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.

GoT vs LoTR vs Narnia – TV Series Business Models (Scripted)…Explained! Part 1

(This is an “Appendix” 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)

I’ve spent a lot of time trying to make the “ideal” TV Series business model over the last few weeks. Getting that right—and a bout of stomach flu/Avengers: Endgame that ruined/thrilled the end of last week—has been holding up this article.

But honestly, why bother?

As I was reflecting on my Game of Thrones series, I was thinking about my “gut” section from the introduction. Essentially, my gut thinking is what—if I were a traditional trade print columnist—I would have turned into my editors. It has a thesis, some data points and tells a nice little narrative about how well set up HBO is compared to Amazon. Add a little more certainty to the rhetoric and I’m done!

But it didn’t have any “proof” in it. To use my own terminology, it didn’t have any numbers. Since “strategy is numbers”, in my opinion “gut thinking” can’t prove the case. Today, we start on the path towards developing some numbers. I want to prove my case, which honestly I haven’t decided one way or the other yet.

My bar for “proof” in a business plan, though, isn’t the same bar as scientific proof. It’s not “scientific”  because you can’t use the scientific method on future events. Instead, you can be rigorous. Have a model that you trust, and let its predictions be your guide. If your model captures, say, 80% of the potential of a business, that’s pretty good. That lets you know if a strategy is sound or not. For my Lucasfilm series, I had to develop a film model to make my conclusion. Today, I have to do the same thing for TV series.

Consider this the “Appendix: TV Series Business Models (Scripted) Explained”. The good news is once we have this model, I can build bespoke models for the Game of Thrones prequel, Lord of the Rings prequel and Chronicles of Narnia adaption. In today’s article, first I’m going to compare the film and TV models, distinguish between the participants in a model, describe the costs of a TV series, and explain the key revenue drivers during the initial window. In Part II, I’ll show everything else.

Thoughts on “What These Models Are For”

The purpose of any model depends on its uses. I’m trying to use these models for “strategic” purposes. The strength of any content company is it’s underlying IP, both the floor and ceiling of performance. And specifically how much cash they will generate. That means the numbers need to be close to reality, but not close enough to audit. These aren’t accounting statements, but strategic models to help us understand the underlying performance/economics. My goal is to build a model that will be flexible enough that I can use it for multiple projects. (I have an idea for how to use my film model for another project for example.) 

Also, these “show my work”. If you opine on the business of entertainment, and don’t have any models (even rules of thumb) guiding your work, you’ll end up just reinforcing your priors. Even a simple model forces you to understand the drivers of a business. These models and my explanations will allow you to critique my conclusions and/or build your own if you disagree.

Comparing Film Financing to TV Financing

To refresh your memory, here’s my business model for a feature films:

Feature Film Biz Model

(An aside: If you want another model of film profit, Deadline runs an annual “top profit” tournament for feature films. Their numbers for the Star Wars films are a bit lower than mine, and if I have time, by the end of the year, I’ll dig into the drivers why.)

Let’s start with the biggest difference between the TV and film models. Feature films are much easier. Essentially, once you have one piece of revenue—the theatrical box office—well everything else flows from that. So much so that often you can use percentages to get a pretty good guess of what the total revenues will look like. The studios have people who have this down to a science based on opening weekend, current deals and other categorical variables like genre, rating and such.

TV doesn’t have any similar starting point. Ratings can fluctuate season to season—as I showed in my most recent article—and even then the four major routes of TV—broadcast, cable, premium and streaming—each have different business models. Moreover, in success, the path a TV show can go is as varied as the initial platforms, while 90% of studio movies follow the same path. Meanwhile, the number of films made each year dwarfed the number of scripted TV shows historically, especially if you count “series” versus “seasons” as unique data points. To top it all off, the business model for TV has changed significantly in the last 20 years, from one about deficit financing in the hopes of syndication to adding in home entertainment (DVDs then EST), to adding in streaming to streamers having their own plans. So lessons from even 20 years ago no longer apply.

What does this mean for my TV series models? I’m not going to have a neat waterfall tied to percentages of box office like I did with film. I tried to do that, but I didn’t like the results. So I’m going to build a shell where all the potential revenue streams go in, and then build three bespoke models for each TV show. The first step to that shell, though, is determining which participants go in, which is another change from out film model.


If something does apply from my Star Wars film model, it is the inevitability of Hollywood accounting. (Which was since revealed in gory detail in the Bones Arbitration.)

Basically, a studio will always try to pretend it never made money on a TV show or movie to avoid paying talent. As a result, like my film model, our TV model needs two versions: one for the studio, one for the talent.

Let’s not stop there. My film model has two main participants: the studio, who paid for the film, and the talent, who acted/directed it. I could have added a third participant, which in a lot of cases is the “producer” if a film is independently produced. That happens so rarely for blockbuster films, and doesn’t happen for Star Wars films at all, that I didn’t include it. In terms of the value chain, the producer sits between talent and distributors.

TV Value Chain

For TV, though, producers and distributors are different more often. For my TV model, I need to add/account for this third participant. Sometimes they will be the same person—GoT on HBO—but sometimes they won’t be—New Line/Tolkien estate for LoTR on Amazon Prime/Video/Studios. And talent will still require a place in both. So my goal—and I’ll see if I can pull this off visually—is to make a model that can show all three pieces simultaneously in a way that doesn’t make the reader’s eyes bleed. 

