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.

“Neverflix” – What Netflix’s Q2 Earnings Says About Their Future Strategy

This sub-bullet in CNBC’s “prepare you for the earnings report” article caught my attention:

QUOTE 11 - Wont catch p soonOn the surface, it’s clearly true. One bad earnings report won’t power Disney+ or HBO Max to 150 million subscribers. But as I reflected on it, the key variable is “when is soon?” By the end of the year, sure, Netflix is safe. But what about the end of 2020? Or 2021? If someone does catch up to Netflix, then the streaming wars will have a new champion.

Let’s see if the earnings report sheds any light on that question.

Strategy

Most earnings reports don’t reveal monumental shifts in strategy. This report would mostly qualify, except that Netflix did rule out a key potential revenue stream in fairly definitive terms.

“Neverflix”

At the end of last year, when it came to a Netflix show airing on a linear channel, I called Netflix the “company of Never”:

QUOTE 12 Neverflix

This earnings report doubled down on the fact that Netflix will NOT roll out advertising any time soon. I believe them and agree with this position. Adding advertisements will concretely change the user experience, likely leading to higher subscriber churn than the ad wizards begging for it expect.

I have softened on the position of “never” recently. I do appreciate Netflix’s relentless focus. A good strategy is a focused strategy, and saying “No” to efforts that divide your energy can be a wise tactic. But let’s not go overboard. For example, releasing episodes weekly.

I’d argue that decision is not material to the Netflix customer experience. Instead, binge releasing is a decision they made, and now cling to unnecessarily. Why isn’t, for example, Stranger Things 3 being released weekly? Having one series go weekly won’t lead to customer churn. There may be a 10,000 angry fans on the internet who want the binge, but again that’s noise, not signal. (I like this issue so much, I wrote an article for another publication coming out soon.)

Oh, and one other “never” that should really worry Reed Hastings.

The Never That Terrifies Me: Aggregation

If I understand the Netflix bulls correctly, the sky-high stock price—if it isn’t based on past performance being sky-high—is due to the fact that at some point, Netflix will be TV. Netflix isn’t just “another streamer”, it’s the future of TV. But is that future already in the rear view mirror?

Currently, many people get their HBO, Showtime and Starz through Amazon Channels. More will get Disney+, HBO and Showtime through Hulu. Apple will have another set of channels. Already, people experience streaming through Roku, and they added the ability to buy channels too. 

In other words, as Ben Thompson coined, the streamers are getting aggregated.

Eventually, the aggregators will offer bundles or discounts. Netflix, though, won’t be included because they have started pushing everyone to subscribe through the internet, instead of through those platforms. They did this because all those aggregators charge fees to sell the channels. I see two sub-optimal outcomes for Netflix as a result:

1. Eventually they get aggregated, which means they are “just” HBO.

2. They struggle to get awareness and presence outside the bundled aggregators.

Either choice is bad, and the sooner Netflix realizes it the better. (Hopefully more to come on this topic.)

Distribution: The good news

If avoiding digital bundlers is the downside case for Netflix, the upside case is integration with MVPD providers. Netflix announced that they will now be on AT&T’s devices that enable streaming integration. I’ve seen this work on Cox’s (via Comcast) Contour system, and it really does complement the cable bundle. Amazon Prime/Video is right behind them, and both are well ahead of the new streamers to catch up to their head start.

Competition: This is the low water mark for digital streaming.

Speaking of new SVODs, the other looming cloud over Netflix is the impending launch of the DAWNs: Disney, Apple, Warner-Media, and NBC-Universal. (Hat tip to Variety for coining.) Obviously, this will put pressure on Netflix to keep prices low to stay competitive—they are just below HBO in cost—and keep spending high to produce original content—they lap everyone when it comes to spending.

More interesting is how this will impact subscribers. While the launch of these streamers may inspire more cord cutting, which would benefit Netflix, the launch could also lead people to “cutflix” and trim the number of streaming options. But let’s move to our next section to discuss those implications.

Subscribers

How Many Subscribers Will Disney+ Grab?

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Netflix Q2 Earnings Report – A Lot Less for The Bulls

Back in the halcyon days of April, Netflix had just crushed another quarterly earnings report and it was riding high. In Decider, I said their report had something for both sides—for the haters and the lovers, skeptics and the supporters, bears and the bulls.

Well, Netflix finally had a bad earnings report.

The most fascinating thought, to me, was this one by Gene Munster:

“As much as I love the company, I just think its best days, unfortunately, are in fact behind it…I think we’re going to look back at this quarter as one of the pivotal moments in the Netflix story.”

