[Editor’s Note: Today, I am testing a new website feature, a weekly report on streaming ratings. One of the biggest pain points of the coverage of the streaming wars seems to be that no one knows what is doing well, ...
A character in The Sun Also Rises described going into bankruptcy as happening “gradually and then all at once.” This apt description has been applied to everything from debt insolvency to failed democracies. The US recovery from Covid-19 will likely ...
The goal this week? Keep this column under 2,000 words and not split into two parts. Can we do it? Sure. Even better? We can do it with a story most folked missed! The only challenge will be restraining myself ...
Starting last August, Nielsen began releasing a weekly American top 10 most watched list for streaming video. I’ve been using it ever since. Nielsen mixed together TV and movies, and new (“originals”), second-run and library (“acquired”) on the same list. ...
[Editor’s Note: Today, I am testing a new website feature, a weekly report on streaming ratings. One of the biggest pain points of the coverage of the streaming wars seems to be that no one knows what is doing well, what is doing poorly and, frankly, what customers want. For example, folks saying that here, here or here for just three examples.
As this website enters its fourth calendar year, I’ve been looking for ways to expand my coverage. Solving the ratings problem seems like a pretty good way to do it. I’ll be explaining more in the future, but for now, I hope you enjoy and let me know what you think.]
One of the challenges in reporting on ratings is the lag time from when a show premieres to when we get actual data on it. If we rely only on Netflix, for example, we can get results sometimes after the first weekend, but sometimes delayed up to nearly eight weeks. Nielsen is the most reliable and regular reporter on streaming ratings, but they delay ratings by four weeks to double check their data.
So yes, this is a ratings report for the week of “February 24th”, but it covers mostly the data through January 24th. Confused? Yeah, welcome to the streaming wars.
[Another Editor’s Note: My analysis will be only of the United States to start. We have the best data in the US so far. As data expands, so will my coverage.]
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next issue goes out early next week.)
Television
The biggest winner of January is Bridgerton, which continued its dominance of the Netflix top ratings charts. Notably, new releases such as Cobra Kai, Disenchanted, and Lupin all failed to knock Bridgerton from the top spot in the US. This type of performance is really what separates truly “elite” TV series from simply “good” series.
As for competition, Disney+ remains the best competitor to Netlfix in streaming. (Since the fall, Disney has had two original series on the list, and the last non-Disney was Prime Video’s The Boys.) And the total viewing hours might actually undersell how popular the Disney shows are. For example, here’s the January release chart by “Hours viewed per episode”.
Hours viewed per episode is a temporary metric I’ve been using to gauge how well new series are launching. It isn’t perfect—for example, WandaVision is half as long as some of these other series, so arguably this even undercounts WandaVision viewers—but for now it works as a proxy for demand per episode. The takeaway continues to be, like The Mandalorian, Disney has high “bang for the buck” when it comes to viewers per series.
[Another Editor Note: Yes, this first edition is Nielsen heavy. Going forward, I will add additional data sources to my analysis, including top ten ratings, Google Trends, and new metrics/scores for how well content is doing. It will be a process.]
Other Quick Notes on TV
– Library TV series continue to do well on Netflix, but the departure of The Office provided an opening for other series. For example, Jenni Rivera: Mariposa del Barrio made the top ten list, and that’s a licensed show (originally from Telemundo, produced by NBC Universal) that has been on Netlfix since 2017. New Girl also seems to be a regular feature on the acquired TV list.
– New content still drives Netflix viewership, showing that even more than library, customers flock to what’s recently premiered. Henry Danger for kids and L.A.’s Finest are examples of library or second run content doing well in January.
– Lupin is the first French title to make a Nielsen list, but it wouldn’t have made the top ten in either week. Given that Netflix announced it will have an estimated 70 million global viewers in the first four weeks, this is another data point that international titles just don’t perform as well in the US as they do abroad, despite narratives otherwise.
Film
Outside the Wire is Netflix’s latest big action film and it bucked the trend of big declines from the first opening weekend to the second. However, it also launched much smaller than Extraction (18.5 million hours) or The Old Guard (16 million). We’ll see if it can sustain this into a third weekend.
Otherwise, the story is similar to the one I described in my last “visual of the week” in that the film list is the home from kids content. Frozen 2, Moana and Soul look set to stay well streamed going forward. A fun question will be if We Can Be Heroes drops down like other Netflix titles or acts more like the Disney stalwarts.
Other quick notes on Film
– Amazon Prime Video’s Oscar candidate One Night in Miami didn’t have a big opening, but it did have minimal week-over-week decay. The question going forward is whether all Amazon titles act like this (due to a smaller catalogue, hence more promotion on the home page) or if this represents some genuine growth via word of mouth praise.
– Pieces of a Woman on Netflix did experience the likely expected big decay from its opening weekend, dropping off the list after it’s opening weekend.
– The White Tiger actually got a Netflix datecdote with an estimated 27 million global viewers in the first four weeks. With presumably 1-2 million or so viewers in the US—dividing the two hour run time with a 70% watch rate—this likely shows that the film under-indexed in US viewing, as most intentional titles do.
[Yet Another Editor Note: My goal with this weekly report is to keep it to 800-1,200 words, which is short for me.]
Competition
My big question for the streaming wars this year is simple: will this fight be competitive?
Looking at the last year, you’d say it isn’t a fair fight. Netflix is far and away the biggest streamer in America, whether you measure by subscriber or by total usage. That’s why I’ll be tracking a few metrics to determine whether Netflix is pulling away from the pack, or whether the pack is catching up to Netflix.
Here are the top ten pieces of content in film or TV series by streamer going back through the last six weeks:
The good news if you’re not Netflix? Well, when the traditional studios went all in, they took quite a bit of market share from Netflix. Christmas was the Soul/Wonder Woman 1984 deluge, and frankly it got a lot of eyeballs to Disney+ and HBO Max.
The good news if you are Netflix? As soon as the studios stopped releasing their big guns, Netflix went back to owning the entire list. For example, in the past a show like WandaVision, with only 3 episodes generating 6.3 million hours watched, would have dropped off our radar.
The goal for the Amazons and Disneys of the world is to move up from owning the “film” portion of this list to owning more spots on the top ten and fifteen. We’ll see if they can do it.
[Last editor note: I hope you enjoyed the first installment of the EntStrategyGuy ratings report. I’d love to hear from you on what you liked, what you didn’t and what you want more of. Thanks in advance!]
Last week got away from me. Fine, I got away from it by diving down a data hole. Specifically, a Covid-19 data problem. For all the forecasting being done, few people are answering the query, “Hey, when will all this end?” I’ve seen answers ranging from “Never” to “2022” to “maybe a few weeks”. Hence I dove deep into the data to make my own guess, especially as it relates to theaters. Check it out here.
It was a good week to be distracted, since the week felt light on big news. (Unlike this week, which is already trending upwards in big stories.) The most consequential story was actually spread out between a few different streamers, who all announced new forays into producing kids programming.
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next issue goes out early next week.)
Most Important Story of the Week – Why Every Streamer is Investing in Kids Programming
Take a gander at these headlines:
“Apple/Skydance Animation Set Multi-Year Feature & TV Deal”
“Warner Media Kids Debut Cartoonito Preschool Programming Block”
“Youtube Announces 2021 Slate of More than 30 Kids Originals”
“Netflix Plans Six Animated Feature Films Per Year”
That’s a lot of kids content. And with it a lot of hyperbolic headlines and coverage. Kids content is a key part of the streaming wars, but it deserves more nuance than most coverage provides.
Consider an actual war. Many battles are important, but they aren’t all equally important. In the Civil War–since I use too many World War II analogies–the main event was the Army of the Potomac fighting the Confederate Army of Northern Virginia. That’s the adult content battlefield. The main event. The showdown that truly decided the war. But the campaigns to retake the Mississippi River, Sherman’s March through Georgia and the naval blockade of the South were all crucial to winning the war as well. All were important, but none were the main event.
Why Kids Content is a Pinch Overrated
Often, explanations for why a company gets into kids programming is treated as obvious. As if it’s a no-brainer decision that every streamer is right to pursue it. I don’t buy that for a few reasons that don’t get nearly as much press:
– First, there are way less kids than adults. This seems obvious, and yet it’s worth pointing out to make it explicit. Given that I just pulled a bunch of demographic data, it’s worth reminding everyone that these are the number of kids in America. In other words, if the “total addressable market” for adult TV in the United States is 130 million households, by definition the market for kids is a fraction of that. If you target preschoolers–5 and under–then your market is, by definition, 6% as large as the entire US viewing market.
– Second, licensed consumer products (toys, shirts, what not) aren’t as lucrative as some casual observations make it seem. In the past, I’ve said that on average they make up 5-10% of a film’s total revenue. Further, it’s not like licensed products are a growth industry. If anything it’s the opposite. There are a few factors driving this, from Disney’s dominance on one end to consolidation in sellers (Amazon, Walmart and Target) on the other to disruption by digital in the middle. In all, yes, if you have a Spongebob, Mickey Mouse or Peppa Pig, you can generate billions in retail sales, of which you keep 5%. But if you aren’t in that top tier, you make much, much less. Toy sales alone cannot justify kids programming.
– Third, competition is fierce, as the headlines suggest. There are a lot of folks competing for a limited number of kids eyeballs.
– Fourth, replacements for TV are legion, from video games to social media, which makes it even harder to compete.
Add those four variables up, and it doesn’t scream out that kids content is a business you want to be in. It seems as competitive as adult competition, with only marginally better upside. Using Porter’s Five Forces analysis, arguably every variable is against you. It’s easy for competitors to enter, the competition is fierce within the field, sellers of toys offer poor margins, and there are lots of replacements to kids TV competing with you as well!
As a result, we probably have too many firms competing for kids’ attention right now. There is an old saw that there are always six major film studios. They may change names, but there are always six. (I’ve been meaning to write an article on this since I launched.) Well, given the smaller market size, then I’d say there are only 3-4 major kids content producers. In the 1980s, this was Disney with the three broadcast channels. By the 1990s to 2000s, this shifted to Disney/Dreamworks in movies and Disney Channel, Nickelodeon and Cartoon Network. (PBS also has had a place for preschoolers. Again, it’s complicated.) As streaming took kids attention, this has shifted to Disney, Universal (Dreamworks/Illumination), Netflix and Youtube.
Can HBO Max, Viacom CBS, Prime Video and Apple all break/rebreak into that and succeed? Probably not.
Why Kids Content is Valuable
Still, I’ve presented a bit of a conundrum. Clearly kids content is a tough biz to be in, yet everyone wants in! What do they see that I don’t?
Going back to the Five Forces, it’s not an insurmountably tough business to be in. In technical terms, the barriers to entry are low, especially once you’ve set up a streamer. The marginal costs of adding kids programming to general entertainment is fairly low, once you’ve set up a streamer in the first place. Animation tends to be much cheaper than producing full-episodes of live-action television. Moreover, kids, especially preschoolers, don’t know what legacy brands are. Except for Mickey Mouse, new preschool brands can and do break it. Just look at Peppa Pig.
And if it works, it’s sticky. Sure, kids are a small population, but they’re influential to their parent’s decision-making process. If kids want the content, and the content passes the parental approval test, it can be very sticky. The kids who watched Frozen every week weren’t going to just stop watching it when it left Netflix.
