Month: November 2018

Most Important Story of the Week and Other Good Reads – 30 Nov 2018: Slight Tweaks to the Netflix Model

This week was a battle for the most important story between three related streaming stories. Who won? Well, Netflix, but not for the story you think.

Most Important Story – The First Netflix Original on Linear Broadcast

To steal from my own Twitter feed, Netflix is lauded as THE truly innovative company in entertainment. I read this all the time. And when they launched (ten years ago!) they really did change a lot of things: tons of episodes to watch on demand. All episodes released at once. Thousands of shows with scrolling. Recommendation algorithms. That really was a change in how the model worked.

Since then? Well, they’ve taken a lot of hard line stances:

– Never releasing originals in a week-to-week format.

– Never introducing live streams of shows.

– Never doing sports programming.

– Never releasing movies in theatrical windows.

– Never releasing original programming on linear or other platforms.

That’s a lot of “nevers” for a company that’s trying to be innovative. (In my head, I want to write a satirical HBR article called, “Innovation comes from Never”.) But it looks like the last two points may change, just very gradually. And not by Netflix’ choosing.

You probably missed this, but starting on this week, Bojack Horseman, the critically-acclaimed (?) Netflix original animated series is now airing on Comedy Central. The short explanation is that the distributor and production company retained linear rights after a hold back window for Netflix. So they sold it to the highest bidder.

Personally, I don’t mind this for Netflix. They don’t have a say either way, but they should really how premieres of existing shows off network help boost the ratings. Let me provide a personal anecdote to explain. I’ve wanted to watch The Magicians for a while now, but don’t currently have a Netflix subscription (we just weren’t using it). As a result, I never went over there to catch up on the previous seasons. So as each new season is released, I never bothered to catch up becuase Syfy never did a marathon of previous episodes to let me catch up.

But, for some reason, reruns of the season 1 recently appeared back on Syfy’s linear broadcast. Now my wife and I are debating turning Netflix on just for that show. (Or apparently the Syfy Now app has those episodes. We’ll see.) As a result, I may watch season 4 next season if I can catch up in time.

The point is that allowing sampling for bingeable shows will push people back to whoever has the most episodes. If you don’t have Netflix, then Bojack Horseman is dead to you…but for the people who just watch Comedy Central, they may get hooked and join. I’m sure there are other examples of streaming shows appearing on other platforms. I know HBO has put some of their very library shows into broadcast, and maybe some other Netflix originals appeared in other countries in different platforms. Either way, I’d say this is an experiment worth taking. Good luck Netflix, even if you didn’t want this.

Other Contenders for Most Important Story – WarnerMedia will have three tiers

I’m tempted to start this sub-section by blasting Warner Media and being as snarky as I can. It’s easy to make fun of them because they are doing something different, and different is easy to mock. The blink reaction I had was, “You’re going to try to go up against Netflix with three different, confusing price tiers? Really?”

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Don’t Kill Mickey Mouse! A Simple Solution to Copyright Law EVERYONE Will Love

Let me paint a nightmare scenario:

“Evil corporations realize they have extremely valuable intellectual property. Famous characters like Superman, Batman, and most of all, Mickey Mouse. These corporations employ armies of lawyers and lobbyists and they get to work on Congress. They extend the copyright on all works indefinitely. This means potentially millions or tens of millions of works that could enter the public domain…never do.

Creativity dies.”

Now imagine the other side:

“Mickey Mouse enters the public domain. There is a flood of Disney merchandise on the market. Evil companies have him start doing pornography. Disney loses billions in market capitalization.

Mickey Mouse dies.”

Scary stuff, right? It’s a classic dilemma. Either we radically improve copyright law and free creativity and Mickey does pornography—what the Electronic Frontier Foundation wants—or we keep the status quo forever and creativity is permanently stifled—what The Walt Disney Company wants.

If I haven’t written it before, I hate dilemmas. Not the idea of having to choose between two bad options, but the concept of dilemmas. Usually “either or” ethical scenarios are the stuff of lazy polemicists. They force someone’s opinion on you by making it seem inevitable.

The above two scenarios do that perfectly. Nightmare scenario one is corporations run amok, ruining creativity for the rest of us. Nightmare scenario two feels better to me, but is still pretty yucky. I don’t want Mickey Mouse in pornography either.

