The Winner in 2020: Content or Distribution?

The balance of power in entertainment is a swinging pendulum that dictates who gets paid in what’s basically a zero-sum game.

On one side are those who create content, and on the other those who distribute it. Since the 1980’s, this pendulum has swung back and forth in a steady, predictable rhythm.

The basic pattern is this:

First, there is some paradigm shift in distribution which enables a revolutionary new consumer experience. The catalyst can be new technology, a new business model, or simply a trend becoming pandemic.

Want to see your music? Enter the music video. Want your music free? Enter Napster. Want your entire library in your pocket? Enter the iPod. Want music to be on-demand & social? Enter YouTube & Spotify.

The same pattern holds for other entertainment verticals, like film, television, and video games, though they’re not always synchronised with one another.

The companies who own the customer in each new distribution paradigm generally gain immense power, quickly, at the expense of both the uprooted incumbents and also of content creators who have no choice but to hop on board, or risk not being relevant.

The Winner in 2020

It was just a few years ago music stars were bemoaning that this new world of streaming simply wasn’t funding their thrashed hotel room habits like record sales used to.

To go back to the earlier example in music: MTV, Napster, Apple, YouTube, and Spotify all gained immensely over various incumbents (recording labels, radio stations, record stores, and, later, each other).

Second, there is inevitably a commoditisation period where diminishing returns on incremental innovation kick in. The hundreds (thousands?) of engineers working on YouTube today are creating no where near the return as those engineers who enabled “fast, on-demand, online video” in the first place did in the mid-2000’s. They’re still innovating, yes, but they’re polishing and fiddling with a mature platform.

Plus, in 2020, on-demand streaming is no longer an exciting, new thing for consumers. It’s the “new normal” people expect. Enter the commoditisation phase.

When a distribution paradigm matures, to acquire & retain users, it’s back to basics of who’s got the hot content. Distribution battles to get the best stuff, and inevitably the dollars start flowing the other way: to those who make the content the world most wants to play, watch or listen to.

Netflix spent $9B on content in 2017, $12B in 2018, and $15B in 2019. It’s not hard to see where the pendulum has swung for video.

If the pendulum theory holds, we’d expect that the winners in the content game should be raking it in. Sure enough, broadcast rights for live sports, hit shows like Top Gear, and the most popular video game streamers are skyrocketing in value. For example, the top 10 music acts in 2019 earned a collective $1B, roughly double what the top 10 made in the year prior.

My predictions for 2020:

First, this will be another year for the content creators, and sticker prices for popular content will continue to soar far beyond inflation.

Some of the key coulda-been distribution technology innovations (consumer virtual reality, say) have more or less flopped, while a likely suspect for the next technical enabler, 5G, is still a year or two away from reaching mass-market penetration.

On the business model side, subscriptions are riding high again, but are already long past being a differentiator. The companies entering that game now (Apple, Disney) are doing so in a milieu of competing for pricy content from the onset. The patronage model also looks promising, but remains niche.

But, at the end of the day, there’s no business like show business. So, who knows for sure?