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The value chain of the TV and film production industry and COVID-19

The show must go on!

Risk & Analytics
COVID 19 Coronavirus

May 18, 2020

Like every other sector, the media industry is feeling the impact of the virus. While there is a lot of turmoil, there are also opportunities emerging and the crisis is likely to spur some creative innovation.

The COVID-19 pandemic means almost a quarter of the world’s population is on lockdown. The broadcast and media industry is no exception and like every other sector, is feeling the impact of the virus, be it in terms of activities related to broadcasting, financing, production, marketing/distribution, sales events, advertising revenues or media technology investment. In most cases these are negative in nature, but there are also a few glimmers of hope and opportunities emerging. Regardless of the situation your business is in, there is an urgent need to make sure you are managing the risks and new exposures emerging from the current situation.

The new reality has impacted the media and production industry and its workforce with more brutal and immediate impact than perhaps many other industries. Production staff, being largely freelancers, have been laid off and entire filming operations have shut down or mothballed. The film and TV industry worldwide has experienced a near-total cessation of activity, with scores of productions, events and studio shoots having been halted with thousands of largely freelance crews laid off. At least 170,000 film and TV freelancers have lost their jobs as film industry activities grind to a halt due to COVID-191.

The pandemic crisis is going to change production business in 2020 and possibly beyond. The broadcast and media industry will be affected by the shock created by the pandemic and it could take some actions to best adapt to it. There is no way to be sure of the real effects of this crisis but in a time of such uncertainty, it is worth looking at the glass half full and understand how we can all make the most out of the current situation.

Broadcaster

When COVID-19 hit, changes that had already begun to take place within this industry have improved the resilience of some and had a greater negative impact on others. Simply put, it is wreaking havoc on the network’s annual program development calendar. Except for post-production, every element in the program development season is being heavily impacted by the pandemic and is basically shutting down productions or requiring heavy adaption.

While COVID-19 has put a production hold on hundreds of scripted and unscripted entertainment programs that are expected to air this year, the pivoting of productions is seeing broadcasters using their talent working from home or on archive footage (e.g. The Mash Report, Match of The Day - Top 10 or classic football games or sporting tournaments). The release of archive program or the rights sales for archive programming will increase if continued social distancing measures continue to be in place as demand for ‘fresh’ content continues to rise. As an example, WarnerMedia purchased the exclusive 5 year streaming rights for Friends for $425 million, a show that is coming up to 16 years since its last episode was transmitted2, 3.

With Netflix commissioning from across the world and diversifying from the usual UK/US production hubs (e.g. Spanish language successes such as Narco's), there is a wider pool of content coming in. Indeed, it now shows that Netflix have commissioned content in over 18 different languages3.

Broadcasters in the middle of the transition to a digital delivery model may push their next-generation software solutions more aggressively to compensate for the decline in legacy offerings. Software solutions and suppliers in the transition chain need to be ready for a rapid move away from license-based sales to subscriptions as broadcasters squeeze their outgoings.

The growing need for remote content creation, broadcasting and interaction capabilities amid the pandemic has shun a light on the need for better (5G) technology, potentially accelerating adoption in the medium to long term. Lightning-fast speeds, near-instantaneous communications and increased connection density make it primed for remote interactions, which has become top of mind for many organizations and enterprises as caution mounts over the spread of the virus.

While a key challenge for broadcasters will be the fact that advertising revenues are being hit by the macroeconomic crisis created by the virus, the same is not necessarily the case for subscriptions. Subscriptions are a more stable and predictable revenue source which comes directly from consumers. The response by many services to enable a pause in subscriptions for the short term will enhance their ability to financially recover quickly without need to rebuild a customer base.

Consumers are likely to drastically shift their media content consumption preferences during this period and view digital entertainment products more as a necessity as they increasingly spend more time at home. Governments are also launching initiatives of “digital solidarity” to incentivize cultural, educational and entertainment businesses to provide their services free of charge during this critical period. Italy provides a good example of this.

As a result of more countries adopting lockdown measures, streaming consumption is skyrocketing. While consumers will be hit by the decline in business activity, government interventions are mitigating the socio-economic fallouts of this situation leading many to maintain subscriptions even in the face of adversity. This does not apply to all types of subscriptions but mostly to those that rely on scripted content – sports may be strongly hit by the cancellation of events.

While several over-the-top providers have had to reduce the quality of their streaming this has allowed the network uptime to remain uninterrupted.

Financier

Because of the unique way that films are financed and the specific measures to cover films, it is likely that a lot of films in production or those recently completed will be held back from release anytime soon due to lack of cinema release. This produces an interrupted return situation for financiers and may therefore have a significant impact on the financing of future projects until returns on previous projects have been realized. So not good news for the content of tomorrow. With TV from the likes of Amazon and Netflix, they will have to consider their mix of funding, especially relevant for Amazon which will be hit with tied up costs in sports rights that are yet to or may not even be broadcast.

Production

As the COVID-19 pandemic changes the way the world works, broadcasters and media companies are having to adopt radically-different approaches to creating content. Ingenuity and innovation that might normally take years has sprung up in days as working from home becomes the new normal for everyone from video editors to on-screen talent. That said, journalists are considered as essential services and when necessary, several still report from the field and are therefore putting themselves at a heightened risk. These are all situations that will have health and safety implications.

