Category: Analysis

Why I Think Theaters Will Return in May: Forecasting When Society Can Reopen

A character in The Sun Also Rises described going into bankruptcy as happening “gradually and then all at once.” This apt description has been applied to everything from debt insolvency to failed democracies. 

The US recovery from Covid-19 will likely feel the same way.

Right now, most of the coverage I read is fairly pessimistic and cynical. On one hand, I get it. The US just had an awful winter. Covid-19 will claim 500,000 deaths in the US alone, and that number is growing. Even positive coverage is framed with caution:

IMAGE 1 - Calm Variant Storm

IMAGE 2 - Experts Still Worried

IMAGE 3 - Reopening v03

On the other hand, doesn’t the US have a lot of good news on the Covid front? Is this pessimism still warranted? Forecasting doom and gloom could be as inaccurate as forecasting sunshine and roses. Where are we really headed as a society? Given the huge implications for the economy, this is a tremendously important question that very, very few people are answering:

When will society reopen after the vaccine rollout?

For my purposes, a lack of forecasting about the future is particularly painful. While lots of entertainment is consumed at home (TV, streaming, video games) lots more is experience live and outdoors (theaters, concerts, sporting events, theme parks). As I usually do when I can’t find an answer to a question I need to know, I tried to answer it myself. 

So here’s a report on what I found. The outline of this (long) article is roughly:

– Bottom Line, Up Front
– The Problem: the legal/regulatory thresholds for society to reopen
– The Assumptions/Inputs: the key assumptions/inputs to build a reopening model
– My Hypothesis: Effective vaccines widely distributed will crush the death toll
– The Model: My results!
– The Key Metrics To Track Going Forward

Let’s get to the results.

Bottom Line Up Front

I’m optimistic that theaters will be open by May 7th across the US, including New York and Los Angeles, the day Black Widow is set to premiere in the US. Black Widow itself may not premiere on that date, though whether or not it moves dates in the next few weeks will be driven by uncertainty, since Disney will have to make the call in about four weeks.

After building a vaccine distribution model (with three scenarios), I’m confident that by early May, between 33%-44% of the population will be fully vaccinated, and up to 61% will have had a first dose. Given the initial data that even one dose provides nearly full efficacy, this level of vaccination will likely decrease deaths and hospitalizations by 76% or more.

It is much more uncertain what the volume of cases will look like by May 7th. The key metrics to focus on, for studios and other entertainment companies, will be the pace of vaccinations, the current case loads, and the rate of death.

(Initially, I had a series of caveats to this controversial article. I can hear the skeptics, “You’re not an epidemiologist so why should we listen to you?” To save space, I’m moving those to their own future article. To address the key caveat, yes, I’m not an epidemiologist. 

Frankly, most companies cannot afford to hire epidemiologists to forecast disease outbreaks. And even if they could, as we’ll see, their models have their own uncertainty. Instead, many companies will likely have their strategy teams doing this analysis themselves and/or rely on models from companies like McKinsey/Goldman Sachs, which are, you guessed it, put together by people like myself. The difference is I make my models/methodology public.)

The Problem: When Will Theaters Open Specifically?

Today, I’m focused on the movie theater problem. (Hopefully, I’ll get to sports and concerts in future updates.) The problem for big studios is distribution: when they release a big tentpole film, they want it widely available. Specifically, this means Los Angeles and New York, and other big cities. They’d ideally want theaters at 100% capacity, but would likely accept 50% capacity constraints.

Thus, the question is whether those specific cities (and America broadly) will be mostly reopen by May 7th, which is when Black Widow premieres. (Or Memorial Day weekend, 28-May-2021 when Fast 9 is set to premiere.) The studios will need to make this call about eight weeks prior, so that they can schedule promotional advertising campaigns. Disney has said they’ll likely make the decision on Black Widow in the middle of March.

To reopen theaters, local counties will need to have Covid outbreaks under control, using whatever guidelines local states have established. In California, for example, this is a series of “tiers”, of which Los Angeles is firmly in the first, most restrictive tier. From the Los Angeles Times:

IMAGE 4 - Reopening v01

And our status under those definitions:

IMAGE 5 - CA Status LA Times

(Though, like all things Covid-19, there is actually a more restrictive tier of “stay-at-home orders”. California’s stay-at-home order was lifted in January.) 

Tying this to theaters, in California, “red/tier 2” counties can have theaters at 25% capacity or under 100 people, whichever is lower. “Orange/tier 3” counties can have 50% capacity or 200 people, whichever is lower. “Yellow/tier 4″ presumably would be fully open.

Covid Act Now, uses a different set of guidelines, and you can see how various metro areas stack up:

IMAGE 6 - Covid Act Now Metro

No matter which numbers you use, the same basic correlation is the same: The lower the number of cases, the more indoor businesses which can be open, which includes theaters.

As cases decline, so do deaths, after about a three week lag. Crucially, as vaccines are widely distributed, deaths may decline even further and faster than cases. If deaths drop and stay low, even if cases come back, some folks could argue that the values of reopening society outweigh the risks of disease spread. (In short, if a pandemic is raging, but no one is dying, is it a pandemic?)

So really there are two scenarios for reopening. One is the “public health” requirements, which means eradicating cases. The second is the “demand side” requirement, which is that deaths and hospitalizations are low enough that society wants to reopen.

The Key Assumptions/Inputs

The reason I couldn’t build a model before 2021 on Covid-19 was that forecasting the pace of the disease was nearly impossible. With so much uncertainty and unknown variables, most models have failed to effectively forecast what will happen in the next two to three months. 

Vaccines, on the other hand, are an easier modeling challenge. We have fairly reliable data sets on distribution and fairly robust (and growing) knowledge about how effective they are. Let’s explain those inputs/assumptions.

Input 1: The pace of vaccination is increasing in the US, and could accelerate further.

No matter how you slice the data, the rate of vaccinations is growing in the US, and it’s a story that most outlets mention, but with the pessimistic caveat that everyone wishes they were even higher. (Yes, we do.) But they’re getting higher every week. In a few weeks, they will be shockingly high. Here’s Our World in Data’s look:

IMAGE 7 - OWiD Vaccine Rate

Or take Kevin Drum’s take, looking at peaks:

IMAGE 8 - K Drum Update

The US was able to double vaccination capacity in ten days starting in January 4th (350K per day, seven day average) to January 14th (700K). I start with January 4th, since that’s when most healthcare workers returned from Christmas break, and all state and local governments focused full-time on the vaccination program. Then, it took 26 days to double again (from January 14th to February 9th). Depending on when we get to 2 million doses, it may have taken only 30 days to have doubled from 1 million doses to 2 million. (We’re currently at about 1.7 million per day.)

We will likely be delivering two million doses per day, as this week the Biden administration committed to delivering 13.5 million doses to states at a minimum. On top of this, the Biden administration is delivering two million doses directly to pharmacies and one million doses to community health centers. If all those doses are used next week, we’ll exceed 2 million doses administered per day. Further, the CDC expects 200 million total doses distributed to states by the end of March, which implies a daily rate of 3.5 million doses per day in March.

Input 2: One Vaccine Dose Begins Providing Protection

The initial data from the UK and Israel shows that even one vaccine dose provides a high level of protection. This does not mean individuals shouldn’t get a second booster shot. They clearly should. Very likely, though, the first dose provides immediate impacts on infections, hospitalizations, deaths and even transmission. More and more data is coming out which supports this conclusion.

Input 3: The Covid-19 vaccines work. Extremely well.

It seems crazy to have to repeat this, but it should be noted that the vaccines work really, really well. You probably saw this tweet from Brown epidemiologist Dr. Ashish Jha, but it’s worth repeating:

Moreover, studies conducted in the United Kingdom and Israel on vaccine roll outs confirm the efficacy of these vaccines. In addition to preventing symptomatic illness, the vaccines also drastically reduce hospitalization and death. Finally, initial data also suggests that in addition to preventing death, it looks likely that the vaccines prevent transmission to other individuals.

Input 4: Covid-19 is most severe for older individuals, who the US is prioritizing in the vaccine rollout.

While the coronavirus can and does kill all ages, one of the more clear trends is that the virus disproportionately kills older individuals. Here are a few looks at this:

IMAGE 9 - Deaths by Age

IMAGE 10 - Deaths by Age v02

Fortunately, in January, after vaccinating healthcare workers, the CDC changed guidance to focus on high-risk (meaning older) populations. This means the impact of effective vaccines will be even greater than general distribution because it will decrease hospitalizations and deaths of those most likely to be hospitalized and die. 

If we can achieve high levels of vaccinations in those groups (say 80% of a given age population vaccinated) then the results will be dramatic. Vaccinating 80% of individuals over 75 will lower total deaths by 48%, individuals over 65 will lower deaths by 65% and vaccinating individuals over the age of 50 will lower total deaths by 76%. (And if we can achieve 100% vaccination in the most at risk groups? We’d lower total potential deaths 95%!)

Input 5: The current lockdowns are having a dramatic effect.

Meanwhile, as the Covid Tracking Project’s data show, the number of cases are plummeting in America. The declines are dramatic:

IMAGE 11 - Covid Tracking

Whatever the cause—lock downs, seasonality, growing natural immunity, some vaccine prevention—this is very good news for the United States. It means cases are trending down, right when vaccine distribution is ramping up.

Input 6: Case rates by population

To understand the impact on cases, beyond deaths, it is important to know how cases are distributed in the population. Unlike deaths, cases are fairly well aligned with the population. Meaning, folks will test positive for Covid-19 roughly correlated with their percent of the population. 

IMAGE 12 - Case and death and population

This is important because it could mean that as vaccines are rolling out to younger populations, the case rate could flatten or even increase, but deaths will not. There is already evidence that case loads are dropping in certain age groups in the UK, Israel and US, but as you can see that may not impact the overall case load significantly.

My Working Hypothesis

Add these inputs together, and this is my working hypothesis:

If current lockdowns can drive down cases…
Which will drive down hospitalizations/deaths…
And if the United States can vaccinate the highest-risk groups…
And if we can continue to increase the vaccines distributed per day/week…
Since vaccines prevent deaths and hospitalization…

Then once we get the current hospitalization rate down, it will stay down until the next flu season (next November or December). If hospitalizations are down, deaths will stay down as well.

This will allow states to reopen, including theaters.

The Model

So that’s the working theory. Let’s turn this into a model.

Step 1: Vaccine Distribution

To start, I sketched out some vaccine distribution scenarios. To start, I drew a linear model in vaccine distribution to see how it was growing. Then, I made a simpler second model based on potential vaccine supply. This weekly model uses big round numbers, but is more aggressive than the linear model and based on CDC guidance about distributing 200 million doses by the end of March. Lastly, I made a very conservative model based on plateauing vaccine supply at 2 million per week starting in February. 

First, here’s the linear model to show the logic:

IMAGE 13 - Scatter Plot

Here’s the table of doses by week:

IMAGE 14 - Table per Day

And a chart of that…

IMAGE 14 - Chart

That’s a lot of number, so here is a summary by month of the “reasonable” model.

IMAGE 15 - Chart

The monthly model confirms that vaccine makers could indeed hit the aggressive targets. I built the conservative model based on misreading the director of the CDC Rochelle Walensky estimating that we’ll have 200 million doses by the end of March. (I thought she had said 200 million by the end of April.) At a rate of 200 million doses by the end of March, the CDC is basically forecasting that we’ll be vaccinating 3.5 million people per day at some point in March. That’s my “reasonable” but aggressive model.

