Month: July 2019

Most Important Story of the Week and Other Good Reads – 12 July 2019: Netflix Has It’s First Merchandised Hit

Stranger Things season 3 came out for the Fourth of July weekend and I think it is safe to say it’s the biggest TV series in America, whether or not we truly believe Netflix’s latest datecdote or third parties, like Nielsen or Parrot Analytics.

If you really want to know if something is “popular”, I recommend waiting until people put their money where their eyes are. In other words, are businesses willing to stake their real world cash on a show?

In Stranger Things’s case, the answer is a resounding yes. Which means that: 1. Netflix has their biggest show and 2. I have a most important story of the week.

The Most Important Story of the Week – Netflix Has It’s First Licensed Merchandise Hit

How do you know Stranger Things has made it? Well, they have a Funko Pop.

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Stranger Things actually has quite a few pops, and Funko is the type of company who can be choosey with who they do deals with. (Hence, this reporter’s quest for a Funko Pop for Bosch.) Given that Netflix finally got a Funko for a series they only just released data for, we can safely say this series is popular enough to get merchandise treatment. As far as I can tell, there aren’t any Amazon or Hulu Funkos, and previous to this, Netflix only had an Orange is the New Black pop. But those efforts pale in comparison to this Stranger Things take over.

For all the success of Netflix and Stranger Things, the future of licensing is far from assured for the streaming giant. Moreover, I’ve seen some misconceptions about product licensing and confusion. So let’s clear that up and dig into Netflix’s strategy just a bit.

Misconception 1: Product licensing is the golden goose.

The problem with product licensing is that Disney is so good at it. As I’ve written before, Disney has some really merchandise-able properties and expertise in licensing going back to the 1920s. Then Disney bought the other champion of product licensing, Star Wars/Lucasfilm. Thus, whenever licensing is mentioned, inevitably Disney is cited as the potential upside.

This is like comparing your pick up basketball game to Kawhi Leonard’s. Kawhi isn’t just good, he may be the best player in the world. Maybe you do play tenacious defense like him, but if you don’t have inhumanely long arms and athleticism, well you aren’t Kawhi. So don’t compare yourself to him. Disney is the same way: they have an entire division focused on licensing…do you? Disney takes up 50% of the shelf space in some retailers…can you compete with that? So sure, Disney’s upside is huge, but what is your real upside?

Licensing upside is also usually overhyped in the press. As I’ve written twice now (the explainer is really this piece on Lucasfilm), retail sales are usually cited by licensing folks, though a studio or network only takes home 5% or so of total sales. If you read that Star Wars has sold $20 billion in toys and licensed products, that means they “only” made $1 billion. Which is a huge number, but 20 times less than reported. You need to move a LOT of merchandise to make a dent in your revenue. I just found this Hollywood Reporter table showing Disney’s revenue by segment, and it helps get this point across:

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Misconception 2: Now that Netflix has conquered licensing, it can move kids products.

The irony of the success of Netflix’s success with Stranger Things is that it comes as I continue to read articles about how much trouble Netflix has had with product merchandise aimed at kids. For all the hype of primetime licensed merchandise, outside of Game of Thrones, kids series and movies dominate the sales.

Netflix faces three challenges in moving successfully into kids merchandise. First, they still don’t release ratings data. And while for adult products you can use alternative methods to triangulate demand–Google Trend data, social data, etc–those methods don’t work nearly as well for preschoolers who (I hope to god) aren’t using Twitter.

Second, the binge release/marketing model has proven extremely poor for licensing. All the episodes drop at one time, and then quickly decay as new shows are promoted to replace them. Disney Junior and PBS roll their shows out every day–on their own apps too–which keep kids more engaged with the properties on the TV side. On the feature film side, Disney and Universal roll out with 9 figure marketing campaigns. No kids property on Netflix gets that kind of love/spending.

