At first, I was tempted to call “Mulan vs Tenet” the biggest battle of the streaming wars. Each weekend in September, we’ve eagerly awaited answers to the hottest questions in film: Will Tenet save theaters? Will Mulan blow up the ...
How many folks bought Mulan? That’s the buzziest question in the streaming wars right now. Since we don’t know, we’re left to pick at the analytics tea leaves. Fortunately, as each day passes, we’ve got more tea leaves to pick ...
The first thing to know about the streaming wars is that it is really multiple wars simultaneously. One war is between the streamers. They compete fiercely against each other, with Netflix in the lead. (This is by far the most ...
We had a fun bit of data dropped via Nielsen in August which allows me to update my most popular article of the year, “Netflix is a Broadcast Channel”. Nielsen let us know how viewership looks through the Coronavirus lock ...
Last week was a big one for me as I tore through a lot of Mulan data to produce my soon-to-be-biggest article of all time, “1.2 million Folks Bought Mulan on Disney+”. (It looks like it will dethrone the previous champion, “Netflix is a Broadcast Channel”.)
It’s been four weeks since I checked in on the health of theaters, let’s make that the most important story of the week.
Most Important Story of the Week – We’re Heading for the (Almost) Worst Case Scenario For Theaters
I try to think about things probabilistically. As Nate Silver would recommend. The world has lots of randomness, so events and different outcomes have different probabilities.
When I made my forecast of Coronavirus’s impact on theaters for a consulting client, I had a median case of theaters reopening in August. And it almost happened, but for a summer surge in cases. The worst case was that theaters would stay closed through 2020. We’re not quite to that worst case, but we’re close.
We’re partially opened in America as 70% of theaters are allowed to be open, but the studios are pulling their tent poles until the biggest markets reopen. Given that the US still accounts for 30-50% of a film’s total box office, America’s uncertain situation is scaring off all the big studio releases.
Which is a shame, because the rest of the world is doing much better. They’ve opened and after a few weeks most customers returned. Yet the US uncertainty (combined with global piracy, which is another shame) has held all the big studios from releasing their true tentpoles. The news of the last few weeks is that studios waited to see what Tenet would do, and found it wanting.
Thus, Wonder Woman: 1984 moved to the end of the year (Christmas Day) and Black Widow moved to 2021. Though not all of Disney’s slate, as Soul is still holding onto Thanksgiving. And Universal moved up a few kids films to try their new PVOD strategy.
So I wouldn’t say we’re in the darkest timeline for theaters, but we’re closing in on it. November and December will have a lot of weight to pull to bring studios and theaters through.
Other Contender for Story of the Week – The Tik Tok Deal and Global Entertainment
Every newsletter I follow has been tracking the ins-and-outs of this story. But I waited. Would it be Microsoft? Or Oracle? Or Walmart? Or none of the above?Twists, turns and…we’ve ended up in almost the exact same place?
It’s like that quote from the Red Queen: you can run all day and end up in the exact same place. (Hat tip to the The Lost World novel for writing about that and logging it in my head from (is this right?) 25 years ago.)
All that has really changed is that Byte Dance has a new 20% owner of Tik Tok (Oracle) and it gets to keep operating in the United States. But it keeps its algorithm and presumably spy software in China.
Does this have implications from global entertainment? Assuredly, though let’s not go too far.
Clearly, China and America are headed for a new “Cold War” or “Bipolar” economic landscape. I’m not breaking news telling you that. President Trump has also escalated the situation with his proposed bans on TikTok and WeChat.
Not that this economic nationalism is unprecedented. China has banned US apps and companies for years. The biggest challenge for both EU and US companies and their nation-state champions is that there really is an unfairness in the global business situation. Netflix, Amazon, Google and others can’t operate in China due to protection laws. Yet, the EU and USA (and most OECD nations) pride themselves on allowing free and open markets. Which lets in Chinese champions.
This makes a seemingly unfair balance of power. (Though I could defend why China does it, and that reason is because US firms have definitely exploited smaller economies over the years. China has now largely avoided that fate. But this isn’t a politics website, I’m merely trying to explain why China is doing what they do.)
Where do we go from here? It’s unclear. Both presidential candidates seem concerned about China, so presumably restrictive measures could remain in place, with a Biden administration administering them a little more fairly/objectively. Long term, this could really hurt global business strategies with prominent Chinese ties.
That’s Disney, primarily, but really all the studios. One of the changes to my film model I’ve been thinking of making is to update the box office to: US, China and Rest of World. Since China is so protective, it keeps an outsized amount of profits in that country. (Only 25 cents of every box office dollar goes back to the studios. And even those can be hard to pull out.) If companies need to increasingly make “non-China included” strategic plans, that has lower global upside everywhere.
Entertainment Strategy Guy Update – The MLB-Turner Extend Their Deal with a 7% Year-Over-Year Increase
What? 7%? You saw the 65% jump in value reported in the press, didn’t you?
Well, the key is context and the Entertainment Strategy Guy is nothing but context. When I see big splashy deals, my first question is the time period. In this case, a seven year extension. Then I take the two numbers and plot the CAGR. I put the average deal value in the middle of the deal (since leagues like to have revenue increase on a flat rate). Then I make my chart:
As for the strategy, the next deal that shows a decrease in prices will be the first deal to show a decrease. Sports continue to be the source of programming keeping the linear channels alive, and the remaining linear players are paying a lot for them. And the bubble with 5-10% average increases in price each year has stayed on track.
Data of the Week – A Few Data Points on Subscribers (Peacock, NY Times The Daily and Shudder)
If “apples-to-apples” is the theme of the week, then I need to put the context right up front for these numbers. One of the numbers is “US only”. One is “US plus”. And two are global. Do not confuse them, since it really does change the denominator. (330 million versus 7 billion!)
First, Peacock, while explaining the increasing centralization of all NBC-Universal decisions under Peacock, Comcast let slip to the Wall Street Journal that they have gotten up to “15 million sign-ups” from the 10 million they announced in their July earnings report.
Next, Shudder, which is available in the United States, UK and some other territories, has reached the 1 million subscriber milestone.
Third, the New York Times “The Daily” podcast now reaches 4 million folks. Which is a huge number, but again don’t assume they’re all Americans.
The Athletic has also purportedly reached 1 million subscribers. While this is technically a global number, odds are it is driven much more by US customers. The caveat is that The Athletic has so aggressively discounted its business model that we don’t know what a subscriber’s actual ARPU is.
Other Contenders for Most Important Story
Disneyland (and Friends in California) Wants to Reopen
If you’ve been reading the EntStrategyGuy for any length of time, you’ll know that theme parks are a big part of Disney’s revenue stream. (Even more so than toys, which often get the credit.)
Hence, each week and month that Covid-19 keeps theme parks shuttered in California is a significant hit do Disney’s top and bottom lines. This week Disneyland, Knott’s Berry Farm and others publicly called on Governor Gavin Newsom to allow them to reopen. They noted that the reopenings in Florida and Europe haven’t seen accompanying surges in transmission, which surprised me. (Disneyland Hong Kong, however, was shut after reopening for having an outbreak.)
Notably, some theme park-adjacent businesses are opening, like the Los Angeles Zoo. So curious to see when Newsom changes on this.
DC Comics/DC Universe Staff Sees Layoffs
This is a few weeks old, but it is important enough news that I didn’t want to skip it. Warner Media is cutting staff at DC. If comic books can be the “R&D” department of a movie studio–and look at Disney, they are–then why would you cut the staff?
Of course, layoffs are complicated. Sometimes organizations really do have bloat. Sometimes they really do have redundant capabilities. But this seems like some creative executives were swept up in this part of the Warner Media reorganization. Meaning long term the cost cutting now could hurt the creative output of the future. Comic books will never be the cash cow that turns around AT&T’s fortunes, but having a strong DC could help grow HBO Max.
M&A Updates – Ion Networks is Acquired by EW Scripps
Some more merger action! This time Ion Networks is getting acquired by EW Scripps. I’ve long appreciated Ion Network’s business model. Ion Networks realized that if they owned a broadcast channel, cable and satellite providers must carry their programming. They bought up broadcast stations, and then ran cheap reruns. It’s been surprisingly successful for them:
Lots of News with No News – The Emmys!!!
I put less emphasis on The Emmy’s than anyone else. From a business perspective, I just don’t think they tell us much about what customers want or how businesses are doing. (They mostly tell you who spends the most on Emmy campaigning, as brutal as that sounds.)
The story was Schitt’s Creek, which went from nothing to something with a run on Netflix. Using the “Netflix is a Broadcast Channel” thinking, though, this makes sense. It’s like a show went from a small cable channel to running on NBC. Since it was good, naturally it had a boom in viewers.
At first, I was tempted to call “Mulan vs Tenet” the biggest battle of the streaming wars. Each weekend in September, we’ve eagerly awaited answers to the hottest questions in film: Will Tenet save theaters? Will Mulan blow up the model? Who is making more money? Who is WINNING?!?!?
It turns out that the answer to the first two questions is probably no. As for the third and fourth, well, that’s tricky to answer. But since it’s the logical follow-up to my article on Monday, I’ll do my best.
