Sinclair Buys Disney RSNs

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Since I took off two Fridays ago, I had a lot of content to sift through for this week’s update. If you have to know, I took off to see Avengers: Endgame (loved it), then, my wife and I threw a baby shower (she threw it; I cleaned), and then we both got sick (and I’d taken the previous day off to take care of our sick toddler) so basically all my writing plans got delayed. Then I spent almost all of last Friday trying to read through all the news to get this out.

But…I won’t have a “double-sized” weekly column this week because that would drive you crazy. (Or you just won’t finish reading it.) Instead, a lot of stories are going to get cut for space and maybe a few held for next week.

Most Important Story of the Week – Sinclair Buys Disney’s RSNs

Ironically, with all the extra time, I still had trouble finding a “most important story” of the week. One story–The Avengers mauling both Thanos and the box office–clearly sucked up all the oxygen in the room. Did it mean the most, though? Probably not.

When in doubt, I try go to the dollar signs to determine the most important event of the week. If one story is valued in 11 figures (the Sinclair buying Disney RSNs deal) and the other is “just” 10 figures ($3 billion total box office for Avengers), well, Sinclair wins by a hair. (Consider, though, that Avengers is making that revenue on just one window. The entire film will generate much more than that over its lifetime.)

Yet this deal stuck out to me because it has interesting ramifications on all sides.

For Disney

What a revenue week all around. Huge box office and now another $10 billion or so to play with. You can use that to buyout Comcast’s Hulu stake, pay down debt or fund 10 years worth of streaming losses (at a billion lost per year). Or go really crazy and get that NFL Sunday Ticket for ESPN (with ABC Super Bowl rights?). Throw in the previous $3.5 billion they got from the YES Network sale, and their bottom line will look much better. Meanwhile, unlike AT&T, they’re selling assets that aren’t core to their future streaming plans.

Of course, there is always the question of how much more they could have made. We don’t know the cash flow of the RSNs, but right now instead of the expected $20ish billion Disney thought they could get, they ended up with $10.6, off about $3.8 billion in revenue. The pressure to sell (the FCC made them as part of the terms of closing the Fox acquisition) could be partly to blame here, along with general uncertainty for the lifespan of the cable bundle, coupled with the fact that Comcast and AT&T didn’t think they’d get regulatory approval, so didn’t bid. Given that Sinclair saw their stock price jump after the deal was announced and I’d say Disney could have gotten a better price for the RSNs if they had more forces in their favor.

For Sinclair

You have to admire their focus. They want to expand their broadcast/cable footprint and even if the FCC shuts off one lane, they’ll move to another. Meanwhile they have a streaming product, so the RSNs could provide “must have” programming for them. If they can offer all these games as part of their ad-supported streaming platform, that’s interesting. So again, without running the numbers, this gives them good content. If it lasts. (See sports teams below.)

For Comcast

They can now convince Disney to pay top dollar for their Hulu stake. That rumor even dropped early in the week as this deal was closing. Now Disney has the cash to buy out Comcast from Hulu, and that cash can be used by Comcast to pay off its Sky debt. (Though, Comcast would benefit more from keeping their 30% stake in Hulu for strategic reasons. But the debt probably scares them more.) So yeah that Sinclair money could help someone pay down some debt, be it Disney or Comcast.

For MLB and Other Sports Leagues

I wonder if this deal shakes up the status quo just a bit. Sure, you still have your RSNs paying you top dollar for local rights, for now, but everyone knows this auction was avoided by a lot of traditional media companies. Worse, none of the big tech giants jumped in with serious bids. Is now the time to sell your rights to an ESPN+ or DAZN? Or Amazon or Apple? Or do your own thing?

For Amazon (and other rumored big tech buyers)

They still haven’t jumped all in. Sure, Amazon was part of the team buying the Yes Network, but we don’t know at what percentage (that deal has multiple players in it) and they blinked at buying into these RSNs too. As of this moment, no streaming company has decided to go “all in” on sports rights, which honestly could leave it open for ESPN+ or DAZN. (Though if DAZN does well enough, then it’s an acquisition candidate.)

