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.

The 2019-2020 NBA-to-Entertainment Translator: The Update

Basketball, in my opinion, is a great testing ground for theories on strategy, valuing assets and data analysis. That’s why I developed my ownValue Over Replacement Executive” theory last fall. Or why I used the NBA to explain the misleading statistics here. Or compared overall deals to NBA trades here. Or why I’ll roll out the “four factors of streaming video” in a few weeks. 

It works because basketball—and really all sports—are a controlled environment, with standardized statistics and clear winners and losers. That makes it a great laboratory to test out a lot of theories. The challenge for entertainment executives is understanding that the data is a lot messier in business than sport.

My favorite basketball-inspired series was from last fall where I rolled out my “NBA-to-Entertainment” translator, comparing each NBA team to its analogue in the crazy world of the Hollywood. I did this in three articles:

Part I: The Eastern Conference

Part II: The Western Conference

Part III: The Rest

In honor of the return of America’s 2nd (or 3rd) biggest sport, I’m going to take a gander back at what I wrote last year. I won’t hit every team/company, but will call out some of the biggest hits, misses or just fun teams/companies to write about. 

(By the way, this is an exercise in narrative building fun, not an accurate, data-crunched analysis. With essentially each “input”—either team or company—being filled with thousands of variables over the course of a year, I can pick and choose to build mostly any narrative I desire. Which makes for a fun read, but should be a sneaky lesson for those of us crafting strategies.)

The Walt Disney Company is…The Los Angeles Lakers

Call: Biggest miss

Let’s not pull punches, fellow Lakers fans. While Disney was having arguably the greatest year in theatrical performance in its history—Avengers: Endgame, Captain Marvel, Toy Story 4, The Lion King—the Los Angeles Lakers were tanking. It wasn’t the worst season in team history, but it wasn’t great. And we had Lebron James on the roster!

Lebron—who I also called the “Marvel Studios” of entertainment—was still Lebron. And the same way that Disney put together superstar studios (Star Wars, Pixar, Marvel), the Lakers added Anthony Davis in the off season. That’s why I have to keep this pairing for now. The Lakers added a superstar and Disney is about to add Disney+. Plus, cynically, both Lebron and Disney have ongoing China business that clouds their moral judgement, so that feels appropriate.

Netflix is…The Golden State Warriors

Call: Biggest hit

Wow, does anything capture Netflix’s last year—continued global subscriber growth, but one earnings miss tanked their stock price—than Golden State making the finals, but losing to Toronto? Emotionally, those feel identical. Other similarities: Golden State lost Kevin Durant, and Netflix is losing all the Disney movies. 

As we gaze towards the future, both Netflix and the Dubs face competing, viable visions of the future. In optimism, Golden State gets back Klay Thompson, De’Angelo Russell becomes a super star, and by next year they’re competing for championships. In pessimism, it all falls apart. In optimism, Netflix gets its costs under control, keeps growing globally, and takes over the world. In pessimism, it all falls apart.

This is a fun one to keep watching.

Amazon Prime/Video/Studios is…The Toronto Raptors

Call: Close miss

One could squint and make the case that Amazon crushed it in 2019. An Emmy win for Fleabag, the super hot Marvelous Mrs. Maisel (also winning awards) and then you have The Boys being a sneaky popular series! Amazon has the hardware and so too do the Raptors.

But it doesn’t quite capture Amazon’s year. For all the TV success, Amazon had a string of movie misses from Booksmart to Brittany Runs a Marathon. Those misses feel like not re-signing Kawhi Leonard. Most importantly, for all its talk about 100 million global subscribers, no analysts really think that the Prime Video service has taken the crown from Netflix. As for Twitch, it’s huge. But how huge? We don’t know.

HBO is…The Houston Rockets

Call: Hit

How can you have the biggest show on television, and feel like your company is falling apart? By having every executive leave and your corporate parent trying to change who you are. The Rockets have the greatest scorer in the NBA, but they didn’t make the Western Conference finals because of a poor regular season, sort of how HBO’s slate outside of GoT is very “okay”. 

The future isn’t terrible, with another polarizing superstar—Russell Westbrook aka The Watchmen—joining the crew, but definitely filled with question marks. (Will the GoT prequel live up to the hype? Will Westbrook and Harden co-exist? Will HBO Max ruin the HBO brand? Will Harden come through in the playoffs?)

While we’re here, we may as well knock out the rest of the AT&T/Time-Warner conglomerate.

Warner Bros is…The Milwaukee Bucks
AT&T/Time Warner is…The Los Angeles Clippers
Dallas Mavericks is…Turner (CNN/TNT/TBS)

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Most Important Story of the Week – 18 October 19: The SWfK (Streaming War for Kids) Explained…

Disney+ started the week off with a social media bang! A massive Twitter scroll of every film coming to their platform organized chronologically. This became the topic of the week for the Screengrab crew and led exhaustive articles like Julia Alexander’s at The Verge. I’d been mulling doing an update on kids because the last few months have had a lof of news. This is an unscientific sampling of recent moves in the “streaming war for kids” (SWfK): 

Sesame Street is going to HBO Max. (Along with Studio Ghibli films.)