But I wouldn’t call this a battle. If anything it’s a “skirmish” on one end of the larger distribution battle. (The sort of way that Pickett’s Charge was one tactical engagement in the larger Battle of Gettysburg.) Just because it is a skirmish doesn’t mean it isn’t important. Skirmishes are what win or lose battles! (For want of a nail…)
So after three weeks of data, let’s analyze what we know. Here’s the outline of today’s article:
– First, two lessons on data that set the terms of the debate.
– Second, an analysis of what we know about each film, including US box office, International box office, and PVOD sales to date.
– Third, thoughts on each film’s revenue potential after these initial windows.
– Fourth, a comparison between the two films and declaring a winner.
Kidding! I won’t do that last part because I don’t know the answer. Moreover, I won’t draw giant conclusions about what this means for the future of film. Because frankly two films won’t fundamentally change the landscape. But I’ll explain that point in future articles. For now, the performance of these films to date.
(Also, I found that I was linking to a lot of my articles explaining the business of film. To keep this article clean and not polluted with links, I put a “reading list” at the bottom.)
Bottom Line, Up Front
– Comparing the box office of Tenet to PVOD of Mulan is comparing two different windows to each other. That isn’t apples to apples.
– That said, we can’t know the future value of either film because both “inputs” are “n of 1” meaning so unique that we can’t build a model.
– Tenet will likely gross $325-350 in global box office.
– Mulan will likely gross $70-100 million in global box office.
– Mulan will end up with likely $155 million in global PVOD (with a big range of $105-$270 million.)
– As for lifetime earnings? No one really knows, because there aren’t good comps to make accurate estimates.
Two Data Lessons: Apples to Apples and “n of 1”
My primary job on this site, as I see it, is to explain the entertainment business. You can find lots of places on the internet opining about the entertainment business; I’m trying to teach you why it works the way it does. And in the “Mulan v Tenet” debate, I see two major mistakes being made.
First, Apples-To-Apples
That’s my simple term for comparing like-to-like. In some ways, statistics/data analysis/science is essentially the quest for comparing things like-to-like as much as possible. That way you can isolate the the true drivers of causality. (That’s why random controlled trials are random and controlled.)
Here’s a simple example from last week: folks saw that 7 Park’s data was much larger than peer analytics companies for Mulan’s debut. The key, though, was that they were measuring eight days of data, and not just the opening weekend. They were also measuring the percentage of folks who watched Mulan who were active users, not all subscribers. Once you accounted for this, their math (1.5 million subscribers), was close to other estimates (1 million at the low end for Antenna and 1.1 from Samba TV). Comparing things apples-to-apples solved the problem.
In “Mulan v Tenet”, the key question/claim at the center of the debate misunderstands this notion. Consider these major windows of movie revenue:
The question I’ve seen written and been asked repeated is, “Is Mulan making more than Tenet?” We could reframe it based on the windows in question. Basically, “Is Mulan making more money in PVOD than Tenet in domestic box office?” That would look like this:
But this isn’t the right question. It’s comparing apples-to-hammers. (A Chuck Klosterman phrase.) Look:
This framing really sets the terms of debate better, in my opinion. Even after Tenet leaves theaters, it can go to US domestic TVOD and home entertainment. So even if the answer to the current question is, “Yes, Mulan has likely made more in PVOD than Tenet at the domestic box office,” the question doesn’t make sense.
(Since PVOD wasn’t a window when I first made this table, I added it above. And I summarized all digital/streaming the “pay windows” to show the timeline better.)
Really the question is, who will make more domestic revenue? So we should fill in this whole chart, accounting for blacked out windows:
And we can see that two big chunks of revenue for that are the same: who will make more in Pay 1, Pay 2 and library distribution? (That means all the future revenue implied by streaming (like Netflix), airing on premium channels (like HBO), cable (like TNT) and other places. Now that question is tricky because of our next data point.)
“n” of 1
I was inspired by the “n” of 1 after reading earlier this year an article in the Economist about the rise of “n” of 1 medicine. “n” is statistics jargon for sample size. If you poll 3,000 folks about the Presidency, your “n” is 3,000. If your sample size is all Americans, that’s a sample (population technically) of 300 million. “n” of 1 medicine is referring to treatments designed for one individual with a unique life-threatening condition. It means the “sample size” is so unique it’s a category by itself.
This applies to box office and film revenue analysis. When we make forecasts based on opening weekend performance, we can do that because movies are similar and we can account for the differences to compare things apples-to-apples. Hence, we use Marvel films to forecast how much money films based on superheroes will make, while accounting for the time of year of the release and various other factors. (Scott Mendelson at Forbes is my favorite analyst at this.)
Once we have box office, we can use its results to forecast all the other windows a feature film is sold into. That’s how my film forecasting model works. It’s a fairly accurate system. We can also do it for PVOD, TVOD, streaming, TV and any revenue stream. Once we have an input, we can derive the rest.
The challenge for both Mulan and Tenet is they are unprecedented. They are without comps in the United States because: 1. No other blockbuster film has released during a pandemic that closed 70% of theaters and 2. No other film released to Disney+ exclusively for a one-time $30 payment.
Because of this, making any forecasts about profitability is perilous. Or should I say, highly uncertain. Meaning, while I know what Mulan did in PVOD—see Monday—I’m much more uncertain about what this means for future windows. Conversely, while I know how well Tenet is doing, I don’t know what that means for future revenue streams, since Tenet is only available in 70% of US markets, that account for about 40% ticket sales.
So let’s start with what we do know.
The Data: International and US Box Office, Mulan PVOD and Forecasts
The easiest data to find is domestic and international box office. Since Tenet has been out a bit longer, it’s getting easier to see what its final total will be. So I’ve included the likely final box office total ranges offered by Scott Mendelson.
Are those numbers good or bad? Well, we’re in the middle of a pandemic, so who knows? As Mendelson makes the case, for an original material sci-fi live action film, Tenet is doing really well!
Meanwhile, even the ranges on Tenet are fairly uncertain. I put $350 million as the likely ceiling, but if New York and California reopen theaters, there could be give it a late boost (and stronger “legs”) as folks go to see it. Or not! A recovery that happens quickly is also unlikely so it could stay middling.
Meanwhile, we know from Monday about how well Mulan is doing on PVOD.
The wildcard of the Mulan PVOD numbers is the fact that Mulan wasn’t just PVOD in the United States, but globally where Disney+ is available. My analysis from Monday focused on US analytics firms since there aren’t a lot of estimates for global performance. It turns out Mulan was released in every Disney+ territory but France and India, which includes these territories:
You’ll note it’s also cheaper in dollar terms in other territories. Time to go to the comps. What I did was find the last five Disney live-action remakes, pull down their box office by territory, and use that as a comp for demand:
The way to read this chart is that the “Disney+ territories that have Mulan” tend to account for 43-75% of the box office of the United States box office. Great! That becomes our tool to forecast PVOD revenue in those other territories. My low will be 40% (slightly lower than the Jungle Book comp) and I made a high of 100% based on Scott Mendelson’s back-of-the-envelope estimate. I consider that the far outlier, but with this much uncertainty that’s okay. Here’s the results:
Of course, I had high case and low case forecasts from Monday, which we could combine. The worry with our estimates now is that we’re making estimates on estimates, which doubles the uncertainty. Which you’ll see in how big our range is getting:
What do we know? We have estimates for how Tenet and Mulan both did in their opening “windows”, one of which was PVOD/theatrical, and one which was theatrical only.
What don’t we know? What comes next.
The Comparison: Mulan v Tenet
Here’s a rough look at the current revenue of both Mulan and Tenet. As in how much each film has brought their studios as of this (rough) moment, roughly through their first month of releases:
To answer the question I said you shouldn’t ask up above, yes Mulan globally has made more money than Tenet as of this moment. Crucially, the presumed 90% net take beats the 50% domestic/35% international split of theatrical. (Though I think that Disney’s split with PVOD partners like Apple, and Amazon may actually be lower than 90%, but don’t know for sure.) Here’s the look at the question I said we should ask:
I love this look because it clarifies how much we don’t know. Which is frankly how much Tenet will make on TVOD/DVD, how much Mulan will make in home entertainment, how much more Tenet can make by going to premium cable, and how much both will make in streaming.
Why not try to estimate it?
Because I don’t believe the Tenet or Mulan numbers are good comps for forecasting.
If Tenet’s US box office is depressed because of Covid-19, then it’s home entertainment could make as much as Trolls: World Tour or Mulan at home. Meaning it could have as large a window as Mulan had since 60% of theatrical attendees couldn’t see it. It’s rumored that Mulan will go wide on TVOD (including iTunes, Amazon and maybe even Pay-Per-View), but I don’t know if that viewership has already been cannibalized by this PVOD experiment. If it hasn’t, it could add 33% more revenue as Trolls: World Tour did when it went cheaper on TVOD in July.
Meanwhile, Tenet will eventually be on HBO and likely HBO Max. But Mulan will stay on Disney+ exclusively? Could I calculate that exclusivity value? Nope. Because I still don’t know enough about Disney subscribers to conclude that this PVOD experiment drove subscribers or that Mulan will have good replay value on the platform. (Unlike Netflix, who we have multiple years of US-only data to parse.)
This is the “n of 1” problem I discussed above. There are so many conflicting variables that my usual methods of forecasting are out the window. Same for the studios. They’ll basically have to collect the revenue and see what shakes out.
