All posts by EntertainmentStrategyGuy

Former strategy and business development guy at a major streaming company. But I like writing more than sending email, so I launched this website to share what I know.

Has Netflix Lost Ground Since the Pandemic? Using Reelgood’s Share of Streaming Data to Find Out – Visual of the Week

Yesterday, I speculated that Netflix had a weak summer for content, and until the end of December, this may have caused it’s usage to slip. This was driven by the Nielsen weekly data, which hit a peak in March, and then in the middle of November. Yet, I can’t show that since I don’t actually have Netflix’s monthly usage data.

But other firm’s data can act as a proxy. Like Reelgood, a company that helps users find their favorite shows and films. (In full disclosure, Reelgood provides me their data on a regular basis and I am friendly with this firm.) Two of their charts in particular stuck out to me, both in their “quarterly streaming” reports. What I did was combine them into one. And voila, my visual of the week:

IMAGE 2 - Usage by Streamer

And here it is in table form:

IMAGE 3 - Table

Some quick thoughts/insights:

– Reelgood claims 2 million users, but doesn’t clarify the demographic break down of those users. (It’s a question on my to do list to ask.) So that could skew these results. Though by no mean does it skew them enough that I won’t use their data.

– Also, given how their platform operates, I wouldn’t be surprised if it skews “adults” since kids more often just turn on a given streamer and watch the same shows. So this probably doesn’t capture all usage.

– That said, their usage for Netflix is within the margin of error for Nielsen’s Q2 results, which had it at 34%. Comscore has shown similar numbers too.

– As such, that decline feels bad! Or to use biz jargon “sub-optimal”. I don’t think Netflix is really achieving the same usage as Prime Video, but clearly they didn’t gain in Q3 and Q4 usage.

– Disney being flat with The Mandalorian is also a sign that they need a stream of hits to drive usage up across the board. 

– This is also another data point that the Wonder Woman 1984 experiment worked to drive usage up. 

Did Netflix Have a Strong Q4 For Content? And Other Thoughts Before Netflix’s Earnings Report

This year marks a pretty significant upgrade in the amount of data we have available about streamers. At the start of the year, we had to rely on Netflix to tell us during the quarterly earnings (or selectively on Twitter) how well their content is doing. Since then we’ve added regular Nielsen reports, Netflix’s daily top ten lists, and multiple different analytics companies selectively releasing data points for us to chew over. 

With all that data, we can begin to analyze how well each streaming company is doing in any given quarter. If you believe, like I do, that…

Popular content —> Higher Usage —> Higher retention —> Higher subscriber totals

…then this seems like pretty valuable information. And this is the first earnings report (Netflix publishes their Q4 2020 report tomorrow) where we can really unpack all that data.

Initially, I had hoped to make some quantitative predictions about Q4 2020 compared to past years and quarters. But frankly I don’t have enough information to do that confidently. (We’re firmly in small sample size territory.) What I can do is provide a quick look at Netflix’s Q4 content. Then we can try to do what analysis we can, and make some inferences. 

What Does Nielsen Say?

Nielsen’s data has been the most useful new data source we have this year. Specifically, because it shows the volume of consumption for a given show, week by week. 

The limitations are time frame and the total minutes viewed. Nielsen has only been providing a public top ten list since August. They provided me with data back to April—and I found three data points in March—but that still only provides us three quarters of data. Thus, we can’t compare to Q4 of last year. 

Further, since the top ten list only has ten spots, we don’t get a full picture of Netflix’s original films and series. In particular, since Nielsen measures at the series level, some licensed titles are overrepresented. For example, four shows have made up a huge portion of Netflix’s viewing and three of them make the top ten list every week. Meaning, at most this is a top seven list for new Netflix shows/films, at best. Usually less.

With that in mind, how does the picture look for Q4, given that we are missing two potentially big weeks of data (the last of the year)?

IMAGE 1 By Week

I tried to play around with this data in a lot of different ways to show the average by month and quarter, but given that Nielsen starts at different times of the month, it made March—the crucial month—look funky. Here’s the average per week by quarter:

IMAGE 2 - By Quarter

So if we use Nielsen data, that means that Netflix is having a better quarter than Q3, but still dragging way behind the end of Q1/start of Q2 peak. I can’t stress how good Netflix’s March in the US was with Spenser Confidential to start, Tiger King on 20-March and Ozark on 27-March. Remember, Ozark would be the most watched original in Netflix for the whole of 2020. Compared to that, though, November was good for Netflix. Both The Crown and Queen’s Gambit simultaneously did well.

Is viewership of the top ten correlated with viewership of the platform as a whole? In my experience, absolutely. Though I can’t quantitatively prove it here.

What Does Netflix’ Datecdotes Say?

As a reminder, these are…

The total number of subscribers who watched 2 minutes in the first 28 days, globally.

Fortunately, since changing from “who watched 70%” in Q4 of 2019, Netflix has stayed consistent on using this metric. Thus, by my measure, Netflix has released 66 datecdotes from Q4 2019 to Q3 2020. Notably the number of datecdotes are increasing every quarter:

IMAGE 4 - Netflxi Datecdotes

Using this metric, how did Netflix do? Let’s start with film. The challenge is that there are so many different ways to cut the data. So here’s Netflix’s films that netted over 38 million subscribers globally over time:

IMAGE 5 - Netflix Films

You can see a few of the problems with this data. To start, we can’t use it to predict Q4’s performance since Netflix has only released one movie data point for Q4 so far. Further, it’s noisy and it’s not clear it’s correlated with adding subscribers. For example, Q3 had a number of 70 million plus viewed films, but it didn’t help Netflix grow subs in Q3.

This is also a “tale of two data measurements” problem. If films are measured simply in total numbers, Netflix is growing each quarter. Measured by the percentage of folks tuning in, it’s shrinking. 

Let’s switch over to TV. In this case, Netflix has released three datecdotes so far, and the picture looks slightly better:

IMAGE 6 - Netflix TV Datecdotes

In both cases, though, the big performance of The Queen’s Gambit and Bridgerton will likely pull up the content performance of this quarter. The Crown did very well in Nielsen’s rankings so it could pull up the average as well.

How Do the Q4’s Compare Over the Years?

Interestingly, Netflix has tended towards a similar release strategy the last few years: release a big Christmas film in the middle of November, release the awards bait at the same time, release a big movie to close out the year and a big TV show as well. Here’s the last 3 Q4 release plans:

IMAGE 7 - Last 3 Q4

So can we learn anything here? I’d say not really, until we learn the rest of the Netflix datecdotes to round out 2020.

What Datecdotes Could We Learn Tomorrow? 

As you can see, we don’t have the data points for this quarter. (Which I just mentioned above!) We only have four, and they’re lagging their analogues from previous quarters.

Looking at the films that made the Nielsen Top Ten, we can see the trend with the films Netflix has provided a datecdote. 

IMAGE 8 - Table of FIlm Nielsen

Looking at this, we can say fairly reasonably that Hubie Halloween and Christmas Chronicles 2 will likely get the “datecdote” treatment this quarter. Hillbilly Elegy would be a good bet too. A California Christmas is on the border line.

However, with Nielsen’s data, this doesn’t have to limit us as much as the past. Specifically, we can also have a range for what we think Netflix’s datecdotes will be. Let’s be clear, this isn’t the most complex data analysis in the world. I’m basically making a scatter plot and having Excel draw the line through it for me. Still, the correlation is fairly tight (.85):IMAGE 9 - Correlation tableIn other words, I’m guessing that we’ll hear data points about Hubie Halloween at around 74 million viewers, with The Christmas Chronicles 2 potentially well above that (92 million). Hillbilly Elegy would be around 50 million viewers. Here’s the ranges:

IMAGE 10 - Forecast

With this, we could update the Q4 comparison above to see the potential growth in total viewers:

IMAGE 11 - Comparing Q4

As for the TV side, forecasting there is a mess, because of different seasons. The most likely datecdotes for Q4 are The Haunting of Bly Manor, Virgin River, and The Crown. The Office could be a wildcard flex by Netflix as it leaves. Emily In Paris and Selena are less likely but possible.

Add It All Up: What Do We Have?

Since Netflix dropped Bird Box’s rating on us in Q4 of 2018–what I’m calling the “Netflix Measurement Era”–here’s my quick take on how well Netflix has added subscribers, along with some of the biggest content per quarter:

IMAGE 12 - Table with Subs

Looking at that table and focusing on 2020, I’d spin this story:

Netflix started off the year 2020 strong with The Witcher being one of the most popular series around the globe. (It was released in the last week of 2019.) Then, when people entered lock-down for Covid-19, Netflix also happened to have some of it’s most popular content of the year at the same time, Money Heist (3-Apr), Ozark (27-Mar) and Tiger King (20-March). This led to big subscriber growth after the first quarter and into the second. However, Q3 didn’t have any breakout hits to drive significant new subscriber growth.

Indeed, this weak slate in Q3 led to the smallest US growth since Q2 of 2019, the smallest global subscriber growth 1.1% of the last two years, and missing the estimate.

So looking at the data from today, does Q4 return to Q1 levels, or merely hold steady? 

I’d guess hold steady. 

Subscriber growth isn’t solely driven by content. The Covid-19 lock down definitely drove growth and price increases (like this last quarter’s in the US) can also slow it down. That could be as much the story of Q1 and Q2 as anything else. (Q2 in particular felt light for content after March.)

Looking at the Nielsen data, the datecdotes so far, I’d say Netflix is definitely having a better quarter than Q2 and Q3, simply because Q4 was trending upwards and Bridgerton/The Midnight Sky will likely finish very strong for Netflix. 

That said, this doesn’t look like Q1’s big subscriber growth, does it? The March slate for Netflix happened to come right when folks were binging like crazy. A perfect storm of good content for the right time. 

