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.
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:
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.
Other Contenders for Most Important Story
This has been the most talked about story of the week, specifically the ultimate destination of Friends and the subsequent question “Will this kill Netflix?”. It won’t!
But could it hurt Netflix? It will! The answer boils down to how much one or two pieces of content leaving a platform will impact the perceived value of a content library. And the best way to understand that is to understand how to value subscribers, which I helpfully did in this Game of Thrones-related article. (And when I wrote about The Office two weeks back.) As I wrote then, no single show is responsible for all your viewers. Period. Even as big as Game of Thrones and Stranger Things are, many subscribers will never even watch them, and keep subscribing anyways.
Meanwhile, series like The Office and Friends are responsible for millions of hours of customer viewership. No matter how many people tell you on Twitter they won’t change their behavior after they leave Netflix, well the shows leaving will have some impact. (Remember, customers are bad at describing or predicting their own behavior.)
Does Friends give HBO Max an insurmountable edge? No, but combined with Game of Thrones, The Big Bang Theory, and Warner Bros. movies that’s a ton of content to binge and catch up on. That could be worth the price (especially in a bundle with other OTT services that aren’t Netflix). Whether or not that name really helps–Is this that much better than HBO? Will it confuse customers?–remains to be seen.
The NFL Thursday Night Game is the most tossed hot potato in sports media right now. At this point, everyone from Amazon to Twitter to Yahoo to Verizon has hosted the games at some point. Right now it is set to go back to Amazon. So when I heard DAZN is in the market for NFL games, I assumed the TNF game may get tossed to the next digital participant willing to lose money for football.
Instead DAZN, as reported in this Bloomberg article, may skip Thursday nights entirely and go right to the macdaddy of NFL Sunday Ticket. This gives some insight into DAZN’s strategy though, which I think is mostly about becoming a rival to ESPN, and then selling itself. Like Univision (see abovet), it will be hard in the streaming wars to exist as a single OTT by yourself. Conglomerates will insist on aggregators like Amazon, Apple or Hulu carrying all their channels because of their one or two big OTT services, while individual OTTs won’t have that type of clout.
DAZN right now doesn’t have that clout. But what if it’s a part of a bigger entity? At that point, the question is who. The traditional folks seem out because they have all already dabbled in sports at some point (ESPN, CBS Sports, even NBC Sports). Meanwhile, Netflix continues to play the “not an aggregator” game, so they’re out. Other options could be Roku or Amazon (who could support the losses and has been dabbling in sports). The best bet could be Apple. They have the cash to support losses like Amazon, but haven’t really made a move into sports yet. Let’s keep an eye on this one.
Data Point of the Week: Netflix latest datecdote on Stranger Things
You likely saw the Netflix tweet that Stranger Things is officially their most watched “thing” ever. I debated including this data point, because I tend to agree TV Answer Man that we shouldn’t hype Netflix’s numbers. We shouldn’t give unaudited, uncontexted data points their own articles. And blaring headlines (which become blaring Twitter headlines) may hurt more than they inform. (Instead, here are three different surveys/analysts and their estimates: Nielsen, Parrot Analytics and Cowen and Co.)
To add to this, I’ll provide what little context I can. How popular is Stranger Things to Game of Thrones? Here’s what Google’s data has to say, and you can draw your own conclusions.
Lots of News with No News
Let’s be fair: if I got invited to this swanky conference, this would be news. But I don’t so, it isn’t.
I kid. Despite the coverage and the photos of media execs like celebrities hounded by paparazzi most of the news we will learn won’t really be news. We may get some dribs and drabs, but the earnings reports of the next few weeks will provide much more substantial news. (And some selective data points.)
Summer box office meltdown?
That’s the story from THR to Bloomberg to Variety. From a factual standpoint, it is true. I don’t argue that. But is this signal–a portend of things to come–or noise–that could be reversed with just a few hits in the back half of the year? On the skeptical side, last year ended pretty strong with the Venom, Bohemian Rhapsody and A Star Is Born trio, so I”d doubt it.
On the other hand, July has some biggies that could help, with Spider-Man and Lions King already debuting. Then, we’ll see Hobbs and Shaws in August. This film is also an example of how a huge August film could entirely change the narrative, though right now it is tracking for a $65 million launch. Which is lower than I would have guessed but makes some sense because historically August is a bad month for films. However, it may have longer legs than other summer films, if history holds, according to Scott Mendleson.
Entertainment Strategy Guy Update – MoviePass is Still Losing Money
I’ve been a bear on MoviePass since I first heard their plan to offer a bundle with fixed costs to consumers. I didn’t finally get around to writing about it until a guest article at TV Rev, which you should read here. The latest news is that MoviePass is shutting down (temporarily?) with another cash crunch.
Listen of the Week – Welcome Back Chris Harris!
My go to podcast for fantasy football is Chris Harris’s podcast. He’s not always right–following his advice I drafted Le’Veon Bell, Dalvin Cook and Joe Mixon in the first three rounds last year, which did NOT work out for those who don’t play–but I love his approach to fantasy football media. He spends his shows trying to dig through all the noise to identify true signal. His phrasing is “ignore the farts and whistles”, which could easily apply to entertainment journalism. His also a bit of an inspiration for me; he struck out on his own from ESPN. That’s been an inspiration/model for this website.
If you like fantasy football, take a listen.