Thus, at $35 million dollars difference between the two, I’m calling this a push. It’s as likely Tenet makes more money for Warner Bros. as it is Mulan makes more money for Disney.
In short, we’ll never really know who “won” this skirmish since our numbers are close enough to call it a draw. I’d add, using one proxy for demand, Google Trends, it looks like Mulan peaked higher, but Tenet may last longer.
As for how demand shifts from here, we’ll see as they release on additional platforms.
Reading List
Really, this article is a continuation of this series I started in December on “Should You Release Your Film Straight to Netflix? Part I” and “Part II” In that series, I explore the economics of taking a film straight to streaming.
Previously, I built a model on how to forecast “revenue” for straight to streaming titles in this series, “The Great Irishman Project”. It’s fairly tricky to forecast streaming revenue, but definitely possible. (Netflix does it!) See my methods explained here.
I also built and explained a film finance model for feature films released traditionally, which I first explained back when I launched the site in a series evaluating the Disney-Lucasfilm acquisition.
How many folks bought Mulan?
That’s the buzziest question in the streaming wars right now.
Since we don’t know, we’re left to pick at the analytics tea leaves. Fortunately, as each day passes, we’ve got more tea leaves to pick through.
(Partly, the question is relevant because it gets to the buzziest question, “Who’s winning, Tenet or Mulan?”. I’ll answer that on Wednesday.)
Far from throwing my hands up, I’ve started to realize these tea leaves are signal not noise. So if/until Disney tells us otherwise, I’ve done my best to compile all the Mulan on Disney+ data we have. Consider this a “meta-analysis” on Mulan. First, I’ll summarize each data source and what it tells us, next I’ll try to compare this to Trolls: World Tour, then I’ll compare all the data sources, and finally I’ll make my estimates for Mulan’s performance.
(I covered some of these data points in a column and Tweet thread two weeks ago. Today, I’m updating all that data and tossing in my estimates at the end. Also, if you’re new to the EntStrategyGuy, my newsletter goes out every two weeks with links to my writings and the favorite things I read over the last two weeks.)
To start, though…
Bottom Line, Up Front
Don’t want to read the entire thing? Fine, here are the talking points you can deliver confidently without reading the whole article.
— The story about Mulan’s performance is remarkably consistent, if you ensure you are comparing “Apples to Apples”.
— Right now, I’m fairly confident at estimating that its opening weekend Mulan was purchased about 1.2 million times. (Other estimates range between 1 to 1.5 million, giving us a fairly tight range.)
— That implies that it made about $36 million on its opening in total revenue.
— Based on its rapid decay, the Trolls: World Tour comp and the fact that it will only be in PVOD for 8 weeks, I estimate Mulan will generate about $90 million in US sales over its lifetime. (Based on the estiamtes, this could be as smalls $75 million and as high as $135 million.)
What We Know: 6 Different Sources Tell a Remarkably Similar Story about Mulan
Disney took a big swing by releasing Mulan straight to Disney+ (and only Disney+) for $30 a pop. That left multiple analytics firms—each vying to get new customers to buy its data, a important point about self-interest to note—to fill in the gap. Reelgood said one thing about the popularity; Samba TV said something else; Antenna said something else and then Yahoo took 7 Park’s data in a completely different direction.
The better analogy than tea leaves is actually the old parable about the elephant and the five blind men. Each grabs a different part of the elephant, so feels something different. That applies to our measurement firms. One is measuring viewership; another purchases; another app downloads. Toss in different time periods and sources, and it seems bewildering.
But if you put the whole picture together, it’s not that confusing. After 7 Park put out a great thread clarifying their data this weekend, I’m fairly convinced each source is telling the roughly same picture.
Source 1: Google Trends
This source is so easy anyone can use it. So be careful. Google tracks search traffic data which has been shown to be a very good proxy for interest. Here’s the time period going back to when Covid-19 started featuring top streaming films:
What’s the simple takeaway? Interest in Hamilton far outpaced anything else in the straight-to-streaming space. (See my article in Decider for details.) This, for me, is the context of Mulan.
However, since we’re triangulating on Disney+, it’s also worth looking at a “Disney+ only” look:
Mulan was big, but paled in comparison to Hamilton.
Source 2: Antenna
Antenna tracks subscription behavior across a range of services such as iTunes, Amazon Fire TV, Roku, Google Play and others. Last week, they released their analysis of Mulan’s opening weekend in this great chart:
This is the most skeptical look I have of Mulan’s huge driver in interest from Disney. Yes, it helped boost sign-ups for Disney+, but less than any other major theatrical driver of the last few months. Also note how this aligns/correlates with Google Trend data, but not perfectly. Black is King did better than Mulan, according to Antenna, but Google Trends has lower interest. (Google Trends has more interest in Artemis Fowl than Black is King.)
There is a similar story with Frozen 2 driving more sign-ups than Onward according to Antenna, and Google Trends telling an opposite story. (This explanation is fairly simple: Frozen 2 launched right as lockdowns started, so that’s more the story of lockdowns driving parents to subscriber, not interest in Frozen 2.)
Antenna’s data goes further on Mulan. They also used their data to breakdown Mulan purchases by sign-up time period.
Antenna also released purchases by sign-up time period. So I took those numbers, and combined them with the above chart to give us this estimate of the average % of subscribers who dropped $30 on Mulan:
Save that number, we’ll get back to it. But it’s not the only look Antenna provided. They gave some data to LightShed Partners (and then tweeted it), which compares daily sales of various PVOD releases with “purchases by day”:
This is great because we can use a few numbers to compare Trolls: World Tour sales to Mulan. Hang on to this number too. And pay attention to those steep decay curves.
Source 3: 7 Park
7Park is another data analytics firm, though they don’t clarify where and how their data is collected. However, they have been releasing streaming data for a while now.
7 Park entered the data fray this week with a buzzy article on Yahoo, that slightly oversold the analysis. 7 Park measured, through the first 12 days of September (which covers through Saturday of Mulan’s second weekend), the percentage of users who watched Mulan among all Disney+ users during the time period measured. That italicized portion is key. Which is why Mulan could get 29% of streams during its opening weekend, but then a much smaller number when you look at Q3 to date:
How does that 10.3% compare to Antenna and Google Trends? Favorably. As 7 Park pointed out in their thread, the demand ratio from Hamilton to Mulan matches Google Trend very well. As for their data versus Antenna, they measure different things. One compares to subscriber base while the other compares to active users. Assuming active users are between 50-75% of the total subscriber based, then the numbers tell a similar story.
Source 4: Samba TV
Samba TV measures viewership on connected TVs specifically. Samba TV also ran an analysis on Mulan viewership, from the opening weekend, coming up with the number that 1.12 million folks purchased Mulan during the opening weekend. It’s unclear if this is connected TV’s only or if they extrapolated out to all customers. Does this match the other numbers? Yes, as we’ll see.
Source 5: Sensor Tower
Sensor Tower measures application downloads. For the streaming wars, they track how often folks are installing streaming application. (Hedgeye analyst extraordinaire Andrew Freedman uses their data to forecast Netflix and Disney+ subscribers fairly well.) According to Sensor Tower, Mulan drove a week-over-week increase in downloads of 68%, which compares to 79% for Hamilton during its opening weekend. This is a bit lower than the Antenna, 7Park or Google Trends data. Sensor Tower only tracks mobile viewing, which may explain the difference.
Source 5: Reelgood
The biggest outlier is Reelgood’s data. Reelgood is an application that helps folks find and curate their streaming offerings. Reelgood uses their data (they claim 2 million users) to then estimate demand for various titles. Here’s their chart with notably the streams as a percentage of top 20 streams.
This genuinely surprised me since customers had to purchase Mulan, which should have decreased its viewership. Instead, in a follow up, Reelgood said that Mulan actually surpassed Hamilton, which only had 9.68% of streams. This is the only source that implies that demand for Mulan was higher than Hamilton. So it’s our biggest outlier.
Missing Sources
Just to note, of the major sources I track, Nielsen and Parrot Analytics both haven’t entered the Mulan fray. The reason is that both focus on TV series with their publicly available data. (Though Nielsen does have feature film viewership data.)
Trolls Would Tour Comparison
That’s the data, let’s make the comparisons. First, here is the leaked details or estimates of Trolls: World Tour’s performance.
Unlike Disney (so far), Comcast was much more willing to leak positive data about their Trolls: World Tour experiment. A few things to note, these estimates aren’t quite as steep as Antenna’s data, but match real world churn/decay better. We’ve seen this with other streaming titles where the opening weekend is about half the viewership of the first month or so of a title. And then with trolls the opening month is about half the viewership of the title lifetime to date.
This point may be interesting, but its definitely possible that about as many folks watched Trolls: World Tour after it dropped to $6 to rent then watched at $20. This chart from The-Numbers shows how popular Trolls: World Tour was even 3 months after PVOD:
WIth these numbers, we can compare purchases between Trolls: World Tour and Mulan using Antenna’s data. I did this by measuring the various peaks in the above Antenna chart with purchases by day. Which made this chart:
Since they’re decaying at roughly the same rate, we can use this to estimate Mulan sales. In other words, I estimate that Mulan had about 61% of the sales of Trolls: World Tour on PVOD. The caveat is that Mulan is available in less places than Trolls or Scoob, meaning demand could have been as high, but without additional TVOD channels it reached less customers. But that still results in lower sales/demand.