If the laws of entropy are indeed correct, well at some point, every company’s best days are behind it. Unfortunately, we hardly ever realize this in the moment. This doesn’t mean the companies go out of business a la Blockbuster—IBM is well past it’s high water mark, but it’s still around and publicly traded—and it doesn’t even mean the stock price will decline—since stocks in general have gone up in general even faster than inflation. But at some point everything declines.

So is this the moment of Netflix’s high water market? Honestly, it may be. But we won’t know for sure until years from now.

To figure it out, I’m going to dig through Netflix’s last earnings report for the strategic insights I can find. As a reminder: I’m not here to give you stock advice. I’m here to critique strategy and Netflix’s quarterly reports are the best time to update my priors/data on Netflix’s strategy. Today, let’s discuss meta thoughts and content strategy; tomorrow I’ll go over strategy, subscriber and financial thoughts.

Meta Thoughts

At Least Netflix Gives Us Financial Data to Parse.

Let’s praise Netflix for one thing to start: producing this document in the first place. 

If Apple had bought Netflix in 2015, Netflix would have become an operating segment, which means that Apple could pick and choose selected numbers to release about their performance.  Likely they would have hidden as much as possible, they way they now hide iPhone sales. So I’d have much less data to judge them on.

To get a feel for this, take a gander at AT&T. We used to get a lot of HBO data every quarter—even as part of Warner-Media—but since AT&T acquired them, they went back to not reporting on HBO specifically. Meanwhile, if HBO were a standalone company, we’d have even more data than both previous reporting situations. The current situation leaves us guessing about their revenue, operating income and subscriber totals. We only get little tidbits if AT&T deigns to give it to us.

If we had to power rank the streaming platforms based on data released, right now it looks like this:

1. Youtube
2. Netflix
3. HBO
4. CBS All-Access
5. Hulu
6. Amazon Prime/Video/Studios

And all of them pale compared to the networks and TV channels of old who had TV ratings released every day and provided us financials. To Netflix’s credit, they give us their financials to make columns like this possible.

What is a “Netflix Killer” Anways?

Alan Wolk had a good article at TVRev clarifying that Netflix won’t actually disappear anytime soon, which is a statement I wholeheartedly agree with. Why, then, do so many headlines have “Netflix Killer” in them? 

Well, fuzziness in definitions. For a lot of folks, Netflix is one of the most over-priced companies in the world. They’re usually reacting to folks who think that Netflix is destined to conquer all of television. So you could reasonably say that any of the following end states is the “death of Netflix”, depending on your point of view:

1. Netflix suffers a few bad quarters and ends up with a price-to-earnings ratio around 20-25. (To show the gap, Netflix is currently at 123; most media firms trade between 15-20; Disney is currently a 20.5.)
2. Netflix is acquired by another larger digital company. (I recommend Facebook in this article.)
3. Netflix becomes the 3rd or 4th most subscribed OTT platform in America and/or the world.
4. Netflix goes out of business.

This is how I can think that Munster may be right—Netflix’s best days are behind them—and that Alan Wolk is right—there is a no “Netflix killer”. It depends on the definition. My personal opinion is that option 3 above is exceedingly likely, which means Netflix should valued like HBO, not like Amazon. Netflix is here to stay, but maybe not one of the most highly valued companies in the world, which may be death depending on how much stock you hold.

Content

How do you evaluate the biggest spender in Hollywood’s performance when they dole out so little data? By my count, they’ve released 17 “datecdotes” going back to the Q3 2018 earnings report. They’ve doled out a few more to news outlets over time, like this one to Reuters, this one to Variety or this tweet for Stranger Things last week. 

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Most Important Story of the Week and Other Good Reads – 19 July 2019: Carriage Wars! (with Some Netflix Data)

I love Netflix earnings report day. It’s the one day of the year where Netflix has to go “off-background”–read this Columbia Journalism Review article by Brian Merchant on the insidiousness of that practice–and has to give real numbers. That doesn’t, though, make it the most important story of the week. That honor instead belongs to a different battlefield in the streaming wars…

Most Important Story of the Week – Carriage Wars Heat Up!

The “long read” of this belongs to Alex Sherman who last week wrote late in the week about Disney’s renegotiation with Charter and the implications for streaming. Multiple people asked for my thoughts on it, so it was already lodged in my brain as a potential topic when I saw the news that CBS is renegotiating with AT&T for DirecTV carriage. It’s getting ugly. Combine that with…

Viacom and AT&T had already gone toe-to-toe earlier this year.

Meredith stations going dark for Dish customers.

