Month: January 2021

Can Peacock’s “Live TV” Strategy Win the Streaming Wars? Yes – Most Important Story of the Week – 29 Jan 21

(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last two weeks or so.)

It’s rare–though not as rare as it seems–for a company to compete not just for the top spot in my weekly judgement of the most important story in entertainment, but to have two different stories compete. HBO Max has actually done that a few times, and so has Netflix and Disney+. This week was Peacock’s turn to step into the spotlight and throw down not just one, but two big entertainment stories. Let’s combine them into…

Most Important Story of the Week – Peacock Acquires WWE Network, While Shutting Down NBCSN

When I first read the Peacock-WWE headline, I assumed they had bought the rights to Raw, the Monday night telecast of the WWE. No, they went all in and bought the rights for five years to the WWE Network, WWE’s streaming platform that delivers their pay-per-view events for a monthly fee. (With tons of documentaries, some original reality shows and re-runs of Raw and Smackdown.) Wow! That’s even bigger than I expected. Toss in shutting down the first major sports channel by the end of the year, and Peacock is definitely making moves. 

With these latest moves, Peacock is trying to “become the TV habit” for millions of Americans. Let’s explain that and then decide if this was good or bad.

Netflix’s Best Metric and “Breaking the TV Habit”

A metric I beg for fairly often on this website is “monthly active users”, the percentage of all paying subscribers who watch a streamer in a given month. But you know what would be even better? The metric of how many monthly users who were active for multiple months in a row. In other words, over a six month span, how many customers used a service in a given month. Call it “unique streaming months”.

Let’s not stop there. Even better would be to know how many folks watch a given streamer every week. And once we have this level of granularity, we could cut the data all sorts of ways. Who streamed the most consecutive weeks. Or rank folks by how many days the stream per month. Or per week. And on and on. 

Focusing on “unique viewing days per month” in many ways is a better predictor of retention than total usage. Both numbers are useful, but if you gave me a choice, I’d opt for the former. 

Why is this so predictive? Well, think of a customer’s TV habit. It’s the end of the day, and they sit on the couch. Then they turn on the TV. In my case–a non-cord cutter–it’s to switch to the DVR to see what is on. I only interrupt this habit for certain streaming shows–Disney+ usually–or sports (which is why I don’t cut the cord). 

But I’m not egotistical enough to believe my TV habit is representative of America. (Though, ironically, my habit is actually still the average consumption in America. Remember, according to the best TV analysis, 76% of viewing is linear/cable/broadcast/satellite, and only 25% is streaming.) For many folks, the habit is to sit down, turn on a Roku (or similar device), then go to Netflix, and scroll endlessly. Or continue bingeing whatever bingeable show they watched the night prior.

And yes, Netflix is a deliberate choice. They’re the first in the streaming wars, because they’ve built that habit in a huge number of customers in America and around the globe. For the “Netflix is TV” crowd, Netflix replaces turning on the cable box as “TV”. Even though I can’t prove it, I know that Netflix leads in “distinct streaming days per month” among the streamers.

Yet Netflix has a weakness.

Netflix’s Content Gap

“TV” can mean a few different things. Some TV serves to entertain. This can be either fake (fiction, dramas or comedies) or real (reality and documentaries). But it can also be informative, like news or sports. Notably, these last two categories are unique because they are also better served live than “on-demand”.

Netflix is an “on-demand” platform. When a customer wants it, they can watch it. This was, to be clear, a huge value to consumers, since they no longer had to wait for content until it aired on TV. (In truth, the DVR added a lot of this value previously, but on-demand is up another notch entirely.)

But all on-demand has limitations in the same way that all linear had limitation. Frankly, sports and news don’t work on-demand. They have to be live. This is what is saving the linear bundle right now.

And those two big genres–news and sports–are notable weakpoints in Netflix’s  content library. Netflix has tried to air shows that are close to “live”, like nightly talk shows, but even these have for the most part not worked on that platform. It also makes a lot of documentaries–like Vox’s Explained series–but even these lag real time news by weeks or longer.

That leaves an opening for some clever new entrants in the streaming wars.

A Differentiated Competitive Advantage for Peacock – Live, Live, Live

When Peacock first rolled out, I was fairly bullish on their plan because unlike other new entrants, Peacock really did seem to have an idea for a product that was unique compared to the giant that was Netflix (and the other streamers). I called them the “broadcast streamer”. Consider the dimensions of “on-demand” versus what I’m calling “fake vs real” for content. If we made this chart for all the streamers, you’d get this:

IMAGE 1 - Updated

(This isn’t based on numbers, simply my gut. And yes, many streamers have cheap reality. This is best looked at what a company’s priorities/branding are.)

Let’s interpret this. Essentially, Peacock said, “We know there are some folks out there who watch MSNBC for news, Jimmy Fallon/Seth Myers for late night, and then watch some sports. Our offering should serve them.” Their offering entices folks in with that recurring, live content. Then, hopefully, their entertainment offering keeps them around. 

Consider, on the other hand, HBO Max. The bet for HBO Max is basically, “Hey, we have lots of content too. Instead of using Netflix for your habit, use us.” Which may happen, but more likely some folks will watch some HBO shows, but then go back to Netflix. Netflix is their habit. Indeed, Prime Video has been deploying this strategy for almost as long and with about the same results. Hulu too, and they have an even better offering, recent TV.

So who is really differentiated in the streaming wars? I’d say:

– Disney+: Kids programming. Indeed, the Nielsen top movies essentially shows that for most kids, Disney+ has become the “TV habit” replacing Netflix in the United States. However, when it comes to the rest of TV, Disney+ will struggle to replace Netflix as the TV habit on their own.

Screen Shot 2021-01-29 at 8.27.12 AM

– Peacock: Furthest along streamer in “live” TV programming, including news, sports and actual linear channels to encourage lean back viewing.

– Discovery+: This differentiation grows even further if you focus on quality vs quantity of content. Discovery+ saw Netflix, Prime Video, HBO and Disney shelling out the big bucks for splashy buzzy shows. And it said, “Here’s more 90 Day Fiance”. 

Everyone else is mostly mimicking Netflix, like Prime Video, Paramount+, Showtime, AMC+ and HBO Max.  For the most part–boiling down strategy to one or two sentences lacks nuance–these streamers are trying to beat Netflix as their own game. We’ll see if they can, but I prefer differentiated strategies. Moreover, in Peacock’s case, this strategy also takes advantage of their biggest strength compared to Netflix, their wide ranging experience in live sports, news, and even broadcast television.

Which is where the NBCSN sports (hockey, Olympic sports, Nascar, Premiere League “soccer”, cycling and Indy Car) and the WWE come in.

How WWE and NBC Sports Can Reinforce the Peacock TV Habit

In general, then, the WWE acquisition and move of some sports to Peacock is a signal that Peacock is growing its content in the places where Netflix is weak: live events. Of course, no strategic move is perfect, nor without risk. And let’s explain both of these moves in that light.

The Positives

The big benefit for having WWE Pay-Per-Views and the NBC sports on Peacock is that each can drive repeated unique streaming days per month. Under a Netflix content strategy, you have to hope you can out-develop Netflix for the next big show or film. That’s pretty unlikely with all the content being made.

Instead, Peacock is focusing on delivering a product with known fans. Who tune in on a weekly basis. Say there is a die-hard WWE fan. Now, if they want to watch Wrestlemania or replays of Raw and Smackdown, they’ll have to go to Peacock. The dream is that once they’re done, they’ll check out The Office or Law and Order or Yellowstone or, who knows, The Real Housewives. Boom, a TV habit is born.

Knowing that the WWE had 1.6 million subscribers recently, that’s a lot of potential regular viewers. That’s a ton of upside. (If it can retain all those subscribers? $192 million per year at $10 per month.)

See, there is always a risk for any sport is that the vast majority who watch when access is easy–the followers and casuals–just don’t when it goes behind a paywall. That’s the terror keeping the NFL/NBA/MLB from going digital only. For example, look at the Pac-12 Network when it left AT&T distributors. I was a huge follower of all things UCLA. But would I change my whole cable bundle for college baseball and gymnastics? Nope. 

The upside for Peacock is the WWE Network subscribers had already opted in to digital-only. So there isn’t that worry here. That’s good.

The Negatives

But let’s not pretend these two decisions win the streaming wars. One of the reasons the WWE and some NBC sports are fine to go streaming-only is because, well, they aren’t that big to begin with. WWE does have a loyal fan base, but it’s not like it’s huge. As I just said, only 1.6 million subs, or 0.48% of America. 

