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 Decay is Real: Streaming Films on Netflix (and others) Lose Viewership Very Quickly – Visual of the Week

In December of 2018, Netflix let loose with their first datecdote™. They told us this…

But they went further! By their earnings report, they started telling us how many folks were watching their films in the first 28 days. Including an updated number for Bird Box of 80 millions subscribers watching 70%. Which allowed me to draw this conclusion:

IMAGE 1 - Film Decay Bird Box

As I wrote at the time, “the decay is real!”

Specifically, films that premiere on Netflix tend to have a significant chunk of their viewership in the first week or weekend. This is a binge-release wide phenomenon. Yet I had trouble proving the case. The other main piece of data I use is Google Trends data. But Google Trends isn’t viewership, just interest. I needed another data source (or leak) to prove it.

(Prove it to you, by the way. Not me. I know it’s true from personal experience at a major streamer. But non-disclosure agreements mean I can’t use that data.)

The decay of films has direct ramifications on the streaming wars. The steeper a film decays, the harder it is to monetize long term. So knowing how shows and films perform over time is important for the streaming wars. To show just one example, my Mulan analysis relied on forecasting its decay over time.

So I had a pretty strong hypothesis but couldn’t prove it beyond one example. Until today!

See Nielsen has been releasing weekly top ten lists of the most streamed shows. By total minutes viewed. They provided my their data going back to April of 2020. What I can do now is analyze movie performance to see if my hypothesis bears out. And it does. 

But let’s start with what this data is. I complain bitterly that most articles don’t lay this out, so here you go.

Who – Streaming customers
What – Total hours viewed (Nielsen provides million minutes and I divide by 60)
What (platform) – Any service
Where – In the United States
When – From March 30th to October 18th 2020
When (time period) – Measured Monday to Sunday.
How (did I get it) – Nielsen provided.

This data set ended up being 29 weeks of data, or 290 data points. Separating out the films gave me 17 unique films that ended up on the streaming top ten, 16 Netflix and one Disney. Of the 17 films, only six had two weeks of data. So I plotted the decay and got this:

IMAGE 2 - Total per WeekHypothesis failed! Look at Extraction or Old Guard. They only decayed at roughly the rate of 28% and 20% respectively. 

Ah, but apples-to-apples, am I right? Nielsen starts their data on Mondays. And not all Netflix films were released on the same day of the week. Historically, Netflix released big films on Fridays, but started moving some films to Wednesday. Like Enola Holmes. So let’s account for this and change our metric to hours per day (millions):

IMAGE 3 - Per WEekThere you go! See, the decay is real! (69 and 65% decay for Extraction and The Old Guard.)

But we can go one final step further. See, no Netflix film made it in the top ten for three weeks in a row. (With the caveat that we won’t know Hubie Halloween results until next week. Maybe it breaks the trend due to its theme.) This means we know that at the very least the lowest rated film in the top ten is the ceiling for our five films decay. That gives us this chart:

IMAGE 4 - Per WEek with with 3To iterate, the week 3 numbers is the maximum number of hours per day a film could have received based on the number 10 film in Nielsen’s streaming rates. The actual number could be even lower. So I’d say Extraction, The Old Guard and Project Power (all Friday releases) are the best look at what decay for a given title looks on Netflix week-to-week. (I would bet lots of money Enola Holmes and The Wrong Missy lost viewership into week 3.)

In total, this makes 9 films that show this sharp decay. The six above, plus Bird Box (see opening) and The Irishman and Murder Mystery, which are the only two other films that Netflix confirmed the opening weekend and 28 day totals. (Murder Mystery had 45 million subscribers opening weeekend and 73 million at 28 days, at 70% completion. Irishman had 26 million opening week at 70% completion into 47 million 28 days.)

Now that I have my film data set cleaned up, there are a lot more questions to answer. What type of films made the top ten list? What does this say about Netflix’s strategy? What about the correlation of US Nielsen minutes viewed to Netflix global 2 minute datecdotes? What films made Nielsen’s list but not Netflix’s datecdote list? Those are all great questions, but will come in future articles. 

Thanks to Nielsen for providing the data. If you’re an analytics company that wants to give me data, send me an email.

(By the way, if you wanted to know the Google Trends look of those films, here you go:

IMAGE 5 - GTrends

Judge Judy to IMDb TV, Disney’s Globo Bundle, and Other Stories of the Week – 9 Nov 20

The story of the last week in American and around the globe was the election of President-Elect Joe Biden to the American presidency. Will this impact the entertainment industry? Assuredly, though exactly how remains to be seen. And as I wrote on Friday, we’re still counting votes to see who will win control of the legislative branches and by how much. We’ll have weeks/months to unpack that.

The election, though, wasn’t the only news. So let’s do a run through of the other stories of last week (or so).

Other Contenders for Most Important Story

Judge Judy to IMDb TV

Judge Judy is headed to IMDb TV for the next generation of her daytime legal show. Given that she hosts one of the of the most popular shows on TV period, this is news. Frankly, as Rick Ellis pointed out in his newsletter, if this show costs the same as say a Borat 2, it could be actually be a more cost effective move for Amazon Studios, even if it is less buzzworthy. Unlike a big film, that only draws in viewers once, Judy Sheindlin has loyal fans who tune in everyday.

With two caveats.

First, the challenge for Amazon is whether those older viewers will figure out how to tune into IMDb TV and other streaming services. Maybe Judge Judy can act as a draw…or IMDbTV will act as a pseudo-exclusive platform that essentially means she loses her ability to reach her audience. The Joe Budden/Spotify example I brought up a few weeks back, in other words. Broadcast is ubiquitous whereas free streaming TV adoption is not.

Second, CBS bought the rights to all the episodes of Judge Judy (the show) back in 2017 for $95 million. Meaning someday Paramount TV will have Judge Judy. Or HBO Max. Or Discovery TBD. Plus she’ll still be in syndication via repeats. Do viewers of Judge Judy need new episodes? That remains to be seen.

Disney+/Globo Plan a Bundle in Brazil

As Disney+ plans to enter Latin America, they’re partnering with telecom firms, as they have around the globe. In Brazil, they’re partnering with Brazilian leader Globo and will be offered as part of a bundle, though they’re calling it a “shared subscription”. I love this strategy for Disney, as I’ve said before. It allows immediate penetration into key markets and Disney content is seen as must have for major telecom providers. 

T-Mobile Enters the Streaming Wars

Another telecom company is offering another virtual MVPD. This time it’s T-Mobile with their offering of “TVision”. However, TVision is already running into trouble as cable channels are making noises that T-Mobile is violating the terms of their deals due to what channels are offered in what packages.

Frankly, virtual MVPDs are just tough businesses to be in. They don’t really solve any problems for customers, and the only reason they’ve gained market share is that they’ve offered severe price discounts. Like Youtube TV, DirecTV Now and others before it, T-Mobile seems to be offering a deal which is too good to be true, 30 channels for only $10. It likely won’t last.

Roblox Is Going to IPO

Kid focused video-game company Roblox is going public, having filed confidentially for an IPO. Roblox has an interesting approach, since they let users design games, which means they have a lot of games for very little cost to Roblox. Throw in some hefty doses of social, and the platform is very popular with the kids. (Though, it has some risks, as I highlighted in a newsletter a few weeks back.) In all, this is a company to watch, like a less buzzy Fortnite.

