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.

Who Will Win the Battle for the next “Game of Thrones”?: How “People” Change the Odds of Success

(This is another entry to a multi-part series answering the question: “Who will win the battle to make the next Game of Thrones?” Previous articles are here:

Part I: The Introduction and POCD Framework
Appendix: Licensed, Co-Productions and Wholly-Owned Television Shows…Explained!
Appendix: TV Series Business Models…Explained! Part 1
Appendix: TV Series Business Models…Explained Part 2
Appendix: Subscription Video Economics…Explained Part 1
Where We’ve Been)

Two weeks ago, we checked back in on the news about the contenders vying to be the “next Game of Thrones”. Let’s keep the momentum going and get right into the “People” portion of our framework. At the end, I’ll unveil my current working model for evaluating TV series.

Why “People” Matter In Every Deal

The “people” in a typical venture capital deal are the leaders of a start-up. This means the founders and the soon-to-be chief officers. Is the CEO a great technology guy, but not great at scaling? Or an operations guy who has a dynamite CTO already in place, but no marketing experience? Conversely, is the product great and so is the opportunity, but you need to replace the leadership to make the company truly succeed? (Uber/WeWork much?)

In a real world example, lots of investors in Quibi invested because of the team of Jeffrey Katzenberg and Meg Whitman. He could handle content; she’d handle everything else. (Only later did we find out they couldn’t work well together.)

As I use the “POCD framework” for evaluating TV series—a concept I dabbled with at my previous job—I’ve found the “People” portion to be extremely important. Who is the showrunner? Who is the creator? Are they the same person? Or do you need to bring in a more established showrunner to replace the creator’s vision? Does the showrunner have the ability to manager a team, or will they do it all themselves? Can the writers work with the directors to bring their vision to bring the show? Are the producers able to corral the showrunner and bring things in on-time and on-budget?

Hopefully, the answer to all those questions are positive. Meaning the creator has a great vision, the showrunner can deliver on their vision, the writers room writes great content, the directors can film it, and the production team will run everything well. The reason this is important is because, if a studio can hire the right people more consistently than competitors, they can achieve outsized returns.

Those outsized returns fall into two rough buckets. The first bucket is the “quality” bucket: Can the show runner make a good nee great show?

Well it depends. Unfortunately, most showrunners and creators are…average.

Average isn’t bad, you see. It just means that while all showrunners are great people—and indeed highly skilled at what they do—their “hit rate” is average. Which means that most of the time the shows and films they make are bombs/duds and a few times they are blockbusters. (About 1 in ten.) That’s just the math. That’s right, logarithmic distribution of returns applies to the people making shows too:

Slide03 copyAt the far right end, some showrunners can buck this trend to reliably churn out hits, but they are few and far between. Think Greg Berlanti, Shonda Rhimes, Mark Burnett or Chuck Lorre. Even then, they have more duds than you initially remember when you scan their IMDb. If either Game of Thrones or Lord of the Rings had a top tier showrunner attached, it would increase the likelihood that a show becomes a “hit” or “the next GoT/superstar” in our model. (Or if they had a top tier development exec with a similar track record. No streamer does yet.)

The converse to good showrunners is a chaotic leadership situation. If a show has lots of creators moving in and out and lots of directorial turnover, that’s a bad thing. (Though not always. The Walking Dead did just fine and it’s on its fourth showrunner.) 

My model also punishes showrunners with extensive mediocre track records. Which unfortunately is quite a few showrunners out there. For all its admiration of experimentation, Hollywood is surprisingly conservative at decision-making. Development executives hire the same writers and directors instead of trying someone new because it’s “safer”. These showrunners produce a show for a few years that is mostly “Meh” (a technical term), and then move on to another pitch/job. In the model, if I saw a fantasy series had that type of showrunner, it would increase the likelihood that a show is another also ran TV show, not the next Game of Thrones.

The second outcome is the “logistics” bucket. Can a show come out on time and on budget?

When it comes to making blockbusters, this is less important. However, if you’re running a business, given that 95% of showrunners are average, this can be the difference between profit and loss. This can be forecast, with the right data, pretty reliably. I, for example, knew that certain showrunners and directors who worked regularly with our streamer would be late or over budget when we hired them, because they were late or over budget previously. Unfortunately, this type of data isn’t public available—studios don’t make a habit of sharing when they go over budget—so I can’t use it in this series.

It is worth noting that this was part of the genius of HBO and Game of Thrones. They managed to keep that show on every single year while being the most expensive show on television. But an incredibly efficient expensive show, if that makes sense. 

(The great production houses out there—Jason Blum, HBO the last two decades, Marvel this decade—really do deliver on time and on budget, while hitting high quality bars. That’s not an accident.)

Meanwhile, most of the streamers struggle to get second seasons out within 18 months of big shows. We don’t know if these shows are “on budget” but with the way Netflix spends money, probably not? While this is important, it won’t make the model because we won’t know about financial/timing trouble until it happens.

The Results

With that explanation in mind, I’m going to be fairly conservative on evaluating these leadership teams. While picking people is really important, the benefits don’t show up on an individual show, but on a long-term/portfolio level.

Thus, I’m more worried about overvaluing “noise” than true signal in evaluating these leadership teams. (Long term, I hope to do more data analysis to better judge creative hires, but I don’t have those databases yet.) As a result, I’ll default to the “null hypothesis” more than usual.

Let’s go show by show.

Read More

Most Important Story of the Week – 21 Aug 20: The Apple/SuperCBS Bundle Arrives

The biggest story of the last two week’s is “Apple v Fortnite”. Yet, for the second week it hasn’t made this list. Like the AT&T-Warner Bros. merger or the Disney-Fox merger, this is a seismic event we can tell will change things in the moment. However, that “moment” will last months, not years. It is potentially the story of the year, and we’ll get to it. Just not today.

(As often happens, I wrote a couple thousand words on it. So I decided to save it for my “Intelligence Preparation of the Streaming Wars” series.)

In the meantime, let’s return to a favorite theme: bundles!

Most Important Story of the Week – The Viacom/CBS Bundle Launches on Apple

Apple is offering a new bundle of SuperCBS channels. (SuperCBS is my name for ViacomCBS.) Instead of paying $10 for CBS All-Access and $11 for Showtime, Apple is offering them together–if you subscribe to Apple TV+–for only $10. So get CBS All-Access and the tech giant will throw in Showtime for free.

(Apple is also exploring a “super-sized” bundle of TV, music, news, gaming and more, but will likely provide details in a few weeks.)

For those of us predicting a return to bundling (read me here, here or here), this move isn’t that surprising. The previous high point of bundling was Disney’s decision to bundle Disney+, Hulu and ESPN+ last fall in the United States. And then in their earnings call Disney announced plans to include Star/Hotstar as another bundle globally.

Let’s unpack the ramifications of the bundle. Why it exists. How this bundle happened. Why this bundle in particular. And why this bundle is NOT the future.

Why Bundle? Because The bundle is a Terrific Deal, for Customers and Companies.

That’s a controversial opinion, surely. (Especially on certain entertainment podcasts I listen to weekly.) 

But the math is fairly inescapable. For companies, getting into a maximum number of households is usually worth a slightly worse per subscriber cost. So if AMC–the channel–can be in 85% of households, each paying $1.50–that’s better than being in 10% of households each paying $10. Or take ESPN: right now nearly every cable household pays over $6 to get it. Yet, if everyone cut the cord, ESPN would struggle to get probably 25% of households for the same price, not to mention quadrupling the price. (Moreover, the additional subscriber has zero marginal costs, so maximizing it makes sense.)

