|01 August 2012
Leading US digital players, from Amazon to YouTube, are now licencing and commissioning content from a host of UK producers as they seek shows for their video on demand services. Tim Dams reports
The past six months has seen a flurry of big announcements from US tech giants announcing their ambitions to work with UK television producers.
Internet subscription service Netflix launched here in January, offering UK shows such as The Inbetweeners, The Only Way is Essex and Secret Diary of a Call Girl for its £5.99 a month video on demand service.
The move follows an increasing push for UK content from US backed video on demand services such as Hulu as well as Amazon-owned Lovefilm.
Meanwhile, YouTube said it had over £10m to spend on original content from UK producers as part of a plan to launch dozens of new channels in areas such as fashion, sport, music and news. Amazon also announced in May that it would commission original content for its live streaming service Amazon Instant Video.
It’s long been the holy grail for TV producers to generate revenue from the internet, and the moves by Netflix, Hulu, YouTube and Amazon suggest that it is happening at last.
This belief was validated last month when UK superindie group All3Media forecast its digital activity will account for 11% of group profits this year – much of this from licencing to VoD services.
However, others say that the returns from digital activities are still negligible at best – and sometimes not even worth the time taken to process the paperwork involved.
Smaller producers describe it as a nascent market, saying that it is best suited to superindie groups who can bundle shows through their well connected distribution arms.
Pact figures bear out the fledgling state of the market. According to its 2012 census of indie producers, new media accounts for just 2% of the £284m that production companies made from international and rights revenues last year. DVD and video sales, by contrast, make up 6% of international and rights revenues, albeit down from 12% five years ago.
Despite this, most agree that it is worth investigating the digital landscape more. “It’s the most exciting area of business in terms of growth potential,” says Zig Zag’s vice president of commercial and current production Leila Monks. “So it’s worth investing time and energy in now.”
Video on demand
Indie producers are making most of their digital revenues from video on demand services like Netflix, Hulu, iTunes and Lovefilm.
Netflix, for example, has been in conversations with many leading UK distributors and producers, acquiring finished programming for its US and fledgling UK service.
Indies say the prices Netflix is paying are similar to those of a secondary TV rights buyer, such as UKTV. Netflix is viewed as the most aggressive VoD player for TV content in the UK market and indies report that its entry here has led to a significant rise in prices for VoD content as it competes with Amazon-owned Lovefilm.
Both services have been seeking exclusive content in a bid to differentiate themselves, helping to create a price-war for streaming rights for UK TV content this year.
By way of example, Lovefilm signed an exclusive content deal with 20th Century Fox in June, giving it first run of the studio’s films, such as X-Men: First Class.
Indeed, such is the new level of competition that Ofcom recently announced that it was no longer investigating Sky’s long held grip on the pay-TV film market. It said that emergence of online rental services such as Netflix and LoveFilm had ‘materially’ altered the competitive environment and removed the need for extra regulation.
In the TV market, drama and comedy are the genres that are most in demand from VoD services, with series earning a reported £7-8,000 per hour. Factual content is a harder sell, and can fetch £3-4,000 per hour.
All3Media International’s vice-president of digital distribution Paul Corney’s job is to licence programmes to VoD services, and he has been building direct relationships with outlets such as Netflix and Hulu.
Corney says revenues have “been going north quite rapidly over the past year,” citing the launch of Netflix in the UK as a key driver as is the expansion of services like Hulu in the US. Hulu, for example, has a programme acquisition budget of $500m for 2012 and is keen to sign exclusive deals for content to differentiate itself from its competitors.
In fact, revenues from VoD services in the US have grown the most, he says, because All3Media International can more freely exploit the rights of its shows over there.
Corney says that scripted content from All3Media owned indies such as Skins, Fresh Meat, Ultimate Force and Midsomer Murders has done particularly well in the US, as has The Only Way is Essex. Factual shows, he acknowledges, “are not as popular but we do licence some content.” The key users of the services, he notes, are the technically savvy 16-34 year old age group.
Zodiak Rights, meanwhile, has sold US video on demand rights to Being Human to both Netflix and Hulu.
Zodiak Rights vp of sales and North American co-production Anthony Appell says both services provide “interesting new revenue streams” for producers, but plays down any suggestion that they pay big money for shows.
Netflix will pay upfront to take a licence for a certain number of years, while Hulu goes for a simple royalty share that sees them split revenues 50/50 and provide a quarterly report on viewing.
