Is a la carte really the best thing since sliced bread?

There is a growing sentiment, from the water coolers to the web, that the traditional broadcast and broadcast distribution model (cable, satellite) is dead or living on borrowed time. This view is predicated on a number of observations that are as applicable to the US as Canada:

• Consumers are frustrated with packaging and cost within the traditional  system
• The Internet and underlying digital technologies have enabled consumers to choose programming on demand and to watch shows, or movies, when and, increasingly, where they wish and on whatever platform they choose
• Over-the-top services like Netflix are providing lower cost alternatives outside of the regulated system

 

These observations drive debate to a conclusion that everything will increasingly be on-demand and consumers will gravitate to that model. While it is hard to argue with any of the above, it is worth asking the question as to whether a la carte will replace traditional models or change the economics of the business in such a way choice will be more complicated and perhaps, for some, more costly. I tend to suspect the latter rather than the death of broadcasting scenarios. But there will be a lot of unintended consequences, many of which may be negative for consumers and producers of original content. That said more a la carte choices are inevitable.

 

First though let’s step back and consider what a la carte really means for broadcasters.

• A lot of debate about a la carte focuses on providing consumers more ability to choose only the channels they want but what about programming on-demand
• But is a la carte only going to be about more flexible packaging or are we talking about the death of channels? Certainly some channels will disappear and packaging flexibility will increase
• Yet at their core TV channels aggregate and curate content and in that respect are not so different from Netflix
• And broadcast channels are also based on an a la carte model in the sense that consumers/audiences choose what they watch on a per show basis not a per channel basis
• The trick for a broadcaster is to aggregate sufficient popular content to make its channel and therefore the production of original content viable because at the end of the day consumers want a constant supply of new programming
• A la carte obviously undermines that model in terms of its ability to sustain original production at current levels
• So a big question is does a la carte lead only to content on-demand or does it result in different ways to aggregate and curate?

 

I suspect that for a majority of consumers having an intermediary providing aggregation and curation remains of value. That is why Netflix is popular. Few consumers of content really want to have a meter always running whenever they turn the TV on, even if they are happy to pay a premium to watch some shows or movies at their convenience. The bigger question is, in a world of increased a la carte, what is required to make curation viable?

 

Does full a la carte result in lower costs for consumers?

• The average consumer watches approximately 25 hours of TV a month (not counting web video)
• If all programming was available only a la carte even at a cost as low as $1 per hour that would cost up to $100 a month to watch the same amount of TV but $1 an hour is probably way too low a cost
• A la carte fragments audiences dramatically so for broadcasters to license or produce the same quality of shows consumers favor, costs must rise dramatically. (Selling shows like Game of Thrones only on-demand for $1 an episode is not a viable proposition)
• Pure a la carte either puts the cost of TV through the roof or kills the amount of high quality or original content and shows we watch today. That is why it is more likely to be a part of the broadcast model not a full substitute
• And it is not sufficient to suggest that web content of lower production quality will fill the void. (There is a reason Game of Thrones is the most stolen content online)
• That suggests a different model that will include aggregation channels like cable, satellite or Netflix which continue to provide a library of content for a monthly fee

 

The issue with aggregation becomes how many aggregators will there be and which are they?

• Cable and satellite have an advantage of incumbency and scale given their existing subscriber base even if that base shrinks and through their affiliates control the vast majority of rights to do TV on-demand
• Netflix provides a good example of a new type of aggregator that provides an extensive library of content for under $10 a month(for now)
• But is this a viable model as a substitute for broadcasting today
• Netflix’s model is based on renting content in bulk at very low cost and that model is stressed
• Recently Netflix lost the rights to 2000 hours of content back to studios looking to offer their own VOD services.
• This highlights a hard reality for new aggregators that studios are going to ensure that they do everything in their power to protect the content the own and create and maximize the value of content, particularly original content
• Now Netflix may get this content back at a much higher cost but that means higher monthly fees and a less attractive value proposition for consumers
• Netflix is also trying to increase its own original programming but ironically that makes it more like a broadcaster and it’s hard to imagine it can produce a lot of original content under its current model
• Alternatively Netflix increasingly becomes less attractive in terms of its library because studios decide to pursue their own strategies and that means almost certainly that consumers will need to subscribe to multiple aggregators/channels (and increased subscription costs) to get access to all the content they want
• As that happens the cable/satellite value proposition, which will increasingly include on-demand, improves in a relative sense

 

What happens to the quality of original programming under a la carte?

