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.

A Netflix Data Dive: What does their “annual” top ten lists reveal about their biz model?

Last December, I unveiled my theory for how big organizations use PR. Big entities—be they corporations, governments, non-profits, even news outlets—share their good information and actively hide bad information. It’s like the iceberg principle on steroids. Especially with digital companies like Netflix:


(By the way, in government, the CIA is the absolute best at this. They have feature films like Argo win best picture, then have the gall to go on cable news and say, “You never hear about the good things the CIA does.”)

With this in mind, let’s draw some insights on Netflix’s (kinda) annual tradition to release a top ten “something”. In 2018, they released their top “binged” things. Now they’ve released for both film and TV across three lists in their most prominent territories. Sure, Netflix doesn’t give us much to work with, but I’ll interrogate these numbers to death in the meantime.

The Facts

Before the analysis, though, some facts to keep in mind. Whenever you see data, you should ask the “5Ws” of journalism. Most problems with data come from folks measuring it differently. (If you’re curious, I’ve tried to explain how to understand digital video metrics, and the distinctions, in this big article, which is one of my more popular.) If a news outlet buries these details, you should be skpetical.

– Who: Subscribers
– What: Watching 2 minutes of a given title
– When: During the first 28 days of release
– Where: Country-by-country. I’ll focus on the US, but they released it for a few major territories.
– How: Separated into content types, with all releases, by film/TV, scripted vs documentary.

Here’s a chart, with some additional details of the Top 10 Movies:

Top 10 tablesThat just leaves the why…

Thought 1: If this is the best “datecdote” Netflix could offer, that’s not great

Really, that’s what you think when you see a list that specifically changes the criteria from their previously announced metrics. Netflix had spent all of 2019 giving investors the “70% completion” metric for all their datecdotes. For this release, they dropped it down to “2 minutes of viewing completion”metric.

Using our iceberg principal above, what would the 70% threshold have told us that Netflix didn’t want to know? There’s clearly a narrative they’re deliberately trying to avoid.

Further, why not give us the “most binged” shows again as they did in 2018? Whenever someone changes the data goal posts, you should be very cautious. Yes, you see this all the time in Hollywood when development execs want to greenlight a project. If the numbers don’t look good, they change the measurements to get their greenlight. And yes, this happens all the time in business too. If leaders don’t like the numbers, change the measurements.

But it’s a bad habit.

Thought 2: This new metric doesn’t tie to Netflix’s self-stated goal for monetization.

If you’re looking for more red flags, this is it. In the last earnings call, CEO Reed Hastings said they care more about time on site than anything else. So why not give us that? They have the hours viewed data…they even could have limited it to new releases. (Which would have excluded Avengers: Infinity War, Black Panther, Friends and The Office.) What does the hours viewed tell us that customer counts don’t?

Or take the emphasis on acquiring and retaining subscribers. When Netflix execs speak at conferences, they downplay traditional viewership to focus on how well films bring subscribers to the platform, or keep them there. Clearly completed films would correlate more with sign-ups than only 2 minutes of viewing. (This also jives with my personal experience.)

Thought 3: Netflix Avoided Total Hours Because of Kids Content

I think Netflix avoided “total hours” for two reasons. Let’s start with kids content. Kids rewatch the most content. They don’t watch The Incredibles 2 once, they watch it a dozen times. That gives kids films an edge on viewership hours. Narratively, you don’t want to emphasize how valuable kids content is right after Disney+ launched. As Richard Rushfield has written, something like 60-70% of Netflix viewing may be on “family titles”. That’s a huge win for Disney+ if true.

It also means that if hours on site are the key metric—again as Hastings said in the last earnings call—then kids content seems even more valuable.

Insight 4: Licensed content still made it on.

Netflix also likely avoided the 70% completion metric because they wanted to downplay licensed content as much as possible. Netflix films have a dramatic marketing edge because when new seasons premiere, they get home page, search engine tinkering and top of screen treatment. This doesn’t necessarily drive completions—if shows aren’t good people don’t finish them—but it does drive 2 minute sampling. 

Still some licensed content made the list, even as it was deliberately curated out. Specifically, three of the top ten films and one of the top ten series. I’d argue this is bad for Netflix; even as they tried to weed out licensed titles a few prominent Disney films made the list.

This is more impressive than it seems because the biggest Disney films weren’t even released in 2019. Specifically, Black Panther and Avengers: Infinity War were 2018 releases. Meanwhile, Netflix was stuck with The Ant-Man and the Wasp—one of the lower grossing recent MCU films—and Solo: A Star War Story. Then the rest of the incredible Disney 2019 slate didn’t make it onto Netflix. 

Thought 5: Focusing on 28 days ignores films and shows with longer legs.

Licensed titles, especially big blockbuster films, also have longer legs than new releases. Don’t you think Avengers: Infinity War had some rewatching going on in the run up to Avengers: Endgame’s release? Absolutely. By focusing on 28 days as the time period, it narrows the window for licensed films to rack up viewership. (They also had a fairly crowded January 2019, with three Disney feature films being released in the same month.)

Thought 6: International Originals Still don’t play in the United States.

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Most Important Story of the Week – 10 January 20: The Most Important Question of 2020

Welcome back to my weekly column. My attempt, usually, to select the story in the business of entertainment that will end up being the “most important” for leaders, strategists and companies. Not the story that is the most buzzy or interesting—though it usually is—but the story that will have true importance.

Having stepped back from writing for holidays—and mostly disconnected from the web—I’m busily digesting a stream of year-end and decade-end articles. Which I promise I’ll get to either here or in the newsletter. Instead, this week, I’ll talk about the question I’ve been thinking about for the new year.

The Most Important Question for 2020: What is the Same and What is Different?

At family gathering this holiday season, a relative used a phrase that has stuck in my head:

“in the new economy”

It’s actually so common to use nomenclature like this, that I think bolding that singular word is important to highlight its truly revolutionary implication.

