Most Important Story of the Week – 13 December 19: A Tale of Two Netflixes

It’s been a busy few weeks for The Entertainment Strategy Guy household as we welcomed a new member to our family. Between sleep deprivation, house cleaning and holding/changing a baby, getting back in the writing habit has been a struggle. If this column isn’t any good, blame it on that!

Wading through hundreds of newsletters and saved articles, one topic popped up the most, but I couldn’t decide if it was bad or good. So let’s do both!

The Most Important Story of the Week – For Netflix, the Best of Time and the Worst Times

If there is an overwhelming counter-argument to the Netflix “bears” of the world (a few notable investment analysts and a few notable Twitterzens), it’s that Netflix is currently the most popular “network” in America. In the 1990s, it was NBC. In the 2000s, it was CBS. Now it’s Netflix.

As a result, Netflix draws overwhelming coverage. Not only does Netflix have a ton of subscribers, they can get those subs to watch their shows and then get everyone to write news articles about it.

Yet, perusing my news feeds of the last three weeks, as befits any leader in any field, everyone is simultaneously praising and disparaging the leader. Netflix is like the Tale of Two Cities introduction. It’s been the best of times and the worst of times, sometimes within the same story. Which is the theme of the week. 

The Good: The Irishman Releases to 26.4 Million Viewers; The Bad: Was it Popular?

Nielsen beat Netflix to the punch claiming that 13.2 million folks checked out The Irishman. Netflix grudgingly admitted they had 26.4 million folks watch 70% of The Irishman in the first week, projecting 40 million in the first month. If you want the good interpretation, getting 40 million people to watch anything is a win. 

If you want the bad, well, check out my big article this week.

Going further, we still don’t have the context for Netflix releases like this. As Bloomberg pointed out, Netflix had 16% of its subscribers watch The Irishman. I’m not sure if this provides more or less context. We don’t have anything to compare the 16% to. I’ve asked this in different ways before, but think about films like Crazy Rich Asians, The Quiet Place or John Wick 3. Each was released in theaters, was popular, and then aired on a variety of cable/premium cable and streaming platforms from HBO to Starz to Netflix to even more overseas I can’t begin to keep track of. Did more folks watch John Wick 3, or The Irishman this year? We don’t know. But I’d bet on the former. 

Like the famous tree in the forest, though, if a studio doesn’t release ratings information globally, did it make a sound?

That’s why if you asked me, I’d say The Irishman lost a lot of money. It also means that even as Netflix spends more and more on blockbusters, I’m not sure they’ll ever have a monetization plan that makes up enough money at this scale. (I will explain more in my IPB series in future articles.)

The Good: Tons of Movies; The Bad: Who is Watching?

One of the common responses to my “Netflix lost $280 million on the Irishman” article was that I was looking at it wrong. I shouldn’t isolate one film from Netflix’s catalogue, but need to look at the portfolio as a whole. Right or wrong, what a large portfolio it is!

(The counter to this is that the major studios would love an approach where ignored all financial performance. Talent would hate it though.) 

The good side for Netflix is that surely they wouldn’t keep investing in more and more films if it wasn’t working. Right? Indeed, they’ve learned that with enough volume, you’ll get a surprising number of hits.

Maybe. Of course, it seems like the big bets of the last few years haven’t really paid off either. Just this week Netflix is debuting another December blockbuster. (It’s been a bit of trend with Bright in 2017, Bird Box in 2018 and now 6 Underground.) My worry for their latest is just that despite a pretty strong media blitz at the end, I don’t think 6 Underground is resonating:

Screen Shot 2019-12-13 at 9.48.21 AM

Also, one other piece of context. While Netflix is buying lots of movies, many are international in origin. These films likely wouldn’t get a global release but for Netflix. The reason though is a double-edged sword for Netflix: they wouldn’t have gotten released because they don’t move the needle outside their home country. Despite Netflix’s reach, I don’t think they have moved the needle with most international originals, but they do pay a lot more than usual for them.  (I hate to do this again, but I will explain more in my IPB series in future articles.)

