Most Important Story of the Week and Other Good Reads – 16 August 2019: It’s Not The Size of the Merger That Counts, but How You Use It

It’s tough to stand out in the crowd of reporting this week on the Viacom-CBS merger. I was primed to pass strategic judgement on the merger, but don’t feel quite ready to do that (yet). Instead, let’s try the good ol fashioned Entertainment Strategy Guy slightly different take. 

The Most Important Story of the Week – Viacom and CBS Merge for “Scale”

Specifically, some context on the biggest word of the week “size”. 

(Programming note: I’m already calling the remaining pieces of 21st Century Fox “NuFox” and I refuse to call ViacomCBS that name because it is awful. I’m calling them SuperCBS for today’s article.)

This deal is about “size”, but what does being “big” mean?

This was the widely repeated headline of the week. The buzz for this deal was that Viacom and CBS had to merge to get bigger to compete. That’s actually been repeated for weeks. Here’s a sampling from Recode, NBC, and Indiewire, either using that set up in the headline or quoting an analyst. (And in fairness, I think Bob Bakish and/or Shari Redstone has said this too.)

IMAGE 1 Recode Size

Image 3 NBC News

Image 2 Indie Wire

The piece of the coverage, though, that bugged me was that if I did see “size” quantified, everyone trots out the same measurement. 

How did we measure size this week? Market capitalization.

This Recode visualization (and it really is high quality work, I’m just using it as an example) shows size by market capitalization.

IMAGE 4 Recode Market Cap

Axios made a similar chart here. (Again, a great visualization and they’ve been doing great work.)

Image 5 Axios

These are just the two visualizations I saw. Most other articles referred to market capitalization for the need to get bigger in the current entertainment landscape. I mean just look how small CBS is!

The problem with market capitalization as a metric.

Let’s start with an analogy to explain why this doesn’t make sense. And of course, I’ll use an NBA analogy. Let’s say I told you someone was the biggest player in basketball. Am I talking about height? That’s what you’d assume, and that’s the most common measurement in the NBA. Of course, those people really in the know understand that arm length is actually more valuable than raw height. Combining the two for “reach” is another measure that is arguably better than either of the previous two.

But why talk height when I said “big”. Maybe I just meant weight. So who is the heaviest basketball player? While being heavy doesn’t matter as much, tell that to centers facing Shaq at his peak. The point? When it comes to “size” in basketball, we have multiple ways to measure it.

One more analogy? Okay. My other go to is the Army. When it comes to militaries, you can measure the total number of troops (manpower), the total military expenditures, the total number of vehicles, the weight of the combined vehicles. The amount of firepower that can be brought to bear. (One guy with a machine gun is worth many with an assault rifles, for example.) And on and on. Again, when saying “biggest” you can measure in so many different ways.

The challenge for me, when using market capitalization–share price times shares outstanding–is that it relies so much on the opinion of the market (Wall Street). Which is fine. It’s accurate as far as anything is accurate in today’s efficient market, because the market is efficiently allocated. You can ask the Nobeler’s precisely what that means. (Fine, there is no Nobel prize for economics, but you know what I mean.)

But an example gnaws at me when it becomes the stand in for size the way height is a stand-in for size in the NBA. Take Netflix a few weeks back. They had a bad earnings report and suddenly they lost 20 billion in market capitalization with a 10% share price correction. So did they become 10% smaller overnight? In basketball you don’t just shrink because the market decides you aren’t as tall. Your size is your size.

(Also, market capitalization ignores debt. Which matters since debt holders get paid first. Really have to use both, which is “enterprise value”.)

Instead, if we want to compare size, we need to go a pinch deeper.

What are other measures of financial size?

When you talk companies, you think of organization designed around making money. The ideal measures could help give insight into how much revenue a company could bring in, how efficiently it brings that in, how many users it has and how much market share it has.

So here’s a table on it. I picked the three parts of the income statement (the top, middle, bottom), free cash flow (profit is opinion; cash is a fact), and some other potential measures of size. But the key–to really get the context–is to find some yardsticks to measure them against. In that vein, I picked four rough competitors: Netflix, the digital only superstar, Disney, the content king, AT&T, the telecom company with dreams of more, and Apple, the tech behemoth. 

IMAGE 6 - Financials

(For those who don’t know, revenues is all the money a company makes; EBITDA is after most of your non-financial type costs are factored in; profit is the money you make after you pay taxes and stuff. Free cash flow is subtly different because it’s the actual amount you make, which can be different than profit because of depreciation and amortization. The last two columns are the “indexes”. Roughly, anything over 1 is bigger.)

