(To read previous “themes”, click here: Theme 1: It’s Not Data, It’s Decision Making Theme 2: It’s Not Value Capture, It’s Value Creation) Imagine an officer in the military addressing his troops. The time period doesn’t matter, be it the ...
Last week, Bob Iger said in an interview with Barron’s that Disney had no plans to start releasing new Star Wars films—by which he means the ones that will come after Episode 9, releasing later this year—on Disney Plus, their ...
A few months ago I briefly tried to explain the distinction between “customers” and “views” to help explain why Twitch is often over-hyped. Since I’ve spent a lot of the last two weeks banging my head against the Twitter wall ...
The romantic comedy is dead. The highest grossing romantic comedy this year is Crazy Rich Asians, which at $174 million in domestic box office pales in comparison to behemoths like Black Panther ($700 million domestic box office), Avengers: Infinity Wars ...
(To read previous “themes”, click here:
Theme 1: It’s Not Data, It’s Decision Making
Theme 2: It’s Not Value Capture, It’s Value Creation)
Imagine an officer in the military addressing his troops. The time period doesn’t matter, be it the Peloponnesian War of ancient times or the Iraq War of the 2000s. I’ll give you two versions. Here’s version one:
“So we’re heading out to confront the enemy. Our goal is to bring decisive energy to the battlefield. We’re going to overwhelm them with superior firepower, ensuring we make decisive action. Once we defeat the enemy, we’re going to consolidate our gains, ensuring we have accounted for stable post-conflict efforts to capture our gains.”
That hurt me to write. If you’re a subordinate, what do you even do with that?
It’s pretty much the worst possible version of a mission you could give. It’s like the consultant or PR speak version of a mission statement: all buzz words with no actual meat or substance. (And yeah, I hear you. The mission statement for the Iraq invasion probably had a slide with that sort of non-speak on it.)
What’s the better real world mission statement? Here:
“Our mission is to conduct an ambush on location WT 8940-4569 in order to destroy enemy patrols no later than 1700. We’re going to depart at 0700. We’re moving from this location…”
[point at a map]
“…to this location”
[point at another location on the map]
“and lay in an L-shaped ambush here. This will look like this…]
[Point to a sketch of the position with unit names.]
“First squad, your task is to lay a support by fire here in order to…”
Then the hypothetical officer would continue.
Though I’m a little rusty, that second briefing is pretty close to the text book version—technically Ranger Handbook version—an American officer would give his troops in today’s U.S. Army. (Maybe I would know.)
What’s the difference between the two briefings? Well, one is completely vague and the other is detailed. But the main difference is the second briefing has the locations on the map.
In the military, you can’t have a strategy without a map. If you don’t have locations, you don’t have a strategy. Sure, you can talk about Hannibal conducting a pincer movement, but really without a map you can’t visualize it. Sure, you can “defeat Hitler”, but you can’t say that to your men. You have to tell them you are invading, and point out where and when with a specific unit (or tons of different divisions and brigades), moving along given routes. Even a counter-insurgency campaign is about controlling territory, winning elections and decreasing violence. A map helps explain all those things.
Another way of saying this is that to win wars, you need a strategy that understands the territory. That understands that you have to seize territory to win. Yes, lots of factors go into it, but controlling territory (with the people on it) is the point.
So what’s the business equivalent? Well, numbers.
Strategy—in business—is numbers.
You can have a great company culture and be innovative or be disruptive. Those are all things. But what matters—the point in business—is how the numbers move. The vague version? Deliver customers a great product. The specific version is answering the questions: How much revenue will a new product generate? Is your company earning more money than it sends out? What is its return on investment on its assets? What is its profit? Those are the numbers. Hypothetically, they directly impact the stock price. (There is an argument about the efficient market hypothesis I don’t feel like getting into here.)
What aren’t numbers? Feelings. Strategic focus. Energy. Motivation. Even culture.
(Those things are important, but at the end of the day they can’t be strategy on their own.)
A lot of other things could be quantified, but aren’t. Customer experience. Brand equity. Customer affection (or hatred). Investments into strategic priorities
(These are also important, but without quantification you can’t judge how well you’re doing. Or effectively build plans to improve them.)
