Between a host of streaming TV news–Peacocks, Portals and Seinfelds oh my–and old fashioned business news–AT&T!!!–this week felt like we had a lot of options for the biggest story of the week. But let’s avoid the big conglomerates to talk about the behind-the-scenes heroes, the writers.
(Programming note: between a music festival last weekend and house guests this week, I should have taken the week off. Check out my latest guest article at Decider “Netflix is Five Guys and Hulu is McDonalds: How Hamburgers Explain the Streaming Wars”. Seriously, who else will call Disney+ the In-and-Out of the streaming wars? Otherwise, more regular writing next week.)
The Most Important Story of the Week – The WGA Stays the Course
The “news” is that David Goodman was reelected as President of the WGA West, the guild (union) responsible for TV and film writers. The margin was fairly healthy and the election shattered records.
Why is this news? Well, a slate of other writers had run against Goodman–mainly backed by Phyllis Nagy–hoping to return to the negotiating table with the agencies (and, in my opinion, likely cave on packaging fees). Goodman and team have been negotiating individually with agencies, to some degree of success. Nagy was backed–and this is important–by mainly showrunners.
To divert from usual–where I give my take, then provide articles to “read more”–let’s flip that. In the last few weeks, three long reads/listens prepared me for today’s column. Taken together, they really do illuminate the battle lines for this conflict.
– KCRW’s “The Business” with “Dueling” Interviews on “The Battle for the WGA” with Kim Masters
– LA Review of Books, “A Fight in Hollywood” by Alessandro Camon
– Variety, “Why the WGA-Agents Battle Has Yet to Significantly Impact TV Dealmaking“ by Michael Schneider
A line stuck out to me from The Business podcast but Angelina Burnett. In her words, negotiations are about power and who has it. Being “friendly” or “reasonable” doesn’t matter if you don’t have the power. In my experience, um, yep! Understanding this fact probably explains why the writers and agencies have been and will be at it for a while.
Historically, the agencies have the power. Especially the big three really of CAA, WME and UTA. They know they can leverage the power their gradual consolidation gave them into bigger projects for their client, and bigger paychecks for themselves. (By the way, the idea that negotiations are all about power is the life blood of agencies, so they shouldn’t be too upset by this take.) As a result, they’ve tried less and less hard to get all the writers paid. Partly because it’s gotten harder to negotiate with similarly consolidated media conglomerates.
But then all the writers fired their agents. They were pretty fed up and that was a power move. As long as the WGA stuck together. The only bid really the agencies had to stop this was to turn the writers against each other, which they tried to do. Especially by focusing on the showrunners, who the big three agencies tend to represent. But this week showed that the writers really are behind their union’s push to end packaging fees.
Well, mostly behind it. There is that 10% or so of the WGA that are showrunners and are fine with packaging fees. (And the group they convinced to vote with them.) And this divide between the top 10% of the guild and the bottom 90% is why this fight really does stand in for current American politics/economics and why it will drag on. (Go to the LA Review of Books article by Camon for that great take.)
At the end of the day, if packaging fees end, the showrunners–who currently don’t have to pay 10% of their earnings–will essentially see a “tax” on their earnings. Of 10%. That’s a lot! If Shonda Rhimes makes $250 million on her overall deal, that’s $25 million she’d have to pay her agents. Really, that’s the trade off for the agencies: collect packaging fees and don’t take 10% of showrunner salaries, or vice versa. But that money still comes from somewhere, and that likely meant lower salaries for newer writers over time.
That’s why KCRW had such a tough time finding a candidate running for the WGA board to come on the show. Or any of the showrunners who signed the letter backing that slate. It’s hard to get millionaires to go public with the idea that they want to keep not paying taxes on their millions. Again, that’s a hard position to defend, the way defending lower taxes for millionaires is increasingly harder in today’s economy. And usually the defenders of “lower taxes” find tertiary issues to argue over instead (taxes are pro-growth or the rival WGA slate wanted “reasonableness”.)
Looking at this through the economics/strategy lense, I keep coming back to those millions of dollars. And that’s why I don’t see this stalemate ending. When it comes down to taking millions of dollars, well the folks you’re taking it from will fight back.
The ironic part is that the Hollywood business as usual train keeps businessing as usual. That’s the point of the Michael Schneider piece and really what could end this conflict. Shows need to keep being made–and making money–so people will do that work. Including some smaller tier agencies. Or manager or entertainment lawyers or even showrunners themselves. Even if the networks worry about a slowdown, at the end of the day, they’ll get business done if they have to. Which comes back to the power issue. If you lose your power–and the WGA didn’t get lose any, but the agencies may have–then it gets a lot harder to negotiate.
M&A Updates – AT&T Has an Activist Investor
Let’s see if I get the last week of AT&T stories right…
– Last week, AT&T announced further subscriber declines, even larger than last quarter.
– An activist hedge fund publishes an open letter calling for changes at AT&T.
– The hedge fund also leaks it wants DirecTV sold and doesn’t want John Stankey succeeding to the CEO spot.
– Then there is a shareholder class action lawsuit over fake DirecTV Now accounts.
– AT&T in response hires Goldman Sachs to defend itself.
– AT&T backs Stankey, but then news leaks that even more folks are leaving HBO in the next few months.
– This morning, AT&T actually considers selling DirecTV. By the afternoon, no they aren’t.
That’s just the last week.
Listen, the activist investors aren’t all wrong. When you put a lot of bankers and finance folks in charge of companies, M&A starts to look like a very attractive option. Of course, we know that M&A isn’t strategy, but a lot of other folks don’t share our wisdom. And they convince themselves that if the M&A is in pursuit of a strategy, then do it. The way AT&T convinced itself that DirecTV diversified revenue streams at a national scale. And that they could use HBO to sell AT&T wireless subscriptions.