Hence, bundles help companies maximize revenue. It’s a classic economics chart weighing prices to buyers and maximizing the value.

The lower prices also help customers. The criticism of the bundle was the simplistic complaint, “Everyone has 500 channels they can subscribe to, but they only watch 20.” The problem is no one watches the same 20 channels/shows/streamers. In cable times, a viewer might watch Friends on NBC, 60 Minutes on CBS, Sports Center on ESPN and NYPD Blues on ABC. But another viewer subs out History Channel for Sports Center. The bundle gives each customer the same low price. (In streaming, if you want to watch Stranger Things, The Handmaid’s Tale, The Mandalorian, The Marvelous Mrs. Maisel and Watchmen, you need a bundle of streamers.)

(What about how high prices are for the cable TV bundle? Well the problem there is the word “cable” not “bundle”. As local monopolies, cable providers for years had insurmountable barriers to entry, so they could raise prices without fear of cord cutting. Streaming is changing that.)

Thus, bundling is coming. But how?

How This Bundle Happened, Part 1: This is still a “Same-studio” bundle

This is fairly key, because it means the costs are fairly easy to allocate. The challenge comes when you try to get two different companies to bundle together. Then each has to ask the other who has the  more valuable channels and how they should split costs.

(Imagine a super bundle with Disney, Warner Media, Viacom CBS and NBC Universal in the same package. Now try to imagine the leadership of those companies trying to figure out how to allocate revenue. They’d probably kill each other before they settled. Ergo Hulu.)

That’s why Disney was the first “bundle”, because all the money ends up in the same place. Meaning it is up to Disney to decide how to allocate the value of the bundle and how to allocate investment and content and what not. The same thing is happening here, since CBS can decide how to attribute subscribe value between Showtime and CBS All-Access simply for accounting purposes.

How This Bundle Happened, Part 2: Apple is likely taking a big loss.

This math is fairly inescapable, and fascinating given that Apple is currently at loggerheads with Fortnite over the related issue of “platform tax”. Here’s the math for Apple offering Showtime and CBS All-Access separately:

Screen Shot 2020-08-21 at 10.18.02 AM

That’s a good deal for Apple, assuming lots of folks sign up for both. Now, here’s the same situation with the platform tax.

Screen Shot 2020-08-21 at 10.18.17 AM

Uh oh! Suddenly, this is a really bad deal for CBS All-Access. They lost half their revenue. So what’s the solution? Apple and ViacomCBS met somewhere in the middle. But a middle closer to ViacomCBS making money (since that’s their priority) and using customer acquisition into Apple TV+ to justify the costs.

Screen Shot 2020-08-21 at 10.18.36 AM

Notably, this is still a bad deal for Viacom CBS. They lose nearly a third of their value. So let’s run a final scenario, where Apple limits CBS losses to say 20%. 

Screen Shot 2020-08-21 at 10.18.44 AM

Now you could make a case for both sides. For Apple, they could tell themselves that losing $2 per month is worth it to bring people into the “Apple TV” ecosystem. (In this case, a device ecosystem. Terminology is important!) For Super CBS, they “only” need to add about 20% extra subscribers to make this deal worth it for a bundle. (Implying that the number of bundled subscribers exceeds the amount who subscribed to CBS All-Access and Showtime separately at the previous prices.)

However, there is even a world where Apple is paying the full-freight of $5 to CBS to keep them whole. Meaning they lose a whopping $60 per customer per year on this bundle. I don’t think that’s the case, but I can’t count it out either.

(The caveat that’s worth mentioning is that CBS has discounted CBS All-Access in lots of places. I get it free, for example, through a 24/7 sports subscription. So the $10 price may not be paid by anyone, sort of like how few folks pay full price for Hulu or Disney+.)

Why This Bundle Happened, Part 1: ViacomCBS Still Isn’t Owning the Customer Relationship.

The other big theme of both May and June has been that certain traditional studios have decided that owning the end-to-end customer relationship is very important. Which is absolutely correct! The rise of “direct-to-consumer” implies you’re going direct to the consumer. Which is what Disney, AT&T and Comcast now understand.

SuperCBS hasn’t learned that lesson yet. Clearly.

Instead of insisting that customers pay them directly, they’re letting Apple handle that. Instead of owning the user experience to collect data, they’re letting Apple collect that. Instead of controlling the customer relationship for marketing purposes, Apple gets that. This isn’t too surprising for CBS; they already let Amazon do all of that too! And Roku too!

Why This Bundle Happened, Part 2: CBS Can Offer a Good Bundle

Of the best content streamers, then, CBS was the best that also hasn’t learned the lesson of DTC. Seriously, check out Mike Raab’s lay out of the major players and look how much good stuff CBS owns:

1*QpM8rbqA6xlmffd6RRgKGQ

Thus, if Disney, HBO, Netflix and Peacock won’t play ball, then CBS is the best suitor available. Hence, it’s the first bundle on another digital video bundler. (DVB, explained here.)

The Future: More Deals, But Not Like This (vMVPD 2.0)

Do you remember the halcyon days when Youtube TV first launched? It was the most disruptive of disruptors in TV. Instead of paying $80 or $100 dollars for a cable subscription, Youtube only cost $35! That’s how you become a low cost distributor. 

That was only 3 years ago. Now the price has almost doubled to $65 per month.

What happened? Well, again, when customers buy a bundle, they want all the channels. (Again, no one watches the same 20 channels.) So Youtube had to keep adding channels to keep adding subscribers. Moreover, Youtube TV wasn’t going to offer old-fashioned “low entry price that later raises”, so they just pretended the price was very low.

Importantly, Youtube had zero cost advantage. Youtube was losing money on every subscriber to grab market share. This is why, when I saw plenty of analysts praise Youtube TV, I thought they were bonkers. If you let me lose $5 per subscriber, I can grab lots of market share. But I haven’t solved any problems. Or created any value.

I think some of that is definitely at play here. Apple hasn’t solved any pricing issues, they’re sacrificing short term revenue for long term subscriber acquisition. Which could be a good strategy–though anticompetitive–but it isn’t sustainable. It won’t be sustainable until Apple can prove that the sheer volume of customers it brings to the table exceeds the profits the streamers are losing. 

Hence, this current bundle is the “vMVPD 2.0” scenario. It’s a bundle, but we won’t know if it will work until Apple and CBS are pricing at cost. That will happen eventually, just not soon.

Other Contenders for Most Important Story

Fortnite v Apple – The Fight Escalates

This week, in an effort to prove they aren’t using their size to crush smaller competitors, Apple is threatening to destroy Fortnite’s second business of making game engines in addition to destroying its current video game business. (The Unreal video game engine powers many, many video games.) In other words, if you don’t buy our coal, we’ll keep you off our train tracks. It’s a tactic pioneered by Carnegie, Rockefeller, Morgan and Gates. Now Tim Cook is employing it too.

As I said above, the ramifications for this fight will definitely impact the streaming business. But since we’ll have to follow this saga for years, I’ll save longer thoughts for a future article.

Theaters are Finally Reopening (and Some Films Too)

AMC Theaters is reopening this week at reduced capacity (30% I saw reported) and reduced prices on opening day (15 cents per ticket!). I actually think theaters will be able to match demand to supply since they’re at reduced capacity for the near term. The wild card, as always, is how the disease/containment progresses.