Viacom bought the rights to Garfield.

Apple has a deal with Sesame Workshop.

Walmart is focusing on “family friendly” with its Vudu service.

Netflix is going HUGE into kids movies.

And then the news story that did not get enough coverage at the time

– Amazon Prime/Video/Studios is pulling back from making original kids series

Huh. At the same time that Netflix, Disney, Apple and HBOMax are about to go heavy into originals, Amazon is saying, “Naw, we’re good.” In a way, this difference in strategy is refreshing. When it comes to the streaming war for adults, well everyone has essentially the same strategy: make big expensive genre series (GoT prequel, LoTR prequel, Star Wars/Marvel series, See/Foundation), award bait (Succession, Marvelous Mrs. Maisel, Handmaid’s Tale, Dickinson/The Morning Show) and grab a movie catalogue (if you own one). 

With kids, on the other hand, it seems like there is either a difference of opinion on how to compete for kid’s attention. Let’s bucket all this news as…

The Most Important Story of the Week – In the SWfK, Buy, Own or Rent?

The thing about the difference in opinion is that in a lot of cases, I could agree with both sides of the argument. What I’ll do is go by streaming service, highlighting along the way the two big issues I see. First, what to do about content: license (rent), library (own) or produce originals (buy). Second, is the UX good or bad?

Disney+: Mostly Library Content

When you think about it, kids have a very limited view of the world. My 4 year old, for example, watches what I turn on. And sometimes that is 80 year old films like The Wizard of Oz and sometimes it is band new movies like Frozen. While some new shows will definitely be a part of the Disney+ launch, overall this is a bet on library content. Especially the movies. 

For Disney, this isn’t a terrible idea. If you had to have anyone’s library content, the list would look like this:

  1. Disney

  1. Nickelodeon
  2. PBS
  3. Cartoon Network
  4. Netflix?

Still, there are risks. Mainly, that old kids content looks old. If Disney Junior could have simply rerun old episodes of Jake and the Neverland Pirates, wouldn’t they have done that and never spent the money on Tots?  It turns out you probably need some new kids content, even if it doesn’t give you the sizzle that it does for adults. The question is how much? Which brings us to…

Netflix: Mostly Original Content

Netflix is making original content because they don’t have Disney’s luxury of already owning a library. And when it comes to renting or buying, buying makes more sense for cost efficiency reasons. If Viacom went “content arms dealer” and offered them everything from Nickelodeon for the right price–meaning very low cost per episodes–Netflix would say yes—but Viacom wants more money than that. 

Thus, Netflix wants to own the content so that they don’t have to keep paying the Viacom/Dreamworks etc deal tax in perpetuity. This should save them money. In the long run. But crucially it won’t save them as much money as Disney or Nickelodeon or even Cartoon Network who already have thousands of hours of kids content to give to themselves for free.

Worse, there is less upside in original kids content than original adult content. I mean, if you have a show win an Emmy, presumably a lot of adults hear about that. I doubt kids know that The Loud House won a Daytime Emmy.  Meanwhile, it’s cheaper to own a library than build one because you already know how many hits you have. Indeed, like most things, we don’t know Netflix’s failure rate on kids content.

Still, if owning a library is the cheapest option, then building one is the next cheapest. The most expensive option is to keep licensing, which brings us to…

Amazon Studios: No library content or original content

Here’s a headline I missed at the time:

Amazon Pulls Back from Original Kids Programming

Amazon Studios doesn’t have a library like Disney meanwhile they aren’t making originals. Which means they are totally dependent on licensing for the near future.

Here’s the thing: I don’t hate this as much as I thought I would. To go even more negative on originals for kids, using my toddler again, if I put on Muppet Babies from the 1980s or Muppet Babies from 2010s (repeat with Duck Tales), if she’s never seen the newer version she doesn’t really care. Meanwhile, she’s not on Twitter so it’s not like she can tell me that “baby film Twitter”—if it existed, and now I want it to—is in love with the latest season of PJ Mask. So again, why make kids originals?

To immediately contradict myself, while I don’t hate this strategy as much as I thought I would, I will say it does seem to bring the whole “Amazon Prime brings people in to spend more on Amazon” theory into question, though, doesn’t it? Parents with kids DON’T spend enough on Amazon? Aren’t they the most valuable segment Amazon has? 

Clearly, there is some limit to bringing people into the Amazon ecosystem. Because even cheaper than expensive licensing deals (like Netflix did with Dreamworks) are cheap licensing deals (just whatever is available and very old). Of which there is more out there than you would guess. The problem is this doesn’t really make you competitive with kids. Meaning even the “cheap licensing” plan could still lose money in the long run.

If I had to guess, the problem with Amazon Studios previous forays into kids content is two fold: first, it’s just a crowded field and hence even tougher to generate a return (even with parents buying diapers); second, the experience for kids (and especially parents) isn’t great. (Amazon still doesn’t offer a “kids only” app, which means kids can surf adult shows, which is “sup-optimal”.) Which brings us to…

Vudu (Walmart): Licensing content and some originals, but great UX

Vudu—from what I can tell—will have some of episodes of old TV that you can watch with ads. From Paw Patrol to Blues Clues. That’s the “cheap licensing” approach. Meanwhile, Mr. Mom is their first original, so they see value in original productions.