Univision was blacked out on Dish until earlier this year.

Dish dropped HBO and still hasn’t brought it back, even when Game of Thrones aired.

It feels like retransmission battles are increasing. But are they? What does this mean? And what are the future “retransmission” battlefields?

Are Retransmission Battles Increasing?

Skeptically, you could look at my list above and genuinely ask if this is just a Dish problem, given that 3 of my 5 examples involve Dish. And another 2 involve DirecTV. Are satellites the problem then?

I looked it up and it does seem like the retrans battles are increasing in frequency. The best data I could find comes from SNL Kagan via Bloomberg/Tara Lachappelle.

Screen Shot 2019-07-19 at 11.47.26 AM

Source: S&P Global and American Television Alliance via Bloomberg.

Their data only goes back to 2010, but seems to tell the tale that carriage wars are indeed increasing. Without pulling my own data, I think it is safe to say that indeed these carriage fights are increasing and as the bundle gets pressured, will likely continue. They won’t be linear, but are trending upwards. It’s always good when the common narrative is backed up by actual data.

Is the Charter & Disney Negotiation Different?

Yes, and no. 

Sherman got it right in his initial coverage that the key sticking point now is less about retransmission fees and more about the ability for Disney to put it’s content on streaming too. Of course, the idea of re-airing content on digital platforms has been around since Hulu launched and the “rolling five” compromise was adopted. The tradeoff between retransmission fees going up versus exclusivity to “linear” has been a point of contention since 2008.

But, yes, this is different because Disney has already launched ESPN+ and plans to launch Disney+. Being able to flex content between all its platforms would lower it’s content costs dramatically, while directly improving those streaming platforms’ offering. Since this is the last renegotiation before Disney+ launches, it will help set the terms for all future carriage deals.

What should Disney give away? What should they keep?

According to Sherman, Disney wants to keep current seasons of shows on Disney Channel or Junior, with the first window going to Disney+. For ESPN, Disney wants some of their tremendously valuable sports programming to move over to ESPN+. Meanwhile, the MVPDs (cable and satellite companies) want lower fees. Or at least lower increases in fees. 

My gut recommendation–without running the numbers–is to relent on lower fees for the cable channels if it gets you the content on the streaming. I’m reading Good Strategy, Bad Strategy by Richard Rumelt right now, and the part that keeps sticking with me is his emphasis on focus. Good strategy is focused strategy. Disney’s focused strategy–which is a sound one–is built around Hulu, ESPN+ and Disney+. Relenting a bit on carriage fees is the smarter long term strategy to get those streaming platforms established.

But if were Charter? Well, keep fighting for the content. And if you have to, fine, let the kids content go. Sports, though, is what is holding your bundle together. Fight tooth and nail to keep that.

Also, don’t forget length. In these deals, I’m coming to suspect this is the under-considered element. For Charter, longer is better. Lock in the rights. For Disney, shorter. Frees you to renegotiate sooner. This is the first number I’ll look for when the deal is finished.

What does this mean for the future of entertainment?

In the streaming wars, cable retransmission fees are the mounted cavalry of warfare. In the 10th century, mounted knights ruled the battlefield. Then slowly longbows, crossbows and gunpowder made them obsolete. Yet, cavalry was still involved in battles, but decreasingly so overtime. Instead, they mainly became scouting elements. (See the Civil War.) But to give you an idea of how long a legacy weapon can last, the British and French sent horse-mounted troops to fight World War I.

The analogy works so well because it gives the idea that legacy institutions–in this case, business models–can last for a long time before they fade away. Sure, people will cut the cord and cord shave, but the TV bundle won’t disappear in the next decade. And as long as broadband is still needed for the internet, than cable companies will keep their profit rolling in due to their local monopolies. (At least until 5G replaces it…)

The challenge is less for the cable companies and more for the conglomerates, whose content production will need to be sustained as they navigate the revenue losses from streaming. And this is where I think most observers saying, “Just launch it all on streaming” really undersell how much Disney makes from subscriber fees. Here’s a refresher from THR after Disney’s last earnings call:

Screen Shot 2019-07-15 at 12.46.29 PM

Disney still really needs the sub fees as they launch Disney+. Managing that tradeoff is why it took so long for old media to launch their own streaming sites.

What are the future retransmission battlefields?

