Month: May 2020

Most Important Story of the Week – 29 May 20: All the Complications of the AT&T and Amazon Show Down

Since May kicked off, I’ve been back to writing two articles per week and have had my highest traffic month since launch. So thank you to all the readers and supporters. If you want to stay on top of all my writings, the best method is to either subscribe to my newsletter (at Substack) or through the WordPress application.

Meanwhile, onto one of the more fascinating stories of the year…

Most Important Story of the Week – HBO Max and Amazon Stare Down

Well, HBO Max launched.

If you’re comparing hype, it feels way less substantial than Disney+. Or even Apple TV+. But that’s to be expected. Disney+ was a brand new thing by one of the most powerful brands in America; HBO Max is a retread of a brand most people already know. Meanwhile, while Warner Bros has always had big films and series, but they aren’t associated with their parent company.

Since the HBO Max that launched this week is mostly the service promised last fall, I’m going to focus on the issue we’re all obsessed with: 

HBO Max didn’t launch on Amazon’s devices.

Technically, Roku devices too. But Amazon is the fascinating topic to me, since their negotiating position isn’t just about devices, it’s also about operating systems, content rights, and profit sharing. Let’s try to explain why this negotiating is too contentious, and so critical for AT&T to get right.

The Issue: Operating System vs Device

The core issue of the streaming wars is who gets to aggregate content and who gets to bundle that aggregated content. The aggregators are the streamers, in this case. Think Disney+. HBO Max. Netflix. Prime Video. Previously, they were the linear channels. And formerly ESPN, Disney Channel and HBO.

Bundlers figure out a way to offer access to streamers. In some cases, this is via device. Fire TV. Roku. Apple TV. Sometimes this is via an operating system. Like Apple Channels and Prime Video Channels. Maybe Hulu and Youtube in the future. Formerly, this was the MVPDs like Comcast, DirecTV and Spectrum.

Notice that Amazon has both a device and an operating system.

The trouble is their operating system is a lot like their streaming service. Specifically, if you subscribe to HBO through Prime Video channels, you can access your content via the Prime Video application. This way a customer using Amazon Channels can seamlessly go from Prime Video shows like The Marvelous Mrs. Maisel to Game of Thrones and The Sopranos. Honestly, you couldn’t tell the difference between where the content comes from.

From Amazon’s perspective, if HBO is already included in channels, then so should HBO Max. They signed a deal several years back to make this happen, so why not continue since every other HBO customer (mostly) gets HBO Max with HBO?

Because AT&T learned enough over the last few years to know what matters when launching a streamer. When HBO was mostly a cash play, Amazon was found money. Since HBO was also a key piece to Amazon Channels–clearly their biggest seller– Warner Bro negotiated fairly beneficial deal terms. The partnership worked, as Amazon felt free to leak that 5 million folks subscribe to HBO through their Channels program.

The difference between distributing on Fire TV devices and within Amazon Channels–and the fact that Amazon bundled those discussions together–basically shows how much AT&T stands to lose.

The Key Negotiating Deal Points

  1. User Experience – This issue more than any is what AT&T wants to control. Prime Video has been around for years, and it still gets the most “blah” reviews as a streaming platform. When AT&T sends its content to Prime Video–as it has to for the Channels program–it essentially gives up control for how it will be branded and leveraged. Try as you might to negotiate this, it’s really hard to manage as a third party. Especially a deal point like, “Make your service more user friendly.”

I would add, the other piece is building value in the eyes of customers. If a customer has to go to HBO Max’s application every day, they learn to value the content on that experience. In someone else’s streaming service that just doesn’t happen. It devalues the HBO brand overall. 

  1. Pricing – I haven’t negotiated these type of deals in a few years, but if terms are roughly similar to then, which I believe they are, there is a big monetary difference between a channels revenue split–which is a monthly recurring payment–and a device “bounty” where the device owner gets a one-time payment for signing up new customers. The latter is an enticement to have the device owner market your platform; the former is a deal tax primarily. But they work out to dramatically different financial outcomes for a streamer. A 30% fee in perpetuity can be awfully expensive.

But that’s not all the revenue Amazon wants…

  1. Advertising – This issue came up with Disney+’s negotiations as Amazon wants a cut of advertising revenue from the apps on its platform. On the one hand, this is bonkers as Amazon will have very little to do with creating value from those ads. On the other hand, in the old MVPD world, cable channels shared advertising time with MVPD operators. (That’s how local ads made it on old school cable networks.) Given that AT&T has dreams to launch an ad-supported version of HBO Max, this is likely a huge sticking point.
  2. Content – Andrew Rosen thinks a big hold up is that Amazon wants Warner Media content for IMDb TV’s FAST service. I’m not sure AT&T would ever consent to this, but not long after Disney+’s deal was closed the same group licensed Disney-owned shows to IMDb TV. Consider the market power that when AT&T is trying to negotiate for a device deal for its streamer, Amazon is essentially demanding that some of the content for that service wind up on a competing streamer. Such is Amazon’s market power, that a deal term could be forcing a studio to sell it content. (As I wrote on Twitter, the echoes to Standard Oil are remarkable.)

 

  1. Data – AT&T also wants the customer data. If you don’t control the user experience, you don’t control the data either. They basically go hand in hand. For as much as I love data–look, it was the first theme of this website–I do think “data” has been a bit overhyped in the business sphere. Data is an asset, but it isn’t actually cash. It is something that can generate more cash, but only if you use it properly. Still since it goes hand-in-hand with user experience, they’re tied together.

The Major Streamers Don’t Allow Bundling

That’s really the issue for AT&T. Netflix, Hulu/Disney+ and now HBO Max see themselves as bigger than just content in someone else’s streaming application. Heck, even Prime Video content isn’t available in Apple Channels!

And when you think about it, the ask by Amazon is kind of crazy. It’s not just asking to sell rights to HBO’s content, it’s asking for that content to essentially be bundled with the rest of its content. Which seems a lot more like a retransmission issue than simply allowing an application on your operating system. The best tweet which summarized this for me came from The Verge’s Julia Alexander:

Screen Shot 2020-05-29 at 12.18.15 PM

Exactly. Thus, the whole debate is fairly simple: AT&T considers itself a major player. And won’t allow itself to be bundled. 

Who is right?

First off, no one is right or wrong. The worst thing in the world is to pretend like negotiations between two businesses are about fairness or justice. Or that the needs/wants of customers matter. (If you want the needs of customers taken into account, government regulation is your only hope. And entertainment should be heavily regulated!)

Still, who is more right in holding to their position in this negotiation? AT&T.

When in doubt, ask who is creating value. AT&T has decades of valuable content, is spending billions making more and will have to spend hundreds of millions more to market that content. In other words, they’re doing all the work to launch a streamer. Amazon is a gatekeeper asking for a fee/toll/rent to allow it’s application on its platform. 

Not to mention AT&T bears most of the risk, unlike Amazon. To maximize that investment, they need to distribute and own that customer relationship. So they’re right to hold, and it will be fascinating to see who blinks first. 

Other Contenders for Most Important Story

A few other stories filtered in over the last week that competed for the top spot. A few were generally interesting, but just couldn’t compete with the HBO Max drama.

DAZN Shops Itself

A report from the Financial Times says that sports streamer DAZN is looking to raise money, which could mean anything from selling itself to finding a strategic partner to simply selling equity. Of all the newly launched streamers, DAZN has the toughest road to travel. Sports rights are extremely expensive, meaning they cost almost as much as the value they bring in. As much as I’d like an “indie” sports streamer to survive, DAZN needs cash to compete with the tech giants of the world.

Quibi Programming Strategy Reset

Less than two months in and Quibi is already revamping its programming line up. The plan is to focus more on what is working, which is apparently content that appeals to older, female viewers

Is this too aggressive of a pivot? Maybe. This is the perennial problem with data driving content decisions. Quibi is looking at what is working on their platform, and using that to make future content decisions.

