Pressure on traditional media expands options for streaming platforms
From the evolving theatrical film environment to global streaming growth to sports and advertising to M&A, the only constant in the media and entertainment world is constant change. What can we expect in 2023?
Grant Thornton hosted a live conversation at our New York office to delve into all of these issues. Our discussion was moderated by Grant Thornton’s Senior Advisor, U.S. Media & Entertainment, Howard Homonoff, and featured insights from Chicken Soup for the Soul Entertainment’s Chief Strategy Officer Elana Sofko, who was recently named one of CableFax’s Most Powerful Women in Media for 2022. Highlights of that discussion are presented below.
The view from an innovator’s perch
HOWARD HOMONOFF: Elana, let’s talk about Chicken Soup of the Soul Entertainment. Everybody knows the books. What's the company? Talk to us about your most recent deal as the chief strategy officer.
ELANA SOFKO: So, Chicken Soup for the Soul -- I think a lot of people sort of stop when they hear that brand and remember that that's something from 1993. And even my mother, when I took his job, said, “Oh, you're going to be making cute little videos from those nice little stories.” Actually, what we've done is built a vertically integrated entertainment studio based on the premise that, at some point, people will self-serve premium video without paying for an MVPD or subscription service.
We've put together a company through nine acquisitions over the last six years, since our IPO. The businesses we've acquired suffered in some way through the disruptions of how the media industry has changed relative to cord-cutting, and other kinds of technological innovations, to create a business that can produce, finance, license and acquire content -- thus diversifying the financial risk in our investments and content, to feed our owned and operated streaming services.
To Howard's question, the last transaction that was covered by the press was our acquisition of Redbox -- the kiosks that rent DVDs to consumers. They are particularly strong in areas that don't have strong broadband or SVOD penetration. So, acquiring Redbox gives us a way to own the audience looking for the best possible content at the lowest possible price.
HOWARD HOMONOFF: Elana, your company has now, with Redbox, acquired a company significantly bigger than your own. Talk about what it's like to be the “fish swallowing the whale.” That’s an interesting and different challenge. How does it come together?
ELANA SOFKO: This is the first time we've gone that big. You look at it on paper, and you say, “OK, we could do this this way, or this way, and maybe it's just so crazy it might just work.” Then you get to know, through the diligence process, the management team of the other company: “Wow, they're really smart, they're really good at what they do. How should we integrate this to make it make sense, to realize all the benefits of the business synergy that we anticipated throughout the diligence process of the transaction?”
We've integrated nine companies. What you find in companies that have been disrupted and with which you had a lot of uncertainty before their acquisition, and even through their acquisition, is that you end up with a unique quality executive who can manage ambiguity and find ways to make sure that the culture persists. Their winning formula becomes part of the new corporate culture.
Streaming’s next stage
HOWARD HOMONOFF: It's the first time that streaming may have to operate in a potential recession, except for, perhaps, the difficulties of 2020. How do you think the streaming world will fare in a potentially elongated and not-so-good economy?
ELANA SOFKO: Well, it's a nice story for us to tell in that all of our streaming services, almost entirely, are ad-supported. We've doubled down on adding brand integration into our sales organization, so we're not just “spots and dots” in the traditional sense. We saw in the early stages of the pandemic -- everyone's at home, they're streaming more -- but the ad market responded negatively right at the beginning and so that was a little worrisome. Everything bounced back after that, and with our acquisition of Redbox, we're pretty confident that we have a lock on the “value entertainment” folks who want a good quality experience that's ridiculously easy and cheap, or free.
Investing in content
HOWARD HOMONOFF: We see Netflix spending billions of dollars on content. Warner Bros. Discovery is also spending billions. How important is original content at Chicken Soup for the Soul Entertainment as a complement to acquiring and distributing content from others or from your own library?
ELANA SOFKO: In our world, they’re all important. Of course, original and more exclusive content is going to be the differentiator from other AVOD (advertising video on demand) services. But we are a much smaller company. So, we don't make giant bets.
But we have five production businesses. One of them has been selling scripted episodes to Disney Plus and Amazon as works for hire. “The Mysterious Benedict Society” on Disney Plus is ours. And Season 2 is coming. We also have “Hunters” with Al Pacino -- Season 2 has been shipped to Amazon, so we do produce on that premium level. But unlike Netflix, we're more conservative about making sure we can make our money back, so that by the time it gets to our O&Os, it's profitable content that people really like.
Media M&A and the need for scale
HOWARD HOMONOFF: There are literally thousands of streaming services that we can download and watch today. Is there an inevitable wave of consolidation to come in that world?
ELANA SOFKO: We think, particularly in the AVOD space in streaming, where we've doubled down, it’s early in the industry and it is a place ripe for consolidation. That's what we were capitalized to do -- to drive consolidation in our sector.
If you look at everything that preceded us in media, you find a bazillion people at the early stages, (particularly when you have low barriers to entry, and Roku has enabled all of that) and then eventually there's a couple of 900-pound gorillas, and everybody else gets sort of eaten -- the bad ones go away. Then the good ones tend to get acquired. So, we do believe there's going to be more consolidation in this space and, again, we're capitalized to drive that consolidation within AVOD.
The increasing centrality of streaming video advertising
HOWARD HOMONOFF: Elana, you come at the world with a very different scale from giant-sized competitors at Netflix, Disney and Warner Bros. Discovery among others. How do you make your way through the media buyer world?
ELANA SOFKO: It’s certainly challenging, as you mentioned. I would say that one of the things that Sony Pictures did really well when they were developing Crackle was to create an ad sales team that is now the “largest of the smaller streamers.” We acquired that team, and they are still employed by us. One of these things that we've done -- and we've been very successful at, is that we developed a fair bit of trust by agencies. We were considered a “must buy” because at the time we acquired Crackle we were repping other Sony properties that had ads like Funimation. And now we've actually grown that rep business to include Philo TV, Xumo and Crunchyroll and a dozen others.
The critical role of sports in the media business
HOWARD HOMONOFF: Elana, sports seems to only be growing in terms of its centrality to the TV business. What is your perspective on sports media and how do you play at this game?
ELANA SOFKO: Nothing beats the “appointment view” of the game starting at eight. But we have seen outsized performance on sports documentaries on Crackle, enough so that we have gone and picked up a few things from companies that suffered a little bit through their life cycle. We picked up a bunch of sports documentaries that previously aired elsewhere, from Complex Networks for example, and we've gone back and ordered second seasons and more because it does perform really well.
Audience member: I’m hearing skepticism about the most aggressive forecasts on cord cutting. What's going to slow it down?
ELANA SOFKO: I think what when you look at any of the declines in broadcast or pay TV, they are still delivering orders of magnitude more viewers than anything else down that streaming value chain, which is unlikely to change anytime soon.
About our guest speaker
Elana Sofko, Chief Strategy Officer at Chicken Soup for the Soul Entertainment, has served as a leading executive with innovative emerging media businesses for the last two decades.
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