Unlike Amazon, Vudu/Walmart is leaning into parent/family friendly features. Presumably because if parents use Vudu, they will buy more on Walmart. In other words, the exact opposite logic of Amazon? Whereas Amazon doesn’t see the need for originals, Walmart does? See, the kids space is complicated.

The challenge for me with newer kids competitors is one of volume. Is two shows enough to hook a family? A dozen shows? More? It’s not clear Walmart has that volume. (Though again I need to surf more to find out how much is available ad-supported versus for purchase.) Which brings us to…

HBOMax – Sesame Street and…that’s it

It turns out there is a fourth expense option: license (rent) one TV series…and that’s it? 

Seriously, the HBO family programming slate is fairly sparse, speaking from personal experience. And Sesame Street skews so young nowadays that even five year olds have aged out of it. 

The question is how HBO Max will incorporate all the Cartoon Network and Warner Bros/Looney Tunes IP they own, or whether they eventually launch their own kids platform. (Since launching two kids platforms is the most confusing option for customers, bank on AT&T doing that.) It’s safest to say HBO right now is sparse; in the future, it will leverage library content. In other words, a little bit of everything because everyone has a different strategy in the SWfK.

Quick hits on the rest:

– Youtube: It has the library content because anyone can upload to it from anywhere in the world. Little kids aren’t that discerning. As certain shark videos prove. Essentially, though, Youtube has the opposite UX of Walmart. It has about the worst reputation possible, which will be the big challenge for the them.

– Nickelodeon (Viacom): We don’t know their plans yet. If they don’t become a content arms dealer, they may be too late to get a foothold in the kids universe. Meanwhile, they keep buying rights for IP, so are worth monitoring.

– PBS: Most likely it will become a staple on vMVPDs and FASTs, the question is how long does that take? Meanwhile, their app secretly does really well because of good UX and parent approval. They even beat Disney when it comes to discerning parents. Also, they have both library and originals.

– Universal Kids (Peacock?): Similar to HBO/Warners, Universal has a lot of kids movies and the question is “what do they do with them?” Universal Kids nee Sprout has been fifth in kids viewing for a long time and this space is crowded. If they asked me, I’d say they get out of the kids business, they’re too far behind.

Data of the Week

Meanwhile, this week was filled with lots of fresh data points. And I don’t just mean from Netflix, which I covered extensively yesterday

First, I stumbled across this graph by IHS Markit on the potential device penetration by upcoming streamer. Disney+ is close behind market leader Netflix, whereas Apple TV faces the toughest go.

Second, here’s another look at views of content on Netflix and how library shows dominate. This is driven by the amount of hours available for the big series. And while that may be the case, it doesn’t explain why The Grand Tour beats Marvelous Mrs. Maisel on Amazon (and Game of Thrones beats both because it has hours and was the most popular series on TV). And yes, you can see the logarithmic returns.

Third, this article looks at sentiment of Netflix searches. What I found fascinating is the idea that Netflix has so much content there is a paralysis of choice, which leads to negative consumer sentiment. In other words a “more curated” experience may benefit customers. That would seem to be to Disney+ and HBO/HBO Max’s advantages.

Other Contenders for Most Important Story

We’re long so quick hits to finish.

AMC (theaters) is getting into VOD. Specifically, not “subscription” streaming as some headlines suggested. I agree with the complaint that this is a few years late, but it feels disingenuous to complain AMC isn’t innovative enough, then when they try something new insult them for it.

Netflix is cutting back on stand up specials. Hmm. Will have more to say on this, but it seems like the marginal benefits of certain content buckets have caught up to the marginal costs.

Disney is airing High School Musical: The Musical: The Series’ first episode everywhere. Meaning ABC, Disney Channel and Freeform. Along with the live Little Mermaid, That’s the cross-promotional juggernaut we expected to see.

Apple Launches In-House Production. My main take away from this last Friday news is that Apple realized much more quickly than Netflix that owning shows will make more sense than licensing or co-producing them.

“Hurry Up and Wait” for the Streaming Wars: Netflix’s Q3 2019 Earnings Report

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If you ever found yourself in the armed forces, you may be familiar with the phenomenon of “hurry up and wait”. It worked like this. A dignitary is coming in. Say a three star general. So your two star general plans a division parade. Which means the Command Sergeant Major sets it up. Scheduled to start at 1000 (ten hundred in parlance), the Division Sergeant Major tells his Brigades he wants them in position by 0930, so of course that means standing in place at 0915.

Woe to the unit that is late, by the way, which is why everyone is “hurrying”.

Here’s where the fun starts. The brigades don’t want to be late for the 0915 “time hack”, so they have their troops show up in formation at 0830, to be ready 30 minutes early too. Then the battalions say, well, “Let’s be ready 30 minutes before that.”

And so on. With companies, platoons and even squads.

Eventually, you have thousands of soldiers leaving their houses at 0500 in the morning—and skipping PT— so that they can stand in formation for 3 hours doing nothing. Hurry up and wait.