Model with Participatns

So that’s the shell. The plan is to start with revenue for the “TV producer” (in two parts) and then next week, fingers crossed, I’m going to talk about how the network or streamer makers money off the TV show. (That, um, is complicated.)

The Four Main Pieces for a TV Producer

Fortunately, the the four main pieces of the film model—revenue, costs, fees and talent participation—are the same. I’m going to talk about them in roughly the same order I did in my film model, which is in chronological sequence. First the monies going out, then coming in, then going back out again. Like last time, I’ll “build” the model as I explain each section.


In film and TV financing—well like most industries—the costs come first and the revenues may not come for years. Or ever. When it comes to the TV producer, the two main costs are development and production costs. In other words, how much it costs to produce a half-hour or hour of programming. Development comes before it all, as you’re getting all the pieces lined up (writing the script) and then actually making the episodes. 

Then comes making the show. This is a key to understanding why TV producers are always so cash strapped. The TV production house pays all its costs up front. It pays the actors to show up, it rents studio space. It hires all the below-the-line workers. All paid in cash up front.

A simple multiplication problem then defines how much a TV series as a whole will, in general cost you: number of episodes times cost per episode. There are a few key drivers here, which I call my “inputs” in the model. First, the number of episodes in a season and the number of seasons a series goes for. Essentially, a 6 episode season is half as much (roughly) as a 12 episode season. (Some costs are amortized but in general this applies.)

The drivers of episode costs are related to the length of the episode and the quality of that episode. Very simply, it costs more to make longer shows. (You shoot a thirty minute sitcom in 3 to 4 days and a 60 minute drama for 5 to 8 days.) This even applies to the length of an episode; a 22 minute sitcom for broadcast versus 60 minutes for premium cable. On top of that length, “quality” can drive up costs. Or the production values. Shooting on a soundstage for a multicam sitcom gives one look, that saves costs, while shooting outdoors in Iceland for a prestige drama is another thing altogether.

To keep these straight, in my head, I added an information bucket above my model to capture the key production details. I’m calling these the inputs. So here’s the model now:

Model with Inputs

The last driver is talent costs. Especially as a series progresses into future seasons. Getting top flight talent attached to a series and to keep working on a series requires lots of money, usually paid per episode.

Finally, if we’re talking all costs, marketing costs come into play. In TV, the network/streamer pays the upfront costs for the season, and it’s up to them to market the show. I’ll only take these costs into account for the distributor/network/streamers, which is how this three part model could get confusing. To make it even more confusing, the fee the network pays, while revenue for the studio, is a cost for the network. Here’s the shell of the model, with the “inputs” on top and the costs that I’m going to account for.

Model with costs


Let’s get to the fun part: making money. My goal here is to list as many major sources of funding that I can, in order of perceived size. Or better phrased, their expected value. (Syndication is the largest bucket historically, but has a low probability of being achieved.)

First Run, Initial or Imputed License Fee

This is where you start as a TV producer. When you sell a show to a network, you negotiate fiercely for the network to pay you as much as possible up front. This is calculated as a percentage of the production budget. Historically, like 1980s historically, this was pretty low, I believe around 50%. According to Harold Vogel, this creeped up to 70% by the dawn of the 2000s, and in my experience and reported, now as streamers want more rights, this is well over 100% and sometimes up to 130% of the budget.

This fee is needed by the TV producer, because otherwise they are deficit financing, which is risky. The broadcast networks paid only a fraction of the budge and the TV producer had to make the rest on syndication. Since streamers offer so little potential future windows (Netflix gobbles all the windows up), the fees have increased since the producers have no chance at future revenue.

For that last case, what that means is that in exchange for all the future windows I’m talking about, the producer is paid essentially an upfront profit. So the producer makes the show for $5 million, get paid $6.5 million and call it a day. In the old days, the producer made the show for $5 million, and got paid $3.5 million, and needed the rest of these windows to make up the shortfall.

That’s why I’m calling this line three different things, that kind of mean the same thing and also don’t. If a TV producer sells just the first run rights to a network—with no co-production terms—that’s a “first run license fee”. However, for someone like a streamer, this license may extend beyond that first run, so you could use “initial” to just cover the length of the deal. Really, those two terms are semi-interchangeable.

However, when the network also has a piece of the show, calling it a “license” fee is a little disingenuous. Especially if it is wholly-owned by the network. Do you trust the network to tell you what a show is valued at? Isn’t that exactly how the Who Wants to Be a Millionaire? and Bones controversies started? As a result, this fee is really an agreed upon price, which I call an “imputed fee”, that’s also based on the production costs. It acts the same way, but since the money isn’t actually trading hands it is imputed versus real. (And as I just clarified, it shows up as a cost for networks in this model.)

That’s enough for one session. I’ll be back early next week with the rest of the accounting.

Licensed, Co-Productions and Wholly-Owned Television Shows…Explained!

A big topic in the streaming world has been who owns what. All I can say is, “Finally!”

For many years, we—sort of speaking of the business press, especially the casual observers—have treated all streaming TV shows interchangeably. If Netflix branded a show an “original” for all intents, the press referred to it as an original and lumped all the originals together. With the Friends on Netflix issue coming to a head last fall, we’ve finally started to unpack what it means to have licensed content on a given platform.

