The goal this week? Keep this column under 2,000 words and not split into two parts. Can we do it? Sure. Even better? We can do it with a story most folks missed! The only challenge will be restraining myself on Covid-19 thoughts. Let’s get to it.
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Most Important Story of the Week – ViacomCBS ends their Apple Bundle
The news, reported by 9-to-5 Mac, is that the first Apple bundle (CBS All Access and Showtime for $10 if you have Apple TV+) is no longer being offered by Apple. When this deal was first announced, I hailed–fine, hailed is too strong, but noted–that this was the second bundle after the Disney-only bundle.
At the time, though, I still had worries/concerns. Frankly, could Apple TV+ drive enough new subscribers to offset the huge discount offered? And who was paying for the clearly massive discount offered? And would CBS ever learn that they needed to control the customer experience?
Well, my skepticism was warranted. The CBS bundle on Apple TV is already over.
And it died because ViacomCBS knows it needs its streamer to thrive outside of the bundle.
I’ve been pushing this thesis since 2019. While most coverage focuses on the war between streamers, the bigger battle is between the streamers and the device owners. For those who haven’t read my big take on this, take a gander at this map:
Aggregators are anyone aggregating content for customers. The steamers are included (like Netflix, HBO Max, Peacock, Prime Video, Disney+, et al) but so are the FASTs (like Pluto TV and Tubi). But using this language, old-fashioned cable channels are aggregators of content and so are virtual channels. These are the folks aggregating a curated selection of content, usually tied to some brand.
So what’s the difference between an aggregator and a bundler? Well, the bundler offers you the bundle of aggregators. This could be a cable channel or, in the digital sphere, the device or operating system that is bundling streamers for you. Roku, Amazon, Apple, and Google all want to bundle experiences for you. I’ve speculated that Comcast does too.
This the Holy Grail for bundlers: move just upstream from all the streamers to take over the user experience, data, payments, you name it, from the streamers. With that power ultimately comes the profit-maximizing position too.
Indeed, if you want to know the downside for Netflix in a nutshell, it’s this thesis. If customers ultimately have to have more than one streamer, they’ll want one experience for all their content. If Netflix loses their UX, data and content advantage–if another bundler essentially takes over as the brand–then they’ll no longer have pricing power and the whole “flywheel” collapses into, well, whatever a broken apart flywheel looks like. But that’s the risk. Right now, Netflix controls the whole customer experience and owns the “TV Habit” for many people. Bundlers want that control, and some have hundreds of billions to spend in this mission.
Hence, the streamers are fighting like hell to keep everything separate. Understanding this battle explains quite a bit of the positioning of the streaming wars:
– HBO Max didn’t do deals with Roku and Amazon Fire TV until it could control the UX and where their content was played in their application. They also wanted access to customer data.
– Netflix was touted as being a part of Google’s new Chromecast, but Netflix pulled its content from Google’s front page.
– Peacock still hasn’t come to terms with FireTV. (I’ve speculated Comcast would like to be a bundler too with their Flex operating system/device.)
The Paramount+ launch gives SuperCBS the opportunity to abandon the poor Apple TV+ decision. Likely, Apple underwrote the cost, but the deal didn’t have the promised returns. Given that Apple TV+ was a small part of CBS’ total subscriber base, this is likely a fine move:
And, frankly, this is the right strategy for any streamer of a certain size. While likely the bundlers will eventually win, the top tier streamers need to fight as hard as they can to control the experience. The combined ViacomCBS streamers are just big enough in the U.S. to compete, as long as they don’t make any more strategic mistakes. (My rule of thumb is traditional studios have the libraries to compete; the viability threshold is likely getting to 40 million or so U.S. subscribers. Anything smaller will likely get sucked up into bundlers.)
Interestingly, while many media observers hate on bundles, customers love bundles. Both the 9-to-5 Mac story and the Google Chromecast story feature complaints that the Apple or Google bundle are better than being bounced around to several apps. The unified experience is just objectively better for customers, but it’s also much worse for streamers.
Thus the next few years will be a battle between bundlers and aggregators, with bundlers offering a better product, but streamers fighting like hell to stop it. It will be fascinating to see who wins.
Entertainment Strategy Guy Update – When Will Movies Return?
Like clockwork, it’s another Friday, and there is a Variety article asking, “When do F9 and Black Widow move dates?” The crazy thing is the Variety article isn’t asking “if” they will move, but “when”. Given that since last March, the story has only been one of moving release dates, on one hand, it makes sense they’d move dates again.
But is this math still right?
A way to consider this is like a regression equation. You take a bunch of data, and test to see if it’s correlated with something you want to predict. In this case, there have been a lot of Covid cases in the U.S. These cases kept theaters closed. There are currently lots of cases in the U.S. Therefore, extrapolating out, theaters will stay closed. (Indeed, Variety says that “under current circumstances” theaters are nowhere near max capacity. Will current circumstances be the same as future circumstances?)
