Video: Follow the Money
A Holistic View of the U.S. Video Value Chain and Some Surprising Insights
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You might think that sizing the market for an industry is relatively straightforward. But that’s often not true, for reasons that include: 1) lack of data; 2) no authoritative source of data; and 3) no consensus definition of what constitutes the industry.
Let’s take music. The IFPI (International Federation of the Phonographic Industry) is the authoritative source for recorded music revenue globally (Figure 1), so that’s good. Even so, this is an incomplete picture of the music industry, because it excludes music publishing, live events and merchandise. For that matter, depending on the goals for the market sizing, “music” may be the wrong definition. Perhaps it should be “audio,” and include terrestrial radio, satellite radio, podcasting and audiobooks?
In this post, I provide a holistic view of the video value chain in the U.S. This includes both the buildup of total video revenue (where it comes from) — including traditional TV, streaming, selected short form (YouTube), box office and home entertainment — and the breakdown to determine how those revenues are then disbursed between distributors, packagers/producers and IP rights holders (where it goes to).
I’ve been in and around the TV business for a long time, but this analysis produced some conclusions that I think are non-obvious (at least they weren’t obvious to me):
- The consensus narrative in TV is that streaming is the future and pay TV is the past. While that may be true, the relative numbers may surprise. For every $1 that consumers and advertisers spent on video in the U.S. last year, $0.66 went to traditional TV (pay TV and broadcast). For comparison, all streaming (SVOD, AVOD, FAST and CTV) only represented $0.21. Box office arguably gets too much mindshare; it was only $0.04 of every $1.
- For the last several years, aggregate video revenue hasn’t grown on a nominal basis. The growth of streaming is coming entirely at the expense of traditional TV, theatrical and home entertainment. The open question is whether video revenue is currently in a transitionary period and will eventually resume growing, much like the trough that music exhibited from 2005–2015 (Figure 1).
- Not only has overall video revenue been flat, but in recent years both consumers and advertisers have implicitly kept their expenditures on video pretty constant too, despite a lot of moving pieces (cord cutting, linear ratings declines, growth in streaming subs, new ad tiers, growth in CTV and FAST, etc.).
- This stability means that consumer video spend has declined as a proportion of PCE and video ad spend has declined as a percentage of total U.S. ad spend. Had both kept pace over the last four years, the total video business would be 35% larger than it is today.
- Video distribution isn’t a great business (for pay TV distributors, movie theaters, retailers, etc.). For every $1 of revenue, last year distributors took $0.23 off the top, but only kept $0.01 as operating profit.
- Media companies spend a lot of money on content. For every $1 of revenue last year, $0.77 was remitted to them by distributors and, of that, almost 2/3 went to programming — $0.40 to entertainment programming and $0.10 to sports rights.
- This 4X disparity between entertainment and sports spend shows why we probably aren’t in a sports “bubble,” particularly for premium sports, despite the pressure on traditional TV. Entertainment spend will likely continue to be reallocated towards sports for several reasons: sports programming is dramatically outperforming entertainment in viewership; it commands a disproportionate and rising share of both advertising and affiliate fees; the relative risk of producing entertainment content is rising; and, longer-term, GenAI may both reduce entertainment production costs and increase the relative scarcity of sports.
- The TV ecosystem has undergone a significant transition over the last decade — and may possibly be on the precipice of another one, propelled by advances in GenAI. But the resilience of traditional TV and the overall stability in the consumer and advertiser video “wallet” both strike a somewhat hopeful note. Sometimes things aren’t changing as radically as we perceive.
Figure 1. The Authoritative Source for Recorded Music Revenue
Source: IFPI.
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