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Future of TV Briefing: Imagine if streamers adopted an ad revenue-sharing model for original programming?

This weeks Future of TV Briefing explores the thought of top-tier ad-supported streaming services adopting revenue-sharing models for producers.

Show me the amount of money

Imagine if the rise of premium ad-supported streaming were to meet up with the entertainment industrys current era of austerity to spark a fresh financial model for original programming? And imagine if that financial model wasnt actually all that new, but mirrored the style of theatrical movies met with YouTube?

Imagine if Netflix and so on made a decision to split ad revenue with the firms they pay to create original shows and movies?

Ugh, groan, right? Digital video producers grouse about how exactly YouTubes, Facebooks and Snapchats ad revenue-sharing programs could be unreliable revenue streams, and thereby compromise how much cash the producers are prepared to spend money on videos. Thats grounds why these producers make an effort to pitch projects to the big leagues of Netflix, Hulu and HBO Max that the streamers covers with big checks paid upfront.

But those big upfront paychecks are under threat. Warner Bros. Discovery is attempting to cut $3 billion in costs, resulting in a development freeze and layoffs at HBO. Disneys new activist investor Third Point is pressing the business to similarly spend less. And also smaller original programming distributors are doing cost-benefit analyses. Roku, for instance, has began to consider the programming costs because of its free, ad-supported streaming TV service The Roku Channel, and Charter has opted to exit the initial programming business as production costs have increased.

And thats one more thing: Production costs have increased with rising inflation, rising interest levels, supply-chain constraints and the continuation of Covid-19-related costs.

These financial factors have previously exposed famous brands Netflix and CNN Films to co-financing projects. However, the co-financing model can lead to some rights to a project reverting to the producers of this project, that may inhibit the streaming distributor from taking advantage of the intellectual property rights to market merchandise and create theme park attractions predicated on a movie or show.

Companies which have a 360 [degree] view of content, theyre likely to be fundamentally less thinking about co-financing since they want all of the rights, said one entertainment executive.

You will want to broaden the economic model a little more by co-opting the rev-share model for original programming as digital video platforms did? The streamers would pay some money upfront to greatly help purchase a projects production, the producing company would cover the rest, and both sides would make back their money by splitting the revenue from ads running contrary to the show or movie.

While inspired by the digital video platforms, the model also mimics movies where producers can get a percentage of theatrical ticket sales revenue in trade when planning on taking lower upfront payments.

The model should be: Take the pool of revenue that will come in, allow all of the costs of production to be recouped, allow whatever advertising [costs] to be recouped and share there almost just like the old theatrical model, said another entertainment executive.

The chance, needless to say, is that there wont be adequate ad revenue for producers and streamers to reap, aside from recoup. Facebook and YouTube have previously proven how financially feeble ad-supported original programming could be. Another risk will be a rev-share model introduces the incorrect incentives an overload of ads and mass-appeal projects that lack any real appeal scuttling the streamers ad-supported viewership and potentially turning off ad-free subscribers put through exactly the same fare sans ads.

On the other hand, the top-tier streamers like Netflix may have some hope of succeeding in co-opting the rev-share model for original programming. To begin with, major ad-supported streamers like Hulu and Peacock already charge at the very least three times just as much per thousand ad impressions as digital video platforms, so there would stand to become more revenue to split per ad.

On the other hand again, if theres additional money to be produced from advertising including from product placement deals and when the streaming owners want to cut costs to safeguard profits, a scenario where they hoard that money for themselves seems significantly less iffy.

What weve heard

Im not surprised at all that [Netflix has] taken this long [to formulate its advertising pitch]. Most of us kinda knew a million things could go sideways. I was surprised the timeline was so aggressive in the first place. They were attempting to match Disney+, but Disney comes with an ad sales force and built the platform knowing they would like to allow advertising 1 day, and lots of their content is their very own, so they have significantly more control over everything.

Agency executive

Streaming viewership overtakes cable television

The quantity of time that folks spend streaming shows and movies on TV has finally surpassed that of traditional cable television, in accordance withNielsens The Gauge TV viewership report for July 2022.

To be clear, traditional TV still accounted for most enough time (56%) people spent watching television in July. And July is normally among the weaker months for traditional TV programming with broadcast primetime shows and major sports leagues just like the NFL and NBA being between seasons. Nonetheless, streaming overtaking cable TVs share and having surpassed broadcast TVs share since Nielsen began publishing The Gauge last summer marks a milestone.

However, while streamings share of TV viewership overall increased, not absolutely all major streamers saw upticks in July in comparison to June.

YouTube recorded the largest month-over-month increase at 0.4 percentage points, accompanied by Netflix and Hulu with 0.3 percentage point rises each. And Amazon Prime Videos share inched up by 0.1 percentage points.

In comparison, HBO Maxs share of TV watch time stagnated at 1.0%, while Disney+s actually dipped from 2.0% in June to at least one 1.8% in July.

Numbers to learn

350,000: Amount of U.K. households that stopped subscribing to any streaming service in the next quarter of 2022.

-1%: Percentage decline in linear TV ad spending in the next quarter of 2022.

$28 million: How much cash Swiss Beatz and Timbaland claim Triller has yet to cover acquiring Versus.

58%: Percentage share of survey respondents who said theyd rather pay a lesser monthly subscription price for an ad-supported tier when compared to a pricier, ad-free option.

1.9 million: Amount of subscribers that top pay-TV services lost in the next quarter of 2022.

What were reading

Netflixs ad product takes shape:

While Netflix has kept mum when talking with agency executives about its planned ad product, the streamers iPhone app spilled the beans on Netflix blocking ad-supported subscribers from downloading programs and skipping ads, in accordance with Bloomberg.

Vice takes to Twitch:

Vice World News has debuted a genuine show on Twitch, rendering it the most recent news outlet following the Washington Post and The Recount to look at the Amazon-owned live-streaming platform, in accordance with Adweek.

TikTok adds shoppable ads:

The digital video platform continues to be attempting to make shoppable video something by introducing features for folks to get products through advertisers videos along with live streams, in accordance with Ad Age.

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