A Seller’s Market Is Truly Coming
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
Although representing a crisis for theaters, the Covid-19 outbreak is acting as an opportunity for production companies. Evidencing their expanding sales platform options is the recent decision to release Time to Hunt as a Netflix exclusive. Believing that it is time to pay more attention to the strengthening bargaining power of production players, we maintain a Positive stance towards the content industry.
Covid-19 impact: Production firms in more advantageous position than platform players
Increased indoor activity amid the Covid-19 outbreak is translating into higher demand for content and VOD and greater viewership ratings. This development bodes well for content production and OTT players, both of whom should benefit from greater VOD revenue. But, the ongoing economic slowdown stemming from Covid-19 is to harm earnings at advertising players, presenting a burden for broadcast channel operators (who depend upon advertising revenue). Looking at theater operators, direct short-term damage to earnings is inevitable as people look to avoid crowded places.
We believe that production firms will be least affected by the outbreak, followed by subscription platforms (OTT firms), advertising-based platforms (TV channels), and off-line platforms (theaters). The impact will depend on the related players’ profit structures.
Time to Hunt decision reaffirms that seller’s market is coming
With the number of theater-goers having plummeted due to the Covid-19 outbreak, a number of previously planned movie releases have been delayed. Originally scheduled to be in theaters in February, Time to Hunt will now be released directly as a Netflix exclusive.
With viewers’ content consumption patterns diversifying as of late, the public perception of streaming services’ exclusive movies has also been changing. Thus, even after the Covid-19 crisis passes, we expect to see further examples of cases like the Time to Hunt decision. In our view, Time to Hunt evidences that content production companies’ sales platform options are expanding. It appears that a seller’s market is truly coming.
Maintain Positive stance; offer Studio Dragon as top pick
Drawing attention to the rising bargaining power of production players in line with favorable external environment changes, we maintain a Positive stance towards the content industry. Once exports to China resume down the road, content industry players should be the primary beneficiaries. We offer Studio Dragon as our sector top pick, anticipating: 1) greater VOD demand; and 2) stable overseas sales (based on secured contracts with Netflix).