Put at the end of the day, any business strategy is a business strategy with numbers. Usually, an income statement/pro forma/business model that explains how the company will make money. That model is the business equivalent of the army’s map. The numbers are the territory being fought over.
I bring this up, because I see this all the time.
In business—and worse at business school—the powerpoint presentation is the easiest way to obscure the numbers. You use big fonts, shiny graphics, lots of stock photos with smiling Millennials (see above) and a few, purposefully selected charts/graphs. You have a lot of opinion without a lot of numbers. Or numbers that haven’t been interrogated properly. Consultants may be the experts in the field.
In journalism, I see even more of this. Journalists have pressures to get stories out. Building an income statement takes lots of time. So I don’t really blame them. They’re mostly trying to get news out quickly.
However, I do blame anyone who is providing an “opinion”. Opinions are easy; numbers backing those up are a lot tougher. It’s the the primary thing that takes up my time writing for this site.
For example, I had a big article I wanted to publish last year, but I just hated it. It’s my titanic battle between three huge fantasy franchises on three (!) competing streaming services. HBO versus Amazon Prime/Video/Studios versus Netflix. Game of Thrones versus Lord of the Rings versus The Chronicles of Narnia. But the first few drafts were missing something. That something was numbers. I made a lot of predictions, but didn’t have the numbers to hold myself to. So I’ve been waiting until I could get numbers I feel better about it. (That and I realized I needed to explain a lot of accounting to get there.)
It’s tough though. The problem with numbers is they put problems into sharp relief. They can also be wrong. Every time I put numbers into the world I stress and stress and stress that I got something wrong. That I’m missing some key detail. With numbers, it’s really easy to hold me accountable. Undoubtedly I’ve made some mistakes. That’s even truer for business. (Without the holding accountable part.)
I don’t want to gloss over, the numbers, though. I want to do strategy right, and that means giving the numbers. That’s why this is a theme of this website.
This week was CES in Las Vegas. It seems like everyone had a great time on Twitter. Sarcastic question: do we need a few MORE conference in entertainment?
The biggest “news” seems to be that TV screens are rollable now! Meanwhile, the implications for the steaming wars were less obvious. But we got two tidbits which is all we need to start leaping to conclusions.
Most Important Story – Apple Announces Partnerships with Smart TV Makers for Distribution
Before we talk about Apple, let’s talk about Microsoft. The poor man’s Apple, who sometimes has a larger market capitalization. Back in 2012, Microsoft had a genius idea: we’ll launch XBox Entertainment Studios, and make exclusive content for the XBox, which will drive device sales. It lasted about two years before Microsoft shuttered it when they realized it wouldn’t work.
Apple, it seemed to me, was headed down that exact path.
Device sales aren’t like signing up for streaming. Heck, even switching cable companies may be easier or more affordable than switching devices in this day and age. If Apple was going to use content–and lord knows they spent all of 2018 buying a lot–then I was prepared to hammer that strategy. Frankly, their content just wouldn’t reach enough people to justify the wild costs.
It’s hard to price discriminate when it comes to content. Take the theater: most people pay the same price for the same movie ticket. Like all things, this isn’t an iron law (for instance, there are senior and student discounts; same for matinees), that said at the movie theater you can’t check to see if someone is a millionaire to charge them more. The fundamental conclusion from this is if you can’t price discriminate you need to reach as many people as possible.
A device-centric strategy is the opposite of this.
If you have a fundamentally smaller audience–say only the people who use Apple devices–it means you are automatically shrinking the number of potential viewers. This means the content will have to be extraordinarily well-received by the remaining customers to justify the costs. Since it is hard to switch devices and hard to make extraordinarily good content, this is a huge structural problem. But Apple signaled this week they are willing to partner with other companies to increase the potential audience for their originals.
Apple may still not succeed. Honestly, we just don’t know enough about their ultimate strategy to judge yet and their cash reserves are enormous. (We’ll save the discussion on how “cash reserves burned in unprofitable ways are bad for shareholders” for a future article on “net present value”.) But at least this small announcement tells me they recognized the trap of trying to use original content to push devices, and won’t make the same mistake as Microsoft.
Quick Notes:
– First saw this story in Byer’s Market, which I’m now reading daily.
