Happy 4th of July week! If you’re like me a holiday in the middle of the week just crushes my schedule. But that doesn’t mean we don’t have time for some updates on (what I consider) the most important story of the week and some other good reads.
The Most Important Story of the Week – Sony gives an ultimatum to movie studio head
I’ll give credit to the Ankler/Richard Rushfield for this story. (I hadn’t seen it otherwise.) From the June 28th letter, we found out that Sony has let new-ish boss Tony Vinciquerra and movie head Tom Rothman know that they have three years to get a better return on equity before they sell the studio. As Rushfield, ably points out, their movie pipeline is essentially already built out, so how much better could they make things run?
So why is this the most important story? Well, it encapsulates the history of Hollywood in one movie studio. Or two that merged together. In a way, Sony was the “Amazon” of the 1980s: a huge new firm in a burgeoning industry. This time, electronics instead of technology. And like Amazon or Apple or Facebook or Youtube, the company saw “synergies” in owning content, so it bought a movie studio. Then, the new owner could never figure out how to apply the lessons that helped it dominate another industry to Hollywood. Film-making defies other business logic. Sony could also never quite find the right person to run its new operation and ultimately, had a huge write down for entering this business.
The question is: will the tech companies make the same mistake(s) as Sony? Will the tech companies pay too much for content? Remember–and most deal analysis forgets this–no matter how much of a strategic advantage something is, if you pay too much for something you still lose money. You can absolutely destroy shareholder and customer value by overpaying for an asset.
Other Contenders for Most Important Story
US officially enacts tariffs on China.
The ongoing impact of trade tariffs will be a story to monitor. So far, technology and entertainment have been left out of the fray. That said, a lot of the genesis for why the Trump administration feels hostility for tariffs–China steals IP; China bans foreign ownership–is acutely felt by internet firms. American companies want to do business in China and given the easy ability for tech firms to enter new markets, this stings especially bad. (Though if you’ve ever wondered why Sony doesn’t own a TV network, the US bans foreign ownership of broadcast and cable channels. Imagine a world where Rupert Murdoch never received US citizenship.) Now, I’m still looking more to Europe to see if they will target US media or entertainment or tech companies, but I do think the China tariffs news signals Trump’s resolve to plow ahead with a trade war.
Netflix wins challenge against Fox on lawsuit on executive compensation.
This article popped up in my “Twitter thinks you’d like this” feed. I’m not sure I love that feature, but in this case, yeah I’m interested in that. This is a legal issue that I haven’t read up on–the THR summary is pretty good–but anything that could end a common employment practice (fixed-term employment contracts) that is currently standard feels important. I will add that on initial read, the Fox employment contracts sound very one-sided, which in a rapidly consolidating industry, is both awful and predictable.
An Update to an Old idea
We love crafting narratives. Especially when it comes to our favorite intellectual property. So if the next Star Wars films bombs, it will be blamed on The Last Jedi or Solo: A Star Wars Story or both. Or it will be some combination of critical acclaim and customer feedback.
Or, as Scott Mendelson writes, it could just be because the November/December of 2019 will literally be crazy filled with BIG movies. We could try to assemble a complicated narrative for why Episode 9 will under-perform, or we could just understand it has huge headwinds going against it. Money quote:
November alone will see Warner Bros./Time Warner Inc.’s Wonder Woman 1984, Paramount/Viacom Inc.’s Sonic the Hedgehog, Annapurna’s James Bond 25, Paramount’s Terminator reboot and Walt Disney’s Frozen 2. And then December will have Walt Disney’s Star Wars 9, Fox’s Death on the Nile, Universal’s Wicked and Sony’s Jumanji 3 all likely/possibly opening on or around Episode 9’s Dec. 20 release.
Listen of the Week
So last week I was fairly complimentary of the “listen of the week”, an episode of NPR’s Planet Money’s The Indicator (that’s what I call it) about MoviePass, a company I can’t stop reading about. This week, I’m recommending an episode of “Money Talks”, an Economist Radio podcast. (I subscribe to their podcast feed for all their episodes.)
It’s about Netflix.
Unlike MoviePass, I avoid reading about Netflix. Most articles cover the same spin, and you’ve heard this all before: Netflix is changing the game in content production by spending huge amounts of money. The Economist calls this Netflixonomics.
To their credit, the podcast does ask Reed Hastings on exactly how much money Netflix is losing. The fascinating part, to me, is that Hasting’s answers come across as “disruptive” but are as old as Hollywood. He mentions that costs in TV production are front loaded. Okay, that’s true for blockbusters and big TV series for everyone. He also mentions that one hit can help a network/streaming platform for years. Okay, that’s also true for everyone. Earlier, the podcast mentioned that Netflix is producing shows for a global audience. Okay, that’s true for every studio. (Ask HBO is they’re selling Game of Thrones globally.)
So again, keep a skeptical eye out when you read/listen to entertainment news.