This week’s “visual of the week” is a simple one: the number of Netflix subscribers in the United States over time. (You should know the top line number from my chart last week.) One of my goals with this series ...
It’s fascinating that between now and essentially March, Universal will be the only studio releasing films to theaters. And it’s able to do so because of its big “PVOD after three weeks” strategy it announced with AMC Theaters (and since others) in March.
The first film under this new partnership debuted two weeks back, Freaky, and The Croods 2 debuts today in whatever theaters are open in America. So what do I think? Check out Decider to find out.
HBO Max made lots of news last week. First with a deal with Amazon. I thought nothing could top that. Then they announced that Wonder Woman 1984 was going to HBO Max. That’s a big deal, so let’s make that our story of the week.
Programming note: I delayed last week’s column to today due to the shortened work week for the U.S. Thanksgiving celebration on Thursday. I’ll be off until next Monday.
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so.)
Most Important Story of the Week – Wonder Woman 1984 to HBO Max and the Messy Estimates of Customer Lifetime Value
One of my favorite media criticisms comes from Ryen Russillo, formerly of ESPN and currently of the Ringer. He brought up the point that whenever a radio or TV personality says the phrase, “And frankly, it isn’t even a DEBATE!” it usually means it is definitely a debate. In the spring, the basketball version of this was folks saying, “Michael Jordan is the greatest basketball player to ever live, and frankly, it isn’t even a DEBATE!” Of course, it is absolutely a debate since LeBron James has a terrific case.
(And crazily enough, both sides are wrong. Kareem Abdul-Jabbar is the greatest to ever play. And frankly, it isn’t even a debate.)
Do we see this in the streaming wars? Of course. My Twitter feed is filled with folks letting me know that Netflix has already won the streaming wars, and frankly it isn’t even a debate. (Reminder from last week’s article, the more a person tells you the more certain they are about the future, the less you should listen to them.)
The news that HBO Max is moving Wonder Woman 1984 to HBO Max for one month in December brought out a lot of hot takes about streaming, theaters and the future of film. Including some, “This isn’t even a debate”-type commentary. This baffles me given how many known unknowns, unknown unknowns and assumptions we have to make about everything related to film right now. Today, let’s debunk some of the worst takes. Or, if not quite debunk, more try to cast some doubt on them.
Starting with the biggest known unknown of HBO Max: the value of a subscriber. Because once you see how little we understand about it, you’ll understand why I’m so hesitant to make a lot of predictions.
Estimating Customer Lifetime Value for HBO Max is Nigh Impossible
One of my rules to live life by is that “Strategy is Numbers”. If you read a media analyst, but they don’t use any numbers, well you should be very hesitant to trust them. (And by numbers, I mean predictions with dollar signs.) They don’t need to have all numbers, but if they don’t use any models to forecast, well they are likely more soothsayer than business strategist.
Thus, when it comes to analyzing Warner Media’s decision to release Wonder Woman 1984 to HBO Max, if I’m taking my own advice, it would seem like the best place to start is with some numbers, right? After all, I”ve done this math for The Irishman and Extraction on Netflix. Surely I could do the same here?
Not at all!
For all the gruff I give Netflix about hiding numbers, they provide a fair deal of information about the performance of their business (because their business is only streaming and they have to comply with SEC regulations, if they didn’t provide the details, they’d be providing nothing). This enables us to estimate, with a good bit of confidence, the customer lifetime value of a given Netflix subscriber.
Customer Lifetime Value (or CLV) is really the name of the game in subscriptions. It’s the financial tool that says, “Hey, if you attract this many folks, this is how much money you’ll make in the long run.” As I’ve written before, it can be used and abused, but it’s why Wall Street loves subscriptions for everything. (Basically, recurring revenue.)
Here’s the thing: if you don’t know any of the inputs, you can’t calculate it. Or even estimate it. Because little swings can have huge changes to the output. Moreover, CLV is an estimate. Meaning a forecast. Meaning a prediction. Predictions are more accurate with lots of data. And they can still be wrong. Frankly even HBO Max has very little data on HBO Max, because it’s only been around since May.
Here’s how little we know about HBO Max:
– First, we don’t know the average revenue per user of an HBO Max subscriber. AT&T doesn’t break out HBO Max and HBO subscribers separately. We don’t know their splits with device manufacturers or have any historical data.
– Second, we have no idea what it costs to acquire an HBO Max subscriber in marketing.
– Third, and most important, we have no idea how long a new HBO Max subscriber will hang around. If it’s 12 months, that’s pretty bad. If it’s 36 months, that’s pretty good. I’ve seen one estimate of this, but it came from the summer, right after HBO Max launched. No one knows if that number will be above or below trend. Moreover, even HBO Max doesn’t know this number, because it is happening in the future!
– Fourth, we don’t know how much Wonder Woman 1984 would have grossed at the box office either. And now we never will.
– Finally, none of this matters since the real question isn’t what is the value of a new customer, but what is the value of HBO Max on the CLV of an existing HBO subscriber. Meaning, what is the value of an “activation” which is the AT&T term for someone who downloads and logs into HBO Max. Again, we won’t know this for years.
If you don’t have CLV, you can’t even begin to answer the question, “Will Wonder Woman 1984 make money?” or the related, “Should they have waited to release it in the summer?” All the other methods to do this–taking a month or year of subscribers and attributing them to viewers–end up either double counting customers or making every other piece of content worthless on the site. (In short, if a customer signs up to watch Wonder Woman 1984, but then binges all of Game of Thrones and stays for a year, why does WW84 get 100% of their subscriber revenue? See that doesn’t make sense.)
Now that we know how little we know for this key variable, we can “debunk” the strangest narratives about HBO Max following this announcement.
The HBO Max/Wonder Woman 1984 Hot Takes
1. Warner Media will Make Much More Money with This Strategy
How would you know? I just showed how uncertain the math is, so how could an analyst with way less data make that claim? This ties back to my introduction. The reason why Warner Media struggled so much with the decision to move Wonder Woman 1984 or release it to HBO Max is because they know as little as we do. They had to make a call, and it was clearly a tough debate, with likely evidence that they could lose or make lots of money with either decision. So how can an analyst outside Warner Media confidently predict the future?
2. This Will Kill Theaters
We don’t know if Warner Media will make any money off this release (and in lots of scenarios they’ll still lose money), so why wouldn’t they keep sending films to theaters? Instead, one thing is killing theaters right now, and that’s Covid 19. Full stop. If the virus were under control, then Warner Media would be happily planning on Wonder Woman 1984 being the big Christmas Day film.
3. Warner Media Will Pivot to “Day-and-Date” for Future Films.
I’m sure there are some folks inside Warner Media debating and even advocating for this future. But then there are likely others pointing to the economics of theatrical releases showing that having a theatrical window has some clear benefits for movie studios, mainly much more additional revenue. Meanwhile, any idea that this “test” can provide future guidance means accounting for the coronavirus, which is a tough variable to pull out of the analysis!
4. Alternatively, Warner Media Definitely Should Have Waited on Wonder Woman 1984
I’m not so sure. HBO Max needs a win, and this looks like a great opportunity to convince a lot of folks who don’t use HBO Max to try it out. If it turns out that a one-time blockbuster can single handedly boost usage, I can see how that’s a big win for Warner Media. A billion dollar box office win? I don’t know, but I won’t dismiss it out of hand.
5. Wonder Woman 1984 isn’t HBO Material
This is maybe the take that shows the least understanding of the HBO subscriber base. Sure, on the coasts, especially in the business, we think of HBO and think Emmys/Succession/Euphoria. Big critically acclaimed shows that drive “the conversation”. But guess what? Every Saturday HBO debuts a big new blockbuster film, including all the DC films and hosts of other big blockbusters. After all, it is the “Home Box Office”. HBO is known for this by customers as much as anything else. Wonder Woman 1984 isn’t a departure from HBO programming, but a reinforcement of it.
6. Amazon/Roku Did/Will Make a Deal Because of Wonder Woman 1984
No, they made a deal because they came to terms. These are 3-5 year partnerships. No big film, no matter how buzzy, will make one of these deals happen. Frankly, it just doesn’t move the needle enough. It may have helped some of the accounting on the HBO side, or provided some pressure, but on the device side it mattered very little. (The Christmas season in general was more of a driver than this specific launch.