What the Democratic Wins in the Senate Mean for Hollywood – Most Important Story of the Week – 15 Jan 21

Well, living through the last two weeks of news has shown that the pace of news in 2021 isn’t slowing down. The most notable story for entertainment–though it was pushed off the front page within 24 hours–has to be the Democratic Senate wins in Georgia last Tuesday. This week we’re seeing the ramifications of it in policy. So let’s make it the…

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Most Important Story of the Week – What the Georgia Election Could Mean for Hollywood

(A caveat before I start: this section is not trying to explain what should or shouldn’t happen in a Biden administration from a political standpoint. Meaning, I’m not advocating for or against any given policy, but merely trying to sketch out what could happen. So you can be prepared for what may come next. Whether you agree with those policies is up to you.)

To start, President-Elect Biden winning in November was itself a defining moment in the course of American history. I don’t subscribe to the school of thought that both parties are identical. They clearly have different perspectives on everything from regulation to taxes to unions. Switching out one party for another has a big impact on the conduct of business. When Biden won the presidency, that meant things would change.

However, if you’ve followed US politics for the last twelve or so years, it is clear that if a President’s party doesn’t have control over both chambers of Congress, then they can’t get much done. Given that control of the US Senate ended up in a stalemate in November, the question of how much Joe Biden could change was left open.

Then the Democrats took control of the Senate last Tuesday. And, frankly, now the potential impacts are even bigger. Lots of things that could be contested no longer are, including cabinet, judicial and regulatory appointments. Essentially, all the jobs required to run the executive and judiciary. And some things that weren’t possible now are. Like passing bills through budget reconciliation, which only requires a bare majority in the Senate. Democrats control the agenda in both legislative chambers. That itself is meaningful.

We’re already seeing the unleashing of Biden this week. For example:

– Biden appointed Gary Gensler as SEC chairman. Gensler is fairly progressive and was a tough regulator in the Obama administration. In a Republican controlled Senate, he may not have gotten approved. Now he will sail through.

– Biden announced a huge new stimulus bill. Specifically, $1.9 billion in additional stimulus. This will be targeted for both Covid-19 and just economic recovery. In a Republican controlled Senate, this bill would be dead on arrival.

So what happens to Hollywood in this environment? Is it good? Bad? Or somewhere in between?

Probably somewhere in between. And that starts with the idea that “Hollywood” is now fairly amorphous. In Los Angeles specifically, actors, celebrities and Hollywood power brokers love to host fundraising parties for big politicians. As a result, they have Democrat’s ears on a lot of issues. 

Do their corporate leaders? Maybe. A few years back Hollywood tried to pass a suite of content protection legislation and Silicon Valley basically shot it down. So Hollywood influence isn’t without limits. And while Silicon Valley–which is now entwined with Hollywood–used to curry the same favor, they’re now enemy number one. 

In all, we’ll have to see. A lot of positions remain unfilled in Biden’s team, and some of those decisions could definitely impact Hollywood for good or ill. But here are some ways that a unified Congress/Presidency could help or hurt Hollywood:

Economic Recovery. 

This is the biggest area. If Senator Mitch McConnell controlled the Senate, likely there would be no additional stimulus to the U.S. economy. Or it would have to be heavily negotiated and come nowhere near the price tags Biden wants. Given the general economic consensus that we need to drive to full-employment, and that means stimulus, this is good news for Hollywood. (In general, good economies are better than bad, though entertainment is somewhat recession proof.)

Covid-19 Recovery. 

Responding to the virus is as important as repairing the economy. Winning control of the Senate likely won’t have as big an impact on this as simply taking over the Presidency. That said, if the Biden administration really does approve an extra $400 billion to fight the virus, that will supercharge efforts at vaccine distribution. (I’d toss in that even if America gets to 100% vaccination, the rest of the world will lag, and a true recovery will need to be global.)

Targeted Aid to Theaters. 

The last stimulus contained some aid for independent theaters and concerts, but notably only smaller venues. Under intense lobbying, I could see bigger theater chains convincing lawmakers they need help as well. Again, good news for Hollywood in general.

Antitrust (Big Tech)

I’ve written about this a few times. So read those articles to get a flavor for how I think renewed antitrust could impact Hollywood. As for how the Senate changes this, it means that if Biden considers corporate consolidation a problem, he can appoint folks to the DoJ, FTC and FCC who take it much more seriously. If you are traditional Hollywood, part of you would love to see the big Tech Titans taken down a peg!

Antitrust (Old Hollywood)

But what if they come for the rest of the industries? There are hardly any two industries more reviled by customers than cable or cellular phones. Or more consolidated. The biggest risk for very consolidated industries is that antitrust fever spreads from the Big Tech Titans to cable, cellular and entertainment companies broadly. We still need to hear about the specific appointments before we make a judgement call. Depending on which company you are (the big or the small) this could be good or bad.

FCC regulation

This is another wildcard area. There aren’t a lot of hot button policy issues that Democrats want to pursue, though net neutrality is one. The FCC also can regulate the size and consolidation of media companies, which relates to antitrust above. Make this a wildcard for now.

Unions

Labor power has ebbed over the last few decades in America. Entertainment is one of the few industries remaining with strong unions for its members. Biden has said he’s going to be the most “pro-union” president America has seen. If he’s successful, and his pick Marty Walsh can follow through as Secretary of Labor, this could be good for below-the-line and above-the-line talent in Hollywood. It would be bad for companies, since profit margins could be squeezed. A Democratic controlled Congress could also help by passing labor-friendly laws. That said, of all the areas I’ve discussed, this the one I’m most skeptical of. I’ll believe unions are making a comeback when they start to make a comeback.

Other Contenders for Most Important Story

Two weeks into 2021 and we’ve seen a new streamer launched, a new one announced and an old one shutting down. That’s right, a lot of other stories to get to.

AT&T is Shutting Down AT&T Now

In AT&T’s quest to confuse customers, it rebranded DirecTV Now a few years back as AT&T Now, while then launching a product called AT&T TV. DirecTV Now was one of the first vMVPD (digital cable bundle) to run the “start at a cheap price that rises dramatically” playbook. And it was punished the most harshly for this bait and switch. (Youtube TV and Hulu Live TV seemed to avoid quite as severe cord cutting.) Now, AT&T is shutting down AT&T Now.

Overall, the vMVPD market is fascinating. Customers desperately want cheap cable bundles. So they sign up for them in droves. When they go up in price, they drop them in droves. So bundles are good; expensive bundles are not.

Univision Launches a Streamer

It’s about time!

While there are Spanish language streamers out there, there doesn’t seem to be one that dominates the market. (This is an area I’d love to research more.) Netflix obviously has lots of Spanish language content. And Peacock incorporates Telemundo into its offering. And there are smaller services that most English speakers haven’t heard of. But no one has dominated this market yet.

Which makes Univision’s new streamer a fascinating entrant and potential disruptor. One of my theories is that local content can rival Netflix if it is targeted to the local situation. Univision is about to test that thesis. Can they offer a more authentic experience to a targeted demographic than a service trying to be everything to everyone? We’ll see.

Netflix Announces a Big 2021 Film Slate

The widely repeated headline is that Netflix is planning to release a new film every weekend for 2021. Not to be that guy, but didn’t they already do this?

By my count, they’ve released more than a hundred films in 2019 and 2020. And nearly 100 in 2018. That’s why I made charts like these…

Screen Shot 2021-01-15 at 1.48.03 PM

Of course, many of those films were documentaries or in other languages. So sure, maybe this is a change. 

The challenge for Netflix’s film group, which I’ll write about more next week, is that for all the quantity Netflix has not delivered the quality. So looking at this slate, I can’t tell you if this new 2021 slate will dramatically improve Netflix’s fortunes or not. We’ll have to see.

Disneyland Cancels Annual Passes

Lastly, Disney announced that they are cancelling annual passports for Disneyland, and this news shocked me. These have been an institution for decades in southern California. So is this a good sign or a bad sign for their finances? Probably a good one.

A few things likely influenced Disney. First, the price tags are getting so high that the value proposition for an annual pass is no longer there. If you aren’t making customers happy, then it probably shouldn’t continue. (Not to mention actively antagonizing them with big price increases.) Second, with variable pricing, Disney thinks they can keep the parks at full capacity, and maximize the profits of a given day. If Southern California residents want to go for cheap, they can go in off-peak times of year.

Lastly, this may be some indication Disney sees upside in attendance this year, whenever parks reopen. Because there might be lots and lots of pent up demand. In other words, Disney may not need annual passports to keep parks at capacity.

Data of the Week – Nielsen in Growth of OTT Usage

Here’s a fascinating tidbit in Nielsen’s 2020 annual report on streaming:

Nielsen Usage - Growth by 3% in raw

Wouldn’t you have thought it was higher? I mean, the narrative in March was that everyone was streaming all the time now. But while viewership of TV went way up, streaming “only” took 3% of the usage. 

By the way, if you want my take on Nielsen’s annual list, see this thread:

The Christmas Chronicles Was Netflix’s Most Watched Film in the US in 2020 and Other Data Thoughts from “Who Won December”

December was a big battle in the streaming wars. The Christmas Day/end of year is becoming increasingly important to the streamers since it is the last time to grab subscribers before annual reporting. This is why the latest installment of my “Who Won the Month” series at Decider may be the most important one of 2020. 

So check it out!

To keep that article flowing, I ended up cutting a few insights/thoughts from that article that still felt good enough to share. Consider this the “DVD extras” addendum to that great piece. (Seriously, read it before you continue.) 

Other Contenders That I Didn’t Mention

The biggest drawback to a word count is having to cut a few shows from contention. Last month that mainly meant some shows from the smaller streamers. CBS All-Access released their latest Stephen King thriller The Stand. (It had a peak of 9 on Google Trends.) The challenge is a word like “stand” is fairly generic, so it just may not be picked up in the Google Trends data. However, on IMDb, its ratings are 6,600, so likely it isn’t really catching on. Showtime released Your Honor, but it didn’t really budge the popularity needle.