Embedded in the idea that we have a “new” economy—and you could call this digital disruption, the technology revolution, or any of dozen other buzz words—is the idea that something has fundamentally changed in how the economy works. Not just that the situation is changing. That always happens. But that the economy is different; there was an old economy, now there is a new one. And fundamentally they are different.

Let’s key in on that word “fundamentally”. This doesn’t mean on the surface. But a deeper level of core fundamentals. Imagine if we had a “new physics”. Would that be the equivalent of Albert Einstein replacing Newtonian physics? Not really. Einstein didn’t dispute Newtonian physics, he provided a model that explained more than Newton’s version.

When it comes to the new economy, we’re not refining, but overturning! Futurists hyping the new world say that something has changed in the model itself. It’s as if we woke up one day and suddenly Plank’s constant had changed values. As if the speed of light raised or lowered its speed limit. As if the hydrogen molecule suddenly had a different atomic weight.

For us to truly have a “new” economy, it means that technological changes have invalidated or upended fundamental principles of economics. As if net present value, charging more for products than they cost to make, and creating value for customers are somehow no longer applicable to the business landscape.

My challenge when writing about the streaming wars is that I’m temperamentally conservative by nature. Despite futurist claims to the contrary, while things change and evolve, I don’t think they overturn core, fundamental economic principles. Technology and globalization change the situation and require adaptations, but economics is still economics. Strategy and business are still strategy and business.


I do think the perceptions we are in a “new economy” illuminate the greatest challenge for business leaders (and myself) in 2020, the year the streaming wars become a hot war. Even if the fundamental principles of business, strategy and economics haven’t changed, well a lot else has. The key challenge for strategists is figuring out what has changed and frankly what hasn’t. In my opinion, the broad media—meaning everything form mainstream trades to social conversations to podcasts—does a great job at hyping all the change, and a much worse job at explaining core economic principles/fundamentals that still matter. (Even if they can seem to temporarily hibernate.)

A theory for what really divides the bears and the bulls on Netflix.

If the streaming wars have a psychological battleground, it’s debating Netflix’s future. You have the bulls on one side who see no end to the upside; and the bears fiercely contesting them on the other. Mostly on Twitter, but also spilling into the business and trade press.

Partly, the debate is so fierce and competitive because of this question. My theory is that how you feel about Netflix boils down to how you feel about what is different and what is the same in business, economics and entertainment. We don’t really disagree on the facts, we disagree on what they mean.

Take what is different. On-demand content. This is something no bear can argue is not a fundamental change to how TV is consumed. The idea of having a programming executive filling in a grid every week is gone. That part of the business has irrevocably changed. (Well, maybe. The rise of ad-supported streaming means someone or algorithm needs to program live TV!)

Take what is the same. Losing money is bad. This is something that even the bulls know needs to change for Netflix. The question is how much money they can lose and for how long.

Everything else is up for debate. This is what makes the debate and coverage of Netflix so difficult. On one hand, Netflix is a binge-releasing, algorithmically driven, streamer up-ending business models. Disruption! On the other hand, they are still just making a bunch of TV shows and movie and distributing them to customers who pay by subscriptions. Traditional!

How you feel about Netflix is about these edge cases and asking, is this the same or different? Is skipping theaters revolutionary, or foolishly passing up revenue? Is binge releasing content revolutionary, or needlessly avoiding building anticipation? Does Netflix’s data really help them program the channel, or do they still have teams of development executives doing the same jobs they always have, just with bigger check books? Or lots from column A and B?

The Streaming Wars

I could apply this to the entire streaming wars. What do you think has fundamentally changed in the entertainment business? Technology, certainly. Digital distribution means new ways to send consumers content. But the business models themselves…are still business models. And the same rules apply.

Sure a bunch of traditional entertainment companies are launching their own (money losing) streaming platforms. They need to catch up with Netflix and Amazon and the others who disrupted their business. The question for streaming, really, is what is truly revolutionary, and what isn’t. At the end of the day, collecting subscription revenue from customers is something cable companies and premium channels have been doing for decades.

Anyways, welcome to the new year! We’ve got a lot to explore, understand, explain, discover and more and I’m happy to have you along for the ride.

Other Candidates for Most Important Story of the Week

College Humor Laying Off Employees

The demise of the early generation of video websites such as College Humor and Funny or Die is, in my opinion, directly tied to the rise of Facebook and Google as an advertising duopoly. Potentially advertising share that should be going to publishers is getting captured by them. In total, this decrease in competition is bad for customers and consumers in the long run. And the whole economy, really.

Twitch Doesn’t Make a Lot of Money

Priya Anand of The Information is out with the scoop that Twitch—Amazon’s live TV service—made a whopping…

$300 million 

In 2019. And only $230 million in 2018. 

Those numbers are…bad. For context, just CBS TV network earned $6.1 billion in 2018. Just CBS. You can imagine the rest of cable TV and even Youtube. Likely Twitch isn’t profitable for Amazon, which means that five years in Amazon has only gone further into the $1 billion whole. Assuming just a 15% cost of capital, for tech that’s not bad, and they’re going to need to dramatically scale to make back the investment. That’s my gut thinking on the deal.

The challenge for observers of digital platforms is that we don’t hear the details of companies like Twitch, just gaudy user numbers that have been and are inflated by bots, fake views, and a host of other issues. As a result, advertisers clearly don’t trust the platform and there really isn’t as much money being made as it seems like it should.

I’d be especially worried for those hyping esports leagues. (Which is subtly different from folks making money by being celebrities on Twitch.) Most esports leagues have gaudy projections and financial numbers. But if all of Twitch can only generate $300 million per year, that’s a small pie to split a dozen or so different ways.