Other Contenders for Most Important Story

Avengers: Endgame Box Office

I didn’t want to put this as the most important story on the heels of praising Game of Thrones for its TV debut. Ratings are one off events. They don’t deserve these spots.

And yeah, if you want to talk “importance”, breaking a box office record is essentially a once a decade phenomenon. By my reckoning, backed up by Wikipedia, since Star Wars started the contemporary box office blockbuster phenomenon in 1978, we’ve averaged about one new champion per decade.

1978 – Star Wars ($410 million)

1983 – ET ($619 million)

1993 – Jurassic Park ($914 million)

1998 – Titanic ($1.8 billion)

2010 – Avatar ($2.7 billion)

2019 – Avengers: Endgame ($2.2 billion and growing)

(And these are unadjusted numbers. Yeah, I know it’s better to always use adjusted box office. Ticket price inflation is the real driver here.)

Avengers: Endgame is just this decade’s box office champion. If anything, I’m surprised the unseating of Avatar didn’t happen sooner. There are a few trends that have made the “winner takes all” economics even stronger. (And yes, technically Avengers: Endgame hasn’t displaced Avatar yet and may not do it. But it will take second which is close enough for this analysis.)

First, as I linked to last week on Twitter, digital is the big change in the game. When you have to cart six physical rolls of film into a theater, you can’t rapidly increase the number of screenings the way you can with digital projection. So Avengers: Endgame got to have round the clock showings as the demand filled up screens everywhere in multiplexes.

Second, China. The incredible growth in the Chinese market has basically created three massive markets: the US, China and the rest of the world. In the 2000s, it was still “the US” and “rest of the world”. It’s rare for a film to do amazing in all three markets simultaneously. The Force Awakens was huge in the US, but not “huge” in China, just really big. Wolf Warrior 2 and the Wandering Earth were huge in China but anonymous in America. Avengers: Endgame did well everywhere.

Third, social media did help make this an event people had to see before it got spoiled. That probably helped push even more people to the theaters for the first weekend. You just knew someone was going to die, but who? So that “conversation” likely had network effects for everyone.

My mild prediction is that this won’t be the last film to break box office records. It will happen again, before you know it. I won’t even try to predict who it will be, but it will happen, sometime in the next ten years.

More Original Content – Twitter and Walmart

This was the news out of the New Fronts last week that both Walmart and Twitter planned to expand their “original” content offerings on their platforms. I’m more skeptical of Twitter because I just don’t think people use Twitter for video. They use it to be a part of conversations. Instead, the logic, from Twitter’s perspective, seems to be, “We get paid more for video ads, so we want more video.” Notice, that doesn’t actually talk about the customer. Though customers do get news and sports updates from Twitter, and that seems to be the push for their new content. So it’s the right content, I’m just not convinced video is the right product.

Walmart is planning on originals for its Vudu service too. They want Vudu to succeed so they can try to move their DVD sales business online. So fine. You can lose a lot of money trying to compete in originals and failing, and I don’t’ think Walmart has the same Wall Street blank check that Amazon enjoys. But we’ll see. (And I may research further.)

Lots of News with No News

We also had a surfeit of stories that got headlines, but I feel will amount to very little. So I’ll run through them, with quick “Why this isn’t really news” explainer.

Santa Clarita Diet cancelled

Another week, another “successful” Netflix series cancelled before season 4. This is more than a coincidence; it is a trend. And SCD is the type of show that never got the “datecdote” treatment, meaning it was probably buzzy but never popular.

Entertainment musical chairs: Amy Powell’s producing deal moving to Universal: Alan Horn getting extended

These are two executives who I’d put in the “just fine” category. They do their jobs and make some money for their companies, but sort of like every other executive. But neither is a top 2% development executive, with a clearly above average hit rate.

