If you wonder why the building of large projects tends to go over budget, over time, and over expectations, a new book is attempting to explain it. Separately, I’ll attempt to explain why SVoD as intended today is a losing proposition compared to the introduction of other capital-intensive utilities like electricity and telephony.
I was looking for clues about the entertainment industry’s colossal investments in money-losing subscription streaming platforms (estimated at $100 billion from the U.S. top 10 services since 2019), and the book How Big Things Get Done was the only tool that could come close to explaining the phenomenon. It’s written by Bent Flyvbjerg, an economist at the University of Copenhagen, and Dan Gardner, a Canadian journalist.
In addition to the loss of capital investment, the SVoD sector is also facing additional hurdles. Research firm Parks Associates put losses due to piracy at $40 billion in 2023, and expects them to reach $120 billion by 2027. Plus, data gatherer Antenna reported that this year, subscription cancellations for streaming services Netflix, Hulu, and HBO Max are up 49 percent compared to 2021.
Even though How Big Things Get Done is directed toward public projects, the book makes it clear that businesses are just as prone as government agencies to misjudge the costs and risks of major investments. One of the book’s assertions is that “most big projects are not merely at risk of not delivering as promised. They are at risk of going disastrously wrong.” In terms of statistics, the authors explain that 18 percent of information-technology projects have cost overruns above 50 percent.
Plus, rushed planning can result in problems that crop up later, and imposing tight deadlines for competition may end up adding costs, because the easiest way to craft a tighter schedule is to short-circuit the planning process.
According to the book, people charged with developing projects fail to learn from other similar projects. For example, Netflix has now imposed a review of each show’s expected costs and revenues, and has thus discovered something that in the past has worked extremely well for the studios: the so-called “Ultimates” (which are used for the same purpose).
As for the cost of building and running other SVoD platforms, published reports stated that since its launch in 2019, Disney+ has lost $10 billion; since its start in 2020, Peacock has lost $5.5 billion; and since 2020, Netflix has lost $12.3 billion. Similar losses have been recorded at HBO Max and Paramount+. Compared to other streaming services, Netflix’s losses of just $17 billion since 2010 could be considered a winner!
Now, even if these services would break even in 2024 and start to show some profits in 2025, it would take at least 10 years before they could recoup the lost money, and another 10 years to show returns in the order of the $100 billion of past losses.
Looking at other capital-intensive technological business like electricity and telephony, one can deduce that none were as problematic as SVoD platforms. In the case of electricity (which came to the U.S. market in 1882), by 1892 there were 20 companies producing electricity and they became profitable by 1907 (mostly by consolidation), after a 15-year investment period. In the case of telephony, it came into the U.S. market in 1877, and by 1911 there were 11 companies offering voice services and showing good profits, even though some profits were shown as early as 1885 ($5 million for the Bell companies, and $5 million for the independent companies), after an eight-year investment.
As for SVoD, if, in the next 20 years, the studios do not make adjustments to their related businesses (like TV networks, syndication, and theatrical releases) — assuming that the studios do not dispose of them — losses would compound, and the streaming gains would result in a zero sum game. It is clear, for example, that subs gained for platform exclusivity did not compensate for theatrical losses and did not make up for the losses of not licensing content to third parties. Obviously, the decades-long studio obsession to “do away with the middleman” failed to bring about the expected pot of gold!
(By Dom Serafini)
Audio Version (a DV Works service)
Leave A Comment