Data of the Week – Scripted Series Grows to 532

According to FX’s John Landgraf. To get a sense of all these titles, and the deluge of reality and children shows, I recommend All Your Screen’s running tally. The NY Times has a good visualization of FX’s data. Also, Variety used their insights platform in December for a similar look. My one other caveat is I’ve never seen a good clarification on whether or not this includes  international originals, which I feel is slightly misleading, as those TV series were always being made, just not in the United States. 

Lots of News with No News

The Golden Globes

The Ankler probably blew up this annual awards show best. When nominees can and do invite the entire voting body to their house for a birthday part, well, that’s tough to take the results seriously. Meanwhile, as a driver of buzz, the Globes success. It does generate publicity for the streamers, the question is whether the juice (buzz) is worth that squeeze (awards campaign costs). 

As for the Oscars, if the Globes, guild award and BAFTAs are a sign, I think we’re still on track for a moderately unpopular Academy Awards best picture field. Not the worst, since Joker and Knives Out did well, but not as good as it could be if they had nominated the deserving super hero movie of the year, Avengers: Endgame.

Quibi, Quibi, Quibi

Quibi had a big presentation at CES, which was covered everywhere. Besides a specific launch day and confirmation on price ($5 with ads and $8 without), I’m not sure there was a lot of other news here.

Most Important Story of the Week – 20 December 19: The Curious Case of CuriosityStream (And Other Subscriber Numbers)

Tis the season for subscriber numbers. DAZN has 8 million subscribers! Hallmark Movies Now has 750K! And CuriosityStream has 10 million!

Wait, what’s CuriosityStream? How can something I’d never heard off pass 10 million subscribers? Well, that mystery, and the rising importance of subscribers for evaluating success or failure combine in my “story of the week”. 

Most Important Story of the Week – The Subscriber Numbers of Smaller Streamers

Let’s get something out of the way. Subscriber counts matter. As we enter the streaming wars, how many folks will actually pay streams for their services is a direct sign of how well they’re doing as a business. The intrinsic logic of this makes sense and it’s why we celebrate Netflix for getting 60 million US subscribers.

The trouble is not all subscribers are created equal. Even with the data we do have, comparing things apples to apples is always the tricky part. So let’s see what we know.

The Data Set

Again, the big new subscriber numbers were really DAZN, Curiosity Stream, and Hallmark Movies Now. They each had leaks to the press about new subscriber milestones. Combining with some past data I’ve collected (and updated) yields this table:

Table 1 Sub Numbers

The problem is that as far as we know CuriosityStream is doing as well as Disney+. Or as Bloomberg put in its headline, it’s beating HBO Now. Which doesn’t feel right. Does it? To explain the problem, we need a quick diversion to the NBA…

The NBA Analogy

Why the NBA? Because it’s such a great testing ground for statistics. If my first rule of data analysis is: “Always show the distribution” the second may be: “Always use two variables to judge performance”.

Why two? Because one is too easy to game. Which we will see with subscriber counts. Why not more variables then? Honestly it’s because I have trouble seeing in three dimensions. Quad charts are the easiest way to reconcile these two ideas.

The NBA provides a great example for this. Take a player like James Harden. He’s a great shooter, and for those who don’t follow the NBA, we usually use percentages to describe this. Harden is a 36% three point shooter, meaning he makes 36% of the 3 point shots he takes.

The problem is if I just used percentages, well, it would look like a lot of guys are a lot better shooters than James Harden. Take Philadelphia 76ers rookie Matisse Thybulle. He shoots 46.8% from 3. That’s 10% points better!

The problem is how many shots these guys take. (I use three point shots on purpose, since percentage is used much more than shots attempted.) Harden leads the league by taking a whopping 13 three point shots a game, whereas Thybulle shoots just 2.2. The narrative behind this data is that Thybulle can choose opportune times to shoot, whereas Harden takes and makes a lot of tough shots. 

In the NBA, the data/experience shows, the more shots you take, the harder it is to keep a high percentage. We can make a quad chart out of this, with the goal to get to the upper right:

Table 2 3PA

Using this example, the best three point shooter is actually Davis Bertans, who is splashing 46% of this threes while taking a whopping 8.6 a game. See, two variables tell a better story than either percentage or total on their own.

So which number should we pair with “subscribers”?

When it comes to streaming services, we need a similar quad chart. The question is which one?

The biggest problem we’re trying to solve for is the idea that a subscriber who pays $0 isn’t worth as much as one paying $15 a month. If we’re looking at subscribers as a proxy to customer demand, price seems super relevant; lots of folks will happily subscribe to something they pay $0 per month for.

At first, I thought this would push me towards using “Average Revenue Per User” (ARPU). This is reported, by Netflix for instance. It has a few flaws, though, especially when trying to use it to gauge customer demand. The biggest flaw is that some customers don’t actually provide the revenue. Instead, someone else pays the bills. For Netflix, this includes T-Mobile subscribers who get Netflix “on them”. In that case, T-Mobile pays Netflix for the subscribers, not really the subscribers themselves. Further, even if customers do pay, the monthly price is actually split between distributors (like cable, Amazon and Apple). Some companies can negotiate this better than others. (While still relevant for business performance, it is less relevant when gauging customer demand.)

The opposite end of the spectrum would be to just take the price a company charges. There are two problems with this method, though. First, a company could offer a wide variety of prices. Disney+ can be purchased as part of a bundle with Hulu and ESPN+, or on its own. DAZN can be purchased monthly ($20 a month) or annually ($100 a year), which is a huge gap. Netflix has multiple tiers too. Updating my table from above, you can see how complicated this is:

Table 3 Sub with Price

Worse, those prices don’t account for the folks getting promotional offers. So Apple TV+ folks who got it because they bought a phone. Or Amazon customers getting Prime Video for free. Or Verizon members who get Disney+ for free. That doesn’t say much about how willing they are to keep the service without those free offers.

If I were king of the world, I’d try to marry these two numbers. It would be “Average Price Paid per Subscriber”. This gets to how many customers are actually paying full freight. (Heck, I’d actually love a distribution by dollar amount, but that’s just dreaming.) If you could combine this with total subscribers in a quad chart, THAT would tell you who is winning the streaming wars.

Implications for Streamers

Listen, if I were amazing, I’d give you that quad chart I just described. But I don’t have that data. While I may try to calculate it in the future, it would require too many assumptions for today. Just look at that pricing table above to see how much of a mess it is.

Still, we can learn some things from this thought exercise. Especially about how little we know, but how much we can suspect that subscriber numbers a misleading us.

To start, with CuriosityStream, they went from 1 million subscribers to 10 million in just a year. Likely, that’s a combination of the low price (only $3 per month), which very few folks actually pay. CuriosityStream has a deliberate strategy to be sold in cable internet bundles, meaning they give cable companies another discount just to boost subscriber totals.

Screen Shot 2019-12-20 at 4.01.09 PM

Screen Shot 2019-12-20 at 4.01.15 PM

I’d argue before CuriosityStream brags via Bloomberg that it’s beating HBO Now, or that it’s a winner in the streaming wars, it should tell us how much money it’s charging per subscriber.

Hulu is probably next. They just can’t quit offering promotional discounts. Even having lowered their price to $6 last January, they offered a Black Friday deal of just $2 a month. Really, all of Disney is hooked on promotional pricing as Disney offered lots of folks Disney+ at $4 a month for three years and there is that Disney+, ESPN+ and Hulu bundle I went nuts for back in August.

However if any wildly inflated number deserves the most scrutiny, it’s Prime Video. Since Amazon doesn’t even release Prime subscriber numbers regularly–good job SEC!–we only rely on selective leaks and estimates, with the current number at 100 million. But according to some surveys, only 11% of customers use Prime for the video service. So it’s really hard to say Prime Video is a 100 million subscriber powerhouse if 89 million people would drop Prime if the shipping went away…

Data of the Week – That Disney+ Survey and a Disney+ Check In

Lots of the Twitter world was very upset with a Cowen and Co survey-turned-analysis that predicted taht Disney+ has a likely 24 million subscribers globally. I have my own concerns about surveys too. First, asking consumers about behaviors is rarely as good as seeing what they actually do. Second, many surveys generate statistics that are quoted out of context, which definitely happened here. Third, surveys are hard to do right! It’s why FiveThirtyEight and Nate Silver spend so much time getting it right.

I’m willing to make a slight exception to the Disney+ subscribers question, though. First, when it comes to behavioral issues, this question if fairly straight-forward: do you have a subscription to Disney+? Most consumers know what they pay for. Second, unlike the worst surveys that are one off stories or trying to get obscure results, this question is being asked fairly regularly by investment analysts. So if you take what we know/have had surveyed–including some estimates based on surveys and Apptopia download data–I get this chart, sorted by time:

Table 4 Disney Plus Numbers

(By the way, if I missed any sub estimates based on data, send them my way.)

That’s not enough surveys to do a FiveThirtyEight-esque analysis, but I’d say there is a trendline here. Throw on top that Disney+ was the most searched for term by Google in 2019, and this launch is likely well above even Disney’s estimates. Factoring in that December/January are the largest months for sign-ups, and I think Disney+ could top 30 million global subs by the next earnings report. (Remember, Disney+ is available in Canada, Australia, the Netherlands and New Zealand too.)

These surveys, though, have a tougher time answering the question on the other side of this coin: how many of these folks cancelled Netflix? We don’t know. So we still have something to wait for in January.

Other Contenders for Most Important Story

A Peacock Check-In

At first, we had a report that Peacock may be ad-supported only, but then that was contradicted. Either way, it looks like Comcast plans to spend quite a bit on their streaming service. The biggest worry, though is that NBCU is changing up leadership teams again.

PGA Deal Sticks with traditional TV

At some point, live sports as a category will migrate to digital. But not right now, as the PGA extended their deals–at a 60% value increase–on traditional formats. Oh, and remember that even though the 60% number is a big jump, the deal price hadn’t increased for 11 years, so amortize it out.

NBA is launching NBA TV as a streaming service.

This is an old story I’ve been holding on to. Still, as long as we’re talking smaller streaming channels, they should get a mention. The biggest point I’d look at is the price point. NBA TV is $7…which is the same price as Disney+? This is NBA TV, not NBA League Pass. One of the streamers is either vastly under charging or vastly over charging. Time will tell.

Should You Release Your Movie Straight to Netflix? Part I: The basic maths

Since 2019 started, there has been a debate among the entertainment biz literati (you know who they are):

Should you keep releasing your films in theaters, or go straight to streaming?

I first saw this in January when some folks on Twitter argued Disney should release Star Wars films straight-to-streaming now that Disney+ was coming. (My rebuttal here.) Then, when Booksmart flopped, I saw this debate take over Twitter. In short, why bother looking bad releasing in theaters, when you can go to Netflix and get 40 million views?

The Booksmart-esque examples kept coming. Late Night’s flop brought Amazon to the debate. Then Brittany Runs a Marathon. It got so bad, Amazon got out of the theatrical release business altogether. (So the big-for-Amazon Aeronauts abandoned traditional theatrical in exchange for a “four wall” strategy like Netflix.)

Meanwhile, this question is on every company’s mind. Netflix doesn’t do theatrical runs; Amazon just left the business; Apple is figuring out what it wants to do; Disney, Warner Bros and Universal are leaning into theatrical, except when they aren’t as Disney did with Lady and the Tramp. Paramount is an arms dealer at its finest. Let’s not sugar coat how important this question is. It’s literally a billion dollar question, per company! 

Getting this question right is business strategy at it’s finest: so who’s making the right call?

Judging by the online narrative, the Netflix supporters say Netflix. Most “arguments” for going straight-to-streaming seem to rely on personal experience, first, and Netflix’s stock price, second. Hardly ever do I see the piece of information I love most: numbers. (Strategy is numbers!)

Before I finished my series on The Great Irishman Challenge, I would have had trouble relying on anything more than qualitative/narrative explanations too. Without a model, testing assumptions or quantifying the financial impact of these strategic implications would have been little more than guesswork. But since I have it, I think I can try to quantify some aspects of this debate better than I’ve seen before. 

This debate has so many components, arguments and counter-arguments, that as I wrote my response, it was fairly jumbled. To organize my thinking, I’m deploying a “question and answer” format. Which I think helps. Still, before I get to that here’s my…

Bottom Line, Up Front

While very small films or historically poor performing theatrical films—think documentaries or foreign language films—may benefit from going straight-to-streaming, the vast majority of “studio films”—larger than $5 million production budgets, will make much more money for their producers by having theatrical distribution. (On average.) The “strategic” benefits of skipping the theatrical window don’t exist in practice as much as theory. So much so I call it the “straight-to-streaming trap”. 

Question: If you only had two words, why should movies avoid the “straight-to-streaming” trap?

Avengers: Endgame.

Q: Okay, explain.

Well, it made $2.7 billion (with a b) dollars in theatrical box office. Of course, Disney doesn’t keep all of that in revenue. Depending if it is US or international, Disney keeps 35-50%, and less in China. Still, I’d estimate Disney kept about $1.1 billion (and even that is low considering how powerful Disney’s bargaining power is with studios).

Assuming a $350 million production budget and a $200 million marketing budget, after just theatrical distribution, Disney has $550 million in gross profit to split with talent. In just one window! That doesn’t factor in toys, DVDs, electronic rentals or future streaming/cable value. Just one window netted over half a billion dollars. 

I honestly can’t fathom a scenario where Disney would have made more money by ignoring theatrical. (Again, that was my thesis back in January about Star Wars, but these are equivalent franchises.) That’s like having a barrel of oil and not refining the entire thing.

Q: Excuse me, oil?

Oil. Every year, one of the best things I read is The Economist’s Christmas Double Issue. Two years ago, they had a graphic about how a barrel of oil is refined into its component parts. Here’s the link for subscribers, but they had the whole thing on Google Images:

Image 1 - Economist Oil 20171223_XMC600_weblarge.png

In short, a barrel of oil is sort of like the not-quite-true aphorism that the Native American’s used every part of the buffalo. (Which was taken to another extreme by American meat packing at the turn of the century, who used every part of the pig/cow. Read Upton Sinclair’s The Jungle for details.)


(Source: The Far Side cartoon. How is that not a piece of IP up for sale?)

As oil companies heat a barrel of oil, the raw material separates into different types of chemicals that are then used for everything from gasoline to diesel fuel to sulphur to countless other compounds. This is necessary because different size oil molecules have different uses. The goal for the oil company when refining oil is to extract as much value as possible from the oil they spent real money bringing out of the ground.

I love this analogy for theaters. Each window is a heavier as in greater gross margin type of oil. Netflix is essentially skipping the heaviest molecules (theaters, home entertainment) for the lightest (digital streaming). Long term, that means a lot of lost potential revenue.

Q: And can we quantify that?

Yes, and that’s what I spent a chunk of November doing. Here’s the “financial revenue” waterfall I’ve been using for theatrical films. Actually, here’s how it’s looked historically:

Image 2 - Financial Waterfall Historically

And here are my recent assumptions:

IMAGE 3 - Financial Waterfall Now

In other words, if you skip theaters, there goes 35-40% of your revenue. (While box office isn’t rising, as a percentage of feature film revenue, it is increasing because home entertainment is shrinking. By next year, it may be 40% of a film’s take.) If you skip home entertainment, that’s another big chunk of revenue. And frankly, it makes sense that theaters make so much money because it’s more expensive to go.

Q: The gross margins are higher for theaters than streaming? Do you have numbers for that?

Frankly, these are the numbers that any discussion about Netflix and Amazon have to start with. You can end up where you want, but if you ignore these numbers you’re likely using fuzzy math to justify your preexisting conclusions.

So let’s take each window into rough “per person per film hour” revenue in the United States. Just to make it explicit. Theaters have an average ticket price of call it $10. (It’s slightly lower, but I like to round my numbers.) Since each person pays that to see a film, it’s a $5 per person per film hour for the average two hour film.

Now, compare that Netflix, where the average subscription watches 40 hours of content per month. (According to past leaks/surveys.) Since a US customer pays $12, that’s $0.30 per hour. But since more than one person can watch, we can assume 1.5 customers share that viewership. Which takes it down to $0.20 per film. Which leads to this crucial note on potential revenue:

The streaming window is 8% of the total revenue of the theatrical window per person.

As I said above, theatrical is much, much more lucrative for studios than streaming. (The specific way to calculate the value to Netflix of a film is different than the usage version above—see here for those—but this is to show the potential size difference for different windows.)

Q: So let’s ask the obvious: have you quantified how much Netflix could have made releasing films in theaters this year?

Rightey-oh I have. Let’s talk upside. I took a selection of Netflix’s most noteworthy/expensive films, and asked Twitter for ideas for some quick and dirty “upside” comps for them. (I focused on the most recent films as possible, and matching rating/genre primarily.) Here’s the list I settled on:

IMAGE 4 - Netflix Film Comps

There’s your headline/nut graph/lede at the end of the article: if Netflix released its 10 (arguably) most valuable films from December 2019 to December 2020 (with Bird Box sneaking in), it could have made $750 in additional cash flow to the bottom line in just theatrical box office. If Netflix had to throw in $50 million per film on this list in additional marketing (which feels high), that’s still $250 extra million.

I’d add this list isn’t a ridiculous list of comps. A Quiet Place is definitely the same sized hit that Netflix is portraying Bird Box, so that number is reasonable. Meanwhile, I put in a couple of films well under $100 million in total gross and a lot of other solid doubles. 

