The Dan Rayburn Podcast

Episode 70: The Impact of The Current Economic Climate on the Streaming Media Industry: Budget Constraints, Longer Sales Cycles and Higher Funding Costs

September 21, 2023 Dan Rayburn
The Dan Rayburn Podcast
Episode 70: The Impact of The Current Economic Climate on the Streaming Media Industry: Budget Constraints, Longer Sales Cycles and Higher Funding Costs
Show Notes Transcript

This week I break down the economic and financial factors that are directly impacting the growth and restraints in the streaming media industry. Learn why companies are doing more with less, reducing and consolidating their spending on services like storage and delivery, and the market factors that are influencing their decisions. From banking interest rates for new money, tighter budgets, and lengthier sales processes, this new way of doing business is now the new norm.

I also cover some recent comments from ESPN’s chairman discussing the importance of linear to US sports broadcasters, the triggers that would make ESPN go DTC faster, and why he says ESPN doesn’t necessarily feel any urgency. His overall takeaway is that professional sports leagues say that they prioritize linear because of the exposure and the reach and yet, the same spots leagues are taking big money from Amazon, Apple, and Google while giving them some games as a streaming exclusive.

Also mentioned: Amazon and Nielsen’s Thursday Night Football stats; Warner Bros. Discovery’s new sports tier for Max; and SK Telecom and Netflix’s new partnership that has ended their dispute over network traffic costs.

Podcast produced by Security Halt Media

Speaker 1:

Welcome to this week's edition of the Dan Rayburn podcast, the show that curates the streaming media industry news that matters most, unvarnished, unscripted and providing you with the factual data you need to know, without any of the hype, the pulse of the streaming media industry.

Speaker 2:

Welcome to the Dan Rayburn podcast. I am Dan Rayburn rocking a roll on solo today. Mark Donaghan is coming back from IBC and is actually on vacation somewhere, so it's good for Mark. Let's just jump into some IBC news. I saw some people in LinkedIn who are at IBC post recaps and I thought it was really interesting that some of them are talking about how one of the biggest themes they heard at IBC is that budgets are tighter, the sales process is taking longer, companies are spending more time evaluating products and services and, with some even saying that CFOs are having more to say in what's purchased. Some seem surprised by that and I don't really know why. Some are calling that a trend. That is not a trend. A trend is defined as a general direction in which something is developing or changing, so that's not a trend. That is the new norm. Some is defined as an authoritative standard. That is the new standard. That is the economy that we are in and we have been in that for some time. Doing more with less is the new standard. Anyone who doesn't realize that they're just not watching what's been going on the market for, I'd say, at least the last 18 months, we've seen companies come out and talk about how they're reducing their highest tiers in their bit rate ladders, doing better compression for encoding to get cost savings, consolidating compute and storage costs. Every piece of the streaming ecosystem, really from glass to glass companies are looking to do more with less. And then, if you think about even on the content side, we're seeing companies remove titles from their catalog and be more selective in what they produce and license. So if you haven't already adjusted to this reality, you better, and you better do it fast, because that is not going to go away anytime soon. I think it's important for everyone to understand the outside factors that influence the economic conditions of business in general, no matter what industry you're in. So today I'm recording this.

Speaker 2:

On Wednesday, september 20th, the Fed left the interest rates unchanged, but didn't rule out a rate hike in November. But for those of you that follow what's been going on, fed has raised interest rate 11 times in the past 18 months. So the impact here is the cost of capital required to do business, to expand, has gone higher. The Fed also said today that they don't expect to cut rates next year by as much as they thought they would. So they now see the federal funds rate at 5.1% by the end of next year, which is up from 4.6. So the big message here, the key takeaway, is higher rates for longer periods of time.

Speaker 2:

Now why is that important to our industry and every other industry? Well, if rates were lowering, those lower interest rates are a boost really to many businesses' profits as they can obtain capital with cheaper financing and make investments in their operations for a much lower cost. And that's a really big deal when it comes to growing business, expanding into new markets, offering more products and services, and not having to do layoffs like we've seen so much of in the industry to cut costs quickly. One company I know that just raised over $100 million, not going to come out and say who they are, but they have a 15% coupon. 15%. Now, if you don't know what that means, 50% coupon a real, simple coupon rate is the fixed annual rate at which a guaranteed income security, which is typically a bond, pays its holder or owner. So that is a high rate, 15% and part of that is because of what's going on in the economy today and where the interest rates are. So my point is I'm not trying to do a Wall Street 101 class here, but my point is no matter what industry you're in. You have to understand what is driving the industry from an economic standpoint. So if you're coming back from IBC and you're shocked and surprised that sales cycles are taking longer and budgets are tighter, you need to do a better job of reading what's going on in the space and what's going on in the overall economic business climate. It makes a direct impact in all of our jobs. Who's hiring, who has to lay people off, bonuses matching 401Ks? I had a lot of things that we're done away with after COVID, so it's really important.