– Alan Wolk in TVRev says the companies to keep any eye on are whether Apple gets distribution on Amazon and Roku. I agree. To really maximize distribution, Apple will need to be on those platforms as well. Remains to be seen.
– The Verge called this decision “inevitable” that I don’t quite agree with, but don’t hate either. It’s also a good summary of how CES goes.
Other Candidate for Most Important – Hulu is DoIng Pretty Okay (Up to 25 million Subscribers)
(If you missed yesterday’s post, click here.)
Let’s continue with where we left off yesterday. The risk for eliminating theaters and associated early windows (home entertainment and pay-per-view) is in the hundreds of millions of dollar range. So can Disney make that up by releasing new Star Wars films directly and exclusively on Disney Plus?
Part II: Calculate the value of “exclusivity” and “day and date”
Running your own streaming service could be worth all the revenue per film you exchange in box office, pay-per-view, EST and DVD sales. Maybe. The bulls like me would say, “So Disney should exchange making money in theatrical sales for losing billions like Netflix or Hulu?” Hmm. The bears would say, “Look at Netflix’s market capitalization.”
But we’re not looking at the whole platform. We’re looking at individual films. The problem is most of the ways people calculate the value for an individual title on a streaming platform are more wrong than they are right. Or let’s say “suboptimal”. Let’s review how NOT to calculate this number. (With the caution that I can/will write a bunch of articles on this)
Suboptimal Method 1: “Multiply number of people by price per month”
Let’s say 50 million people watch a Star Wars film when it releases on Netflix. (Yes, I think that’s a pretty good estimate. Call it “one Bird Box”.) So the math is:
Bingo! $550 million! We should skip the theatrical window.
Hold on. I see some problems with the math. Actually, that method is simultaneously both too high and too low.
(And I bring this up because I hear this discussion of streaming economics all the time on podcasts. I don’t know why podcasts in particular do this math, but it happens.)
First, on the, “this math is too high side”, how do we account for a customer who subscribed to the Disney platform, binges 12 “tent pole” movies, then unsubscribes? Do we have to divide by the number of films? Or what about the new Star Wars series, if a customer watched both? This is why you factor in the total value of the catalogue. So it’s too high.
On the converse side, I could be shortchanging the film. What if it acquired customers? Attracting new customers has to be more valuable, right? They aren’t just worth one month, they’re worth their “lifetime value”. A good model should account for that. And that happens to be…
Suboptimal Method 2: “Multiply number of people by CLV” (even higher)
To start this analysis, we need to estimate a “customer lifetime value”. Note, when Disney launches their service, they won’t have a clue what this is. They’ll have estimates—which aren’t much better than guesses—but they won’t know. If you have no subscribers, you lack the best data to judge retention rate. Sure, you can use Hulu’s data, but there are a host of variables you would need to account for. (Say how their price fluctuates wildly to bring in customers.)
So back of the envelope, let’s assume a new customer stays for on average two years. They pay $11 per month, and you paid $30 to acquire them through partnership bounties and direct marketing. Here’s the math:
So if Disney releases a film, and 50 million people watch, that’s worth nearly $12 billion dollars! Release 12 movies like that and then it can make 144 billion dollars!
Do you see the flaw in this logic?
Last week, Bob Iger said in an interview with Barron’s that Disney had no plans to start releasing new Star Wars films—by which he means the ones that will come after Episode 9, releasing later this year—on Disney Plus, their soon-to-be streaming service.
I agreed with this move. Some didn’t. Here’s a tweet that Rich Greenfield of BTIG and prominent Netflix bull, retweeted:
There were others and I got into a debate with Jason Hirschorn of MediaREDEF fame on Twitter:
Twitter is a great medium for some things (getting me exposure to a lot of people for one thing) but bad at others (like the racism and and sexism). I’d also add its bad at discussing things that revolve around numbers. Hard to pull out a spreadsheet on Twitter, you know?
So my case for keeping Star Wars films in theatrical releases is here instead. As I look at it, theaters represent a huge proportion of potential revenue for feature films. For any company that wants to maximize shareholder value, capturing that revenue by releasing in theaters makes sense. To ask Disney to release its blockbuster tent pole films day & date, exclusively on its streaming service is to ask it to forgo billions in potential revenue.