Starz Update

Streaming service Starz has reached 9.2 million streaming subscribers, though how exactly this is calculated is, as always, confusing. Does this mean streaming only? Or more likely folks who subscribe anywhere, but have streamed content? If it is a legit 9.2 million streaming-only subscribers, that’s a great number.

Either way, the news came as part of their earnings call, and other articles indicated that Lionsgate is willing to spin Starz into its own company. Which could be a sign that efforts to sell Starz have finally ended, or this is a way to sell the company without having to actually sell it via the traditional process.

Hulu/Youtube TV Dropping RSNs

More bad news for regional sports networks. Hulu has live sports, but won’t carry regional sports networks, apparently. As a result, Sinclair wrote down the value of their regional sports networks by half. Partly, this does reflect that Sinclair overpaid for the channels, but this doesn’t necessarily mean they overpaid at the time. In a non-Covid-19 timeline, they may have been fine. Still, over the entire sports ecosystem, RSNs may be the first weak point. Though…

Utah Jazz sell for $1.6 Billion

For all the worries about cord cutting impacting sports valuations, we haven’t seen it yet and the Utah Jazz sold for a tremendous price tag given their market.

Entertainment Strategy Guy Update – Esports

Are esports trending up or down? I’d say neither, but the bad news headlines I’ve seen recently worry me.

On the good side, Learfield IMG is launching a collegiate esports league since the NCAA has mostly punted on allowing esports. Toss in “VENN”, a streaming only esports channel that recently launched and you see the rush to make money off esports.

On the bad side, you see the folks rushing out of esports. Both ESPN and Cheddar are shrinking their esports coverage. There are also rumors that VENN is having trouble with its audience. Moreover, Overwatch league switched commissioners this spring.

The question is whether this is because esports is really, really popular but folks don’t want traditional style sports coverage, or whether it just isn’t that popular yet? As I’ve been writing for a while, I think it’s the former: esports is growing, but some of the numbers about it’s popularity are wildly overhyped. As such, the reason why no one is watching esports content is because it isn’t popular enough to demand that coverage. (Indeed, whenever traditional ratings are used, esports viewership is anemic. Then another excuse is brought up that esports fans don’t watch via traditional channels. Maybe! Or maybe it just isn’t as popular in raw viewership terms.)

I’d also make a clear distinction I don’t see enough: esports does not equal live-streaming video games. They overlap but do not necessarily need to both be true. Folks can love watching people on Twitch, but also esports leagues could come and go and never really break through. And while I remain skeptical on esports, you won’t find that skepticism for live-streaming.

Nate Silver Wasn’t Wrong…We Were: What Hollywood Can Learn from the Election – Most Important Story of the Week 6-Nov-20

Let’s not kid ourselves. This week was about one story. Everyone in America–and around the globe–was watching for the results of Tuesday’s election. I didn’t get any work done on Tuesday or Wednesday because I was distracted by following the news.

So it’s our story of the week!

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Most Important Story of the Week – What a Electoral Polling Mistake Says About Decision-Making

I won’t discuss the impact of the election from a political perspective. That is for political pundits, which I am not.

If I’m anything, though, I’m a Nate Silver fanboy. Silver has been incredibly influential for this site. I regularly cite him and his work. I use the phrases “signal and the noise” a lot. And I try to build forecasting models for entertainment. That’s my political affiliation: data truther. 

Which is why the narrative bothers me. Imagine this scenario.

Pennsylvania’s legislature allows votes to be counted several days before the election, whereas Florida votes to end early counting. 

Then, on election night Joe Biden is declared the winner in Pennsylvania. 

Would the narrative have been different? Heck yes.

(To be clear, while Biden leads in Pennsylvania, the race hasn’t been called by networks or the AP nor have final votes been tallied, the latter being the true “count”.)

But the “narrative” is not reality. The narrative is the collective chattering of talking heads, social media conversation, and news coverage. But notably, the narrative is not reality. Reality is reality. See how easily the narrative changes if just two states count their votes differently?

On top of the narrative are the “expectations” that came into the election. These were set, overwhelmingly, by Nate Silver and his 538 model. His model is based on the polls, which had another error like 2016 that underestimated Donald Trump.  (We don’t know the true magnitude yet, which I’ll get to.) This set up a lot of optimistic expectations for Democrats. This set up another narrative, that Silver screwed up his models or that polls are irrevocably broken, or both. Even more than the results, this could be the narrative driving Twitter, “How did 538 lead us so astray?!?!?”

Let me provide just one example from my experience. In my previous role at a streamer, I gathered all the data to help the key decision-makers decide what shows to order and renew. Yet, the data wasn’t mine alone. Often, executives wanted the data immediately. Meaning a streaming show premieres on a Friday morning, and the executives wanted email updates for how the show was performing. Sometimes hourly! Several times, a show would start slow, for whatever reason, and finish strong. Or vice versa. But executives checking every hour would often use their first impression as the takeaway for how the show did.

In other words, I routinely saw the mistakes being made for this election at  a big company in America.

If you’re a decision-maker, your goal is to focus on reality, not the narrative. And where they diverge, you take advantage. If you’re an investor, you invest to make money when the narrative clashes with reality. If you’re in business, you build a competitive strategy off it. And if you’re in politics, you win future elections.

In general, the biggest “error” was not from the polling. The biggest error was how we consumed election night information. (And I’m guilty here too.) Understanding that will help us all–and especially business leaders–make better decisions.

What Nate Silver’s 538 Is Trying to Do (And Other Modelers)

Before we can understand what went wrong, we have to understand what both polls and models of polls are trying to do.

The goal of a poll is to forecast the feelings, opinions or thoughts of potential voters for upcoming elections. It’s a survey! Of course, the goal of this survey is to be accurate. If you could, you’d survey everyone in America. But that would be really expensive! The compromise is to survey a sample and draw conclusions from it. 

The challenge is how pollsters gather that sample. If their sample is biased, the survey won’t be accurate. That is why pollsters get paid the big bucks. Eh, big is too high. Let’s say “some bucks”. Surveys are easy to do, but really hard to do well.

In America, recent technological developments have weakened the ability to survey various populations. Specifically, the rise of cell phones with caller ID has decreased the number of respondents who talk to pollsters. Unlike the past when landlines were ubiquitous, many homes do not have a landline. The potential replacement–internet polls–come with their own sampling problems.

The solution is to adjust the sample population and weight it by various demographic categories. Like age, gender, location, income, past voting history and now educational attainment. Various pollsters use different methods to adjust these results and have done this for decades. Yet, this introduces its own uncertainty. It means that polls are models of what they anticipate the electorate to look like in a given election. 

This brings us to Nate Silver. He makes a model based on polls. Or a “poll of polls”. But since the polls are models, really he makes a “model of models”. The logic is that the average of multiple data points will be more accurate than picking any individual poll by itself. (He’s right here, by a long shot.) And his model crunches tons of additional data and historical evidence to make it as representative of potential outcomes as possible. 

Yet, if all the polls Nate Silver uses have the same correlated error, his model won’t be accurate.

In other words, garbage in, garbage out. But garbage is too strong. So “slightly biased data in”, slightly biased data out. (As it stands, his model predicted 47 of 50 states, but we have to wait to find the margin of error, which is more important.) A model is only as good as the data going into it.

