Category: An Intelligence Analysis of The Streaming Wars

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.

How Fortnite vs Apple Could Impact The Streaming Wars: Imagining a “Maximalist” Scenario

The first thing to know about the streaming wars is that it is really multiple wars simultaneously. One war is between the streamers. They compete fiercely against each other, with Netflix in the lead. (This is by far the most covered battleground.) 

If those are the established powers, the upstarts are the free, ad-supported streamers are trying to take territory, er attention/mindspace/viewership, from both. Youtube leads here, but is followed by the hot new crowd of Pluto, Xumi, Tubo, Roku/IMDb Channels, and more.

Yet, those land armies’ power is dwarfed by that of the air forces of the world. Who in many cases set the terms of the streaming wars. And in this analogy, that’s the platforms that deliver the streamers, be they devices or operating systems or other bundlers have just as much, if not more, power. In a moment, a platform could blow up an entire business model, like dropping a nuclear bomb on an opponent’s army.

(The Game of Thrones analogy patented by Dylan Byers also explains this well: streamers are the traditional houses of Westeros, ad-supported streamers are Daenerys and the Dothraki, and the platforms are the White Walkers.)

If you want to understand the scope of Epic Games going to war with Apple, this is it. Epic Game’s army is fighting Apple’s air force, with the expected outcome that Apple nukes Epic’s business.

For those who don’t know, Epic Games (maker of the Fortnite game and Unreal video game engine) tried to implement in-app purchasing outside of Apple’s payments system. This resulted in them being kicked off the Apple app store, lawsuits and countersuits.

The Fortnite gambit will directly impact the streaming wars. The ability of platforms to dictate terms to the streamers directly hits streamers’ top, bottom and cash flow lines. If Fortnite wins, it is like taking away Apple’s (and Google, Roku and Amazon’s) ability to drop bombs. (Okay, I’ve taken this analogy about as far as it will go.) That’s what I’m going to explore today:

  •  First, explaining the relationship between aggregators, streamers, bundlers and platforms.
  •  Second, describing the “maximalist” scenario where platforms are heavily regulated.
  • Third, understanding the impact across the three forms of streaming business models: 

–  Transactions (Pay per usage)
– Subscriptions (Pay a recurring fee for access)
– Advertising (Free, but watch/listen to advertisements)

Putting this In Context

As I wrote last November, the key to understanding the streaming wars is to know that a huge amount of power is vested in what I call “Digital Video Bundlers”, the folks bundling multiple streamers into one experience. Here’s where they are on the map, yellow:

Image 1 Video Value Web copy

Fortnite would slot in where I put “aggregators”, though that term is more apt for streamers than gamers like Fortnite. Apple is the bundler, since they allow a user the opportunity to play multiple games on one device. Crucially, Fortnite—like many app makers—wants to be more. They want to sell additional things within its game to make more money. Epic Games also wants to set up an entire app store on its own. (Really, Epic Games has dreams of being a bundler as well.)

The conflict stems from those in-app purchases. Since Apple owns the operating system, it wants a piece of any money being exchanged on its platform. When you buy an application, you pay Apple 30% of that price. On some level this makes sense. Apple set up the platform so they should get paid for letting you on the platform.

This is a “platform tax” that Apple charges to have an application on its App Store. And Amazon and Google have similar taxes. (You could call it a “fee”, “rent”, or other term, but I like tax.) A tax for doing business on their platform. Apple says this is the price needed to run its App Store.

That’s what makes the terms of this court case so large. If Fortnite wins, they won’t just change their own terms, but alter the fundamental case law around platforms. The results could impact Apple, Microsoft, Sony, Google, Amazon, Roku and any other platform.

The Maximalist Scenario

That’s the world I want to imagine today. I’m calling this the “maximalist” scenario. It assumes a judge/judges/legislative bodies/regulatory agencies use the Fortnite case to legislate/regulate/litigate maximum concessions from an Apple, Amazon or Google on their platforms. Call this the “worst case” for platforms or the “best case” for streamers, applications and games. Say…

– A 3% cap on fees (or cap on fees up to a given maximum).
– Guaranteed carriage on non-business issues
– No tying disparate business unit negotiations together.