Here’s another example to heap more hatred on market capitalization. Say we’re comparing two companies. One makes more money (line 1), and generates three times more profit off that money too (line 3). On top of that, one company is losing cash every year (though they are profitable) (line 4). Well, obviously, if I asked you, “So who is bigger?” you’d answer the company making more money. But that’s CBS compared to Netflix.

Or take content spending, which is also a pretty good stand in for size. Right? With Netflix, you often see the $15 billion floated out there, but Disney beats that just on non-sports programming. Throw in sports and they’re much bigger. Heck the combined SuperCBS isn’t too far from Netflix on spending, and maybe the $3 billion gap is just the difference between profitability and growth.

Oh, and of course there are subscribers. That’s a measure of size too. The tough part when measuring anything is figuring out what matters. Everyone in the media focuses on digital subscribers, which is line 7. Yep, Netflix is way out in front. But why do linear subscribers not count? I essentially pay ESPN $9 a month. I pay HBO some split of the $15 for my linear feed. Sure, the companies don’t own my relationship–the cable company does–but they still have paying users. To show the “total” between digital and linear, I just added the 89 still around linear subscribers for CBS and Disney, and HBO’s roughly 45 million subscribers. So again, yes SuperCBS on one measure isn’t big enough; on another it is.

Of course, when we’re talking size, really everyone is scared of the last column. Apple makes more in cash than Disney makes in revenue. Yikes. That’s why Apple (and Amazon/Google too) can fearlessly “disrupt” the entertainment industry by losing lots of money to gain a foothold. 

Size does and doesn’t matter.

I don’t want to go overboard in counter-intuitive programming here. Obviously, size matters in providing a company leverage to negotiate with suppliers and customers. And the ability to lose billions in free cash flows–as Apple, Amazon and Google can–is a competitive disadvantage. (Though, not necessarily smart for investors.)

Of course, size by any metric only matters in how you can use it, which may be my biggest gripe with the market capitalization metric. It’s pretty easy to understand how revenue through to cash flow gives you an advantage the larger it is. (The more money you have, the more you can spend.) Market capitalization, though, isn’t really a tool you can leverage, unless it is to offer more shares to raise capital. Which is yes a tool, but not one used as often as your own revenues.

Most importantly, size–like M&A as I’ve written before–isn’t a strategy. And we should never pretend it is. Instead, strategy is a strategy. As I’ll write in the future, Shari Redstone and Bob Bakish’s challenge is to take this combined entity–that really is big enough to compete–and develop a competitive advantage in this landscape. That isn’t impossible. But it is so hard to do well.

Long Read of the Week – Good Reads on The Merger

So many excellent articles this week on the big story of the week. Apologies if I left out your take.

Alex Sherman at CNBC on “CBS and Viacom have finally agreed to merge — here’s what they could buy next”

Sherman had the best, “What should they buy next?” article after the merger. (Besides mine, of course.) But most importantly he used Enterprise Value instead of just market capitalization. Bravo.

Brian Steinberg on Madison Avenue‘s Perspective

SuperCBS will control 20% of national TV advertising. That’s big. Steinberg digs into the challenges facing the new entity.

Scott Porch at Decider “Why CBS and Viacom Are (Probably) Merging And What Happens Next

Porch wrote this before the merger, but I love his layout for how size will help SuperCBS in some specific areas like distribution.

ICYMI – Decider “The Boys’ Is a Hit for Amazon, But What Does That Mean?

While we all waited for Viacom and CBS to merge, Amazon had “one of” their most successful TV series launches. “One of” what does that even mean? Well, I took 800 words to take my best guess over at Decider, then followed up with another thousand on this site. (The answer? Yeah, for Amazon, this probably is a hit.)

Data of the Week – No More $200 million Blockbusters

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A TV Murder Mystery: Who Killed Game of Thrones?

Most of the time, when Hollywood kills off one of its TV shows, we know why. The ratings had been sinking or the talent asked for too much money. (Or recently, it was produced by a rival TV network/conglomerate.)

And yet, HBO killed off Game of Thrones, a TV series that was getting more popular with every season and making its parent company billions in the process. Meanwhile, other long-running series—with worse ratings—from The Simpsons to Grey’s Anatomy to The Walking Dead march on like, well White Walkers. The corpse of Game of Thrones is now—spoiler alert—as cold as Jon Snow’s after season 5.