But does that make sense? If your two best shows happened to appeal to that demographic, then it will make it look like that’s your best customer demographic. If you use that data to make more decisions, then you’ll no doubt appeal more and more to older, female viewers.

Do you see how this is a self-reinforcing algorithm? And how that can limit your potential audience.

Want to see how this applies to Netflix? Well, they too made originals, but they also put originals on the top of their home screen. This drove usage, because anything on the top screen gets clicks. But then Netflix made more originals using that data, in a self-reinforcing loop. Hence, why some of Netflix’s content feels so similar or appealing to the same demographics.

Disney World and Universal Studios Plan Summer Openings

July 15th is the planned date for Disney World to reopen at half capacity with tons of restrictions. Universal presented plans as well. This is both expected and seemingly on track for the next stage. My tentative prediction is that as thinks open up, folks will return to old habits and behaviors quicker than currently anticipated. If testing continues to ramp up, we could find this surprisingly normal looking.

Peacock Originals Slate on July 15th

When NBC released their plans for Peacock, my initial reaction was Peacock wants to be the most broadcast network of the streamers. This review of Peacock on Bloomberg essentially describes that as the mission statement. And this made me happy because, in full disclosure, I think broadly popular content has mostly been missing from the streaming wold.

As Peacock prepares its first set of originals for July 15th launch, are we getting a broadly appealing set of shows, or are we getting another rebound of peak-TV/prestige content? Looking at the list of shows–a Brave New World remake, a David Schwimmer comedy and an international thriller–I’m worried it’s more of the latter. However, they do have Psych 2 special. So we’ll see.

Data of the Week – Nielsen Top 100 Broadcast TV Shows

Twice a year, Michael Schneider uses Nielsen data to look at the top shows and then networks for the previous TV season or year. Here’s the 2019 season edition, which feels so bizarre in today’s coronavirus times. I’m mainly looking at it for the next set of shows to come to streaming channels. Look for 9-1-1 to one day get a pay day on streaming.

Entertainment Strategy Guy Update – Apple Content Moves

Apple Snags the New Scorsese Film from Paramount…

This could have been my story of the week, but for HBO Max launching. Dollar wise, it’s relatively small. Just $200 million or so among friends. 

But not with Netflix? What went wrong!!!

Likely the price tag and performance of The Irishman scared off Netflix. As I wrote in multiple outlets last December, Netflix doesn’t have the monetization methods to get a return on $300 million budget films. (That’s what I expect Netflix ended up paying for The Irishman.) Toss in all the controversy about theaters, maybe some DiCaprio nervousness about back end, and I think Apple TV+ with Paramount theatrical was the logical choice.

Is this good for Apple TV+? Sure. It will get a ton of new subscribers to check them out. Without a library, though, how long will they stay? Speaking of…

…and Fraggle Rock from Henson Company

Bloomberg reported last week that Apple was looking at licensing library content. Well, their first “big” purchase is Fraggle Rock’s library to complement an upcoming reboot. Then there was controversy in the entertainment journalism press about whether Apple had changed strategies or not. (Which would directly contradict my column from last week.) Apple PR went to multiple outlets to leak that “No, no, nothing has changed.”

My guess is both scenarios are true. If Apple can’t find a library to buy, they’ll say their strategy hasn’t changed. If they do? Then they’ll happily announce it.

Meanwhile, is Fraggle Rock a game changer? I doubt it. Kids need lots of content to go through. Almost more so than adults. Frankly, Apple TV+ doesn’t have it.

My Unasked for Recommendations for Disney Streaming (2020 Edition)

Do you remember last year before Disney+ launched and I had this series of recommendations for how they could catch up to Netflix? They were…

1. Go dirt cheap on the prices. [Check]
2. Schedule weekly releases for adults [Check]
3. Bundle with other streamers [Check]
4. Get all your key library content on board. [Check]
5. Give it for free to all theme park attendees [No]
6. Release weekly ratings. [Hell no.]

You might have trouble finding that article. Why? Because I never actually finished it and published it. If I had, I could keep pointing back to it for how right I was. 

(Instead, I published an article worrying that Disney+ wouldn’t have the Marvel films or half the princess movies. Oops.)

Given that last week was a bit of big news for Disney+, I think it’s worth providing Disney another round of unasked for recommendations. Rebecca Campbell—the new head of streaming—definitely doesn’t need my advice, but everyone else might find it interesting to know what I would do if I were offering my strategic advice.

I’ll focus on streaming here, with the knowledge tha the entire Disney enterprise has a had a bad few months. It’s almost the perfectly designed disaster to hurt Disney’s business. But given that forecasting the course of a pandemic is pretty uncertain, I’ll wait to opine on Disney’s business model for a pinch.

Recommendation 1: Add a local streamer to your “bundle” overseas.

This was the “a ha” that got me to finally write this article. Two weeks ago, I called my biggest story of the week Disney’s decision to pause international growth plans for Hulu. In these cash strapped times, Disney is worried about the costs of Hulu internationally. Some of this is marketing, some is product, but most of it is likely licensing claw backs. Or foregone licensing revenue. 

As I wrote two weeks ago, I’m not sure a streamer built around the FX stable of content will be a huge winner internationally. American TV shows don’t travel as well as folks think, and really “prestige-y” type shows travel even worse. (This isn’t a uniform pronouncement. Some of the Fox TV studios shows will travel. Like How I Met Your Mother. Just not all.) The Fox movies will have some appeal too, though a lot of the best have been pulled for Disney+ already.

The challenge is that if Disney doesn’t launch Hulu internationally, it will lag Netflix for potentially ever.

What to do? 

Well, keep bundling. The bundle with ESPN+, Hulu and Disney+ has already been successful in America. Likely internationally it will have some appeal. That’s a no brainer.

Even better, though, is to add a local streamer to each bundle. If that’s Hulu’s biggest drawback—lack of local content for adults—don’t opt for the expensive proposition of licensing it all, just partner with a local streamer. Essentially make them the fourth pillar in a country-by-country bundle. Especially if ESPN+ isn’t launched globally for sports. 

Even though we in America don’t realize it, nearly every country has a local streamer trying to fight the streaming giants like Amazon and Netflix. Disney could look like a hero by bundling that content with its other shows. Hulu then gets to come along for the ride. And overall, my gut is this strategy would be cheaper than trying to license local content territory-by-territory. 

Consider this too, an extension of what’s already working. Disney+ was tied closely to Hotstar in India. (Which Disney got in the Fox deal.) They’ve also partnered with local companies for distribution deals like with Canal Plus in France. My pitch is to just take that strategy even further with more bundles in more territories. Even if it means giving local partners most of the benefit in the short term, in the long term this will help with adoption.

Recommendation 2: Seriously, give away Disney+ to anyone going to a theme park.

Let’s re-up my biggest recommendation from last year. It’s super expensive to go to the Disneyland or Disney World. Disney+ is very cheap. So just combine the two and if you buy two tickets to a theme park you get 3 months of Disney+ for free. Those free trials are worth it.

(Yes, parks are closed. They won’t be forever.)

Recommendation 3: Add another “F-BOSSS” Level TV Series. My pitch? Modern Family

Back in January, I coined the acronym “F-BOSS” for the big TV series that were being clawed back from Netflix or secured for multi-hundred million dollar licensing deals. (Friends, The The Big Bang Theory, The Office, Seinfeld, Simpsons, South Park) Now that the biggies are off the table, the smaller series are coming off the board too.

Disney, for its part, has mostly moved 21st Century Fox TV series to Hulu. Like How I Met Your Mother. However, 21st Century Fox has a big one coming up that isn’t as big as those others, but could be. That’s Modern Family. Which just ended its last season.  Back in 2013, Fox licensed it to USA network for a big sum. I looked but can’t see when that deal comes off the board. But when it does, either Hulu or Disney+ is its all but guaranteed landing spot. 