Apple TV+ focused on kids in the holidays, airing both A Charlie Brown Christmas and Wolfwalkers. Again, I didn’t really see the Wolfwalkers trending. (Charlie Brown is too generic.)

Caveats to IMDb Data

For the first time, I compared shows using IMDb ratings data. I both want to explain how and why I used this data source and also some other insights into last month’s results.

The “why” is because I love capturing qualitative feedback on a given show or film in addition to viewership. In particular for TV, this can be somewhat of a leading indicator to forecast if subsequent seasons of a show are going to build momentum or begin to flag. This applies to TV series as well as film franchises. Especially for franchises, actually. A big marketing campaign can result in a strong opening weekend, but if the IMDb ratings are low, then eventually the series will decay in viewership. (See Fantastic Beasts or The Hobbit series for some examples.)

As for how, I tend to use both the rating itself and the number of ratings. The number of ratings is fairly correlated with viewership overall. Thus, if you don’t have viewership itself, IMDb can act as a proxy, like Google Trends. The actual rating itself (the 1-10 numbers) doesn’t account for small but well-liked films and TV series. My approach is to make a scatter plot, and see which films are in the upper right: lots of reviews and high ratings. (If you want to pay for it—and I can’t afford it—IMDb page traffic is also a good proxy.)

Now the caveat: some folks hate using IMDb ratings because online trolls have attacked certain films.

You can see this in Wonder Woman 1984. While it has nearly as many ratings as Soul, its average rating is much, much lower. Which raises the question of whether or not Wonder Woman 1984 is being intentionally dragged by trolls online. And this is the main problem with IMDb data: some folks will intentionally drag down shows for political reasons, which skew the value of this data source. 

But I won’t throw the baby out with the bath water. Because it’s the best publicly available, qualitative data set we have.

Rotten Tomatoes and Metacritic are probably the next two biggest review sites, and their numbers are orders of magnitude smaller than IMDb. The caveat here, of course, is that larger sample sizes of biased data are still biased, meaning that doesn’t justify using IMDb. The problem is that for Rotten Tomatoes and Metacritic, their sample sizes in many cases aren’t big enough to be representative. I’ve considered using Amazon ratings, but in that case some films are available in streaming, but some are available for free and some are available for purchase. This makes ratings not apples-to-apples, and that’s before the fraud problem with Amazon ratings.  

So when I use IMDb data, I tend to accept its shortcomings and use it carefully. To start, I know IMDb tends to skew “genre” in its ratings. This means for shows like The Expanse or Wonder Woman 1984, I’d say the reviews on IMDb are relevant. Since The Expanse has done well on IMDb, that shows some genuine fan interest. For something like Bridgerton, I’m less concerned if its score is weak.

Then, I try to figure out if a given show has been dragged by potential online trolls. When they have—eg The Last Jedi, Black Panther or Captain Marvel—I just wouldn’t use those ratings. Though don’t go overboard: don’t pretend that every poorly rated film is just a victim of online trolls. Some films are bad and fans don’t like them.

For Wonder Woman 1984 specifically, while I haven’t heard of any specific campaigns, on another user review site, Rotten Tomatoes, Wonder Woman 1984 has done better than its IMDb score. This likely indicates there is some intentional downvoting, but even with that it is unlikely Wonder Woman would have been a 8.0 or higher film.

IMAGE 1 - RT vs IMDb for Wonder Woman

A score of an “8” on IMDb tends to separate the merely good from the great. Meanwhile, The Midnight Sky did poorly in both locations. So it may be widely watched, but folks didn’t really love it.

(Also, never use the Tomatometer. That has very little nuance since it simply measures “good vs bad”.)

Did Netflix Have a Good December?

Probably, but not as good as last year. If you just casually read the news, you heard a series of great Netflix reports, and you’d assume they’re crushing it again.

Fortunately, I’ve collected every Netflix datecdote over the last few years and can put those numbers in context. Here’s the last three December releases that we have datecdotes for from Netflix. (These are films released in December. I’ll look at Netflix’s entire Q4 in a future article.)

IMAGE 2 - NFLX Decembers

The best way to describe this is that Netflix’s top film and top TV show released in December both underperformed their peers who launched last year. This looks even worse in context of the growth of the service during that time frame. The key question every quarter is whether Netflix’s content can help propel growth, or merely hold subscriber counts steady. And it seems to me like Netflix held steady in December compared to 2019.

Did Disney Really Win the Month?

For the first time in December, I didn’t just declare The Mandalorian as the winner in December, I also said that Disney won the month compared to Netflix. Essentially, between Soul and The Mandalorian, Netflix didn’t have a blockbuster show that drove the same level of interest.

The counter could be: but what if you added up every new thing Netflix released? Would it pass Disney by sheer volume?

So I looked for any Netflix series that seemed to generate interest and tried to figure that out. However, even after that, Disney was still the winner:

IMAGE 3 - Google Trends Expanded Look

There is a lesson in here about content planning and “return on investment”. Essentially, Disney could match Netflix for interest with only two hit releases. Now, those two may not generate as much time on the platform as Netflix currently has (their usage is much higher), but as for keeping subscribers, Disney may be able to do that more efficiently. I say “may” because it’s not like the two pieces of content Disney made are cheap by any means. (The Mandalorian may be the most expensive show on TV until Lord of the Rings comes out.) That’s its own form of inefficiency.

This also repeats a point I constantly make about the streaming wars: the best shows aren’t a little better than other shows, but multiples better. Thus, you don’t win the streaming wars with singles and doubles, but grand slams. And in July, November and December, Disney hit a grand slam each month. And with much fewer at bats than Netflix. That is an efficient form of content spend.

November Flashback: What Can Nielsen’s Data Tell Us?

The one drawback to my “Who Won the Month” series is that Nielsen data usually isn’t ready by the time I write my initial article. (They perform better near the month they cover, so I try to write them for the last day of the month or so.) This means that we can now look back and see which calls I made in December are either confirmed or refuted by the Nielsen data. 

So let’s hold myself accountable for my calls:

– Was The Mandalorian bigger than The Queen’s Gambit? I said yes, but according to Nielsen it depends how you count. The Queen’s Gambit was able to sustain higher week to week viewing than The Mandalorian, but Mando outpaced in terms of weeks on the Nielsen top ten:

IMAGE 4 - Week by Week Nielsen Ratings

– So The Crown was big? Yeah, that’s what the Nielsen data says. However, this is partly expected because The Crown now has four seasons airing, so that’s a lot of episodes to catch up on. The limitation of Nielsen’s data is we can’t see season level viewership. (That’s right, they give us some data and I just want more!)

– Did I undersell The Christmas Chronicles? Maybe. According to Nielsen’s data through the beginning of April, The Christmas Chronicles 2 had Netflix’s biggest film launch of this year in the United States by minutes viewed through the first two weeks! (36 million hours to Extraction’s 31.6 million hours in the first two weeks.)

– Did Hulu overhype Run? I think so. Hulu went so far as to release a vague press release calling Run its best performing film launch of all time. The problem for my system is that “run” is so vague that it didn’t register on Google Trends. So I said we’d wait for the Nielsen data to make a final call. When Nielsen released its weekly ratings for Thanksgiving weekend, Run didn’t make the cut.

Nielsen 2020.11.23 copy

– What about The Flight Attendant? At first, I was tempted to say that this HBO Max drama underperformed as well, because it didn’t make the Nielsen Top Ten. Then folks on Twitter (helpfully) pointed out that Nielsen isn’t tracking HBO Max yet. So we don’t know. Though, given that they only track services with a significant volume of regular viewers, likely The Flight Attendant wouldn’t have made the Nielsen top ten either.

My Favorite Ratings Tweet of the Quarter

This comes from Michael Mulvihill, who analyzes ratings for Fox Sports:

I would add, while he’s comparing 60 Minutes viewership to The Queen’s Gambit viewing, but that’s US only numbers compared to Netflix’s global viewership.  (Correction: I initially wrote NFL instead of 60 Minutes. As I’m supposed to say, I regret the error.)

Is Streaming Winner Take All? My Question of the Year for 2021

Well, give 2021 credit for trying to catch up with 2020 in terms of monumental new stories. This is absolutely one of the craziest weeks in my lifetime and I assume many of the folks who read. (Though, for historical hindsight, we tend to forget how absolutely chaotic the 1960s were, which featured the assassinations of at least 3 major political leaders. This isn’t to downplay the events of this week, but to emphasize that US democracy is always a fragile creature.)

The holidays tend to be slow for entertainment news, so we can take our time catching up on it. The biggest story–how did the big straight-to-streaming films perform?–I’ll handled over at Decider. In the meantime, let’s get reflective on the year that will be.

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Most Important Question of the Year – Is Streaming a Winner-Take-All Market?

In my first column last year, I said that 2020 would be defined by this question:

“What is the same and what is different between streaming and traditional distribution?”

Little did I know that we’d have a lot of things that were extremely different in 2020, namely a global pandemic that threatened to upend streaming and traditional media. (The biggest hypothesis is still that Covid-19 “changed everything”. I don’t really buy that; flashy world-altering headlines get the clicks but I’m a little skeptical about how much actually changed. We’ll see.)

My 2020 question and the lack of an answer shows a lot of the problem with articles predicting the future. It turns out that’s really hard! That’s why I like the approach of not predicting the future, but figuring out the most important question for the given year. And I have the question that I think 2021 will potentially answer. And if it does answer it, the consequences for entertainment are huge:

Is Streaming Video a “Winner-Take-All” Market?

Specifically, will one firm take a commanding lead? Will they capture a huge portion of the marketplace? Something like 70-90% of the value of the market? Contrariwise, do the streamers split the market—defined by subscribers, revenue, viewership, you name it—roughly evenly? Or does it land somewhere in-between? Say a few big winners with a lot of smaller players fighting for scraps?

