My weekly column this week was initially about Disney+ library content. And surely, you saw how that turned into 5,000+ words of speculation. As a result, I’m going to go a bit quicker of an update this week. I kept returning to one article that inspired several ideas, so let’s make that the story of the week. (And since that came off, run a bit shorter today.)
Most Important Story of the Week (and Long Read) – The Rain in Spain is Streaming
Well, you had me at “Case Study”! In seriousness, the “streaming wars” may be a true world war, fought territory by territory, country by country. Meaning this Spain case study is a pretty good stand-in for many countries to come. Here are some other insights or random thoughts I had.
Insight 1: The Value of Local Content/Employees
One of the aspects of the streaming wars I’m really curious about is how local streamers fare against their global rivals. In the Spanish case, it’s Movistar. Honestly, what is more American than an American company (or four) believing that they can launch global media companies that can simultaneously reflect the value of every local country?
As a result, studios need to rely on local content, but existing networks and streamers may understand the market dynamics better, putting the new streamers at a disadvantage. This is a tension I’m curious to see how it plays out. (This also pairs well with this article also in THR about European Networks from July.)
Insight 2: Everyone is coming simultaneously.
Sure, Netflix beat all the streamers to market. But they’re all coming simultaneously from Disney to Amazon to Viacom even. And again this will be replicated country-by-country around the world.
This makes me more optimistic for local streamers. Instead of fighting a global battle for dominance, they can focus on winning in their region with their unique understanding of the market. Of course, there is the counter about global size, but wait two insights for my thoughts on that.
Insight 3: It isn’t “hits”, it’s portfolio performance.
Let’s say I’m running your mutual fund. (Wait, those are out now? Then, let’s say I’m running your hedge fund.) Back in 2007, I put a bunch of money into Disney and Apple. (True story.) Guess what? We made lots of money together.
Wait, you want to know how the rest of the fund did? Why? I had two hits. That’s all that matters.
“No, it’s not!” You say. “How were the rest of your picks?” Well, I put money into Chipotle a few years back…guess that wasn’t smart? The point is when it comes to investing, you analyze the entire portfolio.
The exact same thing applies to content portfolios. So congratulations to Netflix on having a hit in Money Heist (La Casa de Papel) as foreign-language, specifically Spanish-language series. The key question for all analysts and business types is: What was the hit rate? Without the denominator (total produced/acquired) the numerator (the hits) doesn’t matter. The article says Netflix has 20 Spanish originals in production, how many have they bought to date?
Take this article from WAY back I’ve been holding onto. Netflix is making 50 (50!) productions is Mexico. I guarantee when one becomes a moderate hit in the US, it’ll get hyped as “proving” Netflix is making money in Mexico. But without repeating the hit rate, we really don’t know. (And go here for my controversial take on Netflix’s hit rate.)
Insight 4: We do NOT know if Netflix overpaying for international originals is paying off.
Besides hit rate, it also depends how Netflix allocates content. Right now, Netflix and Amazon overpay in every market to get global rights. Which is strange: it isn’t often you can pay the most for eveyrthing and generate a good return. The key is how Netflix both allocates costs and then that pesky hit rate I just mentioned. If they assume a Spanish-language original generates half its money from North America, and it isn’t popular here, that may not be a good call. If they keep allocating most of the cost to the country of origin, then how can they possible make the money back?
All to say that the streaming wars will have multiple battlefields and it will be fun to see how they play out. To conclude, two random thoughts.
Random Thought 1: A new datecdote!
I missed that Money Heist had 34 million viewers during its first week. A new datecdote for the tracker. It doesn’t really change the distribution of hits for Netflix.
Random Thought 2: Bundle by Rich Greenfield
This isn’t an insight from me, but this Rich Greenfield tweet gets at how competitive it is in Spain too. And how the bundle always makes a come back.
Listen of the Week – NPR’s Planet Money on the “Modal American”
I love a good walkthrough on how to do data analysis well. So thank you Planet Money team for providing it! In their quest to find the “average American”, they turn to the mode to find the most “common” American you are likely to run into.
Of particular interest to long time readers is the mention of distributions as an example for why averages can be so misleading. Take age: America has two humps in our age distribution, the Boomers and Echo Boomers (nee Millennials). Thus, the median average that is somewhere between those two group (in the Gen Xers) is wildly misleading.
How can you use this? Well, do you use advertising to target your entertainment customers? Do you use overly broad groups like “ages 18-50”. Why? Some smaller demographics may be much easier to target.
More relevant is how you use data in the first place. I’ve seen so many presentations, reports, analyses but especially news articles that give you the average. It’s always the average. But the average tells you nothing! The distribution is everything. If you run a business–and some of my readers do–don’t accept averages from your teams. Demand distributions. (My writings on distributions here.)
If somehow you don’t subscribe to it, I was fortunate to be featured in last week’s Ankler newsletter by Richard Rushfield. I write about the “coming” M&A tsunami, which I’ve been harping on for a year. If you are an Ankler fan, I can say that we’ve been talking about combining our talents for a few projects so stay tuned.
Other Contenders for Most Important Story