The counter I expect is, “They may be small, but they’re dedicated!” I heard/hear this a lot from producers, creators, networks and development executives defending shows/films that not many folks watch. Say a show is buzzy–and usually beloved by critics–but no one is watching it. The defenders then say, “But those who do LOVE it!” They usually have no data to support this.

My counter is that most shows are more the same than different. Same for sports leagues. Let’s say a fan could fall into one of a few buckets: fanatic, diehard, follower, casual. Define those how you want, but you’d roughly get something like…

Screen Shot 2021-01-29 at 8.48.52 AM

If we know that the most popular sports leagues/shows aren’t just a little more popular, but multiples more popular, than we find out that even having devoted fans isn’t enough. Say one show has 100K viewers per week and another has 1 million. Essentially, the bigger show has more fanatics and die-hards than the other show has total viewers. That’s just the math.

This applies to NBCSN’s sports in particular. As great as it will be to get all of NHL hockey’s diehard fans to follow hockey onto Peacock, that number just isn’t very big. The NFL can deliver multiples more die-hard fans than hockey, Olympic sports, soccer (football) and racing everything else on NBCSN…combined. 

Which is probably why the NBCSN announcement hedged that NBCSN sports aren’t just headed to Peacock, but also to the USA Network, about as traditional of a cable net as you can get. As folks speculated, essentially the USA Network will become NBC Universal’s general interest cable net, much like the purpose TNT serves for AT&T. If this were a war, USA Network is one of NBC Universal’s fall back positions as it retreats from traditional linear distribution.

Final Call?

Add it all up, and I like these moves. A lot. Bringing in new regular users who can get locked in to your core customer value proposition is just a win-win. NBC-Universal continues to execute an actual strategy, and that’s unique enough in the streaming wars to be worth praising.

Lastly, on the headline, my take is that a company can “win” the streaming wars simply by 1. Making money and 2. Having a seat at the streaming table in 5-10 years. With it’s current strategy, Peacock is clearly on that trend line and we’ll see if the numbers support that in the next couple of years. (Netflix and Disney+ are the two closest to winning right now.)

Bonus Quick Thoughts

– Is this a good move WWE? Probably. As I just said, the big worry for a sports league–let’s call the WWE that–is that folks don’t follow and essentially you use their “fan lifetime value”, a term I just made up. WWE has a bit less risk with that here in that folks who don’t cut the cord can keep watching on Fox. Yet, WWE can still sell pay-per-views through traditional channels, so I don’t see much risk of less exposure.

– Is this a good move for the USA Network? I think so. This gives another option for live programming on a few more days per week, and maybe during the weekend. That live viewing can then drive to the scripted programming better. In short, it’s fine.

– Bundlers want to replace Netflix too. When I talk about the “TV Habit”, the Roku, Amazon, Apple and Google’s of the world essentially want their devices to be that habit. Instead of going to a specific application, you’ll just browse on their device. So far, none have really succeeded. Mainly because the streamers hate this.

– Price. Variety says sources say about $1 billion for five years. Running the math, WWE makes about $192 million per year (1.6 million times $10 times 12 months), so this isn’t outrageous. Likely Peacock is paying $10 per sub, but they’ll transition WWE folks to either the $5 ad free or $10 tier. For WWE customers, this feels like an even bigger win.

– But note! It’s also only a 5 year deal. Hmmm. If it works, expect a big jump at the end.

Price Discounts Continue in the Streaming Wars and Other Contenders for Most Important Story of the Week – 22 June 21

As The Stranger told The Dude, sometimes you eat the bear and sometimes the bear eats you. 

Such was last week’s weekly column for me. (By the way, check out this great article on the origins of the quote above.) I had a lot of thoughts percolating about the most popular topic in streaming–rightly Netflix–so I went long trying to tamp down expectations just a pinch on what Netflix’s big 2020 means in context. But Netflix wasn’t the only news story of the week. So here’s my quick run through of what else happened in entertainment last week.

(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last two weeks or so.)

Other Contender for Most Important Story – HBO Max and Apple TV+ Extend Discounts/Free Trials

The news: Apple TV+ is extending their one-year free subscription, which started in November of 2019 to July of 2021. HBO Max, meanwhile, is extending their price discount of 22% ($11.50 per month) until “mid-2021” as well.

If you want to know why Netflix is the king of streaming, it’s these contrasting pricing decisions. In late 2020, Netflix raised prices. It’s competitors, HBO Max and Apple TV+ , are going the opposite route. They are still in all out growth mode, whereas Netflix has locked in a huge chunk of customers. So it can increase prices  and still see a growth in the US/Canada region of 800K customers.

The fun question is, “Who is this a worse sign for?” and I’d have to opine Apple TV+. HBO Max’s price discount is actually just explained as the easiest way to avoid the Roku/Fire TV/Apple TV 10-30% deal tax on streamers that devices/operating systems charge when you sign up through their application. The industry leader (again) is Netflix who doesn’t let you sign up via your TV, and basically forces you to their website. But they have 67+ million subscribers in the US, so they can get away with that.

HBO Max needs subscribers, but it also doesn’t want valuable, multi-year subscribers forever locked into the Roku or Apple or Amazon payments, so they offer a discount for folks signing up at their site for 6 months or more. That makes sense. 

Apple, on the other hand, just may not be able to get people to pay for their TV offering. Frankly, at $5 per month for only originals, it’s clearly the most expensive service in terms of content for price. At this point, it’s more likely that Apple extends the free price point until the end of 2021 than that they finally start charging customers.

Other Contenders for Most Important Story – The Latest Round of Theatrical Delays

Coming to a theater near you…not new films in Q1.

The news started dropping at the end of last week that the latest round of films due for 2021 are moving. The biggest casualty was probably A Quiet Place 2. Frankly the studios are not optimistic about theaters being open through March. This isn’t unexpected, and the biggest wildcard for theatrical exhibition is when the pandemic finally abates. Personally, the five numbers I’m watching are these, from the Covid-19 Tracking Project and Our World in Data.


IMAGES Covid 2

You could be optimistic or pessimistic on these numbers, depending on your constitution. On the negative side, we have a long way to go before deaths drop to zero. And that will take weeks and weeks.

On the positive side, the drop in cases is the fastest yet of the pandemic in the US. Further, I think we’re going to see the impact of mass vaccinations on the US/EU accelerate faster than the general consensus thinks. (Most public health officials are providing what seems to be very cautionary/conservative estimates of vaccination rates.) The US is now giving out 1 million shots per day, and the rate of growth is doubling about every 10-13 days. For example, the US has already tripled the amount of shots it can give per day in January, and the month isn’t done. If we can see the same growth in February, the US could be vaccinating 3-4 million per day. At which point vaccine production becomes the next bottleneck to smash.

The current date to watch is May 7th for Black Widow. Disney could stand to gain by being the first film to “reopen” theaters and theaters would be hungry for a known commodity, like an MCU film. But we’ll they be open? Remains to be seen.

In other theatrical news, as expected the global cinema industry lost 32 billion dollars due to theatrical closures down from around $45 billion in 2019 for a $13 billion box office year in 2020

IMAGES omdia-cinema-

That’s a good number to keep in mind that if streaming ends all theaters long term, that’s a lot of revenue that streaming may never make up. As Omdia itself point out:

Screen Shot 2021-01-25 at 10.17.57 AM

In other words, theaters declined by 71% and lost 32 billion, but streaming only made up for a fraction of that, increasing by 30% with 8 billion in gained revenue. So that leaves studios/producers down 8-12 billion (minus 35-50% roughly for the split with theaters).

Entertainment Strategy Guy Update – The Pac-12 Fires Larry Scott

It turns out that the presidency wasn’t the only office changing hands last week. The Pac-12 fired it’s long-term commissioner Larry Scott. Normally, conference hirings and firings don’t rate a spot in my column, but this gets an exception for two reasons. First, as a fan of a team in the “Conference of Champions” this could help the Pac-12 return to glory. Second, I wrote about whether the Pac-12 made the right call in not signing a strategic partnership for Athletic Director U last year. This is a super mathy, but fun look at opportunity costs, valuing strategic options and decision making.

Patrick Crakes on Twitter laid this out more succinctly here:

Other Contenders for Most Important Story

And now for the quick hit stories that caught my eye…

Disney Leads in Indonesia

One of my more controversial positions in the streaming wars is that we should analyze the war battlefield by battlefield. While global numbers are easy, they often obscure smaller trends that matter. To change a famous political aphorism, all streaming is local.

Take Disney+. They’ve already taken a lead in India and, according to a new report, Indonesia. How the smaller countries and regions fare going forward is a fascinating, and under covered, element of the streaming wars. 

