Where the Money Is Spent in Hollywood and How It's Changing

The podcast episode delves into the evolving landscape of content spending in Hollywood, highlighting a KPMG study that reveals annual content spend by major players like Disney, Netflix, and Amazon totals over $210 billion, growing at a 10% compound rate since 2020. The discussion with Scott Purdy, KPMG's media strategy lead, reveals that while traditional entertainment content spending is flat to declining, user-generated content and sports rights are on the rise, shifting the investment model to a platform-based, performance-driven approach. The episode underscores the need for strategic partnerships, data utilization, and hybrid models in navigating this changing media environment.

• Recent years have seen a decline in overall content spending among major players, leading to a "content recession" and existential questions about the industry's future.
• Despite the perceived downturn, a KPMG study reveals that annual content spending by major companies has been growing at a 10% compound rate since 2020, reaching over $210 billion.
• The study includes a broad definition of content spending, encompassing traditional media, sports rights, affiliate fees, revenue sharing with content creators, and music.

"The content spend is going down, down, down. These streaming companies are consolidating. And everybody, you know, Paramount may buy Warner Brothers, but your study suggests that we are not at peak content, and the growth rate is 10% per year on average."

• The quote highlights the contrast between perceived industry gloom and the study's findings of robust growth in content spending.

• The KPMG study adopts a wide definition of content, including traditional film and TV production, sports media rights, affiliate fees, revenue sharing, and music.
• Major players in the study include Disney, Comcast, Netflix, Amazon, YouTube, and others, reflecting a broad swath of the content ecosystem.

"This study takes a wider view of what content is. So this includes all content investment, including your traditional film and TV content production, but also sports media rights, affiliate fees, revenue share with content creators, and music."

• This quote explains the comprehensive scope of the study, which includes diverse types of content investments beyond traditional media.

• Sports rights are a significant component of content spending, with major companies controlling around 80% of these rights.
• The growth of sports rights spending is pegged at high single digits, around 8% or 9%, reallocating funds from other content areas.
• Companies like Netflix are entering sports rights deals, which may affect budgets for professionally produced entertainment content.

"Every one of these big sports deals ends up taking money out of these budgets for other things, which Netflix's case today, they just announced an MLB deal where they're going to be taking on opening day and some other things."

• The quote illustrates how investment in sports rights can impact budgets for other types of content, influencing the overall spending landscape.

• Traditional entertainment content spending by major players is flat to down, leading to industry concerns.
• The reallocation of funds towards sports rights and other areas results in reduced budgets for professionally produced content.
• Hollywood's concerns about lower content spending are valid, as budgets have decreased or been reallocated.

"The people in Hollywood that are freaking out about lower content spends on entertainment content by the traditional players. They're not hallucinating. They're not wrong. It is flat to down."

• This quote confirms the reality of decreased spending on traditional entertainment content, validating industry concerns.

• The study identifies 12 major media companies as key players in the content spending landscape, including Comcast, YouTube, Disney, Amazon, Netflix, Paramount, and others.
• These companies dominate media rights, influencing global content spending trends.

"We're looking at the 12 of the biggest media companies in the world, most of which are called domiciled in the U.S."

• The quote emphasizes the significant role of these major companies in shaping content spending and market dynamics.

• Comcast is projected to reach $37 billion in revenue by 2024, surpassing Disney, YouTube, and Amazon.
• A significant factor in Comcast's revenue is affiliate fees, which are payments made to cable services.

"Yeah, Going back to the definition, this includes also and a big driver for Comcast of why it's up there is affiliate fees. So those are going to be the fees that are going into the cable service."

• Affiliate fees contribute significantly to Comcast's financial success, setting it apart from competitors like Disney.

"Ah, okay, so that makes sense. They are one of the largest cable providers and Disney does not have that business."

• Comcast's business model benefits from its ownership of cable systems, unlike Disney, enhancing its revenue through affiliate fees.

• The growth in content investment is driven by user-generated content platforms like YouTube and Meta.
• License content on fast platforms such as Tubi and Pluto is also a key component of this growth.

"Another place where the overall landscape, in terms of what drove the growth to get to the 210. I mean a lot of that is the user generated side. So that would be from YouTube and also Meta, that's another driver."

• User-generated content is a major growth driver, highlighting the shift in content creation dynamics.

"So this is services like Tubi and Pluto that are paying content owners to license their old shows for these new platforms."

• Fast platforms are investing in licensed content, offering new revenue models for content owners.

• There is a significant shift towards ad-supported models, moving away from upfront payment models.
• Content creators now bear the responsibility of creating content upfront and earning through ad revenue.

"A shift toward the ad supported models is what we've all seen over the past couple years."

• The industry is transitioning to ad-supported models, impacting how content creators earn revenue.

"And that's a pretty significant shift in where the investment is going in professionally produced content."

• The shift to ad-supported models changes the investment landscape, affecting professional content production.

• The content creation model is shifting from upfront investment to a platform-based, pay-for-performance model.
• This model requires content to perform well to generate revenue, emphasizing performance over initial investment.

"Before you have essentially an upfront investment in the content you created and then hope to get paid on the back end. Now you're in what we're calling a platform model where it's essentially pay for performance."

• The new model focuses on content performance, altering traditional investment strategies in the entertainment industry.

"I mean, you already see it in the numbers, right? And so it's not like, oh, this is in the future, this is going to happen. We already see this."

• The shift to a pay-for-performance model is already evident, indicating a significant change in content creation economics.

• Data plays a crucial role in content distribution decisions, determining where and how content is shared.
• Companies use engagement data to optimize distribution strategies, although there is room for improvement.