Essentially, in this scenario digital market places like app stores are governed as utilities. The government would be saying, “Since you have de facto monopoly power over app stores, we have to regulate your business to ensure you don’t abuse your power.” I’m not assuming this happens, but exploring the “what if” scenario where it does. 

Impact on Transactional Business Models

The impacts on the transactional video-on-demand (TVOD) market would probably be the starkest of any of the business models.

Fundamentally, the platform tax makes any external TVOD business unworkable on any mobile device. The math is fairly simple. If you’re Apple, and you own your own TVOD business in iTunes, your gross margins look like this:

Image 2 - Apple TVOD

Now compare that to an independent service trying to run a TVOD business on iTunes:

Read More

Is Disney Is Throwing Away Its Money Generating Machine? Thinking Critically About Deficit-Financed Business Units

(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! Distinguishing Between Ecosystems, Business Models, & Network Effects and How They All Impact the Streaming Wars

If Disney+ has done nothing else, it has given the Disneyphiles tons of extra documentaries to consume. Making of Disneyland here. Insights into props here. More behind the scenes here.

My wife and I have watched some of “The Imagineering Story” documentary and there was a tidbit in the first episode about Disneyland’s launch which has stuck with me:

Disneyland was profitable by the end of the first year.

To compare Disney to the company that led the introduction to last week’s article, if Amazon opens a “BezosLand” in Seattle, do you think it would make money in its first year? 

Heck no!

It would probably never make money. It would be created as a unique bonus for Prime subscribers who could attend for free. We would never find out how much money they make and if there were rumors BezosLand was losing billions every year, they’d leak to a few favorite journalists that the “data” makes it all up for them in selling more socks.

It feels quaint what Walt Disney did in the 1960s: He saw a way to create value—have amusement parks that were clean and cutting edge that emphasized decades old beloved characters—and when he launched it, he was quickly proven right. This is capitalism at its finest: for his bet he earned lots and lots of money. Shareholders still are benefitting from his foresight.

Far from being quaint, Walt Disney was actually on to something. For most companies making money is key. This is true even in the streaming wars. But we’ve lost sight of that fact because so many companies entering the streaming wars with plans to lose oodles of money doing so. 

This is part II of my three part exploration of “flywheels” in the streaming wars. Last time I defined my terms. Next time, I’ll use the principles of this article to look at a few other new streamers. Today, the lesson is all about why making money still matters, even in streaming. And Disney’s future is the case study.

Summary

– The best way to evaluate any business is still Net Present Value.
– Even in flywheels and deficit-financed business units, the goal is still the same: to invest money in net present value positive endeavors.
– The risk of a “flywheel” with a deficit-financed component is that you simply lose money, not start the flywheel spinning.
– Disney provides the case study in this: if streaming can’t/won’t make money, their flywheel of toys, parks and resorts won’t make up for it.
– Thesis: The best business model makes money at every point, not “flywheels” that lose money in one area to make money in others. This is actually the forgotten lesson of Walt Disney.

A Reminder about Net Present Value

Fortunately, the key to evaluating flywheels is the same as the key to evaluating all businesses: 

Net Present Value

Or NPV. The short hand for calculating “net present value of the discounted future cash flows”. That’s a finance-y way of saying that a company should invest in businesses that promise to make money. Again, we’re talking Finance 101 here. But it’s worth repeating because I’ve seen many businesses or ventures praised in the streaming world who likely won’t make money, even on a net present value basis. (They use narratives, not numbers. And strategy is numbers.)

Read my explainer for this concept here. (And no website can do it justice, you really should read your finance textbook to understand the details.) But for a reminder, since I use it a lot, 90% of NPV decisions look like this:

– You invest a lot of money at the start. (Capital expenditure)
– You slowly start to make some money. (Revenue)
– You still have some ongoing costs. (Cost of goods sold.)
– You subtract the two, and keep the remaining. (Profit)
– You take those future sums and account for the time value of money. (Discounting)

Since we’re talking Disney, here’s a look at my big series on how much they made from Star Wars toys:

IMAGE 2 - Discounted Star WarsThe problem I keep running into with streaming video is folks seem very willing to ignore these two core principles when evaluating the streaming wars. Most money losing/unknown streaming or digital video ventures are excused because frankly we don’t know. Since we don’t have the numbers—and it’s hard to calculate them—we use narratives instead.