• The current broadcast system maximizes the opportunities to produce massive amounts of quality original content (thousands of hours of series like House of Cards)
• That system however depends first on high penetration of individual channels such as must-carry local channels like ABC or CTV or high penetration packages that include services like Discovery or Space because high penetration drives advertising and/or subscription revenues that support licensing and production
• Pure a a la carte or even pick and pay, damages the penetration model and therefore seriously erodes the subscription and advertising revenues that make original content available at current quality and scale. This applies to broadcasting in the US, not simply Canada, although scale is obviously a greater issue here.
• It seems unlikely that the Internet can replace high-end quality content in the 1000s of hours produced today
• So the big question is where will original content come from and how will its value be recovered so it can continue to be produced and licensed? It’s hard to imagine how this works without higher cost to consumers

 

As stated above this blog is not suggesting that there won’t be a shift to more a la carte. There already is and will be a much bigger shift. Rather this blog is simply intended to encourage debate as to what really happens to consumer cost and the availability of high quality original content as the market continues to shift in that direction. Clearly it’s not as simple as it sounds nor necessarily as good a deal for consumers as suggested. But it will still move in that direction regardless, because consumers will demand it and make it happen, regardless of the potential impact on the current system.

Looking for advice and volunteers to promote Canadian content

At Prime Time in Ottawa a few weeks ago we provided an update to delegates about a National Promotional Strategy to raise awareness about the great on-screen content produced in Canada. While there are a number of initiatives underway, (creating a platform for access and discoverability, branding), the working group that I co-chair with Barb Williams from Shaw Media has a very specific mandate— and that is to promote the success of Canadian TV, film and second screen content in terms of shows, its creators, talent and economic value.

Our working group is made up of a cross-section of industry experts who are focused on coordinating communications promotion— not regulatory or policy issues. We are at the point right now where we have identified two specific projects, both aimed at promoting the success of Canadian content. The first project involves using social media and online tools (and you as experts and audience) to build a buzz about success stories by reaching a critical mass of grassroots supporters. The longer-term project will involve work by a sub-committee of broadcasters to look at how to use their facilities to promote success on the screen.

But we need your help, if we are going to reach a critical mass. The intent of the working group is not to become simply another permanent body reporting out to government bodies—there are lots of those around.  We are not focused on asking government to act but for to act ourselves by executing promotional activity without permission. We simply want our initial ideas to be catalysts for grassroots movements and engagement in creating and promoting Canadian success stories.

At Prime Time we promised that we would reach out to you as institutions, groups or audiences to ensure the social media exercise would be an inclusive one.  The time to begin is now.

So what do we mean by success stories?

The stories can be economic or financial in nature. For example we can take data available from resources like Profile: An Economic Report on the Screen-based Production Industry in Canada to find important nuggets of information to share. For example…Success: Did you know the screen-based industry created 132,500 jobs last year?

Other kinds of data can be made into short stories from ratings information. For example… This fall Rookie Blue scored higher in the charts in Canada than Big Brother or CSI New York.

And the more we can create success nuggets of 140 characters or less the easier it is to promote.

Award ceremonies are also a good source of the kinds of success stories we are talking about. For example…The Oscar-nominated Rebelle wins 10 awards at the Canadian Screen Awards.

Of course news about stars, directors, writers, etc. are also success stories. And you can’t have populist support without a star system. The information is generally available; it’s just not well catalogued or easily accessible.

Those are just a few examples of what success stories could be about. But we are looking for your ideas and some other sources, like newsletters or Facebook pages already dedicated to Canadian content. And we need advice on how can we collect and collate such information? What groups in the country may already be doing this kind of work, how do we find and include it? How do we build and engage contributors so this is not a top-down initiative, but taps into the grassroots, and fans of Canadian content?

So, what do we mean about promoting our success, and how can you help?

