This is probably a bit of a rarity for me, but the most important story of the week isn’t even a full story, but two paragraphs in one article on one small story. And that story is MoviePass, specifically a new lawsuit filed by federal prosecutors alleging that the heads of the company defrauded investors.
How does this story beat out other potential candidates like Disney’s stock price collapse last week? Or the election? Or a potential recession?
Well, it interests me more.
But it also relates to a key theory of the streaming wars. Specifically, that the disruption of linear TV by streaming will make more money for entertainment companies, partially driven by “data”.
But don’t worry, I’ll be covering those other stories next week. I’ve been a bit behind on writing strategy columns—I had to travel to a wedding last weekend plus my kids were sick both the week before that trip and, somehow, the week after—so I have some ground to make up. My plan is to write about a few stories from the last couple of months in today’s strategy column, then next week, I’ll be back with another strategy column to catch up on the major political and economic stories roiling entertainment. (Because the midterm elections and a potential recession is big news!)
Sound good? Then let’s get to it.
Most Important Story of the Week – Data is Officially NOT the New Oil
Two weeks back, the former executives of MoviePass were indicted for defrauding investors by the DoJ and SEC. Essentially, they knew that their low price movie subscription plan couldn’t make money, but publicly made statements to the contrary. (Quick disclaimer: all of the allegations are just allegations, so if I don’t say “allegedly” every time, still know the charges are all alleged.)
The part that interests me most concerned MoviePass and their CEO’s statements about data. Here’s a paragraph from the indictment:
“In addition, Farnsworth and Lowe allegedly made false claims that HMNY possessed and used technologies – like “big data” and “artificial intelligence” platforms – to generate revenue by analyzing and monetizing the data MoviePass collected from subscribers. However, the indictment alleges that Farnsworth and Lowe knew HMNY did not possess these technologies or capabilities to monetize MoviePass’s subscriber data or incorporate these technologies into the MoviePass application.”
Hat tip to Matt Levine’s Money Stuff for these quotes. Here’s another good quote from the indictment:
“On March 2, 2018, Lowe spoke at the Entertainment Finance Forum, giving a speech titled, “Data is the New Oil: How Will MoviePass Monetize It?” Even though MoviePass was not collecting basic demographic information for all of its subscribers, Lowe falsely and misleadingly stated that MoviePass collected “an enormous amount of information” regarding its subscribers, and that it even tracked its subscribers through their phones. The following week, on March 12, 2018, Lowe issued an email apology to MoviePass’s subscribers, partners, and employees, saying that “through a mix of exuberance about our future and joking around” he “mischaracterized how MoviePass locates [its] members” and explaining that MoviePass did not “track” its subscribers. On March 13, 2018, Farnsworth sent Lowe a text message that HMNY’s stock was “tanking,” and that investors were ‘saying the exact thing I was afraid of that we are not a big data company and we just admitted it . . . .'”
For those who don’t remember, at the height of the MoviePass saga, MoviePass’ executives gave interviews where they called data “the new oil”, and implied that their data on customers and the films they saw gave them a valuable new source of profits. As we know now, it did not.
Don’t get me wrong, data is valuable. Very. The digital revolution is based on it. But is it that valuable? Especially if you aren’t an established Big Tech titan with pricing power? Maybe not.
And that’s why it’s worth explaining exactly how data is and is not valuable. Especially because, while streaming executives don’t make quite the same bold claims, they definitely have a lot of supporters who point to data as one of the key competitive advantages for streaming over linear TV. (See this random Linked-In article as one example.)
But does that data help them make more money that traditional distribution? Probably not.
Let’s Start Here: How Do You “Monetize” Data?
Data on its own doesn’t really do anything. Sure, there are data brokers you can buy data from, which means a company could sell the data they’ve collected, but you’d be surprised how cheaply you can buy large amounts of consumer data, partly because there’s just a lot of it out there. I mean, every digital website and countless apps on your phone, and who knows who else, track your movements all over the web. That’s been compiled in lots of places by lots of legitimate (and tons of shady) actors. When you have a lot of something, it risks becoming commoditized, which means much, much cheaper and usually less profitable.
Meanwhile, some of the most valuable data that isn’t sold on the open market is kept private for proprietary reasons i.e. the Big Tech firms aren’t aren’t in the business of selling their data. If Google started selling all its customer data, its edge would essentially evaporate with it. Same for Facebook or Netflix or whoever else.
So on the one hand you have lots of data you can just buy publicly, but lots of other data you can’t sell lest you give up your competitive advantage. Either way, data isn’t “oil”. If you pull oil up from the ground, the whole point is to sell it. That’s what you do with the oil, sell it. If you’re in the business of selling data, you sell data. (Think Nielsen. Or Comscore. Or countless others.) So data has a price, but not enough to turn regular old media companies into big tech giants, despite assertions to the contrary.
If you can’t sell data, how do you make money with it?
Data Could Enable More Profits In Entertainment (But Doesn’t Really)
The argument is that, by collecting gobs and gobs of data, streaming or media companies can make more money than they could making and selling TV shows the old fashioned way. Essentially, entertainment companies could amass and leverage data like Google, Amazon or Facebook.
But this doesn’t really hold up to scrutiny. And this was my point at the time about MoviePass, but also about the streamers. If you try to figure out how data can help grow revenue or lower costs, you can’t really see it.
Start with revenue, or the idea that data can help you make more money per customer.
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