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Straight Talk Media & Entertainment

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"You can have a global service, but there are no global customers… There are only local customers." So said Roy Price, head of Amazon Studios, late last year. It's an astute and timely observation. Now more than ever.

If 2016 will be remembered as the year Netflix and Amazon took their TV services global, 2017 will mark the time they – and others – began an intense period of investment and innovation in local video content.

Why? Three reasons:

  • Global brands will only get Netflix and Amazon so far. Ovum forecasts that growth in the number of new customers for SVOD services will slow from 2017 onward, largely as the hype from Netflix's global launch fades.

  • Local people still want to see local stories told by local faces. Despite the popularity of global titles such as House of Cards and Top Gear, the vast majority of viewing in most countries is still dominated by local programming on local TV channels.

  • Local players don't want to lose those local viewers. Local pay-TV operators, broadcasters, and online video providers will fight back with better content to preserve their relevance and revenues – and to sell into international markets starting to get a taste for non-US content.

We expect that these forces will result in these trends:

  • Netflix and Amazon will make impressive – but essentially limited – investments. The two streaming giants will increasingly harness local talent and border-crossing concepts, such as Netflix's bilingual drama Narcos and multinational game show Ultimate Beastmaster. But their investments will be relatively small on a country-by-country or culture-by-culture basis. Why? Because they need only produce enough content to keep a subscriber paying their relatively small monthly fees. And for such global premium video players, local viewers will only ever be a niche audience. For example, only about 5–11% of people speak English as a first or second language, yet 61% of Netflix subscribers will be from English-speaking countries even in 2021, according to Ovum's forecasts.

  • Emerging pan-regional players will bring Hollywood gloss to local stories. One of the (many) reasons for the historical dominance of English-language TV has been the fact that national broadcasters have lacked the scale to invest in similarly high-quality productions. That is set to change as new investors emerge, namely: Netflix-like new entrants born with a pan-regional outlook; pay-TV operators consolidating across geographical borders; and multinational telecoms groups looking to exclusive content to add value to their commoditized broadband offerings. With Netflix and Amazon likely to continue to push up the price of exclusive and original US content, high-quality local content will represent a smarter bet for pan-regional players to differentiate and win the loyalty of local viewers.

  • Social video start-ups will help cultivate high-quality content for local millennials. Multiplatform networks (MPNs) such as Maker Studios have played a major role in the commercialization of YouTube and Facebook Video by helping amateurs, celebrities, and brands produce, promote, and monetize their videos (largely in exchange for a share of advertising and sponsorship revenues). The US TV establishment's M&A fever for MPNs has died down given the bumpy ride Disney and others have had in bringing their multi-billion-dollar investments into the fold. But Ovum still believes MPNs elsewhere in the world will provide a new solution to the old problem of creating great local content for the rest of the world, especially for young tech-savvy viewers. Sky's recent acquisition of the UK's Diagonal View is a great example. Diagonal View is focused more on the development and production of digital-first formats and content, than the brute aggregation of thousands of disparate YouTube channels from vloggers, who can be difficult to manage and monetize.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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