Reed Hastings is famous for declaring his competitors to be anyone that isn’t a fellow streamer. Famously, he said a couple of years back that Fortnite is bigger competition than other streamers. (He’s previously mentioned sleep.)
If you think about competition using Porter’s Five Forces, then Hastings is obviously right, and obviously wrong. Competition amongst streamers can exist alongside substitutions (like video games and sleep). Since the biggest news of the week seemed to be from a video game maker, let’s explore that.
Most Important Story of the Week – Microsoft’s Big X-Box Decision
As well as streaming has done during quarantine in America and around the globe, video games may have had an even better time. According to most measures, video game usage has ballooned during the pandemic.
Into that environment, Microsoft announced some details about the next generation of its X-Box console. There will be two versions, one low priced ($300) and the other high-priced ($500). Video games themselves are likely to increase in price too, to $70.
How will this impact the streaming wars? And the entertainment landscape? I see a few ways.
First, for gamers, the PS5 and X-Box Series X will be the center of the home.
As folks cut the cord, they can opt for Roku, Amazon…or one of these video game consoles. My brother already does this and I plan to whenever we finally cut the cord. For gamers, this is incredible value compared to a streaming device.
They’re absolutely more expensive–the hardware is much more complicated than a streaming stick–but offer the ability to play games. My hunch, though, is that video game consoles are stickier than many streaming devices. For example, Amazon was basically giving away Fire Sticks for many holiday shopping seasons. How many are sitting in a drawer somewhere? If you plop down $500 for a console, you’re going to play it or use it.
Indeed, from the data, about 20% of streaming usage comes from video game consoles in the U.S. This puts it firmly in the “small but significant”. For all the focus on Roku/Amazon battling with HBO Max/Peacock, we’ve seen less coverage of Apple TV not being available on X-Box. Which still cuts out a lot of potential viewers.
Second, consumers will have another subscription in their media bundle…video games.
I hadn’t checked in on Sony Playstation subscriptions in a while, and the numbers surprised me. Across the globe, Sony has 45 million “Playstation Plus” subscribers. Sure, that’s 150 million less than Netflix, but not bad either!
While games are getting more expensive, both the video game companies (and all the tech giants) desperately want recurring subscription revenue. I think we’ll see them lean more and more into subscriptions to make that CLV math work. X-Box also offers a $10 subscription for online play. Meanwhile, all the big tech companies are trying to add subscription video game offerings.
Third, streamers will copy the gamers.
In two ways. First, the gamification aspect. Netflix is the furthest along with their “choose your own adventure” style TV shows and the general respect Hastings has for video games. I could see streamers continue to add various “gamifying” pieces to video, though I don’t know quite what they’ll be.
Second, the social aspect. As many have pointed out, video games are sticky not just for the fun, but for the engagement with friends online. That’s why even this week there are rumors that Disney is adding a watch feature to Disney+. That stickiness will keep folks locked in to their favorite video game system and sending cash to the video game companies.
Last question: Can Playstation “win”?
I don’t study the video game wars close enough to judge X-Box’s release strategy, but it’s worth noting they are very far behind Playstation. (Nintendo competes for a different demographic.) As such, I’ll defer to Tae Kim from Bloomberg who makes a compelling case that with a “two pronged” device strategy X-Box will be the worst of both worlds: the lower quality product will hurt the high-end offering, while failing to attract casual gamers.
I’d add that another interesting question is whether or not $500 is expensive or not anymore. Which seems crazy to say, but on the other hand, a new iPhone is twice that amount. Though the X-Box does a lot more, the phone is obviously mobile. (And X-Box is offering a payment plan, just like cell phone providers.)
Data of the Week – How Did Mulan Do?
Everyone is trying to guess at how well Mulan did on Disney+ last weekend. Given that multiple outlets are asking if this is the future of moviegoing, it would help to know! So I’ll summarize what I’ve seen.
First up, Disney themselves. Disney CFO Christine McCarthy gave us this nugget. They are:
“Very pleased with the result.”
Since I don’t know how to translate CFO speak, we’ll move on.
Second, we have Sensor Tower. I generally like their data for directional purposes. Their news is that Mulan helped drive a 68% increase in app downloads compared to normal. Hamilton, the big winner from July, helped drive a 79% increase in downloads. Further, Mulan drove a surge in spending on the platform, which is to be expected since it’s Disney’s first transaction on the device.
Now, caveats abound. Sensor Tower can’t actually track who watched Mulan. Further, they only track recent download data, so the ability to attract new subscribers according to the baseline. So we don’t know if the data was trending up or down before the weekend anyways.
Third, analytics firm Samba TV estimated that 1.1 million homes purchased Mulan. I’ve never used Samba, so I can’t speak to their accuracy, and the caveat is they only track Smart TVs, and extrapolate from there.