Comparing all the Sources
Wow. So if you’re still with me, here’s my summary of everything we know. Here are the estimates I derived for purchases for the first weekend, where the data allowed me to make that estimate:
Let me explain this. Given that Antenna and 7 Park are percentages of subscribers or active users, the 15-35 million are potential ranges of Disney subscribers/users. Then I picked the number that is my current “best guess” for each. In other words, I think Disney+ has about 30 million US subscribers, and about 20 million active users in a given quarter. If you disagree, pick another input. For Samba TV, I just used their estimates. For Trolls: World Tour I multiplied the estimated 2.25 million Trolls opening weekend customers (40 million divided by $20) by 61%, the rough proportion from the chart above.
All these sources say about 1.1-1.4 million folks watched on the opening weekend. Splitting the difference, and picking the number I like best, gives me an estimate of 1.2 million.
From there, we can estimate lifetime sales. I’m using my estimate that opening weekend will generate 50% of the first month’s sales. Both Antenna and Google Trends back this up. For example, it has already seen a second weekend drop in demand of about 75% in Google Trends. Also, given this decay, I think its second month will only see about 20% more sales:
Using best case scenarios (33% viewing in the second month, 1.5 million opening weekend), I get to $135 million lifetime PVOD. Using worst case, I get to $75 million.
Phew. I’m wiped out. There are tons more issues to unpack, especially how this compares to Tenet. But I’ll do that next time.
Whenever a big tech company sneezes, the entire techno-entertainment industrial complex catches a case of “they’re taking over the world”. Such is my read of the latest announcement that Apple is launching a multimedia bundle called Apple One. For months, CWSMF (Celebrity Wall Street Media Futurists) had speculated and salivated over the idea that Apple would launch a multi-media bundle.
So let’s make that the most important story of the week.
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Most Important Story of the Week – Apple One, The Aggressively Moderate Case
Is Apple One that big of a deal? Sure. Maybe. We’ll see.
That lackluster of a response probably says a lot about my opinion.
This move isn’t a bust, but probably isn’t the killer app/product Apple needed to win the 2020s the way it won the 2010s. (As a primer, I do recommend my articles on value creation and subscriptions from last year to understand my more skeptical take on subscriptions.)
Apple One – From a Value Creation Standpoint
Here’s the three versions of Apple One:
The crazy part to me is that I would have bet anything that News would be bundled with Music, TV+ and Arcade. Because that’s really how you find multiple “somethings” for a customer in a bundle. If I was tempted by Apple News (free Wall Street Journal subscription is intriguing), then maybe Arcade is enough to swing me onto the subscription. Then Music and TV+ are the icing on the cake. Or for the many customers who already have Music, it just increases the odds that either news, games or TV+ entices them into the subscription.
Instead, the premium tier offers News–which most customers haven’t opted to buy–or Fitness+. (The most Microsoft in the 1990s move Apple has made yet.) As it stands, most customers don’t use all of these services, so the value creation feels fairly negligible. If you don’t have an Apple Watch, Fitness+ isn’t worth it at all.
It’s also worth noting what else isn’t included in the bundle: insurance.
Lots of folks thought Apple Care and/or the Apple phone replacement plan would come in this bundle. And someday they may. But my gut is Apple ran the customer surveys–they have a lot more data than I do!–and saw that adding in insurance for $15-20 bucks a month meant customers HATED the new bundle. Not to mention, for your $15 a month to Apple, the deductibles are still pretty steep:
So let’s make a couple more “bundles” to understand the range Apple was playing with…
The other killer app–which is still rumored–is that Apple will eventually add in both insurance and phone upgrades to this model. As the last bundle shows, though, this jacks up the price through the roof. Which maybe makes it worth it for customers, but it also takes a lot of folks out of the running for this type of plan.
You can also see the media bundle and probably why Apple didn’t include News in the Individual or Family plans: it gives customers way too much value. Which sounds weird to say, but in this case it is a trade off. For every dollar in value you give the customer, Apple is likely losing that value. In fact, I think Apple is losing money on the bundle period. Here’s my back of the envelope value creation model:
Moreover, I do think initially Apple is losing money on this bundle. Yes, I’m using per unit economics, but it seems clear to that Apple is losing money. Apple Music likely loses money or breaks even (if Spotify is the comp), Apple TV+ likely loses money (and customers only use it if they get it for free), News and Arcade have also both been described as troubled. Meaning the only service that breaks even is iCloud because frankly cloud storage is almost a commodity at this point.
Thus, the “Moderate” Case for Apple One
The upside/aggressive/positive case? Customers may like it!
There is just enough “money losing” businesses to entice customers. Specifically, Apple Music and most likely in Apple TV. That said, the likeliest customers are current Apple customers who are relatively affluent and already have one or more Apple subscriptions. Upgrading Music to “TV+ and Music” seems like a simple decision.
That said, the “moderate/meh/blah” piece is that Apple has already discounted their own value on this bundle by giving TV+ away for free. Meaning at least one part of this bundle has been price discounted in customers minds. If a customer doesn’t like iPad games either, then basically the bundle isn’t worth it.
Further, Apple isn’t losing as much money as they could. They could have gone very aggressive a la Youtube TV and lost $20-30 per customer, but this plan isn’t that aggressive. However, that’s really how you add lots of subscribers quickly in digital media.
So the downside/pessimistic/negative case? Long term, to make money, Apple will need to either raise prices on the subscription or lower the quality of the product.
Or, they could add insurance or utilities to the mix. Since those are the true cash cows of subscriptions. The risk is customers tend to hate insurance. (Apple’s current phone insurance by my look is a pretty terrible deal. Just save your money and buy a new phone.) But that’s how you make true money. Thus the tradeoff: make money off products or risk customer ire. In the 2010s, Apple made money while sucking up customer love, I don’t see that path via Apple One in the 2020s.
Which is really what makes this a moderate take: this is a good subscription for Apple to make some money, lock some customers in for the longer term and diversify services revenue. But is it a game changer?
Eh.
And that’s because I really am trying to look at this product in a vacuum, not with “Apple-tinged” glasses that says, “Hey, it’s Apple, it must be great!”. That’s why I’m so moderate on this. It isn’t an all-in bundle, or a really great value. But that means it’s also likelier to make money for Apple in the near term.
Quick Hits on Apple One
Data of the Week – ???
I had a good one, but it went just long enough to need it’s own article. Check back in on Monday.
Other Contenders for Most Important Story
Peacock and Roku Come to an Agreement
See, that didn’t take very long. It looks like some NBC content will wind up on Roku’s free channel, which does show the power the distributors have. (Amazon did the same thing to Disney+.) Long term, this means Comcast can take their time with Amazon. (They have many more devices internationally, and I trust that Roku users tend to be stickier than Fire TV, which Amazon gave away to lots of folks for peanuts.) And in general you’d have to think HBO Max will have an easier time finding a deal with Roku.
Bloomberg TV New (Not Tik Tok) Streaming Plan
Bloomberg TV plans to relaunch it’s on-demand streaming news service that was previously named “Tic Toc”. (Clearly that name is out for the relaunch.) They’d previously partnered with Twitter, but this time will go it themselves. I share Dylan Byers skepticism that this move is as disruptive as Bloomberg thinks. In fact, that’s a good rule of thumb: the more a company touts themselves as disruptive, the more skeptical you should consider their plan.
Still, the competition for young, Millennial business eyeballs between them, Cheddar, Morning Brew, all the traditional players and more is fierce.
More AT&T Plans!
This time, it’s AT&T planning to sell advertisements for cheaper cellular service. From an entertainment perspective, this could further confuse their offerings. For the broader public, though, clearly rising cell phone prices are pricing some segments out of the cellular market so this fills a need. You have to imagine they’d keep Xandr (their digital ad-sales unit), but then again, it’s AT&T so maybe not.
Entertainment Strategy Guy Update
Paramount+
This story almost made the “lots of news with no news” section. Well, CBS All-Access will be rebranded to “Paramount+” as ViacomCBS tries to bolster its streaming service. While I doubt the name change will really help in either direct, it’s interesting that Viacom is telling us that Paramount is the most trusted global brand. That does indicate they’re thinking globally with this move. (My take on CBS’s strategy here from last August.)
More Agency Pain and then CAA’s Agency Confusion
The agency dramas with Covid-19 and the WGA stand-off are worth staying on top of. The latest updates are that Paradigm is doing more permanent layoffs and that CAA tried to fake-sign the WGA deal. Yes, fake-sign, as it refuse to sign a key demand but try to bluff the WGA into agreeing. If agents have one job, its winning negotiations, and this gambit seemed to have misfired. So yeah, not great negotiating.
PS5 Will Cost $500 too
Now that X-Box revealed their price points and timing, Sony followed suit with the Playstation 5. It too will cost $500. To share a different take from Tae Kim’s skeptical look I shared last week, Rob Fahey thinks the X-Box S could change the console paradigm.
The first thing to know about the streaming wars is that it is really multiple wars simultaneously. One war is between the streamers. They compete fiercely against each other, with Netflix in the lead. (This is by far the most covered battleground.)