Of the two, I’d say that Modern Family should go to Disney+. This isn’t a no brainer by any means, but that’s because of how hard it is to fit content onto the Disney+ brand. The challenge is Disney+ content needs to be both family-friendly, but also adult-appealing. That’s a hard balance to strike.

I considered some of the older “TGIF” series like Home Improvement (distributed by Disney back in the day, and made by Touchstone, which is owned by Disney). Disney should get that series to Disney+, but it probably isn’t a game changer. It is too old to move the needle. (So they shouldn’t’ buy out whatever rights is keeping it off streaming early.) (The other series on TGIF like Full House or Family Matters aren’t worth it even to license from Warner Bros.) I considered some of the Fox animation series, but they feel too edgy. (It’s still funny The Simpsons made the cut when you think about it.)

This makes Modern Family the key choice. It’s got lots of episodes (250) for folks to binge—the main requirement—and both customer/critical acclaim. (High viewership for a long period of time and multiple Emmy wins.) It does touch on some politics, but overall isn’t controversial enough to cause too much hot water with family groups. (It’s on syndication nationally and on USA Network right now.) So for me, this is a big content priority.

Side Note: About the “Big 5” Pillars

I’m not sure they have a name, but the “Five Big Pillars” is what I’m calling these:

Screen Shot 2020-05-26 at 5.06.44 PM

These pillars are both a blessing and a curse for Disney+. Blessing because these pillars have shown that they can launch a streamer. Hence, Disney getting to 50 million subscribers and beyond. It’s an incredibly strong brand defined by these five pieces.

The curse is that they limit what Disney can do going forward. Already, The Simpsons is above the pillars in most applications because they don’t fit one of the four categories. Same for some of the Fox films like Ice Age. Is it Disney? No, but it’s somewhere on Disney+. 

But really the limitation crystallized for me in Disney passing on the Studio Ghibli content, that will appear on HBO Max tomorrow. Studio Ghibli movies are great, but where would Disney put them? I’m not sure they know either, and not saying it’s the only reason but they passed on it for licensing.

If Disney does add a big piece of additional content, like a Modern Family, they may need to rethink these five pillars. 

Recommendation 4: Provide a major product improvement

I probably use the Disney+ app more than other streaming app. My daughter isn’t allowed to use the iPad unsupervised, and we watch one short film before the bath. So I’ve scrolled the app a fair bit. Meaning I know it’s limitations and positives better than any other (iPad) application. (I caveat “iPad” because I don’t know if they are problems on other operating systems.)

So it’s time for Disney+ to roll out a new feature that doesn’t upend the entire user experience—folks hate that—but provides more functionality. My pitches?

– Make the Disney animated shorts their own section. And make it easier to scroll and search for new shorts to watch.
– Add a “Sing-a-long” version. And make it easy to find the songs to watch as their own thing.
– Fix the “additional content” to be more like a DVD-bonus features. 

Side Note: Disney Needs to “Proof Read” Its Content

If you’re a heavy user of Disney+, you notice little things. My guess is they are mistakes that are the result of automating the entire process. Which is key for a streamer to get launched, but sometimes a human touch can fix the errors. Meaning someone would need to manipulate the metadata to make sure the service is as accurate as possible. For example…

– The timing for the length of short films includes foreign language credits. Which means a Pixar short appears to be 9 minutes long, but four minutes are credits. That needs to be updated.
– A shocking amount of ratings claim that a given Disney short features tobacco use. (The only authentic one is Steamboat Willy.) I have no idea why this is the case.
– Some content still only has one version. For example, Mickey and the Beanstalk is only included in Fun and Fancy Free, when that version features a nigh unwatchable ventriloquism scene. So on one hand, they have this content. On the other, it isn’t the best version of it.

Recommendation 5: Get NFL Sunday Ticket on ESPN+ somehow.

NFL Sunday Ticket is the killer app that gets ESPN+ mandatory adoption. Will this be pricey? Yes. Will Comcast and AT&T still want pieces of the NFL? Yes. Is the least likely recommendation? Yes.

The NFL is the sports straw that stirs the content drink. As it is, ESPN+ doesn’t have enough reasons for folks to subscribe. Plus, Sunday Ticket keeps from cannibalizing linear views as Disney can pitch to MVPDs that it is just adding Sunday Ticket as DirecTV did before. 

Most Important Story of the Week – 22 May 20: Apple Caves and Buys a Library

Some weeks, you barely have any news to cover. Then, other weeks the deluge comes. Buzzy stories. Executive movement stories. Sneaky scoops. And then Barstool drama.

To help settle the issue, I polled the audience. Everyone wants to talk about Joe Rogan at Spotify. But that’s a $100 million dollar deal. When I look for big moves, I mean big. For new followers, that often means adding up the potential dollar figures involved (and if they’re long term/speculative, discounting them for the cost of entertainment capital, about 8%). So a big streamer potentially dropping billions fits that bill.

If this week’s column has a theme, it’s that many of the biggest moves in entertainment are NOT about adding value for customers. I see that with two big tech titans in particular. That contrasts with a third, Netflix, who is doing right by customers. 

This is good for me, since I’m going to praise Netflix repeatedly. I’m a Netflix bear because the stock price makes no sense. Strategically, though, they do a TON right, with a few key mistakes. The world isn’t black and white and neither should be my Netflix coverage. On to the analysis.

Most Important Story of the Week – Apple (Almost) Caves and Buys a Library

I should bust out my Nikki Finke “Toldja” air horn. (Are there new folks to entertainment who don’t get this reference anymore? Showing my age.)

Anyways, my consistent strategic complaint with Apple has been the lack of library content. To just quote myself:

My theory of the case is pretty simple:

It is BANANAS to launch a streaming platform–and charge $10 a month for it–without library content.

It might be unprecedented. We’ve had subscription services launch without original content. (Netflix, Hulu and Prime Video in the early days; some movie platforms too.) But we’ve never had a service launch the opposite way. All originals–and not even that many–but no library? Truly, Apple is zagging while others zig.

Besides the rumored $10 price point, that was dropped to $5/free with purchase, the rest of that column from last August is spot on. Here’s right after they announced the price and most journalists went nuts on the hype:

The counter is that customers value a discount, so a stated price gives it a stated value. Maybe. But the content offering is so sparse—and could be such a dud at launch—that a discount of nothing is still nothing. If you really have no plans to add a library to make this a business that can stand on its own, and it truly is a loss-leading business, just make all the losses explicit and don’t charge for it.

Want another one? Here’s my take in Decider just that last month after Tim Cook told us that for sure they wouldn’t get licensed content:

Screen Shot 2020-05-22 at 8.58.49 AM

The news this week out of the Bloomberg leak machine is that Apple is in serious conversations to acquire a licensed content. And maybe a library. (How could Tim Cook lie to us like that back in February? Remember, executives lie ALL THE TIME!) 

Apple is finally on the licensed content train. What do we make of this?

M&A May Not Solve This Problem

At least not this year. Most libraries worth owning are locked up in multi-year deals. The time to buy MGM/Sony was in 2016. Then, when they launched Apple TV+, all the licensed content would be ready. Now, if they buy one of those two studios, they either have to buy out all the current licensing deals–which is what Disney+ did–which could skyrocket the costs or they have to wait a few years. Hence, the licensing deals to get whatever is there onto the service quickly.

There is Always a Lot of Content Available, but…

We’re not going to run out of content. That said, the top content is still the top content and more and more of it is locked up into multi-year deals at the soon to launch streamers of Peacock and HBO Max, or Hulu. For a good look, this article by Mike Raab uses a few categories to determine a pretty good list of the top shows of the last few decades.

Apple basically has to pick from the last column on the “Potential Libraries”. And already South Park and Seinfeld are off the list. (For a look at quick value, here’s my article talking about FBOSS top series here.)

Screen Shot 2020-05-22 at 9.11.41 AM

Source: Mike Raab on Medium

Does Apple stay prestige and get Mad Men? Broad with That 70s Show? I don’t know, but I doubt it stands up to the potential Hulu, Peacock or HBO Max licensed juggernauts. 