Netflix, says Appell, is strongly focused on 18-35 year olds who enjoy box sets of dramas and comedies and are often Twilight fans and sci-fi geeks. It was in this context that he approached Netflix to see if they would be interested in the UK version of Being Human, given that they already had the US version of the drama. “They were quite aggressive in picking it up,” he says. “If they really want something, they will stump up the money.” In future, he believes, Netflix will look to acquire more content on an exclusive basis.
Hulu, by comparison, is more likely to pick up lifestyle shows, thinks Appell, citing the success of The Only Way is Essex on the service. (The show’s debut on Hulu earned it a prominent piece in the New York Times, titled Real People, Fake Tans, True-ish Stories.) Zodiak Rights has also sold shows such as Desperate Scousewives as well as Being Human to Hulu.
The UK market, by contrast, is more restricted. Producers are not allowed to release new content straight away to VoD services.
That’s because UK broadcasters which put up the majority of the programme finance for a show can hold on to the UK territory rights for between three and five years themselves. According to their deals with the indie sector, the BBC and ITV can hold back shows in the UK for five years, while Channel 4 and Five can do so for three years each.
However, indies in the UK are pushing back on these hold back deals. Producers alliance Pact’s latest deal with Channel 4 saw the hold back period reduced from three years to six months in some cases.
There’s widespread acknowledgement that the VoD market is set for further growth in the UK over the next five years, as more televisions become connected to broadband.
But, despite being well financed, it is clear that there are significant challenges ahead for Lovefilm and Netflix to establish sustainable businesses. Previous entrants into the market have found it difficult to maintain a presence, as illustrated by the exit of SeeSaw and Fetch TV, and the delays to the launch of YouView.
Liz Warner, managing director of Betty, the Discovery-owned producer of Freaky Eaters and Country House Rescue, describes the VoD market as ‘nascent’ but adds: “VoD is really beginning to grow and show some healthier payments for us.”
Pact chief executive John McVay says spend from the likes of Netflix in the indie sector is “very welcome.” He acknowledges that his organisation’s most recent census showed little signs of VoD spend – but said it would be something to look out for next year.
He says that larger indie groups such as All3Media have worked hard and invested heavily to build up contacts and programme sales with organisations such as Hulu, iTunes and Netflix – and that this effort is now paying off.
Indeed, All3Media’s Paul Corney says the VoD sales are all additional revenue. “Because of these extra platforms, audiences and revenue streams, you have to get smarter…but in general it is all upside for us.”
To date, All3 has focused on English speaking territories, in particular the UK and the US. But, adds Corney, “now we are seeing expansion in Scandinavia and Germany and also, funnily enough, in Russia, where the VoD market is growing.”
McVay advises that, for smaller to medium sized indie producers, the best thing to do is, “to get a great distributor and make sure they are selling your programme properly and flogging your format around the world.”
Adds Corney: “My advice would be to get out there and get your programmes on as many platforms as you can and just learn from it.”
Many of these tech giants are not just looking to stream video on demand that they have acquired from distributors – they are commissioning original content direct from producers. The likes of YouTube, Netflix, Hulu, Amazon and Yahoo have all been greenlighting shows from TV producers.
The reasons differ according to each platform. For YouTube, it makes sense to ensure that high-quality videos will be posted to the site alongside user generated content to attract even more eyeballs and ad dollars.
Netflix, Hulu and Amazon are commissioning because they need their video on demand services to stand out. After all, catch up services are proliferating and it is increasingly easy to access repeats on services such as YouView, 4oD and the BBC iPlayer – not to mention traditional services such as UKTV’s suite of channels.
So the leading players realise they have to offer something unique themselves in order to attract viewers. The move echoes Sky’s strategy (although not its spend) of investing in original British content as part of its effort to stop churn and hold on to its 10m plus subscribers.
To date, the original content push by Netflix, Hulu and Amazon has been US focused. Some 5% of Netflix’s content budget is reported to be spent on original content, including the reboot of acclaimed comedy drama Arrested Development. Hulu’s commissions include Morgan Spurlock’s A Life in a Day and documentary series Up to Speed from indie director Richard Linklater.
Meanwhile, Amazon unveiled plans earlier this year to commission original content for its live streaming service Amazon Instant Video. The internet retail giant said it had earmarked comedy and children’s series as its two priorities, calling for writers and programme makers to submit ideas to its content development division Amazon Studios.
Within the UK, Yahoo said that it would invest more than £1m in original digital video content in partnership with GroupM Entertainment.