However, if I’m being cynical–and if you’ve read me for any length of time you know I am–then partly it’s an easy strategy. Which isn’t “good strategy”. Easy strategy is when there is an opportunity in front of a company and they take it simply because they can. It can sometimes allow business leaders to “empire build” as well. Going into kids programming lets you hire a brand new direct report and team of people. That’s easy strategy, like mergers & acquisitions or getting into original content.
Who Will Win The Kids Space?
Not everyone can win in kids programming. There are only so many preschoolers and elementary schoolers to bring into your ecosystem to justify the costs. Some folks will quietly dial back their investment. Indeed, some streamers seem to have realized there is already so much kids programming out there–and again kids don’t need new content to be satisfied–that you can rent all the programming you need, instead of making originals.
Still, if you do want to win, I have two (fairly obvious) recommendations. First, building a defined brand really is a differentiator. Disney has this. Netflix does too. Quietly PBS also has one of the stronger brands (and fairly high viewership on mobile devices). Even those brands need constant renewal to stay fresh. Nickelodeon lost brand equity rapidly in the last decade. But a brand is valuable.
The second way is to make hits. It seems obvious, but sometimes the best strategy is obvious. Disney is “Disney” because of three immensely lucrative time periods, driven by three innovative development executives: Walt Disney in the 1930s and 1960s, Frank G. Wells in the 1980s and John Lasseter from the 2000s. John Lasseter, the creative force behind Pixar before he was fired and then hired by Skydance, just signed the big deal with Apple. Indeed, of all the headlines above, the Apple/Skydance partnership interest me the most.
If I had one overwhelming recommendation for everyone except Disney, really, it would be to not just produce kids content or have kids content, but to have a kids strategy. This battlefield will be fierce coming up, and simply dabbling in it won’t be enough.
Entertainment Strategy Guy Update/Lots of News with No News – Roku’s Push Into Originals?
Based on one job opening, the speculation mill was unleashed last week that Roku may be starting a big push into “Originals”. Like I said, originals are an “easy strategy”.
When they announced earnings, Roku splashed cold water on this idea. Likely they are evaluating originals as a space to be in. There is a great reason to make original content, but just as good of a reason to skip it altogether. Let’s explain each:
The Best Reason for Roku to Make Originals: To Sell Targeted Advertising
One of the profit drivers over at Roku has been The Roku Channel, which is their version of an advertising streamer. (Either AVOD or FAST, whichever acronym you prefer.) Unlike other FASTs, the genius of Roku’s platform is that they can sell advertising targeted to any streaming service’s customers. Think of it like this, you’re an advertiser. You want to sell ads to folks who watch The Queen’s Gambit. With Roku, you can do that, since Roku knows everything a customer watches.
This is why Roku is so insistent that they get advertising share for any ad-supported service on their platform. Because they can charge higher CPMs (cost per thousand) to advertisers with this unique targeting. (This demand notably held up Peacock and HBO Max launches. Amazon demands something similar.)
Of course, this genius system only works if customers aren’t watching Netflix. Which is where the free Roku Channel comes in. It’s basically a vehicle for Roku to sell extra, highly targeted ads. But it only works if folks are watching it. Hence, the need for programming. Mostly, this has been library programming.
This is where original programming could (big tentative could) come in. If the higher CPMs provide a true edge, Roku can outbid for AVOD programming since it will have higher margins. Hypothetically this could even include original content. Except…
The Best Reason for Roku NOT to Make Originals: They are limited by distribution.
Every so often some cable, satellite, cellular or device maker contemplates getting into the originals game. The logic goes: if originals work at driving customer acquisition, and since our customers are really valuable, maybe we should make originals. Think AT&T Originals, Spectrum Originals, Verizon’s Go 90 and Microsoft Studios. In the end, they all get shut down.
Why? Because unlike a streamer, who is available in at least 90% of connected households, devices and MVPDs are not as widely available. A simple thought exercise shows why. If someone wants to watch The Mandalorian, they can find a way to download Disney+ to their iPad, iPhone or connected TV. Then they can watch. Literally, almost anyone in America with broadband. On the contrary: if you didn’t live in an area with Spectrum cable, you couldn’t watch the Mad About You reboot. (Yes, they rebooted that.)
In other words, a device-based original has an upside directly tied to the market share of its device. As big as Roku is in connected devices, it’s far from a monopoly. Roku is only 30% of connected device sales in the US. If you factor in the folks not watching streaming at all, those on mobile devices, and those with connected TV sets not using Roku’s operating system, then the vast majority of TV viewing is not on Roku. That’s always going to limit Roku’s upside in producing originals, since their distribution footprint is that much smaller.
That will be the key element in whether or not Roku does get into originals: The trade off between reduced distribution (which will constrain costs) and higher CPMs with targeted ads (which could boost revenue). We’ll see which side wins out.
Other Contenders for Most Important Story
Theaters: China’s Big Theater Weekend
An Avengers: Endgame milestone–albeit a slightly obscure one–was taken down last weekend. Detective Chinatown 3 launched in China and surpassed Endgame as the biggest single country opening weekend of all time. In other words, theaters are back! (in China)
By the way, if you missed it Soul as well did really well in China too.
Streaming: Disney+ Launching First European Originals
Given that all the major streamers are US-owned (mainly), there was a concern in Europe that local productions would begin to be overtaken by foreing content. So the EU passed a law mandating that streamers would need to have a minimum amount of locally produced content available. Thus Disney+ is staying in line with this law by releasing European produced originals.
I do love the one potential ramification of this law, which is that if every country around the world passed a similar law, it would basically end global originals. If 30% of your content has to be European in Europe, and 30% has to be Brazilian in Brazil, and 30% has to be Indonesian in Indonesia (the last two are hypothetical), then Netflix would only have 10% of their content left to make for global originals! Obviously, they wouldn’t do that, but by definition a market quota will inhibit truly global footprints.
A character in The Sun Also Rises described going into bankruptcy as happening “gradually and then all at once.” This apt description has been applied to everything from debt insolvency to failed democracies.
The US recovery from Covid-19 will likely feel the same way.
Right now, most of the coverage I read is fairly pessimistic and cynical. On one hand, I get it. The US just had an awful winter. Covid-19 will claim 500,000 deaths in the US alone, and that number is growing. Even positive coverage is framed with caution:
On the other hand, doesn’t the US have a lot of good news on the Covid front? Is this pessimism still warranted? Forecasting doom and gloom could be as inaccurate as forecasting sunshine and roses. Where are we really headed as a society? Given the huge implications for the economy, this is a tremendously important question that very, very few people are answering:
When will society reopen after the vaccine rollout?
For my purposes, a lack of forecasting about the future is particularly painful. While lots of entertainment is consumed at home (TV, streaming, video games) lots more is experience live and outdoors (theaters, concerts, sporting events, theme parks). As I usually do when I can’t find an answer to a question I need to know, I tried to answer it myself.
So here’s a report on what I found. The outline of this (long) article is roughly:
– Bottom Line, Up Front
– The Problem: the legal/regulatory thresholds for society to reopen
– The Assumptions/Inputs: the key assumptions/inputs to build a reopening model
– My Hypothesis: Effective vaccines widely distributed will crush the death toll
– The Model: My results!
– The Key Metrics To Track Going Forward
Let’s get to the results.
Bottom Line Up Front
I’m optimistic that theaters will be open by May 7th across the US, including New York and Los Angeles, the day Black Widow is set to premiere in the US. Black Widow itself may not premiere on that date, though whether or not it moves dates in the next few weeks will be driven by uncertainty, since Disney will have to make the call in about four weeks.
After building a vaccine distribution model (with three scenarios), I’m confident that by early May, between 33%-44% of the population will be fully vaccinated, and up to 61% will have had a first dose. Given the initial data that even one dose provides nearly full efficacy, this level of vaccination will likely decrease deaths and hospitalizations by 76% or more.
It is much more uncertain what the volume of cases will look like by May 7th. The key metrics to focus on, for studios and other entertainment companies, will be the pace of vaccinations, the current case loads, and the rate of death.
(Initially, I had a series of caveats to this controversial article. I can hear the skeptics, “You’re not an epidemiologist so why should we listen to you?” To save space, I’m moving those to their own future article. To address the key caveat, yes, I’m not an epidemiologist.
Frankly, most companies cannot afford to hire epidemiologists to forecast disease outbreaks. And even if they could, as we’ll see, their models have their own uncertainty. Instead, many companies will likely have their strategy teams doing this analysis themselves and/or rely on models from companies like McKinsey/Goldman Sachs, which are, you guessed it, put together by people like myself. The difference is I make my models/methodology public.)
The Problem: When Will Theaters Open Specifically?
Today, I’m focused on the movie theater problem. (Hopefully, I’ll get to sports and concerts in future updates.) The problem for big studios is distribution: when they release a big tentpole film, they want it widely available. Specifically, this means Los Angeles and New York, and other big cities. They’d ideally want theaters at 100% capacity, but would likely accept 50% capacity constraints.
Thus, the question is whether those specific cities (and America broadly) will be mostly reopen by May 7th, which is when Black Widow premieres. (Or Memorial Day weekend, 28-May-2021 when Fast 9 is set to premiere.) The studios will need to make this call about eight weeks prior, so that they can schedule promotional advertising campaigns. Disney has said they’ll likely make the decision on Black Widow in the middle of March.
To reopen theaters, local counties will need to have Covid outbreaks under control, using whatever guidelines local states have established. In California, for example, this is a series of “tiers”, of which Los Angeles is firmly in the first, most restrictive tier. From the Los Angeles Times:
And our status under those definitions:
(Though, like all things Covid-19, there is actually a more restrictive tier of “stay-at-home orders”. California’s stay-at-home order was lifted in January.)
Tying this to theaters, in California, “red/tier 2” counties can have theaters at 25% capacity or under 100 people, whichever is lower. “Orange/tier 3” counties can have 50% capacity or 200 people, whichever is lower. “Yellow/tier 4″ presumably would be fully open.
Covid Act Now, uses a different set of guidelines, and you can see how various metro areas stack up:
No matter which numbers you use, the same basic correlation is the same: The lower the number of cases, the more indoor businesses which can be open, which includes theaters.
As cases decline, so do deaths, after about a three week lag. Crucially, as vaccines are widely distributed, deaths may decline even further and faster than cases. If deaths drop and stay low, even if cases come back, some folks could argue that the values of reopening society outweigh the risks of disease spread. (In short, if a pandemic is raging, but no one is dying, is it a pandemic?)
So really there are two scenarios for reopening. One is the “public health” requirements, which means eradicating cases. The second is the “demand side” requirement, which is that deaths and hospitalizations are low enough that society wants to reopen.
The Key Assumptions/Inputs
The reason I couldn’t build a model before 2021 on Covid-19 was that forecasting the pace of the disease was nearly impossible. With so much uncertainty and unknown variables, most models have failed to effectively forecast what will happen in the next two to three months.
Vaccines, on the other hand, are an easier modeling challenge. We have fairly reliable data sets on distribution and fairly robust (and growing) knowledge about how effective they are. Let’s explain those inputs/assumptions.
Input 1: The pace of vaccination is increasing in the US, and could accelerate further.