The Models Weren’t Wrong…We Were

Yet, the most misleading thing about the election wasn’t polling errors. The bigger mistakes are still being made.

  • A lot of folks saw the results on Tuesday night, and then rushed out to provide their takes.
  • Worse, even more  folks consumed a lot of data about the election on election night. And then they stopped. (Or they will stop when the election is called.) 

If you’re a voracious news consumer, you’re actually more at risk of this. For example, can you tell me what the polling error was in California in 2016? Did you know that polling actually underestimated Democrats in that election? (If you listen to Nate Silver’s 538 podcast, then yeah, you probably heard him say this, which is where I got it from.)

Yet, because California wasn’t a swing state and folks didn’t check in for final results (which take weeks, unfortunately, to get) most folks never internalized this lesson. They only internalized the miss in Rust Belt swing states. In other words, most folks were not properly informed about what happened politically in 2016 if they focused on election night. Meaning if they had to draw conclusions from 2016, they were more likely to make the wrong conclusions. 

Let’s explain what these decision-making errors are (via their logical fallacies if possible) to correct these mistakes.

Using biased samples/Drawing conclusions too early

This is perhaps the biggest problem with drawing any conclusions from the election:

We don’t have all the data in!

As I write this, California only has about 74% of its vote counted. Many other states are like this as well, and states are still certifying their results. Frankly, you can’t draw conclusions until you have a complete data set, otherwise you risk a biased sample size. 

Which is really ironic, isn’t it? 

The problem with the polls is they have some correlated error which makes them biased…and we judged that on election night with a biased sample size!

Specifically, many urban centers are very slow in counting ballots since they have orders of magnitude more votes to count. Yet, that definitionally makes conclusions biased towards rural communities. This is definitional bias in the “poll” of current vote tallies.

This happens outside of elections. For example, folks evaluate a feature film’s performance on its opening weekend box office. Which is pretty correlated with final performance, as I’ve written. But the two week box office numbers are even more correlated with performance. If you wait two weekends, in other words, you can have a more accurate recall of box office numbers.

The “Temporal data fallacy”/Drawing narratives from sequential data drops.

Obviously, the order of revealing the data shouldn’t impact our conclusions from the data as a whole. What matters are the final results. I’ve taken to calling this the:

The “Temporal Data Fallacy” is drawing a narrative based on the sequential release of data, when the timing of release is uncorrelated with the outcome.

And it doesn’t just happen for elections. In sports, we often weigh what happens at the end of a game much more strongly than what happens in the middle. But a missed basket in the second quarter impacts the outcome just as much as a missed basket at the end, for example.

Availability heuristic/Rare events are easier to recall than common ones.

If you watch all of election night, but have to go back to work the next two nights, then when you recall the election later, you focus on events in the moment, but not the outcomes that happen later. Moreover, the stronger the emotions you feel (like despair at losing) means you recall those events with even more alacrity. Which is why Biden could wind up winning with a greater margin than George Bush in 2004, yet it will feel like he lost because he lost Florida early on Tuesday night.

Folks like to mention Capital in the 21st Century as the most common book that is purchased but not read by intellectuals. I’d offer that Thinking Fast and Slow by Daniel Kahneman as the book that was most read but least applied. We all know the availability heuristic is a thing, but we still are walloped by it on a regular basis.

The curse of small sample sizes/Overconfidence in results.

Elections are a pretty small sample. Which Nate Silver repeatedly tries to tell us, but we usually forget. (They only occur every two years, and Presidential elections every four.)

That’s why his model had everything from a close Biden win to a big Biden blow out in their range of outcomes. With small sample sizes comes greater uncertainty. While Silver has tremendous uncertainty in his model, most folks only focus on the average outcome.

Valuing Process over Results/Expectations

This also relates to the penultimate problem, which is the focus on results over process. Maybe this is philosophical, but I’d rather be wrong for the right reasons, then right for the wrong reasons. The former means I’m still making accurate predictions; the latter means I don’t know. In Nate Silver’s case, his model only gets tested one out of every four years. Sure, sometimes he’s going to miss, but the value is in the model, not the results.

Meanwhile, we often only care about results in terms of the expectations. Thus, Biden will likely win, but since folks thought Democrats would win the Senate too, it feels like a loss. (Winning the Senate, House and Presidency had about the same odds as Hillary winning in 2016, 70-77% in 538’s model.) But the Democrats will likely win an election against an incumbent, which is really, really, really hard to do! That’s worth celebrating, though folks won’t. 

This happens in entertainment even more often. Say two films have the same budget. One is expected to gross $300 million and gets $280. The other is expected to gross $100 and gets $180 million. Sometimes the narrative praises the latter film, even though it made less money. But it beat expectations.

My Advice

So I have recommendations. To make you slightly better at analyzing data in your everyday life and professional role:

– Get rid of dashboards. Dashboards are the election night of data. They take a stream of data in and folks can check them whenever. Even if they don’t need the data or the data is wrong or a decision doesn’t need to be made.

– Determine what numbers are your signal, what numbers are noise, and don’t check the latter. Checking data that isn’t tied to key outcomes will only jumble the narrative and pollute your thinking.

– Check data less often. And check later. This is the hardest thing in the world for decision-makers. A new TV show comes out, so everyone wants to see the ratings. But if you don’t have a reason to check the data–and reason means a decision to make–then checking the data could mean you’re absorbing misleading data. Which the availability heuristic shows will be tough to forget later. 

– Have a “data” plan for your company. (And a communication plan while you’re at it.) This plan should explain what numbers your value and when you check them. And that should be tied to decisions.

– Lower or raise your statistical significance. One of the crazy parts of statistical analysis is how much we still rely on the 5% threshold for statistical significance. This is an artifact of pre-computer calculations. But for some measurements, we need more confidence, and others we actually need less. You should analyze your data with this in mind.

– Ignore most headlines with statistics you haven’t tracked. And please don’t repeat them if you don’t know how they were calculated. Those are likely datecdotes.

Entertainment Implications/Entertainment Strategy Guy Updates to Old Ideas

Entertainment is Filled with Small Sample Sizes

If you take away nothing else, remember this. Much data in entertainment tends to be annual, and that means your sample size is only as big as the number of years in your sample size. In other words, when drawing conclusions, be careful about overconfidence.

(Think box office year over year. Most folks will willingly tout all sorts of reasons for why the box office declined year-over-year or raised, but most likely it’s just statistical noise.)

Surveying Customers Is Still Valuable

One result of the election is folks questioning all political polling. Or asking if this is the end of quantitative data. It isn’t.

 In general, I’m a fan of more data in general: surveys, polling, quantitative, behavioral, even focus groups! They al have a role.

The key is finding which data matters and when it matters. But will “qualitative” data replace quantitative? Hardly. Surveys will still be better than relying on anecdata or datecdotes. 

(In TV in particular, if you get rid of ratings, and rely only on making TV shows using “qualitative” data, that could mean making TV for folks like you. Since you aren’t a representative sample size, this is a bad decision.)

The Presidential Race is Logarithmically Popular

My favorite chart returns! The spending/awareness for Presidential races is orders of magnitude larger than dozens of senate races, hundreds of house races and thousands of state legislatures. That’s logarithmically distributed!

Image 8 - without additionsStreaming Analytics Firms Have Polling Error…But What Is It?

