When CBS finally merged with Viacom after a “will they/won’t they” that rivaled Ross and Rachel (and previously Sam and Diane, I’m told…). The big question was, “What is their strategy?” Will they be a content Arms Dealer, as Rich Greenfield suggested? Will they lean into the declining bundle, as NuFox is doing? Or will they go all in on streaming, as I suggested?
Well, last week it looks like we got an answer. Kind of.
Most Important Story of the Week – SuperCBS Plans to Launch a Streamer
In my unofficial straw poll on Twitter—check in most Thursdays or Fridays for it—this was the story everyone wanted me to write about. While folks on “the Twitter” may think ViacomCBS is already too late to the streaming wars, I’m still willing to give them a shot. The news (and technically it broke last week) is that SuperCBS is considering a new streaming service with potentially 4 layers:
– Pluto TV – Ad-free
– CBS All Access – Ad-free
– CBS All Access – No ads
– Showtime Add-On
Honestly, it reminds me of the Spanish Armada.
I’m currently reading the last book in the Pillars of the Earth series. Taking place during The Reformation, the defeat of the Spanish Armada by the British (four hundred year spoiler warning) plays a prominent role. For those who don’t remember, King Felipe of Spain planned to sail to his army to England to overthrow the protestant Queen Elizabeth. With loads of silver coming from the New World, Spain had the largest Navy in the world at the time, and featured huge galleons.
And yet, a more maneuverable English Navy, combined with some fearless maneuvers and an assist from the weather, meant that the Spanish Armada was routed in the English channel. Harassed by smaller English ships and picked off one-by-one, the Spanish Navy eventually had to retreat back to Spain. As always the lesson is that sometimes underdogs have the advantage.
The question for me is who is who in this analogy? Is broadcast CBS (with all of linear TV) the Spanish Armada sailing for England to destroy upstart digital streaming? Maybe, since Catholicism was older and it needed to retake its crown.
But I could make a better argument Netflix is the Spanish Armada of this analogy. With loads of silver from the New World of cheap internet multiples, it’s goal is to crush all comers with a huge war chest of content. (Spain was also at war with the Netherlands around this time, and parts of Italy too.)
Which is what makes the response of the traditional providers so fascinating. Maybe none of them can be the same size as the Netflix behemoth with 6% of all TV viewing (see below). But maybe the old guard can harass Netflix as the English harassed the Spanish Armada. Disney can pick off folks who want the top tier family content. And Peacock can fill a niche for folks who want news and sports. And Discovery will eventually pick off the folks who just want cheap reality shows. And HBO Max will have Friends? (Fine, that last one is not a niche approach.)
My theory? If you have key strengths or can be “excellent” at something, despite your weaknesses you can carve a niche in any ecosystem. That’s my key question for SuperCBS (and whatever they end up offering):
What can a SuperCBS streamer be “excellent” at?
I see a few potential areas:
“Be Middle America’s Streamer” – A lot of CBS’ bench—though they don’t own a lot of it—was built over the last two decades by Les Moonves to appeal to the areas of the country not on the coasts. (Though as I explained in this article, a surprising amount of CBS viewing happens even in the liberal bastions.) I still think there is room for a streaming platform that is deliberately not high brow. Not prestige. Not event TV. Not even peak TV. Just scripted fare designed to sit back and watch. Cop shows. Doctor shows. Lawyer shows. Comedies that have lots of big gags and laughs. With laugh tracks. The biggest benefit to this approach is that they can save lots of money by not competing for top tier talent at exorbitant rates.
“Go after the “franchise” crown – This may be a stretch, but it requires believing that Paramount is actually a viable movie studio. The facts militate against this, given that most years recently they’ve finished behind Warners and Universal (and everyone finishes behind Disney). But Star Trek has continued to do well in theaters and on their streamer. Combined with a Mission Impossible and Transformers smart refresh, and suddenly they look viable in building franchises.
“Buy Roku” – Buying a company isn’t really a strength, but in my mind CBS still has a surprisingly strong “ad-supported” business via CBS (the top ad-supported brand on linear) and PlutoTV (in the free, ad-supported space). So if you buy one of the biggest devices for watching over the top TV, CBS could ensure it’s content gets distributed to a huge number of households. Of all the contenders in the streaming wars, I think CBS may need Roku the most.
“Go for sports” – This piggy backs on their live TV strength via CBS. If you’re about to lose the rights to the SEC Network, you may as well take your money elsewhere. Specifically the NFL streaming rights. The NFL–from all reporting–seems very hesitant to go digital only, so they need a partner(s) who can be both digital and linear. CBS perfectly fits the bill. (I’d add even if they shared rights with an ESPN, having a piece of the NFL ensures some viewership in the United States.)
I’ll add, identifying a strength isn’t’ the same thing as having multiple tiny niche streaming services. The niche services have proven they don’t have the volume to compete with Netflix. The tricky balance is being broad enough to draw in lots of folks, but still having a strength in something.
