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Revenues From TV Production Offset Risky Returns for Film Studios

The major film studios have been enjoying a period of healthy growth. The eight largest studios — Disney, Fox, Sony, Universal, Paramount, Warner Bros., Lionsgate, and MGM — saw a combined revenue gain of 14% from 2014 to 2015. But many are banking increasingly on television production to fuel gains and to offset the “lumpiness” and risk inherent in film production.

All eight studios produce TV content, are part of larger entities that do so, or both. For Sony, Warner, Lionsgate, and MGM, the percentage of revenue from motion-picture production has fallen in the past few years. (MGM began reporting this split only recently, but it has changed dramatically even within the past year). At Warner, film has represented less than half of overall production for some time now.

Sources: Company Reporting, jackdaw research Analysis; Note: Sony Motion Pictures numbers represent its content production arm only, and exclude its Media Networks business which is also part of its Pictures subsidiary.

Growth in ancillary businesses, such as content licensing and video games, has contributed to the changing mix, but TV is the major driver, for two key reasons. First, studios are looking for ways to diversify revenue into sources that can stabilize the unpredictable returns of films. Second is that new buyers of content have emerged, thanks to Netflix and Hulu, as well as more aggressive buying and commissioning of original content by major cable networks.

Lionsgate is one of the few studios to report TV production at the show level. Netflix and Hulu have bought Lionsgate shows, notably “Orange Is the New Black” and “Casual.” But much of the rest of Lionsgate’s TV content in the past three years has gone to cable networks such as FX, Starz, AMC, Showtime, and E. “Rosemary’s Baby” and “Nashville” are the studio’s only major series that went to broadcast networks.

Sources: Company Reporting, jackdaw research Analysis; Note: Sony Motion Pictures numbers represent its content production arm only, and exclude its Media Networks business which is also part of its Pictures subsidiary.

There’s downside to a TV-centric strategy. Though TV production promises some revenue, there is no guarantee that shows will be renewed. Indeed, Lionsgate delivered 28% fewer hours of TV in the last year, even as revenue from the segment grew — a situation that may not be sustainable. More broadly, should talk of a glut of small-screen content prove true, resulting in fewer commissions of new shows, TV may begin to dry up as a growth sector for the studios.

Netflix, in particular, is a big buyer of content and intends to spend even more, but it may rethink that investment in the face of consistently slowing subscriber growth (though it did see a larger-than-expected rise in third-quarter subs). Meanwhile, cord-cutting could lead to reduced spending from cable players, as owners consolidate or the focus shifts back to buying rights.

So while the studios are riding high today on the burgeoning TV revenue stream, they shouldn’t expect it to last forever.

Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm for the consumer technology market.

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