The CW New Shows Headed to HBO Max

A few years back, The CW signed a big deal that delivered all their current shows in the “Pay 2” window to Netflix. (Pay 2 is after a one year holdback.) This deal was mostly a win-win, with The CW getting a billion dollars per year, and Netflix getting a lot of content that repeatedly made their top ten list in America (and likely around the world) including Supernatural, Riverdale and the Arrow-verse shows. Last year, we noted that the CW was ending this arrangement, because in the steaming wars you can’t arm your competitors, and the question was where does the content go, Paramount+ or HBO Max? The answer is the latter. (Read my story of the week on this here.) 

Assuming the price makes sense, this is another good content decision by HBO Max. Pairing more CW shows, HBO, and Warner Bros content will increasingly make the HBO Max library one to envy. It’s deep. Few customers will switch to HBO Max for these shows on their own, but it could help HBO Max keep folks in the ecosystem. And that’s the name of the game: keep folks on the platform to reduce churn.

Caveat: Batwoman had already gone to HBO Max last year, but this announcement confirms all new CW shows will end up on HBO Max through 2021.

Last caveat: Netflix will continue to air shows that started under their old deal, which could incentivize The CW to end shows sooner than they would have otherwise. That will be a subplot to watch.

Paramount+ Launches on March 4th

The name change officially starts on March 4th, with a new product roll out announced the week before. Expect that to be the story of the week when it happens.

Netflix’s Step One Was to Break Even, The Next Step is to Generate Massive Cash Flow – Most Important Story of the Week – 22 Jan 21

(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last two weeks or so. The last issue went out yesterday with my best reads of January.)

When a Netflix earnings report comes out, it generates lots of news. Usually, though, they don’t claim the top spot in my most important story of the week, because not much really changes.

This week, though, Netflix did make some news. So let’s make it…

Most Important Story of the Week – Netflix Is Forecasting They Will Break Even in 2021

Sometimes, usually even, the coverage of a Netflix earning’s report focuses around the wrong thing. For most years, that meant subscriber counts, regardless of what else happened in their financial statements. Not this week! 

On Tuesday of this week as Netflix released their 2020 performance, most coverage correctly focused on this announcement from Netflix:


If Netflix can truly achieve a breakeven year for the first time since 2011, that is a big deal. I’ve long looked past subscriber counts to obsessively focus on cash flow. That’s why this is big cash flow news from Netflix.

However, even if most reporters got the most important story right, they missed a lot of the nuance and flavor around how important this story is. For example, look at CNBC’s last bullet point. Does one year of positive cash flow validate Netflix’s strategy?

This is where I need to step in. While turning cash flow positive is clearly a positive sign for the world’s biggest streamer, frankly this one announcement doesn’t validate Netflix’s entire strategy. Instead, what happens in the next 5-10 year period will be crucial.

The Two Strategic Decisions (Investments) Made by Netflix in 2007-2015

Yes, we have to go back to 2007 to explain this history of Netflix. Back then, Netflix shipped DVDs through the mail to customers. And they made a lot of money doing it! Specifically, in 2008, they generated $94 million in cash. (Technically free cash flow. We’ll be using that instead of profit since free cash flow is really the driver of modern finance.) 

Reed Hastings rightly forecast that DVDs were a transitory medium. Someday, they’d be replaced by digital transmission. Instead of letting his company be disrupted as he disrupted Blockbuster, he’d run the company that would digitally transmit those shows and films. In 2007, Netflix launched streaming video in the United States. And the rest, as they say, is history.

Well, not quite. Reed Hastings made the decision to pivot correctly. But he had another decision to make. And the second decision Reed Hastings made wasn’t just to launch a streaming company, but to launch one that was financed through losing money. Lots of money. Billions of dollars. You can see this in the history of streaming. From 2007-2011, Netflix isn’t making tons of money, but they’re also not losing money. Then, from 2012 on…

IMAGE 2 - NFLX FCF to 2020

What I love about this look is that it shows that Netflix really did have a choice to make in 2011. They could have continued as a streamer growing cash flow slowly year after year…or they could spend billions on content. They opted to do the latter.

Losing money in and of itself is not a bad decision. In fact, executives make this decision all the time. When a company builds a new factory, that can cost billions of dollars and years to do. The company, though, makes that investment assuming that long term the additional revenue which flows to the cash flow will pay for that investment. 

(Want to know why pharma companies aren’t making more vaccine doses? Well, it’s because they don’t want to pay to build the factories that may only produce a vaccine for a year or two. That won’t pay for itself! And why the government can/should pay them to build those factories.)

This is called evaluating the “Net Present Value” of investments. This is how all business investments are (or should be) judged. Which is often called “capital budgeting”. This can be about spending dollars on infrastructure, research, new products or what not.

The core of the second decision Hastings (and Sarandos) made (and kept making from say 2015 to 2019) was how much to spend on their streaming disruption. The question was, “How much do we need to  invest in this service to succeed?” And their answer was billions. Because every time they added subscribers their stock went up. 

In essence, if Netflix does breakeven in 2021 (or for a full-year in 2022), it presents a turning point. This is the year that “investing” is over. They’ve stopped spending cash and now they can start to collect the future cash flows. To continue the factory analogy, the factory is built and ready to churn out widgets. In investment terms, the question is…

Was losing $9.7 Billion from 2011-2020 to launch a global streamer worth it?

Well, it depends on what “worth it” means.

How Much Does Netflix Need to Make Going Forward to Justify This Investment?

Be careful at immediately saying, “Well, 9.7 billion.” 

Because of the time value of money.

(Quick reminder of the time value of money:

I’ve explained the time value of money, and it can be tricky. Basically, the idea is that a dollar today is worth more than a dollar tomorrow. Because of the certainty you have the dollar in hand. Further, you can invest that dollar and generate a return. This is the basic principle of finance.

The next most basic principle of finance is that different investments have different levels of risk. If you take a dollar and put it under your mattress, you don’t get any return on investment, but you’re certain it will be there a year. If you invest it with the government, you’re still fairly certain they’ll pay you back, so you demand less of a return on your investment. That’s usually called the “risk free rate of return”. Investing with a risky start up is much more uncertain, so investors demand high levels of return. The S&P 500 is a good benchmark for the entire stock market, which is fairly reliable but can also have big swings, as we just saw in March of 2020, when it dropped 30%.)

For entertainment, I tend to use 8% because it is a nice round number and close enough for our work. Now that we know we have to take losses into account, you can see what it really cost Netflix when they invested all those billions in content (in millions):


I’m providing you four looks at this. First, I’m giving you both the cost of capital from today’s dollars, to see how much Netflix spent of shareholder dollars the last 8 or so years. But I’m also giving the 2011 dollars to show how Reed Hastings could have been thinking about it in 2011. Also, I accounted for potential cash flow Netflix could have earned at a conservative 200 million per year. By losing money, they lost that potential cash as well.

Netflix actually needs to earn $14 billion to justify the sky high investment of the last eight years. 

The trouble is that discounting continues into the future.  I just said that a dollar next year isn’t worth as much as a dollar this year. That’s even more applicable in 2030, for example. A dollar in 2030 is only worth 21% of a dollar in 2021. Here’s that rough math for those who don’t want to calculate it:

IMAGE 4 - NFLX Future discounted values

Without getting too finance-y with terminal values and what not, let’s say the reasonable goal is to pay back the investment in streaming by 2030. With the discounted cash flow, what would their potential cash flow need to look like by 2030?

IMAGE 5 - NFLX Hypothetical Breakdown

This is why I said breaking even is only the first step. To pay back their investment–and the longer you wait to pay it back, the higher the returns need to be–Netflix needs to add $500 million per year to the free cash flow, getting to $4.5 billion by 2030. 

Is that reasonable? Sure. But it’s also reasonable that Netflix could flirt with breaking even for a few years into 2022, and find that as wealthier markets are mostly tapped, new customers cost more to acquire and churn faster. In other words, streaming could be a low margin business when it comes to cash flow. If streaming is like traditional entertainment, this is reasonable.

Or you could listen to the market, who is projecting that Netflix will achieve $11 billion in FCF in 2026, five years away. In that case, Netflix is a cash flow machine. 

Here are those three scenarios over time:

IMAGE 6 - Scenarios

In other words, using some very reasonable situations, we don’t know if Netflix has validated their strategy. What we can say is that Netflix spent a lot of money for years, and now they need to make a lot in the future to justify that investment. I mean, even our breakeven scenario demands a free cash flow growth rate of 137%! That’s a lot! And assumes they get to $500 million free cash flow in 2022.

But EntStrategyGuy, the Stock Price!

The other big caveat to my entire analysis is, “Well, if you had invested in the stock in 2011, look at the huge boom in price!”