Speaker 2:

Let's jump into some news today ESPN, disney. I got some Amazon news that came out today, so there was an interesting write-up after ESPN's chairman spoke at the IMG summit in London this week and what he said was at a high level that he believes linear is still going to be an important route to market for US sports broadcasters. It's still very important, it's not going to go away. And he talked about a launch date for their ESPN DTC service, which we don't yet have, and he didn't give one, but it was very interesting what he said. He said the launch date would depend on whether court cutting reaches quote a certain threshold. Now I'm going to quote him here in a paragraph. We truly do not have a launch date. We know we have to get this right in terms of timing and price point. Espn Plus is going so well for us. We have a ton of exclusive content that's performing very, very well for the platform, so we don't necessarily feel the urgency. If things continue to accelerate in terms of court cutting and the decline, then, yes, we will probably pull that date to an earlier point than we are right now currently considering. End quote. So what they're saying is they're going to watch market dynamics and court cutting to see how it truly impacts their business to determine when they go direct to consumer. It doesn't sound like it's going to be anytime soon, and by soon I mean the next year. We've seen reports out to people internally within ESPN have leaked to the media. They think it's 2025 to 2026 for ESPN DTC, but there's no way to confirm that.

Speaker 2:

Also, he was adamant that linear is an important route to market for ESPN. He said in the medium future. Because he said a combination of ABC, espn and digital platforms meant that right holders basically could be confident that they're reaching the widest possible audience, which really makes a lot of sense. Yet at the same time, what is this Bob, the CEO of Walt Disney Corporation, saying? He's saying that maybe we have to get out of linear. So interesting statements coming out from two different people within the organization.

Speaker 2:

Now he also said quote when we acquire rights for multiple platforms, most of these deals are still led by the linear component. If you were talked to any commissioner, whether a professional league or a conference, they will tell you that they prioritize linear because of the exposure and reach. And that's definitely true. If you look at some of the numbers I reported in the past week or two around football on streaming I think it was on Peacock the numbers are under 2 million AMA average-minute audience on Peacock. Why? Because people are watching it on broadcast. That is still the number one platform for viewership, as long as it's not an exclusive only game where you can only get it on streaming. So that's very interesting.

Speaker 2:

And then the final piece here that he said is quote one of the things we bring is multi-platform. We have broadcast in ABC cable and all of our ESPN networks, d2c and ESPN Plus. We own the majority of Hulu. We're very active on our digitalcom sites app and on social, and leagues tell us that they love that reach that they get because it's a led by linear. So he says I don't see anything changing. Sorry, I don't see that changing, at least over the next several years. So some pretty interesting comments there, right from ESPN's chairman, giving more insight into what they're thinking when they pull the trigger and what is going to help them determine what methodology they're using and what data they're looking at to determine how they shift their business. So pretty interesting. I think that's some of the most detailed information we've gotten to date. Most of the other information from Disney that we've gotten comments so far, but you know high level, at some point we know we'll have to do something, but we don't know when yet. But this was definitely a bit more detailed. So that was good to see.

Speaker 2:

Let's move on to Amazon Talks Sports some more sports. So Amazon had their first Thursday Night Football game last week and, according to Nielsen, what they call their custom integrated live streaming report Prime Video Average $16.6 million average minute audience and AMA viewers for the kickoff the Vikings and Eagles. Now that's across Prime Video, but also local broadcast outlets, twitch and NFL digital properties. So I've seen some people reporting online that 16.6 million viewers are streaming. No, it is not. Local broadcast outlets are included.