The online portal said recently it was greenlighting six VoD series with “seven figure budgets”, in areas such as travel, lifestyle and showbiz sites.
The move follows the launch last August of Yahoo!’s 48-part parenting guide Bumps, Babies And Beyond, fronted by Myleene Klass, which was co-produced by GroupM and Twofour. The push is being led by Yahoo! head of strategy Piers North.
However, the most high profile entrant into the content market in the UK is Google which is investing around £10m in original content for its video-sharing site YouTube.
The money will be used to provide content for dozens of niche UK channels on YouTube, following a $100m push that began in the US last year that has seen the launch of channels such as animation service Cartoon Hangover, beauty channel The Stylish and automotive service Car and Driver Television.
In the US, YouTube has given advances to a wide range of creators, from small outfits to established media companies. The creators make content; YouTube monetises it through advertising and splits revenue after initial costs are recouped.
Here, YouTube is advancing producers around £500k a year as part of its original channels strategy, overseen by director of TV Ben McOwen Wilson. An initial commissioning round this Spring saw YouTube receive more than 150 pitches from UK content producers.
Despite this enthusiasm to engage with YouTube, many producers urge a degree of caution.
Pact chief executive John McVay says YouTube’s investment is welcome, but says it is “small beer, to be honest.” Compared to the programme budget of ITV or Channel 4, the £10m that YouTube is spending is “tiny”, he adds.
He says the economics of the YouTube deal is a “classic new media model,” with YouTube providing an advance which they then earn back through advertising. Only then does YouTube split ad revenues with the content creators. “You are not earning any revenue until [YouTube] earn it all back.”
McVay adds: “Selling a programme to Poland might be better business because they will pay me cash for my programme – up front.”
All3Media has already launched a suite of channels on YouTube, including Animal Madhouse, Embarrassing Bodies, and The Wine Guy.
They are not a major revenue generator, acknowledges All3Media head of interactive media and licensing Selma Turajlic. “You do generate some revenue around them, but you aren’t going to retire on them.”
But, she adds, it’s important to put time and resource into understanding how a video service as large and important as YouTube works. As more connected TVs come onto the market with YouTube apps on them, it’s likely that more content will be watched through YouTube.
The channels are also important for helping to build TV brands. “In the same way that we run Facebook and Twitter around our TV shows, YouTube is another social platform – but one that happens to deal with videos.”
Turajlic says YouTube also helps All3Media to understand its audiences much more. “The role of producers is changing. Historically, we have been in business to business, delivering tapes to broadcasters. Now it’s increasingly business to consumer, where you have to have a much greater understanding of the audience.”
The key US digital players
Online video provider Netflix is available in more than 40 markets outside Netflix’s home market of the US. It launched in January in the UK, offering its video on demand service for £5.99 a month. It has more than 26m subscribers worldwide. It is also commissioning original programming, with dramas House of Cards and Arrested Development set to debut later this year. Its content team is based in the US.
US internet retailer Amazon took full ownership of UK online movie rental service Lovefilm last year. Lovefilm has 2m subscribers in Britain, Germany, Sweden, Denmark, and Norway for its DVD and streaming service. Earlier this year, Amazon unveiled plans to commission original content through its US content development division, Amazon Studios, focusing on comedy and children’s series
YouTube is spending $100m on its Original Channel Initiative. Launched last October in the US, it’s part of a plan to launch more than 100 new video channels including dance channel DanceOn, news service Reuters TV and music channel Vice. Earlier this year, YouTube’s director of TV Ben McOwen Wilson said it was spending in excess of £10m on ideas from UK producers and was weighing up more than 150 pitches from UK content producers.
Only operates in the US, where it runs content from founding partners Fox, NBC Universal and Disney. Plans to come to the UK and Europe have floundered, but it is acquiring content from UK producers. More than 2m people are now paying for premium subscription service Hulu Plus, which gives access to a range of TV shows and films for $7.99 a month. Hulu is also investing in its own original programming.
UK video on demand market
BBC iPlayer: 1.94bn TV and radio programme requests across all platforms in 2011
4oD: 429m full length-programme views initiated in 2011
ITV Player: 376m long form video views in 2011
YouView: formally launched in July two years later than planned, combining the UK’s Freeview channels with on-demand content
Now TV: Sky’s new pay as you go internet TV service is launched this year
Blinkbox: Tesco acquired online movie provider Blinkbox last year
BT Vision, Sky and Virgin Media’s pay TV services offer extensive video on demand services.