Wonder Woman 1984 and the Messy Estimates of Customer Lifetime Value

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HBO Max made lots of news last week. First with a deal with Amazon. I thought nothing could top that. Then they announced that Wonder Woman 1984 was going to HBO Max. That’s a big deal, so let’s make that our story of the week.

Programming note: I delayed last week’s column to today due to the shortened work week for the U.S. Thanksgiving celebration on Thursday. I’ll be off until next Monday.

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Most Important Story of the Week – Wonder Woman 1984 to HBO Max and the Messy Estimates of Customer Lifetime Value

One of my favorite media criticisms comes from Ryen Russillo, formerly of ESPN and currently of the Ringer. He brought up the point that whenever a radio or TV personality says the phrase, “And frankly, it isn’t even a DEBATE!” it usually means it is definitely a debate. In the spring, the basketball version of this was folks saying, “Michael Jordan is the greatest basketball player to ever live, and frankly, it isn’t even a DEBATE!” Of course, it is absolutely a debate since LeBron James has a terrific case.

(And crazily enough, both sides are wrong. Kareem Abdul-Jabbar is the greatest to ever play. And frankly, it isn’t even a debate.)

Do we see this in the streaming wars? Of course. My Twitter feed is filled with folks letting me know that Netflix has already won the streaming wars, and frankly it isn’t even a debate. (Reminder from last week’s article, the more a person tells you the more certain they are about the future, the less you should listen to them.)

The news that HBO Max is moving Wonder Woman 1984 to HBO Max for one month in December brought out a lot of hot takes about streaming, theaters and the future of film. Including some, “This isn’t even a debate”-type commentary. This baffles me given how many known unknowns, unknown unknowns and assumptions we have to make about everything related to film right now. Today, let’s debunk some of the worst takes. Or, if not quite debunk, more try to cast some doubt on them.

Starting with the biggest known unknown of HBO Max: the value of a subscriber. Because once you see how little we understand about it, you’ll understand why I’m so hesitant to make a lot of predictions.

Estimating Customer Lifetime Value for HBO Max is Nigh Impossible

One of my rules to live life by is that “Strategy is Numbers”. If you read a media analyst, but they don’t use any numbers, well you should be very hesitant to trust them. (And by numbers, I mean predictions with dollar signs.) They don’t need to have all numbers, but if they don’t use any models to forecast, well they are likely more soothsayer than business strategist.

Thus, when it comes to analyzing Warner Media’s decision to release Wonder Woman 1984 to HBO Max, if I’m taking my own advice, it would seem like the best place to start is with some numbers, right? After all, I”ve done this math for The Irishman and Extraction on Netflix. Surely I could do the same here?

Not at all!

For all the gruff I give Netflix about hiding numbers, they provide a fair deal of information about the performance of their business (because their business is only streaming and they have to comply with SEC regulations, if they didn’t provide the details, they’d be providing nothing). This enables us to estimate, with a good bit of confidence, the customer lifetime value of a given Netflix subscriber.

Customer Lifetime Value (or CLV) is really the name of the game in subscriptions. It’s the financial tool that says, “Hey, if you attract this many folks, this is how much money you’ll make in the long run.” As I’ve written before, it can be used and abused, but it’s why Wall Street loves subscriptions for everything. (Basically, recurring revenue.)

Here’s the thing: if you don’t know any of the inputs, you can’t calculate it. Or even estimate it. Because little swings can have huge changes to the output. Moreover, CLV is an estimate. Meaning a forecast. Meaning a prediction. Predictions are more accurate with lots of data. And they can still be wrong. Frankly even HBO Max has very little data on HBO Max, because it’s only been around since May.

Here’s how little we know about HBO Max:

– First, we don’t know the average revenue per user of an HBO Max subscriber. AT&T doesn’t break out HBO Max and HBO subscribers separately. We don’t know their splits with device manufacturers or have any historical data.
– Second, we have no idea what it costs to acquire an HBO Max subscriber in marketing.
– Third, and most important, we have no idea how long a new HBO Max subscriber will hang around. If it’s 12 months, that’s pretty bad. If it’s 36 months, that’s pretty good. I’ve seen one estimate of this, but it came from the summer, right after HBO Max launched. No one knows if that number will be above or below trend. Moreover, even HBO Max doesn’t know this number, because it is happening in the future!
– Fourth, we don’t know how much Wonder Woman 1984 would have grossed at the box office either. And now we never will.
– Finally, none of this matters since the real question isn’t what is the value of a new customer, but what is the value of HBO Max on the CLV of an existing HBO subscriber. Meaning, what is the value of an “activation” which is the AT&T term for someone who downloads and logs into HBO Max. Again, we won’t know this for years.

