Good afternoon from wherever you are in Los Angeles. Thank you to everyone who attended Bloomberg’s Tech Summit. The event featured the CEOs of OpenAI, Twitch, Discord, and AirBnB. (Not to mention Halle Berry and San Francisco’s mayor!)

During a panel discussion, venture entrepreneur Sarah Guo projected that AI would result in five times as much TV production. Save us all, Lord.

Shameless self-promotion: I appeared on two podcasts this week, one with Dan Runcie of Trapital about the changing economics of music streaming and another with Matt Belloni about comic book fatigue.

Is the entertainment industry doomed?
If you sit down with a Hollywood producer, screenwriter, or executive these days, you will almost certainly be asked some variation of the same question.

Is the present industry downturn the end of Hollywood as we know it? Is it only temporary?

The rationale for optimism stems from the fact that everything in business is cyclical. Media corporations have spent historic amounts of money on original programming over the previous decade, taking advantage of cheap lending rates to construct unprofitable new streaming platforms.

Media businesses are reducing back as interest rates rise and Wall Street redirects its focus to profitability. That has been difficult for many people, but total programming output is still significantly higher. Hollywood will continue to produce more television shows and films than it ever did during the broadcast or cable eras.

I tend to believe that this is a necessary corrective measure to years of reckless spending, and that the major companies will figure out how to be profitable in the streaming sector. Netflix is already there.

But consider the worst-case scenario for a second. Professionally produced movies and television now face more competition for viewer attention than ever before. People spend more time (and money) on video games than on movies, and they watch YouTube more than any other TV network.

This is good for the cultural business because we’re all spending more time consuming media. However, it is bad news for legacy players and those who enjoy creating traditional scripted programs. It’s more difficult to justify investing $200 million on a TV series when consumers can watch TikToks for free.

The internet’s influence on traditional entertainment firms is beginning to resemble that of music and print. The internet enabled more work to be done at a reduced cost, reducing profit margins and encouraging consolidation.

The number of traditional journalism personnel has shrunk, as has the number of major record labels (down to three) and book publishers (down to five). These figures are less depressing when you consider the expansion of independent media, which includes podcasters, bloggers, and YouTubers who identify as news employees, musicians, and publishers. Traditional media firms, on the other hand, have largely ceded distribution of news, music, and books to tech corporations such as Google, Facebook, Amazon, and Apple.

For the first decade of the century, the entertainment industry opposed this transformation while cable TV thrived. Under danger from streaming, entertainment industries developed their own services to prevent losing money to the northern Californians.

Despite this, the traditional media industry has gone through a similar phase of rapid consolidation and employment cutbacks. Consider all of the businesses developed around cable TV that no longer exist. Scripps Networks Interactive, Viacom Inc., CBS Corp., Time Warner Inc., and Discovery Communications Inc. merged to form two firms.

These mergers were designed to boost profits by generating synergies. Bringing together two companies in the same industry (such as Discovery and Scripps Networks) should result in cost savings and improved market strength for the new entity. Despite this, net income at the largest US entertainment corporations has fallen by more than 60% in the last decade. Take a look at this graph.

This is slightly skewed due to costs related with the Warner Bros. Discovery merger, but profits for every company other than Netflix are significantly lower. In 2013, you couldn’t even see Netflix’s piece of the pie, and now it makes more money than virtually any of its competitors.

This is not as a result of the mergers. These companies were harmed by the decline of cable and poor corporate strategy. However, keep this graphic in mind next year when Comcast, Warner Bros., Discovery, and Paramount discuss how much everyone will gain from a merger. Their media businesses aren’t coming together from a position of strength.

They need greater resources to compete with Apple and Amazon, which have taken over as major studios for many of the bankrupt media giants. Neither tech titan regards media as a primary business; hearing that their studios make a profit would be shocking. Apple generates enough money selling phones to buy every studio in Hollywood. With funds on hand, it could buy a number of them.