That’s my feeling for Netflix’s latest earnings report. If I can speak for my fellow Netflix hawks—be they bulls or bears—we had this date circled since July. Will Netflix miss subscribers targets again? Could the stock tank? Or will Netflix crush estimates? And what will Reed Hastings and Ted Sarandos have to say about the “streaming wars”, which start next month? 

No kidding, the (hashtag) streaming wars made it in the shareholder letter.

IMAGE 1 - The Streaming Wars

After all the waiting…we didn’t learn much. Netflix hit almost all their targets on the dot and Hastings/Sarandos didn’t reveal any ground breaking news.

Instead, we hurried up, but we’re still waiting for the streaming wars. Sigh. Still, we learned a few things in the latest earnings report. Let’s start with strategy, touch on the specifics and end with the subscribers/financials. Oh, and meta thoughts to conclude.

Strategy: Focused, but Narrow?

When it comes to strategy, Netflix probably has the clearest plan and simplest business model of all the streamers. They sell subscriptions and they plan to dominate all scripted and reality viewing. If you want to know their strategic advantage, it’s that. They know what they are, and they’re extremely focused on that.

And they still have a big goals: they want to take over TV all over the globe. If you want Netflix’s global upside for share price, it’s all this. Honestly, “Netflix bears” like myself probably neglect how much additional revenue can come from this global conquest.

But it isn’t cheap, of course. Netflix is spending $10 billion in amortized and $15+ billion in actual cash each year (from 10K) to get those new subscribers. Worse, the most valuable subscribers are in the United States, then Europe, then Japan and then descending down the GDP per capita income ladder. And those most valuable markets are nearing Netflix saturation. (Meanwhile some, like China, remain off limits.)

The most interesting observation, for me, was about the content strategy. Here’s the introduction to the content section of the shareholder letter:

IMAGE 2 - Content Strategy Summary

This content strategy manages to be both broad and limited, at the same time. Broad because Netflix is competing on film and TV and scripted and unscripted for kids and adults and everyone. 

And it’s limited because that’s all they are competing on? If “live TV” isn’t an option, that means  events, sports and news just aren’t in the cards.

In other words, for all the growth in content spend, many TV consumers will want a TV service that provides news and sports. If Netflix can’t fulfill someone’s entire TV demand, that means customers will have to watch other options too. If you value Netflix’s stock price as “becoming TV”, well you’re seeing a company that knows it won’t be that. Sure, it has a chance (that is becoming smaller every week) of “become all scripted and reality TV”, but that will be a pricey fight.

My view is that as long as customers need to have other TV services, Netflix is increasingly likely to be churned out of someone’s regular diet.

Nor does Netflix have the capital to branch out into a large new business like either buying DAZN or Roku or even a Lionsgate. They could merge with any of those, but any new venture that has huge upfront costs will stress their cash flow even further. Apple, Amazon and Disney don’t have those hindrances. That means Netflix needs to be perfect on everything decision from here on out to maximize that share price. That’s tough. 

So let’s get into those specifics.

Content: Some Selected Datecdotes Tell Us Some Things

Let’s start with the headlines you did not see yesterday. And the “null results” because I want to place in your easily available forebrain the idea that most shows aren’t doing well on Netflix. Or they are and it behooves Netflix to keep them secret. (I guess.)

Headline one: 

Of 162 original launches in Q3, 93% did under 29 million viewers. They were bombs.

Fine that is a bit provocative. Technically, I don’t know how many series really had less than 29 million viewers. Just because the lowest Netflix datecdote was 29 million doesn’t mean some other movie secretly did more than that, and Netflix just didn’t say. (Which, why hide that?) How’s this:

We don’t know how 93% of Netflix originals performed last year.

It’s crazy to consider that’s how many launches Netflix had in Q3, but according to my data—which means sorting this long, long list from All Your Screens Rick Ellis—that’s accurate. And given that when we do get inadvertent leaks—Steven Soderbergh said in an interview High Flying Bird had 8 million views—they are much lower, I’d bet that most other content releases were much lower than the leaks.

On to the datecdotes (explanation here) we did receive. These are both higher and lower than it seems. On the high side, I counted 12 datecdotes (authorized or leaked) since Q2. No seriously, four movies and 8 TV series. The challenge is that four of these datecdotes apply to two series (Netflix released 7 and 28 day numbers for both Stranger Things and La Casa de Papel.) And three of the TV series releases didn’t actually have numbers just “biggest TV series in the country” (Sintonia, The Naked Director and Sacred Heart.)

Since I’ve done feature films the last two times, I’m going to try to draw out some conclusions from the TV side this edition. Here’s my summary table of the data:

Screen Shot 2019-10-17 at 4.28.29 PM.pngAnd now some implications.

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Most Important Story of the Week – 11 October 19: Evolving Feature Film Strategies By The Streamers

I’ll admit it: I have a key question on my brain this month:

Should you release your film in theaters or straight to streaming?

