Month: December 2019

How The Irishman Lost $280 Million: The Great Irishman Challenge Part IV – The Results

(For the last few weeks, I’ve been debuting a series of articles answering a question posed to me by The Ankler’s Richard Rushfield: Will The Irishman Make Any Money? It’s a great question because it gets as so many of the challenges of the business of streaming video. Read the rest here, here, here and here.)

The biggest uncertainty in The Great Irishman Project was figuring out how well the film did with viewers in the first place. I was all set today to parse Nielsen’s estimates from last week, but doing so meant tons of estimating based on a very limited data set. So I waited.

Specifically, I had a suspicion that Netflix would feel forced to tell us something. They couldn’t let Nielsen drive the narrative for their most high profile picture of the year. Sure enough, we got the results today, as Ted Sarandos spoke at the UBS Media conference:

26.4 million subscribers watched 70% of The Irishman in its first week.
40 million are projected to watch in the first 28 days.

Huzzaw! Now we can be a lot more confident in our estimates.

Here’s today’s plan. First, I’ll given you the “Bottom Line, Up Front”. The results and my model. Second, I’ll discuss a few specific estimates and inputs I still had to make. Third, I’ll answer what I assume will be the most commonly asked questions or criticisms of my model. In Q&A format.

(Also, look for my write-up in The Ankler if you’re subscribed.)

Bottom Line, Up Front: Netflix will lose $280 million The Irishman

As I wrote in Part I, the goal was to make a scorecard, and here it is:

IMAGE 20 - Irishman Profiitability

For the full model, here you go:

Image 21 - Irishman Full Model

In other words, if this were a big budget tentpole from Disney or Warner Bros–whose flops have extremely public numbers–I think Netflix would have to write down the costs for “only” getting 40 million viewers in the first four weeks. This film was extremely expensive, and it’s already decaying fairly rapidly in viewership. Even with a bump from a Best Picture nomination, Netflix will lose money on this investment.

The Model Details

Even having built the model ahead of time, I had to make some assumptions. Here they are.

Determining US versus International Split

One of the big assumptions of my model right now is that international viewership is much less valuable than US viewership. I do this based on their reporter lower international “Average Revenue Per User” and higher churn rate overseas (from what I’ve been told/researched). As a result, the more US customers for a film (for now) the better it is financially for Netflix.

We have two data points to triangulate the split for The Irishman. First, we can look at historical box office trends of mobster films. According to all the films listed as “Mafia” in The-Numbers database, about 61% of box office comes from domestic versus international box office. For example, a film like American Hustle did $150 million in the US/Canada vs $107 million in the rest of the world. Black Mass from 2015 was even more weighted to the US: $62 million vs $36 million rest of world. (The Departed did $132 million US to $157 million rest of world.) This would imply viewership was skewed to the US.

Second, Nielsen provided their estimates that 13.2 million people watched The Irishman during its first five days of release. That’s almost exactly half of the 70% completion Netflix claims. If we assume this would increase with two more days viewership, again we get closer to 55-60% of viewership being in US/domestic.

I decided to use 62.5% US viewership for Netflix. This is pretty beneficial to Netflix, but makes sense. In all, since US viewers pay more on average for longer, this change benefits Netflix.

Changes to Best Picture Bump

My initial model assumed 25% more folks would watch on Netflix if The Irishman is nominated for Best Picture. I decided to bump this up to 25% first window revenue, since that’s a more accurate reflection of the box office bump. (That’s also a benefit to Netflix’s bottom line.)

Adding in Box Office?

I wanted to add in box office revenue, but Netflix hasn’t released any since this film wasn’t released in the traditional theatrical system. (Netflix rented out theaters and then collected the revenue themselves.) Given the limited number of theaters, I think leaving this out won’t drastically impact the bottom line. 

Frequently Asked Questions

I imagine a lot of folks have a lot of questions about this analysis. Let’s try to answer what I imagine are the most common.