This is a lens I plan to analyze all the streaming analytics companies through, some day. Some firms have potentially biased sample sizes (all users of their service is not representative), others have limited sampling (potential bias), others are limited by their own data (streamers know exactly how many folks watch their content, but not other streamer’s data) and some firms have models with unknown weighting (so you can’t judge the process).  

Given they are the best data we have, I will use their data. Heavily. But I’m aware of its limitations, which lots of news coverage doesn’t seem to be.

Netflix Is Raising Prices Because It is Shifting Strategies: Most Important Story of the Week – 30 Oct 20

As of Wednesday, I was flailing for a story of the week. Well, thank you Thursday! And happy Halloween to everyone. Stay safe.

Lots of stories, but we have to go with Netflix…

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Most Important Story of the Week – Netflix Raises Prices. But Why?

Not a lot is truly surprising in the streaming wars. Take the recent service launches. First, a pivot to streaming is rumored. Then confirmed. Then details are leaked. Then when they roll out, for the most part they are what we expect. 

Or take Netflix. They usually telegraph price hikes a few months early to help prepare us. In their last earnings call, for example, they hinted that with all the content coming in the second half of 2021, maybe a price hike was due. So we set our watches for the once every two year price hike.

And then they announced on Thursday it’s coming in November!

What happened?

Well, increasingly Netflix is shifting from a company focused on growth to one focused on making money. This is a typical transition as a company ages. Netflix is “entering middle age” as I recently wrote. The challenge for Netflix is to manage this transition while sustaining their stock price.

Which is hypothetically the point for every company, but seems even more important for Netflix. My feeling is that the debate between the bulls and the bears is really about what financial metrics we’re looking at. Some analysts only focus on the subscriber growth, either US or global. Some toss in revenue, which has grown with subscribers. Then a select few focus on the free cash flow and subscribers. 

The tough part for any company is getting all of the metrics to go up simultaneously. I’m reminded of a story the Manager-Tools founder Mark Horstmann would tell. Some executives are sitting around looking at a set of inputs for an engineering project. If you add weight, you decrease speed, but maybe save costs. If you cut costs, the quality goes down. And one exec says, “Well it would be great if all the numbers would go up simultaneously!” Yeah it would! That’s the tough part of engineering. And strategy.

Indeed, that’s the goal of a good strategy: to increase all your performance metrics simultaneously. But that’s really rare!

We see this with Netflix. Essentially, they’re shifting from one strategy to their next stage of life, but that comes with lots of tradeoffs. To see this, let’s start with the inputs Netflix can control. Roughly, I’d say there are three big buckets:

– Prices for customers
– Short-term content spend (licensed content)
– Long-term content spend (library)

These lead to a few key metrics that relate to the strategies:

– Subscribers
– Revenue (the top line amount of money someone makes)
– Free cash flow (the amount of money a firm actually makes, as distinct from profit.)

(Why not use profit? Because content amortization plays so much of a role that it’s hard to evaluate. Some folks use EBITDA as a proxy for profit, which cuts out some of this.)

Those financial outputs also tie to the lifestage/strategy of a company, neatly summarized by Salil Dalvi in this tweet, which inspired this article:

Thus we can summarize it like this, with each stage/strategy having different inputs that drive the strategy and different financial metrics:

– “Growth” phase:
Key financial metric: Subscribers.
Key Inputs: Low prices, lots of short-term content spend.

– “Building” phase:
Key financial metric: Revenue and Capital expenditures
Key Inputs: Wholly-owned content spend.

– “Make money” phase:
Key financial metric: Free cash flow
Key Inputs: High prices, lower content spend.

Netflix started life in the “growth” phase. That’s what allowed the stock price to explode. And they rode that, while pivoting to the “building” phase, that meant spending more than the rest of Hollywood combined on content. The goal was to build a library/moat to sustain their subscriber advantage. (The challenge is how much of that content they own, even now.) If they are now pivoting to a “make money” phase, how does that impacts their stock price?

I’ve been deliberately using “tradeoffs” as the word to describe this because for the most part it is a different combination of inputs for different strategies. Netflix would love to grow subscribers and revenue and free cash flow, but it can’t/never has. It could do two of those simultaneously (revenue and subscribers, for example or revenue and cash flow), but not all three. The huge growth of the last decade came with a big price tag, losing $10 billion in cash in the last 12 years, and more in opportunity costs. 

Ironically, the “Covid Caveat” times may have forced Netflix to move to “make money” sooner than their plans. The Q2 immense lock down growth pulled forward future growth, which hurts the growth narrative for Wall Street. Meanwhile, shutting all productions basically will allow them to be cash flow breakeven to positive for the year without seeming impacts on subscriber churn.

Once you realize Netflix is no longer focusing on growth, a lot of recent decisions make a lot of sense:

– Raising prices in the United States? All about boosting revenue and cash flow.
– Ending free trials? Reduces churn and boosts revenue per new subscribers.
– Cancelling underperforming shows? Reduces overall content spend.
– Rearranging the entire TV team? Actually, no this isn’t explained by the goal to drive revenue. (Listen, some grand theories can’t explain everything.)

In other words, in some territories growth is running out. And meanwhile Netflix is constantly worrying about what Wall Street thinks. If they show positive cash flow one year, but then lose $3 billion the next, does that crush the price? Or if they show stalled global subscribers without higher revenue, does that lower their multiple? Or just low single digits revenue growth? What does that do to the valuation?

 When you’re one of the highest price stocks in all history in terms of profit or cash flow, you worry about what will make the market finally change their mind. 

Some final implications:

– First, you really see that the traditional conglomerates have a different tradeoff. They’ll hemorrhage current cash flow by going to streaming, but they won’t have to worry about building long term libraries. They already have those. After they catch up in the growth phase, this could be an advantage.

– Second, this shift isn’t necessarily global. Some territories will mature at different rates. Most of this story is a United States story. But, despite the narrative, by most metrics the United States is about 50% of Netflix’s business. (Like in revenue.) 

– Third, this is what puts the Netflix stock in a different category than it’s fellow “FAANGs”. The others see booming user, revenue and cash flow growth simultaneously. Netflix has to choose.

– Fourth, this chart from Evolution Media Capital tells the story of the price hikes perfectly:

unnamed

Other Contenders for Most Important Story – AMC+

AMC+ was announced in June as a bundle of AMC streaming services for one price of $5 on Comcast. The news earlier this month was that it expanded to the Amazon and Apple Channels programs for $9. (The streamers include AMC content, Shudder, Sundance TV, iFC Films and BBC America.) 

I’ve been meaning to dig into this news for a pinch, since it’s a big strategy shift for a smaller strategy player. But it really deserves its own 2,000+ word deep dive.

In the meantime, I like this move for AMC, with the caveat that they’ll never win the streaming wars with it. Essentially, this is admitting that AMC knows their strategic limitations. (Analogies: this is the Frey’s allying with the Lannisters. Or Canada in World War II joining the winning team.) They don’t have the cash flow to build a technology platform. So let Apple, Comcast and Disney do that, and accept lower profit/cash flow with it. Meanwhile, the new AMC+ isn’t quite a bundle, but it is broader than the niche services. That’s smart.

Data of the Week/Entertainment Strategy Guy Update – The Straight to Streaming Market

Each week for the rest of the year, maybe for the rest of time, will be a referendum on whether or not films should go “straight-to-streaming”. This week had some fun updates on that. The big caveat is that one film doesn’t prove the thesis either way. Sort of like how no individual poll in the current election is decisive. Take the average.