Neither side will win. Again, the “free the content” folks—who I’ve mostly heard on On The Media or read in blogs—have great points about creativity. But being an absolutist on this issue will just drive them into the brick wall of giant corporations with billions on the line. They will NOT give up without a fight. As a result, the corporations have taken the hardest of hard lines. As a result…

Copyright protection dates back to 1923.

To quote TV pitch men, there has to be a better way.

Think about that, for 150 years of American history, copyright extended for a creators live, then it absolutely froze at an arbitrary date that happens to protect Mickey Mouse and Winnie the Pooh. As long as that is the case, we can’t push the copyright law forward in time. Disney won’t let us.

The key to break through the logjam is to understand the true losers. One of my themes of this website will be “understand the economic incentives.” Most problems are clarified, if not solved, when you do this. So while there could be lots of winners by improving copyright, there are some clear losers who will fight this tooth and nail. The studios like Disney, Warner Bros. and others could hemorrhage billions in market capitalization.

So what we need a compromise. We need to realize that the two positions staked out currently in the debate are NOT the only two positions we could have. We could craft a proposal that will free millions of creative works from copyright jail, while allowing Disney and the studios to keep control of their IP, and we can do it for free. In fact, we’ll make some money on it. So here it, trying to get it to fit onto a post card to make Paul Ryan happy:

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Most Important Story of the Week and Other Good Reads – 23 Nov 2018: Here Comes the Retailers

If you own a retail company, you know what you should do? Enter the TV business. In the glorious tradition of electric companies and liquor salesmen, now the big box and online retailers are entering the biz. Here come the retailers!

Other Contender for Most Important Story of the Week – Retailers Enter the Streaming Fray

When we think of strategy in the business context, we usually imagine an innovative business leader sitting down with his team, brainstorming plans, debating options and making a bold call. This sometimes happens in corporate America. The ur-example is Steve Jobs deciding to make the iPod and then the iPhone. Revolutionary!

You know what happens a lot though? (And isn’t the subject of books or HBR articles.) Instead of all that thinking, someone asks, “What are our competitors doing?” Then says, “Why don’t we do that too?” (Notably, the iPod followed the Zune and the iPhone followed the Blackberry. Apple just made both products much, much better.)

Disney launched the Marvel Cinematic Universe, and I’d call that a truly remarkable strategic initiative. Of course, Universal tried to launch a monsters-verse, Warners is trying to launch DC universe and a “big monsters”-verse, and Paramount even flirted with a GI Joe/Transformers universe. That’s not creative strategy, that’s copying.

Netflix decided to binge release all its shows. Amazon thought about going week to week, then said, “Nah, we’ll just follow Netflix’ lead.” Now lots of platforms are aping the binge-release model without understanding the strategic ramifications. Again, that’s not creative strategy, that’s copying.

Which brings us to retailers. Amazon sells lots of things, and at some point launched a video streaming service to help improve the Prime memberships and presumably sell more memberships. As a result, early this year there was news that Walmart would enter the fray to launch its own streaming service. (It had purchased Vudu, a transactional video-on-demand service earlier, so this was an evolution of the strategy.) Not to be left out, there are now rumors that Costco may also start its own streaming service. Can Target and eBay and Kroger and others be too far behind?

(The Ankler pointed me to the CNBC article from October which inspired this section. This isn’t exactly breaking news, but a topic I wanted to cover nonetheless.)

The Costco news has been generally overhyped. They haven’t actually announced a streaming service and it seems very clear their goal is to partner with a streaming platform to offer it for free to their customers as a bonus for renewing. Then they get all the benefits of a streaming platform without having to do the work. (And don’t neglect the work all you aspiring streamers. If you have a sub-par product from a user experience, customers won’t use it. Netflix has usually excelled in this area, until autoplay trailers started.)

But guess what? They haven’t actually announced a partnership and it seems like negotiations stalled with the potential streamers. And I think I know why: Costco realized that offering a ten dollar a month streaming service won’t actually help boost the amount of memberships they sell. Getting people to pay $100 a year for a membership is great because they buy tons of stuff at your locations, and pay you for the privilege. But if you give all that away in costs for streaming–that your customers may not even use–well you lost all your revenue. Even at a discounted price, the economics are really tough. Walmart is likely realizing this too.