Take the United States, which is probably the most mature market. As it stands, we’re in between the extremes of market consolidation. There is one clear dominant streamer, but it has by no means a monopoly on viewing. Specifically, Netflix has roughly 30-35% of the viewership depending who is measuring and when:

Comscore via Hedgeye by Type copy

This year, that number grew a pinch. Long term, that share of streaming viewership is declining. This massive viewership translates into the largest streamer by total subscribers:

chart-us-paid-streaming-subscribers

That said, Netflix got to develop such a dominant position because until 2019, Netflix only had two real rivals, Hulu and Prime Video (CBS All-Access is older than you think, but until recently has felt like a side project for CBS.) Now Disney, HBO and NBC are all-in on streaming. And ViacomCBS is half-in on streaming.

Can those firms catch up to Netflix? Or does Netflix keep growing and outpace its rivals? Can Disney+ catch up with Netflix in total US subscribers? Or Peacock and HBO Max? 

I think 2021 is the year we find out. Not all the services will catch up to Netflix in one year, but we’ll at least find out if this is going to be competitive or not. And that’s huge.

The Ramifications of this Question

To start, Netflix is the biggest beneficiary of the assumption that there will be one winner in streaming. The thesis is that “Netflix will become TV”. Not just a channel, but the whole shebang. That’s a winner-take-all economy. That’s network effects. That’s what has driven the huge valuations of the rest of the FAANGs (Facebook, Apple, Amazon and Google).

If Netflix can’t dominate streaming, then the better analogy is that Netflix is a new “bundle of channels”, much like what Disney, NBC-Universal and Viacom-CBS already were in cable. What has changed is the distribution. If that’s the case, woe to Netflix’s stock price.

This also matters for all the other streamers. They want to be a piece of the streaming pie. If Netflix owns the whole pie outright, then the investments of Amazon, AT&T, Disney and Comcast will utterly fail.

Further, this impacts the device and operating systems of the world, Roku, Amazon, Microsoft, Apple and Sony (the RAMAS if you will). If Netflix is the once and future king, it will have the leverage to negotiate those devices into oblivion. If they aren’t, then all the streamers may lose to the RAMAS’ value capture. (Their fees to sell subscriptions will capture most of the profit margin from the streamers.) 

My Take? Streaming Won’t Consolidate

If you’ve read my website for any amount of time, you can guess how I think this question will be answered. (So fine, I am making a prediction!) While content often performs with “logarithmic distribution of returns”, channels don’t have quite the same variability. (Or the winners can shift over time fairly easily. NBC won the 1990s, CBS won the 2000s; HBO won the 2000s, but Showtime almost caught them until Game of Thrones.) Frankly, this is where I see streaming headed: consumers will have multiple streaming services simultaneously, meaning there will be leaders, but not dominant winners.

Notably, part of this thesis stems from a skepticism on the presence of “network effects” for streaming video. (And the dreaded “flywheel” for Netflix.) For user-generated content, network effects were very, very real. The more users posting videos on one platform, the more viewers used the platform, so the more creators who posted videos on that platform. Hence, Youtube has demand-side increased returns, and it’s winner-take-all. Same for Google in search, Facebook in social, and Amazon more web marketplaces. 

The biggest input for streaming video, though, isn’t user data—which allegedly is Netflix’s driver of their winner-take-all flywheel—but the quality of content. And since the difference between 30 million subscribers and 60 million in data terms doesn’t produce that much better content, network effects in streaming video likely won’t appear. So it won’t be a winner-take-all market.

At least that’s my theory!

I’m not certain and as an analyst I’m willing to be upfront with you, instead of pretending to a level of uncertainty most analysts can’t truly possess. (Is this a bit of shade throwing at some of my entertainment business peers? Sure. Welcome to 2021!) The rest of this year will help me/us figure out if we are/were right or wrong. 

Other Questions That Will Define 2021

Does the live/experiential economy feature a boom?

When a vaccine was announced, I speculated about the upcoming “year of bacchanalia”. Over the break, I was glad to see another pundit take this same stand in Andrew Sullivan. His/my thesis is that once the vaccine begins rolling out in force, we’ll see folks make up for the lost time of 2021 by partying. For entertainment, this means lots of potential revenue. Concerts will see booming attendance, same with music festivals, bars, parties, travel, theme parks. You name it, we celebrate it. Quoting myself:

Customers in 2021. My biggest prediction is that we see a big rebound emotionally/culturally/socially. Take the Roaring 1920s and pack it into one year. Folks throwing big parties. Or holding double birthday parties. Splurging on outdoor concerts and festivals. Big vacations. In other words, 2021 becomes the year of the party. The pent up demand hypothesis.

The challenge will be figuring out if this is happening. If we use full-year numbers, it will be hard to see, since no one knows when we’ll feel safe to party again. It could be by March (if deaths fall quicker than expected) or fall (when we achieve herd immunity). Or somewhere in between. I’ll be looking to use per capita numbers as much as possible to untangle this.

What happens to theaters?

They’ll suffer the same uncertainty as the live economy, with more pronounced scheduling problems. The key date for me is May 7th, when Black Widow premieres. If theaters can be at full capacity in America by then, the entire world looks better. The other question is how firm the theatrical release slate is and how much the studios are willing to spend on marketing. And then whether or not the theaters can make it to May. Lots of question marks.

What happens to the economy?

The entertainment industry isn’t quite as recession proof as folks have made it out before. If wallets are trimmed, some entertainment spending goes with it. Some cheaper forms of entertainment, though, can resist this trend (like theaters) and some limited capacity forms of entertainment can also focus on high-wealth individuals (like concerts, sporting events and some theme parks). 

Thus, in 2021, entertainment folks would rather have a booming economy than a stagnant one. Folks are now openly speculating about a “v-shaped” recovery again, but it remains to be seen if the damage of 2020 can be overcome that easily. (Lots of businesses closed that may never come back, and that damage can take years to overcome.) The solution is lots of stimulus, which it sounds like Biden is considering.

Other Contenders for Most Important Story

If I weren’t speculating about the future of this year, what could have been the story of the week? Glad you asked. 

Roku Acquires Quibi’s Library

Is this a good deal for Roku? Who knows. If I knew the price, I still couldn’t tell you because I don’t know how good these shows are. If the price was very, very low, then maybe. Really, though, this is still a content licensing deal since Quibi didn’t own most of the shows, but was either licensing them or co-producing them with top talent.

Apple TV+’s Bold January Release Schedule

I’m sure if Apple TV+ could have, they would have released a lot of season 2 TV series back in the fall, a year or so after they launched. Instead, a lot of shows got the “Covid-19 pause” and it looks like Apple TV+ is on track for a big January, with Dickinson, Servant, Losing Alice and Palmer releasing each week in January. Also–and this is big–Apple TV+ is moving some shows to a weekly release

The upside is this will keep folks engaged (hopefully) through Q1. So I love that. The downside is a few other big shows still have vague “2021” release dates, like The Morning Show and Foundation. Apple TV+ still has new service growing pains, clearly.

For those keeping track, Disney+,  Apple TV+ and Prime Video have all released some shows weekly. (HBO Max has flip flopped on this point.) At this point we have to ask, who really knows more about release schedules: the rest of the market or Netflix?

Discovery Plus Launched

And it’s here! Discovery+ launched this week, and the reviews are much stronger than I anticipated. Rick Ellis makes the case that Discovery+ will help a lot of folks cut the cord, what I would call the next gen of cord cutters. Dan Rayburn says it is intuitive to use and has a massive library. I’ll be curious when we see the numbers on this one.

I’d also add, the Food Network Kitchen experiment doesn’t seem to be going well, and I wonder how long that standalone service lasts.

Netflix Increases Prices in the UK

This brings the UK in line with US prices (roughly) so it wasn’t unexpected. (The price increase in the US was!) Still, it will be fascinating to see how these latest price hikes fare in the next year with much more competition.

CyberPunk 2077 Security Fraud Case

Read about this interesting case either at Sportico or Matt Levine’s newsletter. Essentially, some folks are suing the makers of CyberPunk 2077 for releasing a game that was so bad it had to be recalled. Of course, some entrepreneurial lawyers will always sue claiming “securities fraud” for almost anything. However, this could set a precedent for digital products that are released and fail to meet their billing.

M&A Updates

Amazon is acquiring another audio platform, podcaster Wondery, to boost its Amazon Music platform. As the article notes, Amazon also owns Audible, which competes with a separate subscription in narrative audio. When a company is so big it’s competing against itself, that’s probably too big, right?

As for the strategy, it’s fine. The biggest harbinger of doom is for Spotify, though. It would be much easier to corner the market on audio if Apple, Google and Amazon weren’t all fighting you for it. (We could also ask, is music streaming winner take all?)

Context Update 

When it comes to regulations, I have my eye on antitrust for 2021. (I should have put that in the other questions above!) I hadn’t really considered unionization, but this could absolutely become an issue for the big tech firms. Like antitrust, this is a regulatory issue where a motivated Biden Presidency could make lots of changes without Congress passing new laws. So keep an eye on Amazon to see if unionization pushes come to them.

Most Important Story of the Week – 22 Dec 20: CAA Settles with the WGA…Who Won?

Last week felt like the “winter finales” of the fall TV business season as we resolved two long simmering dramas in the land of TV. CAA settled with the WGA, bringing one of the last two major agencies into alignment with the WGA’s demands for agents. And HBO and Roku finally settled their long running feud over HBO Max. But which is more important?

While the latter story is certainly buzzier, I genuinely didn’t know if CAA would actually settle with the guild. (HBO Max on Roku felt inevitable.) So it wins the crown for my “story of the week”.

(Housekeeping: Expect my writing to be a little lighter with the Christmas and New Year’s Holidays. This will be my last weekly column until January, though I may have a few smaller articles pop up in the interim.)

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Most Important Story of the Week – CAA Settles with the Writer’s Guild

Right up front, let’s review the key deal terms:

– CAA agrees to phase out “packaging fees” by June 2022
– CAA will limit their ownership in production companies to 20%
– CAA will provide additional disclosures on their financial ownership.