Obsessed with it. Trying to compare Netflix to Disney to Amazon to Apple and the rest of the traditional studios is tough enough, and each has a different answer to that question. How can we tell who is right? Well, I’ll try. But I can’t answer it in one column. Instead, this is the amuse bouche for that discussion…

The Most Important Story of the Week – Evolving Feature Film Strategies By The Streamers

The “fun” story of the week was about He-Man and his potential reboot at Sony moving over to Netflix. Whether or not this move specifically happens–this story falls into the category of “are exploring” which half the time means it won’t–it pairs well with this in-depth New York Times article about Amazon Prim-Video-Studios’ evolving theatrical release strategy. Essentially, they (Amazon) won’t. 

For today, though, instead of focusing on “how” they release their films, I’ve been thinking about “what” types of films the streamers are releasing. Especially with Amazon releasing the relatively expensive (for them) Aeronauts, Netflix releasing a probably pricey Breaking Bad spinoff film El Camino and Netflix about to release the supremely expensive Martin Scorcese The Irishman

As I started to explain this shift, I came up with a thesis, but it didn’t really work. But then I had an opposite explanation. An antithesis if you will. So with that start, you know what? We’re going “Hegelian” on this today.

Thesis – Introduce the Low Priced Option and Then Move Up Cost/Quality Frontier

On the surface, this looks like a great way to explain what Netflix and Amazon are doing in feature films. Essentially, the low-cost entry method is all about finding a way to make a product for much, much cheaper and competing with incumbents by offering this cheaper option. Then, once you’ve established a foothold, you start making more expensive options and competing with incumbents directly. Presumably with higher quality and hence better margins. 

Take cars. Japanese automakers started by making cars that are safer and cheaper (Toyota, Nissan) then they moved into luxury market (Lexus, Infiniti). 

On the surface, that looks like what Netflix and Amazon are both doing. They start by making “prestige”-type films. (I do a quick definition of this in my latest Linked-In article.) So the streamers head to film festivals and buy films for “only” $14 million or so. They buy a bunch though, and give these to their customers. After the prestige films, they move onto the mid-tier films–say $20-50 million dollar price tags–like romantic comedies or horror films. And now both are graduating to the top of the income bracket: big budget films like The Irishman or He-Man. (Besides Aeronauts, Amazon hasn’t shown a willingness to go much bigger budget, but facts are no reason to spoil a nice narrative.) (As for previous studios trying to do this, Lionsgate is the best example.)

The challenge? As a reader pointed out on Twitter quite a while back, it isn’t like Netflix or Amazon Studios really figured out a way to make the films for lower costs. Netflix did when it came to licensed content; they routinely got studios to license them library films and TV series for way below the market value because studios considered in “found money”. (Indeed, back in August, I described how cable channels launched with reruns as a low cost option, then moved up the value chain as Netflix did here.) (Lionsgate tended to sell international rights to fund production, then made money off US distribution.)

Indeed, the main “innovation” of Netflix and Amazon was to take films that previously sold for $5 million at Sundance and pay three times as much for them. Definitively, then, this is NOT a low cost strategy. So what is it?

Antithesis – Make Increasingly Popular Films

Maybe this is moving up the “popularity” value chain. I like this approach because it combines two of my old bailiwicks. First, as I repeat ad nauseam, is that popularity is logarithmically distributed:

chart-2-movies-again(More examples here.)

In other words, the most popular film in America–Avengers: Endgame–is as popular as the bottom 500 films released in America in 2018 put together. My second bailiwick is that something that is popular on one platform is popular everywhere it airs. (ie The Force Awakens was the most popular film in the US on theatrical, home entertainment and linear TV. And very, very probably streaming too, if Netflix would share the data.) With this knowledge, we could reframe the initial strategy of both Netflix and Amazon as: 

Start by making pretty unpopular films, then make slightly more popular films and finally start making very popular films.

Prestige films and documentaries are less popular than teen rom-coms, gross out comedies and horror films, which are less popular than superhero movies. Crucially, the popularity is still roughly the same whether it goes to theaters or straight-to-streaming; popularity is popularity.

Does this help explain the behavior of our streamers better? Probably. According to the article, Netflix wants to make one “quality tentpole” quarterly AND it needs international appeal. Presumably films getting 80 million subscribers like Bird Box and Murder Mystery show the value of moving up this popularity theshold. The Breaking Bad film El Camino likely fits this category as well, being the equivalent of a Downton Abbey-sized film, bigger than many Sundance acquisitions but smaller than superhero films. And Aeronauts will likely have more appeal than a lot of other Amazon Studios acquisitions that were geared for awards season only. 

Presumably, a well done He-Man could do even better. Specifically, whereas prestige dramas and TV spinoffs may have a limited appeal globally, we know superhero and big budget sci-fi/fantasy can travel. He-Man fits that bill.

Synthesis – Moving Up the “ROI Cost/Quality Frontier”

The problem with just focusing on popularity is that, yes if all things were equal, you want more popular films. But these films specifically aren’t equal in one key regard: while most Sundance acquisitions are at most $5-15 million, The Irishman and He-Man could easily be in the $150 to $250 million. You could buy all of Sundance for those prices. 

I bring this up because of another Netflix film I haven’t mentioned yet, which is Triple Frontier. A key report in The Information leaked news that even with 40 million customers, it wasn’t “profitable” (though they probably said cost effective) for Netflix. It cost $100 million to make this mid-tier actioner.

