My goal when I started this week’s column was to avoid having another monster long column. We’ll see how I do this week, but I’m not optimistic. There was enough news for two weeks last week, and next week heralds much, much more. Before our most important story, let’s look to…
The Week Ahead
A new feature, inspired by our dearly departed Economist podcast, here’s a look at the stories I’m keeping my eye on next week. I don’t know how often I’ll roll out this feature, but man, next week has the goods! We don’t always know when big news is coming–examples of this are all the #MeToo stories, merger announcements, unexpected firings–but sometimes we do–examples include legal decisions, product announcements, earnings reports and awards shows, the last of which is barely news.
WGA Votes on New Rules Regarding Agents
I’ve been on phone calls where the first words out of an agent’s mouth were, “We have package fees on this project.” So yeah, agents have their priorities straight. (Package fees trump all other considerations.) The vote by the WGA on changing rules for agents–covered already by everyone–could be very, very important. Most businesses aren’t good with disruptive change, and if suddenly every TV show had to be staffed without agents, what would happen? Does pilot season survive? This is the best candidate for the most important story next week, even with the next story.
Unveils what? You tell me. (And a lot of people are trying.)
Lots of rumors dropped this week, with some bundling news, but still it has been mostly vague with more questions than answers. Nevertheless, Apple finally announcing something is news, even if they aren’t actually launching for who knows how long and who knows what. Still, Variety editor Andrew Wallenstein summarized it best in this thread which is basically questions about everything. Sure Monday (today when this posts) will tell us some news, but we’ll still have plenty of questions.
Most Important Story of the Week – AT&T Crosses the Threshold
Is threshold the wrong metaphor? The straw broke the camel’s back? The dam finally burst? They’ve crossed the rubicon (into bad strategy)? Choose your own metaphor.
Consider this an update to my initial opinion when Plepler/Levy departed. I definitely urged caution, especially about the Plepler hype. HBO has had a lot of leaders over the years, and one executive leaving wasn’t enough for me to proclaim the end of HBO as we know it. (I wanted more information.)
But as people have exited, the confidence that the Warner side of AT&T is in crisis is probably cemented. Update your priors when new evidence comes in, right? One executive leaving is one thing. But nearly all the leadership over a nine month period? That’s a different story. From my tracking it’s now:
Jeff Bewkes – CEO of Time-Warner (and an HBO alum)
Richard Plepler – Head of HBO (even if not title) (an HBO alum)
David Levy – Head of Turner
Kevin Tsujihara – Head of Warner Bros.
John Martin – Head of Turner TV before Levy.
Bernadette Aulestia – Head of HBO Now and Go
And probably more I missed. That feels like too many, though I wish I had a scientific formula I could unveil to prove that. I can’t. This many people leaving for whatever reasons–politics, misconduct, writing on the wall–is a bad sign. Moreover, AT&T needs to find the right people and the right strategy, and quickly. They are clearly the most skeptically viewed of the entertainment conglomerates, a view which is only growing over time. And they have a huge pile of debt they need to pay off.
Still, I feel I’m probably less worried than most. I worked at very well regarded American institution before business school–literally America says they trust this institution more than any other in the country–and it had a policy to change out literally every leadership position over a two year period. That’s right, after a unit returned home from combat–this is about the U.S. Army–nearly every leader at the brigade level down would rotate out of their job before the next deployment. In that context, Warner Media, well Warner-Media has retained a lot more people.
And like the US Army, there are lots of ready replacements who can do just fine. Mostly interchangeable studio and development executives are floating out there in the world, especially with all the impending Fox and Disney layoffs. Which isn’t to be flippant about people losing their jobs, but a lot of development expertise is more the system than one singular individual talent. Whether or not Bewkes, Plepler, Levy, Martin, Aulestia and Tsujihara were singular talents–only Plepler is commonly referred to that way–or just studio execs remains to be seen.
ICYMI – My Article at TVRev on MoviePass
I’ve spent a lot of March working on some articles for other outlets to help boost awareness of my website. My first is up over at TV Rev on MoviePass. I have four lessons from the demise of MoviePass that we can all learn from, in Part I and Part II. Check them out and thanks to TV Rev for letting me write for their site.
Other Candidates for Most Important Story of the Week
Obviously, one of the biggest stories of the last two years. But we saw this coming, so that keeps it out of the top spot. First, the deal was announced. (Would have been a story.) Then Comcast bid for Disney and lost. (Was a most important story.)
If you wanted to fight me on this, the story I’ve neglected is two-fold. First, the human cost in terms of layoffs. Dozens of people have already lost their jobs, with thousands more to come. This will likely depress wages for all except the highest executive positions. (Here’s a good long read in Variety on it.)
Second, Disney is ending some business units. Like the Fox 2000 imprint. That will have an impact on the eventual output of content that Disney continues after swallowing Fox. What specific business units will disappear in “efficiency” will be fascinating.