Step 2: The number of vaccinated individuals

So that’s the first step. We can reasonably forecast how many doses we’ll have distributed by future dates. Yet, some folks will insist on distinguishing between shots and those who’ve been fully-vaccinated. I went further and also calculated those who will be two weeks from their first dose, since data shows this too provides quite a bit of protection. Specifically, we need to know these dates by the start of May, our presumed launch of Black Widow, 

Here is my rough counts for those, and to put them into context, the percent of the population over the age of 18 who would be covered:

IMAGE 16 - Numebr Vaccinated

IMAGE 16 - Chart

(Why over 18? Because the vaccine is only approved for those 16 and over, and Covid-19 has very little impact on ages younger than that. Plus, frankly, it is about 250 million individuals which is a nice round number.)

In the worst case scenario, by the time Black Widow premieres, only 30% of the population will be fully-vaccinated. 

However, in the best case scenario, if you include natural immunity, one dose vaccines and count folks who are two weeks from their first shot, then up to 69% of the population will have immunity to Covid-19. So we’ll be on the verge of herd immunity by the end of April!

Let’s be clear on these assumptions:

– Some portion of Americans have already had and recovered from Covid-19 acquiring natural immunity to it. This floor is at least 27 million confirmed cases. (About 10% of the population.) The high end is unknown, but Harvard epidemiologist Michael Mina’s forecast is 40%. Let’s split the difference and call it 20%.

– I used the date five weeks prior since Moderna is three weeks, then two weeks to be fully effective. Yes, Pfizer is four weeks, but again this difference is minimal overall.

Step 3: The number of deaths prevented. 

Again, the impact of Covid-19 is not equal across the population. It is very much tilted towards older individuals. Meaning, when they are vaccinated, the odds of dying from Covid-19 decease by 92% or more.

To figure out how to vaccinate the right folks, I simply took the CDC data and 2019 census information, and assumed an 80% vaccination rate:

IMAGE 17 - Deaths and Cumulative Distribution

In other words, to prevent 76% of deaths, we need to vaccinate 80% of everyone over the age of 50. The key assumption is that we can achieve 80% full vaccination by group. Most surveys put vaccine hesitancy at 70% of the population, but only about 10% is hard core obstinacy to any vaccine. So I took a number in the middle.

So how many people do we actually need to vaccinate to get to that 3/4th decrease in total deaths going forward? Well, here you go:

IMAGE 18 - % Needed to Vaccinate

Of course, not all doses will go to healthcare workers and individuals over the age of 65, especially as counties and states begin vaccinating more essential workers. (Like Los Angeles, who is moving onto food workers, teachers and remaining public safety officials after those older than 65.)

Given the vaccination rates above, we can see that it is very, very likely we’ll have fully vaccinated 40% of the population with either one or two doses, including most healthcare workers and folks over 65. A big portion will also likely be those 50 to 65. If we include people getting only 1 dose of Johnson & Johnson, then we’ll almost certainly have vaccinated all high risk groups.

My model forecasts that by May 7th, we’ll have lowered the ceiling of potential deaths by 76%. If this widespread vaccination results in decreased case loads and transmissions, the actual death rate could be much, much lower. This is essentially the “ceiling” of deaths.

Step 4: The Los Angeles Specific Model

This model, so far, has only addressed vaccinations and deaths. What about cases?

As I set up in the problem, the primary criteria to release Black Widow (and other big studio films) in theaters is whether or not the coastal cities are reopened. To answer this, ideally, I’d build a model forecasting cases in both of those cities. Given that I live in Los Angeles, I pulled the numbers there to see how far LA is from reopening. I’m assuming that Los Angeles and New York are roughly correlated with each other, and their outbreaks are also roughly correlated with national outbreaks.

(This assumption is both fine and could be horribly wrong. The “summer surge” mainly took place in “Sun belt” states, whereas the first surge took place in north Eastern states. However the last surge took place in every state simultaneously.)

I showed Los Angeles’ current performance on state re-openings, but it’s worth noting that most metrics are tied to case loads. If it goes down, ICU capacity, case positivity rate and the equity will trend downward as well. Here’s the current case trend line:

IMAGE 19 - Case Trend Line

Now the question is can we model how vaccine distribution could impact case levels going forward?

And no, I don’t think we can. 

I’ve done a lot of forecasting so far, but every number is from a fairly reliable source. The vaccine distribution plan is fairly well reported, and its growth is easy to forecast. (Again, look at that straight line!) The impact of the vaccinations is also fairly well known. Thus, we can confidently predict a coming drop in deaths that will stay low, if we vaccinate the most at risk groups.

Cases, though, are a different ball game. 

Just look at US trendiness in the past. If you started in the middle of October, and just extrapolated forward, you’d have missed the December spike. Or if you started in the middle of January, you’d have forecast cases to stay high. This actually happened with the CDC forecast. In the middle of January, their model of models forecast 1.5 million cases by the middle of February, with a floor over a million.

IMAGE 20 - Forecast

Instead? Cases are currently at 600K and falling.

IMAGE 21 - Cases Feb

I don’t blame the CDC. Modeling seasonality, societal behavior and mostly a brand new virus is incredibly tricky, and these epidemiological models have trouble with it. Again, no blame here from a fellow modeler. I’m just acknowledging the limitations of modeling.

Add it up, and I won’t forecast the case rate/total cases in Los Angeles by the beginning of May. There are too many unknown variables. Indeed, I think both the best case (cases stay very low, due to natural immunity and expanding vaccinations) and the worst case (case rates rebound after widespread reopening, potentially driven by more transmissible variants) are both possible by May. The only thing I am fairly confident (as steps one though three show) is that deaths will stay down. 

At best, what we can say is that as vaccinated rates go up, the peaks of the worst metrics will be limited. Think of it like this: the infection rate is the number of people an individual with symptomatic Covid transmits it too. If it is 2.5, that means one individual gives it to 2.5 individuals. If half of all the people someone meets are protected from Covid-19, then the max number would now be half of that, or 1.25. 

The Key Metrics Going Forward

Notably, I haven’t provided any probabilities thus far. If I apply probabilities to events two months out, my error bars would need to be very, very wide. Those probabilities wouldn’t be worth much more than guesses. 

Instead, I’m going to provide a scorecard of key metrics. The higher the scorecard, the more confident we can be that society will returning to normal. You can apply your own probabilities based on the numbers. These metrics will have three parts: vaccinations, deaths and case loads. 

Screen Shot 2021-02-18 at 5.02.44 PM

I plan to think on these metrics a bit before I do an update, hopefully next week. As I said, I won’t provide predictions, except for the vaccine roll out, but will color code which metrics are moving in the right directions.

As I said at the start, if you read all the way down here, as vaccine distribution picks up, the Covid-19 pandemic will end gradually, then all of a sudden.

In the meantime…

Please do whatever you can to prevent the spread of Covid-19, focusing on the best practices at preventing spread. 

1. Wear a mask. In fact two, or the highest quality you can afford.
2. Avoiding indoor gatherings until you are fully-vaccinated.
3. By all means, get vaccinated as soon as you are able to.
4. Help older relatives get their vaccinations by whatever means necessary.
5. Spread positive news about the efficacy and safety of vaccines and that they will enable our society to reopen. Vaccine hesitancy is driven by vaccine skepticism, a large amount of which is coming from the media. This includes skepticism about how vaccines prevent hospitalizations and death. Do your part to spread the good news and not Covid-19 hysteria.

Sources

I linked to most data I used to put this together. However, a few websites provide regular updates. I recommend…

Our Wold in Data
Covid Act Now
The Covid Tracking Project
The Los Angeles Time
Bloomberg Vaccine Tracker
Nate Silver’s Twitter feed, who close followers will recognize a few tweets from.

Another Aggregator Leaves Another Bundler – Explaining ViacomCBS Ending Their Apple TV Bundle – Most Important Story of the Week – 12 Feb 21

The goal this week? Keep this column under 2,000 words and not split into two parts. Can we do it? Sure. Even better? We can do it with a story most folked missed! The only challenge will be restraining myself on Covid-19 thoughts. Let’s get to it.

(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next issue goes out early next week.)

Most Important Story of the Week – ViacomCBS ends their Apple Bundle

The news, reported by 9-5 Mac, is that the first Apple bundle (CBS All-Access and Showtime for $10 if you have Apple TV+) is no longer being offered by Apple. When this deal was first announced, I hailed it–fine, hailed is too strong, but noted–that this was the second bundle after the Disney only bundle. 

At the time, though, I still had worries/concerns. Frankly, could Apple TV+ drive enough new subscribers to offset the huge discount offered? And who was paying for the clearly massive discount offered? And would CBS ever learn they needed to control the customer experience?

Well, my skepticism was warranted. The CBS bundle on Apple TV is already over.

And it died because ViacomCBS knows it needs its streamer to thrive outside of the bundle.

I’ve been pushing this thesis since 2019. While most coverage focuses on the war between streamers, the bigger battle is between the streamers and the device owners. For those who haven’t read my big take on this, take a gander at this map:

image-7-video-value-web-1

Aggregators are anyone aggregating content for customers. The steamers are included (like Netflix, HBO Max, Peacock, Prime Video, Disney+, et al) but so are the FASTs (like Pluto TV and Tubi). But using this language, old fashioned cable channels are aggregators of content and so are virtual channels. These are the folks aggregating a curated selection of content, usually tied to some brand.

So what’s the difference between an aggregator and bundler? Well, the bundler offers you the bundle of aggregators. This could be a cable channel or, in the digital sphere, the device or operating system that is bundling streamers for you. Roku, Amazon, Apple, and Google all want to bundle experiences for you. I’ve speculated that Comcast does too.

This the Holy Grail for bundlers: move just upstream from all the streamers to take over the user experience, data, payments, you name it, from the streamers. With that power ultimately comes the profit maximizing position too. 

Indeed, if you want to know the downside for Netflix in a nutshell, it’s this thesis. If customers ultimately have to have more than one streamer, they’ll want one experience for all their content. If Netflix loses their UX, data and content advantage–if another bundler essentially takes over as the brand–then they’ll no longer have pricing power and the whole “flywheel” collapses into, well, whatever a broken apart flywheel looks like. But that’s the risk. Right now, Netflix controls the whole customer experience and owns the “TV Habit” for many people. Bundlers want that control, and some have hundreds of billions to spend in this mission.

Hence, the streamers are fighting like hell to keep everything separate. Understanding this battle explains quite a bit of the positioning of the streaming wars:

HBO Max didn’t do deals with Roku and Amazon Fire TV until it could control the UX and where their content was played in their application. They also wanted access to customer data.
– Netflix was touted as being a part of Google’s new Chromecast, but Netflix pulled its content from Google’s front page.
– Peacock still hasn’t come to terms with FireTV. (I’ve speculated Comcast would like to be a bundler too with their Flex operating system/device.)

The Paramount+ launch gives SuperCBS the opportunity to abandon the poor Apple TV+ decision. Likely Apple underwrote the cost, but the deal didn’t have the promised returns. Given that Apple TV+ was a small part of CBS’ total subscriber base, this is likely a fine move:

unnamed

And frankly this is the right strategy for any streamer of a certain size. While likely the bundlers will eventually win, the top tier streamers need to fight as hard as they can to control the experience. The combined ViacomCBS streamers are just big enough in the US to compete, as long as they don’t make any more strategic mistakes. (My rule of thumb is traditional studios have the libraries to compete; the viability threshold is likely getting to 40 million or so US subscribers. Anything smaller will likely get sucked up into bundlers.)

Interestingly, while many media observers hate on bundles, customers love bundles. Both the 9-to-5 Mac story and the Google Chromecast story feature complaints that the Apple or Google bundle are better than being bounced around to several apps. The unified experience is just objectively better for customers, but it’s also much worse for streamers. 

Thus the next few years will be a battle between bundlers and aggregators, with bundlers offering a better product, but streamers fighting like hell to stop it. It will be fascinating to see who wins.

Entertainment Strategy Guy Update – When Will Movies Return?

Like clockwork, it’s another Friday and there is a Variety article asking, “When do F9 and Black Widow move dates?” The crazy thing is the Variety article isn’ tasking “if” they will move, but “when”. Given that since last March, the story has only been one of moving release dates, on one hand, it makes sense they’d move dates again. 

