Media & Entertainment Sector Update – November 2024

Technology Advancements and Shifting Consumption Patterns Disrupt the Media & Entertainment Sector

This article brings together Capstone Partners’ Media & Entertainment Managing Director, Gretchen Tibbits’ conversations with investors and operators as well as themes she took away from her attendance at the 2024 Financial Times Business of Entertainment Summit.

The Media & Entertainment sector has continued to face significant disruption. While artificial intelligence (AI) has garnered much of the headlines—and investor dollars—there are many other factors impacting the segment. Creators have increasingly pursued a multi-platform approach as consumers have demonstrated a willingness to follow creators across mediums. The shift in the creation for and consumption of video content on digital platforms [social media platforms, subscription video on demand (SVOD), free ad-supported streaming television (FAST), etc.] has drastically altered the Broadcast & Cable landscape.

AI Remains a Leading Topic in the Media & Entertainment Sector

There has been an acceptance of AI’s inevitability across the Media & Entertainment sector. Some have called it “existential”—in many public statements and Capstone’s conversations with Media & Entertainment sector leaders. Companies, studios, and creatives have increasingly explored the usage of AI as a tool to drive time and cost efficiencies. As more time has passed since the Actors and Writers Strikes of 2023, there has been an acknowledgment of the opportunity that AI brings. During the Business of Entertainment Summit, WME Co-Chairman Richard Weitz described AI as a tool that is going to provide opportunity for artists. However, guardrails have and must continue to be put in place. Unions have raised specific issues and legislatures, especially in California, have debated and passed AI-related bills. It is inescapable that AI has and will continue to impact the process of content creation.

At the Business of Entertainment Summit, both Erik Hodge, Partner at The Raine Group, and Grace Lee, Partner and Managing Director at AlixPartners, discussed how the impact of technology is not new. Technology has disrupted distribution over the last several years. However, technology/AI has now changed the way content is created—bringing efficiencies, speed, and lower costs. As a result, AI-enabled sector participants have garnered significant merger and acquisition (M&A) interest from both strategic and financial buyers. Notably, CREE8 acquired BeBop Technology in April 2024 for an undisclosed sum. BeBop develops an AI-powered media production platform, enabling producers, directors, and animators to virtualize media workflows through remote workstations. Public players in the space have also increasingly incorporated AI technology. Greg Peters, Co-CEO of Netflix (Nasdaq:NFLX), discussed how the company has leveraged AI in discovery/search to enhance viewers’ experience and how it has brought tools for creators. While technology has accelerated disruption across the sector, there has been a consensus that AI will not replace human creativity—at least not for the next five to 10 years.

Content Production Levels Reach a New Normal, Consumers Shift to Digital Video Consumption

The Media & Entertainment sector has approached a “new normal” in the quantity of content created for the Premium Content category, which includes broadcast, cable, and SVOD streaming. This has followed the Peak TV era, when there was a spike in demand for premium content as the rise in streamers resulted in a race to acquire subscribers. That era was followed by an artificially low period of content creation, first due to COVID-19 and then due to the Actors and Writers Strikes of 2023 when scripted content in the U.S. could not be produced. However, the quantity of content consumed and the variety of distribution channels have continued to expand and evolve. While premium content consumption has declined, the overall time spent watching digital video content has increased. A key factor to consider is that digital video content includes some premium content (viewed on mobile devices) as well as social media videos from content creators/publishers, influencers, and users.

The variety of distribution channels available and consumers’ consumption patterns have changed dramatically, especially for younger generations. The shift is not only the distribution source (streaming versus broadcast/cable) but also the device (mobile versus large television screens in the home).  In 2024, the traditional TV medium accounted for 40% of screen time among U.S. consumers over the age of 35, compared to only 17% among Generation Z consumers, according to Statista.¹ Younger consumers’ shift away from traditional TV has reflected a different approach to viewing content rather than a lack of attention span—a common misperception of the generation. Younger generations have repeatedly demonstrated a willingness to spend time with content that offers a true connection, often characterized as “fandom.” Content creators have begun to adapt to the changing distribution options and viewership across platforms and devices.

While many in the younger generations have migrated to mobile devices, across generations the lines have blurred regarding TV viewership. The Streaming category captured a record-high share (38.8%) of viewership on a physical television in May 2024, according to Nielsen.²

Total TV usage recorded a 2.4% month-over-month (MoM) decline in May 2024. However, select streaming providers have continued to grab TV market share from traditional media companies, further demonstrating consumers’ shift to device agnostic consumption of digital content. Notably, YouTube obtained the second-highest share (9.7%) of TV viewership in May 2024, according to Nielsen.³

At the Business of Entertainment Summit, Mark Marshall, NBCUniversal’s Chairman of Global Advertising, shared some hindsight on the company’s streaming strategy. He stated that separating linear and streaming offerings was the company’s largest mistake, noting that linear Bravo and streamed Bravo have a 7% duplication and the National Football League (NFL) only has a 5% duplication. He further commented that streaming, through Peacock in NBCUniversal’s case, brings a new and younger audience.