Speaker 2:

Now, big thing you have to question numbers in the space. Obviously, if you listen to this podcast or read what I put online, you hear me say that ad nauseam. But the reason here is, the most important is on TV. We know the viewers For TV. We know Nielsen's measurement. I don't know what Amazon defines as a viewer. So when you go to Amazoncom and the game is auto-playing in the background on the homepage, if you don't actually click on it or interact with it, are they counting you as a viewer? I don't know If they. If you stay on that homepage for 10 seconds, are you not a viewer because you didn't stay on for at least 30? I don't know. The point is, none of us know. We have zero transparency into the numbers. So you have to question these numbers. You really do, because some people are using these numbers to determine success or failure in the industry and yet we don't know the methodology behind it.

Speaker 2:

Now it's also important to note that you cannot compare these numbers to previous games or streaming of other live sporting events, because Nielsen has revised their formula. So Nielsen is using Amazon's first-party data in determining the official viewership of Thurston Eye football Last year, amazon's internal data showed viewership 18% higher than Nielsen's numbers for the 15 regular season games broadcast on Prime Video. So what does that mean? It means more confusion. I think, frankly, it's pretty amazing to see Nielsen sacrifice its most valuable selling proposition as a company, which is impartiality, just for one client and one sports league. If you're a partner of Nielsen's or any large client or sports league, you look like you don't matter to Nielsen when they'll change their rules for one customer. Now I know Nielsen would push back if they actually ever return calls or emails, which they never do but I know they would push back and say that it's been reported. They've made a similar effort to utilize data from other streaming platforms and other networks and other sports services, but those other outlets have reported directly to the media that Nielsen's giving them no actual information on how it would work and has kept them in the dark. So if there's one thing Nielsen isn't known for, it's it's their transparency.

Speaker 2:

Also interesting and not surprising if you follow the space, you already know this, but Nielsen calls out in the press release that the current way they do measurement by integrating first-party viewing signal is quote presently not accredited and is undergoing review by the Media Rating Council, mrc. So, in other words, the data is not to be trusted At the bottom line. And then, finally, with this, amazon is calling this the most quote the most streamed NFL game in history. But then there's an asterisk with that comment that they made, saying that that is quote based on device AMA, inclusive of Prime Video, twitch and NFL Plus. What does that mean? I don't know. Now, if you follow the space, you would expect there's a night football to be the largest streamed NFL game, because we know it's larger than Super Bowl. We've seen those numbers before and this game is exclusive to streaming other than the local markets. So that does make sense, but they don't break out how they get to that.

Speaker 2:

Here's the other thing, which, of course, will never be addressed. On TV, when you turn on the sports game, every single person, no matter where you are in the country, is getting the same signal, is getting the same quality, unless you literally have a problem with your cable TV operator, which happens Not very often. So, while they talk about average-minute audience and how many viewers they have, what they don't talk about is how many viewers had a good quality experience, because we know garbage in, garbage out. We know quality is what's important, qoe, quality of experience. So when you're comparing your viewership numbers for streaming to cable TV, where that experience is the same for everyone, versus streaming, where a small or large portion of your users could have a poor experience, it's not apples to apples, it just isn't. And we never get those numbers. Of course, of the percentage of users that had long startup times, rebuffering issues, 404 errors, whatever it may be, but you wonder what percentage of users had a great experience, don't know.

Speaker 2:

Moving on to another Disney piece here, abc. So this is interesting. Abc announced it would add 10 more Monday Night Football simulcasts than planned because they're dealing with the programming shortfall from the writer strike. So ABC will now have four exclusive NFL games and 15 simulcast games. Espn only has three exclusive games all in nights when ABC carries its own double header game. So this has been very interesting. They just did this for the last Monday Night Football game and they did split screen, which was absolutely annoying. I heard you know how to do picture and picture in my TV. I don't know why you have the four split screen on me, but interesting to hear cable TV distribution executives complain about how this is just another instance where expensive programming is leaking outside of the bundle. Because you have NBC's Decision to Stream Sunday Night Football, you got Peacock and CBS Decision to Stream Sunday NFL games on Paramount Plus.

Speaker 2:

So it's being reported that what ESPN is doing here is only going to be for one year and is due to the writer strike. But you don't know how long the writer strike is going to last. So what one executive said here is, quote this whole double dipping on the backs of distributors is just ridiculous. This is not going to endear the Wall Street companies to its distribution partners. Its flagship content was supposed to sit within ESPN. The fact that it is now sprung free to ABC to cover the fact that they aren't willing to pay actors and screenwriters is well, I won't say the last word they use, but let's just say they're not happy about it. So, gosh, just more Disney stuff, where you would think Disney would go out and talk to these broadcast executives and even tell them hey, this is what we're going to be doing, this is why we're doing it, this is our thinking, and broadcast distribution executives say they're not doing that. So it seems so odd to me that Disney just can't communicate with their partners, it can't get out of their own way. In that regard, there's quite a breakdown in communication in Disney right now.