This I cannot argue with. Though, I don’t provide investing advice. While the stock price is correlated with a company’s core fundamentals, they often move in discreet ways. And sometimes the market can have exuberance that doesn’t bear on reality.

Take Netflix’s free cash flow. I just told you the market believes in 2026 Netflix will generate $11 billion in free cash flow. How can I argue against that? Well, let’s see how well the market did in 2015 predicting 2019’s free cash flow…

IMAGE 7 - 2019 FCF Estimate

Or take 2021…

IMAGE 8 - 2021 FCF

That’s right: in 2014, most analysts on Wall Street expected Netflix to earn $4 billion in free cash flow in 2021, a year Netflix is predicting they will break even. Then they kept making that mistake year after year, pushing out cash flow positivity always out another year. Until a pandemic hit. Let that sink in.

Wall Street is terrible at forecasting this company.

The best analysis of this situation–and there are a few good Netflix bull analysts out there–came this week Andrew Freedman at Hedgeye, and his financial table laying out the Netflix options put this in great context:

IMAGE 9 - Hedgeye Cases

(Sign up for his website here! He also helped me pull some of the data above.)

In other words, to justify the current Netflix stock price, their growth will need to achieve nearly 500 million subscribers at ever growing revenue per user. (Freedman uses EBITDA as a proxy for FCF, which gets to the same place.) The point is Netflix needs to hit nearly all their aggressive targets and even then the stock is only slightly higher than its current value.

The Key Question: How long does break even last?

To bring this back to the core point, in a way you could ignore all the spending of Netflix so far. Instead, just look at them as a company with $8 billion in cash, $15 billion in debt, 200 million global users, and zero cash flow in 2021.

Would you invest in that company?

The answer depends on the fundamental questions for every company: How much will they make? And how fast will that grow?

If Netflix continues breaking even through 2022 and finds that profit margins are as tight as they’ve always been in entertainment, then the growth answer is “not much”. If the growth estimates match Wall Street estimates, then the sky’s the limit. The answer is somewhere in between.

So yes, this news is big. But the game is not over. Breaking even was step one. Step two, three and four are to sustain and grow that even more. We’ll see if Netflix can do it. And the debate is very well alive to see if they can.

One Other Big Point: Did 2021 Show That Netflix Was Spending Too Much on Content?

The other fascinating question is “What drove cash flow positivity?” 

The bull case is that Netflix fundamentals drove this reality. They invested in tons of content, and all the subscriber growth justified it. Indeed, that’s a headline I saw repeated in countless articles and many entertainment newsletters.

The bear case is “covid-19”. 

Reality is somewhere in between. But it’s worth figuring out where exactly. Did Netflix achieve positive growth because of the huge Covid-19 acceleration in subscribers? Partially. Did their investment in tons of content drive that? Surely. 

But did Netflix achieve positive growth, almost by accident, because they paused all global productions? Probably! Indeed, in Q4 Netflix said they were back to full-production on their shows, and not surprisingly they were cash flow negative again. The link seems fairly clear: when Netflix spends at their current level on content, they lose money. 

How do we prove it one way or the other? We can’t, but I will point to this fun thought experiment. On the earnings call after the Q4 results were released, Netflix said that they won’t even bother forecasting subscribers in 2021. They said it’s much too difficult, and only forecast adding 6 million subscribers in Q1. 

Yet, they forecast they will break even in 2021.

This begs the question, “Huh?” 

All finance boils down to this: money you make and money you spend. If Netflix has said they can’t reliably forecast how much money they will make, how can they confidently know they will break even in 2021?

Because of what Netflix can control. Costs. Which means content costs. If Netflix is forecasting breakeven in 2021, but they have no idea how many subscribers they’ll grow by, they’re basically saying they’ll ensure they get there by right-sizing content costs to breakeven. Meaning they’ll cut costs if they need to breakeven.

The implications of this are, in fact, the exact opposite of every smart pundit saying Netflix has justified it’s content spend. If anything, 2021 showed Netflix–almost by accident!–that they were much too aggressive on making original content. Sans Coronavirus, likely Netflix loses $2 billion again in 2020, then tries to lower that in 2021 to break even. Covid-19 changed all that.

This ties to the strategic point above. Yes, Hastings and Sarandos built a global powerhouse. Did they need to lose $14 billion to do it? Maybe not.

Read My Latest at Decider “Who Won 2020?” Both Film and TV

Ah for the olden days of evaluating content. In 2019, if you wanted to know, “What was the most popular film?” You just looked at the box office and saw that the answer was (very clearly) Avengers: Endgame. Even TV was relatively simple: Game of Thrones set global records for its entire final season. 

(Though you could argue Stranger Things was close. But hey that complicates my narrative!)

In 2020, no simple measures will suffice. Box office disappeared in a cloud of Covid. And reliable linear TV ratings continue to sink. Meanwhile, streaming uses a bewildering array of metrics so we don’t really know what means what.

Which left it for me to figure it all out. Now that 2020 is over, I collected as many data points as I could, put on my former streaming executive hat, and tried to figure out what was the most popular film and TV show in 2020.

Check out both articles and let me know what you think. Did I get the winners right?

Has Netflix Lost Ground Since the Pandemic? Using Reelgood’s Share of Streaming Data to Find Out – Visual of the Week

Yesterday, I speculated that Netflix had a weak summer for content, and until the end of December, this may have caused it’s usage to slip. This was driven by the Nielsen weekly data, which hit a peak in March, and then in the middle of November. Yet, I can’t show that since I don’t actually have Netflix’s monthly usage data.

But other firm’s data can act as a proxy. Like Reelgood, a company that helps users find their favorite shows and films. (In full disclosure, Reelgood provides me their data on a regular basis and I am friendly with this firm.) Two of their charts in particular stuck out to me, both in their “quarterly streaming” reports. What I did was combine them into one. And voila, my visual of the week:

IMAGE 2 - Usage by Streamer

And here it is in table form:

IMAGE 3 - Table

Some quick thoughts/insights:

– Reelgood claims 2 million users, but doesn’t clarify the demographic break down of those users. (It’s a question on my to do list to ask.) So that could skew these results. Though by no mean does it skew them enough that I won’t use their data.

– Also, given how their platform operates, I wouldn’t be surprised if it skews “adults” since kids more often just turn on a given streamer and watch the same shows. So this probably doesn’t capture all usage.

– That said, their usage for Netflix is within the margin of error for Nielsen’s Q2 results, which had it at 34%. Comscore has shown similar numbers too.

– As such, that decline feels bad! Or to use biz jargon “sub-optimal”. I don’t think Netflix is really achieving the same usage as Prime Video, but clearly they didn’t gain in Q3 and Q4 usage.

– Disney being flat with The Mandalorian is also a sign that they need a stream of hits to drive usage up across the board. 

– This is also another data point that the Wonder Woman 1984 experiment worked to drive usage up. 

Did Netflix Have a Strong Q4 For Content? And Other Thoughts Before Netflix’s Earnings Report

This year marks a pretty significant upgrade in the amount of data we have available about streamers. At the start of the year, we had to rely on Netflix to tell us during the quarterly earnings (or selectively on Twitter) how well their content is doing. Since then we’ve added regular Nielsen reports, Netflix’s daily top ten lists, and multiple different analytics companies selectively releasing data points for us to chew over. 

With all that data, we can begin to analyze how well each streaming company is doing in any given quarter. If you believe, like I do, that…

Popular content —> Higher Usage —> Higher retention —> Higher subscriber totals

…then this seems like pretty valuable information. And this is the first earnings report (Netflix publishes their Q4 2020 report tomorrow) where we can really unpack all that data.

Initially, I had hoped to make some quantitative predictions about Q4 2020 compared to past years and quarters. But frankly I don’t have enough information to do that confidently. (We’re firmly in small sample size territory.) What I can do is provide a quick look at Netflix’s Q4 content. Then we can try to do what analysis we can, and make some inferences. 

What Does Nielsen Say?

Nielsen’s data has been the most useful new data source we have this year. Specifically, because it shows the volume of consumption for a given show, week by week. 

The limitations are time frame and the total minutes viewed. Nielsen has only been providing a public top ten list since August. They provided me with data back to April—and I found three data points in March—but that still only provides us three quarters of data. Thus, we can’t compare to Q4 of last year. 

Further, since the top ten list only has ten spots, we don’t get a full picture of Netflix’s original films and series. In particular, since Nielsen measures at the series level, some licensed titles are overrepresented. For example, four shows have made up a huge portion of Netflix’s viewing and three of them make the top ten list every week. Meaning, at most this is a top seven list for new Netflix shows/films, at best. Usually less.

With that in mind, how does the picture look for Q4, given that we are missing two potentially big weeks of data (the last of the year)?