If you take nothing away from this article, remember that even a flywheel can be evaluated on NPV terms. It’s components can, nee MUST!, be evaluated on NPV positive terms as well. Otherwise, companies run a huge risk.

“A License to Lose Money”: Explaining Deficit-Financed Business Units

Consider:

– Prime Video (money made unknown) isn’t around to make money, but to sell more socks, thus spoke Jeff Bezos.
– Apple TV+ (will spend $6 billion on content) isn’t around to make money, but to sell Apple devices and Apple Channels.
– AT&T (will spend at least $3 billion on HBO Max) isn’t around to make money, but to sell more cellular subscriptions.

In these cases, the explanation is that video is a means to an end. At extremes, defenders of the “lose money in media to make money elsewhere” even call it a “marketing expense”. 

It’s worth dwelling on the concept of “marketing expense” more. Because in the previous world—the old fashioned/traditional business world—it wasn’t like you could just label something as marketing and spend as much as you wanted on it. Indeed, marketing was always taken out of your operating profit. So the more you could trim marketing while keeping sales the same, the more you trimmed! That’s why advertising is the first thing to go in an economic downturn.

Despite the branding as marketing expenses, there is real money being spent on video. These are real products from real business units. Not simply “marketing”. We need a new name, which is why I’ve come up with:

Deficit-Financed Business Units.

DFBUs. Yes, I was in the Army so I acronymize everything. It’s worth unpacking the phrases to see why these definition makes so much sense. 

First, a venture is “deficit-financed” if the plan is to never make money on it. Or to make money, but so far in the future that current financing is still net present value negative. Thinking about this abstractly explains why. Say I offered you a billion dollars a year starting in 2050. The key is you have to pay me $20 billion now. Should you do it? Heck no! You could just invest that $20 billion and probably double it multiple times before 2050, making more than enough to pay yourself $1 billion per year.

That same scenario is a microcosm of “net present value”. Should Apple invest $20 billion right now to make $1 billion a year in 2050? Heck no! Just keep it in cash or cash equivalents. No matter if it is marketing.

Second, I like business unit because it really distinguishes between streaming video companies  and a marketing expense. Plopping down several million dollars for a Super Bowl ad could be a net present value negative decision. (And should be evaluated in those terms.) But we should distinguish from genuine efforts at marketing versus creating brand news businesses, that in most other contexts would need to make money. 

The Riskiness of DFBUs: You Don’t Make Actually Make Money on the Flywheel 

My worry for companies and investors is that they don’t insist on looking at these business ventures with an NPV lens. As a result, DFBUs become a license to lose money for big tech companies. They may even grab market share—that’s certainly the case with all of them—but that doesn’t mean they actually make money.

That license usually has a justifciation, though. If we lose money on this part of a flywheel, can it make more money elsewhere? In other words, the key question is:

Can Deficit-Financed Business Units Turn a Flywheel?

This is really the supposition that has fueled the rise of streaming video. If you have a true flywheel or ecosystem, getting more customers in will help cause it to spin. That’s expressly Jeff Bezos’ logic. Apple’s too. AT&T even.

The answer? Maybe. It depends on the flywheel.

My thesis is that they can, but they are risky and hence rare. Losing money is easy for a business to do. Allowing someone to lose money means they will. It makes their thinking sloppy. Moreover, it’s easy to get the tradeoffs slightly wrong, and you deficit-financed business unit just becomes a money losing hole.