• In our view it is easy to start by creating the kinds of success stories I illustrated above in 140 words or less and tweet and retweet them through a network of producers, broadcasters, creators, funders, etc. Facebook pages or newsletters are also great ways to tell the stories in longer format. But how do we roll that over to audience engagement and participation because only then does such an exercise take off?
• There is an exercise underway right now at CMF and Telefilm to create a common brand to cover a range of activities that has the potential to connect a lot of activity under a unifying umbrella. How do we coordinate efforts?
• Is Twitter the best place to start or other social media sites like Facebook, LinkedIn etc.?
• How do we avoid reinventing the wheel and figure out what parties actually are already out there doing promotional work and increase collaboration amongst all these groups?
• Where do the success stories come from? “Profile” and provincial funders have great regional sources and CMF, Telefilm and CRTC have tons of data. As would the Academy running the Canadian Screen awards. Film and online festivals have info as do associations/organizations like CMPA, ACTRA, APFTQ, DGC, WGC and CAFTE, just to identify a few institutional sources.
• How do we collect, curate and store such info so it is accessible in a “commons” like environment?
• Do we require a wiki to be our central repository and can we make it more sophisticated so it can be searchable and aid in the discoverability of content rather than simply its promotion? How could we make something like this self-funding?
• How do we create something that can either reflect many cultures, regions and communities both physical and virtual, or can be easily replicated to promote unique interests and perspectives?
• And most important, how do we transfer this from a working group to a collective of institutions and individuals that may all want access to the info but have different ideas as to what to promote and how? Because we believe success comes from the ground up not through a command and control structure. That to us is the essence of audience support and engagement.

The good news is that there are an incredible number of Canadian success stories and not merely in Canada but internationally. Our films win countless awards in international markets, we are recognized as a hub for digital/transmedia activity, our children’s programming is world leading and our lifestyles and dramas are available in markets around the world. But who knows?

The challenge is to create this community of communities on a shoestring basis by relying on volunteers like homegrown creative talent, producers and broadcasters of shows and innovative success stories and anyone who wants to be part of a loose affiliation of people promoting good news for the fun of it.

So while we wait for a brand to ultimately help connect us all, please give us your ideas on these questions by replying to this blog (comments section) or via Twitter @hennessycmpa.  Hopefully some of your advice can help find us a better home for this phase of the exercise.

And you don’t have to wait to get out there. If you have a show, film, web series or creative talent you want to promote, just start. No permission required.

PS. ideas and tweets are welcome but there is no budget to buy software to drive this so business proposals, no matter how cool will not be considered—at least for now.

So let’s get started. We have a lot of stories to tell.

Michael’s Hennessy’s Opening Address at Prime Time in Ottawa

Good Morning Ladies and Gentlemen I am delighted to welcome you all to the 23^rd annual Prime Time in Ottawa Conference.

It is hard to believe I have only been part of the CMPA team since last June. So much has happened since then.

I was asked to come in June, to act as a change agent.  And I’ve discovered that’s the easiest thing in the world to do. Every week I look out my window and everything changes. Mission accomplished.

Seriously though, change is now the new status quo. In fact this week the CRTC, just to keep things topical at Prime Time, not only announced BCE/Astral Phase 2, but as part of the fallout of that proceeding, we are also confronted with a pending sea change in children’s programming and animation in this country.

At the CMPA our job is to help our members navigate change. These days that’s a bit like racing an avalanche down a ski hill.

Global market demand for video seems almost insatiable. That should be great news. Unfortunately in a digital market, the linkages between insatiable demand and revenue are often as unrelated as they can be broken. This is creating huge uncertainty, including, as recently reported in media, tensions between broadcasters and producers when it comes to Terms of Trade. No big deal, everyone is a bit tense these days.

Two weeks ago, an analyst commenting in The Economist, on the huge pressures on the film industry, stated that “People are still watching the same amount of movies they did a few years ago. They are just spending $6 billion a year less to do it.”

And that is the nub of the problem going forward. Insatiable demand is the fresh snow but digital is the avalanche.

Because in a world of global competition and the disintermediation of suppliers through digital platforms, revenues can drop like a stone even as consumption rises.

MPAA Head Senator Chris Dodd, our luncheon speaker today, probably has a few thoughts on how to manage this change.

The solution for all of us in the content business is to follow the money and to grow the pie beyond traditional markets. But how?