The first didn’t. The second is TBD.
The best rule of thumb is to remember that half of all deals don’t make back their money. But since the returns are outsized/exponential in M&A–meaning Google made multiples off it’s Youtube purchase; logarithmic returns everybody!–folks keep pursuing it. (In other words, 50% of deals fail, but the “expected value” could be positive.) But the flip side of that coin is that two deals worth roughly $135 billion could both flop…meaning AT&T lost a ton of money trying to reinvent itself into a “media something”.
Of course, if buying companies has a fifty percent fail rate, what’s the success rate for divesting companies? If AT&T sells DirecTV now is that the peak of absurdity? It’s not that I’m defending the deal as a sunk cost, but if an activist investor forces you to sell, you’re much less likely to get a good price. Then it’s even more likely that AT&T loses money on the purchase.
The part where I really agree with the activists is around strategy. Or lack thereof. The fact that AT&T is trying to lure customers into an “ecosystem” with content as a bair isn’t a great strategy, if the media portion is losing money to do so. Really the difference between AT&T and Apple/Amazon is that the latter two have cash minting businesses that prop up huge stock valuations. Which may make all the difference.
Bonus Activist Shareholder Update – Sony Too
Sony is under the same pressures from activist shareholders, without quite the same news coverage. On the one hand, Sony doesn’t seem to want to sell, but on the other,
Other Contenders for Most Important Story – Frontlines of the Streaming Wars
All the “other contenders” for most important story seemed to fit into a theme: “the streaming wars”.
The New Combatants
BET launched a streaming platform backed by Tyler Perry. And unlike some other alleged top creators, his track record really does hold up. Yet…
…I kinda hate it.
This is the type of strategy I really hoped SuperCBS/Viacom wouldn’t pursue. If customers are fatigued by subscriptions, launching each channel as its own business unit will only exacerbate that, even if the channel does have a clear customer target set.
Instead, I’d prefer what NBC is doing, despite questions that linger about the pricing and the name. Imagine this Disney interface…
But instead of Disney, it says “Must See TV”. Instead of Marvel, it says, “SNL”. Instead of Star Wars, it says Bravo and instead of Pixar it says “USA”. And put Syfy on the end. And some big Universal films below. Yeah, those “brands” aren’t as big as any Disney brand. But they also aren’t meaningless either. (Yes, I debated photoshopping this, but didn’t have the time.)
Heck, if you added a layer below with MSNBC, Dreamworks and sports, the NBC streaming platform, er, “Peacock”, would be better than Netflix. And that’s a coherent offering with a good interface.
I could make the same argument for Viacom, bucketing Paramount, Comedy Central, MTV and BET, it’s just that I don’t think they’re doing that or even would hold their content for a streaming service like that. Because they want to be a “content arms dealer”. Now, would the Viacom service be viable? Maybe. It would be third behind Disney and NBC, and maybe fourth behind Netflix. But it stands a better chance than BET on its own.
The only hope is that the plans for the BET streamer were well under way before the merger closed. And they’ll change their mind shortly. But I kinda doubt it.
The Devices
Two device launches could impact the streaming war. And we tend to forget devices as we evaluate the streaming wars. First, Facebook is launching Portal TV, and I’m fairly negative on this project overall. Because I’ve heard Facebook has some privacy concerns and so did everyone in America. We all remember those, right? More importantly, they just don’t have the device experience to provide a good user experience.
Comcast announced they’re lowering their prices for their Roku-like box, Xfinity Flex, and this is a move I would monitor. They should be giving this away, as others have proposed. (I believe the TV Answerman has pounded this drum, but I couldn’t find a Tweet to link to.) This, combined with Apple’s price cut and Facebook’s aforementioned announcement, sent Roku’s stock price down, though I remain bullish on that latter company.
The Content
Quick hits on the content news.
– JJ Abrams’ deal officially closed with rumors going from $250 million to $500 with backend. Backend in today’s streaming world? That is impressive. (If anyone has the term sheet, I’d love to do a deep dive on it.)
– The rights to Seinfeld went to Netflix, and now the entire streaming wars are upside down. The bulls said losing Friends wouldn’t hurt Netflix, but then why did they need Seinfeld? The bears said Netflix was losing valuable library catalogue, but now they have Seinfeld? Meanwhile, few people actually know the terms, and this is another deal I’d love to see.
– Meanwhile, the next library catalogue is up for negotiation. This time Dick Wolf and his huge catalogue, though my money is on NBC-Universal, er “Peacock”.
The Inanity
Tinder–the dating app if you’re being polite; the hookup app if you’re not–has joined MailChimp in the line of companies you can’t believe are launching original content. Peak TV baby!
Lots of News with No News
The Apple/Disney merger talks/Bob Iger leaving the Apple Board.
I haven’t decided if I’ll read the Vanity Fair piece, but it seemed like everyone hopped on the same sentence. Yes Apple discussed thinking about buying Disney back in the day. We knew that, didn’t we? And sure, if Disney and Apple are aggressively competing/partnering, Bob Iger had to leave the board.
The End of MoviePass?
While this blew up Twitter, Dealbook rightfully put it at the very bottom of their newsletter. MoviePass is finally (for now) dead. Because honestly, wasn’t this already dead? (My thoughts on MoviePass at TV Rev here and the lessons for subscriptions here.)
Management Advice – “Why Positive Cash Flow Matters” by AVC
Companies–and even business units–that are cash flow positive are better than companies and business units that lose money. This is a good read on that. Though, just saying it seems obvious, right? Companies should try to make money. As a society, we may have to relearn that lesson.