Unlike our other contender for the week (HBO Max v Roku) we know a lot more about the actual terms of this deal. Thus we can talk a bit more confidently about who won or lost this deal.

Pyrrhic Victory Winner: The WGA

Look, the WGA got its major deal points. CAA won’t be able to own a production company, and packaging will go away eventually. The only reason why the WGA isn’t ecstatic with this outcome is they had hoped it would have come two years ago. The WGA wanted to settle with the agencies, moreover, so that they could negotiate a better deal with the studios. But since they couldn’t fight two battles simultaneously, their current agreement with the studios didn’t go as far as some WGA members wanted. 

Though, from the outside, the WGA looks well positioned for the next fight. Which will clearly be against the streamers. In the same way that folks say that Wonder Woman 1984 going to HBO Max helped the Roku deal, Warner Bros sending all their films to HBO Max may have sent a signal to the agents at CAA that they needed to settle with the WGA to protect their joint film interests. 

Loser: The Agencies

If anyone didn’t want the hold out of the last 20 months, it was probably the agents, given that it sunk one major agency’s IPO and then Coronavirus walloped the rest of their business models. Many agencies have had to lay off workers and furlough employees. Yes, Covid-19 caused that, but a concurrent work stand off didn’t help.

The most surprising part of it for me is the packaging piece. Ultimately, the agencies made a fortune off those arrangements. Why settle? My guess is the logic of “10% of something is better than 30% of nothing” ultimately won out. Agents made out like bandits in the packaging process, especially when it comes to lower level talent. Meanwhile, this deal also kicks the legs out of the agencies for their new business model of owning a piece of the content their talent makes. (Which was formerly illegal.) 

No change: The Studios

That’s the other funny outcome of the eventual deal: it doesn’t really seem like anything changed, did it? As many films and TV series as ever were greenlit, ordered and produced, but for the Covid-19 shutdown. Like all things, life/business finds a way. 

Which feels like the right end to this drama. (Though yes WME still hasn’t signed.) In the end, the business models will be tweaked, but talent is talent and the agents are agents, with a power struggle that is always ebbing and flowing, as they battle with studios in another power struggle.

Data of the Week – Nielsen Plans a Holistic Viewership Data for 2024

Nielsen is always updating their measurements, and this year rolled out streaming viewership numbers for public consumption. (A topic I’ve obviously loved, and, in full disclosure, Nielsen has provided me some data.) The news of a few weeks back is that Nieslen is planning to unify traditional linear viewership with streaming metrics. I’m intrigued by how they plan to do this (and how users can splice and dice the results) but this should be a win for any data heads out there. The only draw back? It’s still a long way off. (2022 it will start rolling out and by 2024 it will be their de facto measurement.)

Other Contender for Most Important Story – HBO Max and Roku Settle

The news is that Roku and HBO Max agreed on distribution terms, so HBO Max will replace all HBO apps on Roku devices. Like any deal, both sides had wins and losses. Let’s go by company, with who won what deal terms, and what we still don’t know.

Roku Negotiating Wins

– Roku can own the billing relationship. 

Owning the data? Valuable. Owning the user experience? Very valuable. Owning the customer relationship? The most valuable. Going forward, Roku will still be able to sell HBO Max subscriptions, which is key to the Roku platform business. Their key value add to consumers–besides the device itself/operating system–is to be able to sell bundled billing. While this deal can be a win for both sides (HBO could sell more subscriptions if Roku is pushing it), getting potentially 20% of perpetual monthly subscriptions for one sale is a great price.

HBO Negotiating Wins

– No more HBO period, only Max
– HBO owns the UX
– No free content for the Roku Channel

HBO meanwhile puts an end to the confusing branding proposition that has plagued them this year on another streaming platform. So that’s a win, and on Roku applications–from what I understand–HBO will get to own the customer user experience. Meaning you have to launch an HBO Max application to watch HBO Max content. As I said just above, in some ways, this is better than owning the data. (Though data and user experience are usually linked.) Best of all for HBO, they didn’t sacrifice any content to build Roku’s own streaming business. (Which probably would have been a deal-breaker for me too if I were HBO Max/Warner Media.)

Unclear Winners

– Split on ad-inventory (usually 30%)
– Split on subscription fees (usually 20%)

A lot of this is theoretical simply because we don’t know the results of the biggest point of all: who is getting what revenue? 

If HBO Max negotiated Roku to down to 5% of subscription revenue (unlikely!), that’s a huge win. If Roku kept it at 20% (unlikely!), that’s probably a win for them. Meanwhile, splitting ad-revenue is a big unknown since we still don’t have firm details on HBO Max’s plan. They could go big on advertising, or throw it in the trash heap. It remains to be seen. Since Roku has data on all viewing on their platform–including Netflix!–they have more upside with the ad monetization. There are some rumors that HBO caved on this point, which would also go into the Roku win column then.

Ultimate Verdict?

Both sides claim they’re happy with this deal, and that’s probably true. The biggest loser is probably both companies since this feels like a deal that could have been had in June. A lot of pain was had from May to now, without a lot of gain on either side (is my guess). Ultimately, though, that likely hurt HBO Max’s launch more than it hurt Roku’s sales.

Bonus Point: Antitrust Implications

These two quotes in the Wall Street Journal sum up the future antitrust implications if either Roku or Amazon take over a dominant position in device sales. (Or split the world and subtly cooperate on pricing.)

Screen Shot 2020-12-21 at 9.14.46 AM

Screen Shot 2020-12-21 at 9.15.18 AM

I’m clearly more bullish on a stronger antitrust future than most other business types. (I still read arguments that Amazon isn’t a monopoly and/or dominant player who uses their position to restrict competitors.) But with the deluge of Facebook and Google legal actions, it feels like the antitrust could be the future. And headlines like this won’t help Roku if one day regulators make their way down to video devices. (Dominant market position leading to higher rents being the key phrase.)

Also, this is just another data point that my thesis from last November is coming true.

Other Contenders for Most Important Story

Mind Geek and YouPorn Delete Lots of Their Content

The challenge with user generated content is make sure the users don’t generate bad content. Or frankly immoral, unethical and illegal content. The latest big tech player to deal with this is MindGeek, which owns a plethora of pornography websites. MindGeek had a fairly unscrupulous business model before a story broke that they turned a blind eye to child pornography on their site, including accusations of content piracy, revenge porn, monopolization and illegal content. Thus, Visa, Mastercard and American Express abandoning the website isn’t a huge shock.

Though it does mean something. On the one hand, Mind Geek could end up being a better partner to it’s actual suppliers of pornography, which it has largely ripped off. Interestingly, pornographic talent had been calling for this move for years. It will make it easier for legitimate users to make money. The downside for MindGeek is the value of user-generated content is usually because it is stealing other folks intellectual property. 

This shows the pitfalls of any business relying on user generated content. Even though it was obviously easier to have child pornogrpahy material on a site dedicated to pornogrpahy, many folks pointed out that Facebook, Youtube, Snap Chat, Tik Tok and others potentially have much worse problems with child predators, simply because they are much bigger. Yet, since those companies aren’t ostensibly pornography, they have much more good will. (It’s easy for everyone to pile on YouPorn.) 

All in all, this touches on the much larger political issues involving free speech, Section 230, piracy and countless other political issues. I will repeat a point, though, I’ve hammered Youtube on for years: It baffles me some of the most egregious piracy issues aren’t easier to solve/prosecute. Certain search terms are so clearly designed to lead to illegal content that I don’t know how that’s not actionable.

(For example, in sports. If Reddit users have threads called “Lakers Live Game Stream” it should be clear that’s an illegal stream of the game…right? How is that not actionable? The examples in child pornography are similarly egregious.)

So if it’s so easy to solve, why isn’t it? Money. All the user-generated content companies make billions. And some of that comes from content that skirts the line of legality. It’s better to pretend it doesn’t exist than to solve the piracy/illegality problems. That’s just the facts.

ESPN and SEC Sign $3 Billion Deal

Another huge sports rights deal, this time for the most valuable league in college football. Even during a pandemic, we’re waiting for the next sports rights deal that shows a flattening in growth.

You Won’t Believe How Many DVDs Frozen II Sold Last Year – Physical Disc Sales in the US in 2019/2020: Visual of the Week

Every so often, as I pull data for a given article or to make a point, I come across a database that’s worth exploring further. (Which is why I created the “visual of the week” feature!) For example, in 2018 I stumbled across The-Number’s home entertainment data for the United States. More specifically, the number of physical discs still sold to people in the US. (Both DVDs and Blu-Rays will be called DVDs in this article, but are both “physical discs”n.)

I’ve since used this data for various projects over the last year or so. Once, when I was trying to figure out how many DVDs Game of Thrones sold during the course of its lifetime. (A lot!) I’ve since used it to look at various blockbusters to refine my film finance model. Recently, I’ve been looking at Christmas movies. (Next week!)

This isn’t some esoteric data point, though. In 2020 Covid-19 made home entertainment the only window available. Then, Warner Bros smashed the theatrical window altogether. Thus, importance of this aging technology to film financing couldn’t be more important. We’ve all know we’re trading “physical dollars” for “digital pennies”, but what does that mean in practice, as opposed to slogans? Specifically, what are the numbers that implies?

So that’s the quick topic for the day. As always, the 5Ws of the data:

What – Physical disc sales in US (by unit and total revenue)
What – Top 100 shows or films, by units sold.
Where – In the United States
When – 1-Jan-2010 to 15-Nov-2020
When (time period) – Annually
How (did I get it) – The-Numbers.com
How (is it measured) – Survey of customers and estimated total sales

That resulted in a data set of 821 films across 11 years. Here’s the top line result of the top 20 physical disc sales for 2019 and 2020:

IMAGE 1 - Top 20

(All data in millions of dollars.)

To answer my headline, Frozen II sold 3.6 million physical discs in the United States, leading the pack for any film or TV series this year. Avengers: Endgame won 2019, with 4.8 million sales for $104 million dollars. (And Frozen II could catch Avengers, since they year hasn’t ended and my data set for 2020 only goes through mid-2020.)