Film and television are not going away. Traditional entertainment firms may not be as dominant or profitable as they once were.

The Ryan Murphy era at Netflix has come to an end.
Ryan Murphy, the producer of Glee and American Horror Story, is returning to his buddy Dana Walden five years after leaving Fox for Netflix.

Murphy is not renewing his contract with Netflix, which is set to end later this year. While he hasn’t signed a new contract yet, he has been in talks with Disney, where Walden is the co-CEO of entertainment, for months. (We broke the news on Tuesday, and almost everyone afterwards confirmed it.)

Murphy is one of the most well-known TV producers in the world, and his career trajectory may teach you a lot about modern media history.

He rose to prominence at FX during the development of premium storytelling on cable, with his show Nip/Tuck being one of the network’s early attempts to emulate HBO. Murphy’s departure from Netflix, more than a decade later, heralded the entrance of the streaming service in Hollywood. Murphy and Shonda Rhimes, two of the world’s most successful TV producers, have agreed to quit traditional studios for the new kid on the block.

Murphy’s return to Disney is a direct result of the Hollywood downturn.

Netflix offered up to $100 million to Rhimes and Murphy because it needs to overpay to entice outstanding talent. However, Netflix was not interested in bringing Murphy back. His first four series for the streaming service, as well as his first film, were all flops. (He did have a couple of big hits near the end of his career, notably Dahmer.)

He is an unusual match at Disney, particularly as the business reduces its focus on mass entertainment. Walden Murphy, on the other hand, was Walden Murphy’s long-time Fox partner and remains a close friend. When Bob Iger returned to Disney and strengthened Walden’s position at the firm, Walden moved quickly to resume business with Murphy.

HBO is fearful.
HBO is in talks with Netflix to license some of its original series, including Insecure. This is simply Warner Bros. Discovery’s latest fundraising push. The startup has already licensed content to Hulu, Tubi, and Roku, and additional deals are in the works.

Third-party licensing is a profitable industry. Traditional media corporations should never have cut back on the practice so drastically. Netflix did not license its content to others because it did not own a library.

There is, however, a distinction between licensing existing shows and licensing new ones that are tightly associated with a brand. Nobody will blink an eyelid if a Warner Bros. film like Matchstick Men arrives on the Roku Channel.

Insecure is a fascinating case study. Insecure’s daily audience is probably insignificant. As much as critics and I adored the program, it was a small success. Nonetheless, it is an HBO original, which has significance for both viewers and artists. It was one of the network’s defining series during the last decade.

The decision to license Insecure to Netflix, of all places, infuriated almost everyone at HBO. You should read Peter Kafka for the finest perspective on this.

The rural movement
Country stars Luke Combs and Morgan Wallen are now on their largest tours in the United States. According to Pollstar, Combs earns $5.2 million per night while performing in front of 53,000 or more people. Wallen earns nearly as much while performing for crowds half the size because he charges more. Wallen charges more than $180 per night, whilst Combs only around $98.

TikTok’s No. 2 has resigned.
V Pappas, one of the most influential CEOs in social media history, resigned from TikTok last week after approximately five years with the firm. Pappas formerly worked at YouTube, the only more popular social video platform than TikTok.

Pappas is leaving as TikTok faces increased regulatory scrutiny. While nothing is known about why Pappas is leaving, Casey Newton explains what it means for the company’s present and future. (Warning: there is a steep paywall.)

Relevant to Hollywood: Zenia Mucha, former Disney comms boss, has joined TikTok as its head of communications.

The Roku Channel’s Ascension
Americans watch the Roku Channel approximately as much as they do HBO Max (now Max). That is according to the most recent Nielsen data.

For those who are unfamiliar, the Roku Channel is a video channel provided by the device maker that contains programs from a variety of sources (as well as a few originals). Everything is free.

It’s one of three free, ad-supported sites in the Nielsen Gauge, along with Pluto and Tubi.


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