So why hasn’t Netflix looked at this revenue and jumped? I’d argue sloppy financial thinking. And changing their strategy has PR implications. Others, though, would argue it’s about exclusivity for their platform. (Presumably some folks would see it in theaters, but not on Netflix.) 

To keep this article from going too long, I’m going to continue the Q&A in my next article. Essentially, I’ll lay out and debate the pro-straight-to-streaming arguments in their own place.

Most Important Story of the Week – 13 December 19: A Tale of Two Netflixes

It’s been a busy few weeks for The Entertainment Strategy Guy household as we welcomed a new member to our family. Between sleep deprivation, house cleaning and holding/changing a baby, getting back in the writing habit has been a struggle. If this column isn’t any good, blame it on that!

Wading through hundreds of newsletters and saved articles, one topic popped up the most, but I couldn’t decide if it was bad or good. So let’s do both!

The Most Important Story of the Week – For Netflix, the Best of Time and the Worst Times

If there is an overwhelming counter-argument to the Netflix “bears” of the world (a few notable investment analysts and a few notable Twitterzens), it’s that Netflix is currently the most popular “network” in America. In the 1990s, it was NBC. In the 2000s, it was CBS. Now it’s Netflix.

As a result, Netflix draws overwhelming coverage. Not only does Netflix have a ton of subscribers, they can get those subs to watch their shows and then get everyone to write news articles about it.

Yet, perusing my news feeds of the last three weeks, as befits any leader in any field, everyone is simultaneously praising and disparaging the leader. Netflix is like the Tale of Two Cities introduction. It’s been the best of times and the worst of times, sometimes within the same story. Which is the theme of the week. 

The Good: The Irishman Releases to 26.4 Million Viewers; The Bad: Was it Popular?

Nielsen beat Netflix to the punch claiming that 13.2 million folks checked out The Irishman. Netflix grudgingly admitted they had 26.4 million folks watch 70% of The Irishman in the first week, projecting 40 million in the first month. If you want the good interpretation, getting 40 million people to watch anything is a win. 

If you want the bad, well, check out my big article this week.

Going further, we still don’t have the context for Netflix releases like this. As Bloomberg pointed out, Netflix had 16% of its subscribers watch The Irishman. I’m not sure if this provides more or less context. We don’t have anything to compare the 16% to. I’ve asked this in different ways before, but think about films like Crazy Rich Asians, The Quiet Place or John Wick 3. Each was released in theaters, was popular, and then aired on a variety of cable/premium cable and streaming platforms from HBO to Starz to Netflix to even more overseas I can’t begin to keep track of. Did more folks watch John Wick 3, or The Irishman this year? We don’t know. But I’d bet on the former. 

Like the famous tree in the forest, though, if a studio doesn’t release ratings information globally, did it make a sound?

That’s why if you asked me, I’d say The Irishman lost a lot of money. It also means that even as Netflix spends more and more on blockbusters, I’m not sure they’ll ever have a monetization plan that makes up enough money at this scale. (I will explain more in my IPB series in future articles.)

The Good: Tons of Movies; The Bad: Who is Watching?

One of the common responses to my “Netflix lost $280 million on the Irishman” article was that I was looking at it wrong. I shouldn’t isolate one film from Netflix’s catalogue, but need to look at the portfolio as a whole. Right or wrong, what a large portfolio it is!

(The counter to this is that the major studios would love an approach where ignored all financial performance. Talent would hate it though.) 

The good side for Netflix is that surely they wouldn’t keep investing in more and more films if it wasn’t working. Right? Indeed, they’ve learned that with enough volume, you’ll get a surprising number of hits.

Maybe. Of course, it seems like the big bets of the last few years haven’t really paid off either. Just this week Netflix is debuting another December blockbuster. (It’s been a bit of trend with Bright in 2017, Bird Box in 2018 and now 6 Underground.) My worry for their latest is just that despite a pretty strong media blitz at the end, I don’t think 6 Underground is resonating:

Screen Shot 2019-12-13 at 9.48.21 AM

Also, one other piece of context. While Netflix is buying lots of movies, many are international in origin. These films likely wouldn’t get a global release but for Netflix. The reason though is a double-edged sword for Netflix: they wouldn’t have gotten released because they don’t move the needle outside their home country. Despite Netflix’s reach, I don’t think they have moved the needle with most international originals, but they do pay a lot more than usual for them.  (I hate to do this again, but I will explain more in my IPB series in future articles.)

The Good: Netflix Nabs 34 Golden Globe Nominations: The Bad: Did They Buy Those Awards?

Netflix secured 34 nominations for film and TV at this year’s Golden Globes. And while this is the easiest awards show to game in terms of winning nominations (which are all that really matter for buzz), most civilians don’t know that and hence a big, publicity hawking awards shows generates tons of buzz. This is great for Netflix’s perception they dominate culture.

The bad is how Netflix got those awards. Which is that the “gaming” process means showering reporters/critics with trips, dinners, gifts and access to celebrities. The story here isn’t that this is new, per se, just unprecedented in scale. And long term I don’t think it will actually hurt Netflix with customers who don’t follow the daily ins and outs of Netflix business news. It does, though, diminish the idea that awards are a pure expression of quality untainted by business interests.

The Good: Netflix subscribers are stable; The Bad: Baby Yoda

Bloomberg has the most explicit version of this story based on an internal leak, but most companies trying to triangulate Netflix’s subscribers/users have repeated the line that the launch of Disney+ and Apple TV haven’t yet hurt Netflix’s subscriber base. That’s good news for Netflix and it may be able to resist the dreaded customer churn. 

On the other hand, Baby Yoda.


If all media is a quest to be “in the conversation” this little guy. Here’s two separate articles saying how Baby Yoda shows how Disney is fighting the streaming wars. And here’s Parrot Analytics calling it the most in-demand show on TV. (I like Parrot Analytics’ work, but it isn’t perfect. It skews a bit too “genre”, but it’s correlated with success.)