But is this math still right?

A way to consider this is like a regression equation. You take a bunch of data, and test to see if it’s correlated with something you want to predict. In this case, there have been a lot of Covid cases in the US. These cases kept theaters closed. There are currently lots of cases in the US. Therefore, extrapolating out, theaters will stay closed. (Indeed, Variety says “under current circumstances” theaters are nowhere near max capacity. Will current circumstances be the same as future circumstances?)

This math only works, though, if all the drivers of Covid-19 cases stay the same. To use the legalese boilerplate for investment advice, past returns may not be predictive of future performance!

And right now the biggest new variable is the number of folks getting vaccinated every day. The most important fact in vaccinations that–while every article written has to obligatorily mention they are not high enough–vaccinations are steadily growing every week. 

Screen Shot 2021-02-12 at 12.16.25 PM

Pair this with a big drop in cases, hospitalizations and (given the two to three week lag) deaths, then the key question is whether these trends–closed theaters in particular–will still be true in May. Yes, 9 months is a long way away. 

Specifically, May 7th, the tentative launch of Black Widow. A date that is both closer to and farther away than it seems. If Disney wants six weeks of promotional activity, they need to start advertising by the end of March. That’s not long! On the other hand, we still have almost three full months to vaccinate folks and open theaters. 

Which is why I listened closely to Bob Chapek on Diseny’s earnings call. He echoed Dr. Anthony Fauci in anticipating that the general population could be vaccinated as early as April. Indeed, only two weeks ago Fauci wasn’t anticipating that the general US population would be vaccinated until mid-summer. That’s because the current administration is absolutely under-promising so they can over-deliver. In Fauci’s case, he said, “If current vaccination rates hold, we won’t be vaccinating general population until the summer.” But, as he surely knew, vaccination rates were not holding. They’re growing every week! Again, over-delivering on under-promising.

If the general population is getting vaccinated, and presumably all the high risk groups have been vaccinated, then it seems fairly reasonable that deaths will be very low by May, meaning theaters could reopen in New York, Los Angeles and other big cities. 

But will they? And if not, does Black Widow move back again? 

Honestly, I would still bet on that. It’s easier to assume studios will be more risk averse than not. They want a guarantee of theatrical revenue. Or does Disney won’t move Black Widow, but add the “Premium Access Window”. Any and all of those options are on the table.

But part of me is much more optimistic than the coverage I’m reading. We could be fully-open by May, and most folks aren’t ready for that level of positivity yet. Maybe not concerts and sporting events, but indoor activities? Potentially.

Let me be honest, this is my second attempt to write this section. The first version went for 1,600 words and included my scenarios for Covid-19 cases and deaths in the US. So it got cut for space. But when I run the math, especially looking at the growth in vaccination rates, I’m much more optimistic than the news coverage.

Other Contenders for Most Important Story

Sundance Sets Another Record Sale at $25 million

It’s unclear to me if this means the whole market is healthy, but my gut is that the ongoing need for content by the streamers will likely make the virtual Sundance a success. It seems like quite a few films have sold, but we don’t have holistic data on sales at Sundance year-to-year. As I wrote on Linked-In before, basically one or two deep pocketed buyers can make the market, and Apple TV+ is playing that role this year

Cinemascore Will Update Their Measurement for Streaming

Cinemascore provides one of the better qualitative measurements of a film’s performance by customers. So I like using it when I can. Of course, streaming and lockdowns make it much harder to poll audiences leaving a theater, so they’ll have to adapt. They claim to have a plan for that, which could be great additional data at our disposal. Hat tip to Sonny Bunch for finding.

HBO Max News: Launching in Latin America and More Animation

HBO Max is preparing for its first international roll out, starting with Latin America. From what I understand, HBO as a brand is already strong in that region, and given the language similarities it can be easier to launch. As such, this move makes sense and it will be fascinating to see if HBO Max can drive a similar boost in global subscribers as Disney+.

Meanwhile, given the pandemic lock down, HBO Max will be filling a lot of their future pipeline with animated content. Hat tip to Lesley Goldberg for the deep read on this.

Disney+ Keeps Growing

With Disney’s earnings report, we should have all of our contenders for US subscriber counts updated. I’ll do that in a future article. However, for now, we can say that Disney continues to drive big customer growth via Disney+, with slower growth by ESPN+ and Hulu. Currently, Disney is over 94.9 million customers for Disney+ globally, which is frankly huge. They added 8 million folks in the last month. Also, it turns out that the skeptics who thought the Verizon free deal was terrible for Disney+ and would lead to huge subscriber churn were, frankly, wrong.

Lots of News with No News – Warner Bros and NBC-Universal Vague Merger Speculation

Let me be blunt: mergers are not a strategy.

Mergers can be part of a strategy, but they are not strategy in and of themselves. What they are, though, is easy. And flashy. So lots of folks love to speculate about who could buy whom and for how much.

Frankly, this is easier than doing real strategy, which is understanding your company’s strengths and weaknesses, understanding the marketplace, understanding customers and developing products and businesses to deliver on a value proposition. That all takes work! Instead, we could just buy our competitors.

The latest edition of this is the simplistic idea floating around that either Comcast or AT&T should buy the content arm of the other or both spin them off or something.

Yawn.

Right now, both Peacock and HBO Max are executing genuine strategies. (I like Peacock’s more, but both have strategies.) Merging entities is the easy–and usually poor–version of strategy. Indeed, aren’t Comcast and AT&T both living examples of merger-as-strategy gone wrong?

Nielsen’s New Top 30 Streaming Video Ratings…Explained! Plus a Visual of the Week

Starting last August, Nielsen began releasing a weekly American top 10 most watched list for streaming video. I’ve been using it ever since. Nielsen mixed together TV and movies, and new (“originals”), second-run and library (“acquired”) on the same list. 

In their year-end top ten list, though, Nielsen flipped the script and provided three different top ten lists. Formatting mine, with hours instead of minutes:

IMAGE 1 - Nielsen Top 10 2020

This was a sign of things to come. Starting with the week of Monday, December 28th, Nielsen is now publishing three top ten lists, one for “original” TV series, one for “licensed” TV series, and one for film. 

(Man that’s a lot of definitions. In the future, I’ll define them all. But for now, this article from 2019 has a good explanation of the definitions I use to analyze content.)

Whenever a firm changes their data definitions, I tend to get extra cautious doing analysis. For example, when Netflix went from calling a view “2 minutes watched” from “70% viewed” a lot of folks continued as if nothing had changed in the numbers. This violates the number one rule of data analysis: keeping things apples-to-apples. (My solution was to convert all the numbers to the same metric, using Netlfix’s average 35% inflation between the two numbers.)

That’s a worry here. Unless Nielsen provides me with an expanded database going back through 2020, most of our data will now be cleaved into “2020 Top Ten” data and “2021 Top 10×3” data. Thus any analysis of 2020 to 2021 data will need to factor in that it may not be “apples-to-apples”.

But…

…this is still great news.

Here is the the synthesized Nielsen top ten list for the last two weeks of Nielsen data, if Nielsen had continued the old methodology:

IMAGE 2 - Top TenIMAGE 3 - Top Ten

Now, we can compare this to the new, combined top 30 lists:

IMAGE 4 - Top 30 List

IMAGE 5 - Top 30In other words, that’s a lot more data to parse! More data means more analysis! More analysis means more insights!

Previously, any of the data from The Mandalorian on down in the week of December 28th and all the titles from The Crown from January 4th would have been invisible to us. Moreover, we can confidently say that this list is a clear top 23 list one week and a top 21 list the next. (Basically, anything above the first “10” on the list by logic is in order.) 

Overall, this expansion should greatly help our understanding of how content is performing in the streaming wars:

– Previously, original films on Netflix and Disney all dropped off the Top 10 list after two weeks. This will allow us to track film decay with greater fidelity. (For example, The Midnight Sky would have only had one week of data before.)
– We’ll also get more films on the list, being able to clarify which films underperform their openings more often. (For example, We Can Be Heroes made the list.)
– This will also let us track TV series decay as well. As we’ve written before, four of the ten top spots in this list were usually held by licensed second-run and library content on Netflix. This essentially gives us 10 or more original titles to review each week. (For example, The Mandalorian would have dropped off the week of December 28th. The Crown would have dropped off the week after.)
– More spots should potentially allow more non-Netflix series and films on the list. This will allow us to compare performance trends between the streamers as well. Right now, Disney+ and Prime Video shows dropped off after a week or two. This will enable to track their decay as well.

For example, in the past Soul would have just eked out staying on this list. (The first film to make the top ten for three weeks in a row.) But The Midnight Sky (72 million global 2 minute views, Netflix revealed in their earnings report) would have dropped off. Same with We Can Be Heroes (53 million global 2 min views) would never have made the list. Now I can make this chart:

IMAGE 6 - Feature Film Decay

Interestingly, all the films featured big drops in viewership (44% for We Can Be Heroes and 56% for The Midnight Sky), but Soul didn’t see its big drop until week two to three (61%).

As a reminder, Nielsen doesn’t track HBO Max data yet, so we don’t know how Wonder Woman 1984 fared in its second week.

Visual of the Week – Netflix Films Do Much Better Weekly; Disney+ Films Do Better All Year

When Nielsen only released a single top ten list, films only made the list when they were newly released, such as Mulan, Borat’s Subsequent Moviefilm and Netflix’s regular releases. As such, when Nielsen released a cumulative top ten list for film in 2020, the results were very skewed towards Disney’s rewatchable films:

IMAGE 7 - Nielsen Top Ten FilmWhen we look at the weekly rankings of movies, the Disney dominance isn’t quite as strong:

IMAGE 8 Various Top TenWith a now weekly top ten list, we’ll be able to get a different perspective on the competition between Disney and Netflix for, frankly, kids viewership. Some insights:

– Kids programming still dominates the film list. For this week, 11 of the top 20 are targeted at kids. And one is a teen comedy. (17 Again)
– Netflix does better in a weekly top ten, due to their size. Indeed, this shows that the split between Disney+ and Netflix is much closer in kids content than it seems. However, Diseny+ does seem to still be winning.
Rango was misidentified as being on Prime Video. It is currently on Netflix exclusively in the US. Nielsen has confirmed this.
– That said, it does look like Amazon did get one genuine film on the list with Catch Me if You Can. It’s their only entry in the three top ten lists for the last two weeks.
– Interestingly, like original TV, Netflix’s films are skewed towards new releases. Of the 13 Netflix films on the list the last two weeks, only 1 was released before December 25th, which was The Croods. Thus we can see that whereas Disney+ sustains interest in their small library of kids content, Netflix relies on recent releases, even on licensed kid content.

The Christmas Chronicles Was Netflix’s Most Watched Film in the US in 2020 and Other Data Thoughts from “Who Won December”

December was a big battle in the streaming wars. The Christmas Day/end of year is becoming increasingly important to the streamers since it is the last time to grab subscribers before annual reporting. This is why the latest installment of my “Who Won the Month” series at Decider may be the most important one of 2020. 

So check it out!

To keep that article flowing, I ended up cutting a few insights/thoughts from that article that still felt good enough to share. Consider this the “DVD extras” addendum to that great piece. (Seriously, read it before you continue.) 

Other Contenders That I Didn’t Mention

The biggest drawback to a word count is having to cut a few shows from contention. Last month that mainly meant some shows from the smaller streamers. CBS All-Access released their latest Stephen King thriller The Stand. (It had a peak of 9 on Google Trends.) The challenge is a word like “stand” is fairly generic, so it just may not be picked up in the Google Trends data. However, on IMDb, its ratings are 6,600, so likely it isn’t really catching on. Showtime released Your Honor, but it didn’t really budge the popularity needle.

Apple TV+ focused on kids in the holidays, airing both A Charlie Brown Christmas and Wolfwalkers. Again, I didn’t really see the Wolfwalkers trending. (Charlie Brown is too generic.)