Why? Who had the motive? And who issued the order?

We Officially Have a Murder Mystery

Frankly, there isn’t a great explanation for why HBO cancelled this series. In the past, I’ve estimated that this series was making an estimated $300 million a season for HBO. (And potentially much more. Read the original, and my director’s commentary here, here and here.) Sure, HBO has a great (on paper) slate premiering the rest of this year and next year, but you know what helps launch a great slate? The biggest show on TV.

Have no doubts this series was growing. The number of viewers rose in every territory that I could find that releases data. Over 44 million were tuning in per episode in America alone, up from 9.3 million in season 1.

GoT Viewership

Of course, in some circles—like HBO creator circles—the story is what matters. Maybe the creators wanted to wrap it up nicely. Except most of the criticism of the last season related to the fact that the series felt rushed. Here is just a sampling of critics and fans complaining that season 8 felt rushed. More episodes and more seasons would have solved this problem, and who knows, by a hypothetical season 9 maybe 50 million people are tuning in in America each year!

Who kills off a money making show? Who are our suspects?

The Suspects


The buck stops there. So we should start with HBO. Their motive in killing this show would be simple: It’s the most expensive show on television. And since it is already insanely profitable, any additional profits have to be split with talent who are negotiating tougher and tougher deals with more and more back end. Each additional season is less lucrative for HBO, and if the marginal benefits meet the additional costs, well economically HBO should cancel the series.

George R.R. Martin

Listen, George, you’re a part of this. You probably didn’t finish the plot of A Song of Ice and Fire, because if you had, you’d have published that book. Which you haven’t. Maybe you told HBO to stop the series. Or you never provided enough details to fully flesh out 3 to 5 more seasons of the show.

The Actors

When in doubt, blame temperamental actors. Am I right? “Talent” is what you bitterly mumble in Hollywood when you can’t control the situation.

The motives for these suspects—and really I’m talking the big five actors of Jon nee Kit, Cersei nee Leda, Jaime nee Nikola, Daenerys nee Emilia and Tyrion nee Peter—is pretty simple: they’re sick of working on this series. Or more precisely, as artists, they’re ready to make other movies about Greek Gods, Han Solo and Terminators. (Too far?)

Further, even if you don’t mind working on a TV show for the rest of your life—including shoots in both scorching deserts and freezing tundras—you do know how valuable you are. You can’t have a GoT without a Daenerys and Jon Snow/Stark/Targaryen. Knowing that, the actors negotiated phenomenally expensive payments per episode, over $1 million per actor. They also likely demanded higher back end percentages.

The Showrunners

If the actors are sick of this series, imagine the two people at the lonely top of the creative pyramid, David Benioff and D.B. Weiss (D&D in Reddit parlance). I can’t describe adequately how insanely time consuming this series was for these two individuals. They wrote a majority of the episodes, supervised the entire production from set design to costumes and oversaw all the editing and post-production; and oh by the way (NFL announcer voice), it was the largest TV production in history. 

Meanwhile, they had plenty of opportunities to do other things, from Star Wars to a new overall deal to ideas in their notebooks we can only imagine. If you’re worth hundreds of millions of dollars (my tentative figure for D&D once they collect GoT royalties), do you want to keep spending your winters in Iceland and dealing with the most demanding fans in television history? That would be enough to say, “Eight seasons and we’re done!”


Is there a thing that AT&T hasn’t managed to screw up since it acquired Time-Warner turned into Warner Media? Since taking over, they’ve lost the head of their movie studio, the head of HBO and plenty of other executives. Meanwhile, they named their new streaming service HBOMax, which was universally derided, and DirecTV is hemorrhaging subscribers. Oh, and AT&T is the most indebted company in America. Maybe they killed GoT to keep the losses from piling up. 


When you discuss TV on the internet, you’re contractually obligated to mention Netflix at least once. While we give Netflix a lot of credit and blame for, they’re not involved here. 

The Evidence

Like a detective in Law & Order, it’s time to interview the witnesses. Which in this case means various articles that describes the suspect’s state of mind. Supply your own “dum dum”.

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Read My Latest at Decider: “‘The Boys’ Is a Hit for Amazon, But What Does That Mean?”

Last week, I threw up a quick Twitter thread on The Boys and I just turned it into a full article for Decider.  (And it’s short for me, about 800 words.)

So take a read and share on social media! Appreciate it in advance.