If you don’t have CLV, you can’t even begin to answer the question, “Will Wonder Woman 1984 make money?” or the related, “Should they have waited to release it in the summer?” All the other methods to do this–taking a month or year of subscribers and attributing them to viewers–end up either double counting customers or making every other piece of content worthless on the site. (In short, if a customer signs up to watch Wonder Woman 1984, but then binges all of Game of Thrones and stays for a year, why does WW84 get 100% of their subscriber revenue? See that doesn’t make sense.)

Now that we know how little we know for this key variable, we can “debunk” the strangest narratives about HBO Max following this announcement. 

The HBO Max/Wonder Woman 1984 Hot Takes

1. Warner Media will Make Much More Money with This Strategy

How would you know? I just showed how uncertain the math is, so how could an analyst with way less data make that claim? This ties back to my introduction. The reason why Warner Media struggled so much with the decision to move Wonder Woman 1984 or release it to HBO Max is because they know as little as we do. They had to make a call, and it was clearly a tough debate, with likely evidence that they could lose or make lots of money with either decision. So how can an analyst outside Warner Media confidently predict the future?

2. This Will Kill Theaters

We don’t know if Warner Media will make any money off this release (and in lots of scenarios they’ll still lose money), so why wouldn’t they keep sending films to theaters? Instead, one thing is killing theaters right now, and that’s Covid 19. Full stop. If the virus were under control, then Warner Media would be happily planning on Wonder Woman 1984 being the big Christmas Day film.

3. Warner Media Will Pivot to “Day-and-Date” for Future Films.

I’m sure there are some folks inside Warner Media debating and even advocating for this future. But then there are likely others pointing to the economics of theatrical releases showing that having a theatrical window has some clear benefits for movie studios, mainly much more additional revenue. Meanwhile, any idea that this “test” can provide future guidance means accounting for the coronavirus, which is a tough variable to pull out of the analysis!

4. Alternatively, Warner Media Definitely Should Have Waited on Wonder Woman 1984

I’m not so sure. HBO Max needs a win, and this looks like a great opportunity to convince a lot of folks who don’t use HBO Max to try it out. If it turns out that a one-time blockbuster can single handedly boost usage, I can see how that’s a big win for Warner Media. A billion dollar box office win? I don’t know, but I won’t dismiss it out of hand.

5. Wonder Woman 1984 isn’t HBO Material

This is maybe the take that shows the least understanding of the HBO subscriber base. Sure, on the coasts, especially in the business, we think of HBO and think Emmys/Succession/Euphoria. Big critically acclaimed shows that drive “the conversation”. But guess what? Every Saturday HBO debuts a big new blockbuster film, including all the DC films and hosts of other big blockbusters. After all, it is the “Home Box Office”. HBO is known for this by customers as much as anything else. Wonder Woman 1984 isn’t a departure from HBO programming, but a reinforcement of it.

6. Amazon/Roku Did/Will Make a Deal Because of Wonder Woman 1984

No, they made a deal because they came to terms. These are 3-5 year partnerships. No big film, no matter how buzzy, will make one of these deals happen. Frankly, it just doesn’t move the needle enough. It may have helped some of the accounting on the HBO side, or provided some pressure, but on the device side it mattered very little. (The Christmas season in general was more of a driver than this specific launch.

End of the Day: We Don’t Know if Wonder Woman 1984 Will “Make Money” on HBO Max

Frankly, even getting the return of just its domestic box office haul, in the hypothetical non-Covid 19 world, will be tough. Yet, given how much HBO Max needs to pull in subscribers, this deficit financed maneuver may be worth it. Will it set trends for all future releases? Doubtful, unless lots of actors are willing to take pay cuts on current projects. At the end of the day, this is a big decision but as for whether or not it was a good call or bad call remains to be seen. (And likely we’ll never know.)

