The Future of TV: Follow the Money

By Wall St. Speaks Out Archives
Cover image for  article: The Future of TV: Follow the Money

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.

Investment implications:

  1. When identical content is viewable off the U.S. Linear TV ecosystem, it creates a headwind to revenue growth and retrains consumers to expect lower costs for all premium TV content.
  2. It is unlikely that any digital competitor can disrupt the TV ecosystem because the economics are too disparate. YouTube requires 10 viewers for 60 minutes at $0.03 for each single TV viewer at $0.30/hour/viewer. Disruption, if it happens, is far more likely to come from the incumbent TV content creators who undermine their own business model. Ad blocking makes digital video competitors less threatening in the future than in the past.

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.

Please go to https://needham.bluematrix.com/sellside/Disclosures.action for important information about Needham & Company, LLC's rating system, historical rating and price target information or research conflict disclosures. Pursuant to SEC and FINRA requirements, all incoming and outgoing email of Needham & Company, LLC is subject to review. Please note that Needham & Company, LLC does not allow the use of email to request, authorize, or affect the purchase or sale of any security, to send fund transfer instructions, or to effect any other transactions. Any such request, orders, or instructions that you send will not be accepted and will not be processed. Furthermore, the confidentiality of Internet email cannot be assured. Internet communications are not secure and therefore Needham & Company, LLC does not accept legal responsibility for the contents of this message. Any views or opinions presented are solely those of the author and do not necessarily represent those of Needham & Company, LLC, unless otherwise specifically stated.

The opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillage.com / MyersBizNet, Inc. management or associated bloggers.

Copyright ©2024 MediaVillage, Inc. All rights reserved. By using this site you agree to the Terms of Use and Privacy Policy.