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Most Important Story of the Week and Other Good Reads – 16 November 2018: Goodbye to FilmStruck

The streaming wheel keeps spinning. More and more companies want to join the future of entertainment and release their shows on-demand. Yet, what intrigued me most was one of those massive conglomerates not announcing new businesses, but shuttering old ones.

Most Important Story of the Week – WarnerMedia shut down FilmStruck

Wait, did Warner Media just close FilmStruck? Did it really close DramaFever? What’s going on?

(Punctuation aside: in the age of digital websites, I never know if names of companies are one word or two. According to Wikipedia, both of these companies are joined words.)

As I mentioned in my article on the very vague announcement by AT&T/Warner Media, this generally augurs a smarter strategy by AT&T/Warner Media (a name I hate typing because it doesn’t make sense). Here’s the list of at least 13 streaming services currently run or planning to launch by the conglomerate: WarnerTBD, DirecTVNow, HBONow, Boomerang, DCU Streaming Something, Machinima, Uninterrupted, VRV, Stage 13, Ellen Digital Ventures, CrunchyRoll, FullScreen, Rooster Teeth and I’m sure there are more. And get this: Turner (with CNN, TNT, TBS and the NBA channel) has its own set of digital initiatives.

How did Warner and AT&T manage to launch so many simultaneously? And all for different price points? (Though, Otter Media did launch VRV to make one price point for multiple streaming options.) Warner Bros. and AT&T separately tried to launch streaming services, they just took a wildly different path than Netflix, Amazon and others by trying to micro-target a lot of these streaming services.

Now that they’re together under one roof, they’re consolidating. This is natural; as part of a “micro-target” strategy, though, if something doesn’t work you need to pull the plug. Closing down the least successful options should make sense if they weren’t profitable–but as long as the next step also makes sense: which is continuing to consolidate all the brands under one roof. There are two really compelling reasons to do this. First, recreating the bundle is ultimately what customers want. Sure, you may not like the idea of paying for ESPN if you don’t watch sports, but many viewers don’t want to pay for your Bravo or Syfy or History Channel fix either. The bundle ultimately spreads the wealth; everyone suffers and wins together.

More importantly, Netflix set that expectation for consumers. When I’ve spoken with legacy media companies, they’ve always insisted that they just can’t lose money the way Netflix does. Fair enough, but customers expect a product like that. Charging $3 a month for access to only cartoons or only DC, when Netflix charges just $11 for both superheroes and cartoons and sitcoms, well what would you rather buy? You may not like that Netflix has set unrealistic expectations, but there you have it.

2019 will be fun to see how these different strategies finally collide.

Side Note: Really DramaFever is closed? This is one of those companies that two years ago seemed like the “hot new thing”. But like many things that are reported in the growth phase and ignored in the death phase, seems to not quite have matched the hype of its initial growth.

Side side note: Just because Netflix and Amazon Prime/Video/Studios have a “big tent” approaches doesn’t mean that they aren’t losing the equivalent amount of money on their international programming. Essentially, snapping up a bunch of international originals from Japan to Korea to Latin America–which both have done–is the same thing as launching your own channel, you just cover the costs in the upfront fee. The key becomes “allocation”. How much of an original productions costs are allocated to the US, UK, EU and other foreign territories versus the country of origin? If it’s a lot–and from Netflix and Amazon’s statements this seems to be true–and no one tunes in, well you’re losing money on those bets, even if shareholders can’t see those losses. But if they are over-indexing in viewers globally, they could be making money. At the end of the day we don’t know enough to say, but it is a risk.

Context Update – WeWork is Too Big To Fail…Who Else is?

This is a new feature for me: the context update. I’ve been seeing a lot of general economic stories that had me thinking. Stories about a possible recession, about a possible stock market crash, and about the debt markets. Just last week, I had an update on how the election could impact regulation of media & entertainment. So in addition to strategic moves, it felt right to regularly make room from “context” updates, stories I want to call out because I think they could change the context in which we conduct the business of entertainment.

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NBA-to-Entertainment Company Translator: Part III “The Rest”

(Read Part I and Part II here and here.

The only downside of my NBA-to-Entertainment translator was that I only had 30 NBA teams to unleash my snark. In entertainment, we have many more companies that just couldn’t make the cut. So I had to expand the world of the NBA just a little bit to fit in a few remaining “just too perfect to exclude” translations.