The other wild card is content, and we seem to have hit the moment where studios have decided to release movies regardless of theaters. So Unhinged made it to theaters. Bill and Ted is following. And then Tenet. Some will have PVOD/TVOD components.

Frankly, this makes sense and I think for a film like Tenet, folks would be willing to see it in theaters even if it’s weeks after its “release”. My logic is that Covid-19 has temporarily changed what it means to “release” a film. It’s not like consumer demand will decay if customers who want to see Tenet in theaters literally can’t because their home town theaters are closed. (And some will wait and avoid PVOD.) The studios will make less money than before, but more than if they had waited indefinitely. (And probably more than Disney will on Mulan.)

Boom in Video Games?

Video games are definitely having a lock down moment, though as things reopen, this will likely revert to lower levels, though probably not to the same level.

The question I can’t answer is this: How much of this is due to children?

It seems fairly key. Mainly because the “day job” of children has been the most disrupted. Instead of going to school, they spent April to June at home. Hence, a boom in video games and Netflix. (The latest Nielsen Audience report said Netflix had a rise in viewership that I partially attribute to kids.) Even with schools reopening, classes can run only from 1 to 3 hours, if the programs work at all. Which leaves a lot of time for kids to spend on entertainment.

I’ve seen some speculation that this will create a new generation of video game addicts. But will it? It’s not like kids just discovered gaming because they’re playing on their phones. Nintendos, Segas, Playstations and X-Boxes have always sucked down hours and hours of kids time. Usually it competed with school filling 6-8 hours a day. We’ll see.

Data of the Week – Amazon is “Doubling” Everywhere

If you go by the news, Amazon has “doubled’ their video performance. First, Amazon Video streaming doubled according to Amazon CFO Brian Olafsky. Then they leaked that their AVOD audience reach, through IMDb TV, has doubled as well to 40 million users.

Caveats abound. 

For Amazon Video, the good news is Olafsky said it was total hours that doubled. The bad news is we don’t know what it doubled to. 100% growth during lockdown is great, but what does that bring us to? Also, the caveat is this is global, not US, so it’s even harder to track where the growth came from.

The AVOD audience is even more suspect. When Amazon Advertising says “reach” is up, that could mean a dedicated video viewer, or an ad running on the background of some Amazon page the user can’t even see. (We call that “Facebooking” given their epic misdirection on the performance of their videos.) Moreover, Amazon was touting “integrations” which means partners are expanding Amazon’s reach, not IMDb TV by itself, which was the story I saw most reported. 

So Amazon Video–in all its forms–is doubling. But we should be pretty skeptical for what that means.

Lots of News with No News – Ron Meyer Leaves NBC Universal

The strange part of this sordid saga, as I see it, is that Meyer was still employed by NBC-Universal. The ultimate survivors, he transitioned through countless leadership changes as NBC/Universal was passed from GE to Vivendi to Comcast. Yet, the news of the last few months has barely included Meyer since all the energy is in streaming.

Visual of the Week – The Biggest Broadway Musicals of the 2010s

Well, the race is on to get your Broadway musical. First, Disney set the standard with Hamilton. Now, Netflix is fast on their heels, getting the rights to a Princess Diana musical.

This got me wondering, especially the Hamilton news, about how big was Hamilton in the 2010s? Was it the biggest live musical show in the world in the 2010s?

Fortunately, Wikipedia has us covered with data from The Broadway League, so here’s a chart that didn’t make it into my Decider piece. When you look at “Per show” revenue, Hamilton was a popular monster that has few peers.

IMAGE 1 Revenue Per Performance

Some quick insights:

– First yes, winner take all. It shouldn’t even be a surprise at this point. Which was Wicked, until Hamilton, which will likely earn twice over however long it’s lifespan runs. Moreover, the Disney+ platform will likely only boost long term receipts as more folks want to see it in person.

– Second, here’s the table if you want the data yourself. This is sorted in total Gross Revenue to provide a different look.

Image 2 Table

– Third, if you look at “Revenue per Year”, you can see another look at just how much Hamilton was making. 

IMAGE 3 - Revenue Per Year

Is Antitrust the New Deregulation?: The Strategic Implications of Ending the Paramount Consent Decrees…and What Comes Next

In his very good book Good Strategy/Bad Strategy, professor and globe trotting strategy consultant Richard Rumelt makes a key point about how evolving industry trends impact strategy. After describing why military strategy is obsessed with “the high ground”, and how companies often focus on the technological high ground, he makes this point:

The other way to grab the high ground…is to exploit a wave of change. Such waves of change are are largely exogenous–they are beyond the control of any one organization. No one person organization creates these changes…Important waves of change are like an earthquake, creating new high ground and leveling what had been high ground. Such changes can upset the existing structures of competitive positions, erasing old advantages and enabling new ones…They can enable wholly new strategies.

The first example he trots out is router technology. AT&T, Apple, Microsoft and other computing companies would have seemed like the obvious contenders to develop routers for the boom in internet traffic in the 1990s. Instead, it was small–now big–Cisco Systems. That’s because Cisco understood that the value they could add was in software, and updating it regularly, whereas AT&T, Apple and Microsoft were hardware companies. They didn’t see how underlying technology trends would upset the industry.

That’s technological high ground in a nut shell. But sometimes changes in government regulation can have even bigger impacts. 

For this, Rumelt takes us to airlines. When airlines were a heavily regulated industry, wild profits could be made on long haul flights, since the Civil Aviation Board set rates at essentially “cost plus”. When deregulation happened, many airlines continued to operate as if pricing would remain at that fixed level. Instead, prices plummeted for long haul flights and profits went with them. Of course, one airline developed a strategy to thrive in deregulation and thrived, Southwest.

My read on the “entertainment business” coverage–roughly the trades, the full-time entertainment business reporters, the analysts at some sell side firms, and in particular the “techno-futurists” touting their wares online–are obsessed with the former (technology disruption) and largely ignore the latter (government regulation).

This is unfortunate and largely to our strategic detriment.

The big story of the month is that a Federal (unelected) judge allowed the “Paramount Consent Decrees” to expire, based on a decision from the Department of Justice last fall. In my weekly column, I tried to explain what could come next. But really, understanding what comes next requires understanding what came before. And that’s today’s long article. I’ll explain why regulation is such a big deal in media and entertainment. Then, I’ll try to figure out what comes next. In particular, setting the potential shape of the future so clever strategists can seize the advantage.

(Yes, this is an “American-focused” issue, and I have more and more international readers.  I don’t hate you Europe, but don’t know your regulatory landscape nearly as well.)

Government Regulation is Hugely Important in Entertainment/Media

Just go back to George Orwell’s 1984 to understand why government regulates media so tightly. He who controls the news, controls the present. And so on. As a result, as soon as mass broadcasting technology was invented, it was regulated. In America by the FCC, FTC and others; in Europe and the rest of the globe, each country regulates their media in some fashion. (The furthest extreme is China.)

Many strategic tools take this into account. The best framework for this look is the McKinsey-originated SCP framework, “Structure Conduct and Performance”. SCP stands in contrast to Porter’s Five Forces, as the conduct and structure focus on a lot of the structure and regulation of an industry can impact profits and strategy.

When you analyze entertainment as an industry, one must take the heightened scrutiny of media/entertainment into account. Take America. It’s still against the rules for foreign ownership of domestic broadcast and cable channels. Hence, Rupert Murdoch had to get American citizenship to launch Fox/Fox News and Sony is the only conglomerate without cable channels.