IMAGE 1 By Week

I tried to play around with this data in a lot of different ways to show the average by month and quarter, but given that Nielsen starts at different times of the month, it made March—the crucial month—look funky. Here’s the average per week by quarter:

IMAGE 2 - By Quarter

So if we use Nielsen data, that means that Netflix is having a better quarter than Q3, but still dragging way behind the end of Q1/start of Q2 peak. I can’t stress how good Netflix’s March in the US was with Spenser Confidential to start, Tiger King on 20-March and Ozark on 27-March. Remember, Ozark would be the most watched original in Netflix for the whole of 2020. Compared to that, though, November was good for Netflix. Both The Crown and Queen’s Gambit simultaneously did well.

Is viewership of the top ten correlated with viewership of the platform as a whole? In my experience, absolutely. Though I can’t quantitatively prove it here.

What Does Netflix’ Datecdotes Say?

As a reminder, these are…

The total number of subscribers who watched 2 minutes in the first 28 days, globally.

Fortunately, since changing from “who watched 70%” in Q4 of 2019, Netflix has stayed consistent on using this metric. Thus, by my measure, Netflix has released 66 datecdotes from Q4 2019 to Q3 2020. Notably the number of datecdotes are increasing every quarter:

IMAGE 4 - Netflxi Datecdotes

Using this metric, how did Netflix do? Let’s start with film. The challenge is that there are so many different ways to cut the data. So here’s Netflix’s films that netted over 38 million subscribers globally over time:

IMAGE 5 - Netflix Films

You can see a few of the problems with this data. To start, we can’t use it to predict Q4’s performance since Netflix has only released one movie data point for Q4 so far. Further, it’s noisy and it’s not clear it’s correlated with adding subscribers. For example, Q3 had a number of 70 million plus viewed films, but it didn’t help Netflix grow subs in Q3.

This is also a “tale of two data measurements” problem. If films are measured simply in total numbers, Netflix is growing each quarter. Measured by the percentage of folks tuning in, it’s shrinking. 

Let’s switch over to TV. In this case, Netflix has released three datecdotes so far, and the picture looks slightly better:

IMAGE 6 - Netflix TV Datecdotes

In both cases, though, the big performance of The Queen’s Gambit and Bridgerton will likely pull up the content performance of this quarter. The Crown did very well in Nielsen’s rankings so it could pull up the average as well.

How Do the Q4’s Compare Over the Years?

Interestingly, Netflix has tended towards a similar release strategy the last few years: release a big Christmas film in the middle of November, release the awards bait at the same time, release a big movie to close out the year and a big TV show as well. Here’s the last 3 Q4 release plans:

IMAGE 7 - Last 3 Q4

So can we learn anything here? I’d say not really, until we learn the rest of the Netflix datecdotes to round out 2020.

What Datecdotes Could We Learn Tomorrow? 

As you can see, we don’t have the data points for this quarter. (Which I just mentioned above!) We only have four, and they’re lagging their analogues from previous quarters.

Looking at the films that made the Nielsen Top Ten, we can see the trend with the films Netflix has provided a datecdote. 

IMAGE 8 - Table of FIlm Nielsen

Looking at this, we can say fairly reasonably that Hubie Halloween and Christmas Chronicles 2 will likely get the “datecdote” treatment this quarter. Hillbilly Elegy would be a good bet too. A California Christmas is on the border line.

However, with Nielsen’s data, this doesn’t have to limit us as much as the past. Specifically, we can also have a range for what we think Netflix’s datecdotes will be. Let’s be clear, this isn’t the most complex data analysis in the world. I’m basically making a scatter plot and having Excel draw the line through it for me. Still, the correlation is fairly tight (.85):IMAGE 9 - Correlation tableIn other words, I’m guessing that we’ll hear data points about Hubie Halloween at around 74 million viewers, with The Christmas Chronicles 2 potentially well above that (92 million). Hillbilly Elegy would be around 50 million viewers. Here’s the ranges:

IMAGE 10 - Forecast

With this, we could update the Q4 comparison above to see the potential growth in total viewers:

IMAGE 11 - Comparing Q4

As for the TV side, forecasting there is a mess, because of different seasons. The most likely datecdotes for Q4 are The Haunting of Bly Manor, Virgin River, and The Crown. The Office could be a wildcard flex by Netflix as it leaves. Emily In Paris and Selena are less likely but possible.

Add It All Up: What Do We Have?

Since Netflix dropped Bird Box’s rating on us in Q4 of 2018–what I’m calling the “Netflix Measurement Era”–here’s my quick take on how well Netflix has added subscribers, along with some of the biggest content per quarter:

IMAGE 12 - Table with Subs

Looking at that table and focusing on 2020, I’d spin this story:

Netflix started off the year 2020 strong with The Witcher being one of the most popular series around the globe. (It was released in the last week of 2019.) Then, when people entered lock-down for Covid-19, Netflix also happened to have some of it’s most popular content of the year at the same time, Money Heist (3-Apr), Ozark (27-Mar) and Tiger King (20-March). This led to big subscriber growth after the first quarter and into the second. However, Q3 didn’t have any breakout hits to drive significant new subscriber growth.

Indeed, this weak slate in Q3 led to the smallest US growth since Q2 of 2019, the smallest global subscriber growth 1.1% of the last two years, and missing the estimate.

So looking at the data from today, does Q4 return to Q1 levels, or merely hold steady? 

I’d guess hold steady. 

Subscriber growth isn’t solely driven by content. The Covid-19 lock down definitely drove growth and price increases (like this last quarter’s in the US) can also slow it down. That could be as much the story of Q1 and Q2 as anything else. (Q2 in particular felt light for content after March.)

Looking at the Nielsen data, the datecdotes so far, I’d say Netflix is definitely having a better quarter than Q2 and Q3, simply because Q4 was trending upwards and Bridgerton/The Midnight Sky will likely finish very strong for Netflix. 

That said, this doesn’t look like Q1’s big subscriber growth, does it? The March slate for Netflix happened to come right when folks were binging like crazy. A perfect storm of good content for the right time. 

What the Democratic Wins in the Senate Mean for Hollywood – Most Important Story of the Week – 15 Jan 21

Well, living through the last two weeks of news has shown that the pace of news in 2021 isn’t slowing down. The most notable story for entertainment–though it was pushed off the front page within 24 hours–has to be the Democratic Senate wins in Georgia last Tuesday. This week we’re seeing the ramifications of it in policy. So let’s make it the…

(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next issue goes out early next week.)

Most Important Story of the Week – What the Georgia Election Could Mean for Hollywood

(A caveat before I start: this section is not trying to explain what should or shouldn’t happen in a Biden administration from a political standpoint. Meaning, I’m not advocating for or against any given policy, but merely trying to sketch out what could happen. So you can be prepared for what may come next. Whether you agree with those policies is up to you.)

To start, President-Elect Biden winning in November was itself a defining moment in the course of American history. I don’t subscribe to the school of thought that both parties are identical. They clearly have different perspectives on everything from regulation to taxes to unions. Switching out one party for another has a big impact on the conduct of business. When Biden won the presidency, that meant things would change.

However, if you’ve followed US politics for the last twelve or so years, it is clear that if a President’s party doesn’t have control over both chambers of Congress, then they can’t get much done. Given that control of the US Senate ended up in a stalemate in November, the question of how much Joe Biden could change was left open.

Then the Democrats took control of the Senate last Tuesday. And, frankly, now the potential impacts are even bigger. Lots of things that could be contested no longer are, including cabinet, judicial and regulatory appointments. Essentially, all the jobs required to run the executive and judiciary. And some things that weren’t possible now are. Like passing bills through budget reconciliation, which only requires a bare majority in the Senate. Democrats control the agenda in both legislative chambers. That itself is meaningful.

We’re already seeing the unleashing of Biden this week. For example:

– Biden appointed Gary Gensler as SEC chairman. Gensler is fairly progressive and was a tough regulator in the Obama administration. In a Republican controlled Senate, he may not have gotten approved. Now he will sail through.

– Biden announced a huge new stimulus bill. Specifically, $1.9 billion in additional stimulus. This will be targeted for both Covid-19 and just economic recovery. In a Republican controlled Senate, this bill would be dead on arrival.

So what happens to Hollywood in this environment? Is it good? Bad? Or somewhere in between?

Probably somewhere in between. And that starts with the idea that “Hollywood” is now fairly amorphous. In Los Angeles specifically, actors, celebrities and Hollywood power brokers love to host fundraising parties for big politicians. As a result, they have Democrat’s ears on a lot of issues. 

Do their corporate leaders? Maybe. A few years back Hollywood tried to pass a suite of content protection legislation and Silicon Valley basically shot it down. So Hollywood influence isn’t without limits. And while Silicon Valley–which is now entwined with Hollywood–used to curry the same favor, they’re now enemy number one. 

