The television and film industry has its moments.
And anyone tracking the rise of engaging, quality content
distributed via cable, Internet and satellite over a
proliferation of venues -- theater, television, home computing
and mobile devices -- knows this is one of them.
Start with the zombie-show "The Walking Dead" or "Breaking
Bad" from cable TV content providerAMC Networks (
). On the big screen, movie studioLions Gate Entertainment (
) struck box-office pay-dirt with "The Hunger Games" and
"Twilight," films targeting teenagers.
In February, online video providerNetflix (
) stepped into the fray with "House of Cards," its first try at
producing its own content.
In spite of the many different delivery routes -- online
streaming, pay-TV services or movie theaters -- the ultimate goal
is the same.
"Everybody is looking for a break-out hit," said James Marsh,
analyst at Piper Jaffray. The rising challenge is to maximize
returns on a hit via a multitude of distribution channels, he
says. Content producers are trying out new digital models, hoping
not to undermine their existing cash cows, such as box-office
receipts, advertising, or programming fees paid by cable TV
Frenzied competition and rising consumer demand for that
content have boosted earnings and share prices among
Leisure-Movies & Related stocks, which have held a steady
top-five ranking since early February among the
197 industry groups tracked by IBD
Lions Gate shares are up more than 40% so far this year.
Netflix has rocketed more than 100% as it fights its way back
from a brutal, 19-month correction. In the adjacent,
Media-Radio/TV industry group, AMC Networks is up 21%.
Consumers watched silent movies accompanied by live piano a
century ago. Today, movie theater chains are investing in 3D
screens and cutting-edge sound systems so they can charge higher
At home, viewing has evolved from standard broadcast channels
to cable, and videocassette to DVD options. Now consumers are
turning to video-on-demand offerings via cable or satellite
High-speed Internet service to homes is a fast-growing twist,
enabling consumers to stream music and video to computers,
web-connected TVs and mobile devices.
As new distribution technologies proliferate, content
producers are struggling to decide what to make available where
and find how much consumers will pay, says Michael Pachter,
analyst at Wedbush Securities.
For movie studios, box-office receipts and home video sales
are still the biggest money-makers, says a Standard & Poor's
report. Movies appear first in theaters. Studios then stagger
release dates for the same films across a multitude of venues
that include DVDs in stores, DVD-by-mail rentals; and
video-on-demand services from cable and satellite providers.
On-line streaming services provided by Netflix, Amazon Prime
Instant Video, Wal-Mart Stores' Vudu and others are also high
Once highly profitable, DVD sales are now in decline. U.S.
consumer spending on "packaged" content such as DVDs fell 5.5%
last year to $8.5 billion, says research firm Digital
At the same time, consumer spending on digital venues
including online streaming, video-on-demand (
) and other electronic "sell-through" services jumped 28.5% to
$5.1 billion, says DEG.
The rights to repackage older shows and films via streaming
venues is becoming a key money maker, said Cowen & Co.
analyst Doug Creutz in a January report.
"Content owners have gained hundreds of millions of dollars in
high-margin revenue, largely for older programming that was
providing minimal value, from content distributors such as
Netflix, Amazon, and Hulu."
Another growing outlet: subscription-based VOD. Lions Gate,
Viacom's Paramount and MGM formed cable movie channel Epix in
2009, building their own premium service, ala HBO, Starz and
Lions Gate made "The Hunger Games" available first on Epix,
then on Netflix under a licensing deal.
On the silver screen, blockbusters mean upside not just for
the movie studio that makes the film, but more ticket sales at
movie theaters owned by the likes of Cinemark, Carmike Cinemas
and Regal Entertainment. Theater owners keep almost half of
ticket revenue, says S&P.
Lions Gate's "The Hunger Games" was the third-biggest domestic
revenue maker in 2012, behind "The Avengers" (Walt Disney Co. (
) and "The Dark Knight Rises" ( Time Warner (TWX) .
Studios raked in $10.8 billion in 2012, up 6.5% from the
previous year, says Box Office Mojo. Ticket prices have jumped up
to an average $8 in 2012, from $6 in 2003. The number of tickets
sold increased 6.1% to 1.36 billion.
The business has been lucrative enough to lure China's Dalian
Wanda Group to pay $2.6 billion to buy privately owned AMC
Entertainment, the second biggest U.S. movie chain, in
Even so, TV production generates higher profit margins than
feature films. So Lions Gate, Paramount, the Weinstein Company
and other studios are producing more TV fare. At the same time,
the rise of Internet distribution (such as Netflix and Roku) has
cut into the growth in pay-TV subscribers.
That could eventually put at risk the hefty programming fees
entertainment companies receive from cable TV firms like Comcast
and satellite broadcasters. Pay-TV providers ponied up $40.3
billion in fees to content providers in 2012, up 7% from a year
earlier, says SNL Kagan.
Piper Jaffray's Marsh says cable networks "don't want to
cannibalize the pay-TV ecosystem." If consumer "cord-cutting" --
disconnecting pay-TV service and relying on Internet video --
becomes more frequent, cable networks could lose out too, he
Even so, cable networks are cautiously embracing online
streaming. In 2011, both Discovery and AMC Networks signed
licensing deals with Netflix. Discovery also has a deal with
Content firms are also cautious. AMC Networks, for example,
makes prior seasons of "The Walking Dead" available on Netflix.
It's keeping the new shows on pay-TV.
Netflix, breaking the TV industry's weekly production model,
offered the entire 13-episode season of its new political drama
"House of Cards" at its Feb. 1 release. Netflix reports the show
is now its most streamed piece of content in 40 countries.
Building on that success, Netflix plans seven new series in
2013, including "Turbo:F.A.S.T.", a kids show developed with
Amazon.com, Microsoft and others also aim to produce their own
programming for Internet consumption. Amazon studios in December
said it's developing six original series pilots, including "Alpha
Wedbush's Pachter says an "arms race" in original content is
under way as established and new players aim to develop exclusive
shows that keep audiences loyal.
With DVD purchases down, movie studios aim to rekindle
consumer interest in owning content. A consortium of movie
studios developed Ultraviolet, a system that allows consumers to
buy digital movies and store their library of titles in the
Consumers can access their movies on mobile devices or at
home. The Ultraviolet authentication system verifies film
purchases and monitors downloads.
Demand for content will continue rising as more distributors
emerge, including Apple and Sony, says Cowen's Creutz. Coinstar's
Redbox unit, which operates DVD rental kiosks, and phone company
Verizon Communications plan to ramp up a new online video
streaming service in 2013.
International distribution has given a big lift to some cable
networks, especially Discovery. Its international pay-TV
subscribers rose to 1.4 billion in 2012 from 952 million in 2009,
S&P says movie studios are eyeing China's growing appetite
for films. Dreamworks formed a joint venture with China Media
Capital in early 2012, followed by that $2.6 billion puchase of
AMC Entertainment by China's Dalian Wanda Group in September.
New original content providers loom as trouble for cable
networks, because they'll compete for viewers, especially the
young adults that advertisers want.
Cable channels are fighting back. Starz also plans to develop
more original content.
The stakes are rising for Netflix and cable networks, because
flops could draw the ire of investors as programming costs