So…What is SuperCBS’ Strategy?
There is an old saw in leadership drilled into most officers: “The only bad decision is no decision.” I’ve actually changed my mind on this (inspired by Star Wars’s last trilogy actually). Worse than no decision is flip flopping. So the ranking of decisions is…
- Good decisions
- Bad decisions
- No decisions
- Flip flopping decisions.
Overall, CBS is flip-flopping or no-decision-ing their strategy. My two part article from last August really hasn’t changed much from this little news dump and next week I doubt SuperCBS announces much more. From what I can tell they still haven’t chosen a direction. They’re trying to execute multiple strategies. From Arms Dealing to Streaming to Live TV.
M&A Updates – Viacom and Sprint Merger Cleared By a Judge
If ViacomCBS launching a streamer isn’t the most important story of the week, it’s probably this merger saga. Moving from four providers of cellular phones to three will have an impact on competitiveness. A negative impact. It’s hard to believe it won’t be to raise prices and hence profit!
What does this mean for the entertainment folks, from video to music to gaming? Well, the last line this chart:
Just got a pinch less competitive. And when it’s less competitive they can charge higher rents to reach their customers. If I had to guess—and it’s been my working theory—I think that unless we get more competition in digital video, we’ll find out that customers are paying higher prices for video than they were before the streaming revolution. Without having the specific numbers—I’ve had this bookmarked to calculate for a while—my gut is that cable/cellular bills will eventually reach the price of the old cable+TV bundle, just without TV. Then customers will have to pay for streamers on top of that.
So we’ll pay the same or more, just for less content than the good old days of linear TV.
(Bonus M&A story: That strange news that the FTC is investigating all the big tech company mergers of the last decade. This is either a huge deal, a stall tactic, or busy work. But a lot depends on who is president in 2020.)
Data of the Week – Nielsen Q4 Report
Nielsen released their Q4 “Total Viewing” report. I still haven’t found a copy of the report, so I believe Nielsen just provided a summary to reporters, since they mostly mentioned the same thing. The headline is that streaming is “only” 19% of video viewing or “already” up to 19% of all video viewing in the US. Bloomberg provided a break down by streamer:
After thinking on this for a day, a thought hit me, “Oh hey, we know how much video viewership Netflix is then!” and the answer is a whopping 5.9% of US video time. Which led me to thinking on Twitter that Netflix has previously told us they account for 10% of US TV screen time:
This led me to create this timeline:
Does this mean that Netflix is down in usage? Not necessarily. I’m the first to admit when data isn’t apples-to-apples. In this case, while it measures mostly the same thing (Netflix and Nielsen were both measuring viewership on TV screens in the US only by time spent), Netflix was simply estimating whereas Nielsen was using actual topline data. I dont’ think this means Netflix’s usage is declining, but even with a good Q4 for them, I don’t think it is increasing either.
Still, the pie chart in a lot of ways is the future of the streaming wars. The size of the pie will increase going forward as cord cutting continues. But it’s hard to imagine Netflix’s slice of the US pie getting that much bigger. Especially as Disney+ and HBO Max ramp up. And if that’s the case, well I dont’ think it will go well for their stock price. If I’m wrong, then their stock has no ceiling.
By the way, if Netflix has a lot at risk when new entrants come on board, then Amazon has even more. They’ve been in the streaming game since the early part of this decade, and still only get 8% of streaming hours. That’s a story we don’t cover enough.
Other Contenders for Most Important Story
As usual, we’re long, so let’s go quick.
Mike Hopkins in at “Amazon Entertainment”
I read this description of Amazon in The Information via Byer’s market and it’s a great way to describe everything from Prime Video to Twitch to Audible to Comixology to Amazon Channels. I don’t know if all that will report to Mike Hopkins, but if it did it would simplify Amazon’s org chart.
This is a big move that could change Amazon’s fortunes for good or ill. Unfortunately, I can’t tell you which way it will go. On Twitter I saw folks calling his tenure at Hulu underwhelming and strong. So I don’t know. When Amazon hired Jen Salke, a lot of the trades praised her hire and saw a turnaround from the previous era. Now, The Information says that her shows have been late and over-budget, as were her predecessor’s shows. Will Hopkins be the magic fix? I’m skeptical.
Youtube May Go “Channels”
Innovation in the M-GAFA tech companies is copying each other mercilessly. So since Apple, Amazon and Facebook have or have dabbled with a “channels’ business, obviously Youtube needs one too.
Bosch Renewed at Amazon
Thomas the Tank Engine
Oh and checking in on the, “Pivot to original content” at Netflix move, it’s going about as well as Obama’s “pivot to Asia”, meaning it keeps not happening. The latest iteration is Netflix licensing the rights to Thomas the Tank Engine.