In all, we’ll have to see. A lot of positions remain unfilled in Biden’s team, and some of those decisions could definitely impact Hollywood for good or ill. But here are some ways that a unified Congress/Presidency could help or hurt Hollywood:

Economic Recovery. 

This is the biggest area. If Senator Mitch McConnell controlled the Senate, likely there would be no additional stimulus to the U.S. economy. Or it would have to be heavily negotiated and come nowhere near the price tags Biden wants. Given the general economic consensus that we need to drive to full-employment, and that means stimulus, this is good news for Hollywood. (In general, good economies are better than bad, though entertainment is somewhat recession proof.)

Covid-19 Recovery. 

Responding to the virus is as important as repairing the economy. Winning control of the Senate likely won’t have as big an impact on this as simply taking over the Presidency. That said, if the Biden administration really does approve an extra $400 billion to fight the virus, that will supercharge efforts at vaccine distribution. (I’d toss in that even if America gets to 100% vaccination, the rest of the world will lag, and a true recovery will need to be global.)

Targeted Aid to Theaters. 

The last stimulus contained some aid for independent theaters and concerts, but notably only smaller venues. Under intense lobbying, I could see bigger theater chains convincing lawmakers they need help as well. Again, good news for Hollywood in general.

Antitrust (Big Tech)

I’ve written about this a few times. So read those articles to get a flavor for how I think renewed antitrust could impact Hollywood. As for how the Senate changes this, it means that if Biden considers corporate consolidation a problem, he can appoint folks to the DoJ, FTC and FCC who take it much more seriously. If you are traditional Hollywood, part of you would love to see the big Tech Titans taken down a peg!

Antitrust (Old Hollywood)

But what if they come for the rest of the industries? There are hardly any two industries more reviled by customers than cable or cellular phones. Or more consolidated. The biggest risk for very consolidated industries is that antitrust fever spreads from the Big Tech Titans to cable, cellular and entertainment companies broadly. We still need to hear about the specific appointments before we make a judgement call. Depending on which company you are (the big or the small) this could be good or bad.

FCC regulation

This is another wildcard area. There aren’t a lot of hot button policy issues that Democrats want to pursue, though net neutrality is one. The FCC also can regulate the size and consolidation of media companies, which relates to antitrust above. Make this a wildcard for now.


Labor power has ebbed over the last few decades in America. Entertainment is one of the few industries remaining with strong unions for its members. Biden has said he’s going to be the most “pro-union” president America has seen. If he’s successful, and his pick Marty Walsh can follow through as Secretary of Labor, this could be good for below-the-line and above-the-line talent in Hollywood. It would be bad for companies, since profit margins could be squeezed. A Democratic controlled Congress could also help by passing labor-friendly laws. That said, of all the areas I’ve discussed, this the one I’m most skeptical of. I’ll believe unions are making a comeback when they start to make a comeback.

Other Contenders for Most Important Story

Two weeks into 2021 and we’ve seen a new streamer launched, a new one announced and an old one shutting down. That’s right, a lot of other stories to get to.

AT&T is Shutting Down AT&T Now

In AT&T’s quest to confuse customers, it rebranded DirecTV Now a few years back as AT&T Now, while then launching a product called AT&T TV. DirecTV Now was one of the first vMVPD (digital cable bundle) to run the “start at a cheap price that rises dramatically” playbook. And it was punished the most harshly for this bait and switch. (Youtube TV and Hulu Live TV seemed to avoid quite as severe cord cutting.) Now, AT&T is shutting down AT&T Now.

Overall, the vMVPD market is fascinating. Customers desperately want cheap cable bundles. So they sign up for them in droves. When they go up in price, they drop them in droves. So bundles are good; expensive bundles are not.

Univision Launches a Streamer

It’s about time!

While there are Spanish language streamers out there, there doesn’t seem to be one that dominates the market. (This is an area I’d love to research more.) Netflix obviously has lots of Spanish language content. And Peacock incorporates Telemundo into its offering. And there are smaller services that most English speakers haven’t heard of. But no one has dominated this market yet.

Which makes Univision’s new streamer a fascinating entrant and potential disruptor. One of my theories is that local content can rival Netflix if it is targeted to the local situation. Univision is about to test that thesis. Can they offer a more authentic experience to a targeted demographic than a service trying to be everything to everyone? We’ll see.

Netflix Announces a Big 2021 Film Slate

The widely repeated headline is that Netflix is planning to release a new film every weekend for 2021. Not to be that guy, but didn’t they already do this?

By my count, they’ve released more than a hundred films in 2019 and 2020. And nearly 100 in 2018. That’s why I made charts like these…

Screen Shot 2021-01-15 at 1.48.03 PM

Of course, many of those films were documentaries or in other languages. So sure, maybe this is a change. 

The challenge for Netflix’s film group, which I’ll write about more next week, is that for all the quantity Netflix has not delivered the quality. So looking at this slate, I can’t tell you if this new 2021 slate will dramatically improve Netflix’s fortunes or not. We’ll have to see.

Disneyland Cancels Annual Passes

Lastly, Disney announced that they are cancelling annual passports for Disneyland, and this news shocked me. These have been an institution for decades in southern California. So is this a good sign or a bad sign for their finances? Probably a good one.

A few things likely influenced Disney. First, the price tags are getting so high that the value proposition for an annual pass is no longer there. If you aren’t making customers happy, then it probably shouldn’t continue. (Not to mention actively antagonizing them with big price increases.) Second, with variable pricing, Disney thinks they can keep the parks at full capacity, and maximize the profits of a given day. If Southern California residents want to go for cheap, they can go in off-peak times of year.

Lastly, this may be some indication Disney sees upside in attendance this year, whenever parks reopen. Because there might be lots and lots of pent up demand. In other words, Disney may not need annual passports to keep parks at capacity.

Data of the Week – Nielsen in Growth of OTT Usage

Here’s a fascinating tidbit in Nielsen’s 2020 annual report on streaming:

Nielsen Usage - Growth by 3% in raw

Wouldn’t you have thought it was higher? I mean, the narrative in March was that everyone was streaming all the time now. But while viewership of TV went way up, streaming “only” took 3% of the usage. 

By the way, if you want my take on Nielsen’s annual list, see this thread:

The Christmas Chronicles Was Netflix’s Most Watched Film in the US in 2020 and Other Data Thoughts from “Who Won December”

December was a big battle in the streaming wars. The Christmas Day/end of year is becoming increasingly important to the streamers since it is the last time to grab subscribers before annual reporting. This is why the latest installment of my “Who Won the Month” series at Decider may be the most important one of 2020. 

So check it out!

To keep that article flowing, I ended up cutting a few insights/thoughts from that article that still felt good enough to share. Consider this the “DVD extras” addendum to that great piece. (Seriously, read it before you continue.) 

Other Contenders That I Didn’t Mention

The biggest drawback to a word count is having to cut a few shows from contention. Last month that mainly meant some shows from the smaller streamers. CBS All-Access released their latest Stephen King thriller The Stand. (It had a peak of 9 on Google Trends.) The challenge is a word like “stand” is fairly generic, so it just may not be picked up in the Google Trends data. However, on IMDb, its ratings are 6,600, so likely it isn’t really catching on. Showtime released Your Honor, but it didn’t really budge the popularity needle.

Apple TV+ focused on kids in the holidays, airing both A Charlie Brown Christmas and Wolfwalkers. Again, I didn’t really see the Wolfwalkers trending. (Charlie Brown is too generic.)

Caveats to IMDb Data

For the first time, I compared shows using IMDb ratings data. I both want to explain how and why I used this data source and also some other insights into last month’s results.

The “why” is because I love capturing qualitative feedback on a given show or film in addition to viewership. In particular for TV, this can be somewhat of a leading indicator to forecast if subsequent seasons of a show are going to build momentum or begin to flag. This applies to TV series as well as film franchises. Especially for franchises, actually. A big marketing campaign can result in a strong opening weekend, but if the IMDb ratings are low, then eventually the series will decay in viewership. (See Fantastic Beasts or The Hobbit series for some examples.)

As for how, I tend to use both the rating itself and the number of ratings. The number of ratings is fairly correlated with viewership overall. Thus, if you don’t have viewership itself, IMDb can act as a proxy, like Google Trends. The actual rating itself (the 1-10 numbers) doesn’t account for small but well-liked films and TV series. My approach is to make a scatter plot, and see which films are in the upper right: lots of reviews and high ratings. (If you want to pay for it—and I can’t afford it—IMDb page traffic is also a good proxy.)