And I think I can illustrate this with Disney. If you’ve been following me on social, you’ll know that my household has been into Disney’s Inside Out recently. Which is appropriate to call back to, for this scene:

That’s how I’d describe DFBUs, they’re shortcuts that should be labeled danger. The current danger-disguised-shortcut facing Disney is losing money on streaming (Disney+, ESPN+ and Hulu.) to make it on extra toy sales. The rationales I’ve seen justifying Disney’s move into streaming reinforce this money losing narrative. I’ve seen the same arguments used by the tech conglomerates trotted out for the House of Mouse. For example, I’ve seen Disney’s streaming efforts explained as…

– They’ll lose money on streaming to get folks into the “ecosystem” of theme parks and toys.
– Disney has a flywheel and streaming video will bring more subscribers into the flywheel.
– Disney should disrupt the theatrical business model to own the customer relationship in streaming. 

So all the buzz words. Of course, since strategy is numbers, the question isn’t what narrative you employ to justify losing money, but whether or not the investment will make it up in the long run. So let’s quantify—for what I think is the first time on the internet—the actual numbers behind those narratives.

The Messy Financials of Disney

One of the first explanations for Disney’s push into streaming was so it could “sell more toys”, just like Jeff Bezos sells more socks. But take a gander at this Hollywood Reporter image I love trotting out:

IMAGE 3 - THR Disney 2018

Toys—from here on “consumer products”—is a small, small part of Disney’s overall operating margin, isn’t it?

Let’s dig deeper. I approach a company’s financials like a hostile witness on the stand. What are they trying to hide? What don’t they want me to know?

For Disney, I looked at their financials going back to 2009. And a huge red flag jumps out, which should be a clue for the quality of the toy business:

Read More

The Flywheel Is a Lie! Distinguishing Between Ecosystems, Business Models, & Network Effects and How They All Impact 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

This is probably the most popular image for business school students about Amazon. Heck, anyone describing Amazon has probably used this image. 

Amazon FlywheelIf we’re supposed to be neutral observers of businesses, you can’t help but notice after a moment of reflection how insanely positive this take is. Man, Jeff Bezos can really sell his positive vision and have it repeated universally.

If you were really cynical—hey, I am—what would the pessimistic version of this flywheel look like? The “Flywheel of Evil” if you will…

Screen Shot 2020-06-24 at 9.21.08 AM

What changed? Well, first, the idea that you “sell more things” is great, but if you lose money on every transaction, that’s “sub-optimal” in business speak. Or bad in human speak. And Amazon does in many cases. 

To fund these losses, you need to start a really successful company that is totally unrelated to your retail business or its membership program, which is where Amazon Web Services comes in. There’s an alternate history where an Amazon without AWS (cloud computing) doesn’t take over retail because it doesn’t have a cash flow engine driving its growth. (In that timeline, Ebay becomes our overlords.)

Even more potent, though, is combining already low prices with Amazon’s decades long refusal to pay local taxes. Could you point to the continued imprisonment of poor Americans to online companies not paying local taxes? Maybe! (As local tax bases erode, some communities turned to police forces to extract rents, like in Ferguson, Missouri. Seem relevant to our current times?) Amazon does pay some local taxes—now—but only after it became an advantage to them in furthering their monopoly power.

Now that it has this “flywheel” rolling, Amazon uses its size to both crush new entrants who want to compete and to punish suppliers, capturing all the value from their product creations.

Which flywheel is “right”, then? Well, both actually. Both describe valuable methods for how Amazon grew to the size it did. Some of those methods were good for customers; some were bad for society. You can’t tell their story without both.

Screen Shot 2020-06-24 at 9.21.39 AMWhat’s the lesson? Flywheels are simple whereas reality is complicated. As tools, flywheels are fairly inexact. They’re not even really tools, but narrative devices we use to help make sense of a complicated world. In other words, a “heuristic”. As behavioral economists like Kahneman and Tversky taught us, heuristics are useful, but can carry pitfalls if we aren’t careful.

What’s the point for the streaming wars? Well video has become a spoke on multiple company’s supposed “flywheels”. Everyone from Disney to Amazon, but most critically Apple last fall. Whether or not these were actual flywheels was less important than merely invoking the term and using it to justify nearly any amount of spending. 

Let’s call this another key piece of “terrain” in the streaming wars. The “Forest of Flywheels” if you will. The problem is the business and entertainment press has been fairly sloppy with our language when it comes these types of endeavors. Due to this sloppiness, we’ve allowed a lot of companies to launch video because they’ll “lose money on video to make money on X”. 