What is the best case for Netflix?

Read More

The Great Irishman Challenge – Appendix: How Confident Am I?

(For the last few weeks, I’ve been debuting a series of articles answering a question posed to me by The Ankler’s Richard Rushfield: Will The Irishman Make Any Money? It’s a great question because it gets as so many of the challenges of the business of streaming video. Read the rest here, here, here and here.)

On Twitter, TV journalist and friend of the website Rick Ellis of All Your Screens pointed out that my model is likely not to be accurate:

You know what, he’s right!

I don’t have leaked Netflix internal accounting and data. This means that I have to make a lot of assumptions to build my models. The more assumptions in an estimate, the more sources for error. While estimates are naturally more accurate than forecasts, they’re still estimates. Meaning they are not an exact science.

Before I publish my results for The Irishman—my next article for those waiting—it’s worth probing what type of analysis this Great Irishman Project” is. As I’ve been thinking about it, I have three analogies to explain what I’m trying to do here, ranging from a weak to strong.

Analogy 1: The Scientific Method

This is the gold standard. Arguably, the very principle that has driven human progress for the last 500 years.

And it doesn’t apply here.

I know, I know. It would be great if it did. But to apply the scientific method means starting with a hypothesis, then gathering data to prove or disprove it. That’s not my approach at all. I’m building models based on my experience and data. Which are “scientific”, but I can’t “test” them on Netflix’s releases.

The streamers specifically have reams and reams of data. They can set theories and test whether they are correct on marketing, user experience and sometimes content. (However, they often overhype their data and stretch the limits of statistical accuracy.) Unfortunately, for yours truly, Netflix and Disney and other companies will never tell me if I am right or even super close with my models, so I can’t ever test my hypotheses.

Since we’re talking scientific method, it’s also worth pointing out that lots of data analysis at technology, consulting and really all companies is “faux scientific method” too. At their best, companies can set out hypotheses, and run tests to see what works best for their customers. At their worst, companies just collect a ton of data and use the data that supports their preexisting beliefs. That’s not the scientific method. (I can’t count the number of times I’ve seen a boss parsing a quad chart for connections that are noise, not signal.)

Analogy 2: Sports

One of my inspirations for this website was the boom in top notch sports writing. Specifically, the top tier analysts. Folks like Zach Lowe or Kevin Arnovitz on basketball, Bill Barnwell in football, Pete Zayas for the Lakers, or Chris Harris on fantasy football. These folks don’t just report the news, but analyze the what and how of sports. They provide deeper insights than just the box score, whether they use scouting, film breakdown or analytics.

I’ve tried to fill the same need in entertainment business. This industry is filled with a phenomenal amount of great reporters, but not the rigorous analysis I needed when I worked in entertainment. (There’s also a lot of great investor-side analysts, but they usually charge an arm and a leg for their work. Their focus is also less on strategy and more on stock price. Which is great for their clients, but not quite what entertainment professionals need.)

There are two huge differences between sports analysis and entertainment strategy analysis, though. First, I don’t have nearly as much data. For sports, even casual observers can now get advanced analytics, from Basketball Reference to NBA.com to Cleaning the Glass. Second, we don’t get the “results” beyond quarterly earnings reports, and even those can be woefully incomplete for streaming. Imagine how much tougher Zach Lowe’s life would be if he didn’t know the scores to games!

This analogy gets a lot closer to what I’m trying to do. Instead of breaking down how a play is run, I’m breaking down how film finances work. Then, I’m applying the data we do have to that model. Then I’m pulling insights for what that can tell us about entertainment strategy. If I had more data, I could pull even more insights.

To find the perfect analogy, we need a field where making predictions is key, but data is sparse. Well…

Analogy 3: Military Intelligence

In war you have to make predictions about what your enemy is thinking, planning and eventually doing. But the amount of information is usually extremely sparse. Even if you have tons of information, you are terrified that it’s all planted by the enemy in misdirection campaigns. Inevitably, an intelligence officer has to make assumption after assumption to project an enemy’s course of action.