If those are the established powers, the upstarts are the free, ad-supported streamers are trying to take territory, er attention/mindspace/viewership, from both. Youtube leads here, but is followed by the hot new crowd of Pluto, Xumi, Tubo, Roku/IMDb Channels, and more.
Yet, those land armies’ power is dwarfed by that of the air forces of the world. Who in many cases set the terms of the streaming wars. And in this analogy, that’s the platforms that deliver the streamers, be they devices or operating systems or other bundlers have just as much, if not more, power. In a moment, a platform could blow up an entire business model, like dropping a nuclear bomb on an opponent’s army.
(The Game of Thrones analogy patented by Dylan Byers also explains this well: streamers are the traditional houses of Westeros, ad-supported streamers are Daenerys and the Dothraki, and the platforms are the White Walkers.)
If you want to understand the scope of Epic Games going to war with Apple, this is it. Epic Game’s army is fighting Apple’s air force, with the expected outcome that Apple nukes Epic’s business.
For those who don’t know, Epic Games (maker of the Fortnite game and Unreal video game engine) tried to implement in-app purchasing outside of Apple’s payments system. This resulted in them being kicked off the Apple app store, lawsuits and countersuits.
The Fortnite gambit will directly impact the streaming wars. The ability of platforms to dictate terms to the streamers directly hits streamers’ top, bottom and cash flow lines. If Fortnite wins, it is like taking away Apple’s (and Google, Roku and Amazon’s) ability to drop bombs. (Okay, I’ve taken this analogy about as far as it will go.) That’s what I’m going to explore today:
– Transactions (Pay per usage)
– Subscriptions (Pay a recurring fee for access)
– Advertising (Free, but watch/listen to advertisements)
Putting this In Context
As I wrote last November, the key to understanding the streaming wars is to know that a huge amount of power is vested in what I call “Digital Video Bundlers”, the folks bundling multiple streamers into one experience. Here’s where they are on the map, yellow:
Fortnite would slot in where I put “aggregators”, though that term is more apt for streamers than gamers like Fortnite. Apple is the bundler, since they allow a user the opportunity to play multiple games on one device. Crucially, Fortnite—like many app makers—wants to be more. They want to sell additional things within its game to make more money. Epic Games also wants to set up an entire app store on its own. (Really, Epic Games has dreams of being a bundler as well.)
The conflict stems from those in-app purchases. Since Apple owns the operating system, it wants a piece of any money being exchanged on its platform. When you buy an application, you pay Apple 30% of that price. On some level this makes sense. Apple set up the platform so they should get paid for letting you on the platform.
This is a “platform tax” that Apple charges to have an application on its App Store. And Amazon and Google have similar taxes. (You could call it a “fee”, “rent”, or other term, but I like tax.) A tax for doing business on their platform. Apple says this is the price needed to run its App Store.
That’s what makes the terms of this court case so large. If Fortnite wins, they won’t just change their own terms, but alter the fundamental case law around platforms. The results could impact Apple, Microsoft, Sony, Google, Amazon, Roku and any other platform.
The Maximalist Scenario
That’s the world I want to imagine today. I’m calling this the “maximalist” scenario. It assumes a judge/judges/legislative bodies/regulatory agencies use the Fortnite case to legislate/regulate/litigate maximum concessions from an Apple, Amazon or Google on their platforms. Call this the “worst case” for platforms or the “best case” for streamers, applications and games. Say…
– A 3% cap on fees (or cap on fees up to a given maximum).
– Guaranteed carriage on non-business issues
– No tying disparate business unit negotiations together.
Essentially, in this scenario digital market places like app stores are governed as utilities. The government would be saying, “Since you have de facto monopoly power over app stores, we have to regulate your business to ensure you don’t abuse your power.” I’m not assuming this happens, but exploring the “what if” scenario where it does.
Impact on Transactional Business Models
The impacts on the transactional video-on-demand (TVOD) market would probably be the starkest of any of the business models.
Fundamentally, the platform tax makes any external TVOD business unworkable on any mobile device. The math is fairly simple. If you’re Apple, and you own your own TVOD business in iTunes, your gross margins look like this:
Now compare that to an independent service trying to run a TVOD business on iTunes:
Reed Hastings is famous for declaring his competitors to be anyone that isn’t a fellow streamer. Famously, he said a couple of years back that Fortnite is bigger competition than other streamers. (He’s previously mentioned sleep.)
If you think about competition using Porter’s Five Forces, then Hastings is obviously right, and obviously wrong. Competition amongst streamers can exist alongside substitutions (like video games and sleep). Since the biggest news of the week seemed to be from a video game maker, let’s explore that.
Most Important Story of the Week – Microsoft’s Big X-Box Decision
As well as streaming has done during quarantine in America and around the globe, video games may have had an even better time. According to most measures, video game usage has ballooned during the pandemic.
Into that environment, Microsoft announced some details about the next generation of its X-Box console. There will be two versions, one low priced ($300) and the other high-priced ($500). Video games themselves are likely to increase in price too, to $70.
How will this impact the streaming wars? And the entertainment landscape? I see a few ways.
First, for gamers, the PS5 and X-Box Series X will be the center of the home.
As folks cut the cord, they can opt for Roku, Amazon…or one of these video game consoles. My brother already does this and I plan to whenever we finally cut the cord. For gamers, this is incredible value compared to a streaming device.
They’re absolutely more expensive–the hardware is much more complicated than a streaming stick–but offer the ability to play games. My hunch, though, is that video game consoles are stickier than many streaming devices. For example, Amazon was basically giving away Fire Sticks for many holiday shopping seasons. How many are sitting in a drawer somewhere? If you plop down $500 for a console, you’re going to play it or use it.
Indeed, from the data, about 20% of streaming usage comes from video game consoles in the U.S. This puts it firmly in the “small but significant”. For all the focus on Roku/Amazon battling with HBO Max/Peacock, we’ve seen less coverage of Apple TV not being available on X-Box. Which still cuts out a lot of potential viewers.
Second, consumers will have another subscription in their media bundle…video games.
I hadn’t checked in on Sony Playstation subscriptions in a while, and the numbers surprised me. Across the globe, Sony has 45 million “Playstation Plus” subscribers. Sure, that’s 150 million less than Netflix, but not bad either!
While games are getting more expensive, both the video game companies (and all the tech giants) desperately want recurring subscription revenue. I think we’ll see them lean more and more into subscriptions to make that CLV math work. X-Box also offers a $10 subscription for online play. Meanwhile, all the big tech companies are trying to add subscription video game offerings.
Third, streamers will copy the gamers.
In two ways. First, the gamification aspect. Netflix is the furthest along with their “choose your own adventure” style TV shows and the general respect Hastings has for video games. I could see streamers continue to add various “gamifying” pieces to video, though I don’t know quite what they’ll be.
Second, the social aspect. As many have pointed out, video games are sticky not just for the fun, but for the engagement with friends online. That’s why even this week there are rumors that Disney is adding a watch feature to Disney+. That stickiness will keep folks locked in to their favorite video game system and sending cash to the video game companies.
Last question: Can Playstation “win”?
I don’t study the video game wars close enough to judge X-Box’s release strategy, but it’s worth noting they are very far behind Playstation. (Nintendo competes for a different demographic.) As such, I’ll defer to Tae Kim from Bloomberg who makes a compelling case that with a “two pronged” device strategy X-Box will be the worst of both worlds: the lower quality product will hurt the high-end offering, while failing to attract casual gamers.
I’d add that another interesting question is whether or not $500 is expensive or not anymore. Which seems crazy to say, but on the other hand, a new iPhone is twice that amount. Though the X-Box does a lot more, the phone is obviously mobile. (And X-Box is offering a payment plan, just like cell phone providers.)
Data of the Week – How Did Mulan Do?
Everyone is trying to guess at how well Mulan did on Disney+ last weekend. Given that multiple outlets are asking if this is the future of moviegoing, it would help to know! So I’ll summarize what I’ve seen.
First up, Disney themselves. Disney CFO Christine McCarthy gave us this nugget. They are:
“Very pleased with the result.”
Since I don’t know how to translate CFO speak, we’ll move on.
Second, we have Sensor Tower. I generally like their data for directional purposes. Their news is that Mulan helped drive a 68% increase in app downloads compared to normal. Hamilton, the big winner from July, helped drive a 79% increase in downloads. Further, Mulan drove a surge in spending on the platform, which is to be expected since it’s Disney’s first transaction on the device.
Now, caveats abound. Sensor Tower can’t actually track who watched Mulan. Further, they only track recent download data, so the ability to attract new subscribers according to the baseline. So we don’t know if the data was trending up or down before the weekend anyways.
Third, analytics firm Samba TV estimated that 1.1 million homes purchased Mulan. I’ve never used Samba, so I can’t speak to their accuracy, and the caveat is they only track Smart TVs, and extrapolate from there.
Fourth, Reelgood reported that Mulan led the weekend in streaming. Here’s their chart:
More caveats here as well. I asked Reelgood if they had data going back to Trolls: World Tour, and they saw a surge in sign ups after coronavirus lockdowns. However, they did compare to Hamilton—which I saw reported in Indiewire too–and they estimate Mulan outpaced Hamilton in streaming.