That just doesn’t make sense for shareholders of Disney.
I often rely on an aphorism that “strategy is numbers”. (I stole it from a professor in business school.) When you skip putting numbers to a business strategy, well, you’re at risk of cutting corners. In other words, you’re still talking numbers, but you just don’t have to hold yourself accountable to them. By not calculating the numbers, it makes qualitative or narrative points much sexier.
Fear not, today, we’ll put numbers to this debate. The goal won’t be for me to “decide” the debate, as this is the type of strategic decision that is impossible to decide with numbers alone. Instead, the numbers will help define how big a leap our qualitative judgments need to make. In other words, it will define how “strategically valuable” skipping theaters to support streaming needs to be. We’ll go in three parts: the Disney numbers, the streaming numbers and the qualitative arguments.
Part I: Weigh the specific economic risk for Disney
This is fortunately really easy. I spent a large part of 2018 writing a novella on the Disney acquisition of Lucasfilm. As a part of that series, I created individual film accounting models per Star Wars film to “show my work”, partly to help the audience learn about feature film accounting and partly to run the numbers myself.
First, here’s my assumptions on the current distribution for revenue for the lifetime of a feature film (emphasis on lifetime):
As you can see, I currently project that 30% of a feature films value come from theatrical rentals, which is how much a film actually collect on box office results. (Roughly half of the box office, but less overseas, particularly in China. Read the whole series for more.) Taking that with some estimates on production budgets and marketing budgets, here are my estimates for various types of Star Wars films:
Welcome back from the quiet period. Hollywood’s traditional two week break that starts early and ends late, turning two weeks into four weeks of time off every year. Since no one was doing anything, we had a pretty quiet period. Which means we can linger on a longer story…
Most Important Story of the Week – Box Office Is Up (in non-inflation/ticket adjusted terms)
Let’s start with the “macro” look. Basically, the headline was that the box office “busted records”, which is true, technically. On the “true side”, domestic box office grew to 11.9 billion with a B, while international box office grew to $41.7 billion. Though you probably know this, Avengers took the global box office crown, and Black Panther took the US domestic box office crown.
It would be fun to put “$11.9 billion” in context with a chart, wouldn’t it? I loved the days when US box office was $10 billion because it was a fun round now. So, here’s the “revenue” figures for some parts of entertainment: 2019 domestic box office, international box office, Netflix, Comcast-NBCU, AT&T/Time-Warner and Disney revenue:
I love this chart because I have no idea what to make of it. On the one hand, clearly movies don’t drive as much revenue as TV, because look at Comcast and AT&T. Those are primarily “pipes” companies, but they with Disney make a ton of money on TV shows and network sub fees. On the other hand, $29.8 billion in global box office is a lot of money too. If theatrical really did vanish overnight, the effects would be profound. So for the foreseeable future, theatrical movies will be a small, but important part of the economics of film.
That all said, technically this whole debate is misinformed. Because, inflation. Most looks at box office treat inflation as a non-factor. While ticket price inflation is usually mentioned, it isn’t explicitly calculated. That’s why I recommend this thread by Matthew Ball on Twitter or Kevin Drum’s blog for his usual exhortations to account for inflation. (Including this recent plea.)
There is also the “MovePass” of it all. MoviePass peaked at 3 million customers, all seeing movies, but MoviePass paid full-freight on the tickets it purchased, losing money to do so. So the question is did MoviePass drive the uptick over 2017 levels, or the huge string of hits in Black Panther, Avengers, Crazy Rich Asians and Venom? We’ll probably never figure it out, but both the Vox and Hollywood Reporter summaries (both goodreads) mention this phenomenon.
In summary, those looking for theatrical “slow slide to oblivion” have to wait another year. Meanwhile, both traditional and digital players can marshall data to support their side (Theaters are dead! Theaters live!). My caution for decision-makers is to not mistake “declining sales” to “zero sales”. You can still make plenty of money off declining sales. Moreover, while I’m generally bearish on subscription models, I can see a path where “second weekend” movies or smaller films get bundled into a subscription pack by AMC, Cinemark, Regal and others. This could protect the increasingly important tent-poles, while driving more trips to the theaters. This will have less impact on revenue, but help with ticket sales. Moreover, it has to be theaters running the plan. Third parties just don’t’ have the data or incentives to get it right.
