Today, I’m getting my “visual of the week” feature back on track. (Has this feature ever actually been weekly? No, so I should probably change the name…)
When I say “visual”, I don’t necessarily mean “chart” or something numerical. This isn’t “chart of the week”, it’s a “visual”, loosely defined. A visual could be a cool graph (like this one or this one from past issues), but it could also be a framework (like Porter’s Five Forces!).
Or it could be a lay out of the industry landscape in some form. Like today’s chart, a quad chart, which is one of my favorites!
A couple of weeks back, I was thinking to myself that I hadn’t really updated my thoughts on which “streamers” have good strategy and which have bad strategy. Especially since David Zaslav upended his company’s entire strategy, it’s worth staking my claim again and redoing this analysis.
But whenever I talk strategy, inevitably someone always says, “Who cares if Amazon and Apple have bad strategies? Amazon and Apple can lose all the monies!” and that bugs me to no end. Saying, “Yeah, Apple’s strategy sucks, but they can afford it” just makes me sad for the state of capitalism in America.
That said, if folks want to talk good situations, I’m game. So our x-axis will be “Who has good strategy?” on one end and “Which streamer is in the best situation”? for the y-axis. Both of these are (deliberately) loosely defined and, to quote the Dude, “just like my opinion, man.”
That got me this quad chart:
Here are my other quick thoughts on this exercise, in bullet point form:
– Where’s my data for this? Nowhere, this was all “gut”-based. That said, my gut got a big update after last quarter when I “ranked the streamers” for The Ankler. That helped me modify some of these opinions from past quarters, like Hulu, who really does perform better than you’d guess. So why isn’t Hulu—again, they’re second in the overall streaming rankings I made in July—ranked higher? Well, they just have the big liability that they could lose a LOT of day-after-air TV later this year, and their “originals” remain in fourth or lower place in the streaming wars.
– The biggest factor to being a “good situation” was being part of a large corporation that can fund losses. So Apple, Amazon, Google and even Comcast all qualified. Having lots of debt did the opposite, which is why Warner Bros. Discovery is the “worst” situation in my book.
– Disney is probably higher than where most other folks would put them, but I really do value the theme parks business and their ability to merchandise toys. Plus there’s no one’s IP you want to own more than Disney. So yes they have a lot of debt, but I think they can handle it and their streamer benefits from the rest of the company more than any other traditional studio.
– Warner Bros. fell the furthest from wherever I would have put them if I did this activity at the start of 2021, simply because they moved from one company with lots of debt but cash flow—AT&T—to another company with even more debt, but even less cash flow, Discovery. I also struggled with the combined strategy of HBO Max/Discovery+. At the time of the merger, I really liked it, and I still like the windowing strategy of Zaslav, but some of the cuts do seem like too much too soon, like getting out of kids content entirely.
– Netflix ends up exactly in the middle and I feel like I should explain myself on this one. Netflix has strong competitive advantages in terms of installed customer base (who are active users) and the technological sophistication to keep them there.
Strategically, they also some easy unforced errors in content strategy that I think will hurt them long term. (Too many bad international originals, no theatrical releases for their films and no weekly releases for their hit shows, still no real IP brands they’ve built in-house besides Stranger Things, poor marketing campaigns, etc.)
– Netflix’s situation also changed too from where I would have placed them circa 2021, simply because the market changed their mind on their prospects. When Wall Street rewarded free cash flow losses, that offered a huge advantage, similar to the tech giants deficit financing their streamers. That advantage got a roughly 2/3rd-sized cut this year. They also have some debt and not a lot of other free cash flow options, so right in the middle, I’d say, for strategic situation.
– Apple, even more than Prime Video, makes losing money in entertainment a feature of their business model. Sure, companies should invest in speculative businesses, but if the investments don’t work, they should stop. As analysts, we shouldn’t assume tech companies invest their money well either. We should want some evidence that spending billions is having some concrete business benefit. “Trust” doesn’t work for me in this regard.
And Apple, you know, doesn’t have to spend money on video. If the goal really is to drive subscribers to Apple’s other services, they could use the billions they’re spending on Apple TV+ to just lower prices for consumers. So the justification for Apple TV+ should always be, “This is a net present value positive investment”, not “Apple can afford the losses”. If you argue the latter, they might as well just discount prices; they can afford that too!
– Yes, YouTube is in the enviable upper right in this chart. And yes, they aren’t a subscription streamer, but I think they have done so well they really do belong in this chart.
– Want to see my previous quad charts? Read these articles: