The Royal Television Society (RTS) took the lilt and inference of the property and design franchise show Love It or List It for an evening panel session on the stark implications of eye-catching buy-outs in the media markets.

Titled Sale or Scale, the RTS event took its inspiration from the huge potential Disney/Fox deal and the impact of the new entrants, and chair Matthew Garrahan, Global Media Editor of the Financial Times, asked , Joint MD of Mediatique Mathew Horsman to paint the economic picture.

Sale or Scale

Sale or Scale

Armed with a chart built from most recent year revenues, which placed Apple at the top, Samsung second, Amazon third, down to C4 at the bottom, Horsman said: “Apple’s revenues were three times those of BT, Sky, Liberty Global, the BBC, ITV and C4 put together.”

Discovery and Netflix also sit amongst the small fry, and some of the players make kit, but there was a stark warning.

“The competition has started to change, with these operators moving into each other’s spaces in a way that was not true 20 years ago,” said Horsman.

“ITV, the BBC and all mainstream broadcasters would think more about each other, but they were not thinking back then about all the big issues they currently have to handle.”

Back with his gradations he added: “Netflix has the same revenues as the BBC and ITV combined. If Disney does buy Fox and Fox gets full control of Sky, the resulting combination would have the revenues of half of those of Apple, and on a par with Google.”

Although traditional subscription, advertising and licence fee models are all under challenge, the new entrants have not “stepped up to the plate” appreciably in the UK. The big effect has been on drama content production costs per hour on the global stage.

The Crown

The Crown

Source: Netflix

Horsman had a slide showing drama costs per hour topping out at £16m per hour, while at the very bottom was ITV’s Vera with the humble stat of $1m an hour.

“It is getting expensive. Not so long ago £1m was a very big number for an hour of UK content. We have seen the trend with the networks of saying let’s play the game with the new entrants: if they are going to come in and get the talent together and become players in this market we can work with them. Let’s do the cop-prod thing,” said Horsman.

This built to a crescendo with the UK partners sticking in an eighth of the budget for which they got first window and UK rights.

“It is already over. These big entrants are saying they are not doing that again. But some of the trends are very good for external suppliers capable of making content for different parties, but maybe not so good for broadcasters,” said Horsman.

Vertical integration

Former Sky COO and former CEO of News International Mike Darcey picked up the issue of scale.

Mike Darcey

Mike Darcey

“Everybody is talking about it. You need a scale of investment across a portfolio of content ideas to be able to cope with the risk of putting that much money on the table behind a particular idea,” he said.

“Otherwise you are betting a lot of money on red.

“The other big part of the story is a re-engagement with the idea that vertical integration is a powerful thing. It is behind some of the big consolidations that have happened in America; quite a lot of it is between a platform and a content provider,” he added. “Vertical integration can help you manage the risk of investing in content. If you have scale in distribution it helps to manage the risk of investing in content: your platform will not be denied content, and your content won’t be denied viewers.”

Garrahan pointed out that Netflix has no physical infrastructure, but has 120 million subscribers around the world.

Darcy said: “Netflix has the modern internet idea of a distribution platform, and the sense of a subscription base. If you don’t have one of those and you don’t have 10 or 100 million people already paying you money, you have to go and find somebody who does have one of those and do a deal.”

Media journalist and commentator Kate Bulkley added: “Risk aversion is a big thing, but the other factor is that it is just a different world. These companies (Netflix and Amazon) are not in the same kind of business that the traditional legacy media companies are in. They have very different business models.”

Mitigating risk

As the one, proven major content maker on the panel, Tim Hincks, the Co-CEO of Expectation Entertainment, said: “We suddenly see more customers, we see more demand for our content and our IP, and it raises certain issues around that sort of vertical integration.

“What does it mean about creativity, and ultimately what does it mean about the diversity of ideas? I used to hear a lot about scale when I was at Endemol, and I am sure I said it many times myself because it is what you go to. But ultimately what’s underneath all this is a hits business, and that means it has got a huge amount of risk attached,” he added.

“It means in some way you need to mitigate that risk, whether you are C4 or Apple.”

And, it is extremely painful when content ideas do not work out.

“I need to know there are enough people out there wanting to buy the product. And in some ways the challenge for the guys at the bottom here (on the Horsman chart), particularly the PSBs, is how can they compete?

“There is a really interesting trend developing, a new phenomenon,” said Hincks. “The new entrants with their big global pieces (like House of Cards) are spotting that people in Britain like British content. They want market share, so they have the idea that they should be thinking about local content.

House of Cards

House of Cards

Source: Netflix

“If I was the BBC or C4 this is the thing I would be getting really concerned about right now,” he added.

For all the players it is a massive challenge to compete, but someone is smiling. “As a content creator this is genuinely very exciting. It does feel like an extraordinary time,” said Hincks.

Horsman also raised the subject of advertising revenue. He said: “How can we have a situation where maybe 80p of every incremental new revenue advertising pound is going to one of two companies – Facebook or Google – at a time when we are all struggling?”

He had in mind PSBs and the declines in all three traditional revenue areas. But the small bit of good news is that “subscriptions are not growing for full fat pay-TV”. Skinny bundles rule.

“It is about the returns these companies have in their core businesses. They are saddle hopping. The go from being a retail operation, and they hop over to content, and it does not have to make money in its own terms,” said Horsman.

“Sports (soccer) rights, and the four or five models they have gone through from the free-to-air broadcaster with the most eyeballs, to integration into a triple play broadband proposition, were seen as how things may play out.

The future of co-productions

One subject that was tackled during the discussion was co-productions, and in particular the idea that the tap may run dry on the co-production dream if the large internet companies decide to do their own things.

“The hourly budgets (Horsman talked about) are sort of interesting in a tabloid, gosh so much money way, but they also reflect quality.

“More of the money is on the screen,” said Hincks. “That story has been a good one from a consumer point of view, but where do we go as they start to do it on their own? It’s not remotely as cynical as this: ‘can you show us how it’s done? Great. Thanks for that. Right then.’

“You can then run the argument that says what does that mean – Less happiness? Less-exciting viewing? Less nuanced? And there is another really big point, lets say for all the PSBs that we care about: how do they compete for talent because the inflation we see right now for talent is extraordinary. It is going way beyond and away from the world of co-production, but it cannot be sustainable,” Hincks added.

“It cannot last,” said Horsman. “The new entrants will not continue to cede these big exclusive periods and fall backs to their domestic partners.