Now the caveat: some folks hate using IMDb ratings because online trolls have attacked certain films.

You can see this in Wonder Woman 1984. While it has nearly as many ratings as Soul, its average rating is much, much lower. Which raises the question of whether or not Wonder Woman 1984 is being intentionally dragged by trolls online. And this is the main problem with IMDb data: some folks will intentionally drag down shows for political reasons, which skew the value of this data source. 

But I won’t throw the baby out with the bath water. Because it’s the best publicly available, qualitative data set we have.

Rotten Tomatoes and Metacritic are probably the next two biggest review sites, and their numbers are orders of magnitude smaller than IMDb. The caveat here, of course, is that larger sample sizes of biased data are still biased, meaning that doesn’t justify using IMDb. The problem is that for Rotten Tomatoes and Metacritic, their sample sizes in many cases aren’t big enough to be representative. I’ve considered using Amazon ratings, but in that case some films are available in streaming, but some are available for free and some are available for purchase. This makes ratings not apples-to-apples, and that’s before the fraud problem with Amazon ratings.  

So when I use IMDb data, I tend to accept its shortcomings and use it carefully. To start, I know IMDb tends to skew “genre” in its ratings. This means for shows like The Expanse or Wonder Woman 1984, I’d say the reviews on IMDb are relevant. Since The Expanse has done well on IMDb, that shows some genuine fan interest. For something like Bridgerton, I’m less concerned if its score is weak.

Then, I try to figure out if a given show has been dragged by potential online trolls. When they have—eg The Last Jedi, Black Panther or Captain Marvel—I just wouldn’t use those ratings. Though don’t go overboard: don’t pretend that every poorly rated film is just a victim of online trolls. Some films are bad and fans don’t like them.

For Wonder Woman 1984 specifically, while I haven’t heard of any specific campaigns, on another user review site, Rotten Tomatoes, Wonder Woman 1984 has done better than its IMDb score. This likely indicates there is some intentional downvoting, but even with that it is unlikely Wonder Woman would have been a 8.0 or higher film.

IMAGE 1 - RT vs IMDb for Wonder Woman

A score of an “8” on IMDb tends to separate the merely good from the great. Meanwhile, The Midnight Sky did poorly in both locations. So it may be widely watched, but folks didn’t really love it.

(Also, never use the Tomatometer. That has very little nuance since it simply measures “good vs bad”.)

Did Netflix Have a Good December?

Probably, but not as good as last year. If you just casually read the news, you heard a series of great Netflix reports, and you’d assume they’re crushing it again.

Fortunately, I’ve collected every Netflix datecdote over the last few years and can put those numbers in context. Here’s the last three December releases that we have datecdotes for from Netflix. (These are films released in December. I’ll look at Netflix’s entire Q4 in a future article.)

IMAGE 2 - NFLX Decembers

The best way to describe this is that Netflix’s top film and top TV show released in December both underperformed their peers who launched last year. This looks even worse in context of the growth of the service during that time frame. The key question every quarter is whether Netflix’s content can help propel growth, or merely hold subscriber counts steady. And it seems to me like Netflix held steady in December compared to 2019.

Did Disney Really Win the Month?

For the first time in December, I didn’t just declare The Mandalorian as the winner in December, I also said that Disney won the month compared to Netflix. Essentially, between Soul and The Mandalorian, Netflix didn’t have a blockbuster show that drove the same level of interest.

The counter could be: but what if you added up every new thing Netflix released? Would it pass Disney by sheer volume?

So I looked for any Netflix series that seemed to generate interest and tried to figure that out. However, even after that, Disney was still the winner:

IMAGE 3 - Google Trends Expanded Look

There is a lesson in here about content planning and “return on investment”. Essentially, Disney could match Netflix for interest with only two hit releases. Now, those two may not generate as much time on the platform as Netflix currently has (their usage is much higher), but as for keeping subscribers, Disney may be able to do that more efficiently. I say “may” because it’s not like the two pieces of content Disney made are cheap by any means. (The Mandalorian may be the most expensive show on TV until Lord of the Rings comes out.) That’s its own form of inefficiency.

This also repeats a point I constantly make about the streaming wars: the best shows aren’t a little better than other shows, but multiples better. Thus, you don’t win the streaming wars with singles and doubles, but grand slams. And in July, November and December, Disney hit a grand slam each month. And with much fewer at bats than Netflix. That is an efficient form of content spend.

November Flashback: What Can Nielsen’s Data Tell Us?

The one drawback to my “Who Won the Month” series is that Nielsen data usually isn’t ready by the time I write my initial article. (They perform better near the month they cover, so I try to write them for the last day of the month or so.) This means that we can now look back and see which calls I made in December are either confirmed or refuted by the Nielsen data. 

So let’s hold myself accountable for my calls:

– Was The Mandalorian bigger than The Queen’s Gambit? I said yes, but according to Nielsen it depends how you count. The Queen’s Gambit was able to sustain higher week to week viewing than The Mandalorian, but Mando outpaced in terms of weeks on the Nielsen top ten:

IMAGE 4 - Week by Week Nielsen Ratings

– So The Crown was big? Yeah, that’s what the Nielsen data says. However, this is partly expected because The Crown now has four seasons airing, so that’s a lot of episodes to catch up on. The limitation of Nielsen’s data is we can’t see season level viewership. (That’s right, they give us some data and I just want more!)

– Did I undersell The Christmas Chronicles? Maybe. According to Nielsen’s data through the beginning of April, The Christmas Chronicles 2 had Netflix’s biggest film launch of this year in the United States by minutes viewed through the first two weeks! (36 million hours to Extraction’s 31.6 million hours in the first two weeks.)

– Did Hulu overhype Run? I think so. Hulu went so far as to release a vague press release calling Run its best performing film launch of all time. The problem for my system is that “run” is so vague that it didn’t register on Google Trends. So I said we’d wait for the Nielsen data to make a final call. When Nielsen released its weekly ratings for Thanksgiving weekend, Run didn’t make the cut.

Nielsen 2020.11.23 copy

– What about The Flight Attendant? At first, I was tempted to say that this HBO Max drama underperformed as well, because it didn’t make the Nielsen Top Ten. Then folks on Twitter (helpfully) pointed out that Nielsen isn’t tracking HBO Max yet. So we don’t know. Though, given that they only track services with a significant volume of regular viewers, likely The Flight Attendant wouldn’t have made the Nielsen top ten either.

My Favorite Ratings Tweet of the Quarter

This comes from Michael Mulvihill, who analyzes ratings for Fox Sports:

I would add, while he’s comparing 60 Minutes viewership to The Queen’s Gambit viewing, but that’s US only numbers compared to Netflix’s global viewership.  (Correction: I initially wrote NFL instead of 60 Minutes. As I’m supposed to say, I regret the error.)

Is Streaming Winner Take All? My Question of the Year for 2021

Well, give 2021 credit for trying to catch up with 2020 in terms of monumental new stories. This is absolutely one of the craziest weeks in my lifetime and I assume many of the folks who read. (Though, for historical hindsight, we tend to forget how absolutely chaotic the 1960s were, which featured the assassinations of at least 3 major political leaders. This isn’t to downplay the events of this week, but to emphasize that US democracy is always a fragile creature.)

The holidays tend to be slow for entertainment news, so we can take our time catching up on it. The biggest story–how did the big straight-to-streaming films perform?–I’ll handled over at Decider. In the meantime, let’s get reflective on the year that will be.

(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next issue goes out early next week.)

Most Important Question of the Year – Is Streaming a Winner-Take-All Market?

In my first column last year, I said that 2020 would be defined by this question:

“What is the same and what is different between streaming and traditional distribution?”

Little did I know that we’d have a lot of things that were extremely different in 2020, namely a global pandemic that threatened to upend streaming and traditional media. (The biggest hypothesis is still that Covid-19 “changed everything”. I don’t really buy that; flashy world-altering headlines get the clicks but I’m a little skeptical about how much actually changed. We’ll see.)

My 2020 question and the lack of an answer shows a lot of the problem with articles predicting the future. It turns out that’s really hard! That’s why I like the approach of not predicting the future, but figuring out the most important question for the given year. And I have the question that I think 2021 will potentially answer. And if it does answer it, the consequences for entertainment are huge:

Is Streaming Video a “Winner-Take-All” Market?

Specifically, will one firm take a commanding lead? Will they capture a huge portion of the marketplace? Something like 70-90% of the value of the market? Contrariwise, do the streamers split the market—defined by subscribers, revenue, viewership, you name it—roughly evenly? Or does it land somewhere in-between? Say a few big winners with a lot of smaller players fighting for scraps?

