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.

The obvious counter to this is cellular phone companies. AT&T offers free HBO; T-Mobile offers free Netflix. How do they get away with it? Well, in one case, they own the companies they’re offering for free. In other cases, the “free” subscriptions like Amazon Prime or Netflix, you actually pay for a much higher per month fee. (So it sounds good in commercials, but doesn’t really exist.) The third reason is that cellular business is heavily consolidate in four players (with two giants), and they run much, much higher margins than retail business. (The difference between a $1800 a year cellular phone bill and $100 membership is well, $1700 dollars.)

But wait! If the economics don’t make sense for Walmart and Costco, what about Amazon? Well, Amazon tells us the Prime Video service is doing great, but don’t actually release a ton of detailed data on Prime subscribers, video viewership and how much membership growth it drives. My rule of thumb would be, if your company is barely making money (some say losing cash), and other people can’t make your economic model work, then there probably is a deeper story there. But I’ll tell that story in a longer article sometime in the future.

Strategically, Costco would be better off by focusing on offering their customers a great product based on around its strategic strength of retail. If customers pay a membership to get access to Costco stores, well make sure they have a great experience buying things at Costco. If online shipping is hurting your business model, well figure out ways to improve how you ship things to customers or your core retail experience. But don’t just offer them streaming video and think that will somehow retain customers. If the retail business goes, no amount of video will save you.

(I’d add that society would be better off if we had more opportunities to pay for what we want. Complicated subscription models tend to benefit companies, not consumers.)

Data of the Week – Amazon Prime/Video/Studios Does Well With Football

I had to change the title of my “Big Data” section for each week’s column because honestly I never seem to get truly “big data” things to report on. I get old “small data”. For example, last week, Amazon released a juicy nugget in the form of weekly viewers of their Thursday night NFL games digital viewing. Since the streaming companies are so stingy with numbers, I was excited.

Of course, it isn’t like a streaming giant to just give us the data. Amazon displays Netflix-esque gamesmanship by creating a new metric to unveil next to viewers. It would be really simple, I mean beyond simple, to just tell us how many minutes or hours Amazon customers viewed each NFL game. Having worked for a streaming service like Amazon Prime/Video/Studios, I know they have this metric. So why do they insist on creating some third metric about “average minute audience” when they could just give us the total hours? When it comes to data, if a company is hiding it, well they’re hiding it to make their own narrative sound better.

(More data complaints: I’d add that they could just break out the America/international splits. Don’t give us fun facts, just give us the data. Also, combining Twitch and Prime Video is definitely trying to hide which platform is doing worse, which is the point about selective data. And you know I’m really skeptical about Twitch numbers in general.)

Lots of News with No News/M&A Update: Amazon Bids on Regional Sports Networks

But the sports business must look good to Amazon because because guess what? They may buy all of Fox-turned-Disney’s regional sports networks that Disney is unloading to get it’s Fox acquisition through. Three Amazon-related stories in a row! That said, news that Amazon is bidding is interesting–they’ve always been active in the M&A market–but not really “news” until they win the auction. My guess is Disney still sells these to Fox given the great Iger-Murdoch relationship, but now at not as good a price.

Notably left out of the reporting–at least not in the headlines–was the fact that a lot of private equity and broadcast groups bid on the networks. So cable may be dead, but a lot of people still want to buy cable channels. Hmm.

(Also, the initial idea that Murdoch would buy back assets at a lower price than what he just sold them for turns out not to come true. With multiple bidders, Disney will likely get a much better price.)

Good Read of the Week – CNN’s $100 Million Problem

I don’t have a ton of great insights into this article, but the airplane/hotel/train world of entertainment is one of those worlds most people don’t follow and really isn’t worth a ton of money, but smaller players can carve out unique niches. As always, Eriq Gardner does good work, and I’ll admit the $100 million dollars is a big price tag for airlines.

  1. […] I discounted the news that Netflix giving Roma a limited theatrical run wasn’t the monumental deal others made it out to be. (The Ankler echoed this take.) In that vein, I recommend Kim Masters piece here, bemoaning Netflix lack of transparency. It really just asks why Netflix continues to hide all data, even the performance in this specialty release. That by all accounts was good! […]

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  2. […] you a competitive advantage per se. It isn’t a panacea to all the problems ailing your business. This is another example of executives not being creative, but simply asking, “Well, what are they […]

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  3. […] I wouldn’t bet against him in the longer term strategy of Target starting video. Though, as I wrote before, I don’t think retailers will make as much money in entertainment as their m…. (Hat tip to TV AnswerMan for bringing it to my […]

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