In this report we calculate that revenue paid to U.S. TV content companies per person per hour is $0.30 by the Linear TV ecosystem, $0.11 by Netflix globally, $0.03 by YouTube, and $0.01 by MCNs.
Dual-revenue stream business models trade at a premium to single revenue streams because diversification mitigates risk. We calculate dual revenue streams add 30% to valuation multiples, suggesting that when a content company shifts viewers away from the dual revenue stream U.S. Linear TV ecosystem toward Netflix (subscription revenue only) or YouTube (ad revenue only), its puts downward pressure on its valuation multiple.
U.S. content companies are focused on the right question which is how to maximize profits from each hour of content produced. The wrong answer (our view) is putting identical content on lower revenue platforms which creates a less expensive perfect substitute for consumers. (Putting identical products at both Nordstrom and Walmart undermines pricing power.) We wonder if a more lucrative answer would be to create general managers for franchise content (similar to CPG product managers), who get paid on maximizing profitability across all distribution platforms for a single content franchise. This allows content companies to do what they do best; create unique content targeted at the interactivity, use case, and limitations of each distribution platform to create an immersive content experience for super-fans, but no perfect content substitutes. Short-form smartphone content that pushes viewers back to Linear TV should be a near-term focus.
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