Today, I’ll explain the key terms. In my next article I’ll critique deficit-financing in particular. And then I’ll finish it off with an analysis of some of these business models to show their potential strengths and weaknesses. 

Summary

– Flywheels are the most overused term in business, and it’s important to know what different terms mean.
– Ecosystem is probably the most commonly confused term with flywheel. Ecosystems are also rare.
– A true flywheel is a self-perpetuating cycle of growth that is incredibly rare in practice.
– As such, in pursuit of flywheels, we’ve seen many digital players launch money-losing video efforts. I call these “deficit-financed business units”. And they’re one of the biggest factors in the streaming wars.

Defining Traditional Business Strategy Terms

You’ve read articles bemoaning jargon in the workplace. (This New York Magazine piece is the latest in hundreds on the subject.) Even I just denigrated “sub-optimal” above, a term I really don’t like. Still, I don’t take that extreme of a position on business nomenclature. Often, jargon really does have a role in explaining new concepts.

The problem comes in overuse. That’s what is currently happening with “flywheel”. It’s almost become synonymous with “successful business”. But it’s much more specific than that.

So let’s define our terms, so we can better understand what is and is not a flywheel.

Business Model 

It turns out if you want to stymie business school students, just ask them “what is a business model?” Indeed, they’re taking classes called “Strategy and Business Models”, but answering, “What is a business model?” can stump them. I’ve seen it.

At its most basic, a business model is a plan or process to make a good or service and sell it for more than it costs to make. Make a widget for $1, market it for $1 and sell it for $3. Or replace widget with service. The model is how you make money. On a financial statement, this is usually called the income statement. When I build a “model” for this website, that’s usually what I’m building. 

How do business models relate to flywheels? Well, you can have a successful business model that isn’t a flywheel! It’s just a good business. In the olden days, you would have probably described the dividend producing stocks as just good businesses. They don’t have huge growth prospects, but they still generate a return on investment. Cable companies in the 2000s fit this bill. They had good business models, but were absolutely not flywheels.

Where it gets complicated is usually a given company is actually a collection of many business models. Arguably for every product they sell. Or you have distinct models for different business units in the same conglomerate. Which is actually a good transition to our next definition.

Business Unit

Most companies on the S&P 500 aren’t just one business, but multiple types of businesses lumped together. This is the reality for most conglomerated businesses. When analyzing a compnay, it’s key to differentiate between its overall success and the success of its various pieces.

Amazon is a perfect example here. Retail is one business unit. But then it also has media businesses from live streaming to streaming to music. Then it also sells devices like Amazon Echo. Oh, and it has Whole Foods groceries too.

And then there is the cloud computing (AWS). Which I called out above. And it’s worth noting just how distinct that wildly financially successful enterprise is from the rest of Amazon’s consumer-focused retail efforts. It’s a business-to-business service that is powered by lots of fixed capital expenditure data warehouses. It barely relates. Yet, it’s part of Amazon.

How do business units relate to flywheels? Well, flywheels often fail to take into account entire business units. Take the Amazon flywheel of success…it totally ignores AWS! For years Amazon survived because it had an incredibly high margin business in cloud computing that could provide necessary capital that enabled Amazon to continue building its retail business. This also kept Wall Street happy.

That makes the Bezos flywheel not just wrong, but almost negligently wrong. 

It’s business malpractice to point out that a flywheel helped Amazon to succeed if you don’t include AWS’s role in propping up the balance sheet!

I would add, many of the “flywheel” charts you see out there are often just describing a company with multiple business units. (I’ve seen this with Disney and Epic Games.) Every business can benefit from owning multiple business units, from lowering costs or providing learnings. That used to be called “synergy”. Now we call them “flywheels”.

Ecosystem

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If The Streaming Wars are a War…Then What War Are They?

(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

In November, a war started. 

Fortunately, in this war, no one will die and the biggest risk is to the stock price of ViacomCBS. If the biggest war our current generation is a streaming war, then the future isn’t all gloom and doom.