Does Licensed Content Matter Compared to Originals?

Yes. This comes up on Twitter. It absolutely matters. I don’t have time to prove it, but trust me.

Apple TV+ Still Doesn’t Solve Any Problems for Customers

I said this was the theme of the week, and I’ll start with Apple. It’s still tough for me to figure out what Apple is really doing that adds value for customers. Especially with Apple TV+. They’ve just launched another streamer that does mostly what every other streamer does. And they’re losing mountains of money simply to seize market share.

Some of you, will offer this I’m sure: But EntStrategyGuy, it’s free!

Remember, offering something free isn’t the same thing as creating value. Instead, it’s capturing value via predatory marketing pricing. It’s the sign of a non-functioning market. (My primer on value creation is here.)

Contrast this to Netflix. When Netflix started streaming, it really was creating value. Library TV was undervalued, so it streamed it on-demand whenever customers wanted. That is a huge value add. Then in 2012, they started losing money to grab market share. But at the start, Netflix clearly solved problems for customers.

Other Contender for Most Important Story – Joe Rogan Moves to Spotify

To understand the importance of Joe Rogan moving to Spotify, I have two analogies, each with a current story. And I’d call it the “malevolent” versus “benevolent” views.

The “Benevolent View” Talent Gets Paid: Joe Rogan to Spotify; “Call Her Daddy” Deal Terms

The analogy for this is Howard Stern in 2005. In that year, he moved to Sirius XM for a whopping $500 million deal that he subsequently renewed.

In a lot of ways, this current story is no different. Spotify is launching a new product, and is signing up top, top talent for it. Rogan is the 2010s Howard Stern. And note the difference: Stern got $100 million per year whereas Joe Rogan got $100 for 3 to 5 years. (It’s unclear the length.) Earlier this year, Spotify paid $250 million for all of Bill Simmons’ company in perpetuity.

That’s what I also see in the other big podcast story of the week, which is the “Call Her Daddy” drama. For those not familiar, the two hosts of a podcast on Barstool called “Call Her Daddy”–Sofia Franklyn and Alexandra Cooper–started negotiating a renewal. It didn’t go well. The shocking part is that the head of Barstool went public with the dispute, revealing deal terms in the process. Some of them are eye popping for podcasts, in the millions of dollars for two podcast hosts. So Barstool is doing well.

All these cases have something in common, which is they show just how much power talent has in entertainment. What Andrew Rosen has been calling the “curse of the mogul” from the book by the same name. In other words, when cash flow is mostly due to specific talent, the benefits flow to that talent who can help you capture them. (It’s worse when the financials are more apparent, like advertising driven content.)

This is the “benevolent” view. Spotify wants to make money from podcasting, so it’s hiring people to get it there. I don’t complain about studios or networks paying for top talent. That happens all the time in the TV industry. HBO wouldn’t pay John Oliver his millions if he show also went up simultaneously on every other channel. Some exclusivity is needed to justify owning channels and producing content in the first place.

But…

The “Malevolent” View

Let’s stick with the radio example, and compare it to the current situation. In the case of top talent for FM/AM radio, all the providers are competing with each other in the same distribution format. So if one radio channel pays it’s top talent more to woo them to its station, they’re simply taking market share from someone else, who can pay likewise.

That’s the Barstool/Call Her Daddy kerfluffle too. In this case, the talent just wants to get paid more. The option, though, is to go to another podcasting service. But they’d still be distributed in all the same places, just taking more of the revenue.

Not so for the Stern example. Sirius XM’s goal wasn’t just to get ear balls on its service, it was to take over radio. (Indeed, it merged with XM in part because they couldn’t replace all terrestrial radio.) They didn’t succeed, but if they had, the goal would have been to use that newfound power to crush suppliers.

Spotify isn’t just trying to get podcasters to help it make money. It wants exclusive podcasts. Why? So that it can take over the podcasting market. And then when it does, it can use that power to crush suppliers. How do you beat the “curse of the mogul”? Be a monopoly. Then talent has no other choice.

Some of you don’t believe me, so I encourage you to read Matt Stoller’s latest newsletter on this. (He’d written about Spotify before.) The example he uses brilliantly is what Google and Facebook did to local news. Before, if you wanted to advertise on The New York Times, you had to pay the Times. Now, you can advertise to NY Times readers when they leave the site. For cheaper.

That’s essentially the Spotify playbook here. (Once I read Stoller’s take, I couldn’t get it out of my head.) Now if you want to advertise to Bill Simmons or Joe Rogan’s audience, you had to do that on their podcast. In the future, Spotify can serve those ads to anyone else when they are listening to something else. Is that good for podcasts individually? Obviously not. You lose your “exclusivity” value when Spotify can sell your customers elsewhere. Ask local newspapers and their massive extinction event how much dynamic advertising via Google/Facebook has helped their businesses.

By the way the New York Times example is very telling. This week they stopped allowing third party data because they know how bad it is for them overall. Owning the data is the key to monetization. Spotify knows that and that’s their goal. Except…

The Reality: Spotify’s Quest to Take Over Podcasting Is Not Guaranteed

If your goal is to become the monopolist of podcasting, getting Simmons and Rogan is a great start. 

That said, the theme of the week is customers. What is Spotify doing that helps customers? I keep hearing about “dynamic ad targeting”, but I skip ads all the time. If I can’t skip ads on Spotify, and I can on iTunes, I’ll use iTunes. Especially if only a handful of podcasts are exclusive to Spotify. Meanwhile, will Spotify police ad reads for podcasts that premiere on its platform? How could it even do that?

So the problem is that Spotify isn’t solving for any customer pain points. Maybe their UX is better than iTunes, but it’s worse than many other podcast applications. 

Worse, they’ll likely cause pain for their suppliers. Meanwhile, there are enough big media companies that will never go exclusive to Spotify. It just won’t be worth it at one third or less of the audience. So if ESPN, NPR, WNYC, Wondery, etc are all on every other platform, the edge just isn’t there for Spotify. That’s my gut thinking.

(Last point, Luminary is also continuing to prove that subscriptions won’t work for podcasts. It also proves that having a parent in private equity/finance is great at funding news business ventures.)

Other Contenders for Most Important Story

We have more stories. Let’s go quick to wrap things up.

Kevin Mayer Moves to Tik Tok; Rebecca Campbell Takes over Disney Streaming

Say it with me, “We can’t judge executive hires in the moment.”

That doesn’t mean we don’t try. We do all the time. But we’re pretty rough at forecasting executive hit rates.

Still, I want to give a moment of credit to Kevin Mayer and what he can do. His skill set is dealmaking. And that’s what Disney+ needed to launch. Yes, the Mandalorian was a huge hit, and credit to the creative team for that. But Disney+ needed to launch on every potential device. And it did. And Disney needed to claw back rights for all of Star Wars and Marvel and Disney and Pixar movies, which it did! Mayer was the driving force behind these deals. 

Will that skill set help at Tik Tok? Maybe. We’ll see what they acquire. It’s an interesting hire for sure.

As for his replacement? I won’t pretend like the coverage in the trades gives me a clue. Campbell has lots of TV and international experience, but not a lot of development experience. I can’t guess either way.

Netflix Is Helping to Cancel Inactive Accounts

Which really is the right thing to do by customers. It can definitely engender good will. And I’ve long praised Netflix for making it very, very easy to cancel.

That said, some credit goes to Wall Street. Every so often, Wall Street decides they like free cash flow negative business propositions with huge growth. Like Netflix. If Comcast could lose $3 billion a year in pursuit of growth, can you imagine what it could build? Same for Disney. 

If Wall Street collectively changes its mind that losing money is a bad thing–say when subscriber growth stalls–we may see different behavior at Netflix if it isn’t reward.

