Last week gave me “gut thinking” whiplash. What started as a brilliant strategic move one day turned into a muddled mess by the next. Let’s explain why Comcast’s decision to split its feature film rights between Peacock and Prime Video is such a confusing move.
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Most Important Story of the Week – NBCUniversal Tries to Split Its Theatrical Film Baby
At first, I read this headline…
…and thought, “What a win for the streamer Peacock! They finally convinced their owner (Comcast) to give them potentially NBC’s best asset, Universal films, in the Pay 1 window! Fast and Furious films! Jurassic Park sequels! Minions, Minions and more Minions!”
But then…
Universal’s feature films (meaning films produced and intended for theaters) were the last big “wild card” in the film windowing landscape. Disney’s films go to Disney+/Hulu. Warner Bros. films go to HBO Max. Netflix bought Sony’s Pay 1 film rights and Lionsgate’s films are headed to Starz. Paramount films are heading to Paramount+/Epix. (And Netflix/Amazon Originals go to Netflix and Prime Video, obviously.) That left Universal with the most valuable film slate left on the market.
Universal/Comcast faced a tough decision: sell these highly valued films to the highest bidder, or keep them for Peacock? Peacock/NBCUniversal/Comcast didn’t quite punt entirely on making a good decision, but they definitely split the baby, a la King Solomon. Universal decided to have their films run on Peacock for four months, then head to Prime Video/IMDb TV for 10 months, and finish on Peacock for four months.
So who wins, who loses, and what don’t we know in this complicated deal? Let’s explore.
Winners
Prime Video
The logic here is simple: These were the last major Pay 1 films on the market, and Prime Video cornered them. Licensing theatrical films has been good business for Prime Video, as all their top film titles are titles they purchased from Paramount in the pandemic (Coming 2 America, Without Remorse, and The Tomorrow War). While artistic fare like Late Night and Manchester by the Sea may generate buzz, theatrical tentpoles bring eyeballs.
Did Prime Video probably overpay? Yes. But given that these were the last truly valuable theatrical Pay-1 films on the market, they probably didn’t overpay by much. They also lumped in IMDb TV to get some Universal library titles as well. Others value that deal more highly than I do, but arguably, that’s a win.
Fun bonus point: Prime Video also used to license Epix films in a “white label” deal for streaming. Epix is owned by MGM, which is being acquired by Amazon. But in February, Paramount swooped in to change its Epix deal, giving it more flexibility to stream its films on Paramount+ before Epix, much like Universal’s deal. Further, Paramount+ will get Epix’s licensed white label films. That only increased the need for Prime Video to get some better films in their library. (And who knows what happens to Epix/Paramount films if/when the MGM-Amazon merger closes.)
Peacock
They aren’t the winningest winner, to mangle English for a moment. But the alternative to splitting the baby was selling the rights completely to another service. That would have been a huge mistake and would have given away one of the key selling points for Peacock. Moreover, Peacock kept the most valuable part of the window, the first four months.
Universal
Of the big studios, Universal usually competes with Disney and Warner Bros. for the top spot in the box office charts. And this deal—rumored at 10 figures—looks to be the most expensive Pay 1 film deal. Meaning, if you don’t care about subscriber numbers and stock price benefits, Universal is probably extracting the most revenue per film of any licensing deal.
Blockbusters and Broad Tentpoles
Netflix and Prime Video have been making original films for years now. More than half a decade. And since both started small, some analysts went so far as to say that maybe these streamers didn’t need blockbusters. That small, cheaper fare was actually more valuable than big blockbusters.
And yet, clearly both Netflix and Prime Video saw that they need tentpole, theatrically-released films. Otherwise, how do you explain the Sony and now Prime Video deals for Pay 1 films? You can also see this in the original productions of the streamers too, which are trending toward bigger budgets. It turns out, in film, bigger may be better. (This has always been the case, but a lot of the streaming wars is about relearning the same lessons in entertainment.)
Losers
Comcast
Not to sound like the Wall Street analysts who love subscribers at all costs—dubbed the “CLV Mafia”—but my gut says, in this case, that whatever amount of cash Prime Video offered, it doesn’t make up for the potential windfall for Comcast in terms of subscribers. In the current landscape of “subscribers mean everything”, building up Peacock means more than even a billion dollar Pay 1 deal. (Especially for a young service.)
Worse, this shows a lack of strategy for Comcast when it comes to Peacock. Look back at their investor presentation. You came away from it thinking that Universal films would be a pillar of their service. (Along with live sports and news, which I praised at the time and recently.) Yet, instead of leveraging their most valuable filmed product for a solid 18 months, Universal is giving them exclusively to Amazon. And that last line is what’s crazy: Universal could have sold non-exclusive access to Prime Video, but they aren’t. Films will pop on Peacock for four months and then leave. That’s way too short no matter the dollar amount.
HBO/HBO Max
For all the focus on HBO’s original series, the premium channel exists because of feature films. It’s “Home Box Office” for a reason. For the last decade or so, that was propped up by Warner Bros, Universal and Fox films. (Three of the top four studios in the last decade arguably.) Now, two of those three studios have left HBO.
