As I got ready to write this week’s column, my brother asked me what the story of the week was. And I had to reply that…I didn’t know? I’d kept up on all my newsletters and checking the trade websites last week, but no story stuck out as truly important.
Besides a near disaster in the form of a strike. Yesterday (Sunday 17-Oct) we learned that wasn’t happening. (Thought it still, just might. Though probably not. See below.) And having a story about something that didn’t happen feels odd.
Still, let’s do a post mortem on the strike that wasn’t.
Most Important Story of the Week – IATSE Strike Averted?
For the potential disaster looming over Hollywood’s head, everyone in town seems remarkably sanguine now that IATSE and the AMPTP have agreed to a deal.
Checking on the three trade websites this morning, only one had an “above-the-fold” article still up on the trade deal. (Which says more about the trade shift to general entertainment websites than anything else.) And even that article was simply a list of tweets about the deal.
Here are he details of the agreement I’ve pieced together:
– IATSE (the workers union) and AMPTP (the studios) agreed on a three year deal. (The basic agreement.)
– The agreement raises pay by 3% going forward, increases penalties for missing meal breaks, and establishes diversity, equity and inclusion initiatives.
– The deal also provides additional funding to the IATSE health care fund.
– The mandates that workers will get a ten hour minimum return time to set and a minimum 54 hours rest after a five day work week.
I think we can draw three lessons from this latest dust up and the fact that the streamers settled.
Lesson 1: This isn’t over.
Let’s start there. Three years isn’t that far away for another strike. Meaning if the union isn’t entirely satisfied by this new working arrangement—and looking at the initial strike authorization vote they want to fight for changes—we can expect a replay of this negotiation in a few years.
Or maybe less. If one guild gets a concession, the other guilds are likely to ask for it too, if not more. The writers are notoriously dissatisfied with working limited numbers of episodes in small rooms while being held to exclusive contracts. If full-time working writers can’t crack six-figures in this town, something will have to give. Their current deal expires in less than two years.
Further, the IATSE folks may not take the deal. IATSE members need to approve the deal, so a wildcard is still in play. In the age of Twitter, many folks can easily voice their displeasure, as witnessed by the reactions in this Deadline article.
I’d bet this deal clears, but don’t be too surprised if we’re back in this same place in a couple of weeks.
Lesson 2: The streaming versus traditional divide is now the battlefield.
In particular, a strike seemed possible because everyone understood that the initial deals with the streamers were too advantageous to the tech companies. Sure, ten years ago coming to any sort of agreement made sense. But a lot has changed over the last decade, mostly to benefit the streamers. Actors, for example, didn’t foresee a world where most shows only air 10 to 13 episodes every 18 months. That changes the calculations for lots of base rates.
Nowadays, streaming drives stock prices, so pleading poverty doesn’t make sense. If streaming is a good business—and the streamers tell their shareholders it is—than workers have more room to fight.
That’s why even this IATSE deal seems like a placeholder to keep work going as streaming continues to grow. And when streaming does takeover fully—which may still be years down the line—it could only renew calls for strikes.
Lesson 3: The age divide may divide unions.
One of the funny things about unions is what happens as their work force ages. Often this means the folks negotiating the deals are those about to retire. So what do they care about? Protecting or expanding pensions and health benefits. Conveniently, that’s the focus of the current deal.
Meanwhile the front line workers—the new entrants—care about working conditions. Notably, it seems like IATSE caved on the work issues to expand pension benefits. This could be one of the issues that stymies closing a deal. Again, I wouldn’t bet on it, but in future negotiations I could see work/life balance issues and minimum pay move up in importance in negotiations.
Almost Most Important Story of the Week – How Netflix Values Shows
As I wrote in my streaming ratings report last Friday, there’s a controversy over Dave Chappelle’s latest special on Netflix. That’s not something I cover—I focus on the business of entertainment—so read other outlets for their takes. (If I may, the Ankler calls out a good deal of hypocrisy all around in his take.)
But the controversy has been good for some business-related things: like dueling leaks in the trades!
Specifically, Lucas Shaw at Bloomberg had leaks about both Chappelle’s latest special and Squid Game that provide insights into how Netflix values their content. Let me admit—as someone who knows a ton about these type of documents from years “on the inside” of a streamer—these revelations aren’t really that revelatory. But they will allow me to cite specific business models and terminology so you don’t have to take my word for it. So here are my three initial thoughts.
