When a company beats quarterly expectations, the CEO usually celebrates it. When the company misses–as Bob Iger’s Disney did this quarter, well–the CEOs say they don’t care about expectations. I agree with the latter position, though I wouldn’t celebrate beating expectations either! For box office or earnings, it’s what’s actually happening that matters, not the expectations of what could have happened.
Especially since that focus on expectations can lead us to ignore the biggest story of the week…
The Most Important Story of the Week – We Have a (Disney) Bundle!
Too many people to name realized that the entertainment world was being disrupted. Probably sooner than I did, honestly. The disruption came from the Netflixes of the world, who provided a cheap (subsidized) alternative to TV. As they took eyeball-share, the traditional entertainment conglomerates realized they needed to launch streaming platforms of their own.
Then a lot of people realized if everyone had a streaming platform, well customers would need a holistic way to subscribe and watch it all. Eventually someone would offer a way to subscribe to multiple streaming sites at one time. This idea wasn’t that creative, hence the rise of the aggregators: Amazon, Hulu, Roku and soon Apple have or will offer the ability to subscribe to all the streaming sites. (Except Netflix.)
Recently, a group of people have come to the next logical conclusion. As long as all the subscribing to channels is taking place at the same time, on the same platform, instead of selling all the different streamers a la carte, you could make everyone happier by offering the best streaming sites together in one big package. In return for a lower overall price for customers, they’d get more content and all the streamers would get more reliable revenue streams.
We could call this combined package “a bundle”.
Which is what we used to call the cable TV package of channels.
The bundle lives!
With Disney announcing the bundle of Disney+, ESPN+ and Hulu (with ads), we have our first bundle. If CBS merges with Viacom, I’d expect a CBS All-Access, Pluto, Showtime and Viacom-something bundle. Amazon, as I just said, has probably explored offering a bundle of it’s “Amazon Channels” and Apple has been rumored to be planning a bundle. This week, Disney made the pretty obvious speculation a reality. The next step is for different companies to team up on the bundle.
If you think of streaming services as simple “on-demand TV channels”, it really is just the natural evolution. Everyone channel/streamer has some show a lot of people want to watch. They want Game of Thrones on HBO, Stranger Things on Netflix, Marvel movies on Disney, Star Trek on CBS and maybe The Office on NBC. (Or maybe that’s my wish list as a sci-fi fanperson, but you get the point.) Even if they don’t like every channel, it’s cheaper to offer everyone a huge bundle of channels and thus more choice overall.
So we have our first bundle with Disney. Long live the bundle.
That’s not all my thoughts on Disney’s earnings report. I put out two very, very long threads on Twitter, first with my initial reaction and then with my day after thoughts. Here are the greatest hits.
– Thought 1: The price is delightful. Bob Iger said it was a coincidence that his new bundle priced at exactly Netflix’s standard tier. Good one. I agree with Alex Sherman that the primary implication of this is that it will be harder for both Netflix and HBO to raise prices now. I hope they have theme parks to fall back on to make money in the interim.
– Thought 2: ESPN+ Doesn’t Have a “Killer App” Yet. As I debated the value of the new bundle in my head, I couldn’t come up with a good case for ESPN+. Even calling it “niche” is probably too complimentary. They need a killer piece of content that customers have to have, the way Disney+ has Marvel, Star Wars and Disney princesses. My recommendation is NFL Sunday Ticket. That would take ESPN+ of niche to must-have to tens of millions of sports fans (many of whom likely have kids who want to watch Disney+.)
– Thought 3: Who wins the battle for T-Mobile/Sprint’s subscribers? This is the battle everyone should pay attention to next. Does Disney offer this new bundle to T-Mobile subscribers, or does Netflix up their game and offer high-definition subsidized to T-Mobile subscribers? Or does T-Mobile keep both deals and offer the choice to customers? Whoever wins this battle could have another leg up in the streaming wars.
– Thought 4: Disney may have overpaid for Fox. Which isn’t a huge surprise since the fee ballooned with Comcast’s bid. But given the scale of integration, and now the underperforming of 21st Century Fox’s movies, Disney may have paid a lot when they really just wanted some IP assets and the Hulu ownership. (And Hotstar in India.) Of course, you can overpay and still have a deal be key for your future strategy. So it’s not all doom and gloom. But overpaying for anything makes getting a good return on investment that much harder.
Other Contenders for Most Important Story
Locast – The antenna non-profit gets sued
For a tiny non-profit, Locast has stirred up a lot of news coverage. As others have mentioned, it’s essentially Aereo 2.0, meaning a digital delivery of a remote “antenna” grabbing local signals. The key difference is it is being run as a “not-for-profit” by a former Dish lawyer. Given that retransmission fees are a key part of the broadcast channels profit models, they immediately sued to stop it.
I would have ignored this story–and I kind of have been–since I think the prior court rulings are fairly definitive, but AT&T made it a negotiating position with the CBS blackout. That seemed to elevate this issue from “start up trying out a new technology” to “massive conglomerate backing a startup to get lower fees”. While it’s unlikely that Locast survives in court, the biggest takeaway is that the satellite companies, at least, don’t want to pay retransmission fees anymore.