Just because one type of retrans battle is ending doesn’t mean the battles over “carriage” will end too. Instead, they’re just going to change shape and form. Here are a few potential for the next retransmission battles: 

– Device carriage. This is the contemporary battlefield. For a long time, Youtube wasn’t on Amazon’s Fire Devices and Prime Video wasn’t on Google’s Chromecast, as just one example of this type of negotiation. What a lot of us don’t realize is that every time an app appears on a device it does so only at the approval of the device/operating system owner. These carriage disputes primarily revolve around how much money Apple, Amazon and others collect from streamers who allow people to subscribe or buy things in the app, who owns what data and placement (trying to be the first thing someone sees in the device). 

– Aggregator carriage. This is the new battlefield to watch. As Apple, Roku and Hulu mimic Amazon’s channel business, most streaming services will need to be distributed through these platforms. But whereas if you sign-up for HBO Now via HBO directly they get 100% of the payment, through an aggregator like Amazon, HBO splits that bill. While HBO can demand high margins to keep–and ESPN+ and Disney+ will likely have the same high customer demand/strong negotiating opinion; CBS All-Access/Showtime/Starz remains to be seen–other smaller services will feel the squeeze just like smaller cable networks of old.

The solution is to, of course, have multiple streaming services which strengthens your negotiating position, just like the carriage wars of old. Even more important than revenue splits may be data. Amazon and Apple will try to be as stingy as possible with sharing it, which should be a deal breaker. Without the data, the aggregators have an immense negotiating advantage.

– Data carriage. This the hypothetical battlefield of a post-net neutrality world. Which we don’t live in yet, but could. Make no mistake, if the pipes can charge for data usage, Youtube and Netflix will have some fierce negotiations ahead.

Data of the Week – Netflix Q2 Earnings Report

Don’t get mad, but I’m not going to dive  into the data of the earnings report this week. If you want my initial gut reaction, check out this thread, which I have kept putting thoughts into. The reason you shouldn’t get mad is because I had SO many thoughts on Netflix, trying to double/cross check their data, trying to find insights, that I’m writing an article for it on Monday. 

Still, you need some data to tide you over. Here’s my favorite insight from the earnings report so far. (Besides the constant monitoring of free cash flow, which is still pegged to hit $3.5 billion in losses this year.)

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Most Important Story of the Week and Other Good Reads – 12 July 2019: Netflix Has It’s First Merchandised Hit

Stranger Things season 3 came out for the Fourth of July weekend and I think it is safe to say it’s the biggest TV series in America, whether or not we truly believe Netflix’s latest datecdote or third parties, like Nielsen or Parrot Analytics.

If you really want to know if something is “popular”, I recommend waiting until people put their money where their eyes are. In other words, are businesses willing to stake their real world cash on a show?

In Stranger Things’s case, the answer is a resounding yes. Which means that: 1. Netflix has their biggest show and 2. I have a most important story of the week.

The Most Important Story of the Week – Netflix Has It’s First Licensed Merchandise Hit

How do you know Stranger Things has made it? Well, they have a Funko Pop.

Funko Website Image.png

Stranger Things actually has quite a few pops, and Funko is the type of company who can be choosey with who they do deals with. (Hence, this reporter’s quest for a Funko Pop for Bosch.) Given that Netflix finally got a Funko for a series they only just released data for, we can safely say this series is popular enough to get merchandise treatment. As far as I can tell, there aren’t any Amazon or Hulu Funkos, and previous to this, Netflix only had an Orange is the New Black pop. But those efforts pale in comparison to this Stranger Things take over.

For all the success of Netflix and Stranger Things, the future of licensing is far from assured for the streaming giant. Moreover, I’ve seen some misconceptions about product licensing and confusion. So let’s clear that up and dig into Netflix’s strategy just a bit.

Misconception 1: Product licensing is the golden goose.

The problem with product licensing is that Disney is so good at it. As I’ve written before, Disney has some really merchandise-able properties and expertise in licensing going back to the 1920s. Then Disney bought the other champion of product licensing, Star Wars/Lucasfilm. Thus, whenever licensing is mentioned, inevitably Disney is cited as the potential upside.

This is like comparing your pick up basketball game to Kawhi Leonard’s. Kawhi isn’t just good, he may be the best player in the world. Maybe you do play tenacious defense like him, but if you don’t have inhumanely long arms and athleticism, well you aren’t Kawhi. So don’t compare yourself to him. Disney is the same way: they have an entire division focused on licensing…do you? Disney takes up 50% of the shelf space in some retailers…can you compete with that? So sure, Disney’s upside is huge, but what is your real upside?