This is where I tend to be the most skeptical of Reelgood’s data, though I like their numbers in general. Mainly because the barriers to entry are so much lower for Hamilton that I’d assume it had higher viewership.
Fifth, Google Trends!
Almost tied with Trolls World Tour, but way behind Hamilton. Caveats abound again, since Google Trends only measures search, but not actual engagement.
Add it all up and do I know what Mulan did? Nope. Sorry.
I will say, though, this reinforces my gut that Mulan is on track for $100 million in US VOD revenue. If Samba TV is close, then we’ll see a decay each weekend from now until its free launch in December. Given that Trolls: World Tour had about the same interest–and maybe higher sell through because of kids–this seems the most likely scenario. Toss in the difference in price ($20 versus $30), and I think they offset.
Mulan may outpace Trolls in total revenue, but I still think it ends up around $100 million.
(With the caveat that I’d quickly change my mind with better data.)
Entertainment Strategy Guy Update – Box Office Results for Tenet
What about the other side of the coin? Well, Tenet didn’t have blockbuster box office in the United States because most of the major markets remain closed. As Disney CFO McCarthy pointed out, 68% of theaters are closed, leading Disney to expect reduced ticket sales of about 40%.
Thus you get this nifty math: Folks expected Tenet to get around $50 million opening weekend, and it got about 40% of that to net $20 million.
I remain more bullish on the legs (the staying power of the box office) for Tenet given that it will have some bump whenever California and New York reopen theaters. Will it be monumental? Surely not, but it will get something. I mean, unlike other films, when Tenet opens in California presumably some folks will go to see it?
Does this scare off other films? As of yesterday, the answer was no. As I was writing this, Warner Bros moved Wonder Woman 1984 to Christmas Day. So yes. The biggest driver really just is the lack of open theaters in California and New York. As long as they stay closed, there is little incentive to open new films.
Other Contenders for Most Important Story
HBO Max: Promotions and Ads?
HBO MAX, I keep trying to defend you. But you make it so hard.
Having a focused offering is a good strategy in general. And recent leaks and stories show that HBO Max still doesn’t get that. First, they’re offering another 20% promotion. Meaning, like Hulu of the last few years, they will be stuck on the “promotional” treadmill, unable to get off without losing customers. (Netflix has done the opposite to their credit, sticking to one “everyday low price”.)
There are also rumors about their ad-supported tier. It should come next year and further confuse customers. Meanwhile, they may sell Xandr–their advertising technology business–as I wrote about last week, asking the obvious question: why do you need an ad-supported tier?
Keeping Up with The Kardashians Ending
My guess is the Kardashian clan is running the “Judge Judy” playbook. They’re leaving their current show to sign a more lucrative overall deal with a streamer. Still, the historical impact of this show on the fortunes of E!, NBC-Universal and reality television can’t be understated, even if the Kardashians are wont of overstating their importance.
Lots of News with No News – Executive Shuffling
Some folks wanted this as the most important story this week. Unfortunately, I just can’t put executive transitions into the top spot, since I don’t know who is good at what. Still, so you don’t miss anything…
NBC Universal Appoints Susan Rovner to Programming; Pearlena Igbokwe to Chief of Content
NBC Universal had a big opening to fill, and Susan Rovner from Warner Bros TV has taken the overall programming job at revamped NBCU. Overall, I still think NBC-Universal has a confusing executive structure (too many cooks in the kitchen), but this will help slightly. Meanwhile, Bonnie Hammer promoted a key lieutenant to chief of content at the production side of the house.
Netflix Gives all of TV to Bela Bajaria; Cindy Holland is Out
Meanwhile, Ted Sarandos simplified his org chart to two people: one for film and one for TV. The question though is whether or not he picked the right person for the TV role, and I have no way of judging that. Sarandos picked Bajaria, who was head of international content. Part of me would note that US productions still outperform international titles, but international is the future. Like always, I don’t know.
However, I will note that Ted Sarandos has eliminated one of the more senior folks at Netflix. Meaning if Reed Hastings ever steps down, no one can match Sarandos for tenure or even come close, given that the CFO, CMOs and now content heads were all hired in the last few years. For other studios that would be a red flag but at Netflix…
Bonus: Netflix wins the Narrative (Again)
Because of their well publicized hiring guidelines–”the keeper test”–when Netflix fires a senior executive, they get applause from the community. When a Disney, Warners or NBC does likewise, it’s always questions about what went/is going wrong. Just interesting how the narratives get shaped.
I’ve been too positive about the entertainment industry recently. Especially the traditional players. I think theaters by the end of 2021 will be fine. I think the traditional entertainment streamers can compete with Netflix (and Amazon). And I even think Disney will see a thriving theme park business sooner rather than later.
So let’s get negative. Really inspire some fear. Of course, that means broadcast TV.
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Most Important Story of the Week – TV Network Ad-Revenue is at Risk
While it may be “dying”, the linear TV business is still good money for traditional media conglomerates (Disney, Comcast/NBCU, AT&T/Warner Media). I like to tell this story via this chart via Disney’s revenue:
In addition to the total revenue, media networks also make tons of operating profit. As I laid out in one of my most popular articles of the year, if you imagine a world where, in complete disruption, they lose all their “media networks” operating profit, and streaming still isn’t profitable, they aren’t just losing $3 billion per year like Netflix, they’d have lost $10.5 billion in operating profit on net!
Thus, as they pivot from linear to streaming, the traditional players need to be careful. They need to find out how to make streaming profitable and not destroy their cash cows that quickly. It’s unclear if anyone can do the former, and the Coronavirus may have pushed the latter from their control.
Advertising revenue will be the first part of the traditional linear pie to feel the pain. (And actually has been suffering in the last few years.) It’s not a majority of the revenue–that honor belongs to subscriber fees–but it’s a big portion of the puzzle. Across broadcast and cable, it’s a $44 billion dollar piece! Depending on the channel, it can be 20-50% of total revenue.
And the biggest piece of advertising revenue comes from the broadcasters, which are still the biggest channels in the linear bundle. The threats to advertising come from both the demand and supply sides, which is what makes the Covid-19 inspired recession particularly challenging. (Past articles on Covid-19’s impact on entertainment here, here, here, here or here.)
On the demand side, advertisers love to advertise on sports because live sports still get great ratings and viewers don’t usually skip the ads. And when I say sports, I mean football. Both college and NFL, but particularly the NFL, which dominates annual ratings. While the NFL is still scheduled for this season, it could disappear in a moment’s notice if Covid-19 rates skyrocket again. Thus, the Wall Street Journal reports that advertisers are seeking to claw back proposed ad spending if NFL games don’t happen.
(As for college football, a majority of college football games have been cancelled, but some leagues–the SEC, Big 12 and ACC–are trying anyways.)
If the broadcast networks lose NFL games, it’s doubly-brutal since the rest of their primetime schedule is fairly “meh”. The same force that could cancel NFL games caused studios to shut down all of production for new TV shows. Reruns don’t do as well as new TV shows. Thus, the linear channels will have fairly weak lineups this fall, even as customers have more free time than ever to watch.
There is one bright spot in the demand-side: out-of-home viewership. For years Nielsen didn’t mention viewership in bars or restaurants or anywhere that wasn’t in someone’s home. But obviously sports bars only exist to show sports and serve beer. After years of promise, and some last minute waffling, Nielsen plans to roll this out this fall. It should boost the role of sports/ESPN even further in the ratings. (And 24/7 news networks.) That said, if the NFL doesn’t happen, no amount of out-of-home viewing will help.
The supply side of ads is arguably in an even worse state than the demand. When you’re in a recession, the first thing that goes is marketing expenses, and that’s precisely what happened in this recession. Some of the biggest drivers of ads are under as much threat as the broadcasters, like car companies, airlines, or hotels. And they’ve pulled back on advertising. Meanwhile, digital advertising beckons with its “targeted” ads, since Google, Apple, Amazon and Facebook hoover up all your data to sell.
And one of the biggest advertisers, Hollywood itself, will probably spend the least on linear advertising in recent memory. Since, theaters have been shuttered in large parts of the country, there is no big opening weekend to push customers towards. Digital advertising can take up that slack. That’s the take in this Variety story.
Conclusions
That’s the doom and gloom for the near term. Will it last?
Again, when everything is tied to Covid-19, there is as much a chance that things snap mostly back when the pandemic passes as it is that they are permanently altered. (For the record, I expected/will expect double digit drops in linear viewership since cord-cutting adoption is following an S-curve.) For example, if theaters are back to “normal” in the mid-point of 2021, the focus on opening weekends will return, and with it linear advertising.
If I had to point to one wildcard, though, it’s football. Which is really the issue suffusing the conversation above. (Even feature films are really talking about advertising against football.) As long as football wants to reach every household in America, it needs linear TV as much as digital. And that should support this ecosystem for another 5-10 years.
Still, we’ve likely seen a high watermark in linear advertising revenue. Which isn’t too surprising, since advertising revenue has been under pressure for years. It just means that, even if it bounces back, between cord cutting and reduced quality content, broadcast advertising will never regain its past heights.
Entertainment Strategy Guy Story Updates – Licensing Is Still Very Important for Streamers
This story is really a combination of three stories that all competed for my top slot this week.