Of course, trying to judge if a series is performing well or poorly is NOT simple. And as I found some new data sources, I had thoughts that got cut from the final article. (As always.) So here’s the rest of the story, including a broadcast comparison, how I think about managing messy data sets and the rest of Amazon Studios datecdotes.

Introduction – A BH90210 Comparison

Initially, I was going to compare The Boys to BH90210, the Beverly Hills, 90210 revival that was off to a good start last week. Here’s the Variety quote on its success:

Image 1 - Variety TV Rating

That’s good! Or is it bad? I mean, is 3.8 million people watching good? Honestly, with broadcast we don’t know since a show like Night Court used to get 20 million viewers in the 1980s, and The Big Bang Theory—the biggest show on broadcast in 2019—didn’t even get that for its finale. (Fine, it did with DVR viewing.) No seriously, here are the ratings for Night Court:

Image 2 - Night Court Ratings

So which was bigger, BH90210 or The Boys? To the Google Trends. Now, here’s the first look and you can say, “Well The Boys won”…

Image 3 - The Boys initial

But I told you Google Trends was finicky, didn’t I? The problem with a show like BH90210 is the title is super generic and derivative off another series. So here’s with a few other variations on that title.

Image 4 - GTrends Updated

Add them all up, and BH9210 was more in the consciousness than The Boys. Whether that translates to more viewers, I can’t say. But it provides some “broadcast to streaming” context.

Comment on Amazon Datecdotes

One of my favorite parts about writing and researching this article was it forced me to look up all of Amazon’s “datecdotes“. Which I’d been meaning to do since their last earnings report, where they again touted Emmy success while steadfastly avoiding numbers a la Netflix.

Now, why wouldn’t Amazon tell us good news? Well, the pro-Amazon case is they have all sorts of good news but are hoarding it for some advantage. That’s frankly BS. My rule of thumb with all large organizations—from the government to any corporation—is they share good news and hide/bury the bad.

The most basic assumption is that Amazon’s overall numbers are much, much smaller than Netflix, so they avoid specifics. Because if they did, they would look bad. That’s simple logic.

Anyways, here’s my Amazon datecdotes table, a la Netflix. Notably, I left out two other sets of numbers for space in my Decider piece. First, the Reuters leak from last year had aadditional details for Transparent and Good Girls Revolt. Second, last fall Amazon touted it’s NFL viewership numbers for Thursday Night Football:

Image 5 - AMZN Datecdotes

Some quick notes. For The Man In the High Castle, for example, we still don’t really know what 8 million viewers means. Is that over the lifetime, up to the point in time Reuters got the leak? Or some shorter time period? With data, that distinction is really important. 

Or take The Tick as a top five series for Amazon in 2017. That would worry me, given that as the IMDb data shows that series wasn’t even that popular. And it was in their top five? And now it and Sneaky Pete are off your platform? That would make make me think the other series are much much smaller than we imagine. (Sneaky Pete was also a Sony co-production. So the co-pro curse strikes again.)

Google Trends – The Boys Pessimistic Case

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Most Important Story of the Week and Other Good Reads – 9 August 2019: We Have a (Disney) Bundle!

When a company beats quarterly expectations, the CEO usually celebrates it. When the company misses–as Bob Iger’s Disney did this quarter, well–the CEOs say they don’t care about expectations. I agree with the latter position, though I wouldn’t celebrate beating expectations either! For box office or earnings, it’s what’s actually happening that matters, not the expectations of what could have happened.

Especially since that focus on expectations can lead us to ignore the biggest story of the week…

The Most Important Story of the Week – We Have a (Disney) Bundle!

Too many people to name realized that the entertainment world was being disrupted. Probably sooner than I did, honestly. The disruption came from the Netflixes of the world, who provided a cheap (subsidized) alternative to TV. As they took eyeball-share, the traditional entertainment conglomerates realized they needed to launch streaming platforms of their own.

Then a lot of people realized if everyone had a streaming platform, well customers would need a holistic way to subscribe and watch it all. Eventually someone would offer a way to subscribe to multiple streaming sites at one time. This idea wasn’t that creative, hence the rise of the aggregators: Amazon, Hulu, Roku and soon Apple have or will offer the ability to subscribe to all the streaming sites. (Except Netflix.) 

