For the second week in a row, we all knew the most important story of the week by Tuesday. And even more than the election, the news of a potentially very effective Covid-19 vaccine has direct benefits to the entertainment industry.
(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so.)
Most Important Story of the Week – Pfizer’s Vaccine and Ending the Entertainment Recession
When I finally anointed Covid-19 the “most important story” of the week back in March, I speculated that we could call the impending recession the “entertainment recession” since so many parts of the industry could be impacted. That take was generally correct, as the novel coronavirus walloped the industry broadly.
(Though, in hindsight, leisure and travel industries like hotels and airlines, were probably even more impacted. Small in-person businesses like bars, gyms and restaurants were also crushed.)
That’s what makes the news so notable that Pfizer has a working vaccine that delivers 90% immunity. This follows rumors going back to August that China has a working vaccine that they’ve given to over 300,000 people. Or similar rumblings that Astrazeneca is also close to a working vaccine. (Honestly, I’m a little surprised we only learned of one vaccine this week.) Given that Pfizer’s vaccine is effective, many expect other vaccines to be similarly impactful.
Like all things, I want to temper my optimism with some doses of reality. Or, better said, uncertainty. Trying to predict how an entire society rebounds from a devastating pandemic is a fool’s errand. But that’s what we get paid the big bucks to do, so we’ll try. But first, the caveats.
1. We still need more caution in our sociological predictions. It amazes me how often we predict confidently in the behavior of large groups of people, and they end up confounding our predictions. Take this virus. While virologists predicted a big surge of cases in the fall, few predicted a big surge of cases in the summer. If society wide predictions were easy, we wouldn’t need capitalism and could have a state-run economy. But they aren’t, so we don’t.
2. A vaccine doesn’t fix the recession. Covid-19 forced tens of thousands of businesses to permanently close their doors. That’s economic activity that doesn’t just come back. Even if a vaccine is widely distributed, and distributed faster than expected, economic activity may not follow. (Or it will rebound quickly, a point which I’ve seen some opinion makers make.) While the vaccine is unqualified good news, it doesn’t make forecasting the economy any easier. I could see everything from a big muddle (especially without stimulus) to a strong rebound.
3. We don’t know how quickly a vaccine will be distributed. It may end up surprising us on either end. We could look back and find out that the US/European/Chineses governments supercharged distribution faster than expected. Or it may be the end of summer and we’re wondering why we still don’t have vaccine doses at scale. Disney, for example, expects theme park closures to last into March. That’s probably the earliest we could see widespread distribution. On the other hand, vaccine production is tough and it could be until the end of Q3 or further. The median is sometime in the summer.
4. The current outbreak is spreading uncontrolled. What final damage does this leave? Does it force theater chains to close if Wonder Woman 1984 can’t make it’s Christmas Day release? (See below.) This is a big (and tragic) wildcard.
5. What does the government do? We’re potentially in an even more muddled position than before the election. If one party controlled all three levers of power, you could see an effort to spend big to rescue industries and distribute the vaccine. As it is, spending bills could fail to materialize as helping the economy is increasingly seen as a political concession to the party that controls the White House.
In all, a messy picture. My (incredibly uncertain) gut says we should be optimistic for the entertainment industry now that a vaccine with proven effectiveness will be available. In rough order of who stands to benefit the most from an efficacious vaccine:
– Customers in 2021. My biggest prediction is that we see a big rebound emotionally/culturally/socially. Take the Roaring 1920s and pack it into one year. Folks throwing big parties. Or holding double birthday parties. Splurging on outdoor concerts and festivals. Big vacations. In other words, 2021 becomes the year of the party. The pent up demand hypothesis.
– Concerts see the biggest gain. Frankly, live-streamed concerts have come and been found wanting. There is nothing like an in-person experience and I think concerts (and the artists performing in them) have the most to gain from herd immunity. Concerts do take time to put on (as Hedgeye analysts Andrew Freedman put in his recent coverage of Live Nation). That said, these are extraordinary times. When concert promoters see an opening, there will be all effort made to be the first concerts back. And to celebrate that fact.
– Theme parks are next up. They have as much to gain as concerts, except there just aren’t as many. (And some are already open.) At first, I’d guess that local customers are the big arrivals, and we’ll see Disney and Universal studios offer lots of local discounts to get the parks full, especially in California.
– Live sports will rebound, but likely without the same enthusiasm as concerts. Frankly, watching the game on TV is still how most folks consume sports, even if ticket revenues are a huge portion of any league’s revenue. Conversely, each team will celebrate its return to competition and teams could see a surge in interest as folks are ready to get out of the house.