End of the Day: We Don’t Know if Wonder Woman 1984 Will “Make Money” on HBO Max
Frankly, even getting the return of just its domestic box office haul, in the hypothetical non-Covid 19 world, will be tough. Yet, given how much HBO Max needs to pull in subscribers, this deficit financed maneuver may be worth it. Will it set trends for all future releases? Doubtful, unless lots of actors are willing to take pay cuts on current projects. At the end of the day, this is a big decision but as for whether or not it was a good call or bad call remains to be seen. (And likely we’ll never know.)
Context Update – A Second and Third Vaccine
By the end of 2021, society will be in a better place than it is right now. If for no other reason than Covid-19 has a good chance to be under control. Of course, variables could still stymy this, from a double dip recession to unwarranted vaccine fears preventing widespread vaccination. Still this is good news. In the summer, many headlines worried that Covid-19 wouldn’t be responsive to a vaccine. Those fears have been almost entirely dismissed (and evidence is increasingly showing a vaccine could be good for multiple years even), which is great news for the economy in the long run.
(We just need a good transition of government in the United States to ensure vaccines are distributed as quickly and effectively as possible. We also definitely need additional stimulus. Both of these scenarios are at risk.)
Other Contenders for Most Important Story
Speaking of the HBO Max/Amazon Deal…
This likely would have been the biggest story of the week but for the Wonder Woman 1984 news. Ultimately, though, like most big deals, we know very little about the terms. From what I can tell, the deal does seem like a bit of give on both sides. HBO shows will stay on Amazon Prime Channels until the end of the year while HBO Channel subscribers get access to HBO Max. As for everything else (pricing, marketing agreements or content sharing), we just don’t know.
The most important variable, for me, is that HBO will ultimately control the user experience. We often talk about “controlling the data” and that is important. Obviously. But for streaming, controlling the UX is much more valuable. Truthfully, Prime Channels does a terrible job featuring third-party series and films, and HBO Max is a much better experience. That’s the win for HBO Max here more than anything else.
The next question is when does Roku do a deal with HBO Max? Some folks say a deal is close, whereas others say it is far apart. Likely they are “negotiating in public” but it will be fascinating to see how it ends up.
Disney Live-Action Films Headed for Disney+
The news is that Disney is considering putting some of its live-action remakes straight to Disney+. Unlike Wonder Woman 1984, this is much more “signal” than noise that Disney could change release plans. Still, there is also some Disney obfuscation of how much of a real change this is, which is what you expect from any streamer.
The key for Disney isn’t how it releases these films, but what budget the films are. My guess is that if these films were destined for theaters, they’d be 9 figure production budgets. When they go to Disney+, my guess is they’ll be around a quarter to half that. Disney could say it’s only about the marketing budget, but I think the production budgets see a hit too. If that’s the case, then it really isn’t that Disney is releasing theatrical films to streaming, but straight-to-video films to streaming.
Roblox IPOs (and is losing money?)
Roblox released its “S1” to file publicly on the stock market. Like every digital company, it loses money every year. The key question is whether it loses money in as bad a fashion as others, and from what I can tell the cash losses seem to be exactly what Roblox spends on R&D. Assuming the R&D is accurately classified (not actually COGS). The worry here is that while Roblox saw nearly 100% growth in the Covid-19 lockdown, it saw its losses quadruple.
Roblox is like most digital companies executing the underpants gnomes digital strategy: attract users, something something something, profit.
Rick & Morty Are Very Popular
In a world with no ratings–which we don’t live in, but it feels like it–you could always default to another metric: where the money goes. In that world, Rick & Morty may be one of the most popular shows on television. The latest product the animated show is pushing is the Playstation 5, but that’s just the latest in a long line of product tie-ins. The other candidate for this is Stranger Things, which did a ton of branding last summer, but even there traditional TV has an edge. Rick & Morty is coming out much more frequently (about twice a year) and replayed much more often, which helps advertisers.
Netflix and Cinemark Testing The Christmas Chronicles 2 in Theaters
Lastly, as theaters are “dying”, Netflix is partnering with Cinemark to release Christmas Chronicles sequel to theaters. See, Covid-19 makes strange bedfellows of us all. I love this move for Netflix since theaters will provide straight revenue to the bottom line.
Lastly, Buzzfeed and HuffPost are merging. This is an interesting merger more than anything, because it is unclear to me that this new scale will save either firm’s underlying traffic problems.
This week’s “visual of the week” is a simple one: the number of Netflix subscribers in the United States over time. (You should know the top line number from my chart last week.)
One of my goals with this series isn’t to make all brand new charts, but update some of the best visuals. Last year, one of my best articles was showing how many subscribers Netflix has had over time. The challenge? Netflix changes definitions all the time on us. Meaning making an “apples-to-apples” chart is fairly difficult. This is why most US subscriber charts start around 2012, because that’s when Netflix started separating US streaming subscribers from DVD subscribers. (Technically they provided the 2011 numbers, but for some reason most subscriber counts couldn’t find that 2011 data comparison.)
Earlier this year, Netflix changed definitions again. They combined US and Canadian subscribers to make UCAN. So going forward, we won’t see many “US only” charts since most outlets don’t publish estimates. But I do. Since US subscribers are about 90.3% of UCAN subscribers, I use that to estimate.
Here is the update for Netflix subscriber definitions in the US over time:
And in chart form.
– In other words, every different color in the chart above is when Netflix has changed definitions. Last year, my goal was to find total subscribers, including paying DVD subscribers.
– As for forecasting, in Q3 of last year, I though Netflix would end the year with about 60.1 subscribers and they ended up with 61 million streaming only. Earlier in the year, I’d estimated 60 million subscribers, and I ended up being fairly close (off by about 1.6%). (Notably, my back of the envelope calculation that the price increase was needed to offset cash flow losses hit the 61 million on the head.)
– My other big prediction is that Netflix maxes out at about 70 million total subscribers in the US. So far we’re on track for that, but the Covid-19 lockdowns threw off all the timing. Mainly because Covid-19 pulled forward a lot of subscribers. Which will make 2021 fascinating to see if Netflix continues to add US customers, or if it slows down. (Already Netflix is seeing quarterly fluctuations in the US/UCAN numbers, with three quarters less than 500K adds and one quarter losing US subscribers last year.)
– As for the end of this year, Netflix is currently at 73.1 million UCAN subscribers and my hot take is that I think they stay at about that level for the end of Q4. I could easily be wrong, but it seems safer to predict flat growth with Netflix more than it does high growth.
– If you’re new to the Entertainment Strategy Guy, these three articles on Netflix are much deeper dives into how I gathered and calculated these Netflix numbers.
If you’re wondering, yes, I deliberately wrote three (almost) contradictory headlines for the last two days. In one, Netflix is clearly winning the streaming wars. In the other, Disney is almost winning. In the third, the often second place streamer, Prime Video, got ranked in fifth place. What’s the reality?
Somewhere in between. Or somewhere else entirely.
That’s what the point is for these articles the last two days. Not just to see the current subscriber totals, but to understand the nuances between them. To understand how the numbers interact so we can not just figure out not just who is winning the streaming wars, but what could happen as they get more competitive in the next few years.
Today, I’ll continue explaining how I estimated each streamer’s subscribers, but let’s start with why I did this analysis. At the end, I’ll put some fun charts that summarize this analysis.
The Reasons I Did This Deep Dive
As I’ve been analyzing the streaming wars, it’s been increasingly clear that this is a war fought on a country-by-country basis. Netflix’s global growth is incredible, but it is only one, likely overrated, part of the story. The actual battles are in individual countries.
Given how big and important the U.S. market is, it makes sense to start there. Since I’ve been evaluating who is “winning” the streaming wars, I needed to know how everyone is doing in America. Subscribers are one of those key metrics. However, if you search the interwebs, you won’t find a reliable estimate for each streamer. Thus, I needed to build these numbers myself and if I was going to do the work, I should share it here.
Not to mention, I have a bias against using other folk’s numbers. My rule of thumb is that I don’t trust anyone. Especially if the source of a number is vague/uncertain/biased.