That’s because popularity and cost combine together for ROI, or return on investment. Just because something isn’t “popular” doesn’t mean it isn’t cost effective. Horror movies are the gold standard here. Many are nowhere near as popular as superhero films, but they cost so much less that even middling popularity gives great ROI. A few weeks back on Strictly Business the CEO of Walden Media bragged about their strong ROI on their family films, despite not making as much money as say the Disney tentpoles. He’s totally right. I’d add animation has been an ROI gold mine for studios too.

But…

The best ROI really is big four quadrant tentpoles, even with the huge costs. If you can create a franchise, the hit rate skyrockets. Even as it decays over time (see Lord of The Rings Hobbit films, Pirates of the Carribean or Transformers), the films still often make their money back. (See my “economics of blockbusters” here.) That’s more than can be said for most Sundance acquisitions or even mid-tier comedies and horror flicks. I’d add, given that they travel well, big budget tentpoles have even better ROI for a global streaming service.

Netlix knows this and knows that 40 million for $100 million isn’t enough. It needs 150 million global viewers for $200 million. Hence, He-Man. (If it works.) Amazon Studios in a way is already doing this too, just in TV, essentially turning Lord of the Rings into the most expensive TV series of all time. Now, it does require more cash to compete in this expensive arena, but Netflix and Amazon seem willing to do that.

Other Quick Thoughts

I had some other quick thoughts I couldn’t fit into the above narrative too:

– There are additional ramifications for Netflix’s spending. Because if you can make Triple Frontier for $40 million, maybe it is “profitable”. In other words, if costs matter–they do!–then freewheeling spending may not be sustainable. 

– This doesn’t quite explain why Amazon isn’t releasing films to theaters anymore, I’ll admit. Instead, I’d focus on the marketing spend. The mistake wasn’t acquiring Late Night per se, but spending $30 million (at least, maybe higher) to market it unsuccessfully. If the films aren’t even going to make back that marketing spend, well just release them straight to your platform.

– Apple spent a ton of money for a Will Ferrell and Ryan Reynolds Christmas musical. (Yes you read that right.) Does this explain that? Sure, they’re hopping to the middle tier after their first set of films are mostly awards bait. 

– But why the overspending from the streamers? Right now, my working theory is that the marginal benefits of new subs is so high that overspending makes sense financially. As you hit maturity, though, those benefits decline precipitously, so you can’t keep doing it. That’s Netflix’s world right now. (I need to write an article to flesh this out.)

– What about Sony? Well, essentially take my feature film model, and apply your own percentages to it. If you accurately account for all the potential revenue streams (including a successful franchise), and still Netflix will pay you more in a “cost plus 30%” model, then you make that sale.

That’s it for feature film on streaming musings. For now. We still haven’t gotten to the rationale (or lack of) for skipping the theatrical window, which will be a future article series.

Oh, one more thing.

Post-Script: Man, He-Man? Seriously?

Also, just rewatch this trailer:

Maybe that’s why Sony hasn’t been able to get a working script in 12 years.

Other Contenders for Most Important Story – NBCU Reshuffle

I read this Variety story twice to make sure I got everything. Wait a minute. Okay, just read it a third time. Then listened to TV’s Top Five.  

Honestly, I feel like I could read a powerpoint presentation of this and still not quite understand who controls what and who reports to who(m?). There are presidents and chairmen and vice-chairs and folks reporting to multiple bosses galore. (Cue the Office Space joke.) Basically, who will make what decisions on what? I don’t quite know.

I almost elevated this to my top story because I’ve long wanted to explore Bonnie Hammer’s role at NBC Universal. She’s right on the cusp of being a top development exec–meaning I put her in that Moonves/Burnett level–but she stops just short. Syfy has had just too many slip ups to make her track record spotless and she doesn’t get credit for Bravo’s success rate. Meanwhile, USA Network had a great 2000s (silently) but the 2010s have been…fine.

As for the final piece of this puzzle–Comcast veteran Matt Strauss moving to head Peacock–we don’t know. Strauss helped spearhead Xfinity’s operating system. That’s a great user experience. But streaming is much bigger and he won’t really have control over the content side. Hammer and the dozens of execs over there will determine what ends up on Peacock as originals and second runs. Which means that the internal turf wars at NBC Universal aren’t going anywhere anytime soon. Also, call me old fashioned but I still like it when one boss leads a business. Don’t divide, the technical and creative sides to keep execs happy; find a boss who can lead.

Data of the Week – TV Ratings Bump from 3 Days to 4 Weeks

What is your default for streaming video? Either you believe that customer behavior is truly different on Netflix or it’s basically the same. That’s my take for DVRs, and Rick Porter has fun details on how long folks wait to watch content on delay on traditional TV, which certainly matches my experience. (We’re currently watching season 3 of Mr. Robot in preparation for the new season. We recorded it two years ago, so yes those commercials are out of date.) Porter’s data gives a tiny glimpse into this phenomenon.

My only so-so hot take is that this shows that TV viewing across platforms is more similar (sometimes very delayed, but the majority within the first four weeks) than it is different.

Entertainment Strategy Guy Update

TV Ratings Updates!