Licensing upside is also usually overhyped in the press. As I’ve written twice now (the explainer is really this piece on Lucasfilm), retail sales are usually cited by licensing folks, though a studio or network only takes home 5% or so of total sales. If you read that Star Wars has sold $20 billion in toys and licensed products, that means they “only” made $1 billion. Which is a huge number, but 20 times less than reported. You need to move a LOT of merchandise to make a dent in your revenue. I just found this Hollywood Reporter table showing Disney’s revenue by segment, and it helps get this point across:

Screen Shot 2019-07-15 at 12.46.29 PM.png

Misconception 2: Now that Netflix has conquered licensing, it can move kids products.

The irony of the success of Netflix’s success with Stranger Things is that it comes as I continue to read articles about how much trouble Netflix has had with product merchandise aimed at kids. For all the hype of primetime licensed merchandise, outside of Game of Thrones, kids series and movies dominate the sales.

Netflix faces three challenges in moving successfully into kids merchandise. First, they still don’t release ratings data. And while for adult products you can use alternative methods to triangulate demand–Google Trend data, social data, etc–those methods don’t work nearly as well for preschoolers who (I hope to god) aren’t using Twitter.

Second, the binge release/marketing model has proven extremely poor for licensing. All the episodes drop at one time, and then quickly decay as new shows are promoted to replace them. Disney Junior and PBS roll their shows out every day–on their own apps too–which keep kids more engaged with the properties on the TV side. On the feature film side, Disney and Universal roll out with 9 figure marketing campaigns. No kids property on Netflix gets that kind of love/spending.

Third, Netflix still doesn’t own a lot of their own kids content. A lot of their kids series–especially the Dreamworks series–are co-productions where the licensing rights are often owned by the owner of the IP. Hence, Netflix doesn’t have the rights to make products. (Tying back to Orange is the New Black, that was a series co-produced by Lionsgate, which probably helped make the Funko Pop.)

Misconception 3: Product-ties ins are not product licensing.

Stranger Things product roll outs have been much more about integrated marketing campaigns than true money-making consumer products. Which you’ve like seen on everything from KFC to Coca-Cola to Eggos. That’s free advertising for Netflix, which is a model Disney and Lucasfilm had also perfected over the years. While valuable, there is also much less risk for the CPG company, who doesn’t lose much by changing its packaging. If you want to know how much Stranger Things is potentially making for Netflix, ignore the Eggos and Coca-Colas, and even Windows 1, and look for shirts, toys, and games (both board and video).

Misconception 4: There is ONLY so much you can do in licensing in the first place.

The final point with Netflix is that Stranger Things surprised them in how big it got and how quickly. I’d say that Game of Thrones likely surprised HBO in the same way as they’d never had a franchise like that before. 

This speaks to the core point of licensing. You can’t force it on customers. When a series gets popular, it gets orders of magnitude more popular than competitors, and basically licenses itself. What you have to do is be prepared to take advantage of these series when they come, and Netflix is finally ready to do that. We’ll see if they can sustain it.

M&A Update – Univision Is Looking for Suitors

The winds of merging entertainment giants may be blowing again. For instance, if you look to Wall Street, America had a banner year in the first six months when it came to “deals”, which the New York Times uses to mean anything from mergers, acquisitions, divestitures and what not. For all the hype, though, as I’ve laid out repeatedly since last summer, we’ve seen hardly any M&A in entertainment.

Is this about to change? Maybe.

The scoop is from the WSJ, but I saw it first by Jessica Toonkel in The Information (and I also saw it quoted in The Ankler). Basically, the one sentence hint is that Univision executives are at the Sun Valley conference looking for potential buyers and have hired investment banks to do the due diligence. And they should have a few. Univision would complement nearly every media conglomerate, except Comcast-NBCU (who owns Telemundo). Disney’s films already do well with Hispanic audiences. CBS needs more OTT services for the future retransmission wars. And Warner…nevermind AT&T is likely out of money.

Meanwhile, the news that Univision wants to sell itself makes this leak of monster Up Front sales records a little more self-interested.

Other Contenders for Most Important Story

Warner Media’s Streaming Service Has a Name (and Friends)

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Long Reads for the Long Weekend – 3 July 2019

It’s about to be the long Fourth of July weekend, so I’m not going to post tomorrow or Friday because who should be reading about entertainment on a holiday weekend? (And since people aren’t at their desks “working”, traffic plummets for the whole internet.)

Wait, you still want something to read? Me too. The weekends are an underserved time for iPad wielding parents looking to avoid their children. The job of the Sunday paper hasn’t been adequately replaced as most websites I read don’t update on weekends. (See my above parenthetical.)

In honor of the long weekend, here are some “Long Reads” to take up your time, collated into one place. This is a grab bag of articles covering everything from social media to journalism to great investigative pieces. We’ll start with some great pieces on that last topic. When entertainment journalists go in-depth, they show how great entertainment journalism can be at its peak.