Long Read of the Week – Studio Report Cards by Jeff Sneider
So box office is up, but who won the year?
Well, Disney. Duh. But Warner Bros. and Universal didn’t have bad years. Warner Bros. had surprises in Crazy Rich Asians and A Star is Born. Universal had Jurassic World and Halloween. (As someone pointed out on Twitter, The Grinch has made a lot of money with little buzz.)
As Richard Rushfield pointed out in a past Ankler, Sony had a not bad “13 months” factoring in Jumanj, Venom and Into the Spiderverse. Paramount had Mission: Impossible and A Quiet Place. So overall it’s tough year to throw dirt on the movie studios’ graves. For the full coverage, though, read Jeff’s whole piece.
(What about the streamers grades? Honestly, we don’t have the data to judge. Sorry, but “buzz” isn’t the same thing as revenue or viewers or profitability.)
Update to Old Idea – New IP Entering the Public Domain
One fun topic that almost made the “most important” category was that a series of works from 1923 finally entered the public domain. Why? Because the copyright extension last passed 21 years ago finally expired for those works. As you can see on my top bar, I love thinking about this issue as I wrote about in “Don’t Kill Mickey Mouse: A Simple Solution to Copyright EVERYONE Will Love”.
Given that copyright is now expiring on its own, this would seem to obviate the need for that opinion piece. With the success of previous campaigns against PIPA and SOPA, there is now a movement fighting back against huge copyright holders and they will fight any extensions of copyright protection for companies like Disney and Warner Bros. So, if we just wait everything will be fine.
Sure.
I still can’t see a world where Disney lets even something like Steamboat Willie into the public domain. Yes, they can use trademark protection, but that still isn’t universal. Same with the classic Snow White. I just can’t see that.
Moreover, waiting seventy years after the death of the creator is also madness. That’s so long and really hurts creativity, while rewarding people only tangentially involved in the creation (the heirs and relations of authors and musicians and such). We need a better system, and paying people to protect IP makes a lot more sense, while freeing a lot of old IP. Let’s get on this Congress!
Other Long Reads – More “Year in Review”
As I mentioned in my last article, I’ve been enjoying year end reviews because often they get a better picture of what really happened in a given year. The news of the day pieces just often lose the longer term flavor. (Though I still haven’t found as many in-depth articles on entertainment companies as I would like.) Here are the longer articles I did really appreciate:
5 Big Questions for TV by Alan Wolk
(This lays out the biggest questions I’d honestly will try to answer in 2019.)
What’s Next? Predictions for Media and Entertainment by Julia Boorstein
(Similar to above, this article sketches out the larger trends, with a nod to declining M&A in 2019.)
Apple 2018 Year in Review by Jeremy Horwitz on VentureBeat
(“Will Apple enter the content biz?” is the question plaguing the industry. Apple is a behemoth so this summary is a good read about all their different products/moments in 2018.)
X-Box is Poised to Dominate the Next Generation by Jessica Conditt on Engadget
(Having seen how much TV viewing is done in living rooms, the next console war will have ramifications for all of TV & film.)
Happy Holidays! I’ll be off next week as will most other entertainment news outlets and hence news. As I said in the last update, I won’t be writing a “year in review”–though I’ll be putting up some old posts over the next few weeks for new followers on Twitter–because I only wrote articles for half of 2018, and I also think that “the year” should “end” in August for entertainment coverage. It’s a more natural stopping point.
Either way we still had some fun stories this week, and a lot of good reads as people started their year end coverage.
Most Important Story – CBS May Drop Nielsen
Variety reported an exclusive story that CBS and Nielsen were negotiating a contract renewal, and CBS may drop Nielsen. Part of me said, this is actually “lots of news with no news” because the contract hasn’t actually been dropped. (And Hearst re-upped their contract.) I prioritize events happening over coverage of potential events–like potentially dropping coverage–because so many non-events happen in the news.