The Obama’s have a production slate…

I’m sure that the Presidency is good training for lots of things. Maybe producing movies and TV shows is that. And I don’t doubt that their name will help boost the awareness of these projects. That’s obvious. But for as many headlines as I saw about this, does it change the entertainment landscape? Probably not. Are these shows guaranteed hits? Probably not. Will Netflix make their money back on this deal? I’ll let you answer that.

EntStrategyGuy Updates – Bones Arbitration Overturned

Well, just the punitive damages, from what I understand. I don’t think this changes as much–Disney still got walloped with a big penalty–but does take out a lot of the sting. A hired arbitrator can only go off script so much when hundreds of millions of dollars are at stake. (And this ruling will likely get appealed too.)

Listen of the Week – Ezra Klein Show on Vox’s First Five Years

Vox is celebrating its fifth year of life and if you’re interested in publishing or media, I recommend Ezra Klein’s podcast where he sits down with his fellow founders to discuss what went right atnd what went wrong. As they mention on the show, there is usually a lot of news coverage of media ventures when they launch, much less checking in two or five years later.

One larger point about the business of media stuck out. That’s the overwhelming power of Google and Facebook and Apple to drive eyeballs and hence drive (or not) traffic and revenue. And it really speaks to how consolidation/monopolization crushes innovation, even if “prices” stay steady. Vox had a lot of cool ideas, but they didn’t know if they would work on Apple News or Google AMP or Facebook. So they had to scrap them. Maybe that just is the state of the world, and we really are better off as news consumers without that innovation, but I doubt it.

Data of the Week – Expecting Better and Crib Sheet by Emily Oster

On the surface, these two books have nothing to do with the business of entertainment. Or do they?

My second article on this website was about using data to make decisions. The two books I’m recommending for all parents or soon-to-be parents are basically case studies in how to do that well. Oster takes common pregnancy and early childhood issues and asks, “What does the data say?” Often, the data or science isn’t very good. Even if you aren’t a parent, you can see how much “knowledge” is based assumptions than hard facts.

This insight probably carries over to entertainment. Well, not probably. Here’s my hot take: there are parts of this industry that have just as much mythology/psuedoscience as, say, the anti-vaxxer movement. Or phrased less provocatively, a lot of ideas that are based not on data, but simply gut thinking. This includes traditional studios who don’t understand digital streaming and technovangelists preaching digital will solve all problems.

So if Emily Oster can dig this deep into pregnancy and child rearing, we should dig that deep into the entertainment business. I’ll do what I can.

Long Reads of the Week – User Experience is Important

I’m really jealous of Todd Spangler, because his line at the start of this Variety article explaining a PwC survey. Spangler writes that “Content is king — but the queen for direct-to-consumer streaming services is overall user experience.” Man, I wanted to make that analogy in a future article!

I both agree and disagree. Let’s start with the agree side, which gets to my long read of the week. Josh Barro wrote a great piece in NY Mag about how the best reason to cut the cord is related to user experience. He has all his content in one location and it’s easy to use. Barro also talks about different potential value propositions, distinguishing between cost, which is the presumed reason for cord cutting, and emphasizing the quality of the experience. I’ve used apps before that crash after every ad tries to load…and that’s a miserable experience. So yeah, UX can be crucial to success.

But I can’t give UX the highest place next to content. UX is good, but not the queen. If a show is really, really good, well people will find it, even if there are some hurdles to it. To contradict the survey, a lot of people are really bad at thinking about how they use products. They think they know and can explain it, but often they can’t. So consumers may say that UX is as important as content, but they probably don’t know. And it’s just a survey. Surveys are good starting points, but hardly definitive.

The Entertainment Strategy Guy

The Entertainment Strategy Guy

Former strategy and business development guy at a major streaming company. But I like writing more than sending email, so I launched this website to share what I know.


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