Lastly, I can do this analysis because I’m freed of some journalistic conventions. This website features my thoughts and analysis. Most journalists can only cite specific facts via companies or well-established consultancies/investment research. That’s what leaves most estimates wanting. Since I’m allowed to print whatever I want, I can mix estimates with facts. But I’ll just tell you the difference.
Analysis Continued: How I Determined Each Number
Time for some guesswork.
As I wrote Wednesday, this will require an estimate of an estimate of an estimate. Or a guess.
First, we have to find the number of Prime subscribers globally. (Itself unknown.)
Second, we have to figure out the proportion who are in the US.
Third, we have to figure out how many actually use Prime Video.
Fourth, we have to guess of those who use Prime Video, how many use it and would pay for it?
Like I said, some guess work!
To start, I looked for US estimates of Amazon Prime subscribers and couldn’t find any numbers I loved. One firm does an annual survey, but they estimated 126 million US subscribers the same month Amazon announced 150 million worldwide Prime subscribers. That’s way too high then. However, the estimate isn’t for Prime subscribers, but folks with access to Prime. (Always ask “What is the ‘what’ in this statistic?”) So you could divide their number by 2.2 (for the number of people per household), and get the potential number of subscribers of around 50 million Prime subscribers in the US. That’s a floor.
On the other end, you could assume Prime membership is related to sales in a given country. Since Amazon breaks out revenue by United States versus Rest of World, we can see that here:
If that’s the high and low ranges, then what I’ll do is take Amazon’s announced membership in January (150 million), and use some nice round numbers. (And yes, I didn’t model any Amazon growth this year, so yeah, more unknowns on top of unknowns.)
The next question is how many folks actually use Prime Video. We could use third party sources for that—hang on a moment—but it’s worth building out the sensitivity table just to see how wide the range could be. I made a “Monthly Active” users sensitivity table to give myself a range.
If someone uses a service monthly, they are much more willingly to keep paying for it if they have to. (ie. if Amazon some how took Prime Video out of the Prime membership.) I also took a look at “annual active users”, but the range was too wide to be useful.
But I had one other piece of data floating around in my head. See, various streamers like Nielsen and Comscore track streaming usage. And Prime Video and Hulu have been remarkably close over the years.
That image is from earlier this year, when I wrote that “Netflix Is a Broadcast Channel”. In other words, if Prime Video has about the same usage as Hulu, it stands to reason it will have about the same number of folks willing to subscribe (at a $6 price point). Prime Video looks like it has grown a bit compared to Hulu over the last few years, but in general, they have about the same amount of usage.
What about the range? Well, you could convince me of anything. For my table above, I could see literally as few folks as CBS All-Access (say about 12 million). On the other hand, maybe folks do value Prime Video more than Hulu. So I could see it up to say 50 million US subscribers. (I just can’t imagine it is as valuable as Netflix when few folks watch nearly as many Prime Video shows.)
Starz, on the other hand, provided us all facts. In fact, some of the best facts of any of the streamers. While they have changed definitions a few time, they straight list out their past numbers. See?
Kudos for the transparency!
However, like HBO Max, the number of potential “streaming” subscribers is somewhere between the total of all linear and OTT subscribers, and the OTT subscribers only. You can decide where you think that falls, but I count them all for now.
Now back to the guess work!
Apple has had a good year for Apple TV+, but they refuse to release any numbers on its performance. Complicating things, Apple TV+ is also available globally. This was the same problem we ran into with Disney+, only with less data. The last leak we had was from Bloomberg in February, which estimated that about 10 million folks worldwide are signed up for Apple TV+, with the caveat that maybe half are actually using the service.
Time for the proxies. Since Apple TV+ is mainly for folks buying new devices, we’ll start there. If you want to analyze potential subscribers by iPhone sales, the best proxy for penetration, here’s the non-China iPhone sales numbers from 2017, according to Business Insider:
My logic for Apple TV+ was to take that rough percentage, and boost it slightly for the US, given that most Apple TV+ content is US focused. Then we’d add a 35% “Covid bump”. (Roughly what Starz and CBS All-Access saw this year.) Bingo, we get our guess of 6.8 million customers.
What about the range? Like Amazon, you could convince me of anything. The high could be all 10 million leaked customers were US based (or nearly so) and the Covid bump got it to 13.5 million. The low would be 2 million folks, all of whom are Ted Lasso fans. (The buzziest show among entertainment business Twitter after Succession.)
More facts from AMC. They’ve leaked that they expect their portfolio of streaming services to end the year at around 4 million US paid subscribers. To be clear, this is me cheating slightly since their premiere service AMC+ (which includes content from their other streaming services) may not have passed the 2 million threshold. I’m counting all their streaming subscribers, when you could argue they belong with the “niche” services. Still, they expect to pass the 5.5 million mark by the end of the year. So that’s the high point, with 4 million being the low.
(I haven’t written on AMC+ yet, but I am bullish on it as a “second tier” player. More to come.)
Last guess. Peacock has 22 million “sign-ups”, up from 10 million at their first earnings report after Peacock’s launch. So how many of those are paying?
I have no clue. None. Zip. Zilch.
But it’s likely small. Given that Peacock is advertising forward, the vast majority of users are likely interacting with it that way. (Of all the companies, I’d love this data point most of all. Well, maybe Apple TV+, then this one.) So I built a sensitivity table, and picked 15% as the number that made sense to me. I’d say the floor is 2 million (just making this list) and up to about 20% of subscribers, or 4.4 million subscribers, if folks are beating my estimates.
The Comparison Table
So with that, let’s make a few final fun tables. First, here’s the chart of my ranges of each estimate. In a lot of ways, this is more valuable than yesterday’s chart:
These ranges really tell us how wide the potential options are. Hopefully, we learn more over time, but you can see that the premium linear to streaming conversion will be an important statistic to monitor.
And now the confidence ranking table.
In other words, you can quickly see who provides clear numbes, who we can confidently estimate and who is the guess work.
Lastly, here’s my full table with the definitions and calculations explained:
So this provides a short hand way to know how I calculated the numbers.
Hope you enjoyed and again provide your estimates or feedback in the comments or on Twitter.
I’ve become a pinch frustrated with media folks who don’t differentiate between the US subscribers compared to global subscribers. Why? Because it violates the number one rule of data, which is to compare things “apples-to-apples”. Meaning, one should compare the most similar numbers to each other.
Not to pick on them because they do great work, but the wonderful Axios Media Newsletter (which reaches a lot more folks than I do) was guilty of this this week:
That looks at Netflix’s global numbers to HBO Max’s US only numbers. That doesn’t make sense, does it? Meanwhile, it’s compares Prime Video customers, who get it for free, to those genuinely paying for Netflix. And Apple TV+ can’t make the list since we know nothing.
So, as I wrote yesterday, I stepped up to provide some estimates for each of the major streamer’s US subscriber totals:
And the chart. (With some typos fixed from yesterday.)
If yesterday is the data shot, today is the analysis chaser, describing the details of what I did and how. Which is just as important. If you read yesterday’s article, you’ll learn some statistics. If you read today’s—and yes it’s long—you’ll learn about what is driving these numbers.
We have a lot to get to over the next two days. Here’s the outline:
– The rules I used to estimate US subscribers.
– The confidence levels for each estimate.
– The explanation for each of the twelve major streamers.
– The reason for this deep dive. (Mainly the need for “apples-to-apples” comparisons.)
– Finally, a chart with the ranges for each streaming estimate.
(As a reminder, sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so.)
In a quest to get to “apples-to-apples”, I had to figure out what type of apples we were dealing with. Here are the ground rules, in rough order of priority:
– First, US only. Global subscribers will come later.
– Second, subscription was the key. Free or advertising-supported services from Youtube to Pluto TV didn’t make the cut.
– Third, the goal is “streaming”, but I added “premium” channels too. Because frankly, lots of folks subscribe to HBO, Showtime and Starz directly. Ignoring that provides less context than more. So the premium companies made the cut. The linear channels paid through a cable bundle did not.
– Fourth, the goal is to focus on who “would pay” for a service. In other words, for Apple and Amazon, to try to figure out who would pay for those services if they suddenly cost money.
– Fifth, I had to draw a line somewhere or I’d have too many subscription services. I decided to focus on “major” services, which I defined as 2 million customers and above.
– Sixth, some services are very cheap as well, so I’m assuming roughly a $5 per month price point as the cut off. Yes, there are tons of discounts that get applied, but this is a good starting point.