Here you go: the Rest.

The G-League – Discovery (Scripps) and A&E Networks

I’m a hard core basketball fan like many people. But if you asked me to tell you how many teams are in the G-League, I couldn’t do it. (It turns out there are 27.)

I follow entertainment pretty closely. I couldn’t tell you how many channels Discovery (with Scripps post acquisition) and A&E Networks have either. So I looked it up:

19! For just Discovery (with Scripps).

10! For A&E.

That’s more than I would have guessed for both, and you know what, that gives these two a lot in common. Sure, they have a lot of channels/teams you can’t name, but they keep doing their thing. (The difference is a lot of Americans still watch a lot of these channels, which can’t be said for the G-League.)

LeBron James – Marvel Studios

Not the whole enterprise, just the part run by Kevin Feige. Consider these fun connections:

Both LeBron and Marvel started making waves in the early 2000s. Spider-man and X-Men made a lot of news, and you could tell something was brewing, just as LeBron was being called the greatest high school prospect in the world. Marvel Studios released the mammoth hit Iron Man in 2009, the first year LeBron won the MVP. Marvel Studios released the mammoth world building Avengers in 2012, the first year LeBrown won a championship. In 2014, nobody thought LeBron would leave Miami, but he did, and no one thought Guardians of the Galaxy would be a smash hit, but it was. Either way, both LeBrown and his 14 straight All NBA appearances is the equivalent of Marvel Studios launching all successful films since 2009.

In the present times, LeBron coming to the Lakers was the event of the season, like Black Panther or Avengers: Infinity War, take your pick.

Yet, the questions remain for the future. Can LeBron’s health last? Will Kevin Feige keep churning out the hits? So enjoy the ride of Marvel Studios and LeBron while it lasts.

The ABA – 21st Century Fox

Their spirits live on! The ABA brought us the Brooklyn Nets, Denver Nuggets, Indiana Pacers and San Antonio Spurs. And 21st Century Fox will live on in Avatar and Spider-Man.

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Disney-Lucasfilm Deal Part VIII: The Theme Parks Make The Rest of the Money

(This is Part VII of a multi-part series answering the question: “How Much Money Did Disney Make on the Lucasfilm deal?” Previous sections are here:

Part I: Introduction & “The Time Value of Money Explained”
Appendix: Feature Film Finances Explained!
Part II: Star Wars Movie Revenue So Far
Part III: The Economics of Blockbusters
Part IV: Movie Revenue – Modeling the Scenarios
Part V: The Analysis! Implications, Takeaways and Cautions about Projected Revenue
Part VI: Disney-Lucasfilm Deal – Television
Part VII: Licensing (Merchandise, Like Books and Comics and Video Games and Stuff))

If you’ve been reading along after 47 pages and six months of writing, you know that Disney more than made its money back on its purchase of Lucasfilm through releasing wildly successful Star Wars sequels, and then making another $1.7 billion in licensing revenue. So they made their money back.

But to truly get a great return on investment—as I wrote in the introduction in my “gut” section and again when referring the licensing & merchandise—theme parks are the whipped cream and cherry on top. In 2019, if it stays on track, in Disneyland and in Disney’s Hollywood Studios, Disney will open Star Wars: Galaxy’s Edge, which have been under construction since 2016.

And they could be huge money makers.

Theme parks allow The Walt Disney Company to make more off its IP than any other studio. (That’s its competitive advantage.) So let’s figure out how to quantify that benefit. Then, we’ll figure out the costs.

The Challenge: Disentangling the Marginal Benefit of new Theme Parks

With movies, calculating the revenue is messy, but we have lots of data. With toys, forecasting the revenue is easy, but we have way less data. What about for theme parks? In this case, the toughest part of the process is assigning the value.

Think of it like this. We know that putting in a Star Wars: Galaxy’s Edge at Disneyland will drive attendance and revenue. The problem with theme parks is untangling how much revenue they will drive.

In other words, the “marginal benefits”.

Some day I’m going to write “Marginal Benefits Explained!” because it’s a core economic principle—the core principle?—and I’ve seen 7-figure-earning business execs screw it up. Marginal benefits are the additional revenue a business generates by changing an input. So if you’re making a million dollars a year and raise prices, and it goes up to $1.2 million, your “marginal benefit” for the price raise is $200K, the additional revenue you generated.