Fourth, Reelgood reported that Mulan led the weekend in streaming. Here’s their chart:
More caveats here as well. I asked Reelgood if they had data going back to Trolls: World Tour, and they saw a surge in sign ups after coronavirus lockdowns. However, they did compare to Hamilton—which I saw reported in Indiewire too–and they estimate Mulan outpaced Hamilton in streaming.
This is where I tend to be the most skeptical of Reelgood’s data, though I like their numbers in general. Mainly because the barriers to entry are so much lower for Hamilton that I’d assume it had higher viewership.
Fifth, Google Trends!
Almost tied with Trolls World Tour, but way behind Hamilton. Caveats abound again, since Google Trends only measures search, but not actual engagement.
Add it all up and do I know what Mulan did? Nope. Sorry.
I will say, though, this reinforces my gut that Mulan is on track for $100 million in US VOD revenue. If Samba TV is close, then we’ll see a decay each weekend from now until its free launch in December. Given that Trolls: World Tour had about the same interest–and maybe higher sell through because of kids–this seems the most likely scenario. Toss in the difference in price ($20 versus $30), and I think they offset.
Mulan may outpace Trolls in total revenue, but I still think it ends up around $100 million.
(With the caveat that I’d quickly change my mind with better data.)
Entertainment Strategy Guy Update – Box Office Results for Tenet
What about the other side of the coin? Well, Tenet didn’t have blockbuster box office in the United States because most of the major markets remain closed. As Disney CFO McCarthy pointed out, 68% of theaters are closed, leading Disney to expect reduced ticket sales of about 40%.
Thus you get this nifty math: Folks expected Tenet to get around $50 million opening weekend, and it got about 40% of that to net $20 million.
I remain more bullish on the legs (the staying power of the box office) for Tenet given that it will have some bump whenever California and New York reopen theaters. Will it be monumental? Surely not, but it will get something. I mean, unlike other films, when Tenet opens in California presumably some folks will go to see it?
Does this scare off other films? As of yesterday, the answer was no. As I was writing this, Warner Bros moved Wonder Woman 1984 to Christmas Day. So yes. The biggest driver really just is the lack of open theaters in California and New York. As long as they stay closed, there is little incentive to open new films.
Other Contenders for Most Important Story
HBO Max: Promotions and Ads?
HBO MAX, I keep trying to defend you. But you make it so hard.
Having a focused offering is a good strategy in general. And recent leaks and stories show that HBO Max still doesn’t get that. First, they’re offering another 20% promotion. Meaning, like Hulu of the last few years, they will be stuck on the “promotional” treadmill, unable to get off without losing customers. (Netflix has done the opposite to their credit, sticking to one “everyday low price”.)
There are also rumors about their ad-supported tier. It should come next year and further confuse customers. Meanwhile, they may sell Xandr–their advertising technology business–as I wrote about last week, asking the obvious question: why do you need an ad-supported tier?
Keeping Up with The Kardashians Ending
My guess is the Kardashian clan is running the “Judge Judy” playbook. They’re leaving their current show to sign a more lucrative overall deal with a streamer. Still, the historical impact of this show on the fortunes of E!, NBC-Universal and reality television can’t be understated, even if the Kardashians are wont of overstating their importance.
Lots of News with No News – Executive Shuffling
Some folks wanted this as the most important story this week. Unfortunately, I just can’t put executive transitions into the top spot, since I don’t know who is good at what. Still, so you don’t miss anything…
NBC Universal Appoints Susan Rovner to Programming; Pearlena Igbokwe to Chief of Content
NBC Universal had a big opening to fill, and Susan Rovner from Warner Bros TV has taken the overall programming job at revamped NBCU. Overall, I still think NBC-Universal has a confusing executive structure (too many cooks in the kitchen), but this will help slightly. Meanwhile, Bonnie Hammer promoted a key lieutenant to chief of content at the production side of the house.
Netflix Gives all of TV to Bela Bajaria; Cindy Holland is Out
Meanwhile, Ted Sarandos simplified his org chart to two people: one for film and one for TV. The question though is whether or not he picked the right person for the TV role, and I have no way of judging that. Sarandos picked Bajaria, who was head of international content. Part of me would note that US productions still outperform international titles, but international is the future. Like always, I don’t know.
However, I will note that Ted Sarandos has eliminated one of the more senior folks at Netflix. Meaning if Reed Hastings ever steps down, no one can match Sarandos for tenure or even come close, given that the CFO, CMOs and now content heads were all hired in the last few years. For other studios that would be a red flag but at Netflix…
Bonus: Netflix wins the Narrative (Again)
Because of their well publicized hiring guidelines–”the keeper test”–when Netflix fires a senior executive, they get applause from the community. When a Disney, Warners or NBC does likewise, it’s always questions about what went/is going wrong. Just interesting how the narratives get shaped.