My Confidence in Each Prediction Explained
Last year when I calculated how much money Game of Thrones made for HBO (a lot!), I realized I was dealing with a few different types of information. And I needed some categories to describe them. So I came up with this:
A fact is something a company has confirmed in a specific report or statement. Or in some cases ratings numbers and what not. Those are numbers we can believe in. Leaks are also from companies, but usually anonymous. They are fine, but always be careful with leaks. Companies are very self-interested and their PR folks—who are still good people—will mislead you. Specifically, with data that reinforces how well they are doing and hides any bad news. (The definition of bias.)
Estimates are predictions I am confident in. Usually it means I’m taking a few specific numbers and applying good models to them.
A guess, on the other hand, is usually when I have to estimate too many things. At which point my confidence in the estimate starts dropping. Which doesn’t mean educated guesses are bad, just uncertain. (Magic numbers are briefly explained here.)
Analysis: How I Determined Each Number
Enough preamble to the meat of this article. In order of the table above.
While Netflix discloses a lot of information compared to its streaming peers, on its US numbers it has become frustratingly vague. At the start of this year, Netflix decided to split the world into four territories to better show how its business is doing globally. Which meant for years we knew US subscriber numbers, but now those were bundled with Canada. Fortunately, they provided three years of data. Here you go:
In other words, US customers are about 90.3% of the UCAN total. That means we can estimate fairly well the current US subscribers based on the UCAN number. About 66 million US subscribers. Even though these numbers are so tight we probably don’t need it, I made a range for the estimate, and call this my 90% confidence interval:
(If you’re wondering where these numbers come from, I collected every Netflix subscriber number from here to olden times for this article. An update is coming next week as my “visual of the week”.)
Disney isn’t one service, but three. Two of those services aren’t globally available, which means we know for certain how many US subscribers they have. (ESPN and Hulu.)
What about Disney+? Well, we have our first tricky estimating process. To figure it out, I looked for some historical data. To start, here’s my historical growth chart:
That helps, but not perfectly. The best way to estimate Disney+ subscribers is to use some correlated variable we do know, and assume the subscriber numbers are related to that. For example, if a country is 25% of the worlds population, then you assume they are 25% of the Disney+ subscriber total. The problem is that no one variable is perfectly correlated. You could use population, but some countries are wealthier than others. You could use GDP, but it doesn’t quite account for size. Broadband and mobile penetration are also potential options. Ultimately, I decided to compare all the countries by population.
Yet this has a big problem for Disney+. The big wild cards are India and Indonesia. While most of Western Europe and Japan have similar economies to the US, India does not. Fortunately, Disney leaked that they have 18.4 million or so (a quarter) of their subscribers from India. So that means we now have to parse out how many of the 55.3 million or so are from the US.
In this case, I looked at various populations of the countries Disney+ has entered, compared to the total size.
In other words, if countries adopted Disney+ simply by population, Disney has 40% of the population, so would have about would have 22 million subscribers. That’s too low. When Disney first announced numbers in December of 2019, they’d have already been at 21 million subscribers using the population method. So did Disney+ only gain 1 million customers this year? With The Mandalorian season 2 and Hamilton? Probably not. So I made a sensitivity table, which netted me this:
Looking at it, the 54% of non-Indian subscribers having Disney+ is the most likely number. Or better phrased, between 25-35 million of all Disney+ subscribers are in the US. Any lower or higher feels unrealistic. And yes, I wish I had a more scientific way of triangulating this. Frankly Disney has released so little US data, and the data they have released has so many confounding variables that it’s probably the best we can do.
(Also, for the first of several times this article, if you want to disagree, feel free to do so in the comments or on Twitter and explain why.)
About The Headline “Disney Has Almost Caught Up To Netflix in the Streaming Wars”
Yesterday, I also included the total unique subscribers by company, because I do think that is the best way to compare companies. (See the table above.)
Logically, if Disney could get to 50 million Hulu subscribers and 50 million Disney+ subscribers, and each was paying $10 a month—and those are numbers that are only possible 3-5 years in the future—then it would be hard to say they aren’t “beating” Netflix, if Netflix stays at around 65 million subscribers, but at a say $16 price point.
To be clear, I’m not predicting that happening. But that scenario is one of the possible futures. The fact that Disney has nearly caught up to Netflix with its three streaming services in terms of customers matters since it’s just starting out, even if average revenue per user is lower right now. (And yes, I only counted the “bundle” customers once for my summary yesterday. I assumed that all the ESPN+ growth, 6.5 million customers, since Disney+ launched was due to the bundle, which is a conservative assumption.)
HBO releases US subscribers and the number that have turned on HBO Max, which they call activations. The number of folks who would subscribe to HBO Max (if linear HBO disappeared entirely) is somewhere between those two numbers.
I’ll defend my lumping premium subscribers with streamers now. Frankly, I’ve never understood the logic of not comparing HBO linear subscribers to Netflix subscribers. Yes, one is direct-to-consumer and the other is sold through MVPDs. But ultimately, the customer is what matters. And HBO customers are very loyal. If the bundle goes away tomorrow, some customers may not continue subscribing to HBO, but more will. (And still do, frankly. HBO passwords are as borrowed/shared as Netflix, especially when Game of Thrones was on.)
As for the range, it’s between the activations and the total subscribers. So I provided both numbers. I’ll take the top of that range as my estimate (for now), but you can choose somewhere in the middle.
(If you want more details on HBO subscribers over time, check out my visual of the week from a few weeks back.)
If I was going to count all premium subscribers for HBO, it only made sense to do so for Showtime as well. Fortunately, Viacom-CBS has leaked quite a bit of details to the press over the years, and their financial report provides specific numbers fort total streaming subscribers. (For this project, I searched for every number I could find.) For example, in September, sources told Joe Flint of the Wall Street Journal that Showtime had 27 million total subscribers, including 7 million OTT. (That’s a very useful leak, if accurate.)
Meanwhile, in their latest earnings, Viacom CBS told us that between CBS All-Access and Showtime they have 17.9 million OTT subscribers. Assuming that ratio has held constant since the summer, then CBS All-Access has about 11 million subscribers. We can confidently estimate that. If you want an error range, since Viacom has said that subscribers are about evenly split between CBS All-Access and Showtime, the low would be 50% of the about 18 million subscribers and the high is the opposite end of that, or about 12.5 million subscribers.
However, unlike Disney, I didn’t try to disentangle ViacomCBS bundled customers at the company level. While Disney’s growth could easily be attributed to their bundle, it’s much less clear how many dual CBS All-Access and Showtime subscribers are out there.
Let me tell you a pet peeve of mine. It’s folks citing how many Amazon Prime Video subscribers Amazon has.
Because they don’t know.
What you know, or have been told once, is how many Amazon Prime subscribers there are. With Prime comes access to Prime Video. We don’t know how many members actually use that service or, more importantly, know how many value the service enough to pay for it on a recurring basis. (What a subscription is, by definition.)
But here’s what’s crazier: we don’t even know how many Amazon Prime subscribers there are by country. They could have 50 million US Prime members…or 125 million. Literally know one knows. (In fact, we haven’t gotten an update on Prime membership since January.)
This is indicative of a larger phenomenon of the “streaming wars”. The streamers have barely told us how well they are doing. By my estimates, only 4 of the 12 biggest streamers have shared actual US subscriber numbers! (Hulu, ESPN+, HBO Max and Starz)
That’s right, due to non-disclosure, global-only numbers, or definitional craziness, we really can’t compare the streamers to each other in the United States.
Well no more!
I’ve decided to fix this glaring mistake. What I’m going to do is provide the EntStrategyGuy Definitive Estimate for all the major streamers US subscriber base. Today, I’ll provide my table, chart and some notes, then tomorrow I’ll provide the longer, gory details. First, here’s the chart:
And the table, which I’ll explain tomorrow:
About That Headline
If the internet weren’t a cesspool of clickbait, I could have just explained what this article is, “My estimate of US subscribers for the streamers.” But that doesn’t get the clicks. A flashy headline on Netflix? That does.
Tomorrow, like I will say multiple times, is where I’ll really provide insights into this process and data. For now, though, if you have one takeaway, it should be that the streaming wars are messy. They are filled with nuance. The more that someone online pushes a simplistic narrative (Netflix has already won; Disney+ will kill Netflix; TV is dead) the less you should listen. There are no simple narratives.
