to see that program (and a lot of people will), they will have to subscribe to Netflix.  That's a competitive advantage that's based on quality, not price. A much better place to be.

Hulu figured out the same thing, and it has already started airing original programs of its own.

And Reelzchannel got the memo too.  When the controversial "The Kennedys" program was dropped by History Channel, Reelz recognized the opportunity.  By grabbing that show and advertising it, Reelz has already expanded into millions of more households and gained millions of viewers, and The Kennedys program doesn't even begin airing until April.

All of a sudden, as the playing field is leveling and the competition is fierce, quality original programming has become the key strategy of choice.

Of course, this is not a totally new concept.  As I mentioned, HBO has successfully pursued that strategy in the cable business for years.  And the prime time network TV business is still largely based on offering attractive original programming.  In fact, FX, TNT and other second-tier networks have been firmly rooted in the original programming business for several years. But now, with the key digital programming consolidators also adopting that approach, there is a vigorously growing market for quality productions.

In addition, sales at Sundance were the best in years, and even Berlin saw a lot of deals being made.  This resurgence in independent film is further supported by the recent formation of the Open Road distribution venture between AMC and Regal.  Apparently theaters also want to protect their businesses by gaining control over original programming.  Controlling the first window of a quality production appears to be the primary strategy across much of the entertainment business right now.

Obviously, this is good news for the creative community.  The bell has sounded, my friends.  Start creating.  There is a growing sellers' market, and that means that financing will not be far behind.  I am certain investors and lenders will be happy to back MG's from Netflix or Hulu or Open Road or even Reelzchannel.  And these are perhaps just the tip of the iceberg.  There will be more players entering the market for quality content.  In fact, I can't imagine that Walmart/Vudu is not already planning to control exclusive content which can drive sales through its streaming channel as well as its retail business, including related merchandise.  They are uniquely positioned to pursue such a strategy and they are too smart not to recognize the opportunity.

If you have a project to sell, now would be a good time to think about producing it.  This sellers' market for content will not last forever.  All of these companies need to spend money now in order to grab market share.  But when the dust clears, there will be consolidations, mergers and probably a closure or two.  Programming will remain important, but the number of buyers will once again shrink.  The market for programming will cool off a bit and the buyers will put their wallets back in their pockets.  So strike now while these companies need to spend money in order to compete.

The opportunity to create is right now.  I don't know how to say it more clearly than that.


clive said...

As usual, I completely agree. Now is the time to concentrate on quality production.

There is another factor which also makes this a sensible move. As traditional broadcaster outlets feel the pinch of budget cuts, they will cut back on in-house programming first and move more into acquisition. This will fool a lot of producers into squeezing their budgets downwards as well, in order to compete on price. This leaves the top end of the market wide open for any producer who can see where the open ground is going to be... and as you so rightly point out, the broadcasters are going to be fighting over the potential big hitters, in terms of ratings.

Thanks for writing this. Very apt timing.

Roger Goff said...

Thanks for the great feedback and comment, Clive. I always value your thoughts.

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