Are you still here?
I only ask because we’re getting awful close to the holidays, a time when internet traffic in the Western world tends to plummet. Coincidentally, it’s weird that news websites and social media use plummets during the holiday season, isn’t it? That would imply that, instead of doing work, folks spend a lot of time at their jobs doing fantasy football, online shopping or stock trading?
The entertainment industry, in particular, turns taking-the-holidays-off into an art form. As Rob Long regaled in one of his recent Martini Shot episodes, folks scramble to get work done before December—signing deals and what not—because once December hits, suddenly everyone is on vacation.
Keeping that in mind, here’s my tentative plan for the next two weeks:
– Tomorrow, I’ll publish a Streaming Ratings Report. I’ll take the 23rd off, but try to return for a double issue on the 30th to stay on schedule.
– I’ll publish a couple of strategy looks over the The Ankler over the holidays.
– The week after Christmas, I’ll publish my single biggest strategy recommendation for entertainment companies. It’s something I’ve only written about in passing before, and will sound completely insane/controversial (to most people).
– Then we’ll be in the new year with tons of new stories to cover. And I mean a ton.
Okay, onto to the latest news.
(One last note, tis the giving season and I’ll make my appeal too. If you’re looking for a gift for your team or company, consider giving the gift of the Entertainment Strategy Guy. As always, thank you to my paying subscribers who make this great work possible.)
Most Important Story of the Week – HBO Max Returns to Amazon Channels
When we talk streaming wars, we too rarely discuss the battle between streamers and “bundlers”. The former we all know (Netflix, Disney+, etc) but the latter is a term I defined several years back. It’s basically everyone from Amazon Fire TV to Hulu Live TV to Roku to cable companies to Google. These are the companies that control the experience of streaming, either because they make devices or control the operating systems. The goal, though, isn’t to sell you that device, but to sell you subscriptions.
The logic goes something like this: if Roku sells you a $50 set top box, that’s one time they collect money. But if they discount that set top box—even losing money on it—but then sell you subscriptions which they take anywhere from 15-30% in perpetuity, then they stand to make a lot more. (Indeed, Amazon heavily, heavily discounts their Fire TVs and devices, often being the lowest price in the industry. Heck, some Christmases, they were basically almost giving them away.)
The question is who has the real power, the streamers making the content (and, to be frank, doing the real work), or the device makers who control the user experience? I wrote about this before here, here or here. I think this question will help define whether or not traditional entertainment companies, streamers, big tech or device makers will make the most money. (To paraphrase Stratechery’s Ben Thompson who quotes Clayton Christensen, it’s the quest for “attractive profits”.)
I call this battle “aggregedon” for streamers. If they get “aggregated” they may really suffer financially.
Just last week we had one of the biggest reversals in the “aggregedon” battlefield:
(Side note: so we’re calling it Prime Video Channels now? Not Amazon Channels? For all the crap Warner Bros. Discovery gets for changing names, has any service had more name changes than Amazon/Prime Video/Amazon Studios/Amazon Channels/Amazon Video/IMDb TV/Amazon Freevee?)
What to make of HBO Max’s return to Amazon?
Well, it’s the clearest sign yet that the power—the attractive profits verging on oligopoly profits—may lie with the device makers. Amazon has a huge installed base of American Fire TV users/streaming devices now. And while WBD could try to get them all to download their app and use their service that way, that’s a tough value proposition. And didn’t really happen in practice. So far only Disney+ and Netflix have proven they can make work. We know HBO Max lost several million subscribers when they left Amazon back in 2020, and clearly in the “quest for cash”, Warner Bros CEO David Zaslav would rather trade cash for user experience or control.
This also brings up some interesting “strategy vs financials” questions too. Zaslav—based on all his public comments—strikes me as a type of guy who wants his strategy to actually make it on to the income statement. As I’ve said before, “strategy is numbers” and too often in the discourse, folks get by with handwaving at nebulous terms—fly wheeel! moat! synergy!—instead of having concrete money making plans. Zaslav is a guy who wants to see business models that make money.
The decision to leave Amazon Channels (and other distributors) is one of those decisions where all the numbers are on the side of staying with Amazon. Things like “controlling the customer relationship” or “leveraging the data” or “optimizing the user experience” are devilishly hard to quantify. Figuring out that you lost 5 million monthly subscribers is easy to quantify!
So is Zaslav right? Honestly, without seeing the models, it’s hard to tell, but maybe. When HBO Max left Amazon/Prime/Video Channels, I celebrated that move, because I think Amazon’s user experience is fairly chaotic, so I’m not sure it helps HBO’s brand to stay. I also thought HBO would have the juice to get customers to use their app. But on the other hand, we’ve seen with MoviePass, the value of “data” is often wayyyyyy overhyped. And Zaslav has all the subscriber data at his fingertips; clearly they didn’t recoup the losses!
I’d add that Warner Bros Discovery isn’t the only one making the hard choices. Disney’s new ad-tier isn’t on Roku right now, because Roku wants a piece of Disney’s ad-inventory. (Again, sell the device at a loss, sell ads in perpetuity.) This is a simpler decision for Disney (it’s simply weighing selling ads on a platform versus not) but same power dynamics.
The main lesson, though, seems to be that the device owners really do have a lot of power. That means Roku, Apple, Google and Amazon. Comcast is trying to break into that group too, and Samsung/LG have a lot of TVs too. No one device is all powerful, but each is probably too big to ignore entirely.
Which means these aggregeddon battles will continue. Stay tuned!
Other Contenders for Most Important Story: Amazon, Anti-Trust, the Economy, and The Clippers Go D2C
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