So my headline is 100% true, and building this chart makes that clear. When it comes to one single streamer in the United States, Netflix is about twice as far ahead as its nearest competitors. Really, they are in the first tier by themselves. Then there is a second tier of services with about 35 million subscribers (Disney+, Hulu, HBO Max and Prime Video). Then a third tier of folks trying to break into that second tier (Apple, Peacock, Starz, CBS, Showtime, maybe AMC+).
Yet, this look is in many ways a backwards looking view. The three oldest services happen to be the three oldest. The difficulty is forecasting what comes next. If we’re looking at growth, Netflix at the top was flat last quarter and down earlier in the year. And likely would have stayed that way all year in America except for Covid. Meanwhile, can the new streamers add subscribers? I think they can.
At least now, we/I have a common fact set to evaluate the United States performance of the streamers.
– What about global? I’m just focusing on the United States since many of these streamers are US-only. And we have the best data for this country. As the streaming wars continue, though, I’ll do a similar look for worldwide. (Though comparing global numbers to US only numbers is not a good method to do that.)
– How did you get that Amazon number? It’s an estimate of an estimate of an estimate, which makes it a guess. I’ll explain tomorrow.
– Why didn’t “smaller streamer TBD” make the list? I set the cut off at roughly 2 million subscribers. Anything smaller would have made the chart difficult to read. Again, I’ll explain my rules tomorrow.
– What if you disagree? Well, tomorrow I’ll explain how I calculated each one, so if you want to adjust the estimates you can. That will allow you to disagree, but within the right zone of possible answers.
– [From Corporate PR] You got our numbers all wrong! One, if you don’t put them out, then no I didn’t. If any company wants to correct my math, send me three years of financial data and I’ll happily provide an exclusive update.
For the second week in a row, we all knew the most important story of the week by Tuesday. And even more than the election, the news of a potentially very effective Covid-19 vaccine has direct benefits to the entertainment industry.
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so.)
Most Important Story of the Week – Pfizer’s Vaccine and Ending the Entertainment Recession
When I finally anointed Covid-19 the “most important story” of the week back in March, I speculated that we could call the impending recession the “entertainment recession” since so many parts of the industry could be impacted. That take was generally correct, as the novel coronavirus walloped the industry broadly.
(Though, in hindsight, leisure and travel industries like hotels and airlines, were probably even more impacted. Small in-person businesses like bars, gyms and restaurants were also crushed.)
That’s what makes the news so notable that Pfizer has a working vaccine that delivers 90% immunity. This follows rumors going back to August that China has a working vaccine that they’ve given to over 300,000 people. Or similar rumblings that Astrazeneca is also close to a working vaccine. (Honestly, I’m a little surprised we only learned of one vaccine this week.) Given that Pfizer’s vaccine is effective, many expect other vaccines to be similarly impactful.
Like all things, I want to temper my optimism with some doses of reality. Or, better said, uncertainty. Trying to predict how an entire society rebounds from a devastating pandemic is a fool’s errand. But that’s what we get paid the big bucks to do, so we’ll try. But first, the caveats.
1. We still need more caution in our sociological predictions. It amazes me how often we predict confidently in the behavior of large groups of people, and they end up confounding our predictions. Take this virus. While virologists predicted a big surge of cases in the fall, few predicted a big surge of cases in the summer. If society wide predictions were easy, we wouldn’t need capitalism and could have a state-run economy. But they aren’t, so we don’t.
2. A vaccine doesn’t fix the recession. Covid-19 forced tens of thousands of businesses to permanently close their doors. That’s economic activity that doesn’t just come back. Even if a vaccine is widely distributed, and distributed faster than expected, economic activity may not follow. (Or it will rebound quickly, a point which I’ve seen some opinion makers make.) While the vaccine is unqualified good news, it doesn’t make forecasting the economy any easier. I could see everything from a big muddle (especially without stimulus) to a strong rebound.
3. We don’t know how quickly a vaccine will be distributed. It may end up surprising us on either end. We could look back and find out that the US/European/Chineses governments supercharged distribution faster than expected. Or it may be the end of summer and we’re wondering why we still don’t have vaccine doses at scale. Disney, for example, expects theme park closures to last into March. That’s probably the earliest we could see widespread distribution. On the other hand, vaccine production is tough and it could be until the end of Q3 or further. The median is sometime in the summer.
4. The current outbreak is spreading uncontrolled. What final damage does this leave? Does it force theater chains to close if Wonder Woman 1984 can’t make it’s Christmas Day release? (See below.) This is a big (and tragic) wildcard.
5. What does the government do? We’re potentially in an even more muddled position than before the election. If one party controlled all three levers of power, you could see an effort to spend big to rescue industries and distribute the vaccine. As it is, spending bills could fail to materialize as helping the economy is increasingly seen as a political concession to the party that controls the White House.
In all, a messy picture. My (incredibly uncertain) gut says we should be optimistic for the entertainment industry now that a vaccine with proven effectiveness will be available. In rough order of who stands to benefit the most from an efficacious vaccine:
– Customers in 2021. My biggest prediction is that we see a big rebound emotionally/culturally/socially. Take the Roaring 1920s and pack it into one year. Folks throwing big parties. Or holding double birthday parties. Splurging on outdoor concerts and festivals. Big vacations. In other words, 2021 becomes the year of the party. The pent up demand hypothesis.
– Concerts see the biggest gain. Frankly, live-streamed concerts have come and been found wanting. There is nothing like an in-person experience and I think concerts (and the artists performing in them) have the most to gain from herd immunity. Concerts do take time to put on (as Hedgeye analysts Andrew Freedman put in his recent coverage of Live Nation). That said, these are extraordinary times. When concert promoters see an opening, there will be all effort made to be the first concerts back. And to celebrate that fact.
– Theme parks are next up. They have as much to gain as concerts, except there just aren’t as many. (And some are already open.) At first, I’d guess that local customers are the big arrivals, and we’ll see Disney and Universal studios offer lots of local discounts to get the parks full, especially in California.
– Live sports will rebound, but likely without the same enthusiasm as concerts. Frankly, watching the game on TV is still how most folks consume sports, even if ticket revenues are a huge portion of any league’s revenue. Conversely, each team will celebrate its return to competition and teams could see a surge in interest as folks are ready to get out of the house.
– Theaters could see the next big benefit, but they have a tough road to get there. 2020 will forever be a black mark at the box office, and it may take AMC Theaters with it. If they can get to/through the first quarter, though, I think studios will finally hold the line and let films get released. Meanwhile, the slate of films will essentially be double packed, with the best of 2020 and 2021 in the same year. This could actually hurt individual film grosses, but should lift all boats in general. I wouldn’t forecast we see a record breaking box office year, though, because Q1 will still have head winds from the current outbreak.
– Streaming and linear will…? If folks are spending lots of extra spending on everything, presumably that means they won’t be at home watching TV. But does this benefit the streamers? Or did they pull forward cord cutting? What about the traditional bundle? Will it see more cord cutting as folks go back outside? All that is unclear to me. Likely cord cutting continues at its current pace, but viewership could slide back from lockdown highs. However, competitive dynamics will probably have more of an impact than Covid-19.
I will be wrong on some of the predictions above. For example, some folks may not trust the vaccine. And have permanently turned into homebodies. Or the recession hurts wallets more than the end of lockdowns motivates folks to spend. Or the vaccine really isn’t broadly distributed until the last quarter of the year.
We’ll see! 2021 should start off on a positive trend and it will make for lots of news to unpack. But in all, if you work in entertainment, this is good news.
M&A Updates – Sony is Looking to Buy Crunchyroll
This news has been floating around for a few weeks, but I’ve been waiting to see it confirmed. (Which it hasn’t.) Like all deals, the terms are key. Allegedly AT&T wanted as high as $4 billion for the anime-focused streamer. The current floating price is $1 billion. That makes a huge difference between the two.
Assuming it’s closer to the smaller number, is this a good deal for Sony? I’m still not sure.