Caveats to IMDb Data

For the first time, I compared shows using IMDb ratings data. I both want to explain how and why I used this data source and also some other insights into last month’s results.

The “why” is because I love capturing qualitative feedback on a given show or film in addition to viewership. In particular for TV, this can be somewhat of a leading indicator to forecast if subsequent seasons of a show are going to build momentum or begin to flag. This applies to TV series as well as film franchises. Especially for franchises, actually. A big marketing campaign can result in a strong opening weekend, but if the IMDb ratings are low, then eventually the series will decay in viewership. (See Fantastic Beasts or The Hobbit series for some examples.)

As for how, I tend to use both the rating itself and the number of ratings. The number of ratings is fairly correlated with viewership overall. Thus, if you don’t have viewership itself, IMDb can act as a proxy, like Google Trends. The actual rating itself (the 1-10 numbers) doesn’t account for small but well-liked films and TV series. My approach is to make a scatter plot, and see which films are in the upper right: lots of reviews and high ratings. (If you want to pay for it—and I can’t afford it—IMDb page traffic is also a good proxy.)

Now the caveat: some folks hate using IMDb ratings because online trolls have attacked certain films.

You can see this in Wonder Woman 1984. While it has nearly as many ratings as Soul, its average rating is much, much lower. Which raises the question of whether or not Wonder Woman 1984 is being intentionally dragged by trolls online. And this is the main problem with IMDb data: some folks will intentionally drag down shows for political reasons, which skew the value of this data source. 

But I won’t throw the baby out with the bath water. Because it’s the best publicly available, qualitative data set we have.

Rotten Tomatoes and Metacritic are probably the next two biggest review sites, and their numbers are orders of magnitude smaller than IMDb. The caveat here, of course, is that larger sample sizes of biased data are still biased, meaning that doesn’t justify using IMDb. The problem is that for Rotten Tomatoes and Metacritic, their sample sizes in many cases aren’t big enough to be representative. I’ve considered using Amazon ratings, but in that case some films are available in streaming, but some are available for free and some are available for purchase. This makes ratings not apples-to-apples, and that’s before the fraud problem with Amazon ratings.  

So when I use IMDb data, I tend to accept its shortcomings and use it carefully. To start, I know IMDb tends to skew “genre” in its ratings. This means for shows like The Expanse or Wonder Woman 1984, I’d say the reviews on IMDb are relevant. Since The Expanse has done well on IMDb, that shows some genuine fan interest. For something like Bridgerton, I’m less concerned if its score is weak.

Then, I try to figure out if a given show has been dragged by potential online trolls. When they have—eg The Last Jedi, Black Panther or Captain Marvel—I just wouldn’t use those ratings. Though don’t go overboard: don’t pretend that every poorly rated film is just a victim of online trolls. Some films are bad and fans don’t like them.

For Wonder Woman 1984 specifically, while I haven’t heard of any specific campaigns, on another user review site, Rotten Tomatoes, Wonder Woman 1984 has done better than its IMDb score. This likely indicates there is some intentional downvoting, but even with that it is unlikely Wonder Woman would have been a 8.0 or higher film.

IMAGE 1 - RT vs IMDb for Wonder Woman

A score of an “8” on IMDb tends to separate the merely good from the great. Meanwhile, The Midnight Sky did poorly in both locations. So it may be widely watched, but folks didn’t really love it.

(Also, never use the Tomatometer. That has very little nuance since it simply measures “good vs bad”.)

Did Netflix Have a Good December?

Probably, but not as good as last year. If you just casually read the news, you heard a series of great Netflix reports, and you’d assume they’re crushing it again.

Fortunately, I’ve collected every Netflix datecdote over the last few years and can put those numbers in context. Here’s the last three December releases that we have datecdotes for from Netflix. (These are films released in December. I’ll look at Netflix’s entire Q4 in a future article.)

IMAGE 2 - NFLX Decembers

The best way to describe this is that Netflix’s top film and top TV show released in December both underperformed their peers who launched last year. This looks even worse in context of the growth of the service during that time frame. The key question every quarter is whether Netflix’s content can help propel growth, or merely hold subscriber counts steady. And it seems to me like Netflix held steady in December compared to 2019.

Did Disney Really Win the Month?

For the first time in December, I didn’t just declare The Mandalorian as the winner in December, I also said that Disney won the month compared to Netflix. Essentially, between Soul and The Mandalorian, Netflix didn’t have a blockbuster show that drove the same level of interest.

The counter could be: but what if you added up every new thing Netflix released? Would it pass Disney by sheer volume?

So I looked for any Netflix series that seemed to generate interest and tried to figure that out. However, even after that, Disney was still the winner:

IMAGE 3 - Google Trends Expanded Look

There is a lesson in here about content planning and “return on investment”. Essentially, Disney could match Netflix for interest with only two hit releases. Now, those two may not generate as much time on the platform as Netflix currently has (their usage is much higher), but as for keeping subscribers, Disney may be able to do that more efficiently. I say “may” because it’s not like the two pieces of content Disney made are cheap by any means. (The Mandalorian may be the most expensive show on TV until Lord of the Rings comes out.) That’s its own form of inefficiency.

This also repeats a point I constantly make about the streaming wars: the best shows aren’t a little better than other shows, but multiples better. Thus, you don’t win the streaming wars with singles and doubles, but grand slams. And in July, November and December, Disney hit a grand slam each month. And with much fewer at bats than Netflix. That is an efficient form of content spend.

November Flashback: What Can Nielsen’s Data Tell Us?

The one drawback to my “Who Won the Month” series is that Nielsen data usually isn’t ready by the time I write my initial article. (They perform better near the month they cover, so I try to write them for the last day of the month or so.) This means that we can now look back and see which calls I made in December are either confirmed or refuted by the Nielsen data. 

So let’s hold myself accountable for my calls:

– Was The Mandalorian bigger than The Queen’s Gambit? I said yes, but according to Nielsen it depends how you count. The Queen’s Gambit was able to sustain higher week to week viewing than The Mandalorian, but Mando outpaced in terms of weeks on the Nielsen top ten:

IMAGE 4 - Week by Week Nielsen Ratings

– So The Crown was big? Yeah, that’s what the Nielsen data says. However, this is partly expected because The Crown now has four seasons airing, so that’s a lot of episodes to catch up on. The limitation of Nielsen’s data is we can’t see season level viewership. (That’s right, they give us some data and I just want more!)

– Did I undersell The Christmas Chronicles? Maybe. According to Nielsen’s data through the beginning of April, The Christmas Chronicles 2 had Netflix’s biggest film launch of this year in the United States by minutes viewed through the first two weeks! (36 million hours to Extraction’s 31.6 million hours in the first two weeks.)

– Did Hulu overhype Run? I think so. Hulu went so far as to release a vague press release calling Run its best performing film launch of all time. The problem for my system is that “run” is so vague that it didn’t register on Google Trends. So I said we’d wait for the Nielsen data to make a final call. When Nielsen released its weekly ratings for Thanksgiving weekend, Run didn’t make the cut.

Nielsen 2020.11.23 copy

– What about The Flight Attendant? At first, I was tempted to say that this HBO Max drama underperformed as well, because it didn’t make the Nielsen Top Ten. Then folks on Twitter (helpfully) pointed out that Nielsen isn’t tracking HBO Max yet. So we don’t know. Though, given that they only track services with a significant volume of regular viewers, likely The Flight Attendant wouldn’t have made the Nielsen top ten either.

My Favorite Ratings Tweet of the Quarter

This comes from Michael Mulvihill, who analyzes ratings for Fox Sports:

I would add, while he’s comparing 60 Minutes viewership to The Queen’s Gambit viewing, but that’s US only numbers compared to Netflix’s global viewership.  (Correction: I initially wrote NFL instead of 60 Minutes. As I’m supposed to say, I regret the error.)

Is Prime Video Fifth Place in the Streaming Wars?: Explaining the EntStrategyGuy’s US Paid Streaming Subscriber Estimates- Part II

(This is the last article in a three part series estimating how many US paid streaming subscribers there are in the US. Read the numbers here, and the first half of the explanation here.)

If you’re wondering, yes, I deliberately wrote three (almost) contradictory headlines for the last two days. In one, Netflix is clearly winning the streaming wars. In the other, Disney is almost winning. In the third, the often second place streamer, Prime Video, got ranked in fifth place. What’s the reality?

Somewhere in between. Or somewhere else entirely.

That’s what the point is for these articles the last two days. Not just to see the current subscriber totals, but to understand the nuances between them. To understand how the numbers interact so we can not just figure out not just who is winning the streaming wars, but what could happen as they get more competitive in the next few years.

Today, I’ll continue explaining how I estimated each streamer’s subscribers, but let’s start with why I did this analysis. At the end, I’ll put some fun charts that summarize this analysis.

The Reasons I Did This Deep Dive 

As I’ve been analyzing the streaming wars, it’s been increasingly clear that this is a war fought on a country-by-country basis. Netflix’s global growth is incredible, but it is only one, likely overrated, part of the story. The actual battles are in individual countries. 

Given how big and important the U.S. market is, it makes sense to start there. Since I’ve been evaluating who is “winning” the streaming wars, I needed to know how everyone is doing in America. Subscribers are one of those key metrics. However, if you search the interwebs, you won’t find a reliable estimate for each streamer. Thus, I needed to build these numbers myself and if I was going to do the work, I should share it here. 

Not to mention, I have a bias against using other folk’s numbers. My rule of thumb is that I don’t trust anyone. Especially if the source of a number is vague/uncertain/biased.

Lastly, I can do this analysis because I’m freed of some journalistic conventions. This website features my thoughts and analysis. Most journalists can only cite specific facts via companies or well-established consultancies/investment research. That’s what leaves most estimates wanting. Since I’m allowed to print whatever I want, I can mix estimates with facts. But I’ll just tell you the difference.

Analysis Continued: How I Determined Each Number

Prime Video

Time for some guesswork. 

As I wrote Wednesday, this will require an estimate of an estimate of an estimate. Or a guess.

First, we have to find the number of Prime subscribers globally. (Itself unknown.)

Second, we have to figure out the proportion who are in the US.

Third, we have to figure out how many actually use Prime Video.

Fourth, we have to guess of those who use Prime Video, how many use it and would pay for it?

Like I said, some guess work!

To start, I looked for US estimates of Amazon Prime subscribers and couldn’t find any numbers I loved. One firm does an annual survey, but they estimated 126 million US subscribers the same month Amazon announced 150 million worldwide Prime subscribers. That’s way too high then. However, the estimate isn’t for Prime subscribers, but folks with access to Prime. (Always ask “What is the ‘what’ in this statistic?”) So you could divide their number by 2.2 (for the number of people per household), and get the potential number of subscribers of around 50 million Prime subscribers in the US. That’s a floor.

On the other end, you could assume Prime membership is related to sales in a given country. Since Amazon breaks out revenue by United States versus Rest of World, we can see that here:

IMAGE 8 - AMazon Rvenue

If that’s the high and low ranges, then what I’ll do is take Amazon’s announced membership in January (150 million), and use some nice round numbers. (And yes, I didn’t model any Amazon growth this year, so yeah, more unknowns on top of unknowns.) 

The next question is how many folks actually use Prime Video. We could use third party sources for that—hang on a moment—but it’s worth building out the sensitivity table just to see how wide the range could be. I made a “Monthly Active” users sensitivity table to give myself a range.

IMAGE 10 - MAUs

If someone uses a service monthly, they are much more willingly to keep paying for it if they have to. (ie. if Amazon some how took Prime Video out of the Prime membership.) I also took a look at “annual active users”, but the range was too wide to be useful.

But I had one other piece of data floating around in my head. See, various streamers like Nielsen and Comscore track streaming usage. And Prime Video and Hulu have been remarkably close over the years. 

IMAGE 11 - Nielsen Total Mins copy

That image is from earlier this year, when I wrote that “Netflix Is a Broadcast Channel”. In other words, if Prime Video has about the same usage as Hulu, it stands to reason it will have about the same number of folks willing to subscribe (at a $6 price point). Prime Video looks like it has grown a bit compared to Hulu over the last few years, but in general, they have about the same amount of usage.

What about the range? Well, you could convince me of anything. For my table above, I could see literally as few folks as CBS All-Access (say about 12 million). On the other hand, maybe folks do value Prime Video more than Hulu. So I could see it up to say 50 million US subscribers. (I just can’t imagine it is as valuable as Netflix when few folks watch nearly as many Prime Video shows.)

Starz

Starz, on the other hand, provided us all facts. In fact, some of the best facts of any of the streamers. While they have changed definitions a few time, they straight list out their past numbers. See?

IMAGE 12 - Starz IR

Kudos for the transparency!

However, like HBO Max, the number of potential “streaming” subscribers is somewhere between the total of all linear and OTT subscribers, and the OTT subscribers only. You can decide where you think that falls, but I count them all for now.

Apple TV+

Now back to the guess work!

Apple has had a good year for Apple TV+, but they refuse to release any numbers on its performance. Complicating things, Apple TV+ is also available globally. This was the same problem we ran into with Disney+, only with less data. The last leak we had was from Bloomberg in February, which estimated that about 10 million folks worldwide are signed up for Apple TV+, with the caveat that maybe half are actually using the service. 

Time for the proxies. Since Apple TV+ is mainly for folks buying new devices, we’ll start there. If you want to analyze potential subscribers by iPhone sales, the best proxy for penetration, here’s the non-China iPhone sales numbers from 2017, according to Business Insider:

IMAGE 13 - iPhone Sales

My logic for Apple TV+ was to take that rough percentage, and boost it slightly for the US, given that most Apple TV+ content is US focused. Then we’d add a 35% “Covid bump”. (Roughly what Starz and CBS All-Access saw this year.) Bingo, we get our guess of 6.8 million customers. 

What about the range? Like Amazon, you could convince me of anything. The high could be all 10 million leaked customers were US based (or nearly so) and the Covid bump got it to 13.5 million. The low would be 2 million folks, all of whom are Ted Lasso fans. (The buzziest show among entertainment business Twitter after Succession.) 

AMC

More facts from AMC. They’ve leaked that they expect their portfolio of streaming services to end the year at around 4 million US paid subscribers. To be clear, this is me cheating slightly since their premiere service AMC+ (which includes content from their other streaming services) may not have passed the 2 million threshold. I’m counting all their streaming subscribers, when you could argue they belong with the “niche” services. Still, they expect to pass the 5.5 million mark by the end of the year. So that’s the high point, with 4 million being the low. 

(I haven’t written on AMC+ yet, but I am bullish on it as a “second tier” player. More to come.)

Peacock

Last guess. Peacock has 22 million “sign-ups”, up from 10 million at their first earnings report after Peacock’s launch. So how many of those are paying? 

I have no clue. None. Zip. Zilch.

But it’s likely small. Given that Peacock is advertising forward, the vast majority of users are likely interacting with it that way. (Of all the companies, I’d love this data point most of all. Well, maybe Apple TV+, then this one.) So I built a sensitivity table, and picked 15% as the number that made sense to me. I’d say the floor is 2 million (just making this list) and up to about 20% of subscribers, or 4.4 million subscribers, if folks are beating my estimates.

The Comparison Table

So with that, let’s make a few final fun tables. First, here’s the chart of my ranges of each estimate. In a lot of ways, this is more valuable than yesterday’s chart:

IMAGE 14 - Min Max Table

These ranges really tell us how wide the potential options are. Hopefully, we learn more over time, but you can see that the premium linear to streaming conversion will be an important statistic to monitor.

And now the confidence ranking table.

IMAGE 15 - Confidence Table in Rank

In other words, you can quickly see who provides clear numbes, who we can confidently estimate and who is the guess work.

Lastly, here’s my full table with the definitions and calculations explained:

Table - Full US Sub Estimates

So this provides a short hand way to know how I calculated the numbers.

Hope you enjoyed and again provide your estimates or feedback in the comments or on Twitter.

Disney Has Almost Caught Up To Netflix in the Streaming Wars: Explaining the EntStrategyGuy’s US Paid Streaming Subscriber Estimates- Part I

(This is the last article in a three part series estimating how many US paid streaming subscribers there are in the US. Read the numbers here, and the second half of the explanation here.)

I’ve become a pinch frustrated with media folks who don’t differentiate between the US subscribers compared to global subscribers. Why? Because it violates the number one rule of data, which is to compare things “apples-to-apples”. Meaning, one should compare the most similar numbers to each other. 

Not to pick on them because they do great work, but the wonderful Axios Media Newsletter (which reaches a lot more folks than I do) was guilty of this this week:

IMAGE 1 Axios - Total Subscribers

That looks at Netflix’s global numbers to HBO Max’s US only numbers. That doesn’t make sense, does it? Meanwhile, it’s compares Prime Video customers, who get it for free, to those genuinely paying for Netflix. And Apple TV+ can’t make the list since we know nothing.

So, as I wrote yesterday, I stepped up to provide some estimates for each of the major streamer’s US subscriber totals:

Chart - Updated Totals not title

And the chart. (With some typos fixed from yesterday.)

Table Abbreviated

If yesterday is the data shot, today is the analysis chaser, describing the details of what I did and how. Which is just as important. If you read yesterday’s article, you’ll learn some statistics. If you read today’s—and yes it’s long—you’ll learn about what is driving these numbers.

We have a lot to get to over the next two days. Here’s the outline:

– The rules I used to estimate US subscribers.
– The confidence levels for each estimate.
– The explanation for each of the twelve major streamers.
– The reason for this deep dive. (Mainly the need for “apples-to-apples” comparisons.)
– Finally, a chart with the ranges for each streaming estimate.

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

The Rules

In a quest to get to “apples-to-apples”, I had to figure out what type of apples we were dealing with. Here are the ground rules, in rough order of priority:

– First, US only. Global subscribers will come later.
– Second, subscription was the key. Free or advertising-supported services from Youtube to Pluto TV didn’t make the cut.
– Third, the goal is “streaming”, but I added “premium” channels too. Because frankly, lots of folks subscribe to HBO, Showtime and Starz directly. Ignoring that provides less context than more. So the premium companies made the cut. The linear channels paid through a cable bundle did not.
– Fourth, the goal is to focus on who “would pay” for a service. In other words, for Apple and Amazon, to try to figure out who would pay for those services if they suddenly cost money.
– Fifth, I had to draw a line somewhere or I’d have too many subscription services. I decided to focus on “major” services, which I defined as 2 million customers and above.
– Sixth, some services are very cheap as well, so I’m assuming roughly a $5 per month price point as the cut off. Yes, there are tons of discounts that get applied, but this is a good starting point.

My Confidence in Each Prediction Explained

Last year when I calculated how much money Game of Thrones made for HBO (a lot!), I realized I was dealing with a few different types of information. And I needed some categories to describe them. So I came up with this:

IMAGE 2 - Confidence Table

A fact is something a company has confirmed in a specific report or statement. Or in some cases ratings numbers and what not. Those are numbers we can believe in. Leaks are also from companies, but usually anonymous. They are fine, but always be careful with leaks. Companies are very self-interested and their PR folks—who are still good people—will mislead you. Specifically, with data that reinforces how well they are doing and hides any bad news. (The definition of bias.)

Estimates are predictions I am confident in. Usually it means I’m taking a few specific numbers and applying good models to them.

A guess, on the other hand, is usually when I have to estimate too many things. At which point my confidence in the estimate starts dropping. Which doesn’t mean educated guesses are bad, just uncertain. (Magic numbers are briefly explained here.)

Analysis: How I Determined Each Number

Enough preamble to the meat of this article. In order of the table above. 

Netflix

While Netflix discloses a lot of information compared to its streaming peers, on its US numbers it has become frustratingly vague. At the start of this year, Netflix decided to split the world into four territories to better show how its business is doing globally. Which meant for years we knew US subscriber numbers, but now those were bundled with Canada. Fortunately, they provided three years of data. Here you go:

IMAGE 3 - Netflix Subs over Time

In other words, US customers are about 90.3% of the UCAN total. That means we can estimate fairly well the current US subscribers based on the UCAN number. About 66 million US subscribers. Even though these numbers are so tight we probably don’t need it, I made a range for the estimate, and call this my 90% confidence interval:

IMAGE 4 - Est US Subscribers

(If you’re wondering where these numbers come from, I collected every Netflix subscriber number from here to olden times for this article. An update is coming next week as my “visual of the week”.)

Disney

Disney isn’t one service, but three. Two of those services aren’t globally available, which means we know for certain how many US subscribers they have. (ESPN and Hulu.) 

What about Disney+? Well, we have our first tricky estimating process. To figure it out, I looked for some historical data. To start, here’s my historical growth chart:

IMAGE 5 - Chart Disney Subs

That helps, but not perfectly. The best way to estimate Disney+ subscribers is to use some correlated variable we do know, and assume the subscriber numbers are related to that. For example, if a country is 25% of the worlds population, then you assume they are 25% of the Disney+ subscriber total. The problem is that no one variable is perfectly correlated. You could use population, but some countries are wealthier than others. You could use GDP, but it doesn’t quite account for size. Broadband and mobile penetration are also potential options. Ultimately, I decided to compare all the countries by population.

Yet this has a big problem for Disney+. The big wild cards are India and Indonesia. While most of Western Europe and Japan have similar economies to the US, India does not. Fortunately, Disney leaked that they have 18.4 million or so (a quarter) of their subscribers from India. So that means we now have to parse out how many of the 55.3 million or so are from the US.

In this case, I looked at various populations of the countries Disney+ has entered, compared to the total size.

IMAGE 6 - Disney Population Numbers

In other words, if countries adopted Disney+ simply by population, Disney has 40% of the population, so jeu would have about would have 22 million subscribers. That’s too low. When Disney first announced numbers in December of 2019, they’d have already been at 21 million subscribers using the population method. So did Disney+ only gain 1 million customers this year? With The Mandalorian season 2 and Hamilton? Probably not. So I made a sensitivity table, which netted me this:

IMAGE 7 Sensitivity Table

Looking at it, the 54% of non-Indian subscribers having Disney+ is the most likely number. Or better phrased, between 25-35 million of all Disney+ subscribers are in the US. Any lower or higher feels unrealistic. And yes, I wish I had a more scientific way of triangulating this. Frankly Disney has released so little US data, and the data they have released has so many confounding variables that it’s probably the best we can do.

(Also, for the first of several times this article, if you want to disagree, feel free to do so in the comments or on Twitter and explain why.)

About The Headline “Disney Has Almost Caught Up To Netflix in the Streaming Wars”

Yesterday, I also included the total unique subscribers by company, because I do think that is the best way to compare companies. (See the table above.) 

Logically, if Disney could get to 50 million Hulu subscribers and 50 million Disney+ subscribers, and each was paying $10 a month—and those are numbers that are only possible 3-5 years in the future—then it would be hard to say they aren’t “beating” Netflix, if Netflix stays at around 65 million subscribers, but at a say $16 price point.

To be clear, I’m not predicting that happening. But that scenario is one of the possible futures. The fact that Disney has nearly caught up to Netflix with its three streaming services in terms of customers matters since it’s just starting out, even if average revenue per user is lower right now. (And yes, I only counted the “bundle” customers once for my summary yesterday. I assumed that all the ESPN+ growth, 6.5 million customers, since Disney+ launched was due to the bundle, which is a conservative assumption.)

HBO

HBO releases US subscribers and the number that have turned on HBO Max, which they call activations. The number of folks who would subscribe to HBO Max (if linear HBO disappeared entirely) is somewhere between those two numbers.