Recently, a group of people have come to the next logical conclusion. As long as all the subscribing to channels is taking place at the same time, on the same platform, instead of selling all the different streamers a la carte, you could make everyone happier by offering the best streaming sites together in one big package. In return for a lower overall price for customers, they’d get more content and all the streamers would get more reliable revenue streams.

We could call this combined package “a bundle”.

Which is what we used to call the cable TV package of channels.

The bundle lives!

With Disney announcing the bundle of Disney+, ESPN+ and Hulu (with ads), we have our first bundle. If CBS merges with Viacom, I’d expect a CBS All-Access, Pluto, Showtime and Viacom-something bundle. Amazon, as I just said, has probably explored offering a bundle of it’s “Amazon Channels” and Apple has been rumored to be planning a bundle. This week, Disney made the pretty obvious speculation a reality. The next step is for different companies to team up on the bundle.

If you think of streaming services as simple “on-demand TV channels”, it really is just the natural evolution. Everyone channel/streamer has some show a lot of people want to watch. They want Game of Thrones on HBO, Stranger Things on Netflix, Marvel movies on Disney, Star Trek on CBS and maybe The Office on NBC. (Or maybe that’s my wish list as a sci-fi fanperson, but you get the point.) Even if they don’t like every channel, it’s cheaper to offer everyone a huge bundle of channels and thus more choice overall.

So we have our first bundle with Disney. Long live the bundle.

Other Thoughts

That’s not all my thoughts on Disney’s earnings report. I put out two very, very long threads on Twitter, first with my initial reaction and then with my day after thoughts. Here are the greatest hits.

Thought 1: The price is delightful. Bob Iger said it was a coincidence that his new bundle priced at exactly Netflix’s standard tier. Good one. I agree with Alex Sherman that the primary implication of this is that it will be harder for both Netflix and HBO to raise prices now. I hope they have theme parks to fall back on to make money in the interim.

Thought 2: ESPN+ Doesn’t Have a “Killer App” Yet. As I debated the value of the new bundle in my head, I couldn’t come up with a good case for ESPN+. Even calling it “niche” is probably too complimentary. They need a killer piece of content that customers have to have, the way Disney+ has Marvel, Star Wars and Disney princesses. My recommendation is NFL Sunday Ticket. That would take ESPN+ of niche to must-have to tens of millions of sports fans (many of whom likely have kids who want to watch Disney+.)

Thought 3: Who wins the battle for T-Mobile/Sprint’s subscribers? This is the battle everyone should pay attention to next. Does Disney offer this new bundle to T-Mobile subscribers, or does Netflix up their game and offer high-definition subsidized to T-Mobile subscribers? Or does T-Mobile keep both deals and offer the choice to customers? Whoever wins this battle could have another leg up in the streaming wars.

Thought 4: Disney may have overpaid for Fox. Which isn’t a huge surprise since the fee ballooned with Comcast’s bid. But given the scale of integration, and now the underperforming of 21st Century Fox’s movies, Disney may have paid a lot when they really just wanted some IP assets and the Hulu ownership. (And Hotstar in India.) Of course, you can overpay and still have a deal be key for your future strategy. So it’s not all doom and gloom. But overpaying for anything makes getting a good return on investment that much harder.

Other Contenders for Most Important Story

Locast – The antenna non-profit gets sued

For a tiny non-profit, Locast has stirred up a lot of news coverage. As others have mentioned, it’s essentially Aereo 2.0, meaning a digital delivery of a remote “antenna” grabbing local signals. The key difference is it is being run as a “not-for-profit” by a former Dish lawyer. Given that retransmission fees are a key part of the broadcast channels profit models, they immediately sued to stop it.

I would have ignored this story–and I kind of have been–since I think the prior court rulings are fairly definitive, but AT&T made it a negotiating position with the CBS blackout. That seemed to elevate this issue from “start up trying out a new technology” to “massive conglomerate backing a startup to get lower fees”. While it’s unlikely that Locast survives in court, the biggest takeaway is that the satellite companies, at least, don’t want to pay retransmission fees anymore.

Other Earnings: Roku Passes 30 Million Users

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Read My Latest at Decider: “To Binge or Not to Binge: Who Won the Battle Between Game of Thrones and Stranger Things”?

I just had a guest article published at Decider, this time asking, “Should Netflix keep binge releasing all its series?” My conclusion: not all of them. Essentially, Netflix is leaving “awareness” on the table.

Take a read and share on social media. Also, shout out to Alan Wolk, who tackled this back in the spring with Game of Thrones. I’d been toying with this idea when I read his take, and tried to update his thesis with the Stranger Things data point.