(Here’s a good article by Beejoli Shah at The Information that makes the distinction between licensed and owned content. I hope we get more of this.)

Here’s my hot take, though: the licensed versus owned conversation STILL doesn’t explain enough. Why? 

In one word…co-productions.

This convoluted third category is like the love child between owned and licensed shows. Moreover, TV series can fall into different categories depending on the territory they are licensed in. Someone needs to step in and explain all this. 

Since I need to clarify this distinction for my series on Game of Thrones versus Lord of the Rings versus Chronicles of Narnia anyways, I may as well write a full article on it.

For the streamers each ownership model has different pros and cons, and understanding those different models can explain why certain shows get renewed, while others don’t, why certain shows are branded certain ways and others aren’t and, mainly, the economics of all of them. 

I’ll start by explaining wholly-owned series, then explain licensed series and co-productions. What they are, how they impact the business models and provide some examples. Along the way I’ll explain the traditional licensing windows and a geographical clarification.  And since this article was directly inspired by my big series on GoT versus LoTR versus Narnia, I’ll pull examples from those three streamers for each of these definitions (as best as I know). 


This is simple: the network distributing a piece of content also owns the content. 100% free and clear. 

More granularly, the studio’s in-house production team owns all the rights to it. To get to this point—where a channel owns 100% of the rights—usually requires that the network developed the show itself. That means they either found the show runner—who wasn’t already under a deal with another T V production house—took her pitch and optioned her TV show; or they hired her under an overall deal, so that anything they produce they have first rights to. That’s step one, own the underlying IP. (Yes, if it is based on a book or movie or what not, you have to own all the rights to that too.)

The second step is to then pay all of the production costs. Most of the time, if you do those two things, you own a show outright.

What does this mean for a network/streamer? Well, they can do whatever they want with the TV series. (I’ll explain a qualification to this in a moment.) They can air the show for as many seasons as they want, as long as they’re okay with the production costs. They can keep it exclusively on their channel or syndicate it. They can raise or shorten the number of episodes. In short, they don’t have to negotiate with an outside producer because they are the producer.

The qualification to unlimited control is talent. Even a wholly-owned show has obligations to talent—especially key talent like showrunners or the lead actors—that can influence some of these pieces. If the talent’s contracts are up, and they don’t want to make the show anymore, they don’t have to (until they get a pay raise).

Since the 1980s, roughly, broadcast channels have become more and more likely to own their own shows, or at least air shows under the same corporate parent. (So NBC airs shows produced by Universal Cable Productions or Fox aired shows by 21st Century Fox Television.) This has happened since time immemorial, but became more common when the FCC relaxed primetime air time rules and ended “fin/syn” regulations (which I do not have time to explain today) in the 1990s. When the streamers got into the game, they prioritized “wholly-owned” shows because it enabled them to choose distribution plans they wanted.

(Note on verbiage: I called these “wholly-owned” at my previous job, and I’m sure different places can call them different names. I like wholly-owned much better than “original” because it is about who owns the series financially, not customer-facing branding.)

The downside to wholly-owned is one of costs. If you’re paying all the costs up front, that can quickly get expensive. For a licensed show, you can choose to pay a fraction of the total costs because the production house can make additional revenue later. Same with broadcast shows back in the early 2000s, when networks often paid 50-70% of the costs for co-productions. However, if you’re looking to own all the rights forever, or want exclusivity forever, owning the content completely is actually cheaper.


HBO – Game of Thrones. The Sopranos. The Wire. True Detective. Veep. Silicon Valley. 

(Basically, nearly their entire catalogue. HBO as a premium channel has tried to own 100% of their content. That’s why HBO Go/Now’s offerings have nearly every TV show they’ve ever made.)

Amazon Prime/Video/Studios – Transparent. The Man in the High Castle. Mozart in the Jungle.

(Amazon has a fair bit of wholly-owned content, but some of their biggest swings will fall in later categories.)

Netflix – Stranger ThingsGLOW. All the content coming from the huge overall deals with Shonda Rhimes and Ryan Murphy will fall in this category.

(Netflix is rarely the producer of record, according to Wikipedia. However, as this Digiday article makes clear, Netflix is essentially acting like the wholly-owned studio by owning rights for extremely long time periods. These shows are examples of series that are functionally owned by Netflix, even if another producer originated the project.)


A “licensed” show is a TV show that the streamer doesn’t have any financial stake. They don’t own any downstream revenue. At all. It’s actually about as easy to understand as a “wholly-owned” show. If a wholly-owned show is 100% of the rights of project, a licensed show is zero percent of the rights. Zilch. Nada.

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Most Important Story of the Week and Other Good Reads – 19 April 19: Game of Thrones Adds Viewers in 8th Season

Ever feel like not taking your own advice?

I regularly admonish my readers to avoid overhyping single data points. I repeat this piece of guidance when things flop—Solo, The Lego Movie 2, NFL Ratings last season—or when they go skyhigh—most Disney movies, Netflix datecdotes.

And now a single data point—the Game of Thrones premiere is up to 17.4 million viewers—made my most important story? What?

Most Important Story of The Week – Game of Thrones Grows Its Audience

In my defense, this is more about the phenomenon than the data point: the fact that Game of Thrones has increased ratings year over year. That to me deserves a call out for the economics it implies. Let’s dig in.