Let’s start with the success. Borat 2, or whatever it’s long title is. Borat did what any film hopes for, which is to get tons of earned media exposure by becoming a national news story. (Thanks Rudy!) As such, it did really well for Amazon Prime/Video/Studios/Channels/IMDb. Here’s the quote Apptopia sent me:

Today’s finding: Amazon Prime Video just achieved its highest number of single-day installs (on mobile) on record (our data goes back to 2015) with about 520K on Sunday. 

This is backed up by the Google Trends:

Screen Shot 2020-10-30 at 10.35.36 AM

(The caveat is we can’t untangle how much folks were searching for news on Borat versus viewership. That said, I expect it will make it into Nielsen’s top ten in three weeks.)

Of course, a deal isn’t good just on performance alone. What matters is the price for that performance. Or return on investment. (Lebron James isn’t the best because he’s the best, but because he’s the best and his salary is capped at $30 or so million per year, when he could be worth double that.) The news via Deadline is this film cost $80 million to acquire directly from Sacha Baron Cohen

So did Amazon Prime/Video/Studios/Channels make any money on it? I honestly don’t know. Folks have asked if I could run my “Great Irishman” model on it, but we cannot. Because we don’t have the Prime Video inputs. We know how many Prime subscribers there are as of January, but not how many folks actually watch the service, let alone value it. At $80 million, we’re definitely on the “needed to be a big hit” side of the ledger, but this looks like it got there. (We’re closer to running this analysis with Disney+ than Amazon because at least Disney gives us subscribers every quarter.) 

(I’d add, we also don’t know the full terms for Borat 2. How long does Amazon have exclusivity? Do they have ownership later? We don’t know.)

Speaking of pay days, the best rumor of the week comes from The Hollywood Reporter (and others) that MGM was asking for up to $600 million for the rights to James Bond for some period of time. Which is eye-popping on one regard, but also eminently reasonable in the other. James Bond films make bucks at the box office, which means they make money in home entertainment and in subsequent windows:

Screen Shot 2020-10-30 at 9.45.11 AM

The best summary of the landscape comes from Brandon Katz at Observer:

What I’d say is there is a ceiling to straight-to-streaming releases, and it’s right around $100 million production budgets. (If not a bit lower.) Every so often a streamer will go over–Netflix with The Irishman and Triple Frontier/6 Underground; Prime Video with Coming 2 America 2; Apple TV with the next Scorsese budget pit–but those are the two biggest, and even then they’ll likely lose money.

(This is why I wrote in the Ankler that the straight-to-streaming move could end “blockbusters” as we know it. And talent would lose a lot of money too.)

Most importantly, using my “need to make money” framework, MGM is the type of firm that needs to make money. If MGM spends $200 million to make a film, they can’t just lose money on it and make up some imaginary source of data/subscriber retention to justify it. They have Private Equity guys breathing down their necks to make a return.

So yeah, they explored selling to streamers, but at that price tag only theaters can make money on it.

Other Contenders for Most Important Story – Comcast Earnings Report

Comcast made the most “news” with their earnings report. So let’s rank the insights in order of importance.

  1. Content doesn’t have one home, it goes to the best platform.

With this quote alone, Comcast/NBC/Universal/Peacock has moved up my power rankings. I’ve been advocating this position for awhile, and loved it when CBS started airing The Good Fight on CBS. Essentially, you can easily overvalue “exclusivity” for streaming, and the goal is to make a good piece of content and make as much money on it as possible. This doesn’t apply to Netflix or Prime Video, since they don’t have other channels, but for NBC, Disney and HBO this absolutely should be the plan: make content, find the best first home, and then the second best home and so on. (Essentially HBO Max is already doing this with HBO shows.)

  1. Peacock has 22 million users.

Caveats abound. (How many active users? How many paid?) But at least they provided a number.

  1. Touting the executive reorganization.

If I were in Afghanistan, I’d hate it if my boss changed every six months in relentless reorgs. Instead, we simply changed the entire leadership every year. (Wait, that was fairly bad too. Truly an awful organizational decision.) Let’s hope this sticks and they finally have a streamlined organization with clear spans of control.

  1. Comcast is holding to their theatrical/PVOD plan, regardless of theater closures.

Which makes sense. They can’t delay forever, and at some point these costs are sunk.

  1. Cord-cutting continued, but decelerated.

Which is interesting. Here’s the best chart from Evolution Media Capital:

Lots of News with No News – Rest of the Earnings Reports

Congratulations to Amazon, Apple and Google for providing very little insight into their streaming video businesses. Their earnings reports are a credit to a lack of transparency. We should break them up if for no other reason than because they make billions in cash but can’t bother to provide details into any of their business units.

Read My Latest Guest Articles at Whats On Netflix and Decider

In lieu of a big article this week—I was a pinch busy on some other projects and I’m also digging through a lot of viewership data from Nielsen—I wanted to shout out two guest articles that I never linked to on this website.

– First, I wrote about Netflix’s viewership over the summer at What’s On Netflix. I also continue to think Netflix is leaving “awareness” on the table by not releasing one series per quarter as a weekly series.

– Second, I wrote my extended thoughts on Quibi’s demise in this obituary for Decider. As always, the key art is tremendous at Decider.

How Google’s Antitrust Case Explain Quibi’s Demise – Most Important Story of the Week – 23 Oct 20

Honestly, it’s either feast or famine with news in entertainment. Some weeks, I look at all the stories and can’t figure out what is the most important. Then other weeks, I have a plethora to choose from. This week fell on the “plethora” end of the spectrum.

Two stories led the pack. Quibi raised and lost $2 billion dollars. So that’s a big story. Yet, splitting up Google could have tens of billions of market moving ramifications. How do I pick when Quibi is so juicy, but Google is so important? Why, by combining the two! 

(As always, sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so.)

Most Important Story of the Week  – Google’s Antitrust Lawsuit and Quibi’s Demise

The background, in case you didn’t hear: 

– The Department of Justice under Bill Barr filed a lawsuit with 12 state attorney’s general arguing that Google is an uncompetitive monopoly in search. This lawsuit makes lots of similar arguments to the Microsoft case of the 1990s about using their power to exclude competitors. 

– Quibi is exploring options to shut down, as reported in the Wall Street Journal.

So how does the former relate to the latter?

To explain that, consider a thought experiment. Imagine that along the way, Jeffrey Katzenberg pitched Susan Wojcicki (the head of Youtube) the plan for Quibi. And she loved it. (Hypothetically.) She replies, “Jeff, don’t launch Quibi as a standalone service, we’ll buy it! And you run it as a standalone venture.” Then assume they keep everything else the same. The same budgets. The same product. The same everything.

Would Quibi still be around? 

Yes!!!

And the explanation is fairly simple: Google can afford $2 billion in losses over three years. In fact, Google can afford to lose $2 billion dollars every year on one business. And maybe more. 

My favorite example to show this is the money pit that is Youtube TV. When it launched, Youtube TV cost $35 per month. After adding some more channels, it bumped up its price to nearly $60. And that’s every month. For nearly 2 million subscribers. The thing is Youtube was likely losing money every month on Youtube TV, and potentially still is losing money every month on that service.If Google is losing $20 per subscriber per month, then they could easily be losing half a billion dollars per year. If not more. 