The Prosaic News: Everything Old is New Again
Basically, Netflix values content by both return on investment and the total attributed profit for a given show or film. That’s right, Netflix uses the standard tools of finance that everyone uses for everything. Moreover, the key driver of these two metrics is viewership.
I don’t mean to sound flippant, but the way some in the press talk about streaming, it seems like it’s revolutionized the very concept of making money from entertainment. It hasn’t. Some films and shows cost a lot, but make even more. (Think Game of Thrones or Avengers: Endgame.) Some films and shows don’t cost much, but are breakout hits. (Think The Blair Witch Project or NCIS.) Depending on your goal, then, you focus on profit and return on investment. Netflix just has different words for it
The New Is Much Different than Theatrical Days of Yore
That said, this is a new vocabulary and a more complicated analysis. In the leaks, we learn that Netflix values shows or films that either attract new subscribers or reactivate lapsed subscribers. They called this “adjusted view share”, valuing different views based on the type of customer watching. (I’ve explained a similar approach in my film valuation model.) And while the articles didn’t mention it, I’m sure higher priced subscribers (think US/EU) are worth more than lower price subscriptions in large parts of the world.
Because Netflix has a subscription business model—not transactional—this makes sense. We also learn that Netflix puts a lot of value on “efficiency”, which is a way of saying return on investment. If you invest a dollar, and get a $1, that’s a one-to-one efficiency ratio. If you only make $0.50, that’s bad. That’s efficiency. Honestly there is a ton more to dissect here, but I’m glad these words are now out in the open.
The Synthesis: When in Doubt, Popular Things are Valuable
All that said, the core principle of entertainment hasn’t changed. Netflix uses different words, but the fact that their most popular series of all time is probably their most valuable—according to them $900 million worth of value—we understand this truism, that has defined the industry since Adolph Zukor, Louis B. Mayer, and the brothers Jack, Harry and Sam Warner were making movies:
Popular content is worth the most. To Netflix. To streamers. To studios. To everyone!
That’s right, for all the sturm und drang, at the end of the day, Netflix’s most valuable show is also the one that smashed viewership records. This isn’t coincidental, but causal. The more folks who consume a piece of content, the more valuable it is. And it’s also not crazy that a show that a show watched by 130 million folks isn’t twice as valuable as a show watched by 65 million, but multiples more valuable.
(Curious for more thoughts on value content? If so, see how I valued a Netflix film back in 2019 in The Great Irishman project here, here or here. Or see how I estimated that Game of Thrones made $2 billion in profit for HBO here.)
Other Contenders for Most Important Story
A Peacock Reset, with New Leadership
Apparently Peacock really isn’t doing well, and Comcast is already plotting their next “reset” of the streamer. That’s according to leaked strategy documents obtained by Business Insider. And in classic corporate planning, the main goal is better publicity, outsourced to marketing agencies. Sighs.
Oh, that and new leadership. Earlier in the month, Kelly Campbell, president of Hulu, abruptly left. Then she was quickly announced the new President of Peacock. That’s a shift!
As always, I don’t evaluate senior leadership for “quality”. From the outside, Campbell seems just “fine” at Hulu, but clearly Comcast thinks she can deliver. Here are my other thoughts:
– First, based on leaks over the years, Campbell bristled under Disney’s leadership.
– Second, this is probably a sign that Peacock was not hitting internal metrics.
– Third, the Hulu president title is the new “drummer for Spinal Tap” job in Hollywood. Though with Disney’s control now, it probably won’t matter much in the future.
HBO Max Launches in Europe
I’d covered this a few weeks back, but the launch of HBO Max in Europe generated some buzz because of a new trailer for Game of Thrones spinoff House of the Dragon. Getting the European launch right could definitely help HBO Max catch up to Netflix and we’ll see next quarter if this helps their global totals.
IMDb TV Launches in the UK
Guess it’s European invasion week, because IMDb TV—Amazon’s free AVOD service—launched in the UK too. This makes sense because likely most of the content is in English already and Amazon has a strong foothold in the UK.
Discovery+ Launches in Canada
With three, I guess a lot of the other stories this week are about international launches. In this case, the easiest launch possible, Canada, but still.