The Rarity of “Mega-Hits”

I don’t have a huge data set of past TV shows and all their ratings by season year over year (yet), but based off my experience and some quick Wikipedia searching, I came up with roughly three (technically four) models for a how a series viewership changes over time. (And I saw this repeated a lot when I was analyzing viewership in my previous job.)

The most common model is to start out big and decay over time. I call this the “usual” because if a show doesn’t get an audience to start or build it quickly, well, it doesn’t make it to season 4 in the first place. I’d call this the “decay over time” model. (Again, by “common” I mean 80% of the time or more.) Here’s a great HBO example:

Boardwalk Empire Viewership

Source: Nielsen via Wikipedia

That’s from Wikipedia for Boardwalk Empire. As you can see, the huge names involved and its huge marketing as the successor to The Sopranos got it launched to a huge initial number. Then it declined over time. Looking for drama/genre examples that match this, my current example is Syfy-turned-Amazon’s The Expanse, which started at 1.2 million viewers, and its last season was about half that. I’d put Westworld in here too. (I can and have found more.)

I said “technically four” because a variation of this first model is just a series which never started out big in the first place. Specifically, it doesn’t grow or really decay. I’d call it the “stay flat over time” model. I’d put Mad Men roughly in this category or The Magicians currently on Syfy. (One of the few others fantasy series that has gone for more than four seasons, which is relevant to my Game of Thrones versus Lord of the Rings series.)

Of course, sometimes series turn out to be so good, they build an audience overtime. This is my second model, what I call the “build then decay” model. Wikipedia doesn’t have a neat chart for me to demonstrate this, but the example here is The Walking Dead. It started at 5 million viewers per episode, eventually hitting its stride at 16, 17, 14, and 17 million viewers for premieres between seasons 4 and 7. However the last two seasons have finally seen the decay at 11 and 6 million viewers respectively for the premiere episodes. So it tripled its ratings, and has since seen ratings decay over time.

Doing some quick research, The Big Bang Theory followed a roughly similar path. Starting small, comparatively to itself, and then hitting peaks, with an eventual decline. If I kept searching, I bet I could find a few more examples. This category is more common than the next type, but is still pretty rare.

Even harder, though is building an audience and not having it decay…ever. That, my friends, is the far right of my logarithmic distribution chart. In fact, I can only think of really two shows that have pulled that off. First, the king of the hill in modern TV, Game of Thrones:

GoT Viewership

That’s certainly impressive. Even better is this one other show, Breaking Bad.

Breaking Bad Viewership

I’d argue that hardly any other TV shows have had this sort of progression where they build and build, rising to 6 or 10x multiples of their initial viewership and never losing them. Especially in the post-2000s world of declining TV ratings.

Streaming Viewership: Even faster decay?

This is a particularly relevant time to look at these numbers, because my working theory is that streaming exacerbates the decays of all shows. Again, from my view of the numbers and experience. In short, streaming video accelerates the decay of viewership because of binge releasing (if you don’t like a season, you decide quicker to stop watching), the lack of set viewership time (meaning if a show isn’t working the algorithms bury it) and the “too much to watch” state of TV (meaning if a show starts losing creative steam, well you have a lot of other options). As a result, my gut says TV shows decay viewership faster than ever.

I realize, I’m not presenting any tables with an exhaustive view of how many shows fit into my four models of viewership decay and to prove this thesis. I wish I had that data, but let’s just stipulate it for now.

Streaming Business Models: The Economics of Fewer Seasons

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My Questions for Netflix’s 2019 Q1 Earnings Call

I did something fun for the first time last week: I emailed questions for a corporate earnings call. Obviously, it was Netflix.

I’ll let you know why.. (And I’m under no illusions that I’ll actually have one of these questions asked.) Normally, if you asked me if earnings calls matter, I’d say no. Sure, the letter to shareholders will have some data, and the quarterly reports matter to investors, but the presentation is the most self-interested presentation imaginable. It would be like listening to just the closing statement of the prosecution in a trial. You’d get a lot more guilty verdicts, don’t you think?

But I have a much larger project I hope to unveil sometime this year where I make a “power ranking” of streaming/bundling services. From ad-supported to sports, anything digital video I will rank in one definitive list. Like sports power rankings, if you go to ESPN or any sports website nowadays.

To build that ranking requires good information, like all good decisions. And right now the company that has the most black holes in data, for me, is Netflix. Since I’ve written about their data and even coined a phrase about how selectively they pull it (read here for “datecdotes”), I naturally had the most questions for Netflix, and they convinced me to finally write an email.

To be fair—meaning unbiased across all digital video companies—I hope to roll out this type of feature semi-regularly with other digital video companies. Google, Apple and Disney are the most relevant, though Disney gets a brief reprieve with all the information they dropped on us last week. Youtube deserves a ton of questions and so does Apple with their paucity of information.

With that preamble, onto the questions. I have three big areas: Viewership (to see how valuable their content is), activity (to gauge how subscribers interact with the site) and subscribers (to probe their business model a bit). After each question, I’ll explain my reasoning in parentheses. These explanations I didn’t send!