No matter how you slice the data, the rate of vaccinations is growing in the US, and it’s a story that most outlets mention, but with the pessimistic caveat that everyone wishes they were even higher. (Yes, we do.) But they’re getting higher every week. In a few weeks, they will be shockingly high. Here’s Our World in Data’s look:
Or take Kevin Drum’s take, looking at peaks:
The US was able to double vaccination capacity in ten days starting in January 4th (350K per day, seven day average) to January 14th (700K). I start with January 4th, since that’s when most healthcare workers returned from Christmas break, and all state and local governments focused full-time on the vaccination program. Then, it took 26 days to double again (from January 14th to February 9th). Depending on when we get to 2 million doses, it may have taken only 30 days to have doubled from 1 million doses to 2 million. (We’re currently at about 1.7 million per day.)
We will likely be delivering two million doses per day, as this week the Biden administration committed to delivering 13.5 million doses to states at a minimum. On top of this, the Biden administration is delivering two million doses directly to pharmacies and one million doses to community health centers. If all those doses are used next week, we’ll exceed 2 million doses administered per day. Further, the CDC expects 200 million total doses distributed to states by the end of March, which implies a daily rate of 3.5 million doses per day in March.
Input 2: One Vaccine Dose Begins Providing Protection
The initial data from the UK and Israel shows that even one vaccine dose provides a high level of protection. This does not mean individuals shouldn’t get a second booster shot. They clearly should. Very likely, though, the first dose provides immediate impacts on infections, hospitalizations, deaths and even transmission. More and more data is coming out which supports this conclusion.
Input 3: The Covid-19 vaccines work. Extremely well.
It seems crazy to have to repeat this, but it should be noted that the vaccines work really, really well. You probably saw this tweet from Brown epidemiologist Dr. Ashish Jha, but it’s worth repeating:
Moreover, studies conducted in the United Kingdom and Israel on vaccine roll outs confirm the efficacy of these vaccines. In addition to preventing symptomatic illness, the vaccines also drastically reduce hospitalization and death. Finally, initial data also suggests that in addition to preventing death, it looks likely that the vaccines prevent transmission to other individuals.
Input 4: Covid-19 is most severe for older individuals, who the US is prioritizing in the vaccine rollout.
While the coronavirus can and does kill all ages, one of the more clear trends is that the virus disproportionately kills older individuals. Here are a few looks at this:
Fortunately, in January, after vaccinating healthcare workers, the CDC changed guidance to focus on high-risk (meaning older) populations. This means the impact of effective vaccines will be even greater than general distribution because it will decrease hospitalizations and deaths of those most likely to be hospitalized and die.
If we can achieve high levels of vaccinations in those groups (say 80% of a given age population vaccinated) then the results will be dramatic. Vaccinating 80% of individuals over 75 will lower total deaths by 48%, individuals over 65 will lower deaths by 65% and vaccinating individuals over the age of 50 will lower total deaths by 76%. (And if we can achieve 100% vaccination in the most at risk groups? We’d lower total potential deaths 95%!)
Input 5: The current lockdowns are having a dramatic effect.
Meanwhile, as the Covid Tracking Project’s data show, the number of cases are plummeting in America. The declines are dramatic:
Whatever the cause—lock downs, seasonality, growing natural immunity, some vaccine prevention—this is very good news for the United States. It means cases are trending down, right when vaccine distribution is ramping up.
Input 6: Case rates by population
To understand the impact on cases, beyond deaths, it is important to know how cases are distributed in the population. Unlike deaths, cases are fairly well aligned with the population. Meaning, folks will test positive for Covid-19 roughly correlated with their percent of the population.
This is important because it could mean that as vaccines are rolling out to younger populations, the case rate could flatten or even increase, but deaths will not. There is already evidence that case loads are dropping in certain age groups in the UK, Israel and US, but as you can see that may not impact the overall case load significantly.
My Working Hypothesis
Add these inputs together, and this is my working hypothesis:
If current lockdowns can drive down cases…
Which will drive down hospitalizations/deaths…
And if the United States can vaccinate the highest-risk groups…
And if we can continue to increase the vaccines distributed per day/week…
Since vaccines prevent deaths and hospitalization…
Then once we get the current hospitalization rate down, it will stay down until the next flu season (next November or December). If hospitalizations are down, deaths will stay down as well.
This will allow states to reopen, including theaters.
The Model
So that’s the working theory. Let’s turn this into a model.
Step 1: Vaccine Distribution
To start, I sketched out some vaccine distribution scenarios. To start, I drew a linear model in vaccine distribution to see how it was growing. Then, I made a simpler second model based on potential vaccine supply. This weekly model uses big round numbers, but is more aggressive than the linear model and based on CDC guidance about distributing 200 million doses by the end of March. Lastly, I made a very conservative model based on plateauing vaccine supply at 2 million per week starting in February.
First, here’s the linear model to show the logic:
Here’s the table of doses by week:
And a chart of that…
That’s a lot of number, so here is a summary by month of the “reasonable” model.
The monthly model confirms that vaccine makers could indeed hit the aggressive targets. I built the conservative model based on misreading the director of the CDC Rochelle Walensky estimating that we’ll have 200 million doses by the end of March. (I thought she had said 200 million by the end of April.) At a rate of 200 million doses by the end of March, the CDC is basically forecasting that we’ll be vaccinating 3.5 million people per day at some point in March. That’s my “reasonable” but aggressive model.
Step 2: The number of vaccinated individuals
So that’s the first step. We can reasonably forecast how many doses we’ll have distributed by future dates. Yet, some folks will insist on distinguishing between shots and those who’ve been fully-vaccinated. I went further and also calculated those who will be two weeks from their first dose, since data shows this too provides quite a bit of protection. Specifically, we need to know these dates by the start of May, our presumed launch of Black Widow,
Here is my rough counts for those, and to put them into context, the percent of the population over the age of 18 who would be covered:
(Why over 18? Because the vaccine is only approved for those 16 and over, and Covid-19 has very little impact on ages younger than that. Plus, frankly, it is about 250 million individuals which is a nice round number.)
In the worst case scenario, by the time Black Widow premieres, only 30% of the population will be fully-vaccinated.
However, in the best case scenario, if you include natural immunity, one dose vaccines and count folks who are two weeks from their first shot, then up to 69% of the population will have immunity to Covid-19. So we’ll be on the verge of herd immunity by the end of April!
Let’s be clear on these assumptions:
– Some portion of Americans have already had and recovered from Covid-19 acquiring natural immunity to it. This floor is at least 27 million confirmed cases. (About 10% of the population.) The high end is unknown, but Harvard epidemiologist Michael Mina’s forecast is 40%. Let’s split the difference and call it 20%.
– I used the date five weeks prior since Moderna is three weeks, then two weeks to be fully effective. Yes, Pfizer is four weeks, but again this difference is minimal overall.
Step 3: The number of deaths prevented.
Again, the impact of Covid-19 is not equal across the population. It is very much tilted towards older individuals. Meaning, when they are vaccinated, the odds of dying from Covid-19 decease by 92% or more.
To figure out how to vaccinate the right folks, I simply took the CDC data and 2019 census information, and assumed an 80% vaccination rate:
In other words, to prevent 76% of deaths, we need to vaccinate 80% of everyone over the age of 50. The key assumption is that we can achieve 80% full vaccination by group. Most surveys put vaccine hesitancy at 70% of the population, but only about 10% is hard core obstinacy to any vaccine. So I took a number in the middle.
So how many people do we actually need to vaccinate to get to that 3/4th decrease in total deaths going forward? Well, here you go:
Of course, not all doses will go to healthcare workers and individuals over the age of 65, especially as counties and states begin vaccinating more essential workers. (Like Los Angeles, who is moving onto food workers, teachers and remaining public safety officials after those older than 65.)
Given the vaccination rates above, we can see that it is very, very likely we’ll have fully vaccinated 40% of the population with either one or two doses, including most healthcare workers and folks over 65. A big portion will also likely be those 50 to 65. If we include people getting only 1 dose of Johnson & Johnson, then we’ll almost certainly have vaccinated all high risk groups.
My model forecasts that by May 7th, we’ll have lowered the ceiling of potential deaths by 76%. If this widespread vaccination results in decreased case loads and transmissions, the actual death rate could be much, much lower. This is essentially the “ceiling” of deaths.
Step 4: The Los Angeles Specific Model
This model, so far, has only addressed vaccinations and deaths. What about cases?
As I set up in the problem, the primary criteria to release Black Widow (and other big studio films) in theaters is whether or not the coastal cities are reopened. To answer this, ideally, I’d build a model forecasting cases in both of those cities. Given that I live in Los Angeles, I pulled the numbers there to see how far LA is from reopening. I’m assuming that Los Angeles and New York are roughly correlated with each other, and their outbreaks are also roughly correlated with national outbreaks.
(This assumption is both fine and could be horribly wrong. The “summer surge” mainly took place in “Sun belt” states, whereas the first surge took place in north Eastern states. However the last surge took place in every state simultaneously.)
I showed Los Angeles’ current performance on state re-openings, but it’s worth noting that most metrics are tied to case loads. If it goes down, ICU capacity, case positivity rate and the equity will trend downward as well. Here’s the current case trend line:
Now the question is can we model how vaccine distribution could impact case levels going forward?
And no, I don’t think we can.
I’ve done a lot of forecasting so far, but every number is from a fairly reliable source. The vaccine distribution plan is fairly well reported, and its growth is easy to forecast. (Again, look at that straight line!) The impact of the vaccinations is also fairly well known. Thus, we can confidently predict a coming drop in deaths that will stay low, if we vaccinate the most at risk groups.
Cases, though, are a different ball game.
Just look at US trendiness in the past. If you started in the middle of October, and just extrapolated forward, you’d have missed the December spike. Or if you started in the middle of January, you’d have forecast cases to stay high. This actually happened with the CDC forecast. In the middle of January, their model of models forecast 1.5 million cases by the middle of February, with a floor over a million.
Instead? Cases are currently at 600K and falling.
I don’t blame the CDC. Modeling seasonality, societal behavior and mostly a brand new virus is incredibly tricky, and these epidemiological models have trouble with it. Again, no blame here from a fellow modeler. I’m just acknowledging the limitations of modeling.
Add it up, and I won’t forecast the case rate/total cases in Los Angeles by the beginning of May. There are too many unknown variables. Indeed, I think both the best case (cases stay very low, due to natural immunity and expanding vaccinations) and the worst case (case rates rebound after widespread reopening, potentially driven by more transmissible variants) are both possible by May. The only thing I am fairly confident (as steps one though three show) is that deaths will stay down.
At best, what we can say is that as vaccinated rates go up, the peaks of the worst metrics will be limited. Think of it like this: the infection rate is the number of people an individual with symptomatic Covid transmits it too. If it is 2.5, that means one individual gives it to 2.5 individuals. If half of all the people someone meets are protected from Covid-19, then the max number would now be half of that, or 1.25.
The Key Metrics Going Forward
Notably, I haven’t provided any probabilities thus far. If I apply probabilities to events two months out, my error bars would need to be very, very wide. Those probabilities wouldn’t be worth much more than guesses.
Instead, I’m going to provide a scorecard of key metrics. The higher the scorecard, the more confident we can be that society will returning to normal. You can apply your own probabilities based on the numbers. These metrics will have three parts: vaccinations, deaths and case loads.
I plan to think on these metrics a bit before I do an update, hopefully next week. As I said, I won’t provide predictions, except for the vaccine roll out, but will color code which metrics are moving in the right directions.
As I said at the start, if you read all the way down here, as vaccine distribution picks up, the Covid-19 pandemic will end gradually, then all of a sudden.