Other Earnings: Roku Passes 30 Million Users
How is Roku still standing in the massively consolidating world of entertainment? They only make $250 million in revenue per quarter. How have they not been swallowed up by someone looking to use their service as the new centerpiece? This quarter they surpassed an impressive 30 million regular users, and the biggest source of revenue growth is advertising and subscription revenue share. (I recommend this Trent Griffen thread with one of his quizzes on how valuable that is here.) This survey backs these numbers up, saying Roku is the number one smart TV application.
I’m told the giant tech companies are monsters of innovation. We shouldn’t break them up lest we deprive America of a great source of innovation. Let’s look at some examples.
First, they all launched smart speakers. Then came the music streaming services. Then video game streaming platforms. And now they’re all launching over-the-top video services. Amazon? Yep. Apple? Yep. Google? Of course. And now Facebook. Of the “GAFAs”, I’m most pessimistic on Facebook since I don’t think they are considered a source for video viewing right now, and their efforts just haven’t worked.
(The lesson is that if firms are becoming either entrenched monopolies or tremendously valuable platforms, they don’t use the excess cash on innovation, they use it to copy established businesses.)
ICYMI – Decider “To Binge or Not to Binge: Who Won…”
Since I started my series on Game of Thrones vs Lord of The Rings, I’ve wanted to write about how it shows the power of the weekly release. Then Alan Wolk beat me to the punch last spring. Then, as I watched Stranger Things come (and go), I realized I had my take on it. Decider published my article on that topic yesterday. I tried to draw business lessons on the two different release strategies. Take a read! (And my recommendations for the new streamers here.)
ICYMI – Linked-In: CBS/Viacom M&A and Disney Earnings Report Preview
I recently began posting some quicker reactions to the news over on Linked-In, since a lot of my readership skews professional and some probably aren’t on Twitter. (Good for them too. It’s very distracting.) Take a read for my two latest articles:
The Biggest Strategy Questions Heading into Disney’s Q3 Earnings Report. (It’s still a good insight into what I’m looking for.)
Entertainment Strategy Guy Updates
As the number of blackouts on MVPDs increases, one of the main signs I’ve been looking for is the blackout that doesn’t end, especially with a major cable channel or broadcaster. Sure, premium HBO is still out on Dish, and Univision was off Dish for a long time, but no broadcaster has stayed dark. Sure enough, AT&T settled with CBS in time for NFL preseason football games. And Charter/Disney averted a blackout as they continue to negotiate.
(I wrote about carriage blackouts last month here.)
Benioff & Weiss Overall Deal
The biggest piece left on the showrunner chess board has been taken off for the tune of $200 million. Of the huge deals, this one has given me the biggest pause. Ignoring the divisive (at best) conclusion of Game of Thrones, my bigger concern is that of the top tier of creators, they have the shortest track record of success (only one show versus multiple shows by the Shonda Rhimes/Chuck Lorres/Ryan Murphys/Greg Berlantis of the world.) Also, and more importantly, they have to make three Star Wars movies for Disney. Either they slack on those movies, which would ruin them permanently with the fanperson crowd, or they can’t devote themselves to the overall deal. Hmm.
(By the way, the “Lebron” of producers right now is Kevin Feige, and try as much as I could, I can’t find anything about his renegotiation.
Annapurna Faces Bankruptcy
Hollywood’s favorite Oscar film production house is facing financial troubles. Though the details are always tough to pin down–they may be filing chapter 11 bankruptcy, or exploring it or are fine–clearly there is some financial troubles.
(I wrote about Annapurna last October, remarking that for most of the mid-2010s, the rise of streaming and the quest for prestige helped sustain the Annapurna/Global Roads/A24s of the world. With the launch of more mainstream streamers, I wonder if this revenue source will be sustained.)
Newsletter & Long Reads of the Week – Money Stuff: “MoviePass Worked Out Great” & Business Insider’s “The definitive story of how a controversial Florida businessman blew up MoviePass and burned hundreds of millions”
If you want a good introduction on a daily basis to the world of high finance, Matt Levine’s newsletter at Bloomberg is my recommended stop. This week he gave his take on how MoviePass’s spectacular flameout made it easier for its founders to take meetings with other VCs. Usually running a company into the ground is a bad thing…unless you become a brand name. It’s a terrific read.
Levine was inspired by this similarly terrific article by Business Insider’s Jason Guerrasio. This article is one of the more realistic–and hence unflattering–portrayals of MoviePass, since it is mostly based on interviews with employees, and not the CEO.
Thread of the Week – The CW by TV’s Grim Reaper
The CW fascinates me as a business, having two owners and a unique business model of primarily being a channel to distribute the detritus of two TV studios, CBS Studios and Warner Bros TV. They were all the rage early this week after their TCA appearance, and I recommend this thread by TV’s Grim Reaper on their biz model. (My thoughts on the CW here.)