I’m fine with niche streaming services and think they will have a role in the streaming wars. You’ll have the general interest streamers like Netflix, HBO Max, and Disney+/Hulu playing the role of broadcast channels and you’ll have niche streamers playing the role of cable channel upstarts. Crunchyroll fits into that latter category well. They allegedly have 3 million subscribers, which isn’t bad.
With two caveats, though. Like folks asked with Disney+, though, at what average revenue per user? 3 million users paying what?
Second, there is a lot of anime content out there in the world. Everyone from Hulu to Netflix to HBO Max to Prime Video has a vertical on anime. I’m not an anime fan, and haven’t studied this industry so I’m not sure exactly how far ahead Crunchyroll’s lead really is. I’ve been told that if you’re an anime fan, due to exclusives, you have to have it. But if Netflix decided to go all-in on anime even further, it could likely outbid Crunchyroll.
Can a company keep and maintain a competitive advantage in a genre of content? Maybe. Shudder has arguably done very well appealing to horror fans with tailored content delivered by key influencers in an authentic way. Has Crunchyroll done the same? I think so, but we’ll see if they can sustain it under new leadership.
Other Contenders for Most Important Story
The fiercest traditional competitor to Netflix in the streaming wars had its earnings report on Thursday. In short, Disney was walloped by Covid-19 and a new vaccine is key to rebounding. For the gory details, I’d recommend my thread:
The other big news was that Disney has passed 73 million global subscribers. Pay attention to how Disney+ adds new territories, as we’ve seen big surges in subscribers tied to those launches:
Looming over the coverage, though, was the “Mulan question”. Specifically, did the test workout? On the earnings call, CEO Bob Chapek said it did, though notably Soul, will be premiering on Disney+ directly without the option to pre-buy. So if the test “worked” why not do it again? Well, likely Disney wants Soul to drive end of year subscriber numbers like The Witcher did for Netflix last year. They also just announced that WandaVision, the first big Marvel Cinematic Universe show, won’t be coming until January, so they need Soul to keep subscribers for the next quarter.
Lastly, part of me expects Disney to announce an expanded Premier Access program for 2021. (Their name for the Mulan experiment.) The date to watch is December 10th when Disney hosts its investor day. Reading the tea leaves–executives constantly referring to investor day, the stated success of Mulan, a similar program in India–I think it’s likely that Disney announces a new tier to Disney+ on that day. If they do, we’ll discuss the pros and cons of that new bifurcated strategy.
Comcast’s Freaky Is the First of the New Model with AMC
Specifically, the shortened PVOD window model agreed to last spring. So what do I think? I’ll have my thoughts up at Decider early next week.
The Wonder Woman 1984 Question
Freaky though isn’t the big question for theaters. That’s what happens to Wonder Woman 1984. As I write, Warner Bros is debating between keeping the date (and getting it on HBO Max early) or moving it to the summer, now that a vaccine is for sure on its way. My bet is it moves, but if it stays to bolster HBO Max, that’s a sign that Jason Kilar has his hands on the strategic steering wheel.
Discovery will enter the streaming wars at some point. Because they have to. Rumors are that Discovery+ will premiere sometime in early 2021 and CEO David Zaslav has been promising a direct-to-consumer service soon. In their earnings call, they repeated plans to launch a streamer. When we learn more, we can discuss the strategy in depth.
In December of 2018, Netflix let loose with their first datecdote™. They told us this…
But they went further! By their earnings report, they started telling us how many folks were watching their films in the first 28 days. Including an updated number for Bird Box of 80 millions subscribers watching 70%. Which allowed me to draw this conclusion:
As I wrote at the time, “the decay is real!”
Specifically, films that premiere on Netflix tend to have a significant chunk of their viewership in the first week or weekend. This is a binge-release wide phenomenon. Yet I had trouble proving the case. The other main piece of data I use is Google Trends data. But Google Trends isn’t viewership, just interest. I needed another data source (or leak) to prove it.
(Prove it to you, by the way. Not me. I know it’s true from personal experience at a major streamer. But non-disclosure agreements mean I can’t use that data.)
The decay of films has direct ramifications on the streaming wars. The steeper a film decays, the harder it is to monetize long term. So knowing how shows and films perform over time is important for the streaming wars. To show just one example, my Mulan analysis relied on forecasting its decay over time.
So I had a pretty strong hypothesis but couldn’t prove it beyond one example. Until today!
See Nielsen has been releasing weekly top ten lists of the most streamed shows. By total minutes viewed. They provided my their data going back to April of 2020. What I can do now is analyze movie performance to see if my hypothesis bears out. And it does.
But let’s start with what this data is. I complain bitterly that most articles don’t lay this out, so here you go.
Who – Streaming customers
What – Total hours viewed (Nielsen provides million minutes and I divide by 60)
What (platform) – Any service
Where – In the United States
When – From March 30th to October 18th 2020
When (time period) – Measured Monday to Sunday.
How (did I get it) – Nielsen provided.
This data set ended up being 29 weeks of data, or 290 data points. Separating out the films gave me 17 unique films that ended up on the streaming top ten, 16 Netflix and one Disney. Of the 17 films, only six had two weeks of data. So I plotted the decay and got this:
Hypothesis failed! Look at Extraction or Old Guard. They only decayed at roughly the rate of 28% and 20% respectively.
Ah, but apples-to-apples, am I right? Nielsen starts their data on Mondays. And not all Netflix films were released on the same day of the week. Historically, Netflix released big films on Fridays, but started moving some films to Wednesday. Like Enola Holmes. So let’s account for this and change our metric to hours per day (millions):
There you go! See, the decay is real! (69 and 65% decay for Extraction and The Old Guard.)
But we can go one final step further. See, no Netflix film made it in the top ten for three weeks in a row. (With the caveat that we won’t know Hubie Halloween results until next week. Maybe it breaks the trend due to its theme.) This means we know that at the very least the lowest rated film in the top ten is the ceiling for our five films decay. That gives us this chart:
To iterate, the week 3 numbers is the maximum number of hours per day a film could have received based on the number 10 film in Nielsen’s streaming rates. The actual number could be even lower. So I’d say Extraction, The Old Guard and Project Power (all Friday releases) are the best look at what decay for a given title looks on Netflix week-to-week. (I would bet lots of money Enola Holmes and The Wrong Missy lost viewership into week 3.)
In total, this makes 9 films that show this sharp decay. The six above, plus Bird Box (see opening) and The Irishman and Murder Mystery, which are the only two other films that Netflix confirmed the opening weekend and 28 day totals. (Murder Mystery had 45 million subscribers opening weeekend and 73 million at 28 days, at 70% completion. Irishman had 26 million opening week at 70% completion into 47 million 28 days.)
Now that I have my film data set cleaned up, there are a lot more questions to answer. What type of films made the top ten list? What does this say about Netflix’s strategy? What about the correlation of US Nielsen minutes viewed to Netflix global 2 minute datecdotes? What films made Nielsen’s list but not Netflix’s datecdote list? Those are all great questions, but will come in future articles.
Thanks to Nielsen for providing the data. If you’re an analytics company that wants to give me data, send me an email.
(By the way, if you wanted to know the Google Trends look of those films, here you go:
The story of the last week in American and around the globe was the election of President-Elect Joe Biden to the American presidency. Will this impact the entertainment industry? Assuredly, though exactly how remains to be seen. And as I wrote on Friday, we’re still counting votes to see who will win control of the legislative branches and by how much. We’ll have weeks/months to unpack that.
The election, though, wasn’t the only news. So let’s do a run through of the other stories of last week (or so).
Other Contenders for Most Important Story
Judge Judy to IMDb TV
Judge Judy is headed to IMDb TV for the next generation of her daytime legal show. Given that she hosts one of the of the most popular shows on TV period, this is news. Frankly, as Rick Ellis pointed out in his newsletter, if this show costs the same as say a Borat 2, it could be actually be a more cost effective move for Amazon Studios, even if it is less buzzworthy. Unlike a big film, that only draws in viewers once, Judy Sheindlin has loyal fans who tune in everyday.
With two caveats.
First, the challenge for Amazon is whether those older viewers will figure out how to tune into IMDb TV and other streaming services. Maybe Judge Judy can act as a draw…or IMDbTV will act as a pseudo-exclusive platform that essentially means she loses her ability to reach her audience. The Joe Budden/Spotify example I brought up a few weeks back, in other words. Broadcast is ubiquitous whereas free streaming TV adoption is not.