Third, Netflix still doesn’t own a lot of their own kids content. A lot of their kids series–especially the Dreamworks series–are co-productions where the licensing rights are often owned by the owner of the IP. Hence, Netflix doesn’t have the rights to make products. (Tying back to Orange is the New Black, that was a series co-produced by Lionsgate, which probably helped make the Funko Pop.)

Misconception 3: Product-ties ins are not product licensing.

Stranger Things product roll outs have been much more about integrated marketing campaigns than true money-making consumer products. Which you’ve like seen on everything from KFC to Coca-Cola to Eggos. That’s free advertising for Netflix, which is a model Disney and Lucasfilm had also perfected over the years. While valuable, there is also much less risk for the CPG company, who doesn’t lose much by changing its packaging. If you want to know how much Stranger Things is potentially making for Netflix, ignore the Eggos and Coca-Colas, and even Windows 1, and look for shirts, toys, and games (both board and video).

Misconception 4: There is ONLY so much you can do in licensing in the first place.

The final point with Netflix is that Stranger Things surprised them in how big it got and how quickly. I’d say that Game of Thrones likely surprised HBO in the same way as they’d never had a franchise like that before. 

This speaks to the core point of licensing. You can’t force it on customers. When a series gets popular, it gets orders of magnitude more popular than competitors, and basically licenses itself. What you have to do is be prepared to take advantage of these series when they come, and Netflix is finally ready to do that. We’ll see if they can sustain it.

M&A Update – Univision Is Looking for Suitors

The winds of merging entertainment giants may be blowing again. For instance, if you look to Wall Street, America had a banner year in the first six months when it came to “deals”, which the New York Times uses to mean anything from mergers, acquisitions, divestitures and what not. For all the hype, though, as I’ve laid out repeatedly since last summer, we’ve seen hardly any M&A in entertainment.

Is this about to change? Maybe.

The scoop is from the WSJ, but I saw it first by Jessica Toonkel in The Information (and I also saw it quoted in The Ankler). Basically, the one sentence hint is that Univision executives are at the Sun Valley conference looking for potential buyers and have hired investment banks to do the due diligence. And they should have a few. Univision would complement nearly every media conglomerate, except Comcast-NBCU (who owns Telemundo). Disney’s films already do well with Hispanic audiences. CBS needs more OTT services for the future retransmission wars. And Warner…nevermind AT&T is likely out of money.

Meanwhile, the news that Univision wants to sell itself makes this leak of monster Up Front sales records a little more self-interested.

Other Contenders for Most Important Story

Warner Media’s Streaming Service Has a Name (and Friends)

Read More

Long Reads for the Long Weekend – 3 July 2019

It’s about to be the long Fourth of July weekend, so I’m not going to post tomorrow or Friday because who should be reading about entertainment on a holiday weekend? (And since people aren’t at their desks “working”, traffic plummets for the whole internet.)

Wait, you still want something to read? Me too. The weekends are an underserved time for iPad wielding parents looking to avoid their children. The job of the Sunday paper hasn’t been adequately replaced as most websites I read don’t update on weekends. (See my above parenthetical.)

In honor of the long weekend, here are some “Long Reads” to take up your time, collated into one place. This is a grab bag of articles covering everything from social media to journalism to great investigative pieces. We’ll start with some great pieces on that last topic. When entertainment journalists go in-depth, they show how great entertainment journalism can be at its peak.

1. “How Movie Theaters are Exploiting Their Janitors” by Gene Maddaus in Variety

Maddaus describes how the forces of contracting, immigrant labor and lax oversight–with the pressure on profit margins–result in vulnerable people working for less than minimum wages in troubling conditions. (I linked to it here.)

2. “L.A.’s Housing Crisis Hits Hollywood: The Entertainment Workers Living in Their Cars” by Katie Kilkenny in The Hollywood Reporter

This long read never made it into a weekly column, which is a shame. Los Angeles has a housing shortage problem, and it impacts all workers, but especially those at the bottom of the income ladder due to rising rents. Unfortunately, that includes a lot of workers in Hollywood, like those “below the line”, even folks like writer’s assistants, which should tell you how widespread this problem is.