Let’s run through some fun insights, though with this dataset:

– People still buy DVDs. Again, even in an age of streaming, when folks could sign up to Disney+, 3 million families in the US alone bought a DVD for Frozen II instead of watching it there.

– DVD sales aren’t films only. TV has always had a spot on the list. Here’s a rough categorization of how film sales looked in the last two years or so:

IMAGE 2 - Categorization

– Yes, that’s right, in the United States with just physical discs, the big studios sold $2.4 billion dollars worth of discs. Yes, studios don’t keep that whole price, but that’s still a lot of extra money for each film. (Say about 40% of the price, or $10 for a film.) And this just physical home entertainment, a shrinking market. Electronic sales are now a much bigger piece of the pie. (That I don’t have similar revenue estimates for…) So each of these films could add about 8-10% more revenue to their total revenue. When this market decays to nothing, that revenue likely goes with it.

– If you’re wondering if box office predicts home entertainment sales, they absolutely do. Box office is about 89% correlated with home entertainment sales. Here’s what that means in practice:

IMAGE 3 - Scatterplot

– Yes, this is a shrinking market. It’s declined by 62% over the last decade. (Since 2020 is in progress, we don’t know how it will ultimately fare yet.) Here’s how the top 100 films fared over the last decade (up through 2019, since we have full data):

IMAGE 4 - Decline by Year

– And yes, this market is also logarithmically distributed. Thousands of films sell less than a million units a year, whereas Avengers: Endgame sold over a $100 million dollars.

IMAGE 5 - Log Scale

How the Antitrust Case Against Facebook Could Upend the Streaming Wars: Most Important Story of the Week – 11 Dec 2

Disney is a marketer’s marketer. With the biggest brands in entertainment, they can serve up an investor day—an investor day that is for Wall Street investors!—that gets regular folks to turn in and trends on Twitter. Yet, for all the buzz, the basic story was that Disney is releasing Disney content on the Disney branded streamer. We’ll get to that, but another story could have bigger implications for entertainment.

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Most Important Story of the Week – The Antitrust Case Against Facebook

A few months back, following Epic’s Games epic lawsuit against Apple, I stated that I planned to follow “antitrust” news fairly closely. Because antitrust could be the new “deregulation”:

I’ve been scanning the landscape more over the last couple of months to look at the future. And the “blue ocean” space in the entertainment strategy landscape for me isn’t technology–again, the futurists have it covered–but how regulation could change business models. And this is a hypothesis I’m monitoring: 

Could antitrust enforcement could become the new deregulation?

Deregulation was arguably the biggest driver of disruption in the 1970s and 1980s. Deregulating industries across the globe from airlines to energy to telecommunications repeatedly enabled smart firms to seize new advantages. That airlines example above is a perfect example; Southwest likely doesn’t become Southwest without deregulation.

Generally, everything has been deregulated. So what comes next? My guess is a reversal of antitrust. 

Since then, the signs that antitrust is on the agenda have only picked up steam. Consider:

– The House Antitrust Subcommittee released the “Cicilline Report” which laid out how the four big tech firms have used their market power to hinder competition.

– The Department of Justice filed a lawsuit against Google for specific antitrust violations. State Attorneys General are expected to follow suit.

– Joe Biden was elected as the next President of the United States. While there is some bipartisan support of renewed antitrust legislation (see Google’s antitrust suit, filed by a Republican), Democrats are still clearly more supportive than Republicans on antitrust.

– This week, 48 states and the Federal Trade Commission filed an antitrust lawsuit against Facebook. (Also a bipartisan move.)

In August, I laid out a few waypoints that I would watch to see if increased antitrust enforcement was likely coming. We hit the big one (Biden’s election), the next biggest (Congress increasing pressure) and now antitrust is headed to the courts (Specific lawsuits against Google and Facebook). As the future becomes slightly clearer, then, it’s worth expanding the potential for what comes next, especially for entertainment and media.

Predictions

What happens next?

To start, more antitrust lawsuits for the rest of big tech feels inevitable. Amazon seems particularly easy given that they have leveraged their market power in retail for years to enter new industries or stifle competition. The complaints from smaller vendors are legion. (The diapers.com affair from the start of the decade is particularly egregious.) Apple is more beloved than Amazon, but the Fortnite fiasco basically illustrated in stark terms Apple’s market power, and brought up a host of smaller competitors crushed under their power. Both Amazon and Apple, though, are more popular than Google and Facebook, which have both been embroiled in partisan bickering.

After that? The states/FTC/DoJ will either win or lose their lawsuits. That proposition is dicey because these suits are decided by individual judges, many of whom were appointed by Republican presidents with The Federalist society backing “Borkians” who tend to downplay antitrust concerns. Or in some cases just don’t believe antitrust is worthy of government attention.

If the states lose their lawsuit, then it would require Congress to change the laws around antitrust. That’s a much tougher challenge in today’s political landscape. But not impossible. (The Georgia run-offs will say a lot on whether this is possible.) Assuming that the Big Tech companies lose their fight, then come the potential remedies, which adds another layer of complexity to predicting what happens next.

Potential Outcomes

Let’s be honest and let the air out of the balloon right off the bat: The most likely outcome is that Big Tech is mostly left in place. Think Microsoft in the 1990s. In the worst case, the companies agree to some measures to control their behavior, but immediately go back to not following them and paying minuscule fines.

This is, essentially, what has happened with most merger consent decrees this decade. Facebook said it wouldn’t integrate What’s App’s data, then did it anyways. AT&T said prices wouldn’t go up after mergers, then raised prices. The companies pay the fines and keep consolidating. Disney said it would keep producing Fox movies, but now may release fewer films in theaters post merger than they did before.

The best case would be consent decrees that are enforced. Like the Paramount Consent Decrees of the 1950s. This helped movie studios and theaters thrive. Or AT&T’s forced divestment of patents in the 1950s. This spurred innovation across the U.S. landscape, which really did help competition. (It does say something that success examples of this happened 70 years ago…)

The bigger, and more fun to imagine, scenario is breaking up big tech. (And while I try to avoid my own policy recommendations, this is the outcome that I believe would benefit America the most.) These breakups could be either horizontal (the same industry) or vertical (different business units in the same company in related fields). 

Vertical is actually easier in most cases since the different companies don’t need each other to survive. So for Amazon, spinning off AWS, for example, would hardly impact Amazon’s retail business. (Though it would deprive Amazon of a valuable profit stream.) Google has multiple business units that could easily survive on their own. I’d add that splitting up Instagram and What’s App from Facebook are horizontal break ups, but relatively easy to contemplate since customers wouldn’t notice a change. (I’d make the same case for Amazon breaking up their marketplace from their other retail enterprises.) 

While vertical break ups in many cases don’t address market power, they are still very helpful for competition, since it means the firms left in a given industry can compete more evenly. (And most vertical integration tends to be followed by price gouging, product tying or other anti-competitive behavior.)

The key question for entertainment is whether each of the big tech titan’s entertainment enterprises get divested individually or remain as part of the bigger conglomerate. I could argue that Google should easily divest Youtube. Youtube can clearly survive on its own, but this would also give a powerful new internet advertising option to marketers. Apple could divest its media fairly easily (they are all just apps running on their operating system). Amazon has a better case for Prime Video staying in Prime, but even that isn’t ironclad. (Ask yourself: couldn’t Amazon pay the new Prime Video to stay in their Prime bundle? Yes, obviously. So why wouldn’t they? Because the value isn’t actually in the current video/data, it’s the market penetration to gain dominance overall.)

This is an unlikely scenario I’ve laid out. The plaintiffs have to win their lawsuits and then the remedy has to be the most extreme of remedies (break up). But imagine we do get here. Who are the winners and losers of this world? Imagine that Prime Video becomes its own company (with Twitch, Amazon Music, Audible and maybe a few other assets). Apple One becomes its own company (Apple Music, iTunes, TV+, Arcade and so on). And Google spins off Youtube.

Who wins or loses in this scenario?

Winner: Netflix

Say what you will about being bearish on Netflix’s business model, they aren’t a monopoly. Some investors want them to become one (building a “moat”), but a company with only 8% of all viewing in the United States is hardly a monopoly. Indeed, the biggest threat to Netflix, in my mind, is the unlimited cash reserves of Apple and Amazon. If forced to compete on an even playing field, this would benefit Netflix. (With the caveat that multiple new streaming companies on the NASDAQ may impact all share prices simultaneously, for good or ill.)

Winners: Traditional Streamers

Cord cutting is the biggest pain point for traditional media. But the biggest challenge, more than anything, is competing against competitors who don’t have to make money. If Big Tech had to compete on a level playing field–read not deficit financed–traditional media has a much better chance to survive in a streaming world.

Further, there is a big difference between radical disruption (where revenue drops by double digits year over year), and slow evolution (where profit margins slowly decline). Both get to the same place (which is the likely outcome from streaming), but one has a lot less pain for the incumbents and their suppliers. 

Losers: Prime Video and Apple

These seem like the two biggest losers in all this because most folks acknowledge that their streaming business models just aren’t based on actually delivering a valuable product. Phrased differently, no VC firm would invest in Apple TV+ if it weren’t owned by Apple; there is no business plan there. Spun off from their parents, these new media companies would be valuable, but much less invincible.

Losers: AT&T and Comcast

After Big Tech, if Congress wanted to find the industries that are heavily consolidated and hated by customers, cellular and cable are next on their wishlist. (Then health care.) Breaking up Big Cable would probably be the most popular move of the Biden administration. 

Winners: Roku and Sonos

If devices are sold at cost, the independent device makers have a chance to succeed and thrive.

Winners: Talent…probably.

In a lot of ways, the boom of streaming and peak TV is the best of times and the worst of times for talent. More shows and films are being made than ever before, but back end cuts are smaller than ever before. Meanwhile, junior writers work for some of the worst pay in the last few decades. Arguably, with many more streamers who are less powerful, the guilds could negotiate better rates, especially down the line. 