Like all long articles I write, I had two ideas that didn’t fit in the main piece. Here they are.

Has Hulu’s Weekly Release Helped?

It’s tough to say. Here’s the brutal case against it:

Image 8 - G Trends with Handmaids

Frankly, The Handmaid’s Tale is their most popular series and it is clearly the lightweight to the Game of Thrones/Stranger Things heavyweights. So let’s drop those two, and throw it up against some similar competition.

Chart 7 - Google Trends TV.png

That’s better, and you can see the same weekly interest boost that Big Little Lies and Game of Thrones had, just on a different scale. Instead, I still think that Hulu is just much, much smaller than Netflix right now. (Which, yes, isn’t breaking news.) Or about where HBO is, given that the interest almost matches something like Big Little Lies.

The counter to the binge model, though, could also be this chart. If The Handmaid’s Tale had dropped on one weekend, would Hulu even have a chance to keep it in the conversation? I don’t think so. In this case, Hulu made the right decision. This naturally leads us to ask about not just the current streamers, but the future streamers.

What Should the DAWN (Disney, Apple, Warner and NBC) Streamers Do?

Well, it depends on who you are and what your business model is, but overall, I’d be flexible. If you have a show with tons of pent up demand—like the upcoming Lord of the Rings on Amazon—consider weekly releases for the first season. Ride the potential enthusiasm to help launch weeks worth of content.

For the rest, I’d consider what type of content you have. Disney has a lot of shows that will benefit from weekly releases. Star Wars or Marvel TV series are guaranteed to drive conversation on comics and sci-f (fanboy) websites and podcasts. Weekly releases will amplify their reach from season one. For other dramas? Maybe not.

For HBO Max, they know all about launching prestige television, but HBO is about to quickly run out of days to launch all their content. In that sense, having more binge releases may make sense. Though again many of their fantasy or superhero series are destined to be stars in recap culture. For NBC, I still know so little about their platform that I won’t even speculate.

Apple may benefit the most from the binge release model. They are buying a ton of content and needs lots of buzz right from launch. Moreover, they aren’t trying to build a streaming platform per se, but a TV platform of which the content serves a subsidiary purpose. They should probably consider an approach closer to launching all series on binge, then rolling out the hits weekly for season twos.

Fine, What About Netflix?

If I were Netflix, I think they are missing something essential about how the social conversation drives a show to new heights. Right now, they have one potential mega-hit in Stranger Things. Even if they want to keep binge releases for all ten thousand other releases, they should consider carving exceptions for their biggest hits. A Stranger Things weekly release likely would have brought in new customer which they, um, need nowadays.

The key boils down to flexibility and being innovative. Innovation is not saying “Never, never, never.” It’s about understanding your customers, your business models and the attention landscape to maximize your return on assets.

Most Important Story of the Week and Other Good Reads – 2 August 2019: Sprint & T-Mobile Clear Another Hurdle

Talk about an easy choice. I told you last Friday’s news about Sprint/T-Mobile would be the most important story of the week and nothing has stepped up to replace it.

The Most Important Story of the Week – Sprint & T-Mobile is Now Very Close

The merger of a German telecom giant’s US cellular operation (T-Mobile) with a Japanese tech-telecommunications giant US cellular operation (Sprint) is almost complete. It got the Federal government’s blessing via the antitrust division of the Department of Justice not moving to block it. This merger would fundamentally reshape cellular communications in the United States. Moreover, the deal would produce some strange winners and loses. But instead of recycling the “winners and losers” conceit, let’s try “who does this help, hurt or hinder?”

Help: AT&T and Verizon

And don’t let them tell you different. As the number of companies in an industry shifts, the amount of competition decreases and hence prices (and profits) rise. Eventually, if you get to one single company, well it becomes the monopolist pricing situation. In this situation, they extract all the value they can from customers. If you imagine this as a timeline of possible cell phone concentration, well we’re two notches from complete monopoly. 

Even if AT&T and Verizon have a stronger new competitor (and don’t forget AT&T tried to buy T-Mobile this decade), going from four to three competitors is good for all the incumbents.

Help: Dish (and its new mobile provider)

Dish is probably in the most trouble of the MVPDs as they face declining video subscribers, but don’t have the ability–like cable companies–to just raise the prices on internet access. (Better margins on that business too for cable companies.) As a solution, Dish has been buying up wireless spectrum with the now revealed plan to launch their own cellular network. If this merger had been blocked, Dish would have lacked that pivot ability and would have had to spend much more to get in the cellular game. Whether Dish can truly pull this off remains to be seen, but this merger will help.