Two Regulatory Forces of Entertainment Media: Vertical Integration and Concentration

The Paramount Consent Decrees—and their ilk—were born from this heightened scrutiny. Going back to the dawn of film, the concern was always that giant players would box out the little guy if they controlled both the production and distribution of content. And they did! Thus, the government sued the major studios in the 1940s and the “Paramount Consent Decrees” were born. They regulated that movie studios couldn’t own theaters, with the goal that theaters should show films from all the studios/distributors. (Did this contribute to the “golden age” rise of independent films in the 1970s? Maybe.)

This impetus to avoid vertical integration extended to broadcast television and through the 1980s broadcasters had limits on how many of their own shows they could buy.

(Why are so many NBC shows on HBO Max, not Peacock? Because of those regulations.)

These specific regulations were more aimed at preventing vertical integration. And the media/entertainment conglomerates have shown that if they are allowed to vertically integrate, they will. The idea that if a firm can control everything from production to distribution, they can maximize their revenue. Indeed, AT&T was explicit that its goal in acquiring Warner Media was this level of integration.

A related issue is general industry consolidation. Notably, the American government never passed a law or bill rescinding the Sherman Antitrust Act. That bill is still the law of the land. However, since the 1980s, it’s power has dwindled and actual enforcement since the government case against Microsoft has been weak to non-existent.

While we haven’t seen this in movie studios (we’re still at six and have been for some time, maybe more counting the new entrants of the last decade), we’ve seen it in music, movie theaters, cable companies, TV channel conglomerates, general entertainment conglomerates, cellular communications and more. 

This tends to be great for the surviving conglomerates, since they can use pricing and monopsony power to boost profits. (The losers are consumers.)

The question is what comes next. The government’s logic in ending the Paramount Consent Decrees was that it no longer made sense to keep one particular distribution method separate when every other part of the chain is vertically integrated. I can see that logic. But will it continue? And what about general concentration?

Predicting Antitrust Enforcement: It’s Hard!

Let’s start with the obvious: predicting the future is really hard!

Not for some analysts, as I sarcastically write and subtweet regularly. They know who they are and they can predict with fairly precise certainty that some things will happen on vague timelines. (Usually the bigger the platform, the bigger the confidence.)

Of course, this is foolish. As of September 2016, we all knew who was going to be President. Yet, we were wrong. (Don’t worry for the folks who can predict the future knew both that Clinton would win and Trump would win, and can usually point to examples where that support both predictions.) Has the regulatory landscape altered between a President Trump regime and a potential President Clinton campaign? Absolutely. Likely, the Paramount Consent Decrees would still be in place. How different would everything else be?

Probably not as different as it could be. Likely there would be some more antitrust enforcement, but remember the Obama administration approved the Comcast-NBC Universal distribution, which was a much bigger blow to vertical integration than losing the Paramount Consent Decrees. Frankly, I don’t think a Clinton administration would have worked to aggressively break up Big Tech or Big Entertainment. (Would they have tried to stop either the Disney-Fox merger or the AT&T-Warner Media merger? Probably not, actually.)

The lesson? Be very, very, very cautious predicting the future.

If a Democratic Presidency Happens, What comes next for Antitrust?

Yet, we have to make predictions to make strategy. So let’s answer the key question for antitrust and entertainment: 

Are the Democrats in a different place with regards to antitrust enforcement now? 

Maybe. A very tentative maybe.

Between the antitrust subcommittee hearings on Capitol Hill, the broadening discontent with big tech, the rise of the New Brandeisians (and their increasingly visible boosters like Tim Wu and Matt Stoller), and the continued scholarship showing that increasing inequality and stagnant GDP growth are tied to economic concentration, a Democratic administration could maybe just finally start reversing the trends of increasing consolidation across industries in America.

Again, maybe.

If you ranked every Democratic candidate for President by their emphasis on antitrust enforcement–guess what? I did. I’m a single issue voter now on antitrust enforcement–the bottom two would have been Joe Biden and Kamala Harris. Joe Biden is a force for moderation, and he’ll likely hire traditional Democrat power brokers in Washington. In antitrust, this means lawyers trained that mergers are a good thing. Meanwhile Kamala Harris has been supporting Big Tech since she first ran for DA in San Francisco. She’s not advocating to break up those companies. From Dealbook:

Screen Shot 2020-08-13 at 2.42.04 PMScreen Shot 2020-08-13 at 2.46.25 PM

Thus, predicting the future, two key variables will determine if antitrust enforcement (with potential new rules on vertical integration in media/entertainment) changes. First, does a Democratic administration take control in November? If Trump or another Republican is in office, antitrust enforcement will stay lax. (Nate Silver’s model gives Trump the same probability right now as it did on the eve of election night last year.)

Second, when in power, do Democrats fundamentally change enforcement? For this question, look to Biden’s hiring. If Elizabeth Warren takes either Attorney General or Treasury Secretary, it’s an antitrust game-on, Donkey Kong. (Congress could also take a stand, but that’s only if Democrats control both houses.)

Third, does renewed antitrust include regulation on vertical integration? Or just industry consolidation? Or maybe regulations on platforms like iTunes, Amazon and Apple? How regulation happens is just as influential as whether or not it happens.

My Big Idea: Antitrust is the New Deregulation

Taking Professor Rumelt’s advice, 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. 

Essentially, since the Borkians seized control of antitrust via the courts, nearly every merger has gone through. It’s how we went from a dozen cell phone companies to three. Notably, private equity noticed this trend in the 2000s, and their buying sprees were often to deliberately create monopolies. And no on stopped them. This trend didn’t occur in a big legal decision, but accreted over time. Its reversal would likely take the same course.

If Democrats embrace the “antitrust enforcement mantle”, it would have “deregulation-sized” implications. For example, if Congress wisely (in my opinion) passed a rule that streamers had to own 10% of their own content, I’d invest in an original production company. Letting the 90/10 rule lapse is what essentially killed independent production in the 1980s. Reviving it would be great for independent producers and talent in America.

(This is why in Europe I’d invest in original production right now. Given the requirements for local content on the streamers, independents could thrive.)

My Recommendation? Monitor Which Way the Antitrust Winds are Blowing

Thus, leaders should carefully monitor the landscape. As long as deals keep getting approved with little to no scrutiny, I’d be in an acquisition mode.

Meanwhile, if more enforcement is coming, be prepared to divest quickly and smartly. If you’re private equity, be prepared to buy either independent production companies or other pieces of talent to take advantage of more competition.

Yes, that’s a lot of hypotheticals. But it’s how I’m thinking about this. When it comes to the future, most folks are obsessed with everything digital and technology. Not boring things like contract law and economic consolidation. That’s a miss. Antitrust could be huge in the 2020s. Potentially the defining economic change in the next decade. Especially in media, entertainment and communications. Or maybe not.

Most Important Story of the Week – 14 Aug 20: What Comes Next As The Paramount Consent Decrees End?

The theme of the week is “antitrust”. It didn’t start out that way, as Friday night’s leadership change at AT&T would have been the story of the week most weeks. (Though, I consider it less of a big deal than most, and that’s why it’s at the bottom of this column.) So which M&A story wins the crown?

Most Important Story of the Week – Ending the Paramount Dissent Decrees

Ending the decades old Paramount Consent Decrees isn’t simple to explain. Because it was also the core trend in regulation over the last 30 years, it took me about 1,700 words. Which I’ll put up early next week. (Just too much news this week.)