The Good: Netflix Nabs 34 Golden Globe Nominations: The Bad: Did They Buy Those Awards?

Netflix secured 34 nominations for film and TV at this year’s Golden Globes. And while this is the easiest awards show to game in terms of winning nominations (which are all that really matter for buzz), most civilians don’t know that and hence a big, publicity hawking awards shows generates tons of buzz. This is great for Netflix’s perception they dominate culture.

The bad is how Netflix got those awards. Which is that the “gaming” process means showering reporters/critics with trips, dinners, gifts and access to celebrities. The story here isn’t that this is new, per se, just unprecedented in scale. And long term I don’t think it will actually hurt Netflix with customers who don’t follow the daily ins and outs of Netflix business news. It does, though, diminish the idea that awards are a pure expression of quality untainted by business interests.

The Good: Netflix subscribers are stable; The Bad: Baby Yoda

Bloomberg has the most explicit version of this story based on an internal leak, but most companies trying to triangulate Netflix’s subscribers/users have repeated the line that the launch of Disney+ and Apple TV haven’t yet hurt Netflix’s subscriber base. That’s good news for Netflix and it may be able to resist the dreaded customer churn. 

On the other hand, Baby Yoda.

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If all media is a quest to be “in the conversation” this little guy. Here’s two separate articles saying how Baby Yoda shows how Disney is fighting the streaming wars. And here’s Parrot Analytics calling it the most in-demand show on TV. (I like Parrot Analytics’ work, but it isn’t perfect. It skews a bit too “genre”, but it’s correlated with success.)

In seriousness, I’d dismiss Disney’s content capabilities at your own peril. Disney scored a series as buzzworthy as anything Netflix has released in week one. Apple TV is still searching for theirs. 

Data(s) of the Week

We’ve had a great few weeks for data, so let’s point them out quickly.

First, Multichannel has a great chart on how churn looks across different subscription methods. I’d caution that established platforms like Amazon and Netflix will be lower than smaller services, but churn is still likely one of the major themes of the next few years. (HT to Parks Associates for this look.)

parks-ott-vs-pay-tv-churn

Second, Moffett-Nathanson had their annual results on content spend published on a few different outlets. These budget numbers seem to fluctuate depending on how you count, but are worth tracking. (HT to Axios/Sara Fischer.)

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Third, this fun article calculates how much money artists earn on Spotify compared to cost of living. Spoiler: not a lot. That’s why I highly recommend everyone still purchase albums. Support your artists!

M&A Updates

Viacom and CBS Closed

File this under “lots of news with no news” as we expected this deal to close. The notable part, for me, is that ViacomCBS (“SuperCBS”) doesn’t seem to have a coherent strategy yet. Content arms dealer? Sure. Linear TV? Sure. Streaming and OTT? That too! 

This remains one of the more interesting corporate stories out there. I don’t buy that they’re too small to compete. If you ignore market capitalization, looking at revenue or cash flow, they’re big enough to compete. How they choose to do so will be fascinating.

The DoJ will Try to End the Paramount Consent Decrees

I’d emphasize try because even though the issue has been understudy for a year now, these things take time. And lawsuits will inevitably come. Moreover a new administration could come in and just as easily pause the whole endeavor.

If the walls between studios and distributors do indeed come down, we’d very likely see some M&A in this space. Who and for how much will be seen, but it would happen. 

Sprint-T-Mobile Merger Goes to Trial

Then one could be the last act of this cellular merger saga began its last stages in a federal court room as 13 state Attorneys General sued to block the merger. As usual, both sides brought their economist to debate this simple question: 

If the number of competitors dwindles, does that have any impact on the prices they charge? 

Incredibly, it seems more and more like the answer in federal courts is no. Logically, then, the next step is two cellular companies down to one single provider. As long as they convince a judge they won’t raise prices, then it isn’t a monopoly.

(Listen, 1,500 words aren’t enough to catch up with all the news. I’ll be back next week to keep the thoughts coming on everything else that happened during my three week break.)

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