However, this may be offset by the end of the so-called “Drunken Sailor Era” (™ Richard Rushfield) as firms have to start making actual money. So they could cut back on content spend. That means less potential jobs overall.

TBD: Customers

Like talent, this could go either way. On the one hand, it has been great for customers to have multiple firms willing to subsidize cord cutting. The problem is those subsidies are harmful long term and entrenched market power is awful too. So prices could go up, but they’d reflect economic reality. Meanwhile, customer choice would come either way.

The Caveat: All of this is Unlikely

Does a huge break up of Big Tech, including spinning of media firms actually happen? Probably not. But without throwing out random probabilities, it’s probably twice as likely as it was even in August. (So yes, this is like a streamer saying a show grew 50% year over year. 50% of what?)

Yet, Biden was elected President, and that’s huge. Combined with renewed emphasis by the Democratic coalition, and I think corporate consolidation is on the table for change. He’ll likely appoint attorneys general, federal judges and administrators who could put a renewed emphasis on antitrust. That will impact entertainment eventually.

Other Contenders for Most Important Story

Disney Investor Day

Few analysts are (and have been) as bullish on Disney’s streaming future as I have been. I write that to put in context what I’ll write next: I don’t think this Disney Investor’s Day deserves the hype it has been given.

Take a few of the headlines touting “10 New Star Wars and Marvel” series coming to Disney+. That sounds huge. But given that this will take place over the next few years, is it? In context? Take this analysis by Emily Horgan:

Or take my timeline I’ve been using to model Lucasfilm’s financials:

base

And for kids…

kids

In other words, Disney confirmed what I’ve been modeling for a while now. This Star Wars volume is a pinch higher, but considering the volume of one-offs, not that much more than I modeled. But most of Wall Street/the trades seem surprised by it. I’d add there are a few more caveats for why the total volume of content may not match the reality:

– Shows will likely get cancelled. Like Ghost Rider, Benioff and Weiss’ Star Wars Trilogy, Howard the Duck, Rion Johnson’s Star Wars Trilogy, more Han Solo films, and countless other projects over the years.
– A lot of this content is animated and for kids. Which is crucial to Disney’s future, but likely replaces exactly what they were making for Disney Channel, Disney XD and Disney Junior. Which we weren’t getting super excited for before streaming times.
– Some of the announcements really are for a long way off (like a Rogue Squadron film in 2023). Most announcements didn’t have dates.

In total, then, I don’t think this is really much more content than Disney was planning on making last year or the year before. Some of it may have shifted from film (previous pitches for movies may have turned into TV series, like potentially Obi-Wan), but it’s probably similar. At the end of the day, it looks like from 2021-2023 we can bank on a Disney live-action adult series every 2 months or so on the platform for Marvel and Star Wars. 

That feels about perfect. If they can keep up the quality, that’s a big slate that will keep folks subscribed. It’s also the “if” that defines all success in entertainment.

(Though Disney+ still has a big hole for adult TV outside of Marvel and Star Wars. That’s a tough hole to fill.)

As for business strategy, the biggest news is no news. Hulu stays where it is. Star is officially becoming Disney’s adult brand globally. ESPN+ will continue expanding, and be available within Hulu. And lastly only one film is “breaking” the theatrical window, with Raya going to Premiere Access (like Mulan’s $30 release) simultaneous with theaters. (I have a feeling it will do much smaller business than Mulan on PA.)

An NFL Update: Ratings are Down, but Good for Broadcast

Is the state of the NFL viewership good or bad? Maybe both. Americans consume NFL football more than any other sport–arguably more than any other type of content period–yet the ratings aren’t as high as past years (down about 8%) because linear TV viewing just isn’t as high as it was (down about 30%). This of course begs the question for what happens next. I can’t see a world where broadcast TV doesn’t nab a few more years of NFL rights, even non-exclusively, but the key question is, “At what price?” Likely they will be high.

Disney+/HBO Max and Comcast Integration

Disney+ and HBO Max will soon be available on Comcast’s Flex operating system. This is a smart next step for both Disney+ and HBO Max. (If anything it should have come sooner.) For all the talk of cord cutting–and there is a lot!–one of the surprising survivors is the cable box. This makes it much easier to reach another big group of customers that Netflix and Prime Video are already reaching.

Data of the Week – The Hallmark Channel Is Still Winning Christmas

Josef Adalian has the details in a recent newsletter, but 3.4 million folks tuned in on one Sunday for a Christmas movie. Linear TV is dead, but it won’t lie down.

M&A Updates

Just because antitrust is back on the agenda doesn’t mean that mergers won’t continue fast and furious. The two latest biggies both have tangential relations to entertainment. Slack is the de facto messaging service of lots of Hollywood, and it was just purchased by Salesforce. Meanwhile, S&P and IHS are merging for a huge price tag because they are both financial data firms. S&P fascinates me because they had earlier purchased SNL Kagan, and Kagan was a tremendous source for entertainment data back in the day.

The Top Four Licensed Shows on Netflix Account for 6% of Netflix’s Viewing in the US – Visual of the Week

In 2020, Netflix lost the rights to Friends. In 2021, they lose the rights to The Office. How much do those big shows impact viewing on Netflix? 

Quantifying that via Netflix’s data is fairly hard, though, since they focus overwhelmingly on their original series, as that’s the key to “building a moat” in the eyes of shareholders. Fortunately, Nielsen is now tracking consumption in the United States. Which means we have one third party firm who can help us answer the question.

Today’s visual answers this question:

How have the top four licensed shows on Netflix done this year?

Here’s the “Data Ws” to answer how I calculated this:

Who – Streaming customers
What – Total hours viewed (Nielsen million minutes divided by 60)
What (platform) – Any service
Where – In the United States
When – From week starting March 9th to Nov 2nd 2020, minus March 23rd
When (time period) – Measured Monday to Sunday.
How (did I get it) – Nielsen provided weekly top ten.

Here’s the answer in visual form:

IMAGE 1 - Chart of Top 4

However, we need context. As in, what does this mean? Well, to start, here’s the total viewing over the 34 weeks I have data for. And you can see what a big percentage of this top ten viewing this makes up.

Screen Shot 2020-12-08 at 2.00.59 PM

To quote Shawshank, if you’ve come this far, Red, maybe you’ll go a bit further. And that is really asking this question, “Hey, EntStrategyGuy, does this matter in terms of all Netflix’s viewing? Nielsen doesn’t provide that, do they?”

No, but Netflix has!

In two different earnings reports, Netflix reported that they make up about 100 million hours of viewing per day in the US. (In the 2018 end of year report and again in 2019.) Let’s make some scenarios to cover our bases. First, we could assume Netflix has grown somewhat during Coronavirus. That’s the high case, and I’ll use Nielsen’s estimate of 44% growth from this year for that. But Netflix could have been cherry picking their 10 million hours per day number too, so I’ll use the lower estimate of 6% of all viewing Nielsen estimated in Q1. That gives us this range:

Screen Shot 2020-12-08 at 2.01.32 PM

Is 6% a lot of content to lose? I’d say yes, and we don’t know how losing Friends impacted them because we don’t have the data. The good news is Grey’s Anatomy isn’t going anywhere as long as it stays on the air. The bad news is The Office is gone this month. (I’m not sure for NCIS or Criminal Minds.)

One bonus insight: Folks may be tempted to say that the higher viewership of licensed shows happens during times when content is weak. This actually isn’t true. Netflix’s highest viewership of originals actually peaked this year in March, according to Nielsen, and licensed shows saw higher numbers during that time period. 

(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next edition goes out tomorrow.)

Discovery+ Is Almost As Big as the Warner Bros 2021 News – Most Important Story of the Week: 4 Dec 20

Well, after two and a half years of writing this column, I’ve finally come to a tie. Sure, the buzz is with Warner Bros and the decision to finally end the exclusivity part of the theatrical window. Every columnist from here to Timbuktu will feature that in their entertainment newsletter this week.

And yet, Discovery+ feels as big. I could even make some back of the envelope numbers work for it too. Discovery makes $11 billion in revenue every year, which is, funnily, the same size as the US box office. If Discovery+ is as big of a success as David Zaslav hopes, that feels as important as the $10 billion a year theatrical window. (And that’s assuming theaters die completely, which is unlikely as I’ll cover below.)

But sure, I hear you. You want thoughts on both. We’ll start with Discovery+, and move to Warner Bros big plans.

Most Important Story of the Week – Discovery Announces Discovery+

Maybe it’s just the contrarian in me, but I’m fine with Discovery’s late entry to the streaming wars and their general plan. Actually, “fine” probably doesn’t cover it. I think this could be a shockingly strong entrant, given how many folks have given Discovery up for dead.

Let’s start with Discovery’s biggest strength, which is owning its own content library. This is one of the first things that Discovery pointed to during their announcement of Discovery+ and it’s a great thing to point to. There’s the old saying that you don’t make money making movies, you make money owning a content library. Well, Discovery has that with, as they said, 55,000 episodes of reality TV to provide. Sure, this isn’t “buzzy” content like Disney or HBO’s libraries, but it is a lot of content. And it’s valuable to different demographics.

Discovery is late to the streaming game, but in this case, I don’t think that’s the worst outcome. As I’ve been writing a bit over the last few weeks, the name of the game is building streaming revenue while not obliterating the more valuable cable revenue. And don’t kid yourself, that revenue is valuable for Discovery. Here are their affiliate fees for their top four channels on linear TV:

Screen Shot 2020-12-04 at 11.41.09 AM

And that’s leaving out a few channels and all their advertising revenue. In other words, for every customer that leaves traditional cable for streaming, Discovery will lose money. So they waited as long as they could. Plus, Discovery probably figured that their customers are some of the laggards in cord cutting, so they could hold off as most of the early adopters of Netflix were hungry for prestige, scripted content, which isn’t Discovery’s forte anyways.