We had a lot of data from last week. Batwoman came out strong in the ratings–for The CW–and the All American may be getting a “Netflix bump”. Lessons? Some combination of marketing, buzzy IP and easy catch-up help ratings. Meanwhile, the NFL ratings are still strong, which does hell for narratives and helps create narratives galore. (Maybe the NFL ratings were a politics thing? Or maybe folks got over their concussion fears? Is cord cutting dead?) Honestly, we don’t know.

Overall Deals

Jordan Peele re-upped his overall deal with Universal films. I didn’t see a price, but I like this fine for Universal. However, if I had a first look with him–cough Amazon cough–I’d be pretty mad. I mean, between these films, CBS’ Twilight Zone, HBO’s Lovecraft Country, when is he going to give you any attention to pitch?

Management Advice – Email

I’ve had this article by Cal Newport bookmarked for a while now. I absolutely love his (deep) work. In my mind, your team, division or business–yes, you right there–can drastically improve its effectiveness by limiting, controlling and managing work outside of email. Key quote here:

Cal Newport Quote

Read My Latest at Linked-In: “Predicting Independent Film Sales in 2020 and Beyond”

Sometimes, it turns out you can’t predict the future.

Which doesn’t stop us from trying, all the time, whether we realize it or not.

That’s basically the theme of my latest article at Linked-In. It shows how small sample sizes and a lack of data make some efforts at predictions essentially impossible. (I’ve been trying to build my profile over there as well, so consider a follow/connection on Linked-In if you use it as your default social media source.)

Specifically, I looked at film festivals, using Sundance sales from past years as stand-in for all festivals. This is also a great example of how people are predicting things—how likely it is they can sell their film—without realizing it—at best folks predict if the market will be weak or strong, rarely with any numbers to it.

Take a read. Even if you’re not a fan of independent film, you can learn more about…

— A brief history of the rise of prestige/independent films.

— How the streaming wars have boosted prices in independent film.

— A history of Sundance sales looks over the last five years…in numbers. 

So check it out!

Most Important Story of the Week – 4 October 19: Broadcast (and Streaming) Frightening Fall Numbers

Last week was “Fall Broadcast Premiere Week”. But I waited to judge everything until the numbers were in.

What do you mean, EntStrategyGuy? We had the day after air numbers. What did you need to wait for. Read to find out…

(By the way, have you subscribed to my newsletter? It’s the best way to ensure you never miss the EntStrategyGuy’s writings.)

The Most Important Story of the Week – Fall Broadcast Premiere Week & Netflix’s The Politician

Before we get to the most important takeaway, let’s ground this conversation in what we know:

– We know broadcast TV ratings.

– We know cable TV ratings.

And what we don’t:

– We don’t know Netflix (or other streamer) ratings.

– We don’t know digital and other VOD ratings.

Let’s dismiss one other fiction before we get going: ratings absolutely matter to streaming. As much if not more than broadcast and cable. In an age where people can churn in and out of streaming video platforms, having shows customers want to watch will determine who wins the streaming wars.

With that out of the way, today I’m floating a trial balloon; testing out a very sexy (for traditional broadcasters) theory. We don’t know Netflix’s numbers, but we know that broadcast ratings are going down. Ipso facto, we extrapolate from this that Netflix’s ratings must be higher than broadcast. My crazy new theory is…

Maybe this isn’t the case; maybe peak TV just means that everyone everywhere has lower ratings. And hence everyone’s business model is failing simultaneously.

In other words, in “The Streaming Wars”, can everyone lose? Let’s go to the evidence. First, let’s start with the gory details of what we know about broadcast ratings. Here’s from Rick Ellis’ “Too Much TV Newsletter”:

IMAGE 1 - AY Rick

I tend to focus on “total audience” because, well, so do the streamers. (Has Netflix ever broken out the 18-49 demo?) The downside is that the best new series only took in 6 million views. And since most shows only lose viewers after launch, that’s not great for the future.

Beyond just the new series premiering, the rest of the lineup hasn’t done much better. I am in love with THR’s “TV Long View” column by Rick Porter. Here’s the key quote from his article on premiere week:

IMAGE 2- Quote Rick Porter Premiere Week

Rick detailed the longer term slide broadcast ratings in general in the previous week’s issue. An issue I’ve touched on too.

It’s funny, though, to think about what Rick Porter–and some of the other TV reporters–do on a weekly/daily basis. They report overnight and C+3 ratings. As soon as they get them. As a result, part of the reason Porter et al can even write a weekly “TV Long View” column is because they have all the data. If broadcast ratings were secret, well what would they write about?

Let’s pivot to the streaming wars. If I or Rick Porter or Josef Adalian asked, “Is the average Netflix series growing or shrinking?” could we even answer that question?

Nope.

Instead, we have to triangulate an answer based on second hand sources. So take Parrot Analytics. They analyze all TV series globally for demand. Sure enough, Stranger Things is on top of the list. That’s a Netflix series. But up next is Game of Thrones. That’s an HBO series. The rest of the list isn’t so Netflix friendly:

IMAGE 3 - Parrot Analytics DemandNow this is from the week of September 28th, and they didn’t release a table for after broadcast. And given past looking at their data, I doubt any broadcast series made the list. (It skews a little genre, from what I can tell.) The point is if broadcast shows were declining for streaming in a one-to-one relationship, we’d expect Netflix to dominate this list. Instead, it’s a broad cross section of cable, premium cable, broadcast and streaming.