In other words, Google will easily lose billions on a speculative streaming venture.

This gets to the realization I’ve had debating the streaming wars over the last year or so. And it started with Apple TV+. Essentially, I’d find myself talking past folks when we discussed our opinions on Apple TV+. I’d say that I thought the lack of a library, lack of ownership in original content and unclear pricing were strategically bad decisions. Then folks would counter that it didn’t matter because Apple could afford the losses. The same arguments are made for Amazon and Google in a number of businesses as well.

But these are two different arguments. One is about the quality of the strategy. One is about the access to resources. These two questions help frame the streaming wars. And they are two questions we should ask about every major player (from both entertainment and technology) in the streaming wars:

  1. Does a streamer have a good business strategy?
  2. Does the parent company have immense resources to allow deficit financing?

For example, I’d say that Apple TV+ has a bad strategy overall, but they have a parent company that can shield those losses. And while Prime Video has eventually clawed its way into second or third place in the US streaming rankings, it likely has lost lots of money in the process. But who cares because Jeff Bezos is the world’s richest man.

We could go on, or I could make a quad chart to give you my take on this equation:

Screen Shot 2020-10-23 at 9.00.56 AM

For Quibi, a questionable strategy meant they ran out of business. For Apple TV+, who has arguably the same bad strategy (if not even more cash burn), it doesn’t matter because they can burn cash unlimitedly. Disney likely can’t afford perpetual losses. Netflix is the only firm in the middle because it’s strategy clearly worked, but it also lost tons of money. It also needs to make some money, because it doesn’t have a wealthy parent, yet some would argue the equity markets do that for them.

The lesson here is really for practitioners. The business leaders out there. Draw lessons from those with good strategy, not those who have cash resources you may or may not have the ability to match. Good strategy is still good strategy. (What is good strategy? Books are written on it, but for me it’s a product that matches the needs of a targeted customer segment that creates value over the long term, by leveraging a competitive advantage.)

Society could also take some lessons from this. The market should pick winners or losers because they have good strategies. Because that means companies are creating value. When external factors support money losing enterprises, it’s usually because they are trying to acquire monopoly power, which is bad for innovation and customers.

These are trends that Quibi tried to fight against, but ultimately failed. Too many folks are spending too much in ways that don’t require earning money for it to have a fighting chance. Whether or not Jeffrey Katzenberg and Meg Whitman should have seen that coming is an open question. And likely their business model was flawed, as I’ve written about before. But the reason they went bankrupt, ultimately, is because they didn’t have a parent company support massive losses. 

This is the power of Big Tech and while the current antitrust lawsuit isn’t about this price gouging specifically, it’s still about the power of Big Tech. 

Additional Google Antitrust Thoughts

– Does this impact M&A by Big Tech? Especially when it comes to big tech snatching up smaller entertainment companies? I constantly read that Amazon should buy Viacom-CBS. Heck, just last week I wondered why Netflix doesn’t buy Sony, since they license all their shows. A source said he’s heard a lot of rumors that Netflix wants to buy Viacom-CBS. All of a sudden, mergers for vertical integration purposes look a lot dicier.

– What about entertainment mergers? That’s a good question. The ire of antitrust litigators will likely stay focused on Big Tech for the foreseeable future. If the DoJ casts their eye of Sauron around, though, Comcast and AT&T are the next in the crosshairs, given their mutual penchant for mergers, the local and national monopolies and vertical consolidation.

– Is this bad for Youtube? Potentially. One of the easy remedies for the government to insist on is that Google divest Youtube to diversify the advertising market. Given that Youtube makes almost as much money as Netflix each year in revenues, this is a reasonable request. However, the current case makes no mention of breaking up big tech, and neither did the Cicilline report. 

– What about price gouging/predatory pricing in entertainment? This is much more of a stretch, but a potential spinoff branch of antitrust. In other words, under scrutiny, the DoJ could say, “Hey, if you run a video service as part of a vertically integrated firm, you can’t lose money simply to gain market share.” This is the least likely outcome of these questions, but if it were enacted it would have the largest ramifications on streaming video of any other decision.

(I had more thoughts on Quibi too that will be up at a different outlet later.)

Data of the Week – What Happened to HBO’s 88 million International Subscribers?

When I spent weeks trying to figure out how much money Game of Thrones made for HBO, it required understanding HBO’s subscriber totals. Unfortunately, Warner Bros (now Warner Media) never made it easy. Before 2011 they didn’t report anything, so I had to rely on news sources. When AT&T acquired Warner Media, it stopped reporting HBO subscribers at all. Meanwhile, they combined Cinemax and HBO subscribers in the same total, even though most Cinemax subscribers were subscribed to both. To top it off, Warner never actually broke out subscribers in a table, you had to search the narrative to find the totals.

Last earnings report, AT&T decided to bring back HBO subscriber totals. So I updated my long term tracker. But AT&T decided to only report domestic/United States subscribers. Huh. Then in the latest earnings report, they added international subscribers, but claimed it was only 21 million. Double huh. So here’s my updated chart for HBO subscribers:

Screen Shot 2020-10-22 at 9.11.17 PM

What happened to the 94 million at peak and 88 million as of 2017? And how high did it get in 2019 as Game of Thrones debuted?

I’ve reached out to HBO for comment, and will let you know if they reply.

Other Contenders for Most Important Story

Netflix’s Earnings Report

If you want my initial thoughts, here’s the Twitter thread:

Reflecting on it, I’m surprisingly sanguine about Netflix’s earnings. I thought the content was more of a drag than it ended up being. For example, the films did pretty well with three besting the 70 million households watched by 2 minutes viewed total (55 million at 70% completion by my translation). Here’s a chart:

IMAGE 3 NFLX Viewership

Caveats abound, as I like to say. First, the challenge is that the shift from 2019’s 70% completion to 2020’s 2 minutes viewed just crushes the narrative. As Netflix has said, this conversion usually means a show gains about 35% more viewers. That’s a lot. And if you took all the Netflix shows down to the 70% threshold, the numbers look less impressive.

Second, the weakness may have been in television more than anything else. Really, Netflix’s top three series are Stranger Things, The Witcher and Money Heist (La Casa de Papel), in that order. And the last of those does very poorly in the United States. Given that binge-worthy TV series drive time on Netflix, not having one of those really does hurt Netflix, and that’s why they likely missed subscriber targets in Q3. 

The End of the Fast and the Furious

All things must come to an end, but even Universal’s biggest money maker of the last decade? As others said, we’ll see if Universal can hold to this promise.

A New Contender for “Next Game of Thrones”

The big question for 2022? Which series will be the “next Game of Thrones”, as I wrote about here. More than anything, every streamer is trying to mimic the success of HBO, even though it’s not clear to me audiences are clamoring for more fantasy series. (Contrary point? The Witcher did great numbers for Netflix.)

The news is that Disney+ is adapting 1988’s Willow into a TV series. This series immediately has more importance than many Netflix’ series. Mainly because Disney+ needs quarterly hits to drive subscribers and this is in “white space” that isn’t Marvel or Star Wars. (Netflix has tons of TV shows to bank on.) Plus, it could appeal to adults. Also, full disclosure: I loved Willow as a kid but haven’t rewatched on Disney+, so guess I’m doing that this weekend.