In the meantime…
Please do whatever you can to prevent the spread of Covid-19, focusing on the best practices at preventing spread.
1. Wear a mask. In fact two, or the highest quality you can afford.
2. Avoiding indoor gatherings until you are fully-vaccinated.
3. By all means, get vaccinated as soon as you are able to.
4. Help older relatives get their vaccinations by whatever means necessary.
5. Spread positive news about the efficacy and safety of vaccines and that they will enable our society to reopen. Vaccine hesitancy is driven by vaccine skepticism, a large amount of which is coming from the media. This includes skepticism about how vaccines prevent hospitalizations and death. Do your part to spread the good news and not Covid-19 hysteria.
Sources
I linked to most data I used to put this together. However, a few websites provide regular updates. I recommend…
– Our Wold in Data
– Covid Act Now
– The Covid Tracking Project
– The Los Angeles Time
– Bloomberg Vaccine Tracker
– Nate Silver’s Twitter feed, who close followers will recognize a few tweets from.
The goal this week? Keep this column under 2,000 words and not split into two parts. Can we do it? Sure. Even better? We can do it with a story most folked missed! The only challenge will be restraining myself on Covid-19 thoughts. Let’s get to it.
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next issue goes out early next week.)
Most Important Story of the Week – ViacomCBS ends their Apple Bundle
The news, reported by 9-5 Mac, is that the first Apple bundle (CBS All-Access and Showtime for $10 if you have Apple TV+) is no longer being offered by Apple. When this deal was first announced, I hailed it–fine, hailed is too strong, but noted–that this was the second bundle after the Disney only bundle.
At the time, though, I still had worries/concerns. Frankly, could Apple TV+ drive enough new subscribers to offset the huge discount offered? And who was paying for the clearly massive discount offered? And would CBS ever learn they needed to control the customer experience?
Well, my skepticism was warranted. The CBS bundle on Apple TV is already over.
And it died because ViacomCBS knows it needs its streamer to thrive outside of the bundle.
I’ve been pushing this thesis since 2019. While most coverage focuses on the war between streamers, the bigger battle is between the streamers and the device owners. For those who haven’t read my big take on this, take a gander at this map:
Aggregators are anyone aggregating content for customers. The steamers are included (like Netflix, HBO Max, Peacock, Prime Video, Disney+, et al) but so are the FASTs (like Pluto TV and Tubi). But using this language, old fashioned cable channels are aggregators of content and so are virtual channels. These are the folks aggregating a curated selection of content, usually tied to some brand.
So what’s the difference between an aggregator and bundler? Well, the bundler offers you the bundle of aggregators. This could be a cable channel or, in the digital sphere, the device or operating system that is bundling streamers for you. Roku, Amazon, Apple, and Google all want to bundle experiences for you. I’ve speculated that Comcast does too.
This the Holy Grail for bundlers: move just upstream from all the streamers to take over the user experience, data, payments, you name it, from the streamers. With that power ultimately comes the profit maximizing position too.
Indeed, if you want to know the downside for Netflix in a nutshell, it’s this thesis. If customers ultimately have to have more than one streamer, they’ll want one experience for all their content. If Netflix loses their UX, data and content advantage–if another bundler essentially takes over as the brand–then they’ll no longer have pricing power and the whole “flywheel” collapses into, well, whatever a broken apart flywheel looks like. But that’s the risk. Right now, Netflix controls the whole customer experience and owns the “TV Habit” for many people. Bundlers want that control, and some have hundreds of billions to spend in this mission.
Hence, the streamers are fighting like hell to keep everything separate. Understanding this battle explains quite a bit of the positioning of the streaming wars:
– HBO Max didn’t do deals with Roku and Amazon Fire TV until it could control the UX and where their content was played in their application. They also wanted access to customer data.
– Netflix was touted as being a part of Google’s new Chromecast, but Netflix pulled its content from Google’s front page.
– Peacock still hasn’t come to terms with FireTV. (I’ve speculated Comcast would like to be a bundler too with their Flex operating system/device.)
The Paramount+ launch gives SuperCBS the opportunity to abandon the poor Apple TV+ decision. Likely Apple underwrote the cost, but the deal didn’t have the promised returns. Given that Apple TV+ was a small part of CBS’ total subscriber base, this is likely a fine move:
And frankly this is the right strategy for any streamer of a certain size. While likely the bundlers will eventually win, the top tier streamers need to fight as hard as they can to control the experience. The combined ViacomCBS streamers are just big enough in the US to compete, as long as they don’t make any more strategic mistakes. (My rule of thumb is traditional studios have the libraries to compete; the viability threshold is likely getting to 40 million or so US subscribers. Anything smaller will likely get sucked up into bundlers.)
Interestingly, while many media observers hate on bundles, customers love bundles. Both the 9-to-5 Mac story and the Google Chromecast story feature complaints that the Apple or Google bundle are better than being bounced around to several apps. The unified experience is just objectively better for customers, but it’s also much worse for streamers.
Thus the next few years will be a battle between bundlers and aggregators, with bundlers offering a better product, but streamers fighting like hell to stop it. It will be fascinating to see who wins.
Entertainment Strategy Guy Update – When Will Movies Return?
Like clockwork, it’s another Friday and there is a Variety article asking, “When do F9 and Black Widow move dates?” The crazy thing is the Variety article isn’ tasking “if” they will move, but “when”. Given that since last March, the story has only been one of moving release dates, on one hand, it makes sense they’d move dates again.
But is this math still right?
A way to consider this is like a regression equation. You take a bunch of data, and test to see if it’s correlated with something you want to predict. In this case, there have been a lot of Covid cases in the US. These cases kept theaters closed. There are currently lots of cases in the US. Therefore, extrapolating out, theaters will stay closed. (Indeed, Variety says “under current circumstances” theaters are nowhere near max capacity. Will current circumstances be the same as future circumstances?)
This math only works, though, if all the drivers of Covid-19 cases stay the same. To use the legalese boilerplate for investment advice, past returns may not be predictive of future performance!
And right now the biggest new variable is the number of folks getting vaccinated every day. The most important fact in vaccinations that–while every article written has to obligatorily mention they are not high enough–vaccinations are steadily growing every week.
Pair this with a big drop in cases, hospitalizations and (given the two to three week lag) deaths, then the key question is whether these trends–closed theaters in particular–will still be true in May. Yes, 9 months is a long way away.
Specifically, May 7th, the tentative launch of Black Widow. A date that is both closer to and farther away than it seems. If Disney wants six weeks of promotional activity, they need to start advertising by the end of March. That’s not long! On the other hand, we still have almost three full months to vaccinate folks and open theaters.
Which is why I listened closely to Bob Chapek on Diseny’s earnings call. He echoed Dr. Anthony Fauci in anticipating that the general population could be vaccinated as early as April. Indeed, only two weeks ago Fauci wasn’t anticipating that the general US population would be vaccinated until mid-summer. That’s because the current administration is absolutely under-promising so they can over-deliver. In Fauci’s case, he said, “If current vaccination rates hold, we won’t be vaccinating general population until the summer.” But, as he surely knew, vaccination rates were not holding. They’re growing every week! Again, over-delivering on under-promising.
If the general population is getting vaccinated, and presumably all the high risk groups have been vaccinated, then it seems fairly reasonable that deaths will be very low by May, meaning theaters could reopen in New York, Los Angeles and other big cities.
But will they? And if not, does Black Widow move back again?
Honestly, I would still bet on that. It’s easier to assume studios will be more risk averse than not. They want a guarantee of theatrical revenue. Or does Disney won’t move Black Widow, but add the “Premium Access Window”. Any and all of those options are on the table.
But part of me is much more optimistic than the coverage I’m reading. We could be fully-open by May, and most folks aren’t ready for that level of positivity yet. Maybe not concerts and sporting events, but indoor activities? Potentially.
Let me be honest, this is my second attempt to write this section. The first version went for 1,600 words and included my scenarios for Covid-19 cases and deaths in the US. So it got cut for space. But when I run the math, especially looking at the growth in vaccination rates, I’m much more optimistic than the news coverage.
Other Contenders for Most Important Story
Sundance Sets Another Record Sale at $25 million
It’s unclear to me if this means the whole market is healthy, but my gut is that the ongoing need for content by the streamers will likely make the virtual Sundance a success. It seems like quite a few films have sold, but we don’t have holistic data on sales at Sundance year-to-year. As I wrote on Linked-In before, basically one or two deep pocketed buyers can make the market, and Apple TV+ is playing that role this year.
Cinemascore Will Update Their Measurement for Streaming
Cinemascore provides one of the better qualitative measurements of a film’s performance by customers. So I like using it when I can. Of course, streaming and lockdowns make it much harder to poll audiences leaving a theater, so they’ll have to adapt. They claim to have a plan for that, which could be great additional data at our disposal. Hat tip to Sonny Bunch for finding.
HBO Max News: Launching in Latin America and More Animation
HBO Max is preparing for its first international roll out, starting with Latin America. From what I understand, HBO as a brand is already strong in that region, and given the language similarities it can be easier to launch. As such, this move makes sense and it will be fascinating to see if HBO Max can drive a similar boost in global subscribers as Disney+.
Meanwhile, given the pandemic lock down, HBO Max will be filling a lot of their future pipeline with animated content. Hat tip to Lesley Goldberg for the deep read on this.
Disney+ Keeps Growing
With Disney’s earnings report, we should have all of our contenders for US subscriber counts updated. I’ll do that in a future article. However, for now, we can say that Disney continues to drive big customer growth via Disney+, with slower growth by ESPN+ and Hulu. Currently, Disney is over 94.9 million customers for Disney+ globally, which is frankly huge. They added 8 million folks in the last month. Also, it turns out that the skeptics who thought the Verizon free deal was terrible for Disney+ and would lead to huge subscriber churn were, frankly, wrong.
Lots of News with No News – Warner Bros and NBC-Universal Vague Merger Speculation
Let me be blunt: mergers are not a strategy.
Mergers can be part of a strategy, but they are not strategy in and of themselves. What they are, though, is easy. And flashy. So lots of folks love to speculate about who could buy whom and for how much.
Frankly, this is easier than doing real strategy, which is understanding your company’s strengths and weaknesses, understanding the marketplace, understanding customers and developing products and businesses to deliver on a value proposition. That all takes work! Instead, we could just buy our competitors.
The latest edition of this is the simplistic idea floating around that either Comcast or AT&T should buy the content arm of the other or both spin them off or something.
Yawn.
Right now, both Peacock and HBO Max are executing genuine strategies. (I like Peacock’s more, but both have strategies.) Merging entities is the easy–and usually poor–version of strategy. Indeed, aren’t Comcast and AT&T both living examples of merger-as-strategy gone wrong?
Starting last August, Nielsen began releasing a weekly American top 10 most watched list for streaming video. I’ve been using it ever since. Nielsen mixed together TV and movies, and new (“originals”), second-run and library (“acquired”) on the same list.
In their year-end top ten list, though, Nielsen flipped the script and provided three different top ten lists. Formatting mine, with hours instead of minutes:
This was a sign of things to come. Starting with the week of Monday, December 28th, Nielsen is now publishing three top ten lists, one for “original” TV series, one for “licensed” TV series, and one for film.
(Man that’s a lot of definitions. In the future, I’ll define them all. But for now, this article from 2019 has a good explanation of the definitions I use to analyze content.)