As I laid out in my recent series, I used to be an intelligence office in the Army, making these types of predictions. I’m used to uncertainty when forecasting enemy actions.

That’s not a bad analogy either for companies in competitive fields. While every company professes to not care what any other company is doing, they’re lying. (All of Hollywood is obsessed with Netflix, even if they say they aren’t. And yes, Netflix is obsessed with Disney+ right now, even if they deny it.) Understanding whether your competitor is making hits or duds, burning cash or wallowing in it, and how they’re doing it, is a key piece of information for making decisions.

Most companies have blind spots into every other company the same way my models have blindspots into Netflix or Disney’s specific performance.

Just because our models have inaccuracies doesn’t mean we shouldn’t make them. And doesn’t mean they aren’t useful. If you waited in war until you have perfect information, you’d be plagued by indecision. That’s really what I’m doing here: I’m providing my competitive analysis of streaming video, starting with Netflix, at the same level of accuracy I’d try if I were doing this for insurgents in Afghanistan or working in a strategic planning group in a streaming company. Even though I could be wrong, I don’t have a choice because we need these assumptions to improve our estimates.

And yes, as a bonus, these models will eventually inform my larger series on an “Intelligence Preparation of the Battlefield”. Essentially, the models will tell us a lot about how can and can’t make money in streaming video, and how that can impact all of Hollywood. But that’s for a future article.

If The Streaming Wars are a War…Than What War Are They?

In November, a war started. 

Fortunately, in this war, no one will die and the biggest risk is to the stock price of ViacomCBS. If the biggest war our current generation is a streaming war, then the future isn’t all gloom and doom.

Since I’m writing an “intelligence preparation of the battlefield” for the streaming wars, it sort of begs the question: if the streaming wars are a war, what kind of war are they? To prove I’m not making a straw man here, here’s a host of articles asking about the streaming wars, but no one tying them to the best comparable war.

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I was a history major and in the military. I should be able to figure this out. Let’s do it.

The Plan

1. Will rank wars from “easily discarded” to “Pretty darn close”. Scroll down to the bottom to find out the winner(s).

2. One imaginary war per section. 

3. I’m fairly “American” so all of these wars will inevitably come from that bias viewpoint.

Easily Discarded

The Civil War (and most other civil wars)

The case for the Civil War—and other civil wars—is that the entertainment industry itself is like a country riven by sectarian strife. The Confederates would be the traditional studio conglomerates and cable MVPDs clinging to their profits, while upstart streamers are, I guess, the Union? Trying to impede the new movement? Or maybe switch the two and the streamers are the Confederates splitting off from the Union? See, it doesn’t really work.

The Persian Gulf War or Franco-Prussian War

The problem with these wars is they were too darn quick, each lasting under a year. The streaming wars won’t end any time soon.

Alexander the Great, The Huns or The Khans Conquer the Known World

Every so often, some military leader just up and conquered most of the known world. Four years ago, we probably would have said Netflix was set up to do just this. Yet, unlike the foes who fell under Alexander, Attila and Genghis, the traditional studios may have a fighting chance to defend their territory.

Independence Day War

This is the fictional version of massively powerful invaders taking over everything, just this time with aliens. We only have two sides in this war, where the streaming wars are multi-polar, so we’ll need some better analogies.

Closer, but Key Flaws

Punic Wars

We have our first “traditional” war where two massive powers square off for domination of, literally, Western civilization. If Carthage had defeated Rome, all of human history may have taken a different course. (Instead of Rome, the Western World would have been centered around North Africa.) If the upstart tech streamers defeat the traditional entertainment conglomerates, the results for investors may be similarly momentous.