"Everyone knows what engagement looks like across all their content formats and types and you are using that to selectively figure out where to distribute, where to put it, how much of it to make."

• Engagement data informs distribution strategies, but companies need to better harness this data for decision-making.

"They still need to harness what they can do with that data, especially using AI, just on the decision-making side."

• The integration of AI in data analysis can enhance decision-making without compromising creativity.

• The content creation landscape is becoming more democratized, reducing the traditional gatekeeper model.
• Private equity and independent studios are increasingly backing creators, expanding the pool of potential content investors.

"It's just a democratization of the gatekeeper model that has run Hollywood for 100 years."

• The traditional gatekeeper model is being dismantled, allowing more creators to enter the industry.

"And the content is going to find its way ultimately to where it generates the most value."

• Content will naturally gravitate towards platforms that offer the most value, reflecting a more open market for creators.

• Future content spend models should focus on strategic partnerships around intellectual property (IP).
• Companies need to rethink their sources of IP acquisition to remain competitive.

"So where do companies traditionally get their IP and where should you begin getting it in the future? I mean, I think you have to rethink that."

• Rethinking IP acquisition is crucial for adapting to future content spend models and maintaining competitiveness.

• Traditional television pilot models are becoming obsolete as streaming services increasingly bypass pilot seasons, opting for direct-to-series projects.
• The shift towards streaming services is driven by the demand for "hot projects" that can capture audience interest quickly.

"Write a pilot, sell it to a networks or a studio and then they make a pilot and decide whether to make a show. I mean that's already kind of going away in a lot of ways."

• The traditional model of creating television content is evolving, with streaming services changing how shows are developed and produced.

• Companies need to explore new avenues for sourcing IP, including international markets and AI-generated content.
• Successful IP is often rooted in existing, popular media such as books, comics, or games.

"The IP is IP because people care about it and it has meaning and brand loyalty. And you can't just create that out of thin air."

• The creation of meaningful IP requires a foundation of existing popularity and audience engagement.

• There is a growing reliance on data to inform content creation, but human creativity remains essential for making final decisions.
• Companies often have disconnected data systems, which can hinder their ability to make informed decisions.

"You would be surprised around how disconnected a lot of the different pieces of the company are around some of these things."

• Data systems within companies are often fragmented, leading to challenges in utilizing data effectively for decision-making.

• Companies like Netflix traditionally focus on viewing habits rather than detailed demographic data, but this is changing with the introduction of ad models.
• A deeper understanding of audience personas is becoming increasingly important for content creators.

"Netflix has always said that they don't know anything about their customers except what they watch."

• Despite being data-driven, companies like Netflix have historically lacked detailed demographic insights, which are now becoming more relevant with advertising models.

• Measuring the return on content investment is complex, involving both direct and indirect metrics such as engagement and marketing value.
• Different types of engagement can have varying levels of value for content creators.

"There's a return on investment. But like, what's the return on the content?"

• Understanding the value derived from content requires looking beyond simple financial metrics to include factors like engagement and brand impact.

• The media industry is transitioning from a B2B wholesale model to a direct-to-consumer model, similar to Netflix's approach.
• Companies must balance both B2B and B2C strategies to remain competitive and agile in the market.

"We still see companies straddling both or trying to straddle both, but with one leg Heavier in the B2B side and one leg a little bit lighter in the B2C side."

• Successful media companies need to effectively manage both traditional B2B relationships and direct-to-consumer offerings to thrive.

• Companies are encouraged to re-evaluate the metrics they share with the public to better reflect where they generate value and achieve success.
• Traditional metrics like subscriber numbers are being reconsidered in favor of more relevant engagement or efficiency metrics.
• There is a lack of uniformity across industries in terms of which metrics are most telling or valuable.

"Our view is to say, okay, why don't you take a step back and redefine the metrics that you want to share with the wider community so that they can appreciate where you are generating value, where you are successful."

• Companies should focus on metrics that truly highlight their strengths and areas of success.

• There's a shift in content distribution models, with more experimentation and cross-pollination between traditional and new media platforms.
• Emerging technologies are creating new opportunities and jobs in the media landscape.
• The traditional Hollywood model is being challenged by user-generated content and sports spending.

"We do think that there is a silver lining here or there is some reason to be optimistic still versus all doom and gloom."

• Despite challenges, new technologies and models offer opportunities for growth and adaptation.

• Warner Brothers' investment in a high-budget film by Paul Thomas Anderson is seen as a risky financial bet.
• The film's success is heavily reliant on Leonardo DiCaprio's star power and its potential for Oscar nominations.
• Marketing strategies for the film include unconventional partnerships, such as with Fortnite, despite its serious themes.

"They are copping to about 140 million for this movie. By far the most expensive thing Paul Thomas Anderson has ever done."

• The financial stakes are high, with the film's budget significantly surpassing Anderson's previous works.

• Leonardo DiCaprio is participating in an extensive publicity campaign, which is unusual given his typical approach to media.
• His involvement in various media platforms and interviews is part of the strategy to boost the film's visibility.
• The film's marketing is heavily centered around DiCaprio as a major selling point.

"Leo is doing more press than he's ever done in his life."

• DiCaprio's increased media presence is a strategic move to support the film's release and performance.

• The film's performance is a critical test for Warner Brothers' strategy of producing high-budget art house films.
• It also serves as a referendum on DiCaprio's status as a leading movie star capable of drawing audiences.
• The outcome of this film could influence future decisions on similar high-risk projects.

"This is a real referendum not just on Mike and Pam at Warner's... but Mike and Pam at Warner Brothers' strategy of doing art house movies for high budgets and Leo as a movie star."

• The film's success or failure could have significant implications for the studio's strategic direction and DiCaprio's career trajectory.