Speaker 2:

Let's jump on to some more sports news here. Warner Bros Discovery announced a new Bleacher Report Sports Ad on tier, which will be coming to Max Thursday, october 5th. Now we heard about this news before, but now we have dates and we have pricing. So it's going to be free for all Max subscribers in the US until February 29th 2024, at which point it's going to cost $9.99 a month. It's going to include live events from MHL I'm sorry, mhl just created a new sports leak MLB, nhl, nba, ncaa, us Soccer events and also SelectLive international sports events. The press release is extremely long. It includes all kinds of games listed how many? So I would say check out the press release if you want to see all the details. So the way to think of it is all live games airing on a Warner Bros Discovery linear network, so that's TNT. Tbs True TV will be available on Max through the Bleacher Report Sports Ad on. So that's coming October 5th, so just about two weeks.

Speaker 2:

Here's an interesting one. Sk Telecom and Netflix have announced that they've ended their dispute over network traffic costs and have announced a strategic partnership, as they call it, to work together. So a couple of things they're going to do here. The companies are going to collaborate to offer easier payment methods for users. They're going to do various price plans and products and SK Broadband will introduce additional Netflix bundled packages for their telecom service, what they call T-Universe. They also plan to introduce services combined with Netflix ad supported price plan. They didn't give any more details on that as of yet.

Speaker 2:

In addition, sk Telecom and SK Broadband they say the term they use here is explore opportunities with Netflix to leverage AI technologies that are developed by SK Telecom and SK Broadband and they say, such as conversational UX and personalized recommendation technologies. So it sounds like there's some sort of technology deal here where SK develops that technology, maybe Netflix will use it, maybe they'll license it. We don't know. No terms of the deal were disclosed. We don't know who's paying who. New products for SK Telecom and their broadband customers, they say, will be gradually released from the first half of 2024. And the companies say they'll get more details over time and what the products will be.

Speaker 2:

So interesting to see them settle the dispute. Would be nice to know if money is exchanging hands here. I assume it is in some way. We also could potentially see this talked about in a regulatory filing by Netflix down the line, so I'll keep an eye on that. I don't expect it anytime soon or their next filing date, since no business is taking place as of yet. Netflix has announced that their next earnings will be on October 18th. That's less than a month away. And to just sort of recap, during the original dispute with SK Telecom, sk Telecom demanded that Netflix pay $24 million and what they were calling network usage fees, just for 2020. And Netflix countered, of course, that it had offered SK Telecom their open connect platform for free, but SK Telecom didn't want to deploy it. So interesting just to see what happens there. Yes, it did bring up some of the net neutrality debate and topic, which was unfortunate, but I like this news because it's two businesses that have gotten together and hammered out a business deal where they both feel they got something from the deal and we don't need to get regulators involved. But that's what business should be, so I like the deal.

Speaker 2:

Little piece of information today Amazon announced Two upgraded Fire TV sticks, so now what they're calling the second gen Fire TV Stick 4K Max. It's going to be $60. It'll be the first ever streaming stick, they say, to support Wi-Fi 6E. I believe it is. I don't think any other streaming stick supports that. I don't know enough about Wi-Fi 6E to know if that's really a big deal. Is that going to make that big an improvement in someone's experience when they're connecting the device? I really don't know.

Speaker 2:

It was interesting to see them announce a new Eero 7 with all kinds of technology packed in there Expensive, I think, it's priced at $600. But we can see more Wi-Fi technologies being pushed into the sticks, which is great if people are having Wi-Fi issues inside the home. The new MaxStick also supports Dolby Vision, hdr, hdr10 Plus and immersive Dolby Atmos audio. And then the second stick is the Fire TV Stick 4K not the Max which is now also second generation. That's $50. They're saying it's nearly 30% more powerful than the previous generation. They gave out just limited specs, but it features an updated 1.7 GHz quad core processor and that one now supports Wi-Fi 6. Also they announced a bundle. Us customers only who purchased a new Fire TV stream media player or smart TV can get a six month subscription to MGM+. I don't know why MGM+ Plus was picked. It seems like a kind of an obscure one to me, but hey, if you like MGM+, get it for six months for free for buying a stick. Both devices are available today for pre-order and the website tells me, if I ordered today, that it would deliver to my location, East Coast, northeast New York, by September 29th. So it looks like if you pre-order today, they're just a little over a week out, which isn't bad at all. So that's what I got today. I'm also just going to recap here on the NAB Show streaming summit in New York next month. I published yesterday a long LinkedIn post with just a recap of what we're working on. So I'm super excited to announce Disney Will be the opening keynote on the first day.

Speaker 2:

I'm going to sit down with them and talk about what they're doing in the advertising side. So this is Tuesday, october 24th. So Jeremy Hellfend and Jamie Power from Disney are going to sit with me. So that's awesome. We also have a session moderated by Netflix on designing high performance transcoding infrastructure, architectures and best practices. So we've got a great session there lined up. We've also got a case study presentation from YouTube and Hovercast on how YouTube is deploying interactive live streaming. They're going to talk about what that does for engagement. So great to see that directly from YouTube.

Speaker 2:

We have quite a few sessions on the re-bundling, packaging and distribution of video no surprise at all. We also have some sessions around the UX evolution in live sports streams. We've got a session on technical challenges and best practices for delivering live events with FUBU, paramounts and Claire, so that's going to be another great one. We've got a business of fast monetization market saturation of your engagement session. I'm also super excited. I'm going to sit down with Mark CEO over at Breikove. We're going to talk about what they're seeing when it specifically comes to sports. We were talking so much about sports. We're hearing about sports licensing, costs and bundling, but I also want to hear more about what's going on in the back end to power a lot of this. So I'll sit with Mark on that. We also have another session around defining the new pay TV bundle and the path to growth and engagement. Another sports section on the impact of streaming sports migration from pay TV to OTT. And then I've got two more sessions on live streaming on the technical side streaming workflow related and then also soon I'll announce the day two keynote fireside chat. So some really great content If you haven't been to the show New York, it's obviously much smaller than Vegas.

Speaker 2:

The entire NAB show New York last year did just over 10,000 attendees. Vegas this year, I believe, was 60,000. So New York is definitely a smaller show. But if you're in the streaming space, we're going to have, as you can see, a great lineup of content of broadcast executive sports leagues. There's a lot more on the website. So you can just go to NABStreamingSummitcom, click on, check out the agenda. It'll take you right to the NAB show page with all the sessions, speakers listed.

Speaker 2:

If you're interested in going, you'd like to buy a ticket and get a discount, just reach out to me, dan at danrabercom. Reach out to me in LinkedIn if you want. I'd be happy to provide you with a discount code. You can share that as well with anyone inside the company. So I'm excited. I'm excited for next month. It'll be nice to get the show streaming summit, in particular, back in New York after four-year hiatus Thanks to just COVID and all that was going on in the city. So that'll be here in just about a month. And also on Monday, october 23rd, I am going to try and do a streaming meetup in New York City.

Speaker 2:

Challenge I'm still having like I mentioned, if you didn't hear last podcast is finding a location. It's really hard to find a location to man at now that doesn't want a $10,000 upfront payment. So if anyone has any connections, it can't be a company's office. I appreciate it, but it's just too hard trying to register people and get them in the lobby and show ID. That just doesn't work. So if you know of a bar, restaurant, rooftop, something that is not willing to take not needed too big of a deposit, they'll definitely make a couple of grand. Just on the bar tab, though, please reach out to me. I'm still looking for a space. So that's all I've got today.

Speaker 2:

Appreciate everyone listening. If you have any questions, let me know. Everything I talked about is up on LinkedIn. Mark and I will be back next week. I'm bouncing out of town for a little bit of travel. We'll be recording about another eight days, nine days, so there'll be a little bit of break between podcasts, but there'll be plenty of news to talk about when we come back. So hope everyone had a good trip back from IBC. If you have any questions, look forward to hearing from you. Reach out anytime. Otherwise, talk to you next week.

Speaker 1:

If you enjoyed the show, send it to a friend, have questions for Dan or Mark, connect with them on LinkedIn at any time and be sure to check out Dan's blog at streamingmediablogcom.