Charlie Brown Heads to Apple TV+

Well, how about that for a licensed content acquisition? All my hatred on not having a library, and then Apple grabs the Charlie Brown holiday specials, which are a tradition in many homes, exclusively for their service. 

I love this move for Apple. (Caveat: price is everything, and I don’t know the terms.) For a service that needs growth, this is a great move. Honestly, I think it will drive more subscriber acquisition than Borat or Coming to America 2 for Amazon Prime Video.

Read My Latest “Why Did Netflix Cancel ‘Away’? (Hint: The Company’s Going Through A Midlife Crisis)”

It’s fairly clear Netflix is cancelling more shows sooner than they have in year’s past. The latest victim is the space epic Away. This move is more than a streamer cancelling an expensive show that underperformed, it shows that Netflix is embracing (some) cost discipline as it enters its third decade.

Read about that at Decider. This one is short, but it packs in a lot of biz thoughts.

Visual of the Week – Netflix Top Ten Series by Total Minutes Viewed

One of the big questions every quarter is whether or not Netflix will hit its quarterly subscriber growth estimate. This leaves analysts scrambling to read the tea leaves from app downloads and what not to try to figure out if they are on track or not. Tomorrow (Tuesday Oct 20th) will tell us one way or another.

My contribution to this is to note that often having valuable content drives adoption and usage, and hence subscriber growth. This sounds relatively benign, as a statement, but has profound implications for whether or not Netflix has a “moat”. Or indestructible defensive position. If Netflix is simply another content creator whose success depends on producing good content, well they’re as mortal as the rest.

So my data of the week is one look at content. There are lots of ways to do this (Hedgeye Communications used Google Trends to brilliantly show this in a newsletter last night), and the data set I’ve been playing with recently is Nielsen’s top ten streaming shows each week. Here is the total minutes viewed for Netflix from Nielsen by week for the United States from end of March to present, with a big gap:

Screen Shot 2020-10-19 at 10.45.22 AM

And here’s the table for folks who want the raw numbers. I also included how many titles they had in the top ten.

Screen Shot 2020-10-19 at 10.50.29 AM

Ramifications/Thoughts/Insights

– Hits drive the ratings. Again, this is so obvious and has been true for decades it sounds silly to restate it, but in the “digitally disrupted” world, we have to relearn old lessons.

– Man, look at March! It turns out Tiger King and Ozark drove huge viewing to the platform. Almost 2.5 times more viewing to the top ten.

– Likely this means that content in Q2 was much more popular than Q3. Tentatively, this would portend a drop in US and Canadian subscribers in the next earnings report. (Some application sign-up and download data is presaging this outcome as well.)

– Yes, the last three weeks have seen 1 to 2 non-Netflix shows make the list, making this time series not totally apples-to-apples over time. That said, I ran the list with the Amazon and Disney shows, and it looks mostly the same. Meaning that the top 3-5 shows tend to account for most of the viewership, so having one or two small shows with 500 million minutes viewed doesn’t radically change the numbers.

– I have a ton to unpack for these Nielsen numbers to learn/prove more insights about how content behaves on Netflix and other streamers. (Trust me, I know a ton from my previous role about how the content behaves, but I want to show/prove it in the data. And for the most part, it behaves the way I expect.)

– Long term, I hope to compare Nielsen’s data to Netflix’s Top 10 data (provided by Flix Patrol) to Netflix’s own datecdotes to Google Trends and more, but that takes time. Also, if you have a data set you want to share, my email is on the contact page!

– Specifically, I’m on the look out for the missing weeks of top ten data from this Nielsen data set. Someone sent me the April and May numbers, I’d love to have March, June and July if anyone has them. Your confidentiality assured.

Most Important Story of the Week – 16 Oct 20: Dueling Re-Orgs by Disney and Netflix

This felt like a light week on the big stories. In entertainment at least; in politics, well good luck keeping up. 

My eye was drawn, then, to the Disney news of Tuesday that they’ve re-organized to focus on streaming. Meanwhile, another Netflix executive left the original side of the house. By most measures, Netflix is the global and US leader in streaming, and frankly I think Disney+ is second.

So let’s look at these org chart changes for the two most important streamers and what they mean for their respective strategies.

(As always, if you enjoy this column, consider signing up for my newsletter to get my articles delivered to your inbox every two weeks.)

Most Important Story of the Week – Dueling Re-Orgs by Disney and Netflix

Disney Re-Orgs the Chart To Focus on Streaming

There is nothing like re-organizing the org chart to prove that you mean business in a given strategic pursuit. Thus, The Walt Disney Company–under all sorts of stress, from theme parks to sports ratings to a letter from Senator Elizabeth Warren about firing employees–has re-organized their business units and leadership to focus on streaming. 

Or so they said. In reality, I’m not sure. 

Let’s start with what we know, and what we know about who reports to whom. Kareem Daniels, who used to head consumer products, video games and publishing, is taking over all media operations and distribution, that includes both the US TV networks business, the US direct-to-consumer business and worldwide P&L. His title is ostensibly “head of distribution”.

Notably, it doesn’t include the movies studio (and subsidiaries), the TV production, the sports group, or the theme parks and merchandise group. Further notably, the head of international direct-to-consumer (Rebecca Campbell) will report to both Daniels and CEO Bob Chapek. Daniels has worldwide P&L, but Campbell reports to both.

The problem this is supposedly supposed to solve is that the TV groups will finally forget about all that cable revenue from ESPN and broadcast ad revenue from ABC and focus on making TV for the streaming future. It also may bury some of the losses from media networks and streaming in the same org chart, making it unclear how Disney is or isn’t making money on media.

My worry is first with the dual org chart part. If streaming is the future, it should have one leader who is responsible for it on a global basis. Which is really Disney’s goal here. Instead, my gut is Campbell will end up thinking in international terms whereas Daniels will focus on the United States. (Which still is the majority of Disney’s current revenue, mainly driven by ESPN.) Meanwhile, can US based production studios really think globally for content? Especially on the TV side?

The biggest driver of success this decade at Disney–feature films–remains independent. Though, I don’t hate that. If anything, this acknowledges that while home entertainment, Pay 1, Pay 2 and Pay Infinity are collapsing, the box office isn’t quite dead. Which means Disney’s films will still plot a course through theaters…whenever they come back. Of course, does Daniels have control over theatrical distribution too? Meaning that even the studios are just glorified production companies? Maybe there are more questions in this re-org than answers.

Long term, this change reinforces another constant struggle at Disney to differentiate between “the United States” and “the rest of the world”. If anything, it looks like Disney will have one streaming strategy for the states (America is Disney+, Hulu and ESPN+) whereas the globe is Disney+ and Star (with a TBD on ESPN+). As I wrote a while back, I don’t hate this. The jury is still out on producing global TV content holistically versus buying good local programming. 

Netflix Loses a Third Content Executive in a Month

When Netflix promoted Bela Bajaria to head of global TV content, this seemingly foreshadowed Disney’s move. Netflix had bifurcated content teams and they want all content decisions made by the same person, but this time the person previously focused on international content. This aligns with their global strategy, which is good.

But that’s old news. What drew my eye this week was the departures at Netflix. Last week, Channing Dungey, Vice President of Original Content and Drama, departed. This week, the head of original series followed her out of the door, as Jane Wiseman left

Those departures are not necessarily good news. If you’re Netflix, though, they’ve managed to spin every firing, or even wave of firings, as insanely positive. You “fail the keeper test” and they let you go.