“As a society and an industry, we tried to bifurcate linear and digital which is a silly thing when you consider that 95% of our digital impressions are served on a television screen. So, it’s not something that’s different. Linear’s not dying.  Linear and streaming have become one entity on one piece of glass. How you access, that is different,” said Mark Marshall during the Business of Entertainment Summit.

Fandom and Multi-Platform Engagement Present New Opportunities

Technology, the associated expansion of distribution, and the ability to use data to more effectively target fans, have enabled creators to reach and interact with followers across platforms. This has dramatically changed the dynamic between creators/brands/talent and the audience. The connections have expanded from one-to-many (creator/performer to the consumer) to include one-to-one interactions between audience members and between audience members and creators/performers. The ability to extend intellectual property (IP) across mediums has resulted in a myriad of opportunities—from concerts within Roblox (NYSE:RBLX) to invite-only, in real life experiences. This reach has empowered companies to source IP from places that had not been a focus in the past and expand distribution to new markets. For example, Sam Wu, CEO of Rakuten Viki, shared that KPOP fandom in Brazil led them to test South Koren video content in that market—doubling the company’s growth in Brazil. Many of the language barriers (real and perceived) have been mitigated by audiences’ acceptance of closed captions. Partially attributable to technology improvements which have increased the quality and reduced the costs of closed captions and dubbing.

Strong IP has undoubtedly been a key aspect of fandom. However, the depth of the relationship that can be created between consumers and creators through the extension of IP across mediums has been increasingly pertinent. Consumers have begun to expect accessibility and multiple touchpoints where they can engage with creators and with other fans. It is these relationships that have drawn the time and attention of Generation Z and Generation Alpha.

Additional Media & Entertainment Sector Trends

• Theatrical film production (both in theatres and on streaming) has continued to face supply challenges, driven by COVID-19 delays and the dual strikes of 2023.
• Consumers, especially Generation Z and Generation Alpha, have spent more time in gaming environments—replacing some of the time spent with other content. As a result, advertisements, product placements, and virtual concerts have become increasingly embedded in these gaming environments.
• Data has become a key part of content creation and distribution. As part of the fandom phenomenon, audiences that have a direct relationship with creators have showcased a willingness to follow these creators across mediums. This has provided an opportunity for participants to include a call to action such as make a purchase, visit a site, download a video or song, or attend an event.
• The business model for SVOD/premium streaming has remained challenging for many participants, with the exception of Netflix which is the market leader in scale. The streaming offerings of Apple (Nasdaq:AAPL) and Amazon (Nasdaq:AMZ), as well as the YouTube business unit of Alphabet (Nasdaq:GOOGL) tend to operate with very little financial constraints as they are part of larger technology companies. The Streaming space has become saturated with new entrants, many of which have suffered financially. This has spurred heightened financial discipline around quality and fees paid, bundling and consolidation, and, in some cases, cessation.
• There has been substantial growth among FAST channels, especially content offerings focused on niche markets.

The Media & Entertainment sector has been—and will likely continue to be—roiled by technological disruptions. Business models, distribution channels, and content formats are expected to continue evolving in response to the changes in consumers’ preferences. Sector participants’ ability to capitalize on shifting distribution and consumption trends will likely dictate clear winners in the space.

To discuss the widespread impacts of advanced technology and shifting consumption patterns, provide an update on your business, or learn about Capstone's wide range of advisory services and Media & Entertainment sector knowledge, please contact us.

Endnotes

1. Statista, “Primary Devices Used for Media and Entertainment in the U.S. as of March 2024, By Age Group,” https://www.statista.com/statistics/1374234/device-usage-for-media-and-entertainment-age-us, accessed October 28, 2024.

2. Nielsen, “Nielsen’s May 2024 Report of The Gauge™,” https://www.nielsen.com/news-center/2024/the-gauge-may-2024-young-sheldon-covergent-tv-win/, accessed October 28, 2024.

3. Nielsen, “Nielsen’s May 2024 Media Distributor Gauge,” https://www.nielsen.com/news-center/2024/nielsens-may-2024-media-distributor-gauge-disney-remains-on-top-tubi-drives-growth-for-fox/, accessed October 28, 2024.