We could even ask about Netflix’s premiere week. I mean, they have one almost every week, right? So while all the broadcasters debuted their shows on the same week, Netflix released a bunch too (courtesy of AllYourScreens and Rick Ellis again):

IMAGE 4 - AY Rick Premiere TableClearly, The Politician was their focus. To reframe the topic, did The Politician “beat” all the broadcast series for viewers? Maybe? We don’t know? Because we don’t have ratings and won’t get them unless Netflix graces us with them on October 16th (Q3 earnings report day). My gut is most observers of TV believe The Politician won the ratings week. Meanwhile, I doubt either Bard of Blood or Skylines will rate…anything. Still, I took The Politician, and put it up against The Unicorn to see who won the week, with some comparables:

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Why Most Netflix Charts Start in 2012: A History of Netflix Subscribers

On a recent The Weeds podcast, Matt Yglesias talked with Binyamin Applebaum about “how economists took over the world”, based on Applebaum’s recent book. Midway through, Applebaum told a fascinating story about how business leaders often get their forecasts about government regulations/interventions wrong. During the Great Depression, as part of the New Deal, President Roosevelt wanted to create the SEC and force companies to release audited financial statements. Apparently, part of the roaring 20s including gross accounting fraud, including create false prospectuses and financial documents.

Naturally, business folks and economist types of the time said these onerous requirements would destroy investing/capitalism.

But they didn’t! In fact, the value created from audited financial statements is arguably one of the greatest value creating regulations in financial history.

Why tell this story in an article ostensibly about Netflix? First, it’s a great example of how regulations make things better for society, despite the cries of protest from business.

Second, even now, a lot of financial statements are currently pretty rubbish. Sorry “suboptimal” in business parlance. What they lack in substance, they make up in heft; they are long, filled with hundreds of pages of legal jargon designed to obscure and CYA, but they still don’t tell you that much.

When you pull up the financials of a company like Google—for example—you discover that they only break out the operating segment information for two businesses: Google and moonshots “Other Bets”. What? Why not break out Youtube and Gmail and Waze? As Matt Stoller informed me, Google runs 8 businesses with 1 billion or more users; they shouldn’t be broken out by themselves? (Google does provide more granularity on revenue sources, but still only four revenue streams!)

Let’s look at Amazon: they run Prime Video, Music, Games, Channels, Twitch, and Comixology. Could they make a “media enterprises” business segment and share operating performance for all those companies combined?

Yep! And guess what, it would be fairly easy to do.

Which brings us to Netflix. They too have tried to minimize the numbers they provide over time. Worse, every so often they change their definitions, and stop reporting old numbers. Which makes an enterprise like the one I pursued last week much more fraught. To help build the table with subscriber numbers, I had to go through essentially 20 years of Netflix annual reports to figure out how they defined subscriber totals every year.  Fortunately, this deep dive taught me a lot about Netflix, and could help you understand their history a bit better.

Today, I’ll tell you what I learned, including the different definitions of subscribers, how they have evolved over time and the two pieces of data I’d still love to see.

The Six Definitions Netflix Has Used for Subscribers in the US

As I mentioned last week, here’s an example from Statista of a chart of Netflix global subscribers. 

IMAGE 1 - Statista Netflix Subscribers

Here’s another one. Here’s another one from my archives in Statista that doesn’t match my numbers:

IMAGE 2 - Statista NFLX 2011 Table

Meanwhile, most of the other charts I found with Netflix started in 2012. Which seems like an odd decision. Since I don’t like uncertainty in my estimates, I pulled the data myself for my article applying Bass Diffusion to Netflix. (I had previously done this back in March for this Decider article.)

As I churned through the financial docs, three big categories leapt out at me. Netflix has highlighted different numbers as their “top line” subscriber number, which news reports usually echo. For instance, up until the end of last year, Netflix reported “total subscribers” inluding free-trial and paid subscribers together. Now they’re only emphasizing paid subscribers. When they made the change, some folks thought their numbers had declined. Anyways, the three big areas I see are:

– Location: US, International or Global: Pretty self explanatory, and Netflix has combined these to report “global”. 

– Paid vs Free-Trials: I tend toward “paid” as my preference because it means the people have actually committed to the product and aren’t just sampling. (Netflix changed last year to focusing on paid vs free-trials, which is what they had reported before.)

– DVD vs Streaming: Before 2007, you could only rent DVDs through Netflix. After 2007, you could rent DVD or stream content or do both. Before 2011 a subscription paid for both, then it didn’t. 

The only challenge is some of those categories are mutually exclusive (paid vs free trial) and some aren’t (DVD vs streaming). So I made a table to simplify it in my head. 

IMAGE 3 - NFLX Metadata

The key is the “unique” number versus total subscribers when it comes to DVDs and streaming. For a short period, Netflix gave the total numbers, even when unique was more accurate. Nowadays, for the record, Netflix just gives streaming as DVD subscriptions decline.

Combining the Definitions in One Chart

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