M&A – STX mergers with Eros

Since STX launched, their goal has always been global. (This New Yorker read is a case study in a confused business model, which even then talks about getting China money.) In total dollars, this is small, but it reflects who in a global buying market even US studios need global power.

Fake Data of The Week – Datecdotes Spread!

Thanks to Andrew Wallenstein for flagging our latest datecdotes. On Hulu, Solar Opposites is huge! On Apple TV+, Defending Jacob is huge! How big?

Screen Shot 2020-05-22 at 9.37.19 AM

Some quick takes on that:

– Damn, Outer Banks is crushing this quarantine in America.
– Sorry, Mythic Quest fans. That show is not. Still.
– Rick and Morty is doing worse than I thought.
– Sure, Solar Opposites is probably doing well. For Hulu. And when I’ve looked at THe Handmaid’s Tale before, it does worse than you’d guess.
– Defending Jacob is probably Apple’s best launch since their premiere, but they have a long road to haul still.

Coronavirus Impact on Entertainment – Film and TV Production

Over the last few articles, I’ve avoided the “C word”. Not that one, the Covid-19/Coronavirus words. If some of you are like me, you both devour coronavirus content, but sometimes find yourself sick of reading any more of it. (Every so often I just delete all my news podcasts that mention Covid-19 or the economic impacts. I need a break.)

I’ve been trying to strike the right balance between ensuring we cover one of the most important events of American history, but also focusing on all the other stories as well. Since my column last week was mostly non-Covid-19, let’s pull out the crystal ball to ask: how will the coronavirus impact the production of filmed entertainment?

Before we get any further, you can read my two previous analyses of the future of entertainment in a post-Covid-19 world.

The Entertainment Recession
Feature Films and Coronavirus
Pay TV

Compared to many analysts, I’m very uncertain about the future. If I could predict the future accurately, I wouldn’t be writing articles. I’d be trading stocks. (Read my first article to understand my methodology and approach.)

Still, we can sketch out some details and try to separate some overreactions from the proper reactions. And since we don’t have clean “demand vs supply” issues the way other parts of the value chain have, forecasting production changes should be a bit easier. (Customers are usually the problem in forecasts.) I’ll break out my analysis into two time frames, long and short term for how Coronavirus could impact production.

(By the way, I use “Hollywood” as a stand in for all global film production in this article.)

Long Term – Somewhere Between Two Extremes

Given my uncertainty, I’ll review all the scenarios using the good old Hegelian method. I’ll explore both extremes and try to guess where the middle of “the impact on production” could land.

Thesis – Coronavirus will make “Youtube-style” the norm.

I’ve seen a narrative that since Covid-19 has enforced universal lockdowns, this somehow represents the triumph of self-produced content. In the future, we won’t need fancy set ups and teams of people to produce content. It turns out that a celebrity sitting in their home can put out a content in HD that looks pretty damn good.

Call this the “triumph of Youtube/Twitch” narrative. (Yes, I loathe narratives.)

In some cases, constraints become the style. With lots of folks watching vlogs and Youtube videos from home, and everyone staring at Zoom cameras, people are used to this style. It permeates the culture.

We’ve already this style invade traditional broadcasting. The broadcasters have mostly embraced the Youtube style for live shows. Disney’s Sing-a-longs in particular had fairly strong production quality, all from at home. Same for Saturday Night Live at Home editions. And Hollywood Game Night’s special worked really well for a remote production.

Expand this view to Instagram/Snap Chat/Tik Tok influences on video, and you could argue there is no future for traditional Hollywood-style production.

I’d emphasize why “filmed from home” productions look so good. While I’ve used the term “Youtube style”, the distribution method has nothing to do with it. Instead, the reason why filming from home looks so good is because cameras have gotten so, so, so much better than even ten years ago. Or more precisely, they’ve gotten much much smaller. 

 

This was fueled by the push to have phones on everyone’s cameras and the push to shrink the technology down. In turn, Go-Pro made fantastic cameras that are also incredibly small. And surprisingly easy to use in production. Like an actual camera. Or to mount in different places. As a result, professional cameras have also gotten cheaper and cheaper to rent or buy.

Combined with increasingly powerful home computers, anyone can shoot, edit and produce their own TV shows or films from their own home. Even do post-production work in many cases.

So that’s that. Everyone can shoot from home and it will look great.  

Antithesis – At home productions still have some key flaws.

How can you tell a production is cheaply made nowadays? Well, the sound is no good. 

For all the advances in video recording, the advances in audio have been much slower. As a result, poorly made student films tend to have bad audio, but can still look fantastic.

Some of the at home productions have solved this, but a few have run into issues. (The musical ones have also likely featured a lot of recording at home separately from the video with high quality equipment. It is fairly easy to do audio recording—ADR—at home with the right investment in equipment.) 

Lighting is another issue. Properly lit films are hard to do well, but make a genuine difference to the final quality. And folks can tell. Make-up is another hurdle. Folks just aren’t great at putting on “TV make up” and that shows up every so often.

Finally, and obviously, the limitations on the number of people in one place has been stark. And no one has loved that experience. It’s still really hard to overcome issues of lag, which are functions as much from computing power as they are functions of raw physics, in some cases. So while everyone is making it work, it just works even better if two people are in a room talking to each other. Or even better a whole group of people.

It also helps to have a team of people behind the camera too. Even with the advances of camera technology, having someone behind the camera to dynamically move it just looks better. That’s why productions in many cases have stubbornly held on to teams and teams of people. Reality shows taught everyone two decades ago that you could make a show with a limited crew of a producer and some cameras. Same for independent productions that have made it by on shoestring budgets for years.

So why do armies of people still exist? Because in most cases they add value. The grips get better lighting and the sound folks record better audio. Add a camera man to free up the director. Then an AD to balance the demands of the lighting and camera. Then add another AD to organize it all. Plus makeup, costumes, sets, props, special effects, actors, craft services. And producers to you know “produce”. Suddenly, you have an army of people. 

So that’s that. Eventually traditional production will return.

Synthesis – The Longest Term Impact is Somewhere in Between

Likely, the future is somewhere in between. Which is the “aggressively moderate” take on it.

When studios can get people back together in the same room, they will. That’s a no-brainer. If studios decided years ago that they preferred smaller teams, they could have made it happen. Guerrilla filmmaking or independent filmmaking isn’t new. Again, reality TV has been making very cheap shows for two decades now for cable in particular.

Contrariwise, Hollywood can see change but not embrace it. Until it is forced to. (Example: streaming.) Will coronavirus cause a complete rethink for how many folks are really needed on set to make a TV show?

In the long term, maybe. Hollywood—and Bollywood, Nollywood, Hong Kong, European and anywhere that makes movies—production isn’t monolithic even now. My gut is this will further expand the divide between huge blockbuster productions—super hero, sci fi and fantasy films and TV series—and everything else. If dramas can be made with less people, they probably will be. Meanwhile, most reality production is probably about as cheap as it can go.

In most cases when production can go back to what it was before, it will. Broadcast multi-cam sitcoms will go back to multi-cam and single-cam will stay single-cam. All the folks making their own shows from home will continue to do so. And when it’s safe to go outside, the low-budget productions of the world will return too. And the blockbusters will be blockbusters. Some folks may try to innovate on the margins, but it’s uncertain if they’ll succeed.

Short Term Impacts on Production – Definitely Smaller Productions in the next 3-9 months

That’s the higher level impact, in the near term there will be some inescapable impacts on productions, whenever they get the green light. You’ve probably read about these impacts, here’s my take on who will benefit.

– Less shooting on location, which is good for production hubs. I don’t think talent will want to travel for fear of airplanes. While I mostly think worries about travel will be overcome quicker than folks expect, in this case, an over-abundance of caution will limit travel. (For instance, traveling on an airplane is actually a low likelihood of transmission.) This will be good for Los Angeles and New York in the short term, assuming demand returns. Potentially Montreal as well, but likely not as much for New Orleans, Georgia or eastern Europe.

