Most Important Story of the Week – 10 January 20: The Most Important Question of 2020

Welcome back to my weekly column. My attempt, usually, to select the story in the business of entertainment that will end up being the “most important” for leaders, strategists and companies. Not the story that is the most buzzy or interesting—though it usually is—but the story that will have true importance.

Having stepped back from writing for holidays—and mostly disconnected from the web—I’m busily digesting a stream of year-end and decade-end articles. Which I promise I’ll get to either here or in the newsletter. Instead, this week, I’ll talk about the question I’ve been thinking about for the new year.

The Most Important Question for 2020: What is the Same and What is Different?

At family gathering this holiday season, a relative used a phrase that has stuck in my head:

“in the new economy”

It’s actually so common to use nomenclature like this, that I think bolding that singular word is important to highlight its truly revolutionary implication.

Embedded in the idea that we have a “new” economy—and you could call this digital disruption, the technology revolution, or any of dozen other buzz words—is the idea that something has fundamentally changed in how the economy works. Not just that the situation is changing. That always happens. But that the economy is different; there was an old economy, now there is a new one. And fundamentally they are different.

Let’s key in on that word “fundamentally”. This doesn’t mean on the surface. But a deeper level of core fundamentals. Imagine if we had a “new physics”. Would that be the equivalent of Albert Einstein replacing Newtonian physics? Not really. Einstein didn’t dispute Newtonian physics, he provided a model that explained more than Newton’s version.

When it comes to the new economy, we’re not refining, but overturning! Futurists hyping the new world say that something has changed in the model itself. It’s as if we woke up one day and suddenly Plank’s constant had changed values. As if the speed of light raised or lowered its speed limit. As if the hydrogen molecule suddenly had a different atomic weight.

For us to truly have a “new” economy, it means that technological changes have invalidated or upended fundamental principles of economics. As if net present value, charging more for products than they cost to make, and creating value for customers are somehow no longer applicable to the business landscape.

My challenge when writing about the streaming wars is that I’m temperamentally conservative by nature. Despite futurist claims to the contrary, while things change and evolve, I don’t think they overturn core, fundamental economic principles. Technology and globalization change the situation and require adaptations, but economics is still economics. Strategy and business are still strategy and business.

But…

I do think the perceptions we are in a “new economy” illuminate the greatest challenge for business leaders (and myself) in 2020, the year the streaming wars become a hot war. Even if the fundamental principles of business, strategy and economics haven’t changed, well a lot else has. The key challenge for strategists is figuring out what has changed and frankly what hasn’t. In my opinion, the broad media—meaning everything form mainstream trades to social conversations to podcasts—does a great job at hyping all the change, and a much worse job at explaining core economic principles/fundamentals that still matter. (Even if they can seem to temporarily hibernate.)

A theory for what really divides the bears and the bulls on Netflix.

If the streaming wars have a psychological battleground, it’s debating Netflix’s future. You have the bulls on one side who see no end to the upside; and the bears fiercely contesting them on the other. Mostly on Twitter, but also spilling into the business and trade press.

Partly, the debate is so fierce and competitive because of this question. My theory is that how you feel about Netflix boils down to how you feel about what is different and what is the same in business, economics and entertainment. We don’t really disagree on the facts, we disagree on what they mean.

Take what is different. On-demand content. This is something no bear can argue is not a fundamental change to how TV is consumed. The idea of having a programming executive filling in a grid every week is gone. That part of the business has irrevocably changed. (Well, maybe. The rise of ad-supported streaming means someone or algorithm needs to program live TV!)

Take what is the same. Losing money is bad. This is something that even the bulls know needs to change for Netflix. The question is how much money they can lose and for how long.

Everything else is up for debate. This is what makes the debate and coverage of Netflix so difficult. On one hand, Netflix is a binge-releasing, algorithmically driven, streamer up-ending business models. Disruption! On the other hand, they are still just making a bunch of TV shows and movie and distributing them to customers who pay by subscriptions. Traditional!

