Ep. 33: Doug Shapiro - Follow the Money in Video Business

Doug Shapiro, a media industry veteran with nearly 30 years of experience, recently shared his insights on the video streaming landscape in an interview with Carlos on the "A Guy with a Scarf" podcast. Shapiro's comprehensive analysis of the video value chain in the United States, titled "Video Follow the Money," shed light on the current state of the industry and its future trajectory. One of the key takeaways from the interview is that the traditional television business, including pay TV and broadcast, still dominates the video landscape, accounting for approximately 66% of the total video revenue. In contrast, streaming, despite its rapid growth and buzz, only contributes about 21% to the overall pie. Shapiro notes, "For all the talk about streaming and NCTV, enfast and Netflix and Roku and all that, it's only about twenty one cents." This revelation challenges the common perception that streaming has overtaken traditional television in terms of revenue generation. Interestingly, Shapiro points out that the total video business has remained relatively stable on a nominal basis, with streaming growth coming at the expense of traditional forms of video consumption. This implies that the video industry is not experiencing significant overall growth, but rather a shift in consumer preferences and spending patterns. Shapiro's analysis suggests that as consumers embrace streaming platforms, they are simultaneously reducing their spending on traditional video services, resulting in a revenue shift rather than an expansion of the total video market. Another notable insight is that both consumer and advertiser spending on video have been relatively fixed. Shapiro explains, "Consumers are shifting their spend from traditional to streaming, and advertisers are shifting their budgets, their video budgets from traditional to fast and AVOD and CTV, but that both of those are relatively fixed." This observation suggests that consumers and advertisers have a set budget for video, and they are reallocating their spending rather than increasing it. The implication is that the growth of streaming platforms is not necessarily translating into a larger overall video market, but rather a redistribution of existing spending. Shapiro also delves into the distribution of revenue along the video value chain. Approximately 23% of the revenue goes to distributors, such as pay TV providers, movie theaters, and ad agencies, while the remaining 77% ends up with media companies. Of the media companies' share, a significant portion, around 50%, is allocated to content, with 40% going to entertainment content and 10% to sports content. This breakdown highlights the importance of content creation and acquisition in the media industry, with a substantial portion of revenue being invested back into programming. Regarding the role of big tech companies like Google, Meta, Apple, and Amazon in the video ecosystem, Shapiro notes that they have the advantage of being multi-product businesses. This allows them to cross-subsidize their video offerings with other products or services, operating at lower margins compared to standalone media companies. Shapiro remarks, "If you're in a business to make money and someone enters your business who doesn't need to make money, it's not usually [an advantage]." The ability of these tech giants to leverage their diverse revenue streams and user bases poses a significant challenge for traditional media companies that rely solely on video-related revenue. Looking ahead, Shapiro believes that standalone entertainment companies may face significant challenges in the evolving media landscape. He cites ongoing sale discussions at Paramount and questions about the long-term viability of Warner Brothers Discovery as a standalone entity. The consolidation and mergers within the media industry suggest that scale and diversification are becoming increasingly crucial for survival in the face of intense competition from tech giants and shifting consumer preferences. In conclusion, Doug Shapiro's comprehensive analysis of the video value chain provides valuable insights into the current state and future direction of the industry. While streaming continues to grow, traditional television still holds a dominant position. The relatively fixed nature of consumer and advertiser spending on video, coupled with the competitive advantage of multi-product tech giants, presents challenges for standalone media companies. As Shapiro continues to explore this topic, it will be interesting to see how the industry evolves and adapts to the changing dynamics of the video landscape. The media industry must navigate the complexities of shifting consumer behavior, technological advancements, and the increasing influence of tech giants to remain relevant and profitable in the years to come.