The formula is easy. Deliver to the audience what they want, on the platform they want, when they want it.

But the execution is not so easy, because broken as it may be in parts, the status quo remains the only familiar terrain we know. It’s just a lot less friendly today.

Luckily our keynote speaker this morning, Robert Tercek can share his views on how to realign strategies in a world of disintermediation.

There is still lots of good news, and in 2012 there was a lot to celebrate in terms of value creation.

The latest numbers from “Profile “show that the industry generated 5.9 billion dollars in production volume last year, and generated 132,500 full time jobs and almost $2.2 billion in export value.

That is proof positive that we have become an engine that is going to help drive the digital economy.

More good news. Domestic TV production showed over a 20 per cent increase in production expenditure as Canadian shows proved they could punch above their weight. This fall eight out of the ten most popular Canadian drama series were produced by CMPA members and many shows like Flashpoint, Murdoch Mysteries, Saving Hope, Arctic Air, Bomb Girls, Rookie Blue, Republic of Doyle, Mr.Dee and the Listener have become audience staples. And new hits like Cracked and Motive keep adding to the inventory.

Canadian children’s and youth programming perform strongly with shows like Spatalot, Mr. Young, Johnny Test, and Joe and Jack selling worldwide, and scoring well on major US networks.

Lifestyle too had broad international audience appeal with winners like Property Brothers, Top Chefs, Income Property, Eat Street, Ice Pilots, Love it or List it, and Design DNA.

And it seems at times that the Scify Network in the US looks like it was made in Canada.

Canada is the new cool in the creative market.

Last year, 85 Canada Media Fund supported shows gained international distribution, including 31 sales into the US market.

That is tremendous audience validation for the quality of our collective works.

Quality and recognition extends to film as well— from Oscar Nominee Rebelle, or War Witch, which took 10 Awards at the Canadian Screen Awards, to Take This Waltz, Monsieur Lazhar, A Dangerous Method, and Screen Award winners, Midnight’s Children and Blackbird.

But don’t run out to the theatre to catch these films. You may get lost looking for them.

In 2010-11 Canadian films won a total of 133 prizes and mentions at festivals— including 61 at the international level.

The problem is that this news is sometimes a secret in Canada, in part, because we don’t promote our success well enough. And, without marketing and promotion and distribution you simply can’t reach an audience no matter how good the product. That is why promotion will be another big topic at Prime Time and priority for the CMPA.

Compounding film’s problems are shifting demographics as Canadians are increasingly spending more time in the theatre at home, than in the theatre down the street. And this is happening at a time when broadcasters are pulling back in terms of financing and exhibiting feature films in favor of dramatic series which provide longer promotional cycles and involve less risk.

On top of that, the DVD market, a principal source of revenue, has all but collapsed due to a shift to on-demand services and the persistent issue of piracy.

This revenue implosion sucks, because research shows people still love to watch movies. So if the audience won’t go to the theatre, our products better be readily available to the audience on the screens they watch at home and increasingly carry on the go.

But that requires new TV, streaming and on-demand strategies that increase not just the monetization and financing of, but also the promotion and exhibition of Canadian features.

So hang around because film and its future from financing to exhibition on TV will be a big topic at Prime Time this year, as well as at a couple of CRTC hearings this spring.

While we have seen significant growth in domestic production of Canadian content in television, the service industry has experienced a big decline over the last year. This is particularly true in Quebec, Nova Scotia, and as we have followed closely, in British Columbia.

This should be troubling for proponents of a digital economy for Canada. Troubling because the investment and jobs associated with our position as Hollywood North create the very infrastructure, scale and talent that is also required to support the creation of Canadian intellectual property across the country. And it is ultimately that intellectual property that creates value and drives the digital economy.

To think this is merely a regional issue is flat-out wrong – it is a global battle. Increasingly governments realize that economic growth and high value jobs are going to be driven by the digital economy. And the countries or jurisdictions that get there first may build lasting economic advantage.

One of the CMPA’s priorities to is to promote the economic value of our industry in terms of its contributions to the digital economy, through innovation, investment, job creation and exports. Why? Because to remain competitive we need to ensure that our financing incentives and rules are modern, efficient and competitive. However to justify any change in policy you have to first demonstrate value.