Second, CBS bought the rights to all the episodes of Judge Judy (the show) back in 2017 for $95 million. Meaning someday Paramount TV will have Judge Judy. Or HBO Max. Or Discovery TBD. Plus she’ll still be in syndication via repeats. Do viewers of Judge Judy need new episodes? That remains to be seen.
Disney+/Globo Plan a Bundle in Brazil
As Disney+ plans to enter Latin America, they’re partnering with telecom firms, as they have around the globe. In Brazil, they’re partnering with Brazilian leader Globo and will be offered as part of a bundle, though they’re calling it a “shared subscription”. I love this strategy for Disney, as I’ve said before. It allows immediate penetration into key markets and Disney content is seen as must have for major telecom providers.
T-Mobile Enters the Streaming Wars
Another telecom company is offering another virtual MVPD. This time it’s T-Mobile with their offering of “TVision”. However, TVision is already running into trouble as cable channels are making noises that T-Mobile is violating the terms of their deals due to what channels are offered in what packages.
Frankly, virtual MVPDs are just tough businesses to be in. They don’t really solve any problems for customers, and the only reason they’ve gained market share is that they’ve offered severe price discounts. Like Youtube TV, DirecTV Now and others before it, T-Mobile seems to be offering a deal which is too good to be true, 30 channels for only $10. It likely won’t last.
Roblox Is Going to IPO
Kid focused video-game company Roblox is going public, having filed confidentially for an IPO. Roblox has an interesting approach, since they let users design games, which means they have a lot of games for very little cost to Roblox. Throw in some hefty doses of social, and the platform is very popular with the kids. (Though, it has some risks, as I highlighted in a newsletter a few weeks back.) In all, this is a company to watch, like a less buzzy Fortnite.
Streaming service Starz has reached 9.2 million streaming subscribers, though how exactly this is calculated is, as always, confusing. Does this mean streaming only? Or more likely folks who subscribe anywhere, but have streamed content? If it is a legit 9.2 million streaming-only subscribers, that’s a great number.
Either way, the news came as part of their earnings call, and other articles indicated that Lionsgate is willing to spin Starz into its own company. Which could be a sign that efforts to sell Starz have finally ended, or this is a way to sell the company without having to actually sell it via the traditional process.
Hulu/Youtube TV Dropping RSNs
More bad news for regional sports networks. Hulu has live sports, but won’t carry regional sports networks, apparently. As a result, Sinclair wrote down the value of their regional sports networks by half. Partly, this does reflect that Sinclair overpaid for the channels, but this doesn’t necessarily mean they overpaid at the time. In a non-Covid-19 timeline, they may have been fine. Still, over the entire sports ecosystem, RSNs may be the first weak point. Though…
Utah Jazz sell for $1.6 Billion
For all the worries about cord cutting impacting sports valuations, we haven’t seen it yet and the Utah Jazz sold for a tremendous price tag given their market.
Entertainment Strategy Guy Update – Esports
Are esports trending up or down? I’d say neither, but the bad news headlines I’ve seen recently worry me.
On the good side, Learfield IMG is launching a collegiate esports league since the NCAA has mostly punted on allowing esports. Toss in “VENN”, a streaming only esports channel that recently launched and you see the rush to make money off esports.
On the bad side, you see the folks rushing out of esports. Both ESPN and Cheddar are shrinking their esports coverage. There are also rumors that VENN is having trouble with its audience. Moreover, Overwatch league switched commissioners this spring.
The question is whether this is because esports is really, really popular but folks don’t want traditional style sports coverage, or whether it just isn’t that popular yet? As I’ve been writing for a while, I think it’s the former: esports is growing, but some of the numbers about it’s popularity are wildly overhyped. As such, the reason why no one is watching esports content is because it isn’t popular enough to demand that coverage. (Indeed, whenever traditional ratings are used, esports viewership is anemic. Then another excuse is brought up that esports fans don’t watch via traditional channels. Maybe! Or maybe it just isn’t as popular in raw viewership terms.)
I’d also make a clear distinction I don’t see enough: esports does not equal live-streaming video games. They overlap but do not necessarily need to both be true. Folks can love watching people on Twitch, but also esports leagues could come and go and never really break through. And while I remain skeptical on esports, you won’t find that skepticism for live-streaming.
Let’s not kid ourselves. This week was about one story. Everyone in America–and around the globe–was watching for the results of Tuesday’s election. I didn’t get any work done on Tuesday or Wednesday because I was distracted by following the news.
So it’s our story of the week!
(As always, sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so.)
Most Important Story of the Week – What a Electoral Polling Mistake Says About Decision-Making
I won’t discuss the impact of the election from a political perspective. That is for political pundits, which I am not.
If I’m anything, though, I’m a Nate Silver fanboy. Silver has been incredibly influential for this site. I regularly cite him and his work. I use the phrases “signal and the noise” a lot. And I try to build forecasting models for entertainment. That’s my political affiliation: data truther.
Which is why the narrative bothers me. Imagine this scenario.
Pennsylvania’s legislature allows votes to be counted several days before the election, whereas Florida votes to end early counting.
Then, on election night Joe Biden is declared the winner in Pennsylvania.
Would the narrative have been different? Heck yes.
(To be clear, while Biden leads in Pennsylvania, the race hasn’t been called by networks or the AP nor have final votes been tallied, the latter being the true “count”.)
But the “narrative” is not reality. The narrative is the collective chattering of talking heads, social media conversation, and news coverage. But notably, the narrative is not reality. Reality is reality. See how easily the narrative changes if just two states count their votes differently?
On top of the narrative are the “expectations” that came into the election. These were set, overwhelmingly, by Nate Silver and his 538 model. His model is based on the polls, which had another error like 2016 that underestimated Donald Trump. (We don’t know the true magnitude yet, which I’ll get to.) This set up a lot of optimistic expectations for Democrats. This set up another narrative, that Silver screwed up his models or that polls are irrevocably broken, or both. Even more than the results, this could be the narrative driving Twitter, “How did 538 lead us so astray?!?!?”
Let me provide just one example from my experience. In my previous role at a streamer, I gathered all the data to help the key decision-makers decide what shows to order and renew. Yet, the data wasn’t mine alone. Often, executives wanted the data immediately. Meaning a streaming show premieres on a Friday morning, and the executives wanted email updates for how the show was performing. Sometimes hourly! Several times, a show would start slow, for whatever reason, and finish strong. Or vice versa. But executives checking every hour would often use their first impression as the takeaway for how the show did.
In other words, I routinely saw the mistakes being made for this election at a big company in America.
If you’re a decision-maker, your goal is to focus on reality, not the narrative. And where they diverge, you take advantage. If you’re an investor, you invest to make money when the narrative clashes with reality. If you’re in business, you build a competitive strategy off it. And if you’re in politics, you win future elections.
In general, the biggest “error” was not from the polling. The biggest error was how we consumed election night information. (And I’m guilty here too.) Understanding that will help us all–and especially business leaders–make better decisions.
What Nate Silver’s 538 Is Trying to Do (And Other Modelers)
Before we can understand what went wrong, we have to understand what both polls and models of polls are trying to do.
The goal of a poll is to forecast the feelings, opinions or thoughts of potential voters for upcoming elections. It’s a survey! Of course, the goal of this survey is to be accurate. If you could, you’d survey everyone in America. But that would be really expensive! The compromise is to survey a sample and draw conclusions from it.
The challenge is how pollsters gather that sample. If their sample is biased, the survey won’t be accurate. That is why pollsters get paid the big bucks. Eh, big is too high. Let’s say “some bucks”. Surveys are easy to do, but really hard to do well.
In America, recent technological developments have weakened the ability to survey various populations. Specifically, the rise of cell phones with caller ID has decreased the number of respondents who talk to pollsters. Unlike the past when landlines were ubiquitous, many homes do not have a landline. The potential replacement–internet polls–come with their own sampling problems.
The solution is to adjust the sample population and weight it by various demographic categories. Like age, gender, location, income, past voting history and now educational attainment. Various pollsters use different methods to adjust these results and have done this for decades. Yet, this introduces its own uncertainty. It means that polls are models of what they anticipate the electorate to look like in a given election.