Since I’m writing an “intelligence preparation of the battlefield” for the streaming wars, it sort of begs the question: if the streaming wars are a war, what kind of war are they? To prove I’m not making a straw man here, here’s a host of articles asking about the streaming wars, but no one tying them to the best comparable war.

Screen Shot 2019-11-18 at 10.45.42 AM

Screen Shot 2019-11-18 at 10.46.25 AM

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I was a history major and in the military. I should be able to figure this out. Let’s do it.

The Plan

1. Will rank wars from “easily discarded” to “Pretty darn close”. Scroll down to the bottom to find out the winner(s).

2. One imaginary war per section. 

3. I’m fairly “American” so all of these wars will inevitably come from that bias viewpoint.

Easily Discarded

The Civil War (and most other civil wars)

The case for the Civil War—and other civil wars—is that the entertainment industry itself is like a country riven by sectarian strife. The Confederates would be the traditional studio conglomerates and cable MVPDs clinging to their profits, while upstart streamers are, I guess, the Union? Trying to impede the new movement? Or maybe switch the two and the streamers are the Confederates splitting off from the Union? See, it doesn’t really work.

The Persian Gulf War or Franco-Prussian War

The problem with these wars is they were too darn quick, each lasting under a year. The streaming wars won’t end any time soon.

Alexander the Great, The Huns or The Khans Conquer the Known World

Every so often, some military leader just up and conquered most of the known world. Four years ago, we probably would have said Netflix was set up to do just this. Yet, unlike the foes who fell under Alexander, Attila and Genghis, the traditional studios may have a fighting chance to defend their territory.

Independence Day War

This is the fictional version of massively powerful invaders taking over everything, just this time with aliens. We only have two sides in this war, where the streaming wars are multi-polar, so we’ll need some better analogies.

Closer, but Key Flaws

Punic Wars

We have our first “traditional” war where two massive powers square off for domination of, literally, Western civilization. If Carthage had defeated Rome, all of human history may have taken a different course. (Instead of Rome, the Western World would have been centered around North Africa.) If the upstart tech streamers defeat the traditional entertainment conglomerates, the results for investors may be similarly momentous.

The challenge is we’re not dealing with two united sides in the streaming wars. Disney+ is fighting for control from HBO Max as much as they are fighting Netflix and Amazon. However, if I did make this analogy, it would mean Ted Sarandos is Hannibal and his elephants are Netflix originals powered by algorithms. Which could mean Bob Iger is Scipio Africanus, but now we’re going too far.

The French Revolution

Revolutions are like Civil Wars, just without sides or uniforms. Which make it tough to compare to our streaming wars. Sure, our combatants don’t wear uniforms—well, NBC Pages do, but you know what I mean—but you have to like the symbolism of revolution. Streamings isn’t a war, but a “digital revolution” in how we receive content! 

That has an ethos of “power to the people” who are rising up and saying, “No more high cable prices, I’m cutting the cord!” Of course, the data doesn’t support that—most Netflix subscribers have cable; most cord cutters pay well below costs for content—but it sounds good.

The Cold War

If I took points from The French Revolution for not wearing uniforms, well no one wore any uniforms in the Cold War either. This war was waged via proxies, spies and nuclear stock piles. All of which I have a tough time comparing to the streaming wars. In its favor, The Cold War was a global enterprise, with battlefields from a divided Germany to Vietnam to Latin America to China to Korea to Afghanistan. The streaming wars will match that scope.

War of the Ring (Lord of the Rings)

Human-Covenant War (Halo)

Lots of science fiction or fantasy works have two sides squaring off for all the marbles just like the Punic Wars:

Lord of The Rings. This is the literary equivalent of the Punic Wars. The humans battled Sauron for literal survival. And somehow a hobbit saved humanity.

Halo. This is the video game equivalent of the Punic Wars. The humans battled the Covenant for literal survival. And somehow a super-soldier saved humanity.

Pretty Darn Close

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Aggreggedon: The Key Terrain of the Streaming Wars is Bundling

(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)

In war, what really matters on a map is the “key terrain”. The place on the map that if you control it, you have a much better chance at winning the upcoming battle or war. In Army lingo, terrain that control “affords a marked advantage”. Usually this is the high ground, but can be anything from a bridge to a national capitol, or airfield or even castle, in olden times.

