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Broken theatrical windows, declining linear TV channels and the rise of Netflix as a content giant have all appeared to threaten the traditional studio conglomerates as the entertainment industry moves into the streaming era.

But research firm Ampere Analysis says that legacy media players, specifically vertically-integrated film and TV conglomerates, have many of the strengths needed to make the transition to a direct-to-consumer business model.

Ampere says the entertainment industry is “past the point of no return” and that COVID-accelerated changes to windowing and audience habits are “irreversible.”

“Netflix’s rise didn’t just show the potential of direct streaming as a means of moving television distribution into new realms, it also showed the importance of content that is both high quality and exploitable on a global basis,” says Ampere in a new report, titled “Rethinking Legacy Media,” authored by Guy Bisson.

Legacy media’s strengths include content ownership, and the expertise from content creation, channel management and advertising sales that will all still be useful in the streaming era.

Chief among these, Ampere contends, are the studios’ content libraries full of familiar, remake-able or extendable properties.

“Studios are heavily invested in character IP and control large volumes of franchise movies and TV shows, providing a ready font of source material for fanbase-ready original content. As much as 20% of content in current studio streaming platforms is franchise-based. Franchise content is also crucial to brand building, something that becomes suddenly important in a direct environment for studio brands that until now have been largely business facing,” Ampere says.

The analysis contends that while the studios have lost first mover advantage to Netflix (and to a lesser extent Disney Plus), Netflix is the player that had to chase the legacy studios through huge volumes of original content.

This contradicts the assessment by LightShed Partners analyst Richard Greenfield, whose keynote speech at the recent APOS conference suggested that legacy media conglomerates are too small to compete and risk being acquired or steamrollered by tech giants (Amazon, Apple, Facebook etc.) entering the streaming business.

“Netflix’s content strategy is spot on. But it had to start from scratch and is playing catch-up in the acquisition of intellectual property,” says Ampere. Moreover, the studios’ existing shows are more popular. “Studio-produced titles currently on studio-owned direct streaming platforms (across all genres and types, both movies and TV shows) rank more highly on Ampere’s Critical Rating than Netflix originals currently in the Netflix catalog.”

Ampere also offers today’s studio conglomerates a different comfort: It suggests that they need only to grow their streaming businesses to 70-80% of the size of Netflix in order to succeed in direct-to-consumer.

It attempts to model the complete replacement of the studio content business (theatrical income, rights licensing and pay-channel distribution) with streaming revenue. As the biggest legacy media conglomerate, Disney has the biggest challenge, but others have smaller tasks.

“NBCUniversal would need just 70 million subscribers at $9.99 per month to replace its entire theatrical and content sales business. A further 133 million would replace its entire pay-TV channel business. For ViacomCBS, a total of 184 million subscribers would replace the entire studio content and pay channel operations income,” Ampere calculates.

Ampere does not expect complete cannibalization of the legacy activities by subscription streaming, and says that hybrid models mixing advertising-supported and subscription services (AVOD and SVOD, respectively) will logically coexist. It reckons that legacy players are well set-up to continue selling ads and to produce the different content that is required on ad-supported platforms.

Winners in the new era, Ampere suggests, will be the companies that control content, such as production companies and studios. But legacy conglomerates will need to rethink vertical integration in a content flow sense (rather than a geographical one). And they will have to decentralize, unlearning a production system geared to feeding a “domestic first run / international syndication” model to replace it with a more Netflix-like, geographically dispersed production system.

“That content need is increasingly international, spreading the production joy to a far more diverse array of markets than previously targeted in the domestic-focused legacy model.”