This brings us to Nate Silver. He makes a model based on polls. Or a “poll of polls”. But since the polls are models, really he makes a “model of models”. The logic is that the average of multiple data points will be more accurate than picking any individual poll by itself. (He’s right here, by a long shot.) And his model crunches tons of additional data and historical evidence to make it as representative of potential outcomes as possible.
Yet, if all the polls Nate Silver uses have the same correlated error, his model won’t be accurate.
In other words, garbage in, garbage out. But garbage is too strong. So “slightly biased data in”, slightly biased data out. (As it stands, his model predicted 47 of 50 states, but we have to wait to find the margin of error, which is more important.) A model is only as good as the data going into it.
The Models Weren’t Wrong…We Were
Yet, the most misleading thing about the election wasn’t polling errors. The bigger mistakes are still being made.
- A lot of folks saw the results on Tuesday night, and then rushed out to provide their takes.
- Worse, even more folks consumed a lot of data about the election on election night. And then they stopped. (Or they will stop when the election is called.)
If you’re a voracious news consumer, you’re actually more at risk of this. For example, can you tell me what the polling error was in California in 2016? Did you know that polling actually underestimated Democrats in that election? (If you listen to Nate Silver’s 538 podcast, then yeah, you probably heard him say this, which is where I got it from.)
Yet, because California wasn’t a swing state and folks didn’t check in for final results (which take weeks, unfortunately, to get) most folks never internalized this lesson. They only internalized the miss in Rust Belt swing states. In other words, most folks were not properly informed about what happened politically in 2016 if they focused on election night. Meaning if they had to draw conclusions from 2016, they were more likely to make the wrong conclusions.
Let’s explain what these decision-making errors are (via their logical fallacies if possible) to correct these mistakes.
Using biased samples/Drawing conclusions too early
This is perhaps the biggest problem with drawing any conclusions from the election:
We don’t have all the data in!
As I write this, California only has about 74% of its vote counted. Many other states are like this as well, and states are still certifying their results. Frankly, you can’t draw conclusions until you have a complete data set, otherwise you risk a biased sample size.
Which is really ironic, isn’t it?
The problem with the polls is they have some correlated error which makes them biased…and we judged that on election night with a biased sample size!
Specifically, many urban centers are very slow in counting ballots since they have orders of magnitude more votes to count. Yet, that definitionally makes conclusions biased towards rural communities. This is definitional bias in the “poll” of current vote tallies.
This happens outside of elections. For example, folks evaluate a feature film’s performance on its opening weekend box office. Which is pretty correlated with final performance, as I’ve written. But the two week box office numbers are even more correlated with performance. If you wait two weekends, in other words, you can have a more accurate recall of box office numbers.
The “Temporal data fallacy”/Drawing narratives from sequential data drops.
Obviously, the order of revealing the data shouldn’t impact our conclusions from the data as a whole. What matters are the final results. I’ve taken to calling this the:
The “Temporal Data Fallacy” is drawing a narrative based on the sequential release of data, when the timing of release is uncorrelated with the outcome.
And it doesn’t just happen for elections. In sports, we often weigh what happens at the end of a game much more strongly than what happens in the middle. But a missed basket in the second quarter impacts the outcome just as much as a missed basket at the end, for example.
Availability heuristic/Rare events are easier to recall than common ones.
If you watch all of election night, but have to go back to work the next two nights, then when you recall the election later, you focus on events in the moment, but not the outcomes that happen later. Moreover, the stronger the emotions you feel (like despair at losing) means you recall those events with even more alacrity. Which is why Biden could wind up winning with a greater margin than George Bush in 2004, yet it will feel like he lost because he lost Florida early on Tuesday night.
Folks like to mention Capital in the 21st Century as the most common book that is purchased but not read by intellectuals. I’d offer that Thinking Fast and Slow by Daniel Kahneman as the book that was most read but least applied. We all know the availability heuristic is a thing, but we still are walloped by it on a regular basis.
The curse of small sample sizes/Overconfidence in results.
Elections are a pretty small sample. Which Nate Silver repeatedly tries to tell us, but we usually forget. (They only occur every two years, and Presidential elections every four.)
That’s why his model had everything from a close Biden win to a big Biden blow out in their range of outcomes. With small sample sizes comes greater uncertainty. While Silver has tremendous uncertainty in his model, most folks only focus on the average outcome.
Valuing Process over Results/Expectations
This also relates to the penultimate problem, which is the focus on results over process. Maybe this is philosophical, but I’d rather be wrong for the right reasons, then right for the wrong reasons. The former means I’m still making accurate predictions; the latter means I don’t know. In Nate Silver’s case, his model only gets tested one out of every four years. Sure, sometimes he’s going to miss, but the value is in the model, not the results.
Meanwhile, we often only care about results in terms of the expectations. Thus, Biden will likely win, but since folks thought Democrats would win the Senate too, it feels like a loss. (Winning the Senate, House and Presidency had about the same odds as Hillary winning in 2016, 70-77% in 538’s model.) But the Democrats will likely win an election against an incumbent, which is really, really, really hard to do! That’s worth celebrating, though folks won’t.
This happens in entertainment even more often. Say two films have the same budget. One is expected to gross $300 million and gets $280. The other is expected to gross $100 and gets $180 million. Sometimes the narrative praises the latter film, even though it made less money. But it beat expectations.
So I have recommendations. To make you slightly better at analyzing data in your everyday life and professional role:
– Get rid of dashboards. Dashboards are the election night of data. They take a stream of data in and folks can check them whenever. Even if they don’t need the data or the data is wrong or a decision doesn’t need to be made.
– Determine what numbers are your signal, what numbers are noise, and don’t check the latter. Checking data that isn’t tied to key outcomes will only jumble the narrative and pollute your thinking.
– Check data less often. And check later. This is the hardest thing in the world for decision-makers. A new TV show comes out, so everyone wants to see the ratings. But if you don’t have a reason to check the data–and reason means a decision to make–then checking the data could mean you’re absorbing misleading data. Which the availability heuristic shows will be tough to forget later.
– Have a “data” plan for your company. (And a communication plan while you’re at it.) This plan should explain what numbers your value and when you check them. And that should be tied to decisions.
– Lower or raise your statistical significance. One of the crazy parts of statistical analysis is how much we still rely on the 5% threshold for statistical significance. This is an artifact of pre-computer calculations. But for some measurements, we need more confidence, and others we actually need less. You should analyze your data with this in mind.
– Ignore most headlines with statistics you haven’t tracked. And please don’t repeat them if you don’t know how they were calculated. Those are likely datecdotes.
Entertainment Implications/Entertainment Strategy Guy Updates to Old Ideas
Entertainment is Filled with Small Sample Sizes
If you take away nothing else, remember this. Much data in entertainment tends to be annual, and that means your sample size is only as big as the number of years in your sample size. In other words, when drawing conclusions, be careful about overconfidence.
(Think box office year over year. Most folks will willingly tout all sorts of reasons for why the box office declined year-over-year or raised, but most likely it’s just statistical noise.)
Surveying Customers Is Still Valuable
One result of the election is folks questioning all political polling. Or asking if this is the end of quantitative data. It isn’t.
In general, I’m a fan of more data in general: surveys, polling, quantitative, behavioral, even focus groups! They al have a role.
The key is finding which data matters and when it matters. But will “qualitative” data replace quantitative? Hardly. Surveys will still be better than relying on anecdata or datecdotes.
(In TV in particular, if you get rid of ratings, and rely only on making TV shows using “qualitative” data, that could mean making TV for folks like you. Since you aren’t a representative sample size, this is a bad decision.)
The Presidential Race is Logarithmically Popular
My favorite chart returns! The spending/awareness for Presidential races is orders of magnitude larger than dozens of senate races, hundreds of house races and thousands of state legislatures. That’s logarithmically distributed!
Streaming Analytics Firms Have Polling Error…But What Is It?
This is a lens I plan to analyze all the streaming analytics companies through, some day. Some firms have potentially biased sample sizes (all users of their service is not representative), others have limited sampling (potential bias), others are limited by their own data (streamers know exactly how many folks watch their content, but not other streamer’s data) and some firms have models with unknown weighting (so you can’t judge the process).
Given they are the best data we have, I will use their data. Heavily. But I’m aware of its limitations, which lots of news coverage doesn’t seem to be.