We live in an era of information explosion. At our current pace, 2.5 quintillion bytes of data are being created each day—and that pace is only accelerating with the growth of the Internet of Things (IoT). According to Forbes, 90 percent of the data in the world was generated in the last two years alone.
The media industry is no exception. Over the last 10 years, the number of new original shows has been increasing at a rapid pace (2.5X in 10 years). One big driver of this explosion is the emergence of OTT apps. At this point, at least 200 OTT apps are offering various streaming services. Will this trend continue or we will see a decline in the number of new original shows? This is the key question I will try to answer.
An interesting thing is that the audience is not necessarily watching more shows. Although the number of available titles has significantly increased, the average number of channels that each person watches actually decreased from 17.3 in 2008 to 12.7 in 2018. Also, the total video time spent per day per person (including OTT) has been very stable since 2012. The Average Time Spent per Day with Major Media per person in the US is around 12 hours. Given that there are only 24 hours in a day, and that we need to spend seven to eight of those hours sleeping, I think it’s very unlikely that we can spend more time with media beyond the current level.
All the data suggest that the demand from the audience reached its peak a few years ago. The audience cannot consume more media or video. The only reason we have more original shows each year is because of competition on the supply side. As the streaming war heats up, programming expenses increase quickly.
The production cost for high-quality content is very high. I will do a deep-dive in another blog post. At this high level, the costs are $200K-$300K per minute. The funding of production costs comes from ad revenue, subscription revenue, or cable subscription revenue. None of these revenues is growing at a rapid pace. For these reasons, we have to believe that, at some point, the number of new original shows per year will start to decrease. Right now, major media companies are maximizing their financial leverage to compete with each other, but this situation is not sustainable.
Maybe we can learn from the app industry, which heated up a few years before the OTT industry did. The number of new apps and games released (iOS only) peaked in 2016. After that, it started to decrease.
Interestingly, 2016 was the year when the smartphone market pretty much stopped its growth.
Based on research from Google/Ipsos, the average number of apps installed on a phone is 35 in the US. We use only nine apps per day. I guess most of those nine apps are very similar across all of us.
After the iPhone was launched in 2007, Apple experienced massive growth (more devices and more demand for apps). This led many app developers to tap into the space and compete with each other. However, as the growth of the market slowed down, only the strongest players could survive. As a result, the total number of new apps released is decreasing.
So, most likely, what happened in the app industry will happen in the video industry. 2019 might be the year that saw the highest number of new original shows. Because the audience demand peaked a couple of years ago, I believe we will see more consolidation in the industry in the next few years and that the number of new original shows will return to the 300-400 range.