– Theaters could see the next big benefit, but they have a tough road to get there. 2020 will forever be a black mark at the box office, and it may take AMC Theaters with it. If they can get to/through the first quarter, though, I think studios will finally hold the line and let films get released. Meanwhile, the slate of films will essentially be double packed, with the best of 2020 and 2021 in the same year. This could actually hurt individual film grosses, but should lift all boats in general. I wouldn’t forecast we see a record breaking box office year, though, because Q1 will still have head winds from the current outbreak.
– Streaming and linear will…? If folks are spending lots of extra spending on everything, presumably that means they won’t be at home watching TV. But does this benefit the streamers? Or did they pull forward cord cutting? What about the traditional bundle? Will it see more cord cutting as folks go back outside? All that is unclear to me. Likely cord cutting continues at its current pace, but viewership could slide back from lockdown highs. However, competitive dynamics will probably have more of an impact than Covid-19.
I will be wrong on some of the predictions above. For example, some folks may not trust the vaccine. And have permanently turned into homebodies. Or the recession hurts wallets more than the end of lockdowns motivates folks to spend. Or the vaccine really isn’t broadly distributed until the last quarter of the year.
We’ll see! 2021 should start off on a positive trend and it will make for lots of news to unpack. But in all, if you work in entertainment, this is good news.
M&A Updates – Sony is Looking to Buy Crunchyroll
This news has been floating around for a few weeks, but I’ve been waiting to see it confirmed. (Which it hasn’t.) Like all deals, the terms are key. Allegedly AT&T wanted as high as $4 billion for the anime-focused streamer. The current floating price is $1 billion. That makes a huge difference between the two.
Assuming it’s closer to the smaller number, is this a good deal for Sony? I’m still not sure.
I’m fine with niche streaming services and think they will have a role in the streaming wars. You’ll have the general interest streamers like Netflix, HBO Max, and Disney+/Hulu playing the role of broadcast channels and you’ll have niche streamers playing the role of cable channel upstarts. Crunchyroll fits into that latter category well. They allegedly have 3 million subscribers, which isn’t bad.
With two caveats, though. Like folks asked with Disney+, though, at what average revenue per user? 3 million users paying what?
Second, there is a lot of anime content out there in the world. Everyone from Hulu to Netflix to HBO Max to Prime Video has a vertical on anime. I’m not an anime fan, and haven’t studied this industry so I’m not sure exactly how far ahead Crunchyroll’s lead really is. I’ve been told that if you’re an anime fan, due to exclusives, you have to have it. But if Netflix decided to go all-in on anime even further, it could likely outbid Crunchyroll.
Can a company keep and maintain a competitive advantage in a genre of content? Maybe. Shudder has arguably done very well appealing to horror fans with tailored content delivered by key influencers in an authentic way. Has Crunchyroll done the same? I think so, but we’ll see if they can sustain it under new leadership.
Other Contenders for Most Important Story
The fiercest traditional competitor to Netflix in the streaming wars had its earnings report on Thursday. In short, Disney was walloped by Covid-19 and a new vaccine is key to rebounding. For the gory details, I’d recommend my thread:
The other big news was that Disney has passed 73 million global subscribers. Pay attention to how Disney+ adds new territories, as we’ve seen big surges in subscribers tied to those launches:
Looming over the coverage, though, was the “Mulan question”. Specifically, did the test workout? On the earnings call, CEO Bob Chapek said it did, though notably Soul, will be premiering on Disney+ directly without the option to pre-buy. So if the test “worked” why not do it again? Well, likely Disney wants Soul to drive end of year subscriber numbers like The Witcher did for Netflix last year. They also just announced that WandaVision, the first big Marvel Cinematic Universe show, won’t be coming until January, so they need Soul to keep subscribers for the next quarter.
Lastly, part of me expects Disney to announce an expanded Premier Access program for 2021. (Their name for the Mulan experiment.) The date to watch is December 10th when Disney hosts its investor day. Reading the tea leaves–executives constantly referring to investor day, the stated success of Mulan, a similar program in India–I think it’s likely that Disney announces a new tier to Disney+ on that day. If they do, we’ll discuss the pros and cons of that new bifurcated strategy.
Comcast’s Freaky Is the First of the New Model with AMC
Specifically, the shortened PVOD window model agreed to last spring. So what do I think? I’ll have my thoughts up at Decider early next week.
The Wonder Woman 1984 Question
Freaky though isn’t the big question for theaters. That’s what happens to Wonder Woman 1984. As I write, Warner Bros is debating between keeping the date (and getting it on HBO Max early) or moving it to the summer, now that a vaccine is for sure on its way. My bet is it moves, but if it stays to bolster HBO Max, that’s a sign that Jason Kilar has his hands on the strategic steering wheel.
Discovery will enter the streaming wars at some point. Because they have to. Rumors are that Discovery+ will premiere sometime in early 2021 and CEO David Zaslav has been promising a direct-to-consumer service soon. In their earnings call, they repeated plans to launch a streamer. When we learn more, we can discuss the strategy in depth.