Hot Topics in Media & Entertainment
Blockchain: Digital Tulips?
In 2017 blockchain project funding from initial coin offerings eclipsed VC funding ($327M through ICOs vs. $295M from VC’s)i. Using distributed ledger technology, blockchain can disintermediate third-party transaction verifiers: Banks, auditors, legal services, brokerages, payment processors and other similar organizations.
The utility of blockchain technology and the potential for it to bring widespread change to the online payment and cyber security ecosystems cannot be overstated. However, hype abounds – particularly as relates to investor activity. Despite some short-term risk related to investor speculation, we believe the technology’s strong long-term fundamentals will eventually impact a broad array of industries from finance, to pharmaceuticals, media, and energy.
The FAANGs Munch Away
The reach, user engagement, and financial scale of the largest U.S. digital media platforms – Facebook, Apple, Amazon, Netflix and Google (aka FAANGs) – have resulted in ad revenue and subscriber growth far outstripping that of traditional media such as Pay TV. In advertising, digital media spending surpassed TV ad spending in 2015 and is projected to achieve 2x the level of TV spending by 2021. Facebook and Google alone control ~70% of this now massive digital advertising marketii.
In subscriptions, Netflix, Amazon Prime, and Apple Music have reached subscriber penetration levels that approach that of pay TV (in 2017, already 58% of households have at least one SVOD service)iii.
As of January 2018, the FAANGs combined enterprise value of $2.7T dwarfs that of all legacy media and telecom companies combined (now less than $1.6T enterprise value)iv, a function of continued growth expectations, global reach, and often complete vertical integration. To thrive in this environment, traditional media companies are revisiting operating models by combining, globalizing, and seeking scale in components of the value chain such as IP ownership and production.