Help: Softbank

Read Bloomberg’s Tara Lachappelle for this one:

Image 2 - Softbank

And that last sentence helps reinforce that this deal helps all the incumbents as well as Sprint/T-Mobile.

Hold: 5G Implementation

The biggest explanation for “why let them merge?” seems to be “for faster 5G implementation”. The challenge is that no matter what companies say to get approval for a merger, they don’t have to really do any of it. This line from Matt Yglesias’ article on the merger stuck with me, referencing Comcast’s merger with NBC-Universal:

IMAGE 3 Vox Quote

Even if the company’s promise 5G implementation, if they fail and they’re already merged, what is the government going to do? Break them up? When was the last time that happened? Under an Elizabeth Warren administration, maybe her Department of Justice would. Under everyone else? Probably nothing would happen.

Meanwhile, the easiest way to advance giant infrastructure projects is government spending on infrastructure. If you want 5G, you just pay cellular phone companies to build it. We could debate the method (direct government spending, low interest loans, tax rebates) but government spending gets things built faster than the private sector using capital markets. This merger may accelerate 5G investment but could just as easily not because of the lack of a competition motive.

Hinder: Antitrust Enforcement

Antitrust enforcement in the Trump Presidency (and this isn’t political, but about forecasting) has been very uneven. The Department of Justice sued to stop AT&T’s merger, even though Disney’s merger with Fox was arguably larger. Then Trump’s DoJ supports the T-Mobile/Sprint merger, even as it launches investigations into big tech for monopoly power. Overall, there is just a level of incoherence that a lot of smart people have pointed out.

Hinder: Giant Tech Companies

More consolidation means more control over mobile access to the internet, with potential restrictions on the big players from Netflix to Amazon to Google, depending on the service and need to access the cloud. At least that’s my near term take. Longer term, I’m intrigued by the theory that 5G will strengthen the cloud based companies, which could benefit Amazon, Microsoft and Google. Still, consolidation in one industry increases that specific industry’s buying and selling power, which hurts the businesses that have to use that platform. Fortunately for them, the tech giants are huge.

Hinder: Regulatory Certainty

Before the Department of Justice blessed the merger, many state Attorney Generals had sued to block the merger. That lawsuit may not start until December. So this merger may go through, or may still be blocked or in limbo for years. That’s uncertainty for everyone which is bad for business.

Hurt: Either Hulu or Netflix

Both T-Mobile and Sprint have deals offering free Netflix and Hulu respectively to their customers. Invariably, this flood of subsidized customers helps boost overall subscriber numbers. Will the new T-Mobile keep both deals? Unlikely, so inevitably one side will lose those subscribers from the mobile deal.

Hurt: The Unaffiliated Streamers

Related to the subscribers is one of the next “carriage wars” I described a few weeks back. Even with 5G, mobile data and bandwidth will be a weapon mobile carriers can use against streaming companies. In other words, if you only have three mobile carriers, they can demand extra fees to carry your streaming content over it’s airwaves. In economics, that’s called rent seeking. Given their leverage, it’s hard for me to see how that doesn’t happen. Which leads to our last point…

Hurt: Customers

I already told you this above, but some combination of increased prices or decreased quality is in the offing for customers. My most likely guess is a hypothetical roll out of 5G, but at much higher prices than in a competitive industry.

Other Contenders for Most Important Story

BritBox Plans to Launch in UK

Thanks to Twitter reader Jack Genovese for this suggestion. And even though I had Tweeted out the Axios Media newsletter on this last week, I somehow ignored it myself for last week’s column. The news is that BritBox, an ITV/BBC joint streaming platform that launched in North America will launch in the UK. Which feels slightly odd that the British are now in a territory where by definition all their shows are already, but in a cord-cutting world it all works out.

Tthe update this week is that all that good BBC back catalogue–the type of stuff that helped grow Netflix early on–is going to HBO Max. Which seems weird that it wouldn’t go to BritBox itself. My guess is that AT&T just had deeper pockets and is willing to spend a la Netflix in the early days. Meanwhile, Digiday says that while everyone goes Millennial, they’ve gone older to strong results.