Discovery also flies under the buzzy radar. If you use linear viewing as a proxy for overall value, Discovery doesn’t have a presence in the top five channels. But after that? Yeah, Discovery is basically the channels to go to watch something pointless in the background, especially after the merger with Scripps:

Screen Shot 2020-12-04 at 11.41.37 AM

Even if you, the New York or Los Angeles Millennial/Gen-Xer, don’t watch those channels–and in some cases look down on those who do–tons of folks do watch. (Maybe even folks you know. We just don’t talk about it…) And since this isn’t buzzy content, those primetime ratings probably undersell Discovery’s content a bit.

To finish, this is also a great “zig while others zag” move. HBO Max and Disney+ went right at Netflix, Hulu and Prime Video with scripted content. Discovery is playing a different game and it will be interesting to see if it works. (To be fair to Disney+, it has its share of cheaper reality content too.)

What’s Next? A Merger with A&E Would Make Sense

The other distinctive part of Discovery’s plan is to include some A&E content in the lineup, specifically from their more reality/lifestyle brands. I haven’t heard anything specifically, but you’d have to wonder if Discovery has floated buying out Disney’s 50% ownership so that they could get a near stranglehold on cheap reality programming. Adding the buzzy A&E channels would also help Discovery brace for the reduced channel lineup world with even more channels to negotiate with MVPDs and vMVPDs.

The What If? Netflix Had Bought Discovery…

In a lot of ways, Netflix knows how valuable Discovery’s content is. That’s why so many of their shows are clearly in the mold of Discovery programming that has left the service or will leave as Discovery+ launches its own programming. Nature programming? Netflix is building that. Shows where folks buy houses? Sure. Shows where folks renovate houses? Check. Cooking shows? Check. Cooking shows that are just reality shows? Check that box too. 

The problem is Netflix has to buy or rent it all. And they can’t replace nearly that volume or for nearly that price. From scratch. Can you imagine if they had bought Discovery a few years back and could add 55,000 episodes to their catalogue? Heck, even the cash flow from Discovery would have made Netflix breakeven. I’m not a fan of M&A as a strategy in general, but this move would have made sense to me.

Most Important Story of the Week – Warner Bros. Sends Their 2021 Slate “Straight” to HBO Max

If AT&T was reading my advice, they’d have seen a few pieces urging them not to release films straight to streaming. Like here. Or here. Or here. If anyone on the Internet writes about how valuable the theatrical window is to traditional movie studios more than I do, I’d love to see it.

My thesis is simple: skipping multiple windows decreases the overall revenue of a given film. Even today I was tweeting that:

Yet, multiple big studios seem to have said by their actions that I’m wrong:

– Disney’s Studio chief speculated that that several live-action adaptions would be headed for Disney+.
– Warner Bros. moved Wonder Woman 1984 straight to HBO Max on Christmas.
– Universal launched a new partnership with theaters for a new 3-week premium window for their films.
– Then, the big move, Warner Media moving its entire 2021 slate to a “day-and-date” HBO Max window with theaters.
– (Plus, there has been a lot of speculation, including hints from Disney, that on their investor day next week they’ll announce an expansion of their premium plan.) 

Who are you gonna trust, some guy on the internet or all the studio heads? Taken together, this seems like a clear indictment of my belief that studios will make more money by keeping theaters around then going straight-to-streaming. 

So how do I explain this discrepancy? Well, I did that over at Decider. And I have four reasons:

            – Clearly subscribers are the only metric that matters to Wall Street.

            – If you’re in the growth phase, losing money to gain subscribers makes some sense.

            – Covid-19. Covid-19. Covid-19.

            – The calendar is going to be jammed in 2021 anyways for box office.

For the details, head over to Decider. 

Yet, while I explained why this move happened, I didn’t explain what happens next. Because I don’t know. Because I can’t predict the future. Still, that’s the fun part, right? And there is one key tradeoff that will impact all the players. 

The Big The Tradeoff (Defined)

The best article I’ve read this year is from Doug Shapiro’s “One Casualty of the Streaming Wars: Profit”. Shaprio focuses on TV in that article, roughly arriving at the idea that TV in the United States is something like a $110 billion dollar industry. And one with some of the highest profit margins around.

Well, theaters are an extra $10 billion piece of that pie in the United States, of which the studios take home about 50%. Moreover, that leads into a fairly lucrative window of purchasing, whether formerly of physical discs, but now mostly digital sales. Which is billions more. 

As Shapiro quantifies, this streaming window just doesn’t have the same margins or volume as the old theater to home entertainment to premium to secondary windows model had. There are lots of folks who insist this isn’t the case, and they usually base their view on rosy customer lifetime value scenarios. But the math is the math. (Even if Celebrity Wall Street Media Futurists insist it is the case.)

This is why studios held off from going straight-to-streaming for so long. They don’t want to add $10 billion more in lost revenue to the huge potential lost revenue coming too. As I wrote in Decider, though, they may have finally been forced by this once in a century pandemic. 

This also explains why the studios all have different plans. No one quite knows what the right new distribution plan, but straight-to-streaming by itself likely won’t cut it. Here’s my landscape of the current situation:

IMAGE 1 - Approaches to Theaterical

Or this septet chart: 

Screen Shot 2020-12-03 at 2.57.33 PM

 What does this mean for all the parts of the value chain? Let’s explore. 

Theaters

One of the big questions is whether Warner Bros. had a plan for the theaters. The answer? No.

As of now, the theaters won’t get an extra piece of the theatrical pie. I expect this to change and both sides will keep negotiating, but if theaters don’t get on board, then a lot of extra revenue is at risk. 

Let’s assume Warner Bros (and Disney if they follow a similar course with “Premium Access”) eventually come to terms with theaters as Comcast did. What does this mean for the future of theaters?

Well, I don’t know. Here’s a range I’d give you: theatrical revenue could drop to $0, or stay the same ($10-11 billion per year) or even grow. And that’s in the United States. In China, where the streamers aren’t allowed, there will be much less change. 

If I had to bet, I’d guess theaters definitely lose some theatrical window revenue. How could they not when subscribers could watch the films for free? On the other hand, Comcast’s plan may not change things very much. And Disney hasn’t committed to this path for all films. 

Yet there is a large range from “lose some” revenue to “wiped out to zero”. (Which I saw headlines touting the “death knell” for theaters. Death knell implies zero.) It’s very rare for an industry to go to zero overnight, and even if theaters are losing some revenue, like DVDs it will likely take decades to truly, if ever, disappear. 

Plus, if the losses mount without driving huge subscribers growth, or tapping out at some level, theater only windows could subtly creep back into our lives.               

Smaller Studios

Meanwhile, without streamers boosting the bottom line, it’s tough to see what Sony and Lionsgate do from here. In some ways, theaters may appreciate their films even more since they are—for now—exclusive to theaters. You could also expect some “arms dealing” as some of the streamers vie for their films as they’ll need inventory. (Amazon and Netflix)

Still, if the overall theatrical pie shrinks (say some theaters go out of business), that’s bad for the smaller studios overall, especially as streaming will eventually pay less for films. (See below.) 

Other Streamers    

For Warner Bros in particular, this move will be great for HBO Max adoption. Though how great, sort of like for theaters above, remains to be seen. It’s not like HBO didn’t have a supply of top tier theatrical films. They’ve always had a steady selection of Warner Bros, Universal and Lionsgate films in the first window after home entertainment. It’s unclear how much bringing films 3-6 months early will boost the perceived value.

Still, even more than buzzy TV shows, theatrical films are great at acquiring new subscribers. This is the dirty secret of most straight-to-streaming films by Netflix and Prime Video. Yes, they’ve had some “hits”, but nothing compares to true box office blockbusters like Avengers, Star Wars or animated kids films. The key question though is what drives that: is it the films themselves, or the marketing of the films which builds anticipation? If HBO Max drastically cuts marketing budgets with less theatrical revenue coming in, then maybe these films don’t play as theatrical releases on streaming.

I’d be willing to wager that Netflix’s films will keep doing well on their platform, but the HBO Max slate in 2021 will likely beat it overall in terms of minutes viewed (in the United States).

As for Apple TV+, they have the biggest opportunity here. If they committed to theatrical and big back end, they could easily become a go to spot for filmmakers. Plus, Richard Plepler has the cachet to make this work.

Production Budgets

Right now, HBO Max, Comcast and Disney are making a lot of release decisions for films that are already made. Those are sunk costs. Meaning they are just trying to maximize what they can going forward.

However, with these new models, films that are greenlit going forward are in this new reality. And if the new, streaming only reality really does have less upside than the old model, then something has to give.

Doesn’t it?

That’s why, when I first heard about Disney+ floating the idea of some of their live-action films going to Disney+, my response was “Oh, they’ll lower the budgets.” Even Alan Horn mentioned that going straight to Disney+ would save on marketing costs. But that was fine because no one cares about cutting costs on marketing. 

Folks do care, though, if you skimp on production budgets. (And talent cares about their pay!) Making a film that could cost $80 million for $20 million feels cheap. But it’s also inevitable. Again, Disney Channel, HBO and even Lifetime have made movies for years for TV. But they know that a movie going straight to TV has a limited upside, so the budgets are similarly limited.

That’s something to watch in 2021. If films really aren’t marking as much going forward, something has to give.

Talent and Backend

This is the biggest wildcard for me. Right now, the current workaround to go straight to streaming is to just guarantee more payment to top talent up front. This has its own risks, though. Mainly that instead of shifting the risk of backend to only guaranteed hits, you essentially make every film a “hit” in terms of talent costs. That hurts the bottom line.

So again, something will have to give. Either talent will make less money or the studios will.

Data of the Week – Daytime TV Viewing Is Up

I just wanted to point out this fun article from Nielsen because it is the worst indictment of working from home imaginable, and I think more managers should be aware of it. If your employees have time to watch TV, you need less employees. (And probably fewer Zoom meetings, not more.)