– More shooting in soundstage and controlled environments, which is good for studios. If you’re not traveling, and worried about moving around, studio lots provide a controlled environment with centralized testing. While this is generally good for the studios, owning a studio lot isn’t a cash cow business anyways.

– Limited number of people on set, which is bad for support staff. Given the demands for testing everyone on a production, studios will likely limit the number of people to keep headcount down. This should limit costs slightly. (And studio execs/producers won’t be allowed to just hang out on set as much.)

– Fewer shows in front of live studio audience, which is bad for the vibe. Which you know if you watch any late night show. But shooting in front of live audiences will follow the reopening of live events. I’m more bullish on theaters, but could see studios being more risk averse than theaters. 

Bottom Line: So When Are TV Shows Coming Back? 

The question is how long these changes last. I’m more bullish in the upside case then most, but if you expect lockdowns to last for 18 months—which would ensure a depression as deep as the 1930s—then that’s how long they will last. However, like lots of things as people get used to opening up, as long as new outbreaks don’t flare up, they restrictions will gradually decrease. 

Again, this is just my read on the situation, given the huge amount of uncertainty. And studios/productions will keep innovating under restrictions to get as much done as possible.

Will this hurt content output? It’s tough to say for sure. 

Given how many different countries and how many different time frames for when lockdowns could be lifted, it’s tough to know when the slow down will end. (Everything being shut down is definitely delaying shows being made in America.) Meanwhile, other countries are figuring out how to restart production, which will encourage others to start back up.

Most Important Story of the Week – 15 May 20: Does It Matter That Hulu is Delaying International?

This week’s column started out as an extended essay on the future of TV and Film production in the age of coronavirus. It went long, so expect it early next week. (Next week’s article already written? Check!)

Before we get to the news, a quick set of housekeeping. On Twitter, I put out the offer to build my network with any of my readers. If you’d like to chat, send me an email and we’ll see if we can set something up. I’m in particular looking for new opportunities to grow my audience or partner with businesses (be it consulting or writing or what not). Even if you don’t have an opportunity, but just want to chat, let’s do it.

Meanwhile, my website is still free. So if you want to support my work, the best way is to follow on social media (Twitter, Linked-In, newsletter) and share any articles you like with friends, peers and colleagues. Seriously, forward my column to everyone in your company. Why not? 

Most Important Story of the Week – Hulu International Launch Delayed

Sometimes, I wonder why everyone in media leads with the same headline after certain events. This goes from politics to sports to entertainment journalism. Take post-debate coverage. Somehow CNN, The New York Times, the Washington Post and Politico all take the exact same quote as the most important of the debate. How is it that dozens of political reporters can watch the same event and all come to the same conclusion?

(The answer? Group think and herding. As soon as one outlet goes with something, the rest copy it so they don’t look like outliers. Or “biased”.)

Personally, I think you’d get more credit by zigging while everyone else zags. Which is what I try to do. So when everyone else focused on Disney’s earning report for the losses to theme park–which were totally expected–I saw this line about Hulu’s International roll out from Bob Chapek:

Screen Shot 2020-05-15 at 9.34.33 AM(Credit to Twitterzen TMTonka for reminding me of it.)

In the short term, aggressive Hulu international expansion is on pause. At first, I was ready to write about how bad this was for Disney. But then I paused and thought about it. While it is a bad sign for Disney’s cash flow, the Hulu international rollout is less of a surefire hit than Disney+. It’s more important that Disney figures out Hulu’s international brand than launching it quickly.

Frankly, as bullish as I am on Disney+, I understand it’s limitations. Disney+ is like the best children and blockbuster content from Netflix, stripped out into its own service, and taken to the max. Yet that has a ceiling. Even four quadrant content (industry lingo for broadly appealing to men, women, young and old) still doesn’t do it for everyone. Some folks don’t like superheroes. (“Some folks” being code for critics.) Or don’t have kids.

Which is why Hulu is there to fill in the gaps. It features prestige dramas from FX and day-after air broadcast fare for everyone else. (If I were advising Disney’s head of streaming Kevin Mayer, that latter category is where I’d tell him to lean into. See my last article on ignoring “middle America”.) If broadcast TV “does multiple jobs” for customers, Hulu & Disney+ reaches pretty much covers all those bases. Add in ESPN+ and Disney recreated a great bundle.

As an added benefit, with three sets of subscribers to count, Disney is hot on Netflix’s heels in “total subscriber” count. My guess is Disney will soon match Netflix in the United States for total subscribers. And will tell us when they reach that milestone in a future earnings call. (Disney doesn’t yet break out by territory, but I still think a majority of customers are US.)

The shiny object, though, is for Disney to catch up with Netflix internationally as well. That’s the downside to delaying Hulu international expansion. Now it will take that much longer to match Netflix.

Or will it? I’ve long been skeptical about arguments about “global scale”. Not that being international doesn’t confer some advantages, but that most valuable content doesn’t travel globally. You see this in Netflix’s Top Ten lists, which feature some outliers, but for the most part feature local content. Does global scale really exist if you still have to buy local originals for every territory?

Of Disney’s catalogue, Hulu is the brand that will travel the least well. Lots of Hulu/FX originals, while lauded at home, are fairly esoteric for foreign audiences. International audiences don’t get subtle humor about life in New York by/for millennials. (Again, neither do many audiences in the United States.) The best traveling content is animated kids movies and Marvel films. Both of which are on Disney+! So Hulu’s upside globally is probably more limited than we suspect. Which means even if it did launch internationally, I’m not sure it has nearly the same growth prospects as Disney+.

Disney will still try, of course. The rewards for a global streamer are too big to ignore. Which gets back to the delay. It is a really bad sign that cash flow has dried up so much they can’t invest in growth. Whether or not I think Hulu will thrive internationally, that was their next major capital expenditure. Which is still bad.

Other Contenders for Most Important Story

Quibi Blames the Pandemic

This week Jeffrey Katzenberg blamed the pandemic for Quibi’s soft launch. Let’s play out both sides, and you can decide how right he is.

On one hand, situations absolutely matter. The role of luck in life is increasingly apparent. At its core, if Jeff Bezos graduated in 2000, instead of being a VP at an investment bank during the 1980/90s, he doesn’t start Amazon. Is he still successful? Yes. Is he Jeff Bezos? Maybe not.

Same for the pandemic. If the pandemic started a year from now, it would likely still wreak the same havoc on the economy. But HBO Max, Quibi, Peacock and Disney+ would all be safely launched. And likely benefit due to their established services. (It’s hard for HBO Max to benefit when it isn’t even launched.) 

Quibi’s core value proposition was damaged by the pandemic. It was meant to be watched on the go, and we as a society aren’t going. Katzenberg is right about that. 

On the other hand, come on. I’d long believed that Quibi needed to be on living room TVs to succeed. This was regardless of a pandemic or not. Quibi didn’t have a big hit to lean into, and that means that they’re fundamentally at a disadvantage. And no library content. Even with no pandemic, I could see Quibi having the exact same number of subscribers as it does now. Maybe a little more, maybe a little less. 

Either way, I think we can say that Quibi is in trouble. How much will require some scoops by some intrepid journalists.

Potential Original Trouble in Netflix-Land

While all other studios and TV producers announce their schedule will be impacted by Covid-19, Netflix insists all it’s content is produced and there won’t be any impact to their schedule. But then, despite having a policy to release all content day-and-date dubbed in original languages, the Unbreakable Kimmy Schmidt special came out in English only.

Hmmm.

Entertainment Strategy Guy Update – Coronavirus Edition

Theaters – Studios/Theaters Locking in Schedules

That’s my take on Warner Bros and Disney both reaffirming their late July release schedules. At some point, films can only be pushed back for so long without hurting the bottom line. If theaters will only be partially reopened from July to December anyways, you may as well recoup what you can. My read of the coverage is that Tenet and Mulan are increasingly likely to stick at the end of July. As THR wisely points out, blockbuster films are likely to do okay post-pandemic since theater chains can flex them into as many theaters as necessary. 