How you feel about Netflix is about these edge cases and asking, is this the same or different? Is skipping theaters revolutionary, or foolishly passing up revenue? Is binge releasing content revolutionary, or needlessly avoiding building anticipation? Does Netflix’s data really help them program the channel, or do they still have teams of development executives doing the same jobs they always have, just with bigger check books? Or lots from column A and B?

The Streaming Wars

I could apply this to the entire streaming wars. What do you think has fundamentally changed in the entertainment business? Technology, certainly. Digital distribution means new ways to send consumers content. But the business models themselves…are still business models. And the same rules apply.

Sure a bunch of traditional entertainment companies are launching their own (money losing) streaming platforms. They need to catch up with Netflix and Amazon and the others who disrupted their business. The question for streaming, really, is what is truly revolutionary, and what isn’t. At the end of the day, collecting subscription revenue from customers is something cable companies and premium channels have been doing for decades.

Anyways, welcome to the new year! We’ve got a lot to explore, understand, explain, discover and more and I’m happy to have you along for the ride.

Other Candidates for Most Important Story of the Week

College Humor Laying Off Employees

The demise of the early generation of video websites such as College Humor and Funny or Die is, in my opinion, directly tied to the rise of Facebook and Google as an advertising duopoly. Potentially advertising share that should be going to publishers is getting captured by them. In total, this decrease in competition is bad for customers and consumers in the long run. And the whole economy, really.

Twitch Doesn’t Make a Lot of Money

Priya Anand of The Information is out with the scoop that Twitch—Amazon’s live TV service—made a whopping…

$300 million 

In 2019. And only $230 million in 2018. 

Those numbers are…bad. For context, just CBS TV network earned $6.1 billion in 2018. Just CBS. You can imagine the rest of cable TV and even Youtube. Likely Twitch isn’t profitable for Amazon, which means that five years in Amazon has only gone further into the $1 billion whole. Assuming just a 15% cost of capital, for tech that’s not bad, and they’re going to need to dramatically scale to make back the investment. That’s my gut thinking on the deal.

The challenge for observers of digital platforms is that we don’t hear the details of companies like Twitch, just gaudy user numbers that have been and are inflated by bots, fake views, and a host of other issues. As a result, advertisers clearly don’t trust the platform and there really isn’t as much money being made as it seems like it should.

I’d be especially worried for those hyping esports leagues. (Which is subtly different from folks making money by being celebrities on Twitch.) Most esports leagues have gaudy projections and financial numbers. But if all of Twitch can only generate $300 million per year, that’s a small pie to split a dozen or so different ways.

Data of the Week – Scripted Series Grows to 532

According to FX’s John Landgraf. To get a sense of all these titles, and the deluge of reality and children shows, I recommend All Your Screen’s running tally. The NY Times has a good visualization of FX’s data. Also, Variety used their insights platform in December for a similar look. My one other caveat is I’ve never seen a good clarification on whether or not this includes  international originals, which I feel is slightly misleading, as those TV series were always being made, just not in the United States. 

Lots of News with No News

The Golden Globes

The Ankler probably blew up this annual awards show best. When nominees can and do invite the entire voting body to their house for a birthday part, well, that’s tough to take the results seriously. Meanwhile, as a driver of buzz, the Globes success. It does generate publicity for the streamers, the question is whether the juice (buzz) is worth that squeeze (awards campaign costs). 

As for the Oscars, if the Globes, guild award and BAFTAs are a sign, I think we’re still on track for a moderately unpopular Academy Awards best picture field. Not the worst, since Joker and Knives Out did well, but not as good as it could be if they had nominated the deserving super hero movie of the year, Avengers: Endgame.

Quibi, Quibi, Quibi

Quibi had a big presentation at CES, which was covered everywhere. Besides a specific launch day and confirmation on price ($5 with ads and $8 without), I’m not sure there was a lot of other news here.

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