In this column, I’ll just focus on the question on everyone’s mind is what comes next. To guess at that requires answering the key trend in government regulation: will antitrust enforcement become more lax or strict over the next few years? Let’s try both scenarios.

Continued Lax Antitrust Enforcement

Starting with the likelier outcome: nothing changes. If there are any economic headwinds in January–and there probably will be!–industry leaders will tell President Biden that breaking up companies will hurt growth. (It won’t; it will hurt industry profit and those are two different things.) That will scare him from enforcing current law and thus, things stay the same.

That leaves these key facts: 

– There are three big studios with lots of cash/success (Disney, Warner Bros, Universal)
– Three smaller studios with less cash (Sony, Paramount, Lionsgate)
– Lots of smaller distributors (A24, STX, Annapurna, etc)
– And the new digital titans with mountains of cash that make Smaug the dragon jealous (Netflix, Amazon, Apple, etc). 

– There are only really three major theater chains: Regal, Cinemark and AMC Theaters.

If the big players with lots of money can buy a studio chain–and honestly the prices are so low in the Covid-19 economy, for some it’s a drop in their debt bucket–I think they will. Sure, theaters are a dying industry (kidding), but being able to collect all the theatrical rentals and own the entire relationship will be too big of an opportunity for at least one of these entertainment/tech giants to pass up. 

Even if it isn’t a great business opportunity, when Comcast announces it is buying AMC Theaters, hypothetically, that will leave Warner Bros and Disney staring at only two remaining chains in the US. If Amazon or Apple sounds interested, then suddenly the land grab is on. If the remaining theaters get purchased by other studios, the remaining studios will be terrified their movies won’t get played. That’s their worry. Sure, Disney will probably be fine with its blockbusters, but would Paramount make that bet? Or Lionsgate?

Thus, tentatively, I think we see the theater chains get snapped up. When? That’s tougher to say, given that everyone’s cash flows are a mess right now. But once the race starts, it will end with all the theater chains under new ownership. I know I’m the outlier on this –the smart take is, “No Disney won’t buy a theater!”–but the logic feels inescapable: if there are three chains, and 10 potential buyers, they’re gonna get bought up.

In the meantime, you’ll see lots of block booking, licensing of films to theater chains and other practices previously held in check by the decrees. They were held in check because the big studios know they can extract rents from theaters with them. Since these practices benefit the bigger studios with blockbuster films, the independent distributors will definitely be hurt. Of course, the judge deciding the case said she didn’t see this happening, but judges tend to be shockingly bad predictors of future corporate behavior. 

(Judge Richard Leon who approved the AT&T deal and, I believe, the Sprint/T-Mobile mergers takes the cake in this. He consistently believes that companies won’t raise prices after a merger, and then they always do! Funny how that happens.)

Renewed Strict Enforcement

On the unlikely side of the coin, potentially a President Biden and Attorney General Warren come out swinging at consolidation. In that scenario, everyone will be scared to start an M&A process. Potentially, the theaters could be candidates to get broken up! (Arguably, this would be great for the industry. With dozens of smaller theater chains, they would be more innovative and focused on their strategy.)

Moreover, an AG Warren would look at harmful vertical integration practices across the spectrum of entertainment. Everything from how licensing deals harm talent to price collusion by the entertainment conglomerates to platforms extracting rents as monopolists to, and this is is crazy, how price gouging by big tech to seize market share. 

That said, I’m skeptical strict enforcement is coming. Guess what? Wall Street agrees. Which I’ll explain next week.

M&A and Antitrust Updates

Wow, what started as a quiet week in M&A news got fairly busy. 

Sumner Redstone Passing Away Means More M&A around ViacomCBS

First, Sumner Redstone passing away is the end of an era, an era with old-fashioned media tycoons. He assembled his media empire by buying, buying, buying in an age that was just beginning to allow media consolidation. That’s sharp insight into the landscape. Of course, he also was described generously as a “brawler” and negatively as “thuggish”, so it’s not all a positive story for old-fashioned tycoons. He was also notoriously litigious, which again is less business acumen and more brute force.

What comes next for ViacomCBS? The scuttlebutt is something, but what we don’t know what. Both ViacomCBS finally being sold (Current market cap is around $16 billion.) is an option and so is ViacomCBS buying more (MGM? Discovery?) to then be sold to a bigger buyer. Or it holds the course as it tries to boost its stock price. 

Epic Games Sues Apple for Anti-Competitive Practices

In a week that doesn’t see the end of the Paramount Consent Decrees, this is the clear number one story of the week. So important that I’ll save it for next week in case we have a slow news week. The story is that Epic Games–maker of Fortnite–is upset at having to pay Apple’s 30% pass-through tax/fee/rent on in-app purchases. So they just stopped, Apple kicked them off the app store, and now they’ve gone to court. Google then followed suit. (That last part is good news, since it means this story is far from over.)

This will have ramifications for video games, technology and entertainment. Consider Disney+: Right now, they’d have to pay Apple $9 for every $30 rental of Mulan (unless they negotiated another split). If in-app purchases go away, Disney gets to keep that for themselves.

I won’t even bother to forecast how this ends, but we’ll be paying attention.

AT&T Wants $1.5 billion for CrunchyRoll

This is a bananas story–that’s a technical term–in The Information, the outlet that seems to get all the scoops. AT&T thinks CrunchyRoll is worth 10% of all of ViacomCBS? My how things have changed.

If I were Sony, I’d point out just how low the barriers to entry are to buy anime content. Every streamer has their M&A vertical from Netflix to Amazon to Hulu. It’s just not a point of differentiation, and definitely not a $1.5 billion point of differentiation.

Data of the Week – BBC Global Audience

I’m a sucker for global data numbers, so the number of the week is BBC reaching 486.2 million folks around the globe, an increase over last year’s record of 438 million. Of course, like any number defining reach is always tricky. This seems to include folks who simply visited any BBC website over the last year, which is valuable, but not quite the same as regularly watching BBC News.

Still, the 400 million reach number is a good stand in as well for global English language total attributable market. Meaning, if you were Netflix, you could point to that as the upside scenario.

Other Contenders for Most Important Story

No College Football

This is bad news for ESPN, Fox, Fox Sports, ABC, NBC and CBS. Less live sports means less lucrative revenue for the traditional businesses. That’s a pretty simple case. And in other weeks could have been the story of the week. (Though its impact is lessened by the chance the season moves to the spring and that other sports are going full bore.) Rick Porter has the good read this week. Anthony Crupi too.

NCAA Alston Case: Supreme Court Helps College Athletes

The Supreme Court refused to allow an injunction in the Alston Case, the ruling that says NCAA players can get paid to play. While this isn’t the final word, it makes it much more likely to actually go into effect. If, of course, there are sports to be played.

Sky World News shuttering

Comcast bought Sky from Fox during the Disney merger time, and one of their big initiatives was to launch a global news service. Well, those plans are on hold. 

Lots of News with No News – AT&T Friday Night Change in Leadership

Oh yeah, this happened.

Notably, this isn’t a “massacre”. Let’s save such extreme language for bigger changes. Instead, Jason Kilar is consolidating control at AT&T’s Warner-Media, with the narrative that this will allow him to focus on streaming, streaming, streaming. Let’s go best case/worst case.

Best Case: The strategy is more focused.

A good strategy is a focused one. Arguably, Kilar is eliminating his direct reports who don’t share that focus. So if you were wondering if AT&T would “burn the boats” for HBO-Max, Kilar has forced them to. A simpler org chart should help drive HBO Max growth.