1. “How Movie Theaters are Exploiting Their Janitors” by Gene Maddaus in Variety

Maddaus describes how the forces of contracting, immigrant labor and lax oversight–with the pressure on profit margins–result in vulnerable people working for less than minimum wages in troubling conditions. (I linked to it here.)

2. “L.A.’s Housing Crisis Hits Hollywood: The Entertainment Workers Living in Their Cars” by Katie Kilkenny in The Hollywood Reporter

This long read never made it into a weekly column, which is a shame. Los Angeles has a housing shortage problem, and it impacts all workers, but especially those at the bottom of the income ladder due to rising rents. Unfortunately, that includes a lot of workers in Hollywood, like those “below the line”, even folks like writer’s assistants, which should tell you how widespread this problem is.

3. “The Dark Forest of the Internet” by Yancey Strickland

I’d read a few years back about the concept of “dark social media”. That’s the idea that while we can track and observe some social platforms like Facebook, Twitter and Youtube, others are mostly unobservable to marketers, like text messages and email. (If only we knew how many old men emailed about Blue Bloods, in between emails with dirty jokes and political diatribes.)

Strickland flips this analogy, warning that the observable internet is actively dangerous, using the analogy of a dark forest. A thought-provoking read, and you have to love a Liu Cixin reference to start. (It also pairs well with my final article recommendation; hat tip to MediaREDEF for surfacing; part II here.)

4. “Shady Numbers and Bad Business: Inside the Esports Bubble” by Cecilia D’Anastasio

D’Anastasio approaches the world of esports as someone who understands the passion of esports fans, but also as a sober journalist aware of the hype cycle the industry is undergoing. Lots of good numbers and, more importantly, analysis of potentially bad numbers. (I wrote about this in a weekly column a few weeks back.)

5. Youtube’s Problems in 2 Articles: 

“On Youtube a Network of Pedophiles is Hiding in Plain Site” by K.G. Orphanides in Wired 

& “YouTube Executives Ignored Warnings, Letting Toxic Videos Run Rampant” by Mark Bergen in Bloomberg

As a society, are we overreacting to the dangers of “engagement”? Reading this pair of articles on Youtube, I’d say not. Even if you understand the scale of the problem for Youtube is immense–a problem in the billions of videos and trillions of interactions–these articles impart the idea that Youtube traded off the risk of pedophilia and pushing conspiracies for profit. (My extended thoughts here.)

6. TVAnswerman’s 50 Rules of Good Journalism by Phillip Swann

If you’re not an aspiring journalist, this may not interest you. But I found it fascinating and think a lot of breathless media coverage would deflate just a bit if we all followed these rules. I don’t agree with every rule, as a commentator I don’t follow a few, but still found quite a few good ideas. In particular, read and write everyday and understand that your social media feed is still your journalism. A good reminder.

7. “Reddit and the Struggle to Detoxify the Internet” by Andrew Marantz in The New Yorker

The opening paragraph captures what I find fascinating about Reddit: it’s huge but many Americans have never heard of it. Or just vaguely heard of it. It’s a social platform I’ve dabbled in, but tend to avoid because it’s too good. Too addicted. As a result, I call it the underrated social platform. (Read that here.) Marantz has the best long piece I’ve read on Reddit. 

8. “Status as a Service” by Eugene Wei at The Remains of the Day

Ideally, I don’t link to an article until I’ve actually, you know, read it. Twitter would have a different feeling of virality if we all followed that rule. (I definitely retweet lots of articles without reading them.) Eugene Wei’s article (nee novella) was popular when it dropped and I’ve finally read the entire thing. It resonated with me in particular because while ostensibly I want to share my thoughts on the business of entertainment, really I’m a status seeking monkey using my writing to build social capital. Brilliant.

And since I’m late to my chosen social platforms–Twitter, Linked-In and Quora–which makes accumulating social capital even harder. Two lessons in one article is a great hit rate.

Some other thoughts:

– I love a good quad chart. This article gives us a great one.

This idea pairs well with a recent HBR article on the “first 1,000 customers” that’s been in my head too.

– The entertainment dimension explains why so many social platforms want original video content…but I’m still skeptical those videos add value if the platform isn’t useful in other ways.

– Being “skilled” in the way each platform demands may be why I find Twitter unhelpful. My thoughts naturally run longer than 240 characters.

Enjoy the reads and the long weekend. 

(Oh, and of course, if you haven’t read my long series on Game of Thrones or Star Wars or M&A, obviously start there!)