This math only works, though, if all the drivers of Covid-19 cases stay the same. To use the legalese boilerplate for investment advice, past returns may not be predictive of future performance!
And right now, the biggest new variable is the number of folks getting vaccinated every day. The most important fact in vaccinations is that–while every article written has to obligatorily mention they are not high enough–vaccinations are steadily growing each week.
Pair this with a big drop in cases, hospitalizations and (given the two-to-three-week lag) deaths, then the key question is whether these trends–closed theaters in particular–will still be true in May. Yes, 9 months is a long way away.
Specifically, May 7th, the tentative launch of Black Widow. A date that is both closer to and farther away than it seems. If Disney wants six weeks of promotional activity, they need to start advertising by the end of March. That’s not long! On the other hand, we still have almost three full months to vaccinate folks and open theaters.
Which is why I listened closely to Bob Chapek on Disney’s earnings call. He echoed Dr. Anthony Fauci in anticipating that the general population could be vaccinated as early as April. Indeed, only two weeks ago, Fauci wasn’t anticipating that the general U.S. population would be vaccinated until mid-summer. That’s because the current administration is absolutely under-promising so they can over-deliver. In Fauci’s case, he said, “If current vaccination rates hold, we won’t be vaccinating general population until the summer.” But, as he surely knew, vaccination rates were not holding. They’re growing every week! Again, over-delivering on under-promising.
If the general population is getting vaccinated, and presumably all the high risk groups have been vaccinated, then it seems fairly reasonable that deaths will be very low by May, meaning theaters could reopen in New York, Los Angeles and other big cities.
But will they? And if not, does Black Widow move back again?
Honestly, I would still bet on that. It’s easier to assume studios will be more risk-averse than not. They want a guarantee of theatrical revenue. Or does Disney not move Black Widow, but add the “Premier Access Window”. Any and all of those options are on the table.
But part of me is much more optimistic than the coverage I’m reading. We could be fully-open by May, and most folks aren’t ready for that level of positivity yet. Maybe not concerts and sporting events, but indoor activities? Potentially.
Let me be honest, this is my second attempt to write this section. The first version went for 1,600 words and included my scenarios for Covid-19 cases and deaths in the U.S. So it got cut for space. But when I run the math, especially looking at the growth in vaccination rates, I’m much more optimistic than the news coverage.
Other Contenders for Most Important Story
Sundance Sets Another Record Sale at $25 million
It’s unclear to me if this means the whole market is healthy, but my gut is that the ongoing need for content by the streamers will likely make the virtual Sundance a success. It seems like quite a few films have sold, but we don’t have holistic data on sales at Sundance year-to-year. As I wrote on LinkedIn before, basically one or two deep-pocketed buyers can make the market, and Apple TV+ is playing that role this year.
Cinemascore Will Update Their Measurement for Streaming
Cinemascore provides one of the better qualitative measurements of a film’s performance by customers. So I like using it when I can. Of course, streaming and lockdowns make it much harder to poll audiences leaving a theater, so they’ll have to adapt. They claim to have a plan for that, which could be great additional data at our disposal. Hat tip to Sonny Bunch for finding.
HBO Max News: Launching in Latin America and More Animation
HBO Max is preparing for its first international rollout, starting with Latin America. From what I understand, HBO as a brand is already strong in that region, and given the language similarities, it can be easier to launch. As such, this move makes sense, and it will be fascinating to see if HBO Max can drive a similar boost in global subscribers as Disney+.
Meanwhile, given the pandemic lockdown, HBO Max will be filling a lot of their future pipeline with animated content. Hat tip to Lesley Goldberg for the deep read on this.
Disney+ Keeps Growing
With Disney’s earnings report, we should have all of our contenders for U.S. subscriber counts updated. I’ll do that in a future article. However, for now, we can say that Disney continues to drive big customer growth via Disney+, with slower growth by ESPN+ and Hulu. Currently, Disney is over 94.9 million customers for Disney+ globally, which is frankly huge. They added 8 million folks in the last month. Also, it turns out that the skeptics who thought the Verizon free deal was terrible for Disney+ and would lead to huge subscriber churn were, frankly, wrong.
Lots of News with No News – Warner Bros. and NBCUniversal Vague Merger Speculation
Let me be blunt: mergers are not a strategy.
Mergers can be part of a strategy, but they are not strategy in and of themselves. What they are, though, is easy. And flashy. So lots of folks love to speculate about who could buy whom and for how much.
Frankly, this is easier than doing real strategy, which is understanding your company’s strengths and weaknesses, understanding the marketplace, understanding customers and developing products and businesses to deliver on a value proposition. That all takes work! Instead, we could just buy our competitors.
The latest edition of this is the simplistic idea floating around that either Comcast or AT&T should buy the content arm of the other or both spin them off or something.
Yawn.
Right now, both Peacock and HBO Max are executing genuine strategies. (I like Peacock’s more, but both have strategies.) Merging entities is the easy–and usually poor–version of strategy. Indeed, aren’t Comcast and AT&T both living examples of merger-as-strategy gone wrong?
