Out with the Old:

Media consumption, especially in the form of television viewing, is in the midst of significant changes. Box office ticket sales were down 5% in 2017 (The Numbers), down for the fifth year in the last six years. NFL ratings are down high single digits for the second year in a row (NY Post 1/18). “Cord cutting,” cancelling cable television service, exploded higher in 2017 with 22 million customers (Variety 9/17), 10% of all domestic cable customers quitting the service. The decline in traditional television viewership is particularly acute among 18-24 years olds. Nielsen data from Q2 2017 indicates a 17% year-over-year decrease in weekly big screen time by that cohort.

It’s not hard to see where viewers’ attention is going; it’s streaming services. Binge watching conveys status, and “Netflix & Chill” has become cultural. Netflix has over 53 million US subscribers, and that sum is increasing at a 10% annual rate. Hulu has 17 million US subscribers, up 40% in the last year and a half according to Variety. Some suggest that the real driver behind Disney’s acquisition of parts of Fox was that Disney gained control of Hulu in the deal.

Doubling in Content:

For years, a tug-of-war has occurred between access providers and content creators as to what has more leverage in reaching consumers. At times, large over-the-air and later dominant cable networks were able to collect and maintain viewers. During the recent migration from scheduled programming to streaming, however, the industry is wagering that not distribution but “Content is King.” The number of scripted original series in production increased 7% last year to an all-time high of 487. If each series has a weekly offering, that would translate to three newly produced shows airing every waking hour of each week.

Full length motion picture trends align with scripted series data. The number of movies released in the US has doubled over the last decade and a half. The current pace would debut two new feature films every day of the year.

Bubbles eventually pop, and this one will as well. Some of the financial conditions for that are in place, like a rising number and cost of movies and a falling number of ticket sales. However, we are reluctant to call a top. New content does appear to be working to drive viewers to streaming services and that looks to be generating value for those companies. Instead of picking peaks, our view is that the financial markets might be missing beneficiaries of currently soaring content production.