This gives theaters 8 weeks or so to get customers ready to go back to theaters. My guess? The return of library films like Star Wars or Wizard of Oz or John Wick or you name it will allow a bunch of fun experimentation in June.

Meanwhile, Solstice Studios (a new independent production house) grabbed the July 4th weekend with its Russel Crowe thriller Unhinged. If people start returning to theaters in June, part of me still wonders if another studio jumps up to July 4th. Usually, long lead times for advertising campaigns would prevent this. But given the pain in linear TV for advertising, I think the networks would make an exception. (Ad prices are so low that a film could quickly get share of voice.)

Still, all of this is incredibly uncertain. So we’ll see. 

Pay TV – Losses Continue in MVPDs in Q1 (in Context)

The quarterly Moffett-Nathanson report is out on the status of cord cutting and the results are expectedly grim:

unnamed

Of course, the funny thing–as I tried to warn you on Twitter the week before–is that this isn’t proof that Covid-19 is accelerating the trends underlying economics. I know, I know. You read everywhere–I mean everywhere–that coronavirus will “change everything” and “accelerate all the underlying trends in entertainment”. Seriously, I won’t link to them, but I’m the only entertainment biz analyst NOT making this unfounded claim.

So where do I get off challenging them?

Well, I start with the numbers. Frankly, adoption of new trends is a well studied phenomena. Usually summarized by the “Bass Diffusion curve”, a topic I went deep into last fall.

Cord cutting is following the same pattern in reverse. So should we have expected growth of cord cutting to accelerate this quarter, as even more streaming options launch? Absotutely. To be clear, we expected the “growth to grow” this quarter if cord cutting is an adoption trend. Which is exactly what happened!

In other words, where everyone is ready to give Covid-19 credit for hurting Pay-TV, I see a trend that is continuing at the same pace. Which is still really, really, really bad for the Pay-TV business. But it would have been bad whether or not Covid-19 happened. Meanwhile, if coronavirus did temporarily accelerate teh trend, when sports return it could reverse itself.

Still, all of this is incredibly uncertain. So we’ll see. 

Data of the Week – Did Coronavirus Save Fortnite/Epic Games?

I’m a bit more bearish on Fortnite’s future than a lot of others. I get it; they’re about as buzzy as you can get. And like Tik Tok, they’re also mysterious to adults. That’s a double whammy for hype. 

Instead of relying on hype or their datecdotes, I look for the data. The news from last week is they passed 350 million registered players. The last update was last March when they had 250 million subscribers.

So what should be the narrative of Fortnite? I’ll give you two options. Then we can look at the data.

  1. Fortnite has grown consistently and will consume the world via it’s metaverse.
  2. Fortnite was declining, then Covid-19 freed up a lot of time for kids.

For the data, start with my article on Fortnite from last year on Linked-In. I projected they’d end up with 300-325 million registered users. So they passed my expectations. (To be fair to me, given the very limited data points my margin of error was fairly wide. I was overfitting the curve to the data.) Here’s my chart of updated Google Trends. See if you notice what happened.

Screen Shot 2020-05-15 at 9.32.12 AM

The explanation? Well, kids are the ones consuming the most content–video and video games–during the Coronavirus. Parents are trying to work from home where possible, but schooling is for the most part not happening. (Is this bad for society? Yes.) Look at this excellent Nielsen chart on it.

Screen Shot 2020-05-15 at 9.33.07 AM

To finish, here’s my line chart of Fortnite registered users. It looks pretty “Bass-y”.

Screen Shot 2020-05-15 at 9.30.24 AM

Without reliable traffic numbers, we’re limited on what we can judge externally about Epic Games. But I will say this: they are one of the winners of Covid-19. 

Lots of News with No News and M&A Update

AMC Theaters Acquisition Target

Yes, a giant tech company is considering buying AMC Theaters, though we have no idea how real this is or if it will happen. Amazon is an unrepentant tire kicker on new businesses and acquisitions. They’ll run the numbers on any acquisition and they’ve been circling entertainment–while largely building their own–for decades. (They own IMDb!) AMC is in huge financial straits, which makes it doubly attractive. 

Could this deal happen? Sure. Could it not? Just as easily, if not more likely.

All The Earnings News

Usually, I walk through the earnings reports news but this quarter is such an outlier that, besides the Disney news above, it just doesn’t make sense this time. Ad sales are down everywhere. Customers are dialing back spending. I’ve called this the “outlier earnings report” and I hold to that. Until things calm down, it’s worth accepting they are and will be bad everywhere.

Netflix is a Broadcast Channel – Implications, Insights, Strategic Impacts and Criticisms

My most popular article of the year is clearly this buzzy headline titled,

“Netflix is a Broadcast Channel”

Why? Since Netflix is the sexy topic in entertainment—a titan of digital subscriptions—my article probably got some clicks because it’s an “aggressively moderate” take on Netflix. (A lane I’ve decided to lean into as heavily as I can.) Most headlines go the opposite direction. 

If your thesis is that Netflix “will become TV”, I basically say, “Uh, not really.” Netflix won’t become TV, they’ve become a broadcast channel. Take a look for yourself.

Image 1 - EstimatesBut that last article was missing, in my mind, the most important part of any in-depth analysis. Which is all the implications from the data. Today’s article will fill that gap. I’ll start with the implications and strategic impacts of this data look. Then, I’ll discuss some potential criticisms of the approach.

Implications

Implication – Netflix is a Broadcast Channel…So They Can Launch Shows

That’s the upside take. A show like Love is Blind or Tiger King doesn’t just become a hit, it becomes buzzy sensational show that seemingly everyone is talking about. When you’re a broadcast channel, your top shows can do this. Fox can launch The Masked Singer or Lego Masters that still gets a lot of coverage. Or NBC can have This Is Us.

This is why being one of the top players provides so much of an advantage to incumbents. When you do put out something good, it is immediately amplified. This is why Netflix can drive so much of the conversation, while Amazon/Hulu seemingly can’t. (No matter how many times Bosch super fans recommend it.)

IMAGE 3 - Total Viewing Q4

Implication – On the other hand, Netflix is *only* A Broadcast Channel

If I took this list of broadcast Primetime ratings, you’d likely shake your head and say, “Hmm, decline of TV is right!”

Image 11 Anonymous 1

Image 12 - Anonymous 2Honestly, did anyone else know that Altered Carbon season 2 came out? Me neither. Talk about a season 1 to season 2 decline. (Read my take here for why this is important here.) Obviously, the difference is growth. Netflix and Amazon are growing, whereas linear TV is decaying.

But we can learn something from these ratings. They explain why even some “buzzy” Netflix shows can stay anonymous in the conversation. Take Outer Banks right now. If you polled a majority of Americans, I bet they have never even heard of it. Which is fine for Netflix. If you polled a majority of Americans, another big chunk wouldn’t know that The History Channel has a successful show in The Curse of Oak Island. 

In other words, even being a successful broadcast channel in today’s day-and-age is just enough to launch some shows. The rest fade quickly, even for streamers. And even “hits” can be unknown by most of the population.

Implication – Amazon Prime Video is a Cable Channel

That’s just what the data says to me. Besides their most recently launched show—Hunters, about Nazi hunters in New York—every other show is pretty old. In other words, based on their ratings they’re a decent cable channel. The question is if providing one decent cable channel is worth the potential billions Amazon is spending. 

(Side insight: Hulu is a cable channel too.)

(Side insight: How many Amazon series are about Nazis? The Man in the High Castle. Hunters. At this point, I’m worried Hitler will show up in The Lord of the Rings.)

Implication – The Broadcasters Aren’t That Far Behind and Netflix May Be Losing Marketshare

Which could be good news for all their streaming services. The folks at Hub Research do some pretty good surveys on a quarterly basis and one slide in particular caught my eye. 