The challenge is we’re not dealing with two united sides in the streaming wars. Disney+ is fighting for control from HBO Max as much as they are fighting Netflix and Amazon. However, if I did make this analogy, it would mean Ted Sarandos is Hannibal and his elephants are Netflix originals powered by algorithms. Which could mean Bob Iger is Scipio Africanus, but now we’re going too far.

The French Revolution

Revolutions are like Civil Wars, just without sides or uniforms. Which make it tough to compare to our streaming wars. Sure, our combatants don’t wear uniforms—well, NBC Pages do, but you know what I mean—but you have to like the symbolism of revolution. Streamings isn’t a war, but a “digital revolution” in how we receive content! 

That has an ethos of “power to the people” who are rising up and saying, “No more high cable prices, I’m cutting the cord!” Of course, the data doesn’t support that—most Netflix subscribers have cable; most cord cutters pay well below costs for content—but it sounds good.

The Cold War

If I took points from The French Revolution for not wearing uniforms, well no one wore any uniforms in the Cold War either. This war was waged via proxies, spies and nuclear stock piles. All of which I have a tough time comparing to the streaming wars. In its favor, The Cold War was a global enterprise, with battlefields from a divided Germany to Vietnam to Latin America to China to Korea to Afghanistan. The streaming wars will match that scope.

War of the Ring (Lord of the Rings)

Human-Covenant War (Halo)

Lots of science fiction or fantasy works have two sides squaring off for all the marbles just like the Punic Wars:

Lord of The Rings. This is the literary equivalent of the Punic Wars. The humans battled Sauron for literal survival. And somehow a hobbit saved humanity.

Halo. This is the video game equivalent of the Punic Wars. The humans battled the Covenant for literal survival. And somehow a super-soldier saved humanity.

Pretty Darn Close

Peloponnesian and Corinthian Wars

Now we’re getting there. While the wars between Sparta and Athens had two sides, each city state had its own power and made its own decisions. Each city state picked a side and either allied with the Spartans (Peloponnesian league) or Athenians (The Delian League). These city-states also struggled with civil wars and popular up risings, depending if they were winning or losing. That’s a lot like the streamers disrupting traditional movie studios, but each city-state still working for its own end and switching sides as needed.

These wars also were bloody, inspiring later theorists to develop the concept of “total war”, when war isn’t just a show of force, but a fight for survival. Like the streaming wars: instead of shedding blood, though, the plan is to shed cash flow.

One Hundred Years War and/or War of the Roses

These two wars were the inspiration for countless fantasy novels, especially one of our “co-winners” of the streaming wars analogue crown. Like the Peloponnesian Wars, two sides squared off for power (first, in France, then in England), with the nobles switching sides and betraying each other whenever needed to stay in power. Still, as much as these previous wars resemble the streaming wars, neither quite captures the scope of conflict. We need a really big war, when the War of the Roses is really squabbling over England’s crown. Not like our next contender.

World War II

Most Americans when they think of wars, they think of World War II.

World War II is America’s favorite war, and Hollywood’s too. Just look at their regular output of Greatest Generation films. The problem for this analogy is that, well, I can’t make either side the Axis. Otherwise they’ll be horrifically offended. 

Not to mention, if this analogy were really true, it would be as if the British turned their guns on the Americans midway through the fighting. Because Disney is squaring off as much against fellow conglomerates AT&T (HBO Max) and Comcast (NBCU/Peacock) as it is Netflix and Amazon. (And those two started the price war in the first place for content.)

Finally, at the end, the Allies won partly because they developed one tremendously destructive weapon. There are no nuclear weapons in the streaming wars. Speaking of which…

Star Wars

This galactic battle was allegedly a “civil war” between two sides—Rebels versus the Empire—that each squared off in decisive battles like a traditional war. Like World War II, though, there isn’t some giant super weapon of streaming which one side or the other can destroy to win the war. I tried to imagine this as “data”, but every streamer has that. 