– In the last earnings call, Netflix reported that Bird Box was viewed by 80 million customers over the first four weeks. During that time, was it the most viewed movie on your platform? Over 2019 as a whole, was it the most viewed movie on your platform? Have any Star Wars, Marvel or Disney Animated films had more viewers than Bird Box since their respective launches?

(As we look to the battlefield of 2020, churn is the name of the game. Is the most popular content on Netflix leaving? I believe it is with either Friends (or other long running TV shows like it) or all the Disney content. This question helps get at that for the movies side, especially the Disney content.)

– In the Q3 earnings call of last year, you said that 80 million unique customer accounts had watched one or more “Summer of Love” romantic comedies on your site, was that using the same standard as Bird Box, where you counted “watched” as 70% completion of a film?

(If Netflix answers this, I’d be shocked. My guess is they moved to the 70% threshold after minor pushback on their Q3 report. They knew they had to explain the calculation, but waited for a film that did well enough, like Bird Box, to justify it. Still, if they say, “No”, then that “Summer of Love” number can be severely discounted. Likely they won’t ever answer either way.)

– How many people watched The Christmas Chronicles? Or The Ballad of Buster Scruggs or Private Life? How many hours have customers viewed for any of this content? (You reported in the last earnings call that you do track hours viewed on site.)

(Again, this is to help flesh out the context of whatever numbers they do release. And the scale of losses. This is the best example of how one-sided an earnings report is. If there were a “defendant” making the bear case, these are the numbers their defense lawyers would seize on to make their case, to continue the prosecutor announcement from earlier.)


– In 2018, what was your monthly active users? What has been your monthly active users in 2019?

(Monthly active users is the metrics that “feels” right for me when it comes to truly understanding the people who love your service. I don’t have data, but my gut that it explains usage best. Monthly users are the people who devoured some piece of your content in their entertainment diet. Subscribers is not that. If I were “entertainment czar” all streamers would have to release this.)

– You reported the service “averages” 100 million hours a day of viewing in the US in a month. How much does that average vary by month? What does the time on site distribution look like by customer decile? What was the annual daily average?

(We all hate averages, don’t we? Well I do. They don’t tell use anything. And since someone quoted the “2 hours per day” number to me for Netflix usage recently, it made me want to know a lot more about it. Also, related to this is the variance overtime. December happens to be a huge month for Netflix, so touting numbers from December is deliberately overselling the annual performance.)


– In your Q4 report, you mentioned a net add of 29 million customer accounts. What was the number of gross adds versus net? How does this breakdown internationally versus US? You used to report gross adds in 2011, why did you move away from this metric?

(I didn’t know Netflix used to report this, and this is the type of number they should report, if you follow the standard, “Does the CEO get this information?” Because Reed Hastings definitely does. [I love that standard, by the way.] Again, churn is the name of the game, and the great thing about Netflix’s 60 million or subscribers is that it grows steadily every year. Which gives an illusion of stability the gross number would help understand. International is even more curious for me.)

– What is the total unique subscriber base you have had in the US since you launched streaming?

(My final way to get at the churn questions. Say Netflix had had 140 million unique subscribers in the US since launching in 2008. Some of those are duplicate accounts—people who signed up, then switched—surely. But some aren’t. That gets to the idea that it isn’t like Netflix is convincing people to try Netflix for the first time, but to come back. Which is fascinating, to me, and a different business challenge.)

Most Important Story of the Week and Other Good Reads – 12 April 19: The Rise of Disney+

The best lingering question from the Disney presentation has nothing to do with Disney:

How long until we get these type of details from Comcast-NBCU, AT&T-Warners or Apple?

The wild enthusiasm that accompanied Disney’s parade of content is what Apple was going for two weeks ago. But Disney actually did it because, well, they have the content. Content is still king. But I’m getting ahead of myself.

Most Important Story of the Week – Disney+ Announcement

When Apple unveiled Apple+ and Apple Channels, I mentioned how much I love the traditional “marketing framework” of 3Cs-STP-4Ps. My biggest gripe about Apple was they didn’t tell us anything. Price? Distribution? Content even? We knew hardly any of it. Not so with Disney! In fact, we can use my “Digital Video 5Ps” to evaluate the offering. (I added a P, you’ll see.) Though, to quote myself, you can’t use the 5Ps until you know who you’re targeting.

(In the parentheses, I’ll put my unasked for recommendations, as if Disney needs them.)

Who are they targeting?

Disney families.

That’s my gut, without seeing the actual marketing plan. Disney has always been about the family and it is the king of tent pole films that the entire family can see, from Star Wars to Pixar to Marvel. They want families to buy, watch and travel Disney. So how do their 5 Ps reinforce that target segment?

(Recommendation: None. This is the right segment. And yes, everyone should have a segment. “Everyone” is not a segment.)

Product – Content

Content is still king, so it goes first. This is the most important piece of any digital video service. And Disney owns the best real estate on the content landscape. My working hypothesis is that Disney films were the most popular content on Netflix. And since Netflix doesn’t release data, I can’t be proven wrong. When it comes to box office, toys, even TV ratings for its movies in the second window on TNT, FX and other movie channels, Disney’s content gets the most eyeballs. Launching with such an incredible bench of content is a huge advantage.

That will help the launch, and presumably the movie teams under Alan Horn will continue to work their magic–though, I do have a “Disney Nightmare Scenario” article half-sketched out about how it could all go wrong here–but are the new TV teams up to the task? That I honestly don’t know. A lot is riding on the armored shoulders of The Mandalorian.