CBS All-Access Surging in Dish Carriage Dispute

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Most Important Story of the Week and Other Good Reads – 26 July 2019: NBCU TBD Launches in April…with The Office

Thanks Department of Justice for dropping your Sprint/T-Mobile merger approval on a Friday, when I was already rushing to get a column out this week due to other commitments. (Which I didn’t do to family obligations in the form of children’s theater.) I don’t have time to tackle you in-depth this week, so read this quick thread for my thoughts. (Also, with state Attorneys General lawsuits looming, this isn’t settled yet.)

Meanwhile–even with multiple earnings reports and TCAs starting up–this week felt light on entertainment business news that mattered. Which means even a small announcement can get the top spot.

The Most Important Story of the Week – NBC-Universal Reveals A Pinch More

Here’s the news on the content side (NBC-Universal and Sky) from Comcast:

– NBC-Universal’s streaming platform will launch in April 2020, with The Office as a tentpole.
– NBC-Universal will use Sky’s streaming platform as a base.
– Sky will make more originals.
– NBC-Universal’s streaming platform will rely on licensed series too at launch.

That’s it?

As small as this news is, I haven’t written about NBC-Universal since January, so let’s do a quick check-in on how they’ve evolved since then. 

Rereading my thoughts in January, I was surprised how positive I sounded, even a positivity with many caveats. I appreciated that NBC-Universal saw a way to offer customers something different than other streamers. Three cheers for creativity! And Comcast seems to be advertising that difference in their last earnings report, with Universal head Steve Burke saying the approach is “innovative”.

In a way, NBC-Universal could be launching the best FAST on the market…as long as you subscribe to one of their MVPDs. The FASTs are clearly growing, offering a new option for cord cutters. Couldn’t a conglomerate as big as NBCU make a “super-FAST” if they put their mind to it? If NBC-Universal leaned all-in on that, that could make a compelling offering. 

Since then, though, well NBC-Universal and Comcast still don’t seem to have gotten it right. First, they’ll be the last out of the gate in the next wave of streamers to launch. That’s sub-optimal. Second, this isn’t really a FAST. It’s free if you pay for cable, otherwise you have to pay a monthly fee, and even then it isn’t clear if that product will have ads or not. I don’t think customers will want to pay for this.

Third, the content is a huge variable. NBCU plans to make The Office a tentpole of their new platform. Obviously, if The Office leaving Netflix hurt that platform, then the new service getting has to be a win, right? Well, not necessarily. The Office is leaving amongst a host of other content; the cumulative impact of those departures is what will hurt Netflix. (If subscriber growth stays stalled, so will their stock price.) But it’s not like The Office is the type of content that attracts new subscribers. It just keeps them using your platform. And besides The Office, all we know is that AP Bio will also be included. 

Fourth, we still don’t have a name. Fifth, or know anything about the product itself.

To be slightly positive, Comcast is using Sky TV’s technology platform to launch their streaming service. One of my big questions was who would be creating their technology, since NBC-Universal had previously mostly outsourced their technology development. In a way, part of the Sky acquisition will benefit Comcast the way BAMTech benefitted Disney. Just at a much higher price for much less proven technology.

Other Contenders for Most Important Story – Cinemax Loses Subs; HBO Gets The Blame

This week, AT&T announced that they lost HBO subscribers. This sent everyone into a tizzy trying to ask the question, “How did you lose subscribers if Game of Freaking Thrones came out this quarter?!?!?” and then Casey Bloys calmly clarified that Comcast dropped Cinemax earlier in the year. Since Time-Warner and now AT&T have always released HBO and Cinemax subs together, it looked like HBO lost subscribers. Some quick thoughts:

– If you’re a devoted reader of my extensive musings on the business of Game of Thrones, you already knew that HBO & Cinemax subs get reported together. I’ve written on how that made my life more difficult when valuing Game of Thrones.

– I forgot to include the Cinemax carriage dispute in my list of carriage disputes in last week’s article. Just another data point that carriage wars are real.

– AT&T and Comcast seem set to do battle like this repeatedly going into the future. AT&T can retaliate with some of Comcast’s key cable networks and they’ll both have to agree on issues related to their new streaming platforms.

ICYMI – Athletic Director U – “Key Entertainment Developments & The Impact To College Athletics”

I published a new article at Athletic Director University, trying to summarize the last two months of entertainment news into one column. While geared towards college athletics, I enjoyed trying to summarize the biggest stories of the last two months. I also called out more good reads for the future. My favorite quote concerns why carriage wars are increasing:

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Lots of News with No News

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