The best case for Star Wars is that The Force is a mysterious force that rules our lives that no one individual can master, sort of like “creative excellence” is the force that rules Hollywood that no one individual can master.

Runners Up – The Iraq War or Vietnam War

I could make a better case for these insurgencies than the civil wars of old. Where civil wars pit uniformed soldiers against each other, in Iraq, militias faced off against the traditional military against insurgent groups versus terrorists all mixed in with organized crime and genuine political parties. It’s as confusing a web of relationships as my “value web” for entertainment.

What I particularly like, too, is the role of persuasion in this type of war. Insurgencies aren’t just about defeating the enemy in the field, but persuading the population at large to support your side via propaganda, ideology, bribery or threats. Which is how AT&T plans to woe it’s customer base too. I really wanted to make one of these multi-sided insurgencies the winner but…

Again no uniforms! Or even enough cohesion to form coherent battle plans. So we need two other wars to take our crown.

The Winners – The 30 Years War and Game of Thrones

The 30 Years War

Whoa! Went off the “American only” board. Most of my readers don’t know what this war was really about, so let’s just slam off a summary from my AP Euro textbook, A History of the Modern World by R.R. Palmer:

The Thirty Years War…was therefore exceedingly complex. It was a German civil war fought over the Catholic Protestant issue. It was a German civil war fought over constitutional issues, between the [Holy Roman] Emperor striving to build up the central power of the Empire and the member states struggling to maintain independence…It was also an international war, between France and the Habsburgs, between Spain and the Dutch, with the Kings of Denmark and Sweden and the prince of Transylvania becoming involved, and with all these outsiders finding allies within Germany, on whose soil most of the battles were fought. The wars were further complicated by the fact that many of the generals were soldiers of fortune, who aspired to create principalities of their own or refused to to fight to suit their own convenience.

Here’s that paragraph on the streaming wars:

The Streaming Wars were therefore exceedingly complex. It was an entertainment civil war fought over new content distribution models, from streaming to theatrical to cable. It was also an entertainment civil war fought over technology, between new sticks, devices and UX. It was also an industry wide war, between giant tech companies striving to enter entertainment and traditional studios struggling to keep them out. It was also an international war stretching from Sweden to Japan, to Australia to Brazil. It was further complicated by the fact that many of the new entrants were deficit financing their streaming efforts to support other businesses, while all the while clinging to “data” as the raison d’être.

I’ve always had a soft spot for this war in my heart because when it finished, Europe was never the same. Arguably, the Peace of Westphalia established the modern conception of the nation-state. When the streaming wars finish, we’ll have new entertainment nation states ruling our lives. That connection was enough to make this our winner, but there are even better reasons.

This war had it all,. Like a traditional war, there were two sides, the Catholics versus the Protestants, which connects to our “entertainment” versus “tech” narrative. Like the Peloponnesian or Hundred Years war, there were also tons of city-states in the German heartland, like our various streamers, FASTs, vMVPDS and more. Plus there were giant empires funding the fighting on each side, the way Apple, Google and Amazon are funding their streamers. Plus, each side was trying to convince local populations to support their side, so you have influence campaigns like the Iraq or Vietnam insurgencies. The Thirty Years War lasted so long and covered so much territory, it fits almost any analogy.

Finally, if you factor in the size of the population at the time, this may have been the most destructive war in European history in terms of casualties. (Over 8 million by some estimates.) Bet you didn’t know that. 

If we could take a lesson, the bloodshed only ended via diplomacy. In entertainment, this means a tacit agreement to collude on price setting, as has happened in entertainment since the golden age of studios, the golden age of broadcasting, the golden age of cable and someday the golden age of streaming. Just wait.

Game of Thrones

This analogy was written perfectly by Dylan Byers in his must read piece here. Game of Thrones captures the nuances and destructiveness of the Thirty Years War in fictional form. (Even though George RR Martins says he based his epic series on the War of the Roses, the Thirty Years War fits better.)