(Recommendation: Dig through the Disney TV library too. Gargoyles, Rescue Rangers and old Mickey cartoons are all prime candidates for this service. That can instantly add hundreds of hours of kids content. Kids need “new” less than any other demographic.)

Product – UX

No one chooses to watch Netflix because it has a good user experience. In fact, people are complaining that the UX can be hard to navigate with so much content, so many scrolling windows and auto-playing previews. But people still use it. Because the content and price.

Still, don’t neglect the product experience. Hulu, with its tremendously long ad-breaks that repeat the same commercials, makes people crazy. Apps that crash drive people crazy too. Amazon Prime pretending you can watch a movie, but then asking you to pay for it bugs people.

Behind any product from a UX perspective are teams and teams of product managers, with senior product managers, and eventually bosses up at the top. (Or sometimes at an outsourced company. Sigh to that.) I wish I could tell you I had some statistical way to measure how good product teams are at fixing and improving their products. Especially, before they launch. (In fact, I’ve thought about how to measure this.) BAMTech–the company Disney acquired that the MLB launched to handle its sports streaming–has a lot of experience, and they launched the ESPN+ app, so they’re getting experience on the ground. And I like this initial UX look, even if it will likely iterate ten times before launch:


That feels clean. People said it looked easy to navigate. So I like it. Not needing to support ads also eases the technology burden, while reinforcing the family friendly image by not having to worry about your kids seeing bad ads. And the experience overall will be safer than Youtube. Throw in unlimited downloads and they’re on the right track.

(Recommendation: Avoid auto-play. Use that clever positioning to say, “We’re not Netflix trying to hook you or your kids like a drug.” Engagement is the new tobacco.)

Placement – Distribution

This is the one area we didn’t learn much. Will Disney+ be available everywhere, or only on certain apps? My gut would be they will for sure be available on Hulu (duh), but everything else is up in the air.

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Who Will Win the Battle for the next “Game of Thrones”? Part I – The Introduction and POCD Framework

(This is an “Appendix” 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)

Everyone wants the next Game of Thrones. Executives from Netflix to Amazon to Disney to AT&T—the current owner of HBO, the home of the reigning champion—are all scrambling to find the next mega-hit that can launch a network, er, streaming platform now. Jeff Bezos said he wanted this most explicitly.

Fortunately, the well-heeled streamers have told us how they’re going to do this: by copying Game of Thrones.

– HBO is preparing up to four sequel/prequel/spinoff series set in the A Song of Ice and Fire universe.

– Amazon is bringing a Lord of The Rings series to its platform.

– Netflix is going to bring us another adaptation of C.S. Lewis’ Narnia series. 

Whenever a streamer announces a new huge fantasy series, the coverage is usually universally positive. That was my read of the media after Jeff Bezos’s Amazon Prime/Video/Studios went all in on Lord of The Ring. Everyone called it a huge coup for Bezos and team. Almost like it couldn’t not succeed. (Acronym alert: Game of Thrones will be GoT mostly from here on out and Lord of The Rings will be LoTR, and the Chronicles of Narnia will just be Narnia.)

Here’s my rule of thumb: we never know things with 100% confidence. Especially people opining on the future. Whether or not the LoTR series will be a huge hit is a legitimate question, not preordained fact. Yet I can’t deny the audacity of spending that type of money on arguably the greatest fantasy books of all time. 

This really will be a game of thrones for the title “the next Game of Thrones”. 


That sounds like a great topic to explain a LOT of the business of entertainment and future of streaming, while getting to mess around with one of my favorite franchises of all time. If the entertainment press wants to compare Lord of the Rings to Game of Thrones, I’m happy to oblige. We can use this battle as a stand in for HBO vs Amazon Video/Studios/Prime vs Netflix. I also love both of these franchises as a fan-boy, though I’m definitely more invested in GoT than LoTR.

So for the next six weeks or so, I’m going to write my next big “Analysis” article on this question:

Which franchise has a better future, Game of Thrones, Lord of the Rings or The Chronicles of Narnia?

Setting the Terms

First clarification, better future for whom? This is why I spent Monday and Wednesday discussing the “value chain”. Here’s the simplest TV value chain:

TV Value ChainIn some cases, the TV producer and streamer are the same people. Take HBO with Game of Thrones. They’ve made all the monies from that show because they produced it and own it. Sometimes, the same corporate parent owns both the production studio and the network/streamer, for which I’d refer you to Fox and the Bones controversy. Sometimes, the streamer just buys the rights. So we can see one of two places to make money in this question:

TV Value Chain overviewThe production part isn’t as interesting to me as the streaming portion. Making hit TV shows has a lot of factors outside your control. But picking hit TV shows is vital to succeeding as the #StreamingWars2019 commence. Customers will have more options than ever. If you don’t pick good shows and make money off them, you won’t survive. 

Really, we want to know that—given what all the players are paying—who series will benefit their streaming channel the most.

How do we define “benefit”? Well, when in doubt, money. And I won’t debate this. Buzz is good, as long as buzz leads to paying subscribers. Awards are good, as long as it leads to more viewers, who are paying you money. At the end of the day, these are businesses, and you judge those based on profit, cash flow and return on investment. When in doubt, I focus on cash flow. 