Context Update – A Second and Third Vaccine

By the end of 2021, society will be in a better place than it is right now. If for no other reason than Covid-19 has a good chance to be under control. Of course, variables could still stymy this, from a double dip recession to unwarranted vaccine fears preventing widespread vaccination. Still this is good news. In the summer, many headlines worried that Covid-19 wouldn’t be responsive to a vaccine. Those fears have been almost entirely dismissed (and evidence is increasingly showing a vaccine could be good for multiple years even), which is great news for the economy in the long run.

(We just need a good transition of government in the United States to ensure vaccines are distributed as quickly and effectively as possible. We also definitely need additional stimulus. Both of these scenarios are at risk.)

Other Contenders for Most Important Story

Speaking of the HBO Max/Amazon Deal…

This likely would have been the biggest story of the week but for the Wonder Woman 1984 news. Ultimately, though, like most big deals, we know very little about the terms. From what I can tell, the deal does seem like a bit of give on both sides. HBO shows will stay on Amazon Prime Channels until the end of the year while HBO Channel subscribers get access to HBO Max. As for everything else (pricing, marketing agreements or content sharing), we just don’t know.

The most important variable, for me, is that HBO will ultimately control the user experience. We often talk about “controlling the data” and that is important. Obviously. But for streaming, controlling the UX is much more valuable. Truthfully, Prime Channels does a terrible job featuring third-party series and films, and HBO Max is a much better experience. That’s the win for HBO Max here more than anything else.

The next question is when does Roku do a deal with HBO Max? Some folks say a deal is close, whereas others say it is far apart. Likely they are “negotiating in public” but it will be fascinating to see how it ends up.

Disney Live-Action Films Headed for Disney+

The news is that Disney is considering putting some of its live-action remakes straight to Disney+. Unlike Wonder Woman 1984, this is much more “signal” than noise that Disney could change release plans. Still, there is also some Disney obfuscation of how much of a real change this is, which is what you expect from any streamer.

The key for Disney isn’t how it releases these films, but what budget the films are. My guess is that if these films were destined for theaters, they’d be 9 figure production budgets. When they go to Disney+, my guess is they’ll be around a quarter to half that. Disney could say it’s only about the marketing budget, but I think the production budgets see a hit too. If that’s the case, then it really isn’t that Disney is releasing theatrical films to streaming, but straight-to-video films to streaming. 

Roblox IPOs (and is losing money?)

Roblox released its “S1” to file publicly on the stock market. Like every digital company, it loses money every year. The key question is whether it loses money in as bad a fashion as others, and from what I can tell the cash losses seem to be exactly what Roblox spends on R&D. Assuming the R&D is accurately classified (not actually COGS). The worry here is that while Roblox saw nearly 100% growth in the Covid-19 lockdown, it saw its losses quadruple. 

Roblox is like most digital companies executing the underpants gnomes digital strategy: attract users, something something something, profit.

Rick & Morty Are Very Popular

In a world with no ratings–which we don’t live in, but it feels like it–you could always default to another metric: where the money goes. In that world, Rick & Morty may be one of the most popular shows on television. The latest product the animated show is pushing is the Playstation 5, but that’s just the latest in a long line of product tie-ins. The other candidate for this is Stranger Things, which did a ton of branding last summer, but even there traditional TV has an edge. Rick & Morty is coming out much more frequently (about twice a year) and replayed much more often, which helps advertisers.

Netflix and Cinemark Testing The Christmas Chronicles 2 in Theaters

Lastly, as theaters are “dying”, Netflix is partnering with Cinemark to release Christmas Chronicles sequel to theaters. See, Covid-19 makes strange bedfellows of us all. I love this move for Netflix since theaters will provide straight revenue to the bottom line.

M&A Updates

Lastly, Buzzfeed and HuffPost are merging. This is an interesting merger more than anything, because it is unclear to me that this new scale will save either firm’s underlying traffic problems.

The Entertainment Strategy Guy

The Entertainment Strategy Guy

Former strategy and business development guy at a major streaming company. But I like writing more than sending email, so I launched this website to share what I know.


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