Many types of audience dependent shows are not likely to re-emerge for a while as they will still not have audiences for the foreseeable future. This may lead to a reduction in demand for large capacity studios, placing pressure on the many privately-owned facilities and the expert workforces that support it. The demand for drama from all broadcasters and the GB Tax breaks for high end television has led to the U.K. being high up on the list of preferred locations because of this and the quality of production talent. A lot of these locations will need to be mothballed if permanent sites or temporary locations may be subject to renegotiation's when the industry starts up again.

The model of the production business relies heavily on the freelance model and is used to experiencing short term shocks on a regular basis and for a lot of production staff, they are flexible and suffer from intermittent bouts of planned unemployment between jobs. A lot of this workforce will still be subject to the pressures of running their own companies as directors and it is unclear to what degree government support will assist over this period.

Marketing/Distribution

The spread of COVID-19 is likely to boost digital media consumption across the board as people spend more time at home and communicate in person less. In the U.S., where the effects of the virus is now hitting hard, digital media consumption is increasing quickly and across social media, over-the-top video and online gaming platforms.

Depending on the business model, this could produce significant challenges and changes to what we have already seen in terms of distribution. The movement from the cinema to the small screen is already evident with Netflix financing an Oscar winner but still using the cinema distribution network if somewhat limited. With the cinemas now shut down, this is likely to accelerate the dominance of the online networks and change the movie viewing experience for the foreseeable future. Other products such as gaming and niche DVDs or supporting products have also taken a back seat where the more experiential marketing which requires consumer interaction is not available.

Social networks could be a major beneficiary, as people turn to these platforms to connect with friends and family who may be at a distance or to access news content. Media platforms popular among young people could see a boost as children and teenagers spend more time indoors, and if school closures continue to be in place. TikTok for instance will be increasing their downloads across the world and has now hit over 1 billion.

Advertising

Advertising revenues are highly correlated with the performance of the economy and accounts for a large share of the media industry’s revenue. As the world has become more globalized, countries’ macroeconomic performances have gradually grown more connected. This has increased volatility and created inherent risks and pushed companies to diversify to reduce risk and volatility, which is why several commercial broadcasters have tried to move their revenues away from advertising and towards other funding sources such as subscriptions and content licensing. However, a majority of the industry players are only partially on the way and the impact of COVID-19 on countries’ macroeconomic performance will be extremely damaging to broadcasters as they lose advertising revenue. While both the subscription and ad-funded business model will experience income hits, the bounce back of ad-funded should be quicker.

The cancellation of physical events, such as music shows and sporting events, is also partly responsible for the decrease in advertising volume. The knock-on effects for sports-based pay-TV broadcasters, unable to fulfil their obligations to customers, is likely to be very severe indeed if seasons cannot be completed.

Summary

The COVID-19 crisis is certainly going to spur some creative innovation in terms of new programming formats and workflows and require some different ways of thinking and planning as demand for entertainment rises while supply shrinks dramatically.

Sports broadcasters for example are leveraging archives to create and deliver new content for fan engagement as well as experimenting with entirely new and different formats that do not rely on live production. News programs are adapting to the lockdown requirements with several programs around the world gathering experts’ input through consumer video technology. These trends may well produce some lasting changes in the industry.

People will not stop meeting other people for conducting business. The face-to-face element of interactions, where high-value discussions are essential, will remain key. Virtual is not a substitute for on the ground/studio productions or shows but rather as a powerful complement to them. More reliance on virtual should help companies maintain continuous relationships with their customers and generate revenue. A more proactive digital presence by suppliers through tools like webinars and customer surveys should at least partly compensate for the loss of face time or in studio reactions.

The entire industry needs to temporarily adapt to this moment of disruption and go virtual where it can. Investing in different content and deploying alternative virtual models and delivery platforms is an effective way. People will access if they have no other alternatives and the content is good.

How are you adapting your activities to new reality surrounding the production and delivery of content? Regardless of the steps you are taking, they are probably different and some of these activities will produce new risks while others are in fact reducing them. Your level of commitment to the workers of the industry is also going to have a material impact on how you survive this crisis. Part of the thinking and planning should include how you can best engage with freelancers and other staff in a supportive manner, to continue to be the employer of choice, when this is all over and demand comes back, is an aspect that will differentiate the leaders from the laggards. With that in mind, it is critical that TV and production companies take a close look at their current insurance policies, their risk management approach, their business continuity planning while also maintaining an effective staff engagement approach. All to ensure that the business will remain adequately protected today and while also getting ready for tomorrow.

Disclaimer

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.


Footnotes

1 https://www.theguardian.com/film/2020/mar/19/loss-of-jobs-income-film-industry-hollywood-coronavirus-pandemic-covid-19

2 https://qz.com/1807391/the-friends-cast-is-making-2-5-million-each-to-reunite-for-an-hbo-max-special/

3 https://en.wikipedia.org/wiki/List_of_original_programs_distributed_by_Netflix


Additional Sources

Coronavirus' next casualty: The nation's biggest story could devastate news industry Jessica Guynn and Michael Braga, USA TODAY Published 1:17 PM EDT Mar 31, 2020

How the coronavirus outbreak is affecting the broadcast and media industry - By Lorenzo Zanni, Lead Research Analyst, IABM, 26 March 2020

In charts: 9 trends that will define media in 2020 – By Damian Radcliffe – WNIP Publishing, January 2020.

How the Coronavirus Will Transform TV Programming And Advertising - Brad Adgate, Independent Media Consultant – Forbes, March 27, 2020

The impact of coronavirus on the television and wider media industry - Adrian Pennington – Videonet, March 23, 2020

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