Hard not to see how valued the broadcast channels still are. Which begs this question: Is Netflix worth more than ABC, CBS, Fox and NBC put together? Moreover, can all the new streamers based around those broadcasters compete to take more Netflix market share? I think it’s possible. If not likely.

Meanwhile, as Netflix has told us before, they are 10% of TV viewing in the United States. (From earnings report in 2018 and 2019.) Here’s my Tweet from when I first saw the Bloomberg article:

Yet, this analysis only has them at 5.9%. While the difference is likely chocked up to different measurement systems, it could be a trend. We’ll monitor.

Strategic Recommendation: Understand Segments Better

My favorite strategic frameworks of all strategic frameworks is the 4C-STP-4P marketing framework. Specifically the middle part where business leaders evaluate “Segment-Targeting-Positioning”. My read on the landscape is that a lot of the streamers are targeting the same segment: coastal elites.

Looking at these Nielsen ratings, though, there is a big untapped segment. Overly-stereotyped, I’d call it the “middle America” segment. (A real segmenting would need more data than this cursory look.) They’re still watching broadcast TV. But as the streamers spend more and more money competing for the same segments (Hulu, Netflix, Prime Video, Peacock and HBO Max all arguably are), it gets more and more expensive. Peacock made the most noise about being broad, but even their originals are light on typically broadcast shows. Same for HBO Max.

Implication: The decay is super real in linear TV

To pull off my analysis, I collected 4 years of annual Nielsen ratings. (Collected every year by Michael Schneider of Variety.) Despite adding more and more channels tracked every year, the ratings are declining as you’d expect:

Screen Shot 2020-05-13 at 11.40.42 AM

And that decay looks like it’s accelerating. Of course, this complicates the “Covid-19 will accelerate all changes” thesis, since the rate of decay was already growing. Meanwhile, as I mentioned last time, if you add streaming and linear, you get to 94 million, so the folks watching TV is growing with population. This makes me trust the Nielsen data more. 

Content Implications: Original versus Licensed Battles

The biggest open question—the debate point that riles up the most folks online—is whether or not Netflix’s original content strategy is working. Does this Nielsen data settle the issue? 

Hardly.

First, as Andrew Wallenstein pointed out on Twitter, when it comes to TV series, the Netflix “Originals” win hand down. 

Or do they?

As I wrote in my weekly column, some Nielsen data came out about the top ten licensed series on Netflix in the first quarter. (Here’s a “What’s On Netflix” article on it.) The gist is that licensed shows are still the most consumed TV series when you account for the entire quarter, not the most recent day’s viewing. As Kasey Moore points out, That 70s Shows has never made a Netflix top 10 list, yet it was third in total viewing. Clearly, new shows get lots of viewers initially, but series with lots of episodes drive more total viewership.

Second, when it comes to movies, the picture is out of focus. The top film in early March was Spenser Confidential. The top film in May, so far, is Extraction. So original films can claim the top spot and not let it go. (I’m writing a deeper dive on Hard R action films on Netflix for another outlet.)

That said, unlike the TV series, a bunch of licensed movies make up the rest of the Nielsen list. And have continued to do so. This makes me a little nervous for Netflix’s strategy. Especially considering that they launch something like 20 original movies every month. Their hit rate for those movies looks low, and licensed films are leaving the platform. (Also, kids films do show up on this list, which I’ll discuss later.)

Content Implications: The Decay Is Real

This is something I mentioned last time, when trying to calculate how much additional primetime viewership happened. (I made an estimate for every series not on the Nielsen top ten.) Netflix Originals drop quickly out of the top ten after premiere. Usually within two weeks or so from launch. The oldest show on this list is Locke & Key. This isn’t because folks are consuming all the content, but because they’re switching to something else. (Unless Netflix top ten lists exclude TV series that are older than one month from release, but I don’t know that for sure.)

Justification: Everyone Should Estimate Netflix

I can hear some silent critics out there. “Hey, EntStrategyGuy, you’re just guessing here, right? This is an estimate? Not facts.” The answer is yes, this is an estimate.

Of course, when you hear someone in the media commentariat opining about Netflix, they’re making estimates too. I’m thinking specifically of hyperbolic talk about Netflix on podcasts by so many reviewers or opinion makers. They’re making estimates of Netflix’s size, power and reach, just not explicitly. 

But because they don’t have an actual estimate, they use their gut. And often that gut goes wild. By some of the discussion, you’d think Netflix was 100% of TV viewing in the United States.

Meanwhile, there is a strategic rationale for making this type of estimate. Especially if you work in a strategy or content planning or marketing or any role in the business of studio, production company, streamer or network. If you don’t know how well your competitors are doing, you can’t properly plan. Unfortunately, I’ve seen more firms that don’t make well grounded estimates than firms doing proper competitive analysis.

So I fill in the gap. For free!

Evidence/Arguments Against My Thesis

Here’s is another great public service I provide that separates me from some other media analysts: I’m willing to criticize my own work! How rare is that?

Kids viewing vs Non-Kids Viewing

A huge variable this analysis doesn’t/can’t account for is kids viewership. Kids are such a small portion of the audience that they won’t crack Nielsen’s time specific viewership. This has historically been true on broadcast and cable too.

Yet, as others like Richard Rushfield have speculated before, a huge portion of Netflix viewership is kid driven. Even has high as 60%. Traditional TV, I don’t believe, has ever seen viewership percentages that are that large. Which could throw off the entire comparison I’m making.

All of which would imply that my argument that “Netflix is a broadcast channel” is too generous. I assume that Netflix’s percentage of all streaming TV viewership is the same as its percentage of all primetime viewership. If Netflix over-indexes on kids viewership, then it’s percentage of primetime viewership would go down. 

Without more data, though, we can’t know either way.

Or the Reverse: Netflix Has Higher Primetime Viewership

This is another argument I saw. Basically, some folks thought Netflix actually does better with adults so the day-part to primetime analysis doesn’t make sense. I couldn’t find any any data to support that, but the great thing about my estimates is if you want to tweak them, you can.

How Do Sports Impact This Analysis?

It does and doesn’t.

(This great comment from the excellent sports mind Steve Dittmore asking this question:

Yes, a TON of broadcast ratings are due to sports. Here’s the top 15 highest rated shows in broadcast from last year:

Screen Shot 2020-05-13 at 12.11.49 PM

It’s a lot of viewing. 26 of the top 50 shows in primetime were sports. And you can see the orders of magnitude higher viewership for something like the Super Bowl. Unfortunately, I don’t have the specific Nielsen data to answer this question for Steve.

On the other hand, Netflix doesn’t have sports. Which means it will never get these ratings in the first place. That’s a potential advantage fro DAZN or ESPN+ to get mindshare for Netflix. (In other words, it’s hard to become TV without sports or news.)

This Data is Out of Date From a Pre-Coronavirus World

True and sort of irrelevant as far as I can see. If you told me a vaccine was delivered by aliens tomorrow, and you wanted to know how viewership would look post-lockdowns, I’d rather have data from before the lockdowns started than during them. It’s more representative of what a viewership world will look like after the fact.

Also, why certain industries are gaining during lockdowns, it appears as if the market leaders are actually gaining less than their smaller competitors. In shopping, Target, Walmart and Shopify users are up more than Amazon. And it looks like Disney+, Hulu, linear viewing and Prime Video are up more than Netflix in terms of overall growth.

Read My Latest at Decider – Why Is Comcast Declaring War on Movie Theaters?

I finally cracked why Comcast is doing all the things it does. I explain it over at Decider, but quickly:

  • They can’t buy any more cable companies, so they money needs to go somewhere.
  • If you become a tech company, you can get a higher valuation. 
  • Also, Brian Roberts loves buying things.

So how does this relate to fighting theaters? Because tech titans hate the whole idea of “windowing” and sharing profits with others. Comcast is just the latest to get in the game.

So head to Decider and check it out.