Worst Case: He’s eviscerated his content side.

Not completely, he had five creative types before, he’s down to three now. Did he pick the right ones? We don’t know. (I don’t have enough data to prove it.) But none of them are guaranteed hit-pickers like a Les Moonves at his peak. The further worry is that Kilar is NOT a content guy and “content is king”. When he was at Hulu, Kilar was was more focused on the algorithm than the content, right as Netflix went all in on the content. Vessel was Quibi before Quibi was Quibi, with the same lack of detail for content.

Meanwhile, my sympathies go out to the hundreds of folks losing their jobs at Warner Media in this consolidation. That’s never good to hear.

Who Will Win the Battle for the next “Game of Thrones”? : Where We’ve Been

 

(This is another entry to a multi-part series answering the question: “Who will win the battle to make the next Game of Thrones?” Previous articles are here:

Part I: The Introduction and POCD Framework
Appendix: Licensed, Co-Productions and Wholly-Owned Television Shows…Explained!
Appendix: TV Series Business Models…Explained! Part 1
Appendix: TV Series Business Models…Explained Part 2
Appendix: Subscription Video Economics…Explained Part 1
)

A trope of genre fiction is the character with unfinished business. The lone wolf who harbors a grudge against someone or something that harmed his family, destroyed his life or stole his (or her) kingdom. 

July was “unfinished business” month at The Entertainment Strategy Guy headquarters. I’ve started quite a few series and let news or time distract me from finishing them.  Having checked back in on “Should Your Film Go Straight to Netflix?”, “Coronavirus Impact on Entertainment” and “The Star Wars 2019 Business Report”, it’s time to return to a series that’s over a year old, diving into a deliciously provocative topic: which TV series will make the most money for its streamer, the next Game of Thrones or the next Lord of The Rings?

Why didn’t this series get finished? Two reasons. First, I got severely distracted by explaining all the math behind my models as I was building them. This resulted in five articles that were essentially “appendices”. (Seriously, if you want to understand the economics of streaming TV, check them out.) Second, pulling the data on past fantasy TV series and movies took longer than I anticipated.

No more! Today I’ll review:

– A summary of this series so far.
– An update on the news in “fantasy TV” since last summer.

Summary of Where We Were

Cue the narrator voice for a genre series returning after a two year hiatus: “Previously, on GoT vs LoTR vs Narnia”. My challenge is about as difficult: explain a several thousand word series in a few hundred words. 

This series was inspired by the general rise in fantasy programming at all the streamers. It wasn’t just Amazon that wanted the next Game of Thrones, so did Netflix and Disney+ and even HBO itself. I framed the question as:

Which franchise will make the most money for its streamer in the future, Game of Thrones, Lord of the Rings or Chronicles of Narnia?

My initial assessment—what I call a “Blink” look—is that HBO will win. Frankly, they paid way less than Amazon. (Initially described as a $250 million dollar deal for Amazon.) Then I heard that Amazon guaranteed 5 seasons! That’s at least $1.25 billion, and maybe more. That only gives the edge even further to HBO. At first, I didn’t really consider Netflix a viable competitor. (I was wrong.)

Then I moved onto the analysis. Which means building models to see what they tell us. The basic formula is pretty simple:

(The probability of success X The revenue upside in success ) — Costs = Likelihood of money made

The tricky part is calculating all that. To explain it, I’m using the “POCD” framework: 

People
Opportunity
Context
Deal

It’s a framework from the venture capital world, but I’m applying it uniquely to TV series. Essentially, people, opportunity and context describe how much revenue a company can make, and the deal explains the costs. 

I’ll make a bespoke model for every series under consideration using the various POCD inputs to change the probabilities or potential revenue/costs. I explained the TV profit model here and here, and also explained the tricky nature of streaming video economics here. (Those last two articles laid the ground work for my series on “The Great Irishman Project”.)

Then came the distraction. Since I had built this kick-ass TV series business model, I decided to use it on the original Game of Thrones. In a big piece published on Decider, I estimated how much money I thought GoT had brought in for HBO. (A whopping $2 billion plus.) This provides terrific context for the “upside” of all these fantasy series. (I wrote a few “director’s commentaries” for this article too.)

So that’s where my series left off. But the news didn’t end just because the series was delayed.

All The News Since Last Summer

When I started this series, I focused on three fantasy series based on arguably the three most influential fantasy books of all time…

Game of Thrones prequel (HBO)
Lord of the Rings prequel (Amazon)
Chronicles of Narnia (Netflix)

 Since then a few fantasy series have come out…

The Dark Crystal: Age of Resistance (Netflix)
Carnival Row (Amazon)
His Dark Materials (HBO)
The Witcher (Netflix)

And more have been developed or are in production…

The Wheel of Time (Prime Video)
Sandman (Netflix)
– Untitled Beauty and the Beast (Disney+)

If all those qualify for this battle, we’re up to 10 potential contenders for the replacement for Game of Thrones. And that doesn’t include potential series (Disney’s Book of Enchantments and Lionsgate’s The Kingkiller Chronicles) that died in development. And I haven’t even looked at Syfy’s lineup to see what else could qualify. (The incomparable Magicians just ended after their fifth season. Pay attention to that data point for later.) 

The Specific Updates

HBO and Game of Thrones prequel

In one of the more fascinating single day development moves, HBO both cancelled one prequel series (The Long Night/Bloodmoon) and announced another prequel series about the Targaryens (set about 300 years before GoT) called House of Dragons. I could spin this as good or bad for HBO, but either way their series is still happening. Right now, HBO is saying the prequel will arrive in 2022.

Amazon and Lord of the Rings prequel

Amazon meanwhile is furthest ahead, having started production this spring in New Zealand, only to be another Covid-19 casualty. (Though I believe production is set to start production soon or already has.) Amazon was under time pressure to get a TV series in production within two years, and that appears to have motivated the streamer.

Netflix and Chronicles of Narnia

If you search for Chronicles of Narnia and Netflix, you run into a series of articles asking, “Is this thing still happening?” And no one really knows. Netflix insists it is, and Entertainment One has hired a “creative architect”, but there is no release date or known shooting schedule. Which means we’re going to drop this series from our main contenders for another lower down.

The Dark Crystal and Carnival Row 

I’d describe these two series and “came and went” at Netflix and Amazon (respectively). Like the Magicians, these two series demonstrate that not every fantasy series is a guaranteed blockbuster. Though the former was arguably more popular due to the “Netflix Effect”. Still, neither is set to be the next Game of Thrones. 

HBO and His Dark Materials

As one of HBO’s first “Monday premieres”, this series was overwhelmed by Watchmen in terms of buzz. It has a better chance than either of the two previous series at being a future Game of Thrones, but the odds of that are pretty low.

The Witcher on Netflix

And now we have a legitimate contender! Lots of folks pointed out that I should have dropped Narnia for The Witcher when I first started this series. Indeed, The Witcher may have single handedly helped Netflix meet subscriber targets by releasing right at the end of 2019. It is arguably Netflix’s first or second biggest show currently on the air. (With the acknowledgement that “on the air” is an anachronism.) In other words, The Witcher has a great chance to be the next Game of Thrones.

Meanwhile, I’m going to monitor every other fantasy series that pops up in development or production. (For example, Amazon’s Wheel of Time series has promise.)

Now that we know where we’ve been, and what’s happened since, we can move into our four-part framework for predicting which of these series will win the battle. Tomorrow, we’ll continue with the first letter in our framework, P for People.

