As I stared at the list of stories I wanted to put in my weekly column last week, I couldn’t help but notice that they all connected back to some previous article I’ve written before. So here’s an “All Update” column, starting with a distribution story that hits on the most important trend of the streaming wars.
Most Important Story of the Week – Youtube TV Will Offer an HBO Max Add-On
A contrarian may see this as just another minor move in the distribution landscape. Equivalent to Disney+ finally getting distribution on Fire TV devices. And I didn’t make a big deal about that.
Well, this is bigger.
Google/Youtube is moving its troops onto the “key terrain” of the streaming wars. As I wrote back in November, the rise of “digital video bundlers” (or DVBs) is the trend to monitor when looking for who will “win” the streaming wars. The bundlers will, potentially, control the fates of the streamers. And hence have the best chance to capture the most value in the digital video value chain. The Youtube partnership with HBO Max could cause a cascade of strategy moves.
First, this is Youtube getting into the “streaming bundling game” versus just the “vMVPD” game. The distinction is subtle, but important. In the “virtual multichannel video programming distributor” game, the vMVPDs are mostly mimicking traditional cable bunde\le. So Youtube, Hulu, Sony Vue (rest in peace), DirecTV and Sling are mostly offering a bundle of traditional channels in a new package. This has only worked out so-so well so far.
Now that Youtube TV is going to offer HBO Max, they aren’t just about linear channels. While this isn’t their first streaming service they offered—they have the AMC owned niche streamers like Sundance Now, Shudder, and Urban Movie Channel—this will be their biggest streamer add-on. And the broadest offering so far. Likely this won’t be their last move either. Could CBS All-Access be next? Or even Disney+?
If so, then the line between vMVPDs and “channels” businesses will blur further. Here’s my quick take on how the potential DVBs are shaping up:
Youtube also needs this since right now Google is lagging on the device front. While the Chromecast works very, very well, Google can’t monetize it. You can’t download apps to it, just stream from another device. This will mean they need to lean on Youtube/Youtube TV even more to bundle their offerings.
Second, this is a smart move for HBO Max. May is rapidly approaching and scanning the other Live TV services and Channels, I haven’t seen a lot of announcements about where/who will distribute HBO Max. On the one hand, AT&T claimed that if you subscribe to HBO you’ll get HBO Max. But how that will work in practice remains to be seen. Does that just include linear offerings? Or only AT&T owned offerings? Does it include Amazon and Apple? That’s being negotiated right now.
AT&T’s goal, like Disney+, is to get HBO Max out via as many distribution channels as possible. Frankly, to make your money back, this makes sense. (Though it also shows that the power is mostly with the distributors, not the streamers.) Youtube is the first step.
Third, this impacts how the other vMVPDs will respond to HBO Max. Does Hulu—which offers HBO—automatically offer HBO Max as well? It would make sense, but that would then be a game changer for Hulu, which doesn’t offer any other streamers yet. And if it’s offering access to HBO’s streamer, why not sell Disney+ subscriptions and/or access right along side?
So Youtube could be the domino that starts a chain of OTT offerings.
(Legally I have to mention them every week)
There is a careful balance for each streamer between reach—being on the most devices—and controlling the customer relationship—in both user experience, data and owning the credit card data. Netflix is on the extreme of one end; as the most successful streamer, they don’t care about reach and want to own everything about the customer relationship.
HBO Max is clearly willing to give up some of that with Youtube TV for the reach. Disney, with Amazon for example, gave up some data to get Disney+ on Fire devices. Disney+ though, is NOT in Amazon’s channel business. Because they don’t want Amazon to own that relationship.
If I were Netflix—and I don’t think they quite understand this—I’d be worried that the distributors are going to offer increasingly compelling user experiences sans Netflix. Be it Youtube or Roku or Hulu or Amazon Channels or Apple Channels, customers are going to increasingly find themselves using one ecosystem. While switching between Disney+ and HBO Max and Netflix isn’t that difficult, it’s still a small barrier to entry.
But little things can add up. And if folks only use Youtube TV to get 60% of their TV viewing, then that could rise to 70%. Then 80%. And Netflix could be the piece on the outside looking in. (Alternatively, some streamers like CBS All-Access and Peacock could never even get a look.)
Is it guaranteed to happen? Obviously not. But if Youtube TV “becomes TV”, then Netflix can’t. And only one of those two companies is banking on “becoming TV” to support its stock price.