 

Most Important Story of the Week and Other Good Reads – 28 June 2019: The Office Is Leaving Netflix

A “Most Important” column on a Thursday? What’s going on with the Entertainment Strategy Guy’s usual Friday column? Well, an out of town wedding, which means I’ll be on the road tomorrow. So enjoy an early bite at the entertainment biz apple. 

Also, next week, with a birthday, Fourth of July, and some household projects lined up, posting will be light again. However, I have a lot of fun ideas planned for July, so keep checking in.

Most Important Story of the Week – The Office Is Leaving Netflix (in 2021)

Imagine that you have a favorite restaurant. A fancy small plates restaurant with a named chef. The first time you go, the meal is incredible. Almost all the dishes are delicious. (The service is impeccable too.) And for how much food you get, well, the price isn’t too bad!

Naturally, this becomes a restaurant you visit often.

Fast forward a bit. A year or two later. The small plate place has changed its entire menu. It’s a bit more adventurous. You try a few plates, and well this time there are a few dishes that are misses. Meanwhile, your old favorites are gone. (The service is still impeccable.) Do the portions seem a bit smaller? Man, this bill is kinda pricey for what we got.

Naturally, you don’t go as often anymore. 

Since this is a business strategy site, let’s take the above two scenarios and put them in terms of the old quality drivers: the product–in this case the food–isn’t quite as good. Though part of the product–the service–is the same. Meanwhile, the price for the food (both in terms of quantity delivered and quality of dish) is much lower. Hence, you don’t go as often because it isn’t as valuable.

You see the Netflix analogy, right?

One part of Netflix’s product is just fine: the user experience. They’re way out in front of everyone else in streaming. But the prices are going up, starting in the US and expanding to the EU. These prices are going up right as the quality of the product (in terms of both size of offering and quality of individual titles) is about to potentially fall off a cliff facing. Starting about two years ago–and continuing for the next half decade or so–Netflix has lost or will lose theatrical movies from Disney and Universal, new shows from The CW, library TV content from Disney, Fox, and others (including The Office which was widely speculated about online) and more.

Let’s not pretend that losing thousands of hours of the most valuable content is nothing. You can’t lower quality while raising prices and say, “This will have no impact.” Signs are Friends and The Office are Netflix’s most valuable TV series in terms of hours viewed; I continue to believe that Disney has the most popular movies being made because…they do. (See box office.) Moreover, the biggest shows and movies aren’t just bigger by a little bit–long time readers know where I’m going with this–they are MULTIPLES more important. (Article explaining that here.)

As we move into the next wave of the streaming wars, the value of a content library will be increasingly important in separating the services. Consider this (hypothetical) situation with (made up) numbers. Netflix has a service that most customers value at a “5”. Disney offers a service most customers value at a “4”. But Netflix costs twice as much as Disney’s service…so how many keep both? How many cut the cord for Disney? What if HBO ends up with a service customers (hypothetically again) value at an “8”, but it costs even more than Netflix? What if NBC and Hulu are free…but have better content valued at “3”?

I don’t know! That’s a complex equation with too many variables to compute. Then we’ll have to repeat the exercise country by country around the world. But whereas we know one key piece in that equation absolutely—price per month isn’t a secret—we’re left guessing on how much less valuable the Netflix library will be after The Office, Friends and Disney movies (after Dreamworks movies, Fox TV series and others have already left) depart the platform. So will this hurt Netflix? Yes. How much? It remains to be seen.

(Here is where I wish I could link to my article explaining how to value content libraries (versus series, which I did here), and my take on which service has the most valuable content library. But, um, I haven’t written those yet. Yes, I’m on it. I’ll do what I can.)

Other Contenders

Kanopy Dropped by New York City Public Libraries

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Most Important Story of the Week and Other Good Reads – 21 June 2019: Overall Deals…Explained!

Here’s a fun factoid about the news:

JJ Abrams hasn’t actually closed his deal with Warner Media for $500 million.

By the news coverage I read, I assumed he had. And by coverage, of course, I mean Twitter and Linked-In headlines. It’s only when you read Lesley Goldberg’s actual story that you find out that the deal is in “final negotiations”, not actually signed, sealed and delivered. Still, let’s call it 94% that it happens, so the biggest piece on the showrunner chess board has been officially removed, so it’s my….

Most Important Story of the Week – JJ Abrams/Bad Robot Land at Warners Bros.

Like a giant NBA trade—cough Lakers cough Anthony Davis cough—everyone wants to immediately determine if this free agent signing was a good deal.

Unfortunately, I can’t tell you that.