Most Important Story of the Week – 8 Aug 20: Hotstar, Star, Hulu and the Perils/Promises of International Growth

We’ve ended the “Asterisk Extraordinaire Earnings Season”. Giant tech companies did well; lots of other folks did poorly; what happens in the future is up in the air. 

One company that did particularly poorly was The Walt Disney Company, which wasn’t much of a surprise, given that all their theme parks were closed, so were the theaters they use to release their big budget films and their flagship channel ESPN didn’t have live sports. No company was more exposed to “quarantine of everything” than Disney. Well, maybe Live Nation. (Of course, since Disney beat their “expectations” their stock price went up.)

The story that caught my eye–and many folks on Twitter as well–was the news about Disney’s plans for Hotstar. Which is unique enough to be my…

Most Important Story of the Week – Star (nee Hotstar), Hulu and the Perils/Promises of International Growth

The news is Disney plans to turn Hotstar into a global streaming service.

For those who don’t know, Hotstar is an Indian SVOD company that was part of 21st Century Fox and the Murdoch empire. It is owned by Star in India, which is a wholly-owned subsidiary of Disney. Lots of insiders noted at the time that while Fox had a lot of buzzy assets (Simpsons, X-Men films, FX), Hotstar could have been the secret, undervalued asset since it’s the biggest streamer in India, despite fierce foreign competition.

Indeed, when Disney launched Disney+ in India, they used Hotstar to give it a boost. To simplify, Hotstar is to India what Hulu is to America: a broad general entertainment service. India, then, is another example of Disney using multiple streaming services to provide a general entertainment bundle. (Star also has lots of sports rights.) 

The news this week is that Disney plans to use Hotstar–referring to it as “Star” in their earnings report, presumably the new global name–as its new global, general entertainment brand. Many assumed that Hulu would have this role, partly because even Disney said Hulu would eventually roll out internationally, sometime in the 2021 calendar year. And when they clarify “calendar year” that means Q4, since their financial year starts in the fourth quarter of the calendar year. (I had thoughts for how they should optimize their next round of streaming launches here.) 

This news is a bit surprising. With the onset of Covid-19, Disney said they were delaying Hulu’s international rollout. Presumably that meant all global streaming ambitions.

Apparently not!

In other words, Hulu is out and Star is in. It wasn’t about saving money, it was about changing strategies.

Star has some advantages over Hulu. First, Hulu is still partially owned by Comcast for a few more years, and that means they have some input into how it operates/makes/loses money. Second, Hulu doesn’t have an international footprint, so it doesn’t have any advantage over Star in branding. Third, since Hulu isn’t global, it doesn’t have international rights for most of its content, which means again it has no advantage in launching globally.

Whether it’s Star or Hulu, clearly Disney wants to be not just a US or Indian only streamer, but a global streamer like Netflix or Prime Video. And the reason is to take advantage of what Netflix (and its boosters) call “global scale”. The idea that if you make content and sell it globally, you can amortize it over a broader swath of customers, hence increasing return on investment. For this strategy to work, it means content in one area has to travel well globally. 

The complication is that not all content travels well. In fact, I’d estimate 90-99% of content does NOT travel well. Yes, this clashes with the rhetoric coming from Netflix and Netflix analysts that tout the streamer’s global scale. This frankly just isn’t supported by the economics or the data. (Do I have a half-written article on this that I haven’t published yet? Yes, I’ve been working on it for two years.) 

The content that does tend to do well globally is relatively narrow, with some outside exception: 

– Big feature film blockbusters produced in Hollywood
– Animation (Because the voices can be easily dubbed.)
– Some procedurals produced globally (Think police dramas.)
– Some soap operas produced globally. (Think telenovelas or K-Dramas.)
– Some broad comedies (The key is not niche or culturally specific humor.)

This is my big worry for Disney’s global plans. Both for Hulu when it got delayed and now for Star. Essentially, they’re building a global service off primarily American originals and American productions. Don’t take my word for it, here’s Bob Chapek:

Star Content

The worry is that FX prestige dramas don’t play in Indonesia. Same for Searchlight indie darlings. And the same for broad-based comedies produced by Disney-ABC Television. As an American, I’m in for these types of shows. But I understand, and have seen, that different cultures want content produced by that culture.

Does Disney have broad, tentpoles for a service like this? Yep. If you want global content, nothing better than this:

disney-plus-layout copy

And toss in the wildly popular globally Simpsons. But that content is already on Disney+. So what does Star offer to customers if Disney+ is really the globally appealing service? Sure, it can bundle Disney+, but then why would customers who aren’t in India want/need Star?

My Recommendation: Take The Middle Ground: A “Regional” Streamer

If I were advising Disney, I would ignore the not-actually-working-in-practice theory of “global scale.” It’s a mirage. Instead, I’d focus on content that travels “regionally”. My suspicion is Disney knows this and that’s what Star’s actual mission is.

See, between content that doesn’t travel at all and content that is globally popular is a third type of content: “regional” content. This content travels within certain language groups or cultural areas. 

For example, Bollywood dramas play well globally. They just don’t travel to markets like America or Europe. But they perform across South Asia, the Middle East and larger Asia. If this type of content was paired with TV content from America that does travel well, you could begin to see a service that targets those regions fairly well. Then you could top it off with Fox/Disney blockbusters that don’t fit on Disney+.

Of course, then Disney would need European-focused content for Star in Europe and Spanish content for S Star in Latin-American focused service and so on. In other words, no global scale.

Long term, this strategy would get about as many subscribers as Netflix has globally, but would be more sustainable from a cost perspective. (While having less upside from the perceived advantages of global scale” for the stock price..) Instead of repeatedly overpaying (sometimes by 100%) for global rights, Disney could slightly overpay for regional rights, focusing on the territories most likely to actually watch a given show. (Again, I’ll prove this argument in a future article.)

Let’s bring this back to Hotstar/Star. I’m by no means an expert on their content, but from what I can tell, they don’t have a lot of original programming to act as the driver of even regional content growth. Here’s from the Wikipedia page.

IMAGE wiki

On the flip side, its parent company Star does have original production studios. Presumably with some content they can leverage globally. Again, I’m not an expert in Indian TV production, but Chapek mention it in their plans.

Final call? For the big news of the week, if the question is “good strategy or bad strategy?” for the moment I have to say, “It depends.” Disney is clearly launching something globally and Star seems to be an easier brand to do that with than Hulu. But it’s far from a sure bet.

Data of the Week – Peacock has 10 Million US Sign-Ups; Disney+ Has 60 Million Global Subscribers

Peacock’s 10 Million “Sign-Ups” 

Is this a good number? Like last week, I don’t know. More than any other streamer, Peacock is a work in progress. It’s biggest tent pole–the Olympics–was delayed a year. Hopefully Comcast will keep releasing these sign-up numbers every quarter.

Likely NBC-Universal saw a big jump in sign-ups at both launch (Comcast/Cox in April, national in July) based on the advertising campaigns. My guess is new sign-ups will slow until the Olympics and look like a shape I’m calling “the substack curve”. The question is when they can get their next big leap in subscribers. Unfortunately, that’s probably not until next year, at the earliest. 

Disney+ Subscribers: Did Hamilton Help?

Disney announced a Covid-19-driven boost in subscribers. Here’s how Disney’s subscribers have grown over time:

Screen Shot 2020-08-06 at 1.38.49 PM

Thankfully Disney wants to keep winning headlines, so after each earnings report they provide updated Disney subscriber numbers. This enables us to see a nearly monthly growth in subscribers for the streamer.