But, this wasn’t actually “lots of news”. It was barely covered. I saw the exclusive on Variety, but didn’t see a lot of echoes of it because measurement services aren’t the biggest drivers of clicks, are they?
That said, the future of measurement is a TREMENDOUSLY HUGE issue for the future of entertainment. Especially as it regards to transparency. It’s tempting to make exaggerated predictions going either way on this:
Exaggeration 1: Nielsen will die and we will have no measurements!
Exaggeration 2: Netflix and Amazon watch out, someone will figure out all your measurements!
I’ve made both predictions. So silly me.
The future is likely somewhere in between, which is bad for consumers and talent (with smaller production companies included in talent). It is definitely possible to have measurements of streaming video and everyone from HubResearch to TVTime to Nielsen itself has started tracking this. So we will have the visibility into some of the viewership metrics that Netflix and Amazon fear. At the same time, this won’t be as granular as the data they have in-house, so we won’t be even better at tracking cross-platform. And we also will have less clarity because the era of a dominant researcher providing universally accepted metrics–Nielsen–will end, which means firms can cherry pick from the different measurement services even more in the future.
Long Read of the Week – “The Year in Netflix” by Joe Adalian
As a news media, we need more “longer views”. Like my fifty year newspaper reference from las tweek. And this week we had a great one in this look back on the year of Netflix by Joseph Adalian at Vulture. Man, I really want to steal this idea and do a “year back look” on every major company in entertainment and am debating doing that in 2019. (There are only about 5 entertainment companies, left so it won’t be hard.)
Joe really covers the content side of the house, with some remarks on what this says about Netflix’s strategy. If I had a complaint, though, it would be that I didn’t see enough on the business-side. That wasn’t Joe’s intention, but it’s obviously what I care most about. For example, while he referenced subscriber growth to indicate success, he left out a key number:
Where was the Netflix free cash flow numbers?
Listen, lots of metrics are good and useful at forecasting future financial performance of firms. Revenue, EBITDA, Profit/Loss and subscribers, for example. Throw in return on assets too, if you like The Goal. But in my opinion, Free Cash Flow reigns above them all. Because it is the absolute hardest number to fake, which some accounting tricks still do.
Way more importantly, free cash flow is the basis for “Net Present Value” which is a core–if not THE core–foundation of finance. Add current and future costs, and subtract future revenues discounted for the time value of money (all of that explained here in a great explainer on the Time Value of Money that even President Trump doesn’t understand!) and you understand if something was a good investment. Right now, Netflix streaming video has lost its shareholders something on the magnitude of over $4-5 billion dollars since it launched and will lose another $3 billion this year. That will take decades to earn back, if they ever do. Which would be, you know, negative net present value. That seems bad.
Oh, and as I referenced in a tweet, the section on international productions being a huge advantage for Netflix is an opinion I don’t share. It really got my goat. But when you write over 40 tweets, well then you need to write an article on that, not tweetstorm. Something to look forward to in the new year.
M&A Update – Deaths of the MCNs
Here’s a serious question for my serious readers…are there any MCNs left?
I bring it up because when I was in B-school, MCNs were hot. (MCNs stands for multi-channel networks, and were collections of Youtube channels that shared marketing, branding and ad revenue, for those who don’t know.) The business news events of the years while you are in business school have an outsized impact on your thinking. So for me, MCNs circa the early 2010s were a hot business. Lots of the “entertainment-focused” students were targeting them for employment. Shortly after I started work, Disney made a huge splash with a reported, but then downgraded, $1 billion acquisition of Maker Studios.
But a few weeks back Warner Media–formerly Warner Bros, and now part of AT&T–rebranded Machinima and revamped distribution. I think people were let go. Viacom now owns AwesomenessTV, but mainly acquired the debt as opposed to acquiring the value of the company. I haven’t heard much from Makers Studios at Disney, but believe they wrote down that deal too.
The lesson is always pay attention to the fundamentals. And don’t let large acquisitions convince you something is worth that high valuation. Always look at the fundamentals.
Fun idea – David Nevins on Making TV Shows
In an interview at a UBS conference, CBS Chief Creative Officer David Nevins said this, (bolding mine):
Nevins was asked about CBS’ content strategy, as it produces some 75 television shows for its own platforms — the broadcast network, Showtime, CBS All Access and The CW — as well as for third parties like Turner. He said the media company would continue to do deals that make the most financial sense, and wouldn’t be restricted to creating shows exclusively for its own platforms.