I’ll defend my lumping premium subscribers with streamers now. Frankly, I’ve never understood the logic of not comparing HBO linear subscribers to Netflix subscribers. Yes, one is direct-to-consumer and the other is sold through MVPDs. But ultimately, the customer is what matters. And HBO customers are very loyal. If the bundle goes away tomorrow, some customers may not continue subscribing to HBO, but more will. (And still do, frankly. HBO passwords are as borrowed/shared as Netflix, especially when Game of Thrones was on.)

As for the range, it’s between the activations and the total subscribers. So I provided both numbers. I’ll take the top of that range as my estimate (for now), but you can choose somewhere in the middle.

(If you want more details on HBO subscribers over time, check out my visual of the week from a few weeks back.)

Viacom-CBS

If I was going to count all premium subscribers for HBO, it only made sense to do so for Showtime as well. Fortunately, Viacom-CBS has leaked quite a bit of details to the press over the years, and their financial report provides specific numbers for total streaming subscribers. (For this project, I searched for every number I could find.) For example, in September, sources told Joe Flint of the Wall Street Journal that Showtime had 27 million total subscribers, including 7 million OTT. (That’s a very useful leak, if accurate.)

Meanwhile, in their latest earnings, Viacom CBS told us that between CBS All-Access and Showtime they have 17.9 million OTT subscribers. Assuming that ratio has held constant since the summer, then CBS All-Access has about 11 million subscribers. We can confidently estimate that. If you want an error range, since Viacom has said that subscribers are about evenly split between CBS All-Access and Showtime, the low would be 50% of the about 18 million subscribers and the high is the opposite end of that, or about 12.5 million subscribers.

However, unlike Disney, I didn’t try to disentangle ViacomCBS bundled customers at the company level. While Disney’s growth could easily be attributed to their bundle, it’s much less clear how many dual CBS All-Access and Showtime subscribers are out there.

4 Insights on Disney’s Content Strategy from the Last Summer

My last few weeks have been spent digging through all the data I could find on the streaming wars. What makes this different than the past is that we finally have a lot of data to parse. Firms like Nielsen, Reelgood, 7 Park and even Netflix themselves have started releasing insights into the streaming wars.

And for the first time, I started to get some insights into Disney’s streaming adventures. Since I was searching for the answer to “How well did Mulan do?”, naturally I found a lot of Disney+ viewership data. And some clear trends emerging about that platform. 

Without further ado, 4 insights on Disney’s streaming content strategy. (By the way, these insights are almost exclusively American since we still don’t have great global data.)

Insight 1: Disney is a Hit Driven Business

In entertainment, you don’t win with doubles and singles. You win with grand slams, since grand slams aren’t worth a bit more, but orders of magnitude more. The top film at the box office earns as much as hundreds of other films, for example.

Streaming hasn’t changed that. Hits are as important as ever. In the last quarter, Disney arguably had the most popular streaming release of the year with Hamilton. Check out Google Trends to see how much more interest there was than any other film in over the last three months:

Image 1 - G Trends with Hamilton

That’s the power of a traditional entertainment studio to find top IP and market it successfully. Going back to launch, arguably Disney+ only succeeded because it launched what is by many metrics the most popular new series in America, The Mandalorian. In other words, in less than a year of existence, Disney launched a show arguably as popular on steaming as Netflix’s top shows (either Stranger Things or The Witcher) and the most popular film of the last quarter. This is a look at just the last week to show how eagerly awaited it still is:

IMAGE 2 - Parrot Analytics Recent Demand

Moreover, as you’d expect, this drives adoption. Here’s Antenna’s sign ups by day chart:

IMAGE 3 - Antenna Longer Time Period copy

No surprise, but big events drive sign-ups. (And the Covid-19 lock down clearly drove signs up in early March, along with Disney releasing Frozen 2 and Onward early.)

Ramifications

The trouble with a hit driven business is you need to keep producing hits. Something Netflix has learned and worked to address in having a big hit each quarter. Disney will need to do the same, and their approach seems two fold: 

– They are building up to a Star Wars or Marvel TV series releasing roughly every quarter.
– Meanwhile, they’ll have their blockbuster films release on roughly a monthly schedule across all their brands likes Disney Animation, Pixar, Star Wars and Marvel. 

Of course, the coronavirus-field production shut downs are mauling this plan. Black Widow was delayed into 2021 and the first Marvel TV series—Falcon and Winter Soldier—due in August still hasn’t had a release date announced. As such, until Disney gets the hits rolling, their new subscriber additions will suffer.

Insight 2: Disney+ Is a Kids Platform First and Foremost

In other words, the vast majority of the viewership on the platform comes from kids watching and rewatching Disney films. To emphasize, rewatching popular content. Look at this chart from 7 Park analytics on the most popular content in Q3, through the second weekend of September:

IMAGE 4 - 7 Park Long Time Period

The shiny object is Hamilton. Again it was a beast. But ignore it.

Instead, look at the next film on the list: Frozen 2. Then 5 and 6: Frozen and Moana.

Yep, Frozen 2 is a juggernaut. Kids don’t just watch it, they rewatch it and rewatch it. But notably, this table is of all audience figures, meaning that the largest majority of customers for Disney+ are families streaming kids content. 

Ramifications

Disney has successfully grabbed grabbed audience share from Netflix in the kid’s space. Arguably, as one of the most trusted brands in entertainment, they had never completely lost it. But instead of letting Netflix build its brand with kids, Disney now owns that part of the relationship. Indeed, in 7 Park’s data, kids content never shows up for Netflix, but it routinely shows up for Disney+ content.

As for the strategy going forward, even Disney will need to refresh its kids content, releasing new films and TV series to keep kids engaged. You’ll also notice this list is all content released this decade. (I assume this is the Aladdin live-action film.) As strong as Disney’s library is, you need to constantly build new franchises. 

Moreover, Disney+ will need those superhero and sci-fi series and films to avoid a reputation as “just” a kids channel. If it is seen as that, that fundamentally limits its global upside.

Insight 3: The Straight-to-Streaming Strategy is Working

You might think I’m talking about Mulan, which would seem to contradict my article from a few weeks back explaining why PVOD didn’t work for Disney. I’m not.

Nor am I talk about straight-to-streaming or quick-to-streaming releases such as Onward (from Pixar), Artemis Foul, or Soul, coming in December. (Also from Pixar.) Those aren’t deliberate choices by Disney, more “best option in a sea of bad options” decisions forced onto them by Covid-19.

Instead, I’m talking about this film in particular…

IMAGE 5 - One and Only Ivan

Again, let’s look at that 7 Park data from above:

IMAGE 4 - 7 Park Long Time Period

The One and Only Ivan held its own against other Disney titles with theatrical releases and in some cases major marketing campaigns. Now, some of this is the impact of marketing the film within the app. Shows and films that get “banner” placement on a streaming app naturally get more clicks. Ivan got lots of that love. And content has been light on Disney+ over the summer, so there were banner spots to be had. Still, looking at the summer as a whole, this film did well.

Ramifications

Well, straight-to-series can work, if you satisfy the number one criteria: keeping budgets in-line with potential SVOD revenue upside.

As well as Ivan did, you can’t attribute lots and lots of customers to it. Instead, this is a solid single that keeps families engaged with Disney+. But it doesn’t drive tons of new acquisition (like Hamilton) or tons of retention (like Frozen/Frozen 2). 

What does this mean? Well, it means you need to have budgets that match that level of demand. In other words, straight-to-streaming video needs to have straight-to-streaming budgets. That means that $150 million budgets are out. $50 million production budgets are out. Even budgets about $25 million are dicey.

Disney both understands this and has experience working in this milieu. High School Musical, The Descendants, and Kim Possible are examples of Disney Channel TV movies, some of which were very successful. I’d add the Hallmark Channel and Lifetime have worked in this budget range for decades. 

The challenge is understanding budget limitations despite the pressure to compete by spending LOTS more money on content. Activist investor Dan Loeb wants Disney to deficit finance to acquire subscribers. Netflix routinely shells out big, big bucks for straight-to-streaming films. And I’ve said they are losing money on some of these flops twice now. First the Irishman and then their big action films.

Image 6 Netflix Hard R Financials copy

Disney needs to invest in streaming without forgetting that theatrical really drives extra revenue. Or they risk losing as much money as Netflix.

Insight 4: Hulu has not Had the Same Success as Disney+

When I talk streaming and Disney, most folks immediately talk about Disney+. And likely it will be Disney’s largest streamer in America soon. But it’s not Disney’s only streamer! Hulu still exists.

When I reviewed all the potential winners of the last two months, Hulu was notoriously absent. I checked in on season 2 of Pen 15 and Woke, but they barely moved the needle compared to Amazon and Hulu’s champions. Here’s my Google look:

Image 7 - G Trends Hulu

Yep, Hulu’s big releases are the nearly flat yellow and green lines on the bottom. This matches my perception via 7 Park’s data too:

Image 8 - 7 Park Summer Data

In other words, Hulu didn’t have a great quarter. Hulu’s best content is still library content or second window shows. Which is fine for retaining customers, but not for adding subscribers. Moreover, Hulu runs the same risk that when deals with big traditional studios run out–like Comcast or CBS–they’ll lose those shows.

Ramifications

Frankly, the fewer hits someone has, the likelier their service is to not be used, which means the higher churn will be. That’s the game in the streaming wars. So take a gander at Reelgood’s comparison of Q2 to Q3 performance by it’s users:

Image 9 - Reelgood

Hulu and Netflix were the services that saw declines; Prime Video and HBO Max saw gains; Disney+ was flat. Hulu is aggressively positioning FX as the brand for that platform. We’ll see if that works, but they need some buzzy shows that drive lots of viewing, and fast. I’d also recommend they focus on crowd pleasing shows—procedurals and sitcoms—which may not win awards or critical plaudits, but that lots of folks watch.

The Content Battles are Competitive in the Streaming Wars

(Welcome to my series on an “Intelligence Preparation of the “Streaming Wars” Battlefield”. Combining my experience as a former Army intelligence officer and streaming video strategy planner, I’m applying a military planning framework to the “streaming wars” to explain where entertainment is right now, and where I think it is going. Read the rest of the series through these links:

An Introduction
Part I – Define the Battlefield
Defining the Area of Operations, Interest and Influence in the Streaming Wars
Unrolling the Map – The Video Value Web…Explained
Aggreggedon: The Key Terrain of the Streaming Wars is Bundling
The Flywheel Is a Lie!

Wars tend to have their own cadences. Some start quickly and one side gains an advantage, and wins the war. Sometimes in months. (The Franco-Prussian War, for example.) Some wars bog down into stalemates, that take years, with neither side getting an advantage. (The first World War, for example.) And in some wars, one side gains a huge advantage, everyone assumes they will win for sure, only to find that the initial leaders lose the war. (The Axis in the second World War, for example.)

For years, a lot of folks have assumed the streaming wars are the first type of war. Netflix started streaming in 2008, and got out to such a commanding lead it looked unlikely that anyone would catch them. And as I’ve shown in charts before, Netflix really is far ahead.

IMAGE 1 Netflix a Broadcast

Netflix is so far ahead, some analysts say the war is over. (You know who they are, so even though I’m not linking to them, this isn’t a straw man argument.)

Of course, this begs the question: what type of war is this? Is this a Franco-Prussian War that is already over before it starts? Or a World War II, where Germany and Japan are doomed, they just don’t know it yet? 

Over at Decider, I’m writing a recurring feature where I’ll take stock of the last month (or so) and declare a “winner” for the most popular piece of content. (The latest went up last Friday.) I’m in love with the concept, because it forces me to check in regularly with how well shows are actually doing. In last week’s edition, I got a TON of insights that one article couldn’t contain them all. So here is one for today:

The streaming wars are increasingly competitive.