Someone pointed out that for all the buzz of Hamilton–here’s one analysis saying more folks have streamed it than seen it in person–it didn’t actually move the needle in subscribers. (For instance, I said it “won” July over at Decider based on this assumption.) From June 27th–when the earnings report came out–to Tuesday’s earnings call, Disney “only” added 3 million subscribers. Some points on this interesting theory:

– My guess is 3 million is still quite a lot to add in one month. As their subscriber chart shows, the only other time they’ve beat this number of additional subscribers is when they launch in new territories.

– As Hamilton was one of only a handful of shows to launch in July, it’s a lot easier to triangulate how many new subscribers it acquired than it is for any given Netflix show. (We also don’t have official monthly subscriber numbers for Netflix.)

– Some of the subscribers likely did “churn in and churn out” of Disney+. Meaning they signed up for a month, watched all they wanted and cancelled. That’s the new reality for streamers, and I include Netflix in that. 

– We don’t know the “null hypothesis” meaning we don’t know how many subscribers Disney+ would have had if they didn’t move Hamilton. Essentially, this isn’t an “experiment” because the control group can’t exist. If Disney hadn’t released Hamilton, maybe Disney+ would still have ended up with 60.5 million subscribers or maybe they’d have stayed at 57.5 or somewhere in between. We don’t know.

– The blockbuster strategy is still the key for Disney. Those blockbusters need to be successful TV series based on their IP. I’m looking at you Falcon and Winter Soldier.

Other Contenders for Most Important Story

AMC Networks Announces Earnings

The headline is that ad sales are down, which isn’t surprising. The sub-headline is that due to Covid-19–asterisk extraordinaire–AMC is ahead of its goals for its multiple niche streaming services. 

Screen Shot 2020-08-06 at 3.51.04 PM

For a good take on the state of AMC, I recommend this recent episode of TV Top Five about the departure of Sarah Barnett.

CBS All-Access Expansion is Coming! And globally.

News continues to slowly leak out about SuperCBS’s plans to revamp CBS All-Access into a broader, Viacom-centric service. Notably, lots of episodes of Viacom programming are now available in CBS All-Access, though in many cases not current seasons due to ongoing licensing output deals. (Read the details in this long interview by Scott Porch at Decider.) Meanwhile, it’s collection of various niche streaming services does not seem to be going anywhere either. 

Then late yesterday, CBS announced its new plans for a yet to be branded Viacom-CBS global service. It’s a combination of Showtime, CBS and Viacom content, sort of like what you’d expect CBS All-Access to become.

Overall, the Super CBS strategy continues to not be well-defined, to not focused vision and to not build a competitive advantage. (That’s bad.)

Pluto TV and Verizon Deal to Offer PlutoTV

According to Deadline, the partners in this deal consider it ‘game changing”. And I can see their point: Pluto TV will be preinstalled on plenty of new phones and TV devices. (Notably not Apple devices.) That said, Pluto TV is and has always been “free”–it’s the F in FAST–so it’s not like as much money is changing hands as the Disney+/Verizon deal.

Lots of News with No News – Tik Tok Sale & Instagram Reels

My favorite hobby is pointing out that America’s tech giants are fairly poor at innovation. Indeed, most of the news businesses launched by Google, Facebook, Microsoft, Apple and Amazon are shockingly similar to smaller companies’ business models. The latest is Facebook taking aim at Tik Tok by launching “Instagram Reels” a thinly veiled video copy of Tik Tok. 

Meanwhile, Microsoft is negotiating to buy Tik Tok for somewhere between $30 billion to a trillion dollars. (Last number is fictional.) Judging by my newsletter feed, some folks consider this clearly the biggest business story in America. I’m not there yet, but will monitor if a sale happens.

Read My Latest at Decider “AMC Theaters and Comcast Declared a Truce: What does it Mean and What Comes Next?”

Well, I promised you takes on AMC Theaters and Comcast’s big new deal to launch feature films on “Premium Video on Demand” 17 days after release, and it’s finally up at Decider. What does that mean for theaters? Studios? And Streamer?

I explain in my latest along with some explanation for why this deal got completed.

HBO U.S. Subscribers Over Time – Visual of the Week

Inspired by AT&T’s release of HBO Max “activations” and total HBO subscribers, here’s a timeline of HBO subscribers and HBO+Cinemax subscribers over time:

IMAGE 1 Chart

If you’d like to see that in table form, along with some financial numbers, here you go:

Screen Shot 2020-08-03 at 11.13.55 AM

What about total subscribers? Again, we only have data from 2011-2017, but here you go:

Screen Shot 2020-08-04 at 9.35.20 AM.pngSome quick points and explanations:

– This data was cobbled together from random leaks, Time-Warner’s annual reports and AT&T’s earnings reports. (Links here, here, or here for leaks and here for Statista.) If you know of any I missed, send them my way.

– There is a chance that the reason AT&T didn’t release 2018 numbers for HBO, in addition to the merger being ongoing is because their numbers during Game of Thrones season 8 last spring were higher than they are right now. We don’t know because of gaps in the data, but looking at 31.4 million HBO subs alone in 2015, then considering they had 5 million digital only subscribers in 2017, that could easily have been higher than the current 36 million.

– With only 3 million subscribers having “activated” HBO Max, that service has a lot of room to grow. I’d compare that to the early days of Amazon Prime Video; it too had a lot of time to convince people to try it out, but also the free cash flow to wait. Math and explanation of activations over at Variety.

– If you want more on the financials of HBO, and discussion of their subscriber counts over time, read my article at Decider and the Director’s Commentary.

– Comparing multiple subscriber counts with different definitions reminded me of this table I built for Netflix last fall. I’ll update it this fall with yet ANOTHER definition for Netflix.

Read My Latest at Decider “‘Hamilton’ vs. ‘The Old Guard’ vs. ‘Greyhound’ vs. ‘Palm Springs’: Which Movie Was Straight-To-Streaming Champion of July?”

July was a big month for straight-to-streaming films. With theaters still shut down in the United States (and in large parts of the world) streaming is where the action is.

A couple of weeks back, I started dabbling with Google Trends to look at the big streaming movies in July for my weekly column. One thing led to another…and I ended up writing nearly 2,000 words on it.

I pitched it to Decider and they just published it. So if you want to know:

– What was the most popular film globally in July on streaming…
– Or how well Hulu and Apple TV+ stacked up against Netflix…
– Or how well Netflix’s action films are doing…
– And who–if anyone–is making money on these films?

Then check out my latest. I give winners and losers and talk about what we can divine of the economics in this one.

And the winners—specifically how much they won by—may shock you.

Cut for Room Thought: Since Tenet is Delayed

…should Warner Bros put it straight to HBO Max?

Hmmm. 

That’s essentially the question I’ve been asking in my long series, “Should your film go straight to Netflix?”. We’re in very different times than 2019, where I would have said no way. 80% of me still says, “No way.” (And it sounds like Warner Media agrees, based on their earnings call.) Potentially grossing a billion dollars at the box office is worth the risks. And then the film will be on HBO/HBO Max anyways.

That said…

…HBO Max needs something. They’re losing the Harry Potter films in August! The new Game of Thrones series is delayed for who knows how long. Is it worth taking a hit on Tenet to drive new subscribers to HBO Max in the US? 20% of me could see that argument.