Remember “net present value” I just described above? Another way to describe what Nevins said is, “We will do deals that maximize our “Net Present Value” of produced content.” To simplify, if a competitor offers to pay you $100 million dollars for something you could make $10 million on your own platform, you sell it to them and give the $90 million extra to shareholders. His math is right.
The implications, though, aren’t for traditional media & entertainment conglomerates. They’re great at valuing media. The implications are for streaming channels like Netflix and Amazon Video/Prime/Studios. If someone offered them $100 million dollars for something they could make $10 million on–meaning generate retained and acquired subscribers whose CLV (explained here) would equal $10 million–they’d pass. That seems…bad. As I’ve written a variation on this theme a dozen times by now, I’ll have to walk everyone through that in a future article.
Management Advice – Pay Attention to Biases in Hiring
If you want to read a great article on how subtle biases effecting decisions, I recommend this Kevin Drum piece on astronomers. No really.
Listen, I’m not asking you to read it because of the obvious reasons like improving diversity in the workplace or decreasing socio-economic inequality. Diversity and equality are good values. Instead, I want to appeal to you the capitalist looking to compete. If you’re hiring worse workers, that’s bad. Your biases could cause you to do that. So consider ways to remove your biases from the process.
A few months ago I briefly tried to explain the distinction between “customers” and “views” to help explain why Twitch is often over-hyped. Since I’ve spent a lot of the last two weeks banging my head against the Twitter wall insisting that we stop letting Netflix use misleading data, it seems time to break out that explanation into its own post.
To see the need for this, let’s look at a handful of recent Netflix announcements. They provide a case study for how a service can use multiple metrics that all kind of mean the same thing but all don’t. Worse, a lot of the journalism covering these reports mix up the different words. In 2018, at some point, Netflix has said…
– 80 million customer accounts watched a type of movie.
– Customers watched 20 million streams of a single movie.
– 80 million customers watched a type of movie 300 million times.
– In one day, Netflix had a total of 35 million hours viewed.
In those four datecdotes, we have, really, three different concepts: streams, hours and customers. The key is understanding how they all interact so we don’t use them haphazardly or misleadingly. If this explanation comes across as obvious, well apologies in advance. But as I think about it, I didn’t know it before I worked at a streaming video company, did I? Nope, and I spent a lot to time explaining to senior leadership what our numbers did and didn’t mean.
So let’s get started at the smallest level.
The Starting Point: An entry in a database
To understand where all the streaming numbers come from, you first have to understand that every data point for a streaming video company comes from somewhere. That somewhere is a single entry in a database.
Yeah, it seems obvious, but worth mentioning. There is a database that holds the record of every customer’s every interaction with Netflix, Hulu, Amazon, CBS All-Access, Showtime, DC Universe and Youtube. And any new streaming service down the road. That’s where all the data comes from. A massive database that tracks every interaction.
The key is that lowest level, “the interaction”. The specific details around the record will differ by company and for different reasons. But the general broad strokes are the same. These interactions are then complied and collated and analyzed to develop all the other advanced metrics.
A Sample Entry Explained
The best way to visualize an interaction is to see a sample. So let’s see what a sample database entry looks like. This way you can understand the specific pieces of knowledge the companies can track. It starts with the “Five W’s” (who, what, when, where) and builds out from there. (The “why” is the key to good decision-making, and simple statistics can’t tell you that.)
An entry is generated when you—the user—clicks on a show or movie to watch on a streaming platform. That something can be a movie, TV show, trailer, commercial or whatever. Or piece of music for a streaming service. But the click via mouse click, remote control tap, voice command or finger tap starts the process.
Let’s just go through each piece. Start with the “who”. Every customer is tracked by some sort of customer ID number. This means that it tracks everything related to one account. I called this a “customer”, but you could call it users or customer accounts. Notably, it could be different than a “profile”, which Netflix has. (And if you have a “kids” section, then you are subject to COPPA regulations, and shouldn’t track identifying data, a different issue.)