Also, to keep this fair, this is future looking. I don’t care that Game of Thrones has already made billions potentially for HBO, I want to know who will win the future. With that, we have this final question: 

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

Blink and Gut Reaction

When I decided to launch this site, I decided to roll out a new process for myself, inspired by the best practices in decision making that I’ve read. Before I analyze a topic, I capture my initial reaction and my gut reaction. Then I dig into the numbers. Then I see what others have written. This allows me to understand my biases. For a full explanation, see here.

Blink Reaction

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Porter’s Five Forces…Explained

The trouble with value chains—which I unveiled Monday—is that they don’t stay the same forever. They are constantly changing. Disruption, right?

Take filmed entertainment. In 1980, it was just movies and TV, with movies in theaters and TV on broadcast. But home entertainment, cable, digital and the internet have all disrupted those two models. Plus toys and merchandise are sold for all of it now at unconsidered levels back then.

While the value chain shows how things currently flow, it is pretty silent on how the things relate. Who has the power in the relationship? Who creates the most value? And for people at the same part of the value chain, what is it like? So we need another tool.

And thus enters perhaps the most famous tool in strategy.

Porter’s Five Forces…Explained!

The second tool is similar to the first one, but focused on a single part of the value chain. The competitors at one layer. And to complicate it, after Porter unveiled it, he added a sixth force, so it’s the five forces, plus one. Here’s the shell of that model:


That’s from Wikipedia, so I hope they don’t mind me borrowing. (And yeah pro sports tip: Wikipedia is pretty damn good at explaining a lot of economic, statistical, business and other scientific concepts. It doesn’t replace reading the underlying books, but is great for refreshers.) My change is to tilt the model from the Wikipedia version:

Screen Shot 2019-04-10 at 3.11.17 PMValue chain analysis and five forces analysis serve two different purposes. The value chain is really about analyzing who creates and captures value at each stage, with the specific costs, gross margins and profits at each potential stage. (Twitter follower Simon pointed me to the Exponent podcast from 2017 that digs in to this usage a bit deeper.)

Five forces analysis is about the power of each of the inputs or outputs of an industry on the potential to make a profit. But usually limited to one stage. It helps explain why profit margins are high or low given the biggest inputs on those margins. Here’s the picture from my text book. It combines how my model (listing the players) and the Wikipedia model (showing the forces). (Again, I love my Strategic Management text book, and they have it oriented my way):


As I clarified, I could build a “Porter’s Five Forces” model/run a five forces analysis on potato chip manufacturers or stores or distributors or even potato farmers. Since we’ve been doing manufacturers this whole time, let’s keep with that:

Screen Shot 2019-04-10 at 3.11.38 PM

The key insight of a five forces analysis is explaining how strong or weak each of the interactions is. This is usually described as as high or low power. The power of each part is relative to your strength/situation. If someone has a lot of power, that means they can demand lower prices to buy, or higher prices to sell. The power of this model is it visualizes the strength of the various relationships. 

Still, let’s walk through the steps, to explain the value in the various components. And that pesky “plus one” that doesn’t fit neatly into the chart.

You start with suppliers to the west. Say your main supply is a commodity, like oil or corn or even energy. Well, the suppliers don’t have a lot of power to charge you higher prices since commodities tend to be priced at what the market can bear. If, on the other hand, you have a monopoly on the supplies—say a patent on a new drug—you can charge exceptionally high prices. 

For potato chips, you’ll notice there are many more supplies required to make the final product than just potatoes. However, for the most part those other supplies are still commodities, so my gut is the suppliers have low pricing power for the potato chip manufacturers.

On the east side of the model, you have buyers. Buyers are not “customers” necessarily and absolutely not necessarily “consumers”. If buyers have lots of power, they can demand lower prices. Take gas stations: I can always drive to the next one. If their power is low, it means they have to price low to get your business. Another currently relevant versions is tax returns. Only a few company offer the services, and they’re really hard to do, so consumers have less bargaining power. (The fewer options, the less bargaining power, in general.)

Let’s head to the middle of the model. The value chain is usually silent on this part: what is it like for you at your part of the value chain? If there are lots of players, then competition can be very fierce. Again, think commodities and all the potato farmers showing up to the farmer’s market at the same time. Or the ice cream truck wars of Portland. On the other hand, in heavily consolidated industries like cell phones or cable companies, isn’t it funny how they all sort of charge the same price, for usually bad products? That’s a lack of rivalry among firms. 

For potato chips, the main thing is that while it seems like there are a ton of potato chip options, uh, there aren’t. Frito-Lay owns them all. Doritos, Cheetos, Tostitos, Ruffles. All Frito-Lay. While there are smaller brands that have entered and expanded business in the last twenty years—Kettle Chips mainly—I’d say that rivalry is low among firms, because Frito-Lay buys most competitors, or uses its power to keep its shelf space with buyers. 

In general, the CPG companies have about 5-6 huge companies that own all the brands. I’m not sure if I’d call this rivalry fierce or not. I could argue either way. On the pro side, there is a lot of battles over price and the companies run small margins (see Kraft and Buffett right now). On the con side, with only 10 major players, there is a lot of unspoken agreements on behavior and sharing shelf space.