In other words, I think the streaming wars will look more like World War II than the Franco-Prussian war. (Fine, enough with the war metaphors.) 

If you want to know what separates the “bulls” from the “bears” on Netflix’s strategy/future/stock price, it’s this view of the war. If the streaming wars are already over, then Netflix is priced too low. If new entrants can gain audience share, then it’s a genuine competition. The last two months of data show an increasingly completive content landscape, and it’s a trend which will likely pick up stream. Let me explain why.

To start, we have more and more data to understand (American) streaming viewing.

Back in July, I mostly used Google Trends data to estimate what was the most popular film in America. I used some of the customer ratings too, but not much more. The problem is that each of these data sources can be noisy. Since then, though, the data situation keeps getting a lot clearer, as I wrote about in August:

– FlixPatrol is having their data consolidated by Variety VIP. FlixPatrol has shared their data with other folks as well. (They count Netflix, Amazon, Disney and other top ten lists around the world.)
– Nielsen started releasing SVOD Top Ten lists (though four weeks delayed) by total minutes viewed.
– And after Mulan came out a few companies gave peaks at their data, including 7 Park, Reelgood and Antenna. (They all measure in slightly different ways.)
– Parrot Analytics has been releasing their weekly top ten since last year.

Are any of these data analytics firms perfect? No. In fact, I have issues with each of them, ranging from questions about their methodology to questions about their sample size/make up.  Be assured, when the Entertainment Strategy Guy is reviewing a data set, I’m looking for outliers which make me question the data. If I see them, I’ll try to call them out.

Thankfully, most of the data sources are directionally aligned, meaning they are all likely measuring signal, not noise. 

Next, all of the sources are showing the trend of more and more “non-Netflix” shows/films in the top ratings

I noticed this first when reading Variety VIP’s write up of 7 Park’s subscriber data from August and July. 7 Park analyzes wether a unique customer watches a piece of content, so it’s gives some insight into how many different shows are being watched by various customers. Here’s the data from August and September that 7 Park shared with me. This is measuring “audience share” meaning it doesn’t account for how much customer watches, simply whether a unique customer engaged with a piece of content:

IMAGE 2 IPB Streaming Content Battle

That’s four different streamers in both charts. Hulu, Amazon and Disney+ each put a top show into the measurement. AA year ago, it would have been all Netflix red. Even Amazon wasn’t breaking through. 

(A note on 7Park data: I do have some questions about their sample size. It may over-represent avid streamers, as the Apple TV+ usage is higher than I would have guessed. This applies to some of the other folks as well, such as Reelgood.)

Like I said, though, directionally this lines up with other sources. Yesterday Nielsen updated their latest Weekly SVOD Top Ten. For the first time since they launched in August, a non-Netflix streamer made the list. And not just one, two!

IMAGE 3 - Nielsen Data

Again, Netflix is still the king. This is because usage makes it even harder for the smaller streamers to catch up, so Netflix owns 80% of the list. But the story isn’t about who is currently leading, but who is catching up. Here’s Parrot Analytics look at the current most “in-demand” series.

IMAGE 4 - Parrot Analytics

In this case, since they measure demand not simply viewership, the spread is much broader. This is driven by the popularity of a lot of traditional firm’s IP. 

(Regarding Parrot Analytics, I have concerns their data overrates the conversation around super heroes and genre. It also lags a bit too much for my taste.)

The Viewership Wars are Joining the Streaming Wars

Overall, this change shouldn’t be too surprising. The battle for viewership and dominance of ratings has been the quest of TV channel executives since the dawn of TV. And the battle for the dominance of box office has been even longer. 

Over both those battles, various channels and studios have taken leads. In the 1990s, NBC looked unstoppable. (Must See TV) CBS took over broadcast ratings in the 2000s by launching a series of “acronym” shows and Chuck Lorre comedies. In film, Disney took over box office in the late 1980s, then again in the 2010s. Even as most executives can’t sustain permanent advantages, everyone so often someone does.

Netflix is currently the leader. Can they retain it indefinitely? Probably not. 

Even now, as far ahead as Netflix is in viewership, it doesn’t own a majority of all TV viewership. In fact, it doesn’t own a majority of streaming time. This is why when you look at Parrot Analytics demand measurements for all TV, the view features even fewer Netflix shows, since streaming is still only 25% of all TV time.

IMAGE 5 - Parrot Analytics

This shows up in the Reelgood data as well. Reelgood tracks audience behaviors on a range of services, but inevitably their customers seek a wide range of shows and films. Take this look from the week Mulan launched.

IMAGE 6 - Reelgood

That’s everything from Disney films to films only on TVOD to Netflix Originals. In short, viewership is diverse in America. Netflix doesn’t own it all, even if it owns the mental headspace of many critics, analysts and decision-makers in the United States.

It seems clear that as more traditional broadcasters, cablers and studios launch their own streamers, they’re going to fight more and more for the streaming viewership audience. Ideally, if I had Nielsen’s data for the last two years, we’d be able to chart this rise. Ideally, I’d have Nielsen data for the last two years, and show that August or maybe last November was the first time a show made the top ten list.

But I don’t have that data and Nielsen just started releasing weekly top ten lists. Instead, I’m speculating here, but increasingly, it seems like the Disney’s, Prime Video’s and HBO’s of the world are launching the most popular shows in the world.

What Does this Mean for the Future? What Should We Look For?

Well, the streaming wars are going to be competitive. That’s what this means. The more shows that become “must watch” means the more services folks will need to own. Game of Thrones and Lord of The Rings prequels will fit this bill. Same for Disney’s big shows. And I think Peacock has the best chance of developing new additional shows that fit this bill since they have a track record of doing that. (Their library with HBO’s is also the strongest.) Don’t count out Hulu or Paramount+ nee CBS: All Access either.

This means that split wallets are likely to be the case in the future. I don’t think anyone should have a model that implies that Netflix owns 50% or greater of a customer’s wallet. Probably even less than 25%. 

Obviously, this means that Netflix will be fine for the streaming wars. No one should say “Netflix killer” because they are clearly such an indispensable part of the streaming diet for so many customers.

Unless, of course, you care about the stock price. This competition means that Netflix can’t pull back on spending, because then the top shows chart will only feature more shows from other streamers. It also means they can’t raise prices or can only do so slowly. Given that Netflix has one of the mostly highly valued stocks compared to underlying economics, any situation where it fails to conquer all TV has a lot of downside.

If content is king—it is—this is a battleground to continue monitoring in the streaming wars. Looking at the colors on these streaming charts is key. If they stay all red, that’s great for Netflix. If they look like—pun intended—a peacock’s feathers, that’s good for the traditional players.

Should Disney Have Released Mulan to PVOD?: Part III of “Should Your Film Go Straight-To-Streaming?”

Last week, we figured out that Mulan was likely watched by 1.2 million Americans on its opening weekend. (Plus or minus 1-1.5 million.) We estimated this means it likely ends up with a global PVOD of $150 million.

But what I didn’t do was explain what all that data means.

Which is today’s article. As I was writing up my implications, I realized I was really writing another entry in my series on the changing film distribution landscape, “Should you release your film straight-to-streaming (Netflix)?” So here’s the latest version of that. As before (See Part I here or Part II here), I’ll be asking myself the questions.

Was the Mulan PVOD “experiment” worth it?

I’m probably too much of a stickler on language–I called out a much more influential strategic technology analyst on Twitter for mixing up aggregation and bundling this week–but I do believe terms of art have a role in setting strategy. Words have meaning and mixing them up can make for sloppy understanding.

The word “experiment” should be reserved for true experiments. Meaning scientifically rigorous processes to draw statistically significant conclusions. In business, this is incredibly hard to do. Most often, we have a sample size of “1”. Given that a company can’t split the universe into multiple alternate realities to see what happens, if they change their strategy they have only one data point to draw conclusions from. They only have the one strategy to adjust. It’s an “n of 1” as I wrote last Wednesday. Meaning we can’t draw conclusions from it.

I prefer “test” instead.

Fine, was the Mulan “test” worth it?

Probably not. Because most “tests” really don’t help refine strategy. Strategically, it’s usually a mistake to run “tests” that muddy your strategy and/or consumer value/brand proposition. In this case, Mulan was huge news. With tens of millions of dollars on the line, you shouldn’t run “tests”, but make strategic decisions that align with your long term strategy.

As it is, Disney got the data that PVOD sales didn’t match their expectations. Consider a question I’ll ask later: What if Disney had released Hamilton on PVOD? Then arguably the test would have worked! But the true difference is one film was the most popular musical of the last decade, and the other was a live-action adaptation. The track record on live-action remakes is more mixed: they’ve had a much more up and down reception. (The Lion King and Beauty and the Beast did really well; Cinderella less so.) In other words, we could have guessed that Mulan could not launch well but Hamilton would have.

But that’s why Disney needs to decide if PVOD is a part of their strategy or not going forward.

Okay, my last try: “Was the Mulan PVOD release strategy the best one to maximize revenue?”

That is the best way to ask the question! Thanks, me.

I think it wasn’t. With the caveat that I’m second guessing the executives, let’s review the options Disney had in front of them. They could release in theaters now, or next year. They could try the PVOD test. They could release in TVOD. Or go straight to SVOD on Disney+.

Trying to run the numbers wouldn’t really help since it would require tons of estimates and just guess work. But if we’re ranking the options, my gut is Disney ended up choosing the 3rd or 4th worst option. I’d do it this way:

1. Release on TVOD in September in Disney+ territories, theaters elsewhere.
2. Release in September in theaters globally, with a shortened window.
3. Release sometime next year in theaters globally.
4. Release on PVOD in September as above.
5. Release straight to SVOD in Disney+ territories, theaters elsewhere.

Here’s my logic for number one: Mulan had higher brand equity than Trolls: World Tour, so it would have generated more interest. Indeed, the biggest release tactic that held Mulan back wasn’t the price, it was the distribution strategy. However, you could convince me that options 2 and 3 could have beat option 1.

As I wrote a few weeks back about “exclusive distribution channels” when it came to Spotify, Podcasts and Joe Rogan, when you go “exclusive” you artificially limit your upside. Disney essentially opted for the same path here. The problem was their exclusive channel doesn’t look to be worth it. Essentially, TVOD would have expanded the footprint by so much that it would likely have generated more sales. So that’s my number 1 option to maximize revenue. (And a lower price I think would have further convinced folks to buy it.)

What about the new subscribers Mulan brought in?

Uh, look at the Antenna data of new sign-ups in context of past releases:

antenna-longer-time-period-1

In other words, Mulan didn’t drive new subscribers. Because it was PVOD, fundamentally, it didn’t help with retention either. The number of new subscribers is barely statistically significant.

What about releasing in theaters?

Unlike Universal, Disney hasn’t been expressly antagonistic to theater chains. (Though as soon as AMC and Comcast agreed on a deal, they publicly became best buddies again.) So assuming Disney could have sold the theater chains on it, yes there is a chance they could have released Mulan in theaters followed by a simultaneous or 3 weeks later PVOD release. That would have made more money than PVOD only.

The logic for me is simple: give multiple options for customers to watch a film. The challenge is most theaters in huge markets are still closed. It’s that uncertainty that is hurting theaters more than anything. And the theater chains would have fought fiercely.

Could Disney have held it until next year?

They could, but three things are holding them back. Which I’ve been struggling to explain all summer, and think I just figured out.

First, the financial cost of capital. Which is the idea that if you spend $200 million to make a film, the goal is to eventually make $216 million accounting for inflation since the entertainment industry’s cost of capital is roughly 8%. (No matter what else you know about entertainment, that’s the key math.) If you wait a year, you need to make 8% extra to cover the costs of the delay. That’s the damage “cost of capital” does to a cash flow statement.

(Want an explainer on net present value/the time value of money? Go here.)