That said, the key is how the volume of content changes over time. Arguably, even if Fox makes fewer films, Netflix and Amazon have already picked up that load, and other new streamers may join too. So as an industry, it won’t cause some decrease in production. As a studio, though, the question is what amount of content will give them the capability to make back the money on this huge investment. That’s a question for a much longer article.
Everyone is creating a “Netflix for Games”
Specifically, Google announced their “Netflix for games” this week. As both Variety and Dylan Byers pointed out, lots of companies are getting into video game streaming. (Again, tech giants are very innovative. They all innovate on the the same thing in the same ways.) Fortnite is prepping a competitor to Steam, that could include a subscription. As Dylan Byers laid out, 60% of the FAANGs are doing a subscription to games (Amazon, Apple and Google) and Verizon and Microsoft are also getting into the game.
This begs the “why” for me. First, it can’t be because they each developed a true way to add value to this crazy industry. Did each of the four big companies look at the market and determine, “We can add value to the selecting video games because of X?” Actually, Amazon may have. They have huge cloud computing capabilities, so it wouldn’t surprise me. Google and Microsoft also have cloud computing, but beyond that one criteria, do they have a key value add?
Moreover, none of those companies have experience with video games–except Microsoft–so why do they think they can beat existing experts in the field? The simplest explanation is they have no intention to beat the field by skill, but by bulk. By size, and competing on price (and access to cloud computing). But that last point begs the question: why don’t you let competitors build streaming subscriptions, and just, you know, be a cloud computing platform?
Comcast has a new hardware option for cord cutters who still use their internet services. It’s a streaming video box, so basically like a Roku or Fire stick, but for their customers who cut the cord. And instead of selling the box, they’re renting/subscribing it for $5 a month. So like Sinclair, this is another MVPD trying to figure out a path into the streaming future. This isn’t the same as launching an SVOD platform, but will is important enough to monitor. (Also, the most interesting insight to me was Cox may be doing something similar on their Countour platform via Lightspeed.)
Lots of News with No News – Yeah, Netflix is Cancelling Shows
Netflix cancelled a series–One Day at a Time, a Latinx show–and I read explanations about this momentous event in both Variety and Deadline looking for larger trends. I don’t really have one or think one exists. No one show cancellation is ever the signal. The simplest is probably the clearest: it didn’t have the ratings.
That said, I respect Netflix’s business affairs executives, who are clever enough to put restrictions on cancelled series to move to other streaming platforms. I’ve noticed this over time, but it seems like Netflix understand how to negotiate contracts, including seemingly innocuous pieces, to their advantage.
Twitter Thread of the Week – Michael Pachter on Netflix Price
An idea I’ve been thinking about writing is an article on the “Netflix bulls vs Netflix bears”. But obviously I need better names for each side. (And yeah I’m generally bearish on Netflix, because I hate free cash flow losses, but I don’t give stock advice.) That said, I’ve been sitting on this Twitter thread for a while, so it’s time to finally link to it. Michael Pachter lays out why he thinks the Netflix valuation is too high:
Spoke to a reporter about why my $NFLX target is "so low" at $165. Explained that sum-of-the-parts (SOTP) is shorthand for a guess on future positive free cash flow, and noted that the company has burned MORE cash each year for 5 consecutive years /1
— Michael Pachter (@michaelpachter) January 22, 2019
Entertainment Strategy Guy Update – More Great Reads of Lifetime Value
Another thread I saw on Twitter a while back, led me down a “lifetime value” rabbit hole and it was good enough to make it in here. Tren Griffin linked to this article that has the “customer lifetime value” equation, how to calculate it, and some ramifications. Griffin uses the formula himself in this article on his site in regards to Amazon Prime.
Lifetime value is one of my favorite subjects, as back in August, I explained why people hate cable companies by saying, “lifetime value” and “subscriptions”. It also showed back up as the subtext in my MoviePass article on TV Rev. Not that it is easy or complicated–or inherently bad–but as subscriptions are increasing in frequency and/or buzz, we should understand their economics.
This Wired article by Paris Martineau was one of the best stories I read this week. (And it grabbed this spot even though it isn’t an entertainment subject.) It shows the influence of lobbying on local and state governments and how important the regulatory environment can be for a company. It also pairs well with this Planet Money episode from a few weeks back.
My main conclusion is that whether or not Airbnb creates value for society (rather than capturing it or transferring it) will really depend on adding up all the variables. Customers may get better prices, but if un-unionized cleaning crews get paid even less by Airbnbs, and whether home prices increase in a region (say NOLA), while profits are shipped back to San Francisco (again, see NPR podcast), seems like a bad deal for local communities, even if the top 2% make a fortune.
That last point sticks with me. My gut says given the high upfront capital expenditures, airbnb exacerbates wealth and income inequality. To combat this, you need robust and fair taxation and regulation. But that’s what Airbnb is fighting. They are lobbying to defeat the political will of their opponents. Oh, by the way, Airbnb’s biggest competitor (Expedia) owns three differently named platforms (HomeAway, VRBO, Vacation Rentals) and Airbnb already owns Hotel tonight, from what I can tell, so this is an emerging duopoly.