Combine the three and the story is fairly inescapable: for all their tens of billions in content spend each year, Netflix cannot give up on licensed content. This shouldn’t be that surprising, but it does contradict the story Netflix projects to Wall Street.
Let’s start with why licensing is still crucial: because it moves the needle! When you look at the Pay-1 movies–films in their first linear TV or streaming window after theaters, usually in the first year–you can see that every streamer is desperate to get Universal’s output. This is because new Fast and the Furious, Minions, and Jurassic Park films move the subscriber needle. Just take a gander at VIP’s August report:
(Go to Variety VIP to read. Full disclosure: I’m on a free trial from Variety.)
That’s a lot of licensed film content in Netflix’s Top Ten! The story is the same on Nielsen (hat tip Alex Zalben) when it comes to top TV series on Netflix in the last week:
That top ten list is almost all licensed content. (Which contradicts Netflix’s daily Top Ten lists, a point I’ll explore in a future article/Tweets.)
On the whole, the fact that Netflix needs licensed content should be the least surprising story in media. TV has always been about renting content. Syndication built up numerous channels from Fox to USA to AMC to you name it. Even HBO was built off Pay 1 films. So renting content to enter a market is a tried and true strategy..
Unless…
…your stock price involves “building a moat” of original content. Which Netflix’s does. Specifically, making a moat with original content that will bring “pricing power”.
Licensed content’s current and continuing importance to Netflix will determine if this strategy works or blows up. If it turns out that Netflix still needs licensed content, after spending billions on originals, then one of two things happen. First, if Netflix loses the content, then they will likely see higher churn among customers. That both lowers the average revenue per user and raises acquisition costs. So they keep losing money. Or Netflix keeps licensed content, but has to pay more and more for it in a competitive bidding environment. That raises their costs. So they keep losing money.
In short, Netflix desperately wants to decrease its reliance on licensed content. But so far the data doesn’t show that strategy is working.
Over the last few months, I’ve softened on how important licensed content was for Netflix. It seemed like their original films were finally breaking through. And the top ten lists were filled with originals, especially on TV. But the combined FlixPatrol/Nielsen data contradicts that. Even as the licensed content changes–farewell Friends, The Office, and Disney blockbusters–the importance of licensed content remains. (My guess is Hulu and Prime Video are in the exact same boat, by the way.)
(Bonus update: it seems increasingly clear that the future will be measured, as I wrote way back in December of 2018 and October of 2019. Between top ten lists, Nielsen and others, we’ll have some sort of standard to judge which shows are doing well in the ratings.)
Other ESG Update: Cobra Kai’s Migration to Netflix
To quote Marshall McCluhan, the medium is the message. So for Youtube, the medium is ad-supported music videos, box openings and alt-right/alt-left commentariat. Not prestige originals. Clearly Youtube had a good show in Cobra Kai, but after that they didn’t know what to do with it. (Read my past writings on Youtube Originals for more.)
Other Contenders for Most Important Story
AT&T Is Selling Some Assets, but Not Others
The story over the last few weeks has been that AT&T is looking to sell tertiary businesses to reduce debt. On the table are Xandr (their ad-sales unit), DirecTV and CrunchyRoll; not on the table are Warner Media’s video game unit. As some folks have pointed out, though, we shouldn’t read too much into any specific business unit sale or story since these talks are ongoing. And the rumor mill is vicious.
Still, it seems clear based on the volume of rumors that AT&T is looking to sell some assets to help their balance sheet. The management lesson should be clear: M&A is not a strategy. Strategy is strategy. That’s the story of AT&T in the 2010s: buying size mostly to accumulate assets. The investment bankers got paid; the shareholders haven’t yet.
Walmart’s New Subscription
On the surface, Walmart offering “Walmart+” isn’t entertainment related. It’s an ecommerce story, about a battle between two monopolistic giants. Except for the fact that nearly every article had to mention that Walmart+ doesn’t offer any free entertainment streaming. So…
Prime Video = $120 a year, with Prime video and Prime Music
Walmart+ = $98, with no entertainment.
Therefore, Prime Video and Prime Music are worth $22 a year?
Listen, that math isn’t totally correct. There are tons of unaccounted for variables. But generally does it match consumer demand? It probably isn’t that far off either.
Data of the Week – What is the U.S. Addressable Market for Streaming?
In a lot of ways, isn’t that the question of the streaming wars?
A few weeks back, Leichtman Research group updated their estimate for the number of broadband homes in America. In 2019, America reached 101 million broadband homes. On the bass diffusion curve, clearly broadband adoption is slowing. This could be a good proxy for cord-cutting homes, since if you don’t have broadband you can’t stream.
Meanwhile, Nielsen still counts about 121 million homes as “TV watching” homes. Meaning about 20 million homes are still cut off from cord cutting in general.
So, the natural question is do Netflix, Hulu, Prime Video, HBO Max and Disney+ all have aspiration of 100 million household penetration in the future? Probably not. As my past research has shown, Netflix will likely tap out at around 70 million US subscribers. Meaning we have a gap of about 30 million households.
While overall streaming could end up reaching 100 million homes–similar to cable at its peak–there won’t be one service that every household subscribes to. Either from keeping skinny bundles, sharing passwords or what not, I don’t think we end up with one service as the “universally owned” streamer. This data from Reelgood shows that while Netflix is the closest to a universal streamer, many streamers have bundles which don’t include it.
And if Netfllix can’t do it, I don’t see anyone else doing it either.
Lots of News with No News
Another Netflix Producing Deal
With royalty no less. Or not, since I believe they renounced their titles? Listen, I’m not an expert on British nobility. And while I can understand the interest from a general entertainment perspective, from a business standpoint this doesn’t move the needle.
Sound Issues in Tenet
Since Tenet isn’t in theaters in the U.S., and won’t be in my neighborhood anytime soon, I can’t speak to this from first hand information. But apparently customers are having trouble hearing crucial pieces of dialogue in Tenet. That said, when it comes to most TV and films it can be hard to hear many of the lines. Sound mixing has a lot of trouble dealing with everyone’s different sound systems nowadays.
We had a fun bit of data dropped via Nielsen in August which allows me to update my most popular article of the year, “Netflix is a Broadcast Channel”. Nielsen let us know how viewership looks through the Coronavirus lock downs as of August 2020. Here’s the original 2019 data and the update:
Since I promised this is in visual form, here’s the stacked bar charts…
Quick Insights
First, is this statistically significant?
Yes, tentatively. It all depends on what your confidence interval is, but with their panel of about 1,000 folks, Nielsen can have a margin of error either direction of about 3%. This is right on that border line.
That said, why use a 95% confidence interval? If you use a 90% confidence interval, than year we’re reasonably confident Netflix saw a bump. I’d add, everyone else was flat and next grew or declined. (Except for Disney+, which wasn’t on the platform last time.) That’s hard to interpret as anything but good to great news for Netflix. Contrariwise, if you want 99% certainty, then this is firmly within the margin of error.
So we’ll see how this number grows, but I’m inclined to think it measured a real trend.
Second, why not update your Primetime chart from last time?
You mean this one? 
If this were extrapolated to Primetime, then Netflix has exceeded even CBS and taken the top broadcast spot. (They’d be at 8 million primetime viewers if we used the same math from August.)
First, and simply, I don’t have the linear TV viewing numbers to compare. Broadcast ratings could have increased by a similar rate, so it wouldn’t be apples-to-apples.
Also, while the 3% increase in Netflix viewing is good, and the 7% surge in streaming video is even bigger, I’m skeptical that viewing came during primetime. Sure, folks can’t go out so TV viewing is likely up across the board at Primetime, but the 7% surge in streaming likely came from elsewhere. I see two options.
Option 1: People watching TV during the daytime. The notable thing about coronavirus is that everyone is sitting at home streaming during work. (Are those two things incompatible? I think so, but that doesn’t mean it’s not still happening.)
Option 2: Children. The other group that is probably streaming even more than ever are kids. And children. And teenagers. Again, not during primetime, but throughout the day. And my initial comparison was about primetime viewing. That’s why Disney+ went from not existing last fall to getting 4% share of streaming.
This week started off slow, but man what a finish. Kevin Mayer left TikTok? That’s buzzy. The NBA players boycotted their games? Wow, that’s a big deal. But neither are the most important story of the week. That honor belongs to the theaters slowly returning to business. This is a $42.5 billion dollar industry globally and its survival is the story we’ve been monitoring all spring and summer.
Most Important Story of the Week – Are Theaters Back?
Of all entertainment industry topics, this one deserves the most nuance. The doom-and-gloomers are being too pessimistic. The sunshine pumpers are too optimistic. The truth is somewhere in the middle. Where precisely? Well, I’ll present both cases and let you make up your mind.
The Optimistic Case
First, China has reopened it’s theaters. That’s huge and more importantly, they’re doing well. Harry Potter set some records earlier in the month, then the epic film The 800 had a huge opening weekend. With Tenet due soon, and then Mulan, the Hollywood studios could see some real box office grosses soon.
Second, Canada opened just fine earlier this month. So did South Korea. Turns out customers are fine to return to theaters. As this random study from Odeon Theaters says, customers are hungry for the theatrical experience. (32% of those surveyed tried to recreate the theatrical experience.) As a result, studios are slowly ramping up their TV advertising spend.