For big films, this is clearly worth it; smaller films it isn’t. If the next Fast and Furious film does a billion dollars, taking the 8% cost of capital hit is better than a 60% total revenue hit. Using this logic, Disney should have moved it back.

The second cost, though, may be the real driver. That of what I’m calling “organizational” cost of capital. If everyone moves their films back simultaneously, the problem is many of those films can’t release at the same time. And that means you can’t start making new films, since they won’t have anywhere to go.

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Mulan vs Tenet: I (Don’t) Declare a Winner

At first, I was tempted to call “Mulan vs Tenet” the biggest battle of the streaming wars. Each weekend in September, we’ve eagerly awaited answers to the hottest questions in film: Will Tenet save theaters? Will Mulan blow up the model? Who is making more money? Who is WINNING?!?!?

It turns out that the answer to the first two questions is probably no. As for the third and fourth, well, that’s tricky to answer. But since it’s the logical follow-up to my article on Monday, I’ll do my best.

But I wouldn’t call this a battle. If anything it’s a “skirmish” on one end of the larger distribution battle. (The sort of way that Pickett’s Charge was one tactical engagement in the larger Battle of Gettysburg.) Just because it is a skirmish doesn’t mean it isn’t important. Skirmishes are what win or lose battles! (For want of a nail…) 

So after three weeks of data, let’s analyze what we know. Here’s the outline of today’s article:

– First, two lessons on data that set the terms of the debate.
– Second, an analysis of what we know about each film, including US box office, International box office, and PVOD sales to date.
– Third, thoughts on each film’s revenue potential after these initial windows.
– Fourth, a comparison between the two films and declaring a winner.

Kidding! I won’t do that last part because I don’t know the answer. Moreover, I won’t draw giant conclusions about what this means for the future of film. Because frankly two films won’t fundamentally change the landscape. But I’ll explain that point in future articles. For now, the performance of these films to date.

(Also, I found that I was linking to a lot of my articles explaining the business of film. To keep this article clean and not polluted with links, I put a “reading list” at the bottom.)

Bottom Line, Up Front

– Comparing the box office of Tenet to PVOD of Mulan is comparing two different windows to each other. That isn’t apples to apples.
– That said, we can’t know the future value of either film because both “inputs” are “n of 1” meaning so unique that we can’t build a model.
Tenet will likely gross $325-350 in global box office.
Mulan will likely gross $70-100 million in global box office.
Mulan will end up with likely $155 million in global PVOD (with a big range of $105-$270 million.)
– As for lifetime earnings? No one really knows, because there aren’t good comps to make accurate estimates.

Two Data Lessons: Apples to Apples and “n of 1”

My primary job on this site, as I see it, is to explain the entertainment business. You can find lots of places on the internet opining about the entertainment business; I’m trying to teach you why it works the way it does. And in the “Mulan v Tenet” debate, I see two major mistakes being made.

First, Apples-To-Apples

That’s my simple term for comparing like-to-like. In some ways, statistics/data analysis/science is essentially the quest for comparing things like-to-like as much as possible. That way you can isolate the the true drivers of causality. (That’s why random controlled trials are random and controlled.)

Here’s a simple example from last week: folks saw that 7 Park’s data was much larger than peer analytics companies for Mulan’s debut. The key, though, was that they were measuring eight days of data, and not just the opening weekend. They were also measuring the percentage of folks who watched Mulan who were active users, not all subscribers. Once you accounted for this, their math (1.5 million subscribers), was close to other estimates (1 million at the low end for Antenna and 1.1 from Samba TV). Comparing things apples-to-apples solved the problem.

In “Mulan v Tenet”, the key question/claim at the center of the debate misunderstands this notion. Consider these major windows of movie revenue:

IMAGE 1 - Table Second Window Waterfall

The question I’ve seen written and been asked repeated is, “Is Mulan making more than Tenet?” We could reframe it based on the windows in question. Basically, “Is Mulan making more money in PVOD than Tenet in domestic box office?” That would look like this:

IMAGE 2 - MvT Current Debate

But this isn’t the right question. It’s comparing apples-to-hammers. (A Chuck Klosterman phrase.) Look:

Image 3 - MvT Good

This framing really sets the terms of debate better, in my opinion. Even after Tenet leaves theaters, it can go to US domestic TVOD and home entertainment. So even if the answer to the current question is, “Yes, Mulan has likely made more in PVOD than Tenet at the domestic box office,” the question doesn’t make sense.

(Since PVOD wasn’t a window when I first made this table, I added it above. And I summarized all digital/streaming the “pay windows” to show the timeline better.) 

Really the question is, who will make more domestic revenue? So we should fill in this whole chart, accounting for blacked out windows:

Screen Shot 2020-09-23 at 1.23.54 PM

And we can see that two big chunks of revenue for that are the same: who will make more in Pay 1, Pay 2 and library distribution? (That means all the future revenue implied by streaming (like Netflix), airing on premium channels (like HBO), cable (like TNT) and other places. Now that question is tricky because of our next data point.)

“n” of 1

I was inspired by the “n” of 1 after reading earlier this year an article in the Economist about the rise of “n” of 1 medicine. “n” is statistics jargon for sample size. If you poll 3,000 folks about the Presidency, your “n” is 3,000. If your sample size is all Americans, that’s a sample (population technically) of 300 million. “n” of 1 medicine is referring to treatments designed for one individual with a unique life-threatening condition. It means the “sample size” is so unique it’s a category by itself.

This applies to box office and film revenue analysis. When we make forecasts based on opening weekend performance, we can do that because movies are similar and we can account for the differences to compare things apples-to-apples. Hence, we use Marvel films to forecast how much money films based on superheroes will make, while accounting for the time of year of the release and various other factors. (Scott Mendelson at Forbes is my favorite analyst at this.)

Once we have box office, we can use its results to forecast all the other windows a feature film is sold into. That’s how my film forecasting model works. It’s a fairly accurate system. We can also do it for PVOD, TVOD, streaming, TV and any revenue stream. Once we have an input, we can derive the rest.

The challenge for both Mulan and Tenet is they are unprecedented. They are without comps in the United States because: 1. No other blockbuster film has released during a pandemic that closed 70% of theaters and 2. No other film released to Disney+ exclusively for a one-time $30 payment. 

Because of this, making any forecasts about profitability is perilous. Or should I say, highly uncertain. Meaning, while I know what Mulan did in PVOD—see Monday—I’m much more uncertain about what this means for future windows. Conversely, while I know how well Tenet is doing, I don’t know what that means for future revenue streams, since Tenet is only available in 70% of US markets, that account for about 40% ticket sales.

So let’s start with what we do know.

The Data: International and US Box Office, Mulan PVOD and Forecasts

The easiest data to find is domestic and international box office. Since Tenet has been out a bit longer, it’s getting easier to see what its final total will be. So I’ve included the likely final box office total ranges offered by Scott Mendelson.

IMAGE 5 - Box Office with Rnagers

Are those numbers good or bad? Well, we’re in the middle of a pandemic, so who knows? As Mendelson makes the case, for an original material sci-fi live action film, Tenet is doing really well!

Meanwhile, even the ranges on Tenet are fairly uncertain. I put $350 million as the likely ceiling, but if New York and California reopen theaters, there could be give it a late boost (and stronger “legs”) as folks go to see it. Or not! A recovery that happens quickly is also unlikely so it could stay middling. 

Meanwhile, we know from Monday about how well Mulan is doing on PVOD.

IMAGE 6 Mulan Summary PVOD

The wildcard of the Mulan PVOD numbers is the fact that Mulan wasn’t just PVOD in the United States, but globally where Disney+ is available. My analysis from Monday focused on US analytics firms since there aren’t a lot of estimates for global performance. It turns out Mulan was released in every Disney+ territory but France and India, which includes these territories:

IMAGE 7 - Territories and Price

You’ll note it’s also cheaper in dollar terms in other territories. Time to go to the comps. What I did was find the last five Disney live-action remakes, pull down their box office by territory, and use that as a comp for demand:

IMAGE 8 - Disney Live Action Comps

The way to read this chart is that the “Disney+ territories that have Mulan” tend to account for 43-75% of the box office of the United States box office. Great! That becomes our tool to forecast PVOD revenue in those other territories. My low will be 40% (slightly lower than the Jungle Book comp) and I made a high of 100% based on Scott Mendelson’s back-of-the-envelope estimate. I consider that the far outlier, but with this much uncertainty that’s okay. Here’s the results:

IMAGE 9 Mulan International

Of course, I had high case and low case forecasts from Monday, which we could combine. The worry with our estimates now is that we’re making estimates on estimates, which doubles the uncertainty. Which you’ll see in how big our range is getting:

Screen Shot 2020-09-23 at 1.27.19 PM

What do we know? We have estimates for how Tenet and Mulan both did in their opening “windows”, one of which was PVOD/theatrical, and one which was theatrical only.

What don’t we know? What comes next.

The Comparison: Mulan v Tenet

Here’s a rough look at the current revenue of both Mulan and Tenet. As in how much each film has brought their studios as of this (rough) moment, roughly through their first month of releases:

IMAGE 11 Current Revenue

To answer the question I said you shouldn’t ask up above, yes Mulan globally has made more money than Tenet as of this moment. Crucially, the presumed 90% net take beats the 50% domestic/35% international split of theatrical. (Though I think that Disney’s split with PVOD partners like Apple, and Amazon may actually be lower than 90%, but don’t know for sure.) Here’s the look at the question I said we should ask:

IMAGE 12 Lifetime Estimate

I love this look because it clarifies how much we don’t know. Which is frankly how much Tenet will make on TVOD/DVD, how much Mulan will make in home entertainment, how much more Tenet can make by going to premium cable, and how much both will make in streaming.

Why not try to estimate it? 

Because I don’t believe the Tenet or Mulan numbers are good comps for forecasting. 

If Tenet’s US box office is depressed because of Covid-19, then it’s home entertainment could make as much as Trolls: World Tour or Mulan at home. Meaning it could have as large a window as Mulan had since 60% of theatrical attendees couldn’t see it. It’s rumored that Mulan will go wide on TVOD (including iTunes, Amazon and maybe even Pay-Per-View), but I don’t know if that viewership has already been cannibalized by this PVOD experiment. If it hasn’t, it could add 33% more revenue as Trolls: World Tour did when it went cheaper on TVOD in July.

Meanwhile, Tenet will eventually be on HBO and likely HBO Max. But Mulan will stay on Disney+ exclusively? Could I calculate that exclusivity value? Nope. Because I still don’t know enough about Disney subscribers to conclude that this PVOD experiment drove subscribers or that Mulan will have good replay value on the platform. (Unlike Netflix, who we have multiple years of US-only data to parse.)

This is the “n of 1” problem I discussed above. There are so many conflicting variables that my usual methods of forecasting are out the window. Same for the studios. They’ll basically have to collect the revenue and see what shakes out.

Thus, at $35 million dollars difference between the two, I’m calling this a push. It’s as likely Tenet makes more money for Warner Bros. as it is Mulan makes more money for Disney.

In short, we’ll never really know who “won” this skirmish since our numbers are close enough to call it a draw. I’d add, using one proxy for demand, Google Trends, it looks like Mulan peaked higher, but Tenet may last longer.

IMAGE 13 G Trends Tenet vs Mulan WW

As for how demand shifts from here, we’ll see as they release on additional platforms.

Reading List

Really, this article is a continuation of this series I started in December on “Should You Release Your Film Straight to Netflix? Part I” and “Part II” In that series, I explore the economics of taking a film straight to streaming.

Previously, I built a model on how to forecast “revenue” for straight to streaming titles in this series, “The Great Irishman Project”. It’s fairly tricky to forecast streaming revenue, but definitely possible. (Netflix does it!) See my methods explained here.

I also built and explained a film finance model for feature films released traditionally, which I first explained back when I launched the site in a series evaluating the Disney-Lucasfilm acquisition.