(Welcome to the “Most Important Story of the Week”, my bi-weekly strategy column analyzing the most important (but often not buzziest) news story of the last two weeks. I’m the Entertainment Strategy Guy, a former streaming executive who now analyzes business strategy in the entertainment industry. Please subscribe.)
As I’ve often opined, when it comes to predicting the future, the “when” is a lot harder than the “what”.
You see this with disruption, over-valued stocks or, frankly, financial bubbles. Folks can see them inflating, but predicting when they’ll crash is much, much harder.
Thus, one of the big questions of 2026 is whether or not AI is a bubble. Well, at this point, I think most observers think it is a bubble—everyone from Paul Krugman to Jeff Bezos have speculated that it is—so the question is when it will pop and how much that pop will shrink the market and impact the economy. The most pessimistic of these analyses comes from Ed Zitron of the Better Offline podcast and Where’s Your Ed At newsletter, and frankly, his exhaustive analysis of the financials of these companies convinced me in 2025 that we’re in a bubble.
And now we’re in 2026. But again…does the AI bubble pop in 2026? That’s tough to say.
For instance, as soon as I finished reading Zitron’s latest two deep dives—which should terrify you about the state of the economy—I read not one, not two, not three, but seven different articles about how Claude Code is transforming lives/programming/work/society. Yes, it’s a little coincidental all those came out in the same week, but that’s a lot of very strong endorsements! If AI has an actual product folks will pay for, that changes the financial outlook.
Of course, this is something I’ve obsessed about for a bit, since AI will either have huge impacts on the business of entertainment, as several writers have speculated, or it will leave a path of destruction in its wake if the bubble bursts. (I do think LLMs are vastly too error prone to widely improve productivity.)
Speaking of bubbles, in a lot of ways, we’re still dealing with the fallout of the streaming wars/content production bubbles that peaked in 2022 or so. And I think we see that with Netflix’s latest purchases in the theatrical film window space. And I’ll actually run the math on their latest deal with Sony. All that, plus Kathleen Kennedy leaving Lucasfilm, Universal Studios’ latest content integration, Trump and Greenland, and a whole lot more.
Let’s dive right in.
Most Important Story of the Week – The Pay1 Window Picture (as of 2027)
When I saw the news that HBO and A24 renewed their Pay 1 output deal, I immediately knew it would be the story of the week, and not just because I’m an A24 skeptic. (To be clear, I don’t think of what I’m doing as necessarily “debunking” common media narratives, but providing a more realistic take—one might say sober and skeptical analysis—on buzzy topics, and A24 certainly qualifies! I’ve tackled them and their hype on more than one occasion.)
But I actually love this deal for both sides and wanted to explain why. Then Netflix comes out with not one, but two big theatrical licensing deals:
- Netflix bought Sony’s films worldwide for all their streaming tiers for $7 billion for five years.
- Netflix started its Pay1b window for all of Universal’s films.
As folks pointed out (and I’ll discuss below), Netflix now has control of a lot of theatrical films! Let’s discuss what this deal means for each of the players, and why two Big Tech titans didn’t win this time around.
(As a reminder, if you want to know what a Pay 1 output deal is for theatrical films, go to my Entertainment Industry Dictionary.)
Let’s Talk HBO and A24
The craziest part of A24 is just how little money their films make each year compared to their impact on the culture. Can you tell me A24’s highest grossing film this year? Given it just got nominated for Best Picture, I bet you can…
…yeah, it was Marty Supreme. With $86.2 million (and counting) in box office grosses.
After that, it gets grim: only $36.5 for the Materialists and $25.7 for Warfare. That’s not a lot of revenue for one of the buzziest independent studios.
But here’s the thing: I still like this deal for HBO.
Sometimes, two brands just make sense together, and A24 and HBO match up fairly well; their core brands align in ways that A24 and, say, Netflix or Prime Video or Paramount+ don’t. I think the audience overlap is high enough that these films do great for engagement on HBO. The folks watching The White Lotus or Euphoria probably can’t wait to watch Eddington and The Materialists and definitely Marty Supreme. (Well, probably not Eddington, but you get my point.)
Obviously, the money has to make sense, too. And I didn’t see any numbers here. Given Warner Bros. focus on cutting costs and A24’s recent box office troubles, I have a feeling this deal made financial sense for both sides, meaning it wasn’t that expensive.
Let’s Talk Netflix, Universal and Sony Films
Listen, sometimes folks overstate Netflix’s capabilities. Heck, circa 2019, analysts thought Netflix would achieve its dominance in the streaming wars by eclipsing 1 billion paying subscribers by 2030. No, seriously, folks said that.
Instead, Netflix has leveraged its size and customer satisfaction to market dominance and profitability. Right now, it has the cleanest balance sheet of anyone in Hollywood, generates the most revenue, and has the most subscribers, which it can use to amortize big content deals. In other words, since they have 325 million subscribers (as of their earnings report from last week!) compared to maybe 250 million non-paying Amazon subscribers and 131 million over at Disney and 128 at Warner Bros., Netflix can comfortably bid the most for any film’s subsequent rights and win because they can sell those deals to the most people.
Frankly, this is just smart strategy and I have to tip my hat to it. If you can spend the most to win a deal, that makes sense.
Now, is it a good deal for Sony? Not as much, mainly because they’re a company without a lot of options, an acknowledgement both that there are fewer suitors with global reach (especially as Warner Bros. leaves the market) and power as Netflix. In an ideal world, Sony would have bidders in each territory maximizing revenue, but we don’t live in that world. Also, when you run the numbers, making only $1.4 billion per year proves that life as a “content arms dealer” isn’t that great.
More importantly, though, my look at the numbers says this isn’t actually that good of a deal for their theatrical films.
We’re just getting started with this issue, but the rest is for paid subscribers of the Entertainment Strategy Guy, so if you’d like to find out…
- …why I think Apple TV blew it…
- …why Universal didn’t…
- …the antitrust implications of these deals…
- …my thoughts on Kathleen Kennedy’s departure from Lucasfilm…
- …and some brief thoughts on Trump, Greenland, and Hollywood/Big Tech…
- …the antitrust implications of another streamer going out of business…
- And a lot more…
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