That begins by demonstrating how we have already created economic value out of intellectual property. Intellectual property after all is the most valuable currency there is in a digital economy.

But economic arguments alone are not sufficient. We also need public support which begins by creating buzz about content.

That’s why I was so pleased at the success of the Canadian Screen Awards. The combined awards attracted a broader audience and took celebrating Canadian content to a new level.

Our Public Affairs teams have a mandate to tell that story in Ottawa and the provinces on your behalf.

But they need our support because it’s the creative talent and the content you develop that are the stars of the digital economy. Our shows and our stars are our best ambassadors we have.

I submit collectively, we have all done a mediocre job in selling the audience and influencers on just how good and increasingly popular our content is. That we have had so much recent success with so little marketing at times is remarkable. Just imagine what we could accomplish with more promotion.

Later today we will hear from the CMF and Telefilm along with a panel of experts on how to better promote the success and increase access to and discoverability of Canadian content.

Now navigating change can be a nightmare. I wake up some nights struggling to sort all these challenges out, and I have discovered that it helps to try to put the end game into simple perspective. We have a New Business Model’s Committee at CMPA making the end game a priority. While it is not easy to define our future, we know this. It will be built on a growth strategy that begins with serving the audience on their terms and their turf.

Why the focus on growth? Because the Achilles heel for Canadian success in production has always been a lack of scale. Because growth floats all boats.

Growth is about defining a new future not fighting over the status quo. The status quo is already the past.

While we may be hitting the saturation point in traditional Canadian markets like linear TV, there is lots of room for growth.

The market for content is clearly exploding and the demand for story-telling through multiple platforms is only going up. And this is as true in terms of international sales and distribution as it is for new production opportunities in the digital and branded entertainment markets. Growth means more pie and more pie means less tension.

Collaboration works. Our success at home is evidence of that.

And partnerships are already working in international markets on these principles. Consider the success of international co-productions like The Borgias and The Tudors or Copper. Maybe domestically we could discuss how to replace value lost in conventional TV by partnering to create more value in the interactive realm by leveraging audience engagement at the story creation stage.

Or by working with sales teams at some broadcasters to better integrate brand and creative into lifestyle programming.

Talking of collaboration, we welcome our delegation from Australia. And we will be getting an international perspective on best practices tomorrow from our luncheon keynotes—Matthew Deaner from the Screen Producers Association of Australia, and Will Evans, from the British Film Institute.

Collaboration and revenue sharing are, and will always be, fundamental elements of the production business. But here is something critical to understand about independent producers as we discuss new opportunities.

We simply cannot sustain our business without the opportunity to not only control,  but also share in the exploitation of the intellectual property we create. Share is the critical word. This is not merely an observation but it is gospel to us.

And it is the gains that we have achieved in controlling and licensing our IP through Terms of Trade that we are now so passionate about protecting. Being able to exploit, and share, with our partners, what we create is what makes us independent.

And in a world of consolidation independence becomes a critical element in ensuring diversity. This is a good thing to remember. And it will be foremost in the arguments we will present in the growing number of regulatory proceedings we will attend this spring.

So let me try to summarize what the vision we will be pursuing at CMPA this year. First and foremost we start from the premise that the audience is ultimately all that matters, whether we are thinking domestically or internationally. Because if intellectual property is currency in a digital economy, it is still the audience that determines the value of that currency.

Second, we need to promote the value of our products and increasingly engage consumers in the creative process through tools like social media to grow. That creates buzz and promotion at the grassroots.

But success also requires more promotion through the traditional broadcast and distribution windows because what gets promoted and exhibited on screen gets consumed on screen.

Third, we need to grow our business substantially by focusing on new markets for video storytelling like digital and branded entertainment, as well as building on our successes to date by leveraging the quality of our domestic product and talent in even more countries.

Fourth we need to change the political perception of our business from that of a cultural contributor to that of an economic engine that contributes to innovation, creates export opportunities and high value jobs and most important a future for our children to excel on a world stage.

That’s all we have to do. Not an easy task but as long as we follow a basic formula based on audience engagement, innovation and the  control of IP through collaboration with all of our partners from broadcasters, to talent, to governments and investors, then we have a course to follow for navigating through change.