Take the United States, which is probably the most mature market. As it stands, we’re in between the extremes of market consolidation. There is one clear dominant streamer, but it has by no means a monopoly on viewing. Specifically, Netflix has roughly 30-35% of the viewership depending who is measuring and when:

Comscore via Hedgeye by Type copy

This year, that number grew a pinch. Long term, that share of streaming viewership is declining. This massive viewership translates into the largest streamer by total subscribers:


That said, Netflix got to develop such a dominant position because until 2019, Netflix only had two real rivals, Hulu and Prime Video (CBS All-Access is older than you think, but until recently has felt like a side project for CBS.) Now Disney, HBO and NBC are all-in on streaming. And ViacomCBS is half-in on streaming.

Can those firms catch up to Netflix? Or does Netflix keep growing and outpace its rivals? Can Disney+ catch up with Netflix in total US subscribers? Or Peacock and HBO Max? 

I think 2021 is the year we find out. Not all the services will catch up to Netflix in one year, but we’ll at least find out if this is going to be competitive or not. And that’s huge.

The Ramifications of this Question

To start, Netflix is the biggest beneficiary of the assumption that there will be one winner in streaming. The thesis is that “Netflix will become TV”. Not just a channel, but the whole shebang. That’s a winner-take-all economy. That’s network effects. That’s what has driven the huge valuations of the rest of the FAANGs (Facebook, Apple, Amazon and Google).

If Netflix can’t dominate streaming, then the better analogy is that Netflix is a new “bundle of channels”, much like what Disney, NBC-Universal and Viacom-CBS already were in cable. What has changed is the distribution. If that’s the case, woe to Netflix’s stock price.

This also matters for all the other streamers. They want to be a piece of the streaming pie. If Netflix owns the whole pie outright, then the investments of Amazon, AT&T, Disney and Comcast will utterly fail.

Further, this impacts the device and operating systems of the world, Roku, Amazon, Microsoft, Apple and Sony (the RAMAS if you will). If Netflix is the once and future king, it will have the leverage to negotiate those devices into oblivion. If they aren’t, then all the streamers may lose to the RAMAS’ value capture. (Their fees to sell subscriptions will capture most of the profit margin from the streamers.) 

My Take? Streaming Won’t Consolidate

If you’ve read my website for any amount of time, you can guess how I think this question will be answered. (So fine, I am making a prediction!) While content often performs with “logarithmic distribution of returns”, channels don’t have quite the same variability. (Or the winners can shift over time fairly easily. NBC won the 1990s, CBS won the 2000s; HBO won the 2000s, but Showtime almost caught them until Game of Thrones.) Frankly, this is where I see streaming headed: consumers will have multiple streaming services simultaneously, meaning there will be leaders, but not dominant winners.

Notably, part of this thesis stems from a skepticism on the presence of “network effects” for streaming video. (And the dreaded “flywheel” for Netflix.) For user-generated content, network effects were very, very real. The more users posting videos on one platform, the more viewers used the platform, so the more creators who posted videos on that platform. Hence, Youtube has demand-side increased returns, and it’s winner-take-all. Same for Google in search, Facebook in social, and Amazon more web marketplaces. 

The biggest input for streaming video, though, isn’t user data—which allegedly is Netflix’s driver of their winner-take-all flywheel—but the quality of content. And since the difference between 30 million subscribers and 60 million in data terms doesn’t produce that much better content, network effects in streaming video likely won’t appear. So it won’t be a winner-take-all market.

At least that’s my theory!

I’m not certain and as an analyst I’m willing to be upfront with you, instead of pretending to a level of uncertainty most analysts can’t truly possess. (Is this a bit of shade throwing at some of my entertainment business peers? Sure. Welcome to 2021!) The rest of this year will help me/us figure out if we are/were right or wrong. 

Other Questions That Will Define 2021

Does the live/experiential economy feature a boom?

When a vaccine was announced, I speculated about the upcoming “year of bacchanalia”. Over the break, I was glad to see another pundit take this same stand in Andrew Sullivan. His/my thesis is that once the vaccine begins rolling out in force, we’ll see folks make up for the lost time of 2021 by partying. For entertainment, this means lots of potential revenue. Concerts will see booming attendance, same with music festivals, bars, parties, travel, theme parks. You name it, we celebrate it. Quoting myself:

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.

The challenge will be figuring out if this is happening. If we use full-year numbers, it will be hard to see, since no one knows when we’ll feel safe to party again. It could be by March (if deaths fall quicker than expected) or fall (when we achieve herd immunity). Or somewhere in between. I’ll be looking to use per capita numbers as much as possible to untangle this.

What happens to theaters?

They’ll suffer the same uncertainty as the live economy, with more pronounced scheduling problems. The key date for me is May 7th, when Black Widow premieres. If theaters can be at full capacity in America by then, the entire world looks better. The other question is how firm the theatrical release slate is and how much the studios are willing to spend on marketing. And then whether or not the theaters can make it to May. Lots of question marks.

What happens to the economy?

The entertainment industry isn’t quite as recession proof as folks have made it out before. If wallets are trimmed, some entertainment spending goes with it. Some cheaper forms of entertainment, though, can resist this trend (like theaters) and some limited capacity forms of entertainment can also focus on high-wealth individuals (like concerts, sporting events and some theme parks). 

Thus, in 2021, entertainment folks would rather have a booming economy than a stagnant one. Folks are now openly speculating about a “v-shaped” recovery again, but it remains to be seen if the damage of 2020 can be overcome that easily. (Lots of businesses closed that may never come back, and that damage can take years to overcome.) The solution is lots of stimulus, which it sounds like Biden is considering.

Other Contenders for Most Important Story

If I weren’t speculating about the future of this year, what could have been the story of the week? Glad you asked. 

Roku Acquires Quibi’s Library

Is this a good deal for Roku? Who knows. If I knew the price, I still couldn’t tell you because I don’t know how good these shows are. If the price was very, very low, then maybe. Really, though, this is still a content licensing deal since Quibi didn’t own most of the shows, but was either licensing them or co-producing them with top talent.

Apple TV+’s Bold January Release Schedule

I’m sure if Apple TV+ could have, they would have released a lot of season 2 TV series back in the fall, a year or so after they launched. Instead, a lot of shows got the “Covid-19 pause” and it looks like Apple TV+ is on track for a big January, with Dickinson, Servant, Losing Alice and Palmer releasing each week in January. Also–and this is big–Apple TV+ is moving some shows to a weekly release

The upside is this will keep folks engaged (hopefully) through Q1. So I love that. The downside is a few other big shows still have vague “2021” release dates, like The Morning Show and Foundation. Apple TV+ still has new service growing pains, clearly.

For those keeping track, Disney+,  Apple TV+ and Prime Video have all released some shows weekly. (HBO Max has flip flopped on this point.) At this point we have to ask, who really knows more about release schedules: the rest of the market or Netflix?

Discovery Plus Launched

And it’s here! Discovery+ launched this week, and the reviews are much stronger than I anticipated. Rick Ellis makes the case that Discovery+ will help a lot of folks cut the cord, what I would call the next gen of cord cutters. Dan Rayburn says it is intuitive to use and has a massive library. I’ll be curious when we see the numbers on this one.

I’d also add, the Food Network Kitchen experiment doesn’t seem to be going well, and I wonder how long that standalone service lasts.

Netflix Increases Prices in the UK

This brings the UK in line with US prices (roughly) so it wasn’t unexpected. (The price increase in the US was!) Still, it will be fascinating to see how these latest price hikes fare in the next year with much more competition.

CyberPunk 2077 Security Fraud Case

Read about this interesting case either at Sportico or Matt Levine’s newsletter. Essentially, some folks are suing the makers of CyberPunk 2077 for releasing a game that was so bad it had to be recalled. Of course, some entrepreneurial lawyers will always sue claiming “securities fraud” for almost anything. However, this could set a precedent for digital products that are released and fail to meet their billing.

M&A Updates

Amazon is acquiring another audio platform, podcaster Wondery, to boost its Amazon Music platform. As the article notes, Amazon also owns Audible, which competes with a separate subscription in narrative audio. When a company is so big it’s competing against itself, that’s probably too big, right?

As for the strategy, it’s fine. The biggest harbinger of doom is for Spotify, though. It would be much easier to corner the market on audio if Apple, Google and Amazon weren’t all fighting you for it. (We could also ask, is music streaming winner take all?)

Context Update 

When it comes to regulations, I have my eye on antitrust for 2021. (I should have put that in the other questions above!) I hadn’t really considered unionization, but this could absolutely become an issue for the big tech firms. Like antitrust, this is a regulatory issue where a motivated Biden Presidency could make lots of changes without Congress passing new laws. So keep an eye on Amazon to see if unionization pushes come to them.