Someday, I hope to evaluate all these deals like a Zach Lowe of entertainment business, but we’re currently at an information deficit. Consider what we don’t know about the deal…

Length?

Type of projects included?

First look or true overall?

Overhead paid?

Fees for TV and Movies?

That’s a lot to not know! And while I’d love to trot out my POCD framework for all overall deals—it’s a pretty flexible framework and it fits easily here too—we just can’t determine if the price was too high without knowing what they’re paying for. Then, on the TV Top Five podcast, Lesley Goldberg even admits that the $500 million is really just an estimate.

(Here’s a good summary of who has overall and first look deals and with whom, but not price tags, lengths or type of deal by Variety. And it’s from 2018.)

Instead, I think there is still a lot of confusion about overall deals in general. So today I’m providing a mini-explainer on the key pieces of an overall deal, and how they can impact the bottom line. Let’s start with the “what” you get in an overall deal, because it differs.

The Differences between Showrunners, Creators, Executive Producers and Development Executives

Have you ever looked at Steven Spielberg’s IMDb page? Here’s his IMDb clip for just producing for 2019 and beyond:

Screen Shot 2019-06-20 at 9.01.03 AM

Holy cow. Here’s one of the showrunners of Game of Thrones for comparison, David Benioff, for his entire producing career:

Screen Shot 2019-06-20 at 9.02.34 AM

Those two IMDb extremes capture the range of participation in a producing/overall deal. On one end of the spectrum, you have the showrunner, who is in the trenches everyday ensuring the writing gets done and the product is great. Benioff & Weiss, Michelle and Robert King’s on The Good Wife and Vince Gilligan on Breaking Bad are examples of this.

On the other end of the spectrum are famous producers who lend their name as “executive producers” to a whole host of projects. Spielberg, Ridley Scott, and the emerging Jordan Peele are all examples of famous directors who still make movies, but find time to attach their names to a host of projects as executive producers.

Understanding the differences in these titles and roles explains a lot of the value a creative can add to the final TV or film project, meaning it’s likelihood to succeed. Which reminds me of my “creative to business” spectrum. The less involved the showrunners are, the more “business” they become, and hence less value they add to the ultimate quality.Creative vs Biz SpectrumSo here are the definitions keeping that in mind:

Showrunners – A showrunner is the person who runs the day-to-day operations of a TV series. This includes managing the writing of the series–either supervising the writer’s room, or sometimes by writing all the episodes–overseeing day-to-day production, sometimes hiring of directors, and producing the show.

Value – Immense, but limited in output (about one show/film a year)

Creator – Usually, a showrunner is a creator of a given TV series. But commonly, some of the great TV showrunners launch a TV series as the creator, but then pass day-to-day showrunning to another writer, while continuing  as an executive producer. The epically prolific Greg Berlanti follows this framework. He has creator credit on most of his shows, but in many cases hasn’t written an episode in years. Shonda Rhimes also fits this mold, though with her and Ryan Murphy I don’t know their day-to-day involvement in all their shows.

Value – Big, and potentially for multiple show launches simultaneously.

Producer/Executive Producer – These are the fuzziest terms in the list of definitions I’ll give you. For this reason, the Producers Guild of America has actually worked to define the roles of producers on TV series to try to limit the list of people being called producers who aren’t actually producing something. To get the “p.g.a.” after your name on a project, you actually have to be heavily involved making a show or movie happen.

This is opposed to “executive producers”, which means an executive who oversees a project. Again, look at that Spielberg list of projects. Is he really reading the scripts of all those projects? Add the fact that some top tier actors and directors insist on EP credit (with bonus producer payments), then the value of an EP ranges from vital to totally unnecessary.

Value – A huge range, but mostly little value added to final project, besides increasing odds of initial greenlight.

Development Executives – The development executive is the person at the studio who helps pick out and shepherd projects from pitch to pilot to series and beyond. But you don’t give overall deals to development executives, so why are they included? Because the difference between a development executive and many executive producers is just a matter of perspective. In some of these overall deals, they’re really just elevated development executives.

Value – Great development execs are worth their weight in bitcoin; the rest are average, meaning interchangeable.

Additionally, some overall deals are with directors who can direct projects, but everyone knows what a director does.

When you ask, “Is the JJ Abrams deal a good deal?”, the question should be, “To do what?” How many movies is he directing? How many shows is he creating? How many is he writing? How many will he just EP and slap his name on it? I don’t know, but then it begs the next question: does Warner Bros own these projects, or just get the first look?

The Difference Between a First Look Deal and an Overall Deal

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