In seriousness, I’d dismiss Disney’s content capabilities at your own peril. Disney scored a series as buzzworthy as anything Netflix has released in week one. Apple TV is still searching for theirs. 

Data(s) of the Week

We’ve had a great few weeks for data, so let’s point them out quickly.

First, Multichannel has a great chart on how churn looks across different subscription methods. I’d caution that established platforms like Amazon and Netflix will be lower than smaller services, but churn is still likely one of the major themes of the next few years. (HT to Parks Associates for this look.)


Second, Moffett-Nathanson had their annual results on content spend published on a few different outlets. These budget numbers seem to fluctuate depending on how you count, but are worth tracking. (HT to Axios/Sara Fischer.)


Third, this fun article calculates how much money artists earn on Spotify compared to cost of living. Spoiler: not a lot. That’s why I highly recommend everyone still purchase albums. Support your artists!

M&A Updates

Viacom and CBS Closed

File this under “lots of news with no news” as we expected this deal to close. The notable part, for me, is that ViacomCBS (“SuperCBS”) doesn’t seem to have a coherent strategy yet. Content arms dealer? Sure. Linear TV? Sure. Streaming and OTT? That too! 

This remains one of the more interesting corporate stories out there. I don’t buy that they’re too small to compete. If you ignore market capitalization, looking at revenue or cash flow, they’re big enough to compete. How they choose to do so will be fascinating.

The DoJ will Try to End the Paramount Consent Decrees

I’d emphasize try because even though the issue has been understudy for a year now, these things take time. And lawsuits will inevitably come. Moreover a new administration could come in and just as easily pause the whole endeavor.

If the walls between studios and distributors do indeed come down, we’d very likely see some M&A in this space. Who and for how much will be seen, but it would happen. 

Sprint-T-Mobile Merger Goes to Trial

Then one could be the last act of this cellular merger saga began its last stages in a federal court room as 13 state Attorneys General sued to block the merger. As usual, both sides brought their economist to debate this simple question: 

If the number of competitors dwindles, does that have any impact on the prices they charge? 

Incredibly, it seems more and more like the answer in federal courts is no. Logically, then, the next step is two cellular companies down to one single provider. As long as they convince a judge they won’t raise prices, then it isn’t a monopoly.

(Listen, 1,500 words aren’t enough to catch up with all the news. I’ll be back next week to keep the thoughts coming on everything else that happened during my three week break.)

How The Irishman Lost $280 Million: The Great Irishman Challenge Part IV – The Results

(For the last few weeks, I’ve been debuting a series of articles answering a question posed to me by The Ankler’s Richard Rushfield: Will The Irishman Make Any Money? It’s a great question because it gets as so many of the challenges of the business of streaming video. Read the rest here, here, here and here.)

The biggest uncertainty in The Great Irishman Project was figuring out how well the film did with viewers in the first place. I was all set today to parse Nielsen’s estimates from last week, but doing so meant tons of estimating based on a very limited data set. So I waited.

Specifically, I had a suspicion that Netflix would feel forced to tell us something. They couldn’t let Nielsen drive the narrative for their most high profile picture of the year. Sure enough, we got the results today, as Ted Sarandos spoke at the UBS Media conference:

26.4 million subscribers watched 70% of The Irishman in its first week.
40 million are projected to watch in the first 28 days.

Huzzaw! Now we can be a lot more confident in our estimates.

Here’s today’s plan. First, I’ll given you the “Bottom Line, Up Front”. The results and my model. Second, I’ll discuss a few specific estimates and inputs I still had to make. Third, I’ll answer what I assume will be the most commonly asked questions or criticisms of my model. In Q&A format.

(Also, look for my write-up in The Ankler if you’re subscribed.)

Bottom Line, Up Front: Netflix will lose $280 million The Irishman

As I wrote in Part I, the goal was to make a scorecard, and here it is:

IMAGE 20 - Irishman Profiitability

For the full model, here you go:

Image 21 - Irishman Full Model

In other words, if this were a big budget tentpole from Disney or Warner Bros–whose flops have extremely public numbers–I think Netflix would have to write down the costs for “only” getting 40 million viewers in the first four weeks. This film was extremely expensive, and it’s already decaying fairly rapidly in viewership. Even with a bump from a Best Picture nomination, Netflix will lose money on this investment.

The Model Details

Even having built the model ahead of time, I had to make some assumptions. Here they are.

Determining US versus International Split

One of the big assumptions of my model right now is that international viewership is much less valuable than US viewership. I do this based on their reporter lower international “Average Revenue Per User” and higher churn rate overseas (from what I’ve been told/researched). As a result, the more US customers for a film (for now) the better it is financially for Netflix.

We have two data points to triangulate the split for The Irishman. First, we can look at historical box office trends of mobster films. According to all the films listed as “Mafia” in The-Numbers database, about 61% of box office comes from domestic versus international box office. For example, a film like American Hustle did $150 million in the US/Canada vs $107 million in the rest of the world. Black Mass from 2015 was even more weighted to the US: $62 million vs $36 million rest of world. (The Departed did $132 million US to $157 million rest of world.) This would imply viewership was skewed to the US.

Second, Nielsen provided their estimates that 13.2 million people watched The Irishman during its first five days of release. That’s almost exactly half of the 70% completion Netflix claims. If we assume this would increase with two more days viewership, again we get closer to 55-60% of viewership being in US/domestic.

I decided to use 62.5% US viewership for Netflix. This is pretty beneficial to Netflix, but makes sense. In all, since US viewers pay more on average for longer, this change benefits Netflix.

Changes to Best Picture Bump

My initial model assumed 25% more folks would watch on Netflix if The Irishman is nominated for Best Picture. I decided to bump this up to 25% first window revenue, since that’s a more accurate reflection of the box office bump. (That’s also a benefit to Netflix’s bottom line.)