Last note: Youtube TV’s price point is still uncompetitive. It is somehow the only remaining Live TV bundle offered at $50. As a result, it’s boosted it’s subscribers from 1 million last year to roughly 2 million this year, as it announced in its latest earnings. The key question is how much they lose every month. $1? $5? More? The higher the number, then the more Google is using revenue from one business to enter another using predatory pricing. That’s not good business necessarily, but market power. It stifles innovation in the long run and should worry us.
Entertainment Strategy Guy Update – ViacomCBS’ House of Brands
So did CBS let us know what their strategy is? Scanning their last earnings report, not really.
They could be a content arms dealer. Mentioned it. They could lean into streaming. Mentioned it. They could lean into live TV. Mentioned it. They could be a leader in advertising. Mentioned it too. They want to be all things to all people
So that’s the downside case. They still don’t have one strategy. But if we’re looking for bright spots, at least they are making some smart moves. They plan to expand their streaming offering. Here’s their pitch:
Ignoring the misuse of the term “ecosystem”, if they execute the “House of Brands” strategy it may provide a better user experience than some other streamers. And it will work better than trying to launch BET+ on its own and Smithsonian on its own and so on. In general, broad services have the advantage over niche platforms, and CBS already has a “broad” advantage like their fellow legacy media conglomerates. As I wrote in August, you could imagine a version of Disney+’s brands…
..with ViacomCBS brands like BET, Paramount, MTV, Comedy Central and Paramount instead. (If I were better at Photoshop, I’d have done it.) Is that better than Disney? No. But it’s a clearer offering than if Netflix tried to offer something similar for its library of Babel offering. (Still probably behind HBO Max and Peacock though.)
I said back in August that trying to offer “the perfect bundle” is their best strategy. I happen to like their three tiers: Free is a great entry price; CBS-All Access can compete with Disney+, Peacock and HBO Max while Showtime goes for HBO and Netflix. That seems to be our three tiers right now.
Notably, though, I don’t think they can be a streamer and a “content arms dealer”. If you sell genuine hits like South Park, Sponge Bob and Yellowstone to competitors, there won’t be enough left for your service. Given that they can’t survive without a viable streamer, they need to focus on that strategy.
M&A Update – Apple Looks for a Library/MGM on the Sales Block
After it’s nine original TV series—plus or minus 2—there isn’t a lot else to watch on Apple TV+. Which is why I thought it was bonkers launch without a content library for customers. The biggest library on the block is MGM’s and a few months back the Wall Street Journal reported Apple was indeed in talks to acquire the former major studio (and its library).
Yet it didn’t happen then. Still, as Alex Sherman comments in his look at M&A in 2020, it’s probably more likely that MGM gets sold than not. It’s long been rumored that its private equity owners are looking for an exit. So why hasn’t it happened? My gut is that between the PE folks desire for a sizable return and the strings attached to their library—most of it is rented out for the next few years—it gets hard to find the right deal.
(Related note: In the Wall Street Journal article, the Pac-12 was also in negotiations with Apple that apparently didn’t go anywhere. I remain skeptical that going to one distributor like an Apple will be worth it for the Pac-12, but we’ll see. Here are my big articles on the Pac-12 and what that implies about the future of sports here.)
Entertainment Strategy Guy Update – What about the Oscars?
Are the Oscars just an increasingly unpopular TV event or a portent of the eventual declines all feature cinema? Probably just the former. The global box office hit an all time high last year. Instead, as I’ve long suggested, the Academy needs to nominate more popular films to bring in a bigger audience. (And not just via a popular film category.) Here’s an updated table on how unpopular the nominated films were in general:
So while there was a slight rise in “unadjusted box office”, the trend is still downward from the 2010 recent peak. (Adjusting box office for inflation shows an even worse decline.) Hence, the ratings were down again.
A related question is whether this push for Oscar nominated films makes sense for those producing the films, such as the streamers. As two recent articles show, Oscar nominations lead to box office revenue. And presumably Netflix viewership. The only caution? Well, the cost of those increasingly expensive awards campaigns may not pay back even that amount of Oscar revenue.
Entertainment Strategy Guy Update – Netflix Originals Aren’t Permanent
Over in the United Kingdom, the Netflix “Original” Happy Valley is going to be departing the platform soon. This shouldn’t be a huge surprise for business watchers, but I have the feeling that customers won’t quite understand it. If originals are original, then how can they leave? Well, it depends more on how Netflix paid for it (rent it, lease it or buy it) then whether they call it an original. What’s On Netflix has a good article on this here.