I’d go even further. HBO Max is aggressively trying to grab the third place spot in the U.S. streaming wars from Prime Video. When it comes to actual subscribers, they probably have it. When it comes to usage, it’s complicated, but it’s close. Even if Warner Bros. (and either AT&T/Discovery depending on who is calling the shots) didn’t want to pay billions for Pay-1 rights, keeping Universal’s films off Prime Video would have helped them in the fight for third.
Some Lingering Questions
Do Streaming Economics Make Sense?
In other words, is the streaming spending binge sustainable?
I bring this up because of Universal’s decision. Clearly, they looked at the amount of revenue a thriving Peacock could generate with Tier 1 movies—and trust me, Comcast executives understand CLV—and they looked at Prime Video’s pay check and said, “Let’s do that.” In other words, the finance guys at Universal/Comcast see a different financial world than the finance guys at Netflix/Prime Video.
I really can’t get over this, especially the Comcast-to-Netflix situations. How can two different companies come to such different financial conclusions?
My take? It’s all about whether streaming is losing money right now because it is investing in the future, or if it is losing money because it’s a price war/land grab. If it’s the former, Comcast messed up. If it’s the latter, a market correction for streamers is due.
(Not convinced? Think of it like this: would Netflix pay Netflix a billion dollars a year for Pay 1 rights for its own films? Even exclusive, straight-to-streaming? Not remotely. What does that tell you about the marketplace?)
Will This Move Confuse Customers? Does It Matter?
The other notable feature of Peacock’s sliced-and-diced approach to windowing is potential customer confusion. Say a customer sees the new Jurassic World arrive on Peacock. They save it to watch later. Then, two months later, it’s gone, but now it pops up on Prime. Is that confusing?
Maybe, but maybe not. Besides Marvel/Disney/Star Wars, most studios lack any brand recognition. As industry insiders, we feel like we know, but even then, you’d be surprised how many folks in the industry can’t tell you who produced, distributed or owns what. If industry pros don’t know, then customers are even less informed.
For now. Paramount+ in particular is trying to revive their brand. Universal could push the same benefit, and Universal Studios theme parks help. There is a risk here, but not one I’m confident in.
Other Contenders for Most Important Story
HBO Max Launched Internationally in Latin America
HBO as a brand already had strong in-roads into most of Latin America thus, this is a smart extension of their brand. Of course, the streaming wars south of the U.S. border are as fierce as those north of it—that’s why Univision is merging with Televisa—so it’s not like this is unknown territory. Further, HBO was limited in its European ambitions by a lot of preexisting deals/relationships. It will be interesting to see how the LATAM launches impact their subscriber numbers for the end of Q2.
Bonus: HBO Max’s Gossip Girl reboot will end up on the BBC in the UK. Given how much of the streaming wars is about repurposing BBC content in the U.S., this is a fun reversal. And is an example of how complicated it will be to actually launch HBO Max in many countries around the globe.
ViacomCBS Rolls Up Global Under U.S. Leadership
When executive leadership changes happen, I tend to ignore the specific executive moves. But I do look for the underlying strategy. In this case, ViacomCBS is centralizing Paramount+ decision-making in the U.S. Overall, this makes sense, given that the service is new, and presumably, the executives can focus on longer term decisions. However, the risk is that the U.S. executives won’t understand the global landscape. Still, given Paramount+’s lack of focus, this seems like the smarter short term move.
Peacock Launches on Fire TV
Maybe one of the reasons why Peacock has such anemic subscriber numbers—below 10 million in one report, around 3 million in another—is because of their absence on Fire TV devices. Interestingly, this news was followed by news of Universal’s Pay 1 deal with Prime Video, and you have to wonder how tightly those negotiations were linked up.
Two Big Showrunner Extensions
Right now, Hollywood’s favorite topic is, “Is the sky falling?” After that, it’s debating with glee which showrunner is winning the battle over at Netflix. Essentially, Bridgerton is huge, while Ryan Murphy is prolific. In other words, it’s probably Shonda Rhimes by a big margin. Also, this week, Netflix announced an extension to her overall deal. With potentially huge bonuses involved.
In similar news, arguably the two biggest showrunners at ViacomCBS—the Kings of The Good Wife/Good Fight fame—have re-upped their smaller deal. Though at a far smaller figure.
COVID-19 Update/Lots of News with No News? – Cannes is back
A parade of headlines from a film festival in southern France, with pickups, movie reviews and actors touting their latest film? Nothing is more “lots of news with no news” than that. (Again, “lots of news with no news” is my category for buzzy stories that don’t really impact the business of entertainment.)
But am I wrong? For this specific year? Given that Cannes was virtual last year, maybe this is a sign of normality. And I’d say, yes. This is some news. For all the talk that “movies are dead”, when it comes to making, buying, selling, and hyping them, this is a return to normal.
Fine, you want a real story with no news…
M&A Updates/Lots of News with No News – The Sun Valley Media Confab
A bunch of super wealthy CEOs enter a bar in Idaho…
That’s all I got. Every year, Sun Valley, Idaho is inundated with media, tech and entertainment billionaires for a conference put on by Allen & Company. Lots of folks speculated that the deals that will make or break the entertainment industry are currently being negotiated. For all the headlines, I’m not sure I saw any actual news.