The current underlying all this is that so far the theatrical experience doesn’t seem to be a huge driver of sources of transmission. This point is key and may go against initial forecasts, estimates and guidance. It turns out that wearing masks and not talking/shouting can limit exposure, especially if theaters are only partially filled. And if a country has its cases under control. (We should know by now if theaters are causing superspreading events in China, but we haven’t seen it.) This tweet from Derek Thompson shows that theaters, depending on capacity, are either low to moderate risk.
Moreover, the theaters have a unified plan that should protect them somewhat from political blowback. In all, theaters can see a road back to profitability.
The Pessimistic Case
The pessimistic case is that it will be a long road back.
The first weekend of new releases in the US was “decent” at best and maybe even disappointing. Even though Unhinged opened in 70% of theaters–though not major markets like New York and Los Angeles–it only earned $4 million at $2,200 per theater. As IndieWire pointed out, that means there is basically a 75% “Covid-19” tax on new film’s box office. More ominously, Warner Bros trotted out a re-release of Inception, but didn’t tell anyone the grosses. Lack of numbers is always suspicious.
Meanwhile the most important market–the United States–still has lots of closed theaters. New York and Los Angeles remain shutterted and, as a result, the theaters never actually tried out a “rerelease library titles” strategy to get customers used to going to theaters again before the blockbusters could return. (Though drive-ins have done well with library titles.)
Thus, the studios are still fleeing 2020. The latest casualty is The Kings Man in the US which just decamped to February. As Scott Mendelson points out, essentially only a handful of films are going to try to rescue the fall and winter in the US: Tenet, James Bond, Candyman, Soul, Black Widow, New Mutants and Wonder Woman. And any of them could still move if Tenet underperforms. In my optimistic cases, I thought quite a few films would try to prop up the calendar and that isn’t the case.
As this analysis from Bruce Nash shows, theaters will see a slow return, then speed up and then slow down again. That prediction seems to be describing the Canadian and US return to theaters. As a result, it could be until February until things are back to normal.
In Summary
The optimistic crowd can point to a hunger to go back to theaters by customers. The pessimistic crowd can rightfully retort that sure some customers will go back, but it will take at least 6 months or more to get back to full capacity. That’s billions of lost revenue in the meantime.
Overall, I lean towards the optimists. Because I think theaters will survive this crisis. (Plenty have predicted otherwise.) As the evidence rolls in, it seems clear to me that movie theaters and streaming aren’t direct substitutes. They can be–you are choosing how to use your time–but really the theatrical experience is an experience. This is frankly why PVOD can’t replace theatrical either. That is much more like a substitute.
Does this mean theaters can relax? Nope. I hear from plenty of folks who don’t like or even hate theaters. Theater chains have work to do to focus on the experience. (Breaking them up into smaller companies would help here.) But there is room for optimism.
Other Contender for Most Important Story: Joe Budden and the Downside of Exclusivity in Mass Markets
Joe Budden–a hip hop artist with one of the best pump up tracks of all time–has a wildly influential hip hop podcast. Thus, when Spotify decided to dive aggressively into podcasts, he was one of their first calls and got a major deal. (Though I still haven’t seen numbers. Note this.) This week Budden announced that he was (likely) not renewing his deal with Spotify.
What happened?
My guess is that Joe Budden is realizing the tradeoff of going all in on a single distribution platform. The subtle difference between mass distribution, selective distribution and exclusivity. Let’s talk about Budden’s situation in particular, then how his complaints can be extrapolated out to the rest of entertainment.
When it comes to Budden specifically, he appears to have two primary complaints. Here’s the key quote from Variety:
Issue one, if you will, is that he wasn’t paid as well as other folks. He was one of the first Spotify deals, so likely didn’t have other deals to compare. Since then, Gimlet Media, Joe Rogan and Bill Simmons (via The Ringer) have all been acquired at huge pay days. (Joe Rogan, for example, knew what Simmons got paid.) Since Budden can directly compare his previous salary to the new deals, he knows if Spotify was paying him market rates. And clearly feels they weren’t. (And he was a top performer.)
(This is another entry to a multi-part series answering the question: “Who will win the battle to make the next Game of Thrones?” Previous articles are here:
Part I: The Introduction and POCD Framework
Appendix: Licensed, Co-Productions and Wholly-Owned Television Shows…Explained!
Appendix: TV Series Business Models…Explained! Part 1
Appendix: TV Series Business Models…Explained Part 2
Appendix: Subscription Video Economics…Explained Part 1
Where We’ve Been)
Two weeks ago, we checked back in on the news about the contenders vying to be the “next Game of Thrones”. Let’s keep the momentum going and get right into the “People” portion of our framework. At the end, I’ll unveil my current working model for evaluating TV series.
Why “People” Matter In Every Deal
The “people” in a typical venture capital deal are the leaders of a start-up. This means the founders and the soon-to-be chief officers. Is the CEO a great technology guy, but not great at scaling? Or an operations guy who has a dynamite CTO already in place, but no marketing experience? Conversely, is the product great and so is the opportunity, but you need to replace the leadership to make the company truly succeed? (Uber/WeWork much?)
In a real world example, lots of investors in Quibi invested because of the team of Jeffrey Katzenberg and Meg Whitman. He could handle content; she’d handle everything else. (Only later did we find out they couldn’t work well together.)
As I use the “POCD framework” for evaluating TV series—a concept I dabbled with at my previous job—I’ve found the “People” portion to be extremely important. Who is the showrunner? Who is the creator? Are they the same person? Or do you need to bring in a more established showrunner to replace the creator’s vision? Does the showrunner have the ability to manager a team, or will they do it all themselves? Can the writers work with the directors to bring their vision to bring the show? Are the producers able to corral the showrunner and bring things in on-time and on-budget?
Hopefully, the answer to all those questions are positive. Meaning the creator has a great vision, the showrunner can deliver on their vision, the writers room writes great content, the directors can film it, and the production team will run everything well. The reason this is important is because, if a studio can hire the right people more consistently than competitors, they can achieve outsized returns.
Those outsized returns fall into two rough buckets. The first bucket is the “quality” bucket: Can the show runner make a good nee great show?
Well it depends. Unfortunately, most showrunners and creators are…average.
Average isn’t bad, you see. It just means that while all showrunners are great people—and indeed highly skilled at what they do—their “hit rate” is average. Which means that most of the time the shows and films they make are bombs/duds and a few times they are blockbusters. (About 1 in ten.) That’s just the math. That’s right, logarithmic distribution of returns applies to the people making shows too:
At the far right end, some showrunners can buck this trend to reliably churn out hits, but they are few and far between. Think Greg Berlanti, Shonda Rhimes, Mark Burnett or Chuck Lorre. Even then, they have more duds than you initially remember when you scan their IMDb. If either Game of Thrones or Lord of the Rings had a top tier showrunner attached, it would increase the likelihood that a show becomes a “hit” or “the next GoT/superstar” in our model. (Or if they had a top tier development exec with a similar track record. No streamer does yet.)
The converse to good showrunners is a chaotic leadership situation. If a show has lots of creators moving in and out and lots of directorial turnover, that’s a bad thing. (Though not always. The Walking Dead did just fine and it’s on its fourth showrunner.)
My model also punishes showrunners with extensive mediocre track records. Which unfortunately is quite a few showrunners out there. For all its admiration of experimentation, Hollywood is surprisingly conservative at decision-making. Development executives hire the same writers and directors instead of trying someone new because it’s “safer”. These showrunners produce a show for a few years that is mostly “Meh” (a technical term), and then move on to another pitch/job. In the model, if I saw a fantasy series had that type of showrunner, it would increase the likelihood that a show is another also ran TV show, not the next Game of Thrones.
The second outcome is the “logistics” bucket. Can a show come out on time and on budget?
When it comes to making blockbusters, this is less important. However, if you’re running a business, given that 95% of showrunners are average, this can be the difference between profit and loss. This can be forecast, with the right data, pretty reliably. I, for example, knew that certain showrunners and directors who worked regularly with our streamer would be late or over budget when we hired them, because they were late or over budget previously. Unfortunately, this type of data isn’t public available—studios don’t make a habit of sharing when they go over budget—so I can’t use it in this series.
It is worth noting that this was part of the genius of HBO and Game of Thrones. They managed to keep that show on every single year while being the most expensive show on television. But an incredibly efficient expensive show, if that makes sense.
(The great production houses out there—Jason Blum, HBO the last two decades, Marvel this decade—really do deliver on time and on budget, while hitting high quality bars. That’s not an accident.)
Meanwhile, most of the streamers struggle to get second seasons out within 18 months of big shows. We don’t know if these shows are “on budget” but with the way Netflix spends money, probably not? While this is important, it won’t make the model because we won’t know about financial/timing trouble until it happens.
The Results
With that explanation in mind, I’m going to be fairly conservative on evaluating these leadership teams. While picking people is really important, the benefits don’t show up on an individual show, but on a long-term/portfolio level.
Thus, I’m more worried about overvaluing “noise” than true signal in evaluating these leadership teams. (Long term, I hope to do more data analysis to better judge creative hires, but I don’t have those databases yet.) As a result, I’ll default to the “null hypothesis” more than usual.
Let’s go show by show.