3. “The Dark Forest of the Internet” by Yancey Strickland

I’d read a few years back about the concept of “dark social media”. That’s the idea that while we can track and observe some social platforms like Facebook, Twitter and Youtube, others are mostly unobservable to marketers, like text messages and email. (If only we knew how many old men emailed about Blue Bloods, in between emails with dirty jokes and political diatribes.)

Strickland flips this analogy, warning that the observable internet is actively dangerous, using the analogy of a dark forest. A thought-provoking read, and you have to love a Liu Cixin reference to start. (It also pairs well with my final article recommendation; hat tip to MediaREDEF for surfacing; part II here.)

4. “Shady Numbers and Bad Business: Inside the Esports Bubble” by Cecilia D’Anastasio

D’Anastasio approaches the world of esports as someone who understands the passion of esports fans, but also as a sober journalist aware of the hype cycle the industry is undergoing. Lots of good numbers and, more importantly, analysis of potentially bad numbers. (I wrote about this in a weekly column a few weeks back.)

5. Youtube’s Problems in 2 Articles: 

“On Youtube a Network of Pedophiles is Hiding in Plain Site” by K.G. Orphanides in Wired 

& “YouTube Executives Ignored Warnings, Letting Toxic Videos Run Rampant” by Mark Bergen in Bloomberg

As a society, are we overreacting to the dangers of “engagement”? Reading this pair of articles on Youtube, I’d say not. Even if you understand the scale of the problem for Youtube is immense–a problem in the billions of videos and trillions of interactions–these articles impart the idea that Youtube traded off the risk of pedophilia and pushing conspiracies for profit. (My extended thoughts here.)

6. TVAnswerman’s 50 Rules of Good Journalism by Phillip Swann

If you’re not an aspiring journalist, this may not interest you. But I found it fascinating and think a lot of breathless media coverage would deflate just a bit if we all followed these rules. I don’t agree with every rule, as a commentator I don’t follow a few, but still found quite a few good ideas. In particular, read and write everyday and understand that your social media feed is still your journalism. A good reminder.

7. “Reddit and the Struggle to Detoxify the Internet” by Andrew Marantz in The New Yorker

The opening paragraph captures what I find fascinating about Reddit: it’s huge but many Americans have never heard of it. Or just vaguely heard of it. It’s a social platform I’ve dabbled in, but tend to avoid because it’s too good. Too addicted. As a result, I call it the underrated social platform. (Read that here.) Marantz has the best long piece I’ve read on Reddit. 

8. “Status as a Service” by Eugene Wei at The Remains of the Day

Ideally, I don’t link to an article until I’ve actually, you know, read it. Twitter would have a different feeling of virality if we all followed that rule. (I definitely retweet lots of articles without reading them.) Eugene Wei’s article (nee novella) was popular when it dropped and I’ve finally read the entire thing. It resonated with me in particular because while ostensibly I want to share my thoughts on the business of entertainment, really I’m a status seeking monkey using my writing to build social capital. Brilliant.

And since I’m late to my chosen social platforms–Twitter, Linked-In and Quora–which makes accumulating social capital even harder. Two lessons in one article is a great hit rate.

Some other thoughts:

– I love a good quad chart. This article gives us a great one.

This idea pairs well with a recent HBR article on the “first 1,000 customers” that’s been in my head too.

– The entertainment dimension explains why so many social platforms want original video content…but I’m still skeptical those videos add value if the platform isn’t useful in other ways.

– Being “skilled” in the way each platform demands may be why I find Twitter unhelpful. My thoughts naturally run longer than 240 characters.

Enjoy the reads and the long weekend. 

(Oh, and of course, if you haven’t read my long series on Game of Thrones or Star Wars or M&A, obviously start there!)