So take a gander at our “map” of the video landscape from last week.

Image 7 Video Value WEb

As a commander, where do we want to control? What gives us a “marked advantage”? Well, I highlighted it in yellow. 

Last week, I “defined” the map and area of operations. Now we move onto the challenging tasking of describing that map. While I won’t use all of the Army’s frameworks, the concept of “key terrain” really does resonate with business. (Don’t worry, we’ll use other business analysis frameworks as well.)

Today, I’m going to highlight the key terrain the streaming wars will be fought over, and it’s not what most streaming observers and customers think it is. (If I had to guess, they’d call it subscribers.) I’ll start with the “BLUF”, then describe the situation in broad strokes, the reasons why digital bundlers are in a powerful position, the stark choice facing streamers, and finally the ramifications for all players in digital video. 

Bottom Line, Up Front – Digital Streaming Bundlers Are Best Positioned to Capture Value

While streamers started as the aggregators—Netflix inspired cord cutting by offering it’s own bundle—in the next five to ten years, the new digital video bundlers (who I call DVBs) will be in the best position to capture value (meaning profit and cash flow) in the video landscape. This means the winners will be folks like Amazon, Apple or Roku, and not Netflix, Disney, Comcast or AT&T.

The Situation: Netflix breaks the user experience monopoly of cable TV

In the past—meaning just ten years ago—the landscape was relatively simple for TV: you turned on a cable or satellite box, and scrolled. Netflix changed that all. Using its installed base of DVD subscribers, it started offering streaming video to its customers. Thus, when you sat down at your TV, you could decide, “Netflix or cable?” Netflix provided a second user experience to watch TV. Some people—though less than usually hyped—cancelled cable just to use Netflix and were dubbed “cord cutters”. 

Netflix was so successful, it inspired copycats from Amazon Prime to Apple TV+ to Disney+, who launched this week. Of course, the best place to watch TV isn’t from a computer screen, but from a living room TV. Devices were released to manage all these different streaming platforms, like smart TVs, Google Chromecast, Roku, Amazon Fire TV and Apple TV.

Which leads to my biggest theory of the landscape: customers will want to return to one operating system to manage all their television watching. Crucially, this may include bundling content. The cable companies didn’t just provide one user experience, they provided a bundle of cable channel at one fixed price. That bundle is dying.

But it’s returning. Instead of just channels, though, it will be a combination of virtual MVPDs (like Hulu Live TV, Youtube Live TV or AT&T TV), FASTs (like Pluto, STIRR, Xumi, and Tubo) and SVODs (like Netflix, Disney+, Hulu and Amazon Prime). The question is who mediates that experience. Someone will. And potentially to manage all their payments. And if you’re managing all the payments, you can bundle all the streamers/FASTs/vMVPDs into one monthly or annual price. A bundle.

The question is what do we call them? I’ve taken to the acronym DVB:

Digital Video Bundlers. 

I’ve colored this in yellow on my map because of how important I think it is. If an Amazon or Apple can own the customer relationship, they’ll own all the data and be best positioned to capture value from suppliers or competitors. Before I get into the ramifications, let me explain why I think this will happen.

Reasons Why The Bundle Will Return

The return of the bundle doesn’t just seem likely, but almost inevitable.

First, a clear customer value proposition – One user interface for all content.

Both Amazon and Apple have touted a clear proposition to users, which is the idea that you have one place to go to watch all your content. Meaning: if you log in, every subscription video service is in one location to easily search and browse without having to switch between apps. 

(In some cases, this vision is still aspirational, as opposed to realized. But it’s both companies’ dream user scenario.)

This makes sense from the cable example. The big revolution wrought by Netflix stemmed from the idea that suddenly customers now had to choose between two different ways to interact with the TV screen. Once that was severed, the cable bundle no longer offers it all. But neither did the “Netflix only” option, since you missed all traditional cable channels. Or other streamers like Hulu. This makes deciding what to watch just that much harder (and was to Netflix’s advantage).

Most smart TVs don’