(You want to know my biggest frustration/pleasure with this website? Every time I write a new article, I think of two more posts to write inspired by it. The “hydra problem” of the Entertainment Strategy Guy.)

This idea is what stymies the analysis with theme parks. Let’s visualize it with an example.

Next year, I’ll walk into Disneyland in the off-season (probably September-ish). I’ll be wearing a Star Wars shirt. My brother will probably rock a Marvel shirt. That said, I’ll also have a three year old wearing, if current trends hold, either an Elsa (Frozen) or Belle (Beauty and the Beast) dress.

So how much of that trip do you allocate to the opening of Galaxy’s Edge? (Punctuation side note: do you italicize theme park lands? I did, but should I?) My family already averages one trip to Disneyland every year, and my daughter knows that Mickey lives at Disneyland. So she’d go anyways. But what about me? I’ll definitely go to see the new park at some point. We could make an analogy of a theme park to a content library on a streaming platform. People pay for the whole thing, not the parts. With content libraries—which is essentially what a theme park is—untangling and clarifying the value offered by each piece can be tough.

The Economics for Theme Parks

When in doubt, I like to boil things down to a simple formula. So let’s do the rough “business model” for a theme park. I came up with this:

Slide63

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Most Important Story of the Week and Other Good Reads – 9 November 2018: How the Elections Could Impact Hollywood

Over the last few weeks, there were big stories (elections), tragic stories (devastating forest fires in the southland), and heart-breaking stories (the shooting in Thousand Oaks). So many stories that it gets hard to stay focused on the business of media and entertainment. So a few days/weeks late, here is my round up of stories I’ve been following. I won’t touch the personal tragedies as they’ve been covered better by other news outlets.

I struggled to call out a “most important” story, with the election gobbling up media coverage. So you know what…

Most Important Story of the Weeks – How the Election Could Change Regulation

As everyone knows, Democrats took control of the House of Representatives while Republicans held onto the Senate in the American elections of last week. (Then came a bunch of other political news. If you follow most entertainment journalists on Twitter, you don’t need me to repeat it for you.)

The key is the ramifications for business. First, what I don’t think will happen. I don’t think there will be a sudden wave of anti-trust regulation. I don’t think there will be a wave of pro-consumer legislation like finally addressing the United States unwieldy IP/patent/copyright law. The Democrats only control one branch of the Federal government, and will still battle a hostile Senate and hostile President Trump to pass any new legislation. Betting on the status quo is always a good bet in our current political climate.

What could happen? Well, caution in rolling back some regulations. The chairman of the FCC, Ajit Pai may be just a little be more worried than before the election about his agenda of wholesale deregulation of media & entertainment. (In fact, he’d already blocked one merger in the broadcast space.) Under threat of testifying on the hill multiple times, he may dial back a few of his more controversial proposals. With their newfound agency, Democrats could tie some consumer-protection measures to budget bills, such as support of municipal broadband or, gasp, net neutrality. Again, I’m skeptical but they could try. Also, as Variety noted here, Hollywood could pressure Democrats to put pressure on tech giants to fight piracy. Again, could, but likely no bills will result.

Then you have the wildcards. Not saying they will happen–I mean, is a wildcard a 10% or less probability?–but I’m thinking about them. My first wildcard is President Trump going crazy with antitrust legislation on his enemies: AT&T/Warner (cause CNN), Comcast (cause MSNBC) and Amazon (cause Jeff Bezos). I think he isn’t focused enough to follow through, but wouldn’t bet against him, especially if his new Attorney General sticks in the role. At the local level, I’d look at “municipal broadband”. Since everyone hates their cable providers, with lots of new Democratic gains in state houses, more states and cities could try their hands at alternatives to traditional cable companies.

The final wildcard would be legislation that finally addresses robocalls. Any politician who stopped all the annoying phone calls would become a hero to consumers. (That’s a hint for politicians already thinking about 2020.)

Other Contender for Most Important Story – BlumHouse Does it Again

Another horror film by Jason Blum, another box office smash. (Current numbers are $76 million opening weekend and $151 domestic box office to date.) That said, this one feels a bit more expensive production-wise (Jamie Lee Curtis, Halloween franchise owners) than past BlumHouse super hits. Still, he’ll definitely make his money back. Again. (Blum was rightfully feted in THR in a good read.)

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