The other thing that can really drive down margins is the ability for new firms to enter. (And this will probably be the key to discussing entertainment next week.) Look to the north of the model for this. If it is really easy to enter a market, then the barriers to entry are low. This can also force firms to keep prices low to ward off entrants. If the barriers to entry are high, then you can keep charging high prices or capturing value. Think cable companies for forty years in this way. Since it costs a fortune to lay fiber optic cable, the barriers to entry are very high. (Notably, Google’s adventures in fiber optic cable have been bad, but every tech company wants to launch a video service.)

The barriers to entry are high in consumer packaged goods, even though they shouldn’t be. This come from the massive consolidation at the center of the industry, which means the current players can try to box out upstarts. This is complicated to explain—and I don’t have enough numbers to prove my point right now—but it is easy to start a hot sauce, barbecue, or even chip company. It can be impossible to get national distribution. (And I don’t credit some sort of clever business strategy for this, but industry consolidation.)

The only new entrant I can think of is Kettle Chips, at least nationally, in America. Twenty-five years ago, they weren’t a thing and now they are. (Why? To summarize, a family company sold their company to a British PE firm, who later sold it to one company, who was bought by another and that company was bought by…Campbell’s Soup. Who didn’t even make the above chart.)

(Oh, all of these business examples are from America, for my foreign readers. That’s the market I know best.)

But while it can be hard to break in, that doesn’t mean there aren’t alternatives for customers. This brings us to the “south” and a perfect example of how a Five Forces analysis can provide insights the value chain can’t on its own. Substitutes are things that can fill in for the core product. You can either think of these super broadly or narrowly. An Oscar worthy example of this was when Reed Hastings said Fortnite is a bigger competitor than traditional TV for Netflix, he really meant it is a substitute for leisure time.

Potato chips have many substitutes. Say consumers want something healthier, they could eat pop chips or Hippeas. Those are healthy items that fill the same need of something to snack on. Or nuts for protein. Or pretzels. Or Cheetos. Even tortilla chips substitute for potato chips. If you go natural, apple slices! Those are examples of other substitutes for snacking and you could even go into candy. (Though we risk starting up the “snack vs treat” debate.) Moreover, you could decide to just NOT eat chips, which is healthier anyways. So here’s our chart with my “back of the envelope” perception of power:

Screen Shot 2019-04-10 at 3.11.46 PM

So my take on potato chips that the biggest piece keeping prices down is that you can always choose not to eat them. You don’t need chips to survive, and actually will live longer if you eat less of them. But that’s my gut take without pulling specific pricing numbers. (And if someone knows CPG better than me, which is a lot of people, shoot me a note if I got something wrong.)

Oh, did you notice that new piece, in the upper right? After rolling out these forces, Porter later added the “plus one”, complements. These are things that add value to the core product. For potato chips, think ranch or onion dip. Dips take a plain potato chip and kick it up a notch. Or salsa on tortilla chips. They aren’t in your value chain (presumably), but they definitely impact your bottom line.

Connecting the Value Chain to Five Forces

You may have noticed my sellers, incumbents and buyers had the same shapes I used in my value chain. I used the same shapes, because frankly, you can see that the value chain is really just the middle line of the Five Forces model. A connection that literally no one (that I know of) made in business school. They were basically two pictures of smaller parts of a much larger image, which is roughly the interlocking pieces of any industry. So I combined them, and since I felt like I was creating something new, I gave it my own name:

The Value Web

I call this my “insight” because again I really haven’t seen it in other places. And most of the maps of entertainment ignore the value chain component, instead using company names. the value pieces, as opposed to just company names. The name is simple: Value, because I love it above all else, and web, because it explains not just one layer but all the interlocking pieces. 

(I haven’t seen this term in other places, but Clay Christensen uses the term “value network” in The Innovator’s Dilemma, so it may not be that clever of an idea. And Deloitte uses it here, but focused on the supply chain.)

So let’s look at a value web for potato chips. 

Screen Shot 2019-04-10 at 3.12.03 PM

Some insights. Well, the traditional buyers are under threat from web sales. Not everyone (liquor stores are fine), but eventually, lots of things will be sold online, so every brand needs a web presence. Notably, some data shows that this means smaller CPG companies can expand their presence to new markets, so maybe the incumbents have less power. So that’s why understanding substitutes and multiple parts of the chain can be useful.

This is why I like the larger view. A value web will help a company at one level understand the substitutes and new entrants across the range of the value chain. And how that may impact their business. So Popchips are a substitute for potato chips, but online shopping is a substitute for grocery stores. A potato chip company probably needs to understand both those potential substitutes. 

Digital video has new digital entrants across a range of the value chain from producers (shooting video on cell phones) to streamers and eventually even bundlers. Youtube is taking eyeballs in a different way than Netflix, which is both at the end of the value chain. Online shopping is changing toy sales. Going back in time, even reality television—with its cheaper production costs—was a substitute for scripted television at the production level. 

The challenge with building a strategy web is one of simplicity and scale. Honestly, I’ve just about maxed out what I can build on Powerpoint (a tool which works for 95% of my image creation on this website) and what 95% of business folks use. I’ll need to look up other drawing tools to build a true strategy web. And even then, it will probably get update too frequently to last long. 

But we do have the two tools needed to analyze this industry in slightly deeper depth. Which I’ll start to do with my next big series and next week as I try to define digital video.