Adding in Box Office?

I wanted to add in box office revenue, but Netflix hasn’t released any since this film wasn’t released in the traditional theatrical system. (Netflix rented out theaters and then collected the revenue themselves.) Given the limited number of theaters, I think leaving this out won’t drastically impact the bottom line. 

Frequently Asked Questions

I imagine a lot of folks have a lot of questions about this analysis. Let’s try to answer what I imagine are the most common.

What is the best case for Netflix?

Read More

The Great Irishman Challenge – Appendix: How Confident Am I?

(For the last few weeks, I’ve been debuting a series of articles answering a question posed to me by The Ankler’s Richard Rushfield: Will The Irishman Make Any Money? It’s a great question because it gets as so many of the challenges of the business of streaming video. Read the rest here, here, here and here.)

On Twitter, TV journalist and friend of the website Rick Ellis of All Your Screens pointed out that my model is likely not to be accurate:

You know what, he’s right!

I don’t have leaked Netflix internal accounting and data. This means that I have to make a lot of assumptions to build my models. The more assumptions in an estimate, the more sources for error. While estimates are naturally more accurate than forecasts, they’re still estimates. Meaning they are not an exact science.

Before I publish my results for The Irishman—my next article for those waiting—it’s worth probing what type of analysis this Great Irishman Project” is. As I’ve been thinking about it, I have three analogies to explain what I’m trying to do here, ranging from a weak to strong.

Analogy 1: The Scientific Method

This is the gold standard. Arguably, the very principle that has driven human progress for the last 500 years.

And it doesn’t apply here.

I know, I know. It would be great if it did. But to apply the scientific method means starting with a hypothesis, then gathering data to prove or disprove it. That’s not my approach at all. I’m building models based on my experience and data. Which are “scientific”, but I can’t “test” them on Netflix’s releases.

The streamers specifically have reams and reams of data. They can set theories and test whether they are correct on marketing, user experience and sometimes content. (However, they often overhype their data and stretch the limits of statistical accuracy.) Unfortunately, for yours truly, Netflix and Disney and other companies will never tell me if I am right or even super close with my models, so I can’t ever test my hypotheses.

Since we’re talking scientific method, it’s also worth pointing out that lots of data analysis at technology, consulting and really all companies is “faux scientific method” too. At their best, companies can set out hypotheses, and run tests to see what works best for their customers. At their worst, companies just collect a ton of data and use the data that supports their preexisting beliefs. That’s not the scientific method. (I can’t count the number of times I’ve seen a boss parsing a quad chart for connections that are noise, not signal.)

Analogy 2: Sports

One of my inspirations for this website was the boom in top notch sports writing. Specifically, the top tier analysts. Folks like Zach Lowe or Kevin Arnovitz on basketball, Bill Barnwell in football, Pete Zayas for the Lakers, or Chris Harris on fantasy football. These folks don’t just report the news, but analyze the what and how of sports. They provide deeper insights than just the box score, whether they use scouting, film breakdown or analytics.

I’ve tried to fill the same need in entertainment business. This industry is filled with a phenomenal amount of great reporters, but not the rigorous analysis I needed when I worked in entertainment. (There’s also a lot of great investor-side analysts, but they usually charge an arm and a leg for their work. Their focus is also less on strategy and more on stock price. Which is great for their clients, but not quite what entertainment professionals need.)

There are two huge differences between sports analysis and entertainment strategy analysis, though. First, I don’t have nearly as much data. For sports, even casual observers can now get advanced analytics, from Basketball Reference to to Cleaning the Glass. Second, we don’t get the “results” beyond quarterly earnings reports, and even those can be woefully incomplete for streaming. Imagine how much tougher Zach Lowe’s life would be if he didn’t know the scores to games!

This analogy gets a lot closer to what I’m trying to do. Instead of breaking down how a play is run, I’m breaking down how film finances work. Then, I’m applying the data we do have to that model. Then I’m pulling insights for what that can tell us about entertainment strategy. If I had more data, I could pull even more insights.

To find the perfect analogy, we need a field where making predictions is key, but data is sparse. Well…

Analogy 3: Military Intelligence

In war you have to make predictions about what your enemy is thinking, planning and eventually doing. But the amount of information is usually extremely sparse. Even if you have tons of information, you are terrified that it’s all planted by the enemy in misdirection campaigns. Inevitably, an intelligence officer has to make assumption after assumption to project an enemy’s course of action.

As I laid out in my recent series, I used to be an intelligence office in the Army, making these types of predictions. I’m used to uncertainty when forecasting enemy actions.

That’s not a bad analogy either for companies in competitive fields. While every company professes to not care what any other company is doing, they’re lying. (All of Hollywood is obsessed with Netflix, even if they say they aren’t. And yes, Netflix is obsessed with Disney+ right now, even if they deny it.) Understanding whether your competitor is making hits or duds, burning cash or wallowing in it, and how they’re doing it, is a key piece of information for making decisions.

Most companies have blind spots into every other company the same way my models have blindspots into Netflix or Disney’s specific performance.

Just because our models have inaccuracies doesn’t mean we shouldn’t make them. And doesn’t mean they aren’t useful. If you waited in war until you have perfect information, you’d be plagued by indecision. That’s really what I’m doing here: I’m providing my competitive analysis of streaming video, starting with Netflix, at the same level of accuracy I’d try if I were doing this for insurgents in Afghanistan or working in a strategic planning group in a streaming company. Even though I could be wrong, I don’t have a choice because we need these assumptions to improve our estimates.

And yes, as a bonus, these models will eventually inform my larger series on an “Intelligence Preparation of the Battlefield”. Essentially, the models will tell us a lot about how can and can’t make money in streaming video, and how that can impact all of Hollywood. But that’s for a future article.