That explanation doesn’t pass my own test, “the smell test”. In other words, I smell BS.

What is happening at Netflix right now isn’t some clever, new tech, disruptive approach to human resources. Nope, this is an old school Hollywood power struggle. A new executive takes over (Bajaria, by the way, trained in the classic dark arts of Hollywood politics) and then cleans house to bring in “their” people. 

If the strategy is going great, then firing a wave of executives responsible for that strategy seems…foolish? No? But then again, this is Hollywood and it wouldn’t be the first time an executive came in and cleaned house even when things were working. (For instance, Alan Horn leaving Warner Bros after winning the 2000s to go to Disney…why did they let him go?!?!?) 

If the departures gain steam, then serious questions are raised with only two negative explanations: Either Netflix is firing quality execs in a power struggle, or they had a content strategy that wasn’t working (despite press to the contrary). 

Do Executive Reshufflings Matter?

Yes and no.

(A point I’ll keep making until I die.)

They do matter because structure is one of the pinnacles of internal strategy exemplified by the McKinsey 7S framework. (I haven’t “explained” this framework yet, but I do love using it.) 

Screen Shot 2020-10-16 at 10.35.08 AM

Often we focus on external strategy and disruption. But having an internal strategy (skills, structure, shared value, systems) to execute that external strategy can be as important as the value creation business models. So critiquing whether or not Disney and Netflix have got that right makes sense.

But you’ll note I haven’t commented on the personal qualities of any of these executives. This is the no side of the equation. We don’t have a lot of good “metrics” for executives. So judging whether or not Kareem Daniels or Rebecca Campbell is better than Cindy Holland or Bela Bajaria feels like a fool’s errand. And half the time the celebrated new executive flops in their new role.

So these moves are critical, but it remains tough to judge if they’re doing the right thing.

Other Contenders for Most Important Story

Netflix Ends Free Trials

The masters of PR are at it again. And I don’t say this begrudgingly for a Netflix “bear”: I genuinely consider their press relations to be a source of competitive advantage. (I’d add their deal teams are particularly creative too.)

Thus, in August, Netflix announced they are making some content free for everyone, and got praise in outlets across the spectrum. Then in October, they shut down free trials in the United States–following a global trend–and no one reported on it until friend of the website Hedgeye’s Andrew Freedman asked about it on Twitter. For two weeks, no one realized Netflix had stopped free trials. Not a single article!!!

Ending free trials is fairly smart for Netflix, though it’s a warning sign for the streaming wars. It’s smart because increasingly customers are signing up to a service simply to binge the wares and bounce to the next streamer. Given that more folks know what they are signing up to watch and when, allowing this sampling is unnecessary for Netflix. 

(Anecdotally, I’ve heard that Starz, Showtime and HBO saw much, much higher churn numbers on Amazon Channels, which is one driver for HBO insisting that HBO Max stay off that platform. Amazon promotes churn, which is bad for the SVODs.)

The worry, for Netflix, is that the behavior is still there where folks churn in and out of streaming services. Netflix is as close as any service to the “universal” streamer. The “must have” everyone must own. But even they are seeing customers opting in and out of Netflix after customers have binged most of the stuff folks want to watch.

If you’re looking for numbers for the streaming wars, churn is in the top 5. Arguably the most important number. If churn goes up for everyone–including Netflix–that’s bad for everyone. My favorite theory of the streaming wars–from Richard Rushfield–is everyone is losing the streaming wars simultaneously. Churn is how that could happen.

(By the way, Apple TV+ is extending free-trials for some customers into February 2021. So maybe they really need free trials.)

Coming 2 America 2 is Coming to Amazon for $125 million joining Borat 2

Amazon is on a movie buying spree. Frankly, they’re taking advantage of films that can’t get distribution in the shut down theatrical landscape, but it doesn’t make sense to hold until 2021, which will be brutally crowded. Of course, they can overpay for this privilege because we don’t know how much money they make on streaming. I tend to agree with others that I don’t see how they break even on this film. (Past math on streaming video economics here, here, or here if want to see why.)

Context Update – Stimulus This Year Looks Unlikely

Which is bad for the economy. That’s plain and simple. The more stimulus going to consumers and businesses the easier it is to handle lockdowns while shortening the recession. Even waiting until January will likely cause the recession to deepen sharply. This is easily the biggest economics story to monitor.

Data of the Week – HBO Max Saw a Rise in Downloads

If Disney is in “hit-driven business” club, well HBO Max wants to join. This week, they featured a read-through of an episode of The West Wing with the original cast and it drove new downloads according to Apptopia:

This in particular solves HBO Max’s biggest business problem, which is converting HBO users to HBO Max users. So adding a few hundred thousand new users is a win. Future events like The Friends reunion–in particular–should help further.

M&A Updates – The DoJ Is Preventing a Dish and DirecTV Merger

Not all M&A deals are getting approved. (Though it likely doesn’t help AT&T that they angered the current administration by owning CNN.)

Visual of the Week – Netflix Produces 3.3% of Its Top Streaming Shows

Over the last six weeks, Nielsen has released a top ten list of the most streamed series/films by total minutes viewed. I’ve been taking this data and adding a layer of detail on top, specifically who produces and who distributes what shows on Netflix, Amazon and so on. Now that we have six weeks of data, we can start to parse some insights. 

(Thanks to Kasey Moore of Whats-On-Netflix for saving the Nielsen lists for me.)

The visual of the week for this week is just a look at who owns what in the streaming wars. Of the 52 billion minutes of TV tracked by Nielsen, here’s who produced what and what shows they own (by parent company):

Screen Shot 2020-10-14 at 8.48.12 AM

And here is the table if you want to see how the sausage is made.

Screen Shot 2020-10-14 at 8.48.19 AM

Now some insights/details.

— Some shows were co-productions, in which case I split ownership between the two companies. Meaning, the percentages won’t add up to 100%, since some shows were counted in both owners’ percentages.
— Two films/series were not on Netflix (The Boys and Mulan), but that only boosts Netflix to 3.3% in “Netflix-only” series.
— I focused on major producers only. The traditional conglomerates. Usually, any of these shows has a bunch of smaller producers attached; I counted who likely paid the production budget.
— I use Wikipedia to determine producers with another source who tracks everything on Netflix by copyright ownership. The closest call was Umbrella Academy, which is also co-distributed by Netflix. However, NBC Universal owns the copyright outright so Netflix will not own it in perpetuity. Moreover, they aren’t listed as a producer, so didn’t make this list.
— That’s really what I’m trying to get at by focusing on producers versus distributors. The idea that who “owns” a piece of content so they can eventually maximize the value of it.
— I can hear the criticism, “Well this list is mostly library content.” And that’s true, but not 100% correct. Even the list of first and second run content by Netflix is almost entirely licensed content.
Seriously, don’t use “Netflix Originals” as a descriptor. It really doesn’t capture the key parts of ownership in content.
— I will run this same analysis on the FlixPatrol data for Netflix’s Top Ten list, but I haven’t had time to do that yet.

Bottom Line: A core thesis of Netflix’s content spend has been to build a “moat” of original content they own in perpetuity. Clearly they have a ways to go before they truly own their content.