Whenever a firm changes their data definitions, I tend to get extra cautious doing analysis. For example, when Netflix went from calling a view “2 minutes watched” from “70% viewed” a lot of folks continued as if nothing had changed in the numbers. This violates the number one rule of data analysis: keeping things apples-to-apples. (My solution was to convert all the numbers to the same metric, using Netlfix’s average 35% inflation between the two numbers.)
That’s a worry here. Unless Nielsen provides me with an expanded database going back through 2020, most of our data will now be cleaved into “2020 Top Ten” data and “2021 Top 10×3” data. Thus any analysis of 2020 to 2021 data will need to factor in that it may not be “apples-to-apples”.
But…
…this is still great news.
Here is the the synthesized Nielsen top ten list for the last two weeks of Nielsen data, if Nielsen had continued the old methodology:
Now, we can compare this to the new, combined top 30 lists:
In other words, that’s a lot more data to parse! More data means more analysis! More analysis means more insights!
Previously, any of the data from The Mandalorian on down in the week of December 28th and all the titles from The Crown from January 4th would have been invisible to us. Moreover, we can confidently say that this list is a clear top 23 list one week and a top 21 list the next. (Basically, anything above the first “10” on the list by logic is in order.)
Overall, this expansion should greatly help our understanding of how content is performing in the streaming wars:
– Previously, original films on Netflix and Disney all dropped off the Top 10 list after two weeks. This will allow us to track film decay with greater fidelity. (For example, The Midnight Sky would have only had one week of data before.)
– We’ll also get more films on the list, being able to clarify which films underperform their openings more often. (For example, We Can Be Heroes made the list.)
– This will also let us track TV series decay as well. As we’ve written before, four of the ten top spots in this list were usually held by licensed second-run and library content on Netflix. This essentially gives us 10 or more original titles to review each week. (For example, The Mandalorian would have dropped off the week of December 28th. The Crown would have dropped off the week after.)
– More spots should potentially allow more non-Netflix series and films on the list. This will allow us to compare performance trends between the streamers as well. Right now, Disney+ and Prime Video shows dropped off after a week or two. This will enable to track their decay as well.
For example, in the past Soul would have just eked out staying on this list. (The first film to make the top ten for three weeks in a row.) But The Midnight Sky (72 million global 2 minute views, Netflix revealed in their earnings report) would have dropped off. Same with We Can Be Heroes (53 million global 2 min views) would never have made the list. Now I can make this chart:
Interestingly, all the films featured big drops in viewership (44% for We Can Be Heroes and 56% for The Midnight Sky), but Soul didn’t see its big drop until week two to three (61%).
As a reminder, Nielsen doesn’t track HBO Max data yet, so we don’t know how Wonder Woman 1984 fared in its second week.
Visual of the Week – Netflix Films Do Much Better Weekly; Disney+ Films Do Better All Year
When Nielsen only released a single top ten list, films only made the list when they were newly released, such as Mulan, Borat’s Subsequent Moviefilm and Netflix’s regular releases. As such, when Nielsen released a cumulative top ten list for film in 2020, the results were very skewed towards Disney’s rewatchable films:
When we look at the weekly rankings of movies, the Disney dominance isn’t quite as strong:
With a now weekly top ten list, we’ll be able to get a different perspective on the competition between Disney and Netflix for, frankly, kids viewership. Some insights:
– Kids programming still dominates the film list. For this week, 11 of the top 20 are targeted at kids. And one is a teen comedy. (17 Again)
– Netflix does better in a weekly top ten, due to their size. Indeed, this shows that the split between Disney+ and Netflix is much closer in kids content than it seems. However, Diseny+ does seem to still be winning.
– Rango was misidentified as being on Prime Video. It is currently on Netflix exclusively in the US. Nielsen has confirmed this.
– That said, it does look like Amazon did get one genuine film on the list with Catch Me if You Can. It’s their only entry in the three top ten lists for the last two weeks.
– Interestingly, like original TV, Netflix’s films are skewed towards new releases. Of the 13 Netflix films on the list the last two weeks, only 1 was released before December 25th, which was The Croods. Thus we can see that whereas Disney+ sustains interest in their small library of kids content, Netflix relies on recent releases, even on licensed kid content.
Last week’s news was notable for how much “lots of news with no news” that came across my inbox. In other words, part of me thinks that following the news closely last week probably resulted in more misunderstanding than wisdom. Which we’ll get to, but first a few companies reported quarterly or annual earnings recently with some genuine news, and we’ll run through the highlights.
(Catch my most important story of the week–Jeff Bezos stepping down as CEO–here.)
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next issue goes out early next week.)
Other Contenders for Most Important Story – Earnings Galore
The general theme of earnings continues to be that big tech is making oodles and oodles of billions. How much of that comes from video? Well we haven’t the foggiest, except for one company…
As advertising revenue has rebounded from the Q2 Covid dip, Google has benefited. They control half of the internet advertising market, and returning ad dollars have gone digital. Notably for entertainment, Youtube drove huge growth in the fourth quarter. For all our focus on the subscription streaming wars, Google’s lead in the advertising streaming wars is considerable. (And I think more sustainable than Netflix’s streaming lead.)
Also, since I didn’t mention it last earnings season, Youtube TV is up to 3 million paid subscribers, even after raising prices, up from 2.2 million last February. Also, the number of Youtube Music/Premium subscribers grew from 20 million to 30 million.
Lionsgate
Lionsgate is notable for being one of the most upfront entertainment companies in terms of their overall performance in the streaming wars. Specifically, they release their actual subscribers, for both linear and OTT for Starz. The story there is that growth in linear is flat (not surprising), while OTT grew from 9.2 million subs to 9.5 (which is fine). The rest of Lionsgate suffered from, you guessed it, the pandemic. Overall, Starz on its own probably isn’t big enough to survive the streaming wars. But at least they provide subscriber numbers!
Comcast
The headline is that Peacock grew its sign-ups from 22 million, as of the last earnings report, to 33 million. They still haven’t reported actual paying subscribers, though even if they did it would be fairly complicated to unpack, sort of like HBO’s confusing org chart of definitions. This doesn’t bother me as much as it bothers some others. As long as they keep their definitions the same–and keep reporting them–we can monitor their growth. In that sense, the growth seems roughly on the same path as Disney. It’s just less valuable growth. (Paying subscribers are much more valuable than “sign-ups”. If Disney+ were free who knows how many sign-ups they’d have!)
Outside of Peacock, the NBC-Universal story was one of losses–like other studios–because theaters and theme parks are still closed. Clearly, a VOD-only window won’t be enough to offset the revenue theaters provided. Meanwhile, while Comcast lost video subscribers for the year, it grew it’s broadband subscriber base overall. (Interestingly, Charter reported that its video subscriber growth was flat in the last year.)
Spotify
The Netflix of music also had a great year for subscriber growth. Running the Netflix playbook in music, they added tons of users/subscribers, but are only just eking by profit/cash flow. One difference is that Spotify’s profit accounting is much closer to their cash flow. Of that cash flow, for 155 million users, Spotify lost $74 million Euros. Which isn’t the world’s largest deficit financing, but they still seem some ways away from making huge cash flows. And if anything competition in music is even tougher than the streaming wars.
(Fierce Video has a great running story of all earnings if you want to dig deeper.)
Lots of News with No News
Apple and Amazon Earnings
As for Apple and Amazon? They continue to impress by their ability to spend billions on content, but provide next to nothing in terms of performance.
The Golden Globes
To steal a thought from Richard Rushfield, we’re really going to pretend to give out awards to movies when we had a year without movies?
TV awards are a bit more reasonable since everyone was streaming everything. However, I still don’t put stock in awards as a signifier of business trends, which makes me fairly unique among the entertainment observer class. When the body of voters is small and easily targeted–read into that what you will–awards say more about the willingness to spend than the quality of the underlying shows.
Did Advertisers Pull Out of the Super Bowl?
When I saw the initial “Advertisers pull out from the Super Bowl” headlines, this was trending to be my story for the week. A Super Bowl with Coca Cola? Pepsi? And Budweiser? What’s happening?
Well, reading past the headline, I found out that while “Budweiser” wasn’t advertising in the Super Bowl, “Bud Light” was. Which felt like a distinction without difference. And then Pepsi still sponsored the half-time show, so it’s not like they abandoned it completely. Really, only Coca Cola was missing. Meanwhile, ads still still went for $5.5 million per spot, up from $4.4 million as of 2016. And CBS sold out all their spots (while selling quite a few to themselves, see next section).
As an explanation, some commentators speculated that brands were potentially wary about the “national mood” and how comedy would play. To which I say: hogwash. The funny ads in the Super Bowl did just fine. In fact, if your marketing consultants told you something had fundamentally changed in the last year, well they were probably wrong. When in doubt, things change much slower than we usually think, and that goes for funny commercials. In all, this was lots of news with little news.
(Bonus forecast lots of news with no news: There will be the usual gnashing of teeth over Super Bowl ratings. Don’t listen to it, either good or bad. One data point is not a trend and has huge variance.)
Paramount+ Super Bowl Ad Campaign
The joys of synergy meant CBS aired a lot of ads for Paramount+ during the Super Bowl. I’d caution folks from taking too much away from any one ad or campaign spot–I still remember forecasts that Disney+ wasn’t resonating with Americans based on their ads–because your personal opinion usually doesn’t represent America.
Though we can take away this: ViacomCBS finally seems to be “all in” on streaming if advertising spend is the metric to judge.
Data of the Week – We Reached Peak TV!
The news is that, according to the FX Research department, the number of scripted series finally dipped year over year. If this holds, we’ll have peaked in 2019 at 532 new scripted series.
Of course, Hollywood did this by accident. Or precisely, because of the “Covid Caveat”. As many productions were struggling to resume shooting even in July of last year, we naturally aired less new scripted series.
Could 2021 come roaring back? Definitely, but not for certain. It really depends on how fast traditional studios transition broadcast/cable production to the streamers and whether Netflix pulls back on content spending. (Netflix in particular has such a long post-production period for dubbing that their first half of 2021 may be notably slow.) More likely 2022 will be the next peak.
Best Amazon Hot Takes
On Twitter, I called for the best hot takes on Amazon in honor of Jeff Bezos’ role change. To start, here’s a fun content release strategy, likely tied to Disney’s carriage on Fire TV:
Then two similar thoughts about Amazon’s lack of consumer products for kids:
Lastly, a good reminder that Amazon is the everything store of video:
Jeff Bezos ending his run as CEO of Amazon is certainly neé clearly neé absolutely the biggest story in business this week. Is it also the biggest story in media, entertainment and communications broadly? Sure.
Bezos is a man who built Amazon to be “the everything store”. That includes your video watching habits. As I’ll explain, if there is a way to deliver video, Jeff Bezos’ Amazon has launched a business unit for it. That makes this big announcement an easy winner of the “most important story of the week”.
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last two weeks or so.)
Most Important Story of the Week – Was Prime Video a Loss Leader or Loss Loser?
When I opine on Twitter about Amazon, usually critically, someone inevitably opines that Prime Video is a “loss leader”, as if I didn’t know that it was the purpose of Prime Video. But I’ve been around the entertainment-strategy-take game long enough to have read that rationale for Prime Video’s existence. Multiple times.
The challenge, for me, is that “loss leader” is a vague term. Like it’s cousin “flywheel”–read my thoughts on that phrase here or here–my concern is that loss leader can be used to justify bad decisions. The logic goes: Amazon/Apple/Google/Facebook are big and successful, they invested in Product/Business/Vertical, then even if it doesn’t make money it must be worth it.
When I’m questioning Big Tech’s strategy in video, the words I’m focused on aren’t “loss leader”, but the words “investment” and “worth it”. That’s where we need to start to understand how all of Amazon’s entertainment/media enterprises will fare under Andrew Jassy.
Loss Leaders vs Loss Losers: Is the Investment Worth It?
A “loss leader” is a simple concept: a business sells a given product at a loss to sell more of a different product.
Take an example from the legal world that I just heard on All The Presidents’ Lawyers. Sometimes, a defense attorney will take a high profile case and waive the fees. They do this because the case is so notorious they will get lots of free publicity. The gain in additional paying clients offsets the initial lack of payment.
But consider a defense attorney who represented President Donald Trump in his election lawsuits. Normally, representing the President would be worth reduced fees, because the publicity would be huge. But Trump was so toxic that many firms risked losing paying clients because they were associated with frivolous election lawsuits that were destroying democracy. That’s not a “loss leader”, but the opposite.
For lack of a better term, I’d call bad loss leaders “loss losers”. How do we judge if a potential “loss leader” is good or bad? Well, if the extra sales exceed the costs. One could simplify that to:
A loss leader is worth it if the costs (the losses) are exceeded by the benefit (the sales elsewhere).
Take Roku. They sell their hardware at cost, meaning almost exactly what they pay for it. Devices are loss leaders. They make up the revenue by selling subscriptions and advertising. But if “loss leaders” are good, why not go further? Why doesn’t Roku lose money on each device? Don’t stop there. Could Roku pay every American $100 to take a device? Or higher? $1,000?
Obviously not. Because at some point the losses don’t lead to enough additional sales. So the question isn’t “Is Amazon’s video investment a loss leader?”. Instead the question is, “Has this loss leader strategy worked?”
Beyond the Black Box: The Hazy Economics of Big Tech
So the obvious question becomes, “What has been Amazon’s return on investment in all of entertainment?”
And we have no idea.
I’m tempted to say we can’t know because Prime Video is a “black box”. Honestly, even calling it a “black box” would be wrong. A true black box is when you have known inputs, that go into an equation/algorithm/process, which spits out known outputs. The black box is the process. For Amazon, we don’t know the inputs (costs, mainly), the process (how Amazon accounts for success) or, most importantly, the outputs (performance, revenue, usage, etc).
This applies to a range of Big Tech investments. Google, until very recently, reported no financials for Youtube in their earnings reports. Apple hasn’t told us any performance details of everything from Apple News to Apple Music to Apple Arcade to Apple TV+. Amazon has a range of smaller investments beyond Prime Video, all of which are bundled under three vague business lines in their earnings report.
I’d call it an “invisible box”, where we don’t even know what is going in or out of the system. To compound it further, Amazon isn’t one invisible box, but a stack of several, sometimes competing, invisible boxes.
Amazon Prime/Video/Studios/Twitch/Channels/IMDb TV/Music: Amazon’s Voluminous Investment
Even defining “video” for Amazon is probably the most confusing of the Big Tech firms. Google is primarily focused on Youtube (though it also owns Google Play and Youtube TV), Netflix is only Netflix, Facebook has Facebook Watch (though it also owns Instagram videos), and Apple only has Apple TV, TV+…okay it’s confusing for all the tech companies except Netflix.
But Amazon makes an art of how many different investments in video they have:
– Amazon makes its own content via Amazon Studios.
– It distributes this via Prime Video, while also licensing a huge content library content.
– Folks can upload their own videos to Prime Video using Prime Video Direct.
– Amazon also sells movies from all the studios to rent or buy. (This was actually Amazon’s first digital video business.)
– Further, Amazon also sells other streaming services via its Amazon Channels business.
– On top of it all, it sells devices that can be used to stream, the Fire TV and stick.
– Lastly, Amazon has other investments in video including Twitch, IMDb TV and Amazon Live.
And honestly, if you told me there were five more businesses I missed I’d believe you. That list also leaves out music, podcasts, Alexa and video games. That’s a lot of stacked up invisible boxes.
If we can’t say if the investment was good or bad, what can we say? That there were good arguments on both sides.
So is All of Amazon’s Video Investment a Loss Leader or Loss Loser?
I don’t know. Without the inputs and outputs, it’s all guess work. But the alternatives–relying on the CEO interviews, stock price, vague assertions of flywheels and loss leaders –just aren’t very informative.
Instead of providing a definitive answer, I’ll provide both sides. Consider this both the prosecution and defense arguments around Amazon Video broadly, though I’ll center it around “Prime Video”, which is still probably the most well known investment.
The Cases For Amazon’s Video Investment
The Customer Lifetime Value Math is Very Enticing.
Given that Prime renews yearly, even a small increase in retention year-over-year can have huge impacts on the potential customer lifetime value of Prime. The best upside math for this comes from Scott Galloway. In his accounting, boosting Prime retention from 80% to 91%–based on some survey data–essentially results in $47 billion in market capitalization for Amazon…and that was pre-pandemic!
Now, I quibble with some of his math, but this is clearly the upside. If Prime Video–and the Channels ecosystem broadly–can lock folks in for a cost of a few billion per year, that’s worth it.
Prime Video enabled the Amazon Fire TV Ecosystem.
Like flywheel, “ecosystem” is overused. But this is a true ecosystem! Amazon leveraged Amazon Video (selling movies/TV series) and Prime Video to launch the Fire TV system, which launched Amazon Channels. Now that they’ve built it, there is the question if it makes money on its own, since it is increasingly removed from additional retail sales, but they did build a valuable ecosystem.
Some analysts think the media/entertainment upside is even higher.
For example, Laura Martin of Needham. Including advertising on Amazon–which I don’t count as entertainment, since it is the price of doing business on their retail platform–she puts it at $500 billion in value. In other words, Amazon likely spent a few billion dollars every year on content, but it built a $500 billion business, about 30% of their current value.
It seems like Amazon has been successful.
If you care about awards, Amazon Studios has won with Manchester by the Sea, Transparent and The Marvelous Mrs. Maisel. And the trendline is good: The Boys is likely their biggest hit yet and Upload, Hanna and Hunters made the Nielsen top ten last year. Moreover, the Channels business may exceed them all as Amazon is likely the biggest seller of third party subscriptions, including Showtime, CBS-All Access and HBO/HBO-Max.
Moreover, Amazon hasn’t killed off its video investments yet.
Amazon isn’t innovative so much as adaptive. Or put uncharitably, they’re a copycat. Amazon doesn’t innovate, they let others do that, and then “fast follow” with a copycat product. Diapers dot com. Angie’s List dot com. Etsy dot com. Amazon has created clone businesses of them all. (Indeed, Prime Video is a Netflix clone, IMDb TV is a Pluto clone, and even Fire TV is a Roku/Chromecast clone.) Yet Amazon has axed many businesses if they don’t work. Video, though, has lasted. This would be circumstantial evidence that it must be doing well.
All of Big Tech is into video.
More circumstantial evidence that video surely must be worth it. If it were a bad investment, why are Google, Facebook, Apple and Amazon all investing billions in it?
The upside in success is that Amazon would likely have built the oft searched for “moat” in digital video.
Or “monopoly” in layman’s terms. With millions of devices and tens of millions of subscriptions sold, Amazon can demand better and better terms for supply of content, be it movies to rent, subscription to sell, or content to buy. In short, they used profits from AWS to acquire a dominant position in digital TV and now will be able to generate big returns (in pro-business terms) or extract rents (in pro-market terms). There is nothing more profitable than oligopoly, and if Prime Video paved the way for that for Amazon, then that justifies all the investment.
(Consider if Fire TV acts as one of say three distributors of streaming TV by the 2030s, presumably with Apple and Roku. Instead of collecting huge rents on a regional basis, as cable did in the 2000s in America, Fire TV could do that globally. That upside is huge!)
The Cases Against Amazon’s Video Investment
At this point, going all-in on video seems like the smartest decision made by an executive of all time. Not so fast…
The spending was likely out of control.
Richard Rushfield called Netflix’s last half decade the “drunken sailor” era of spending. Was Amazon the “Not-drunk-but-can’t-drive-home sailor” era of spending then? Whenever you see estimates of spending, Prime Video is usually right behind Netflix in terms of spending on streaming at about $6-7 billion per year. Including traditional content producers, Amazon still spends more than everyone except Netflix, Comcast and Disney.
And Amazon discounts other parts of video too. Fire TVs were often aggressively discounted to move units as well. Same for Amazon Channels, which often offered extremely low or subsidized rates to get users. In other words, Amazon sold Fire TVs at a loss, so they could sell more Prime Video at a loss, all to sell more socks. That’s a double loss leader.
Usage is still low comparatively.
Going strictly by Prime Video, has the investment been worth it? Prime Video is either second (using Comscore data), third (using Nielsen data) or fourth (using my estimates) place in the streaming wars. Moreover, the streaming wars are just getting started. Can Prime Video hold off Disney+ and HBO Max forever?
(Source: Hedgeye Comm)
In other words, if Amazon’s content spend was about half of Netflix’s spend, but it got about 1/4th of the usage. That’s not great.
What would a third party pay for all of Amazon’s entertainment products?
When in doubt, in other words, let the market be our guide. Far from Martin’s valuation, I think you would struggle to find a valuation for all of these businesses even approaching Netflix’s $250 billion valuation. And that’s because while everyone currently subscribed to Netflix is doing it (mostly) deliberately, the vast majority of Prime Video users consider it a luxury. If you sever that link, how many folks keep using Prime Video? I can’t begin to guess.
(Fine, I’ll try. If Roku’s market capitalization is $50 or so billion, say the Fire TV/Channels business gets 100% of that value. Then call it $25 billion (one tenth of Netflix) for video and $6 billion for Amazon Music (10% of Spotify) and say everything else is $2 billion. So is “Amazon Entertainment” worth $82 billion? That would be about 5% of Amazon’s current value.)
Did Amazon have to “build it”?
Imagine instead of Prime Video and Music, Amazon had offered free Netflix and Spotify to every customer. What would be the better subscription, the current version or those? Most folks would prefer free Netflix and Spotify to free Prime Video and Amazon Music. In other words, Amazon could just do what Verizon does and partner with other streamers to give away better video products than Prime Video.
Presumably, licensing the rights temporarily is much cheaper than building an entire video ecosystem. This is why Verizon doesn’t build it’s own streamer, but simply gives away whatever the buzzy streamer of the moment is, from Netflix to Disney+ to Discovery+. If the return is the same in terms of customer retention, then the better ROI is in partnering, not building a new video subscription.
Most folks overvalue the “hidden business” model.
In addition to CLV, folks love to repeat the Bezos quote that Amazon invested in Prime Video so customers would “buy more socks”. I call this a hidden business model because most folks stop there and don’t do the simple math to ask, “Well how many more socks?” (The previous king of the hidden business model was MoviePass. It would lose money on tickets to sell “data”. But data isn’t worth that much.)
I’ve done the math, and frankly because retail margins are so low, this is at best about $5.50 per month:
(By the way, it’s tricky to nail down exactly what the lift is for new sales and what Amazon’s actual retail margins are. Some folks claim they are still really low (actually under 2-3%!), but then advertising is booming, which is really the price of doing business on Amazon. Play with the numbers to make your own estimate.)
Yes, it’s valuable to sell more socks. But that’s not an unlimited pot of gold. In fact, it’s an increasingly tapped out mine. (The highest net worth customers have already adopted Amazon, so Prime acquisitions will decrease in value.) So for Prime Video to act as a loss leader, its costs need to be under $5.50 per customer per month. And that’s for the folks who use Prime Video. In other words, you could imagine that the content budget definitely doesn’t make up for itself in extra socks sold.
Big Tech loves video, everyone else can’t make the math work.
Interestingly, whenever conventional companies look into video, they tend not to have the stomach for it. Microsoft abandoned Microsoft Studios very early on. Verizon gave up on Go90. And most notably, Wal-Mart looked at video, even launched its own membership, and bought Vudu. Then they decided that video is not a good business. Clearly they weren’t going to sell more socks! And thus Walmart sold Vudu to Comcast. What does Wal-mart see that Amazon doesn’t?
Big Tech may be into video because there is nowhere else to go.
As Matt Stoller has written, as consolidation has risen across industries, firms and investors have few places to park their cash. And since firms can only do so many share buybacks–like Apple–video is the logical extension. Video is one of the more simple/obvious ways to use digital technology, so Big Tech is into video because they have so much cash from their monopolies/oligopolies (cloud/ecommerce, search, social or app store, depending) that they’re blowing it on video. This doesn’t really mean it’s a bad investment, but probably a sign something is wrong with our economy.
It is a loss loser, but Jeff Bezos didn’t care.
I said I’d use this quote quite a bit, and here’s my first chance. The question isn’t if Prime Video is a loss leader, but a loss leader for what?
Results: Shrug emoji
Look at those lists and draw your own conclusion. Each pro has its similar con. All of Big Tech is into video, but Walmart/Verizon abandoned it. The CLV gains are huge, but the additional sales are likely overrated. Prime Video may be second place in usage, but hardly anyone would pay for it. Again, this is the shoulder shrug emoji of analysis.
So what’s my point? Simply that I’d like more skepticism about Amazon out there in the world.
In conventional wisdom, Prime Video and related investments have been considered tremendous successes. I don’t see the evidence or data to justify that. If you just glance a pinch more skeptically at Amazon next time someone touts their success, then I’ll consider my job done.
Bonus Most Important Thought: What Happens Next?
Probably nothing. Jeff Bezos has said as chairman of the board, he’ll likely have final say on any “one way” decisions. Selling or giving up on devices or video would be fairly final, and given Bezos’ clear backing of those investments, I can’t see him approving that. Moreover, as the con side laid out above, who would buy Prime Video and related businesses if most of their value is tied to the Prime ecosystem? $82 billion is likely the high watermark and I could see, under scrutiny, most potential buyers fleeing to the hills.
However, levels of investment can fluctuate, and that could impact Amazon’s multitude of entertainment investments. Amazon has famously often competed with itself, for example two different business units now produce original audio, Audible and Wondery. Maybe Jassy streamlines video/music and kills underperforming units. Or just drastically cuts back on “investment”, meaning content spend.
Moreover, there is the antitrust wild card. One article mentioned that Jeff Bezos would likely break up his creation before letting regulators do it. Even if Amazon did get ahead of the curve in breaking itself up before regulators can try, it’s hard to see video getting cleaved from retail. Even if Prime Video sells less socks than they claim, it’s value is still clearly as part of a Prime membership. And that serves as the basis for Fire TV devices, so it will likely stay bundled together. AWS could, though, be split off with fairly little disruption. Twitch is part of AWS, from what I understand, and I could see it going with either AWS or staying in the remaining retail/Prime Amazon.
I’d argue that even if Prime Video isn’t performing well enough to actually boost the CLV of Prime, simply the dream in Amazon’s head of selling more sock has/will keep Prime Video alive.
(How well does Amazon retail do without AWS covering any potential losses? The finances are so entangled it is impossible to say and makes the mind reel at the ramifications.)
For the last two weeks, my weekly column overflowed into two articles. I promise I won’t make this a habit…unless everyone likes it better. Let me know on Twitter. Meanwhile, here were the other stories vying for the top spot last week. But we’ll start with the story that had zero chance of making it.
Lots of News with No News – GameStop Owned the Week in News
How do you know that the Trump administration–and with it all the media upheaval of the last four years–is truly behind us?
Instead of talking politics, everyone is obsessed with GameStop!
It’s not like the Covid-19 crisis has passed. Far from it, January was the worst month yet for the virus. And that’s vying with potentially the best story of the year, which is the vaccine roll out. While stymied by terrible distribution issues initially, vaccine distribution is growing each week and slowing being solved (though with much less media coverage to this good news story).
You’d think that all the media would be obsessed by virus coverage.
Nope!
Instead, the journalists covering the White House asked more questions about GameStop to the new Press Secretary, Jen Psaki, than about Covid-19! Every newsletter or podcast I follow had to mention GameStop, usually with the tremendous caveat of, “I have no idea what I’m talking about” before opining on it.
Does the rise in GameStop’s stock price due to a sub-Reddit (Wall Street Bets) going publicly long on a stock to hurt short sells change the entertainment business landscape? No. So this is “lots of news with no news”.
With two caveats.
First Caveat, AMC Theaters Received the Wall Street Bets “Long” Position
When the Wall Streets Bet collective was searching for other stocks that were big “short” positions, one they stumbled on was AMC Theaters. So they collectively “went long” on it, which is the charitable way to describe it. (Uncharitably? They coordinated buying to pump up the stock.)
Amazingly this allowed AMC Theaters–who is famously over-leveraged/in-debt–to convert some debt to equity, and they were able to raise additional equity. All of which would normally dilute shareholders, but the price was acting bubblish because of Wall Bets’ users enthusiasm. And they were able to to secure additional financing. In short, AMC Theaters has now likely avoided bankruptcy for the year. That’s a crazy, and unpredictable, set of circumstances.
Second Caveat, If Regulators Try to Regulate Media Coverage, That Will Be Tough
The key here is to focus on the word “media”.
Short sellers love to use the media to publicize their short positions. (I’m sure by now everyone has read/listened to ten explanations for how short selling works.) Typically, it works like this. A hedge fund decides to go short on a stock. Usually, they write a report on why they’re going short, and then they publicize that report. This includes but is not limited to:
– Leaking the report to the Wall Street Journal and NY Times for positive coverage
– Releasing a press release to all journalists.
– Going on CNBC/Bloomberg to explain their short position.
In other words, they try to use “mass” media to publicize their short position. If they enter into their short position before publicizing it, obviously a successful campaign could generate millions of dollars. They’re trying to use a publicity campaign to lower the stock price and make money. The main difference between this behavior and Reddit is that it is 1. Centralized and 2. Mass, not social media. But the impetus is the same: use media to drive stock prices.
On the opposite side of the coin, there are also folks who want to go long who use media to influence stock buying behavior. For example, this guy with a button and lights shrieking “Buy This Stock!”
Is what Jim Cramer doing fundamentally different than a bunch of Redditors collectively deciding they love a stock? I’d say at a core level no, but in the details yes.
My point is that if regulators want to tamp down on what a sub-Reddit is doing to drive stock prices, good luck. Regulating speech is incredibly tricky and often ends up casting a much wider net than intended. Which is why the First Amendment protects so much speech. If the GameStop saga has revealed flaws in the US financial system, those problems likely won’t be solved by the SEC cracking down on anonymous internet message boards.
Other Contenders for Most Important Story
HBO Max’s Franchise Strategy
It doesn’t seem like an accident that in the last few weeks we’ve heard about a Game of Thrones Dunk and Egg spin-off, a Harry Potter TV series, and an animated Game of Thrones series in the works. Clearly, HBO Max is trying to emulate the Disney+ success. As a fan, I’m here for it. As an observer, I’m curious why they didn’t do this earlier. As a biz strategist, I know that quality will still be the differentiator. So far, Warner Bros hasn’t proven they can deliver that in their franchises. Still, better late than never.
Oh, and you probably want to know about…
AT&T Announced 41 Million US HBO Subscribers and 17 million activations
This is probably the strongest candidate to be the story of the week besides NBC Universal/Peacock’s big double story drop. AT&T announced that HBO Max is up to between 17.1 and 41 million subscribers in the US. Why between? Because it depends how you count, as I explained in my most popular series of 2020 “Who Has the Most US Subscribers?” Frankly, if you just count people paying HBO for the privilege of subscribing–a very rational way to do it!–you take the higher number. If you want to focus exclusively on over-the-top delivery–while not my preferred method, this isn’t irrational either!–then you look at “activations” or folks who have used the HBO Max application.
Either way, Wonder Woman 1984/Roku/Fire TV partnerships/Christmas holidays have worked to grow both numbers in the US. If you take the higher number, then they’re roughly 62% of Netflix’s US user base. If you take the lower, they’re at 26%. If they can sustain these numbers, growing the activation total, they’ll join Disney with a seat at the “viable streaming business” table by the end of the year.
Sling TV is Raising Prices
Another virtual MVPD is raising prices to survive, which is as commonplace as it is unsurprising in today’s day and age. The fact is, especially when thinking about the TV habit which I described on Friday, most folks loved the old cable bundle. Sure, there were hundreds of channels, and no one watched them all. But folks actually browsed and watched more of those channels than they realized. The problem was the prices driven by cable’s local monopolies. To replicate a bundle, frankly, is expensive.
M&A Updates – Twitter is Entering the Newsletter Business
Twitter is expanding their business into newsletters by buying Revue, a rival to Substacks’s newsletter platform. I love this acquisition for Twitter, who has really struggled to monetize as effectively as Google or Facebook via ads. Thus, subscriptions seem the way to go and newsletters offer a middle position between paywalls for access to Twitter accounts and the completely ad-supported version. It will be fascinating to watch this integration. (Hat tip to Andrew Freedman’s write up for informing this take.)
Entertainment Strategy Guy Update
Netflix Isn’t a Part of Chromecast’s Browsing
One of the apparent innovations of Google’s new Chromecast/Google TV was that Netflix shows were, for the first time, included in the homepage browsing. This would have indeed been a big deal, since most streamers are very hesitant to allow the devices/operating systems control the user experience. (Read why here.) Indeed, Netflix has been the most restrictive to date. Which was why I was skeptical they would join this effort, which undercuts their entire competitive advantage.
Sure enough, I saw a headline over the last week that Netflix has been quietly removed from Google TV’s homepage. (Though the author of this headline fails to understand why Netflix would make this move.) Netflix did this because their goal is to be “the TV habit“. That means forcing users out of Google’s operating system and onto their application. Hence this move.
Disneyland is Trying Win Back Annual Passholders
As expected, Disney got a lot of blowback from annual passholder for cancelling the program, so Disney released a new program with some benefits for “legacy passholders”. Former passholders are still upset, as this article describes well, but frankly the article also explains why Disney made this move: demand to go back to Disneyland is higher than the Matterhorn. PR-wise this move would always have hurt Disney, but they made the right decision.
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last two weeks or so.)
It’s rare–though not as rare as it seems–for a company to compete not just for the top spot in my weekly judgement of the most important story in entertainment, but to have two different stories compete. HBO Max has actually done that a few times, and so has Netflix and Disney+. This week was Peacock’s turn to step into the spotlight and throw down not just one, but two big entertainment stories. Let’s combine them into…
Most Important Story of the Week – Peacock Acquires WWE Network, While Shutting Down NBCSN
When I first read the Peacock-WWE headline, I assumed they had bought the rights to Raw, the Monday night telecast of the WWE. No, they went all in and bought the rights for five years to the WWE Network, WWE’s streaming platform that delivers their pay-per-view events for a monthly fee. (With tons of documentaries, some original reality shows and re-runs of Raw and Smackdown.) Wow! That’s even bigger than I expected. Toss in shutting down the first major sports channel by the end of the year, and Peacock is definitely making moves.
With these latest moves, Peacock is trying to “become the TV habit” for millions of Americans. Let’s explain that and then decide if this was good or bad.
Netflix’s Best Metric and “Breaking the TV Habit”
A metric I beg for fairly often on this website is “monthly active users”, the percentage of all paying subscribers who watch a streamer in a given month. But you know what would be even better? The metric of how many monthly users who were active for multiple months in a row. In other words, over a six month span, how many customers used a service in a given month. Call it “unique streaming months”.
Let’s not stop there. Even better would be to know how many folks watch a given streamer every week. And once we have this level of granularity, we could cut the data all sorts of ways. Who streamed the most consecutive weeks. Or rank folks by how many days the stream per month. Or per week. And on and on.
Focusing on “unique viewing days per month” in many ways is a better predictor of retention than total usage. Both numbers are useful, but if you gave me a choice, I’d opt for the former.
Why is this so predictive? Well, think of a customer’s TV habit. It’s the end of the day, and they sit on the couch. Then they turn on the TV. In my case–a non-cord cutter–it’s to switch to the DVR to see what is on. I only interrupt this habit for certain streaming shows–Disney+ usually–or sports (which is why I don’t cut the cord).
But I’m not egotistical enough to believe my TV habit is representative of America. (Though, ironically, my habit is actually still the average consumption in America. Remember, according to the best TV analysis, 76% of viewing is linear/cable/broadcast/satellite, and only 25% is streaming.) For many folks, the habit is to sit down, turn on a Roku (or similar device), then go to Netflix, and scroll endlessly. Or continue bingeing whatever bingeable show they watched the night prior.
And yes, Netflix is a deliberate choice. They’re the first in the streaming wars, because they’ve built that habit in a huge number of customers in America and around the globe. For the “Netflix is TV” crowd, Netflix replaces turning on the cable box as “TV”. Even though I can’t prove it, I know that Netflix leads in “distinct streaming days per month” among the streamers.
Yet Netflix has a weakness.
Netflix’s Content Gap
“TV” can mean a few different things. Some TV serves to entertain. This can be either fake (fiction, dramas or comedies) or real (reality and documentaries). But it can also be informative, like news or sports. Notably, these last two categories are unique because they are also better served live than “on-demand”.
Netflix is an “on-demand” platform. When a customer wants it, they can watch it. This was, to be clear, a huge value to consumers, since they no longer had to wait for content until it aired on TV. (In truth, the DVR added a lot of this value previously, but on-demand is up another notch entirely.)
But all on-demand has limitations in the same way that all linear had limitation. Frankly, sports and news don’t work on-demand. They have to be live. This is what is saving the linear bundle right now.
And those two big genres–news and sports–are notable weakpoints in Netflix’s content library. Netflix has tried to air shows that are close to “live”, like nightly talk shows, but even these have for the most part not worked on that platform. It also makes a lot of documentaries–like Vox’s Explained series–but even these lag real time news by weeks or longer.
That leaves an opening for some clever new entrants in the streaming wars.
A Differentiated Competitive Advantage for Peacock – Live, Live, Live
When Peacock first rolled out, I was fairly bullish on their plan because unlike other new entrants, Peacock really did seem to have an idea for a product that was unique compared to the giant that was Netflix (and the other streamers). I called them the “broadcast streamer”. Consider the dimensions of “on-demand” versus what I’m calling “fake vs real” for content. If we made this chart for all the streamers, you’d get this:
(This isn’t based on numbers, simply my gut. And yes, many streamers have cheap reality. This is best looked at what a company’s priorities/branding are.)
Let’s interpret this. Essentially, Peacock said, “We know there are some folks out there who watch MSNBC for news, Jimmy Fallon/Seth Myers for late night, and then watch some sports. Our offering should serve them.” Their offering entices folks in with that recurring, live content. Then, hopefully, their entertainment offering keeps them around.
Consider, on the other hand, HBO Max. The bet for HBO Max is basically, “Hey, we have lots of content too. Instead of using Netflix for your habit, use us.” Which may happen, but more likely some folks will watch some HBO shows, but then go back to Netflix. Netflix is their habit. Indeed, Prime Video has been deploying this strategy for almost as long and with about the same results. Hulu too, and they have an even better offering, recent TV.
So who is really differentiated in the streaming wars? I’d say:
– Disney+: Kids programming. Indeed, the Nielsen top movies essentially shows that for most kids, Disney+ has become the “TV habit” replacing Netflix in the United States. However, when it comes to the rest of TV, Disney+ will struggle to replace Netflix as the TV habit on their own.
– Peacock: Furthest along streamer in “live” TV programming, including news, sports and actual linear channels to encourage lean back viewing.
– Discovery+: This differentiation grows even further if you focus on quality vs quantity of content. Discovery+ saw Netflix, Prime Video, HBO and Disney shelling out the big bucks for splashy buzzy shows. And it said, “Here’s more 90 Day Fiance”.
Everyone else is mostly mimicking Netflix, like Prime Video, Paramount+, Showtime, AMC+ and HBO Max. For the most part–boiling down strategy to one or two sentences lacks nuance–these streamers are trying to beat Netflix as their own game. We’ll see if they can, but I prefer differentiated strategies. Moreover, in Peacock’s case, this strategy also takes advantage of their biggest strength compared to Netflix, their wide ranging experience in live sports, news, and even broadcast television.
Which is where the NBCSN sports (hockey, Olympic sports, Nascar, Premiere League “soccer”, cycling and Indy Car) and the WWE come in.
How WWE and NBC Sports Can Reinforce the Peacock TV Habit
In general, then, the WWE acquisition and move of some sports to Peacock is a signal that Peacock is growing its content in the places where Netflix is weak: live events. Of course, no strategic move is perfect, nor without risk. And let’s explain both of these moves in that light.
The Positives
The big benefit for having WWE Pay-Per-Views and the NBC sports on Peacock is that each can drive repeated unique streaming days per month. Under a Netflix content strategy, you have to hope you can out-develop Netflix for the next big show or film. That’s pretty unlikely with all the content being made.
Instead, Peacock is focusing on delivering a product with known fans. Who tune in on a weekly basis. Say there is a die-hard WWE fan. Now, if they want to watch Wrestlemania or replays of Raw and Smackdown, they’ll have to go to Peacock. The dream is that once they’re done, they’ll check out The Office or Law and Order or Yellowstone or, who knows, The Real Housewives. Boom, a TV habit is born.
Knowing that the WWE had 1.6 million subscribers recently, that’s a lot of potential regular viewers. That’s a ton of upside. (If it can retain all those subscribers? $192 million per year at $10 per month.)
See, there is always a risk for any sport is that the vast majority who watch when access is easy–the followers and casuals–just don’t when it goes behind a paywall. That’s the terror keeping the NFL/NBA/MLB from going digital only. For example, look at the Pac-12 Network when it left AT&T distributors. I was a huge follower of all things UCLA. But would I change my whole cable bundle for college baseball and gymnastics? Nope.
The upside for Peacock is the WWE Network subscribers had already opted in to digital-only. So there isn’t that worry here. That’s good.
The Negatives
But let’s not pretend these two decisions win the streaming wars. One of the reasons the WWE and some NBC sports are fine to go streaming-only is because, well, they aren’t that big to begin with. WWE does have a loyal fan base, but it’s not like it’s huge. As I just said, only 1.6 million subs, or 0.48% of America.
The counter I expect is, “They may be small, but they’re dedicated!” I heard/hear this a lot from producers, creators, networks and development executives defending shows/films that not many folks watch. Say a show is buzzy–and usually beloved by critics–but no one is watching it. The defenders then say, “But those who do LOVE it!” They usually have no data to support this.
My counter is that most shows are more the same than different. Same for sports leagues. Let’s say a fan could fall into one of a few buckets: fanatic, diehard, follower, casual. Define those how you want, but you’d roughly get something like…
If we know that the most popular sports leagues/shows aren’t just a little more popular, but multiples more popular, than we find out that even having devoted fans isn’t enough. Say one show has 100K viewers per week and another has 1 million. Essentially, the bigger show has more fanatics and die-hards than the other show has total viewers. That’s just the math.
This applies to NBCSN’s sports in particular. As great as it will be to get all of NHL hockey’s diehard fans to follow hockey onto Peacock, that number just isn’t very big. The NFL can deliver multiples more die-hard fans than hockey, Olympic sports, soccer (football) and racing everything else on NBCSN…combined.
Which is probably why the NBCSN announcement hedged that NBCSN sports aren’t just headed to Peacock, but also to the USA Network, about as traditional of a cable net as you can get. As folks speculated, essentially the USA Network will become NBC Universal’s general interest cable net, much like the purpose TNT serves for AT&T. If this were a war, USA Network is one of NBC Universal’s fall back positions as it retreats from traditional linear distribution.
Final Call?
Add it all up, and I like these moves. A lot. Bringing in new regular users who can get locked in to your core customer value proposition is just a win-win. NBC-Universal continues to execute an actual strategy, and that’s unique enough in the streaming wars to be worth praising.
Lastly, on the headline, my take is that a company can “win” the streaming wars simply by 1. Making money and 2. Having a seat at the streaming table in 5-10 years. With it’s current strategy, Peacock is clearly on that trend line and we’ll see if the numbers support that in the next couple of years. (Netflix and Disney+ are the two closest to winning right now.)
Bonus Quick Thoughts
– Is this a good move WWE? Probably. As I just said, the big worry for a sports league–let’s call the WWE that–is that folks don’t follow and essentially you use their “fan lifetime value”, a term I just made up. WWE has a bit less risk with that here in that folks who don’t cut the cord can keep watching on Fox. Yet, WWE can still sell pay-per-views through traditional channels, so I don’t see much risk of less exposure.
– Is this a good move for the USA Network? I think so. This gives another option for live programming on a few more days per week, and maybe during the weekend. That live viewing can then drive to the scripted programming better. In short, it’s fine.
– Bundlers want to replace Netflix too. When I talk about the “TV Habit”, the Roku, Amazon, Apple and Google’s of the world essentially want their devices to be that habit. Instead of going to a specific application, you’ll just browse on their device. So far, none have really succeeded. Mainly because the streamers hate this.
– Price. Variety says sources say about $1 billion for five years. Running the math, WWE makes about $192 million per year (1.6 million times $10 times 12 months), so this isn’t outrageous. Likely Peacock is paying $10 per sub, but they’ll transition WWE folks to either the $5 ad free or $10 tier. For WWE customers, this feels like an even bigger win.
– But note! It’s also only a 5 year deal. Hmmm. If it works, expect a big jump at the end.
Want an in-depth look at Netflix’s 2020? I mean a couple of thousand words on everything from their stock price to subscriber growth to their biggest content to executive moves? And what it all means?
Well, check out my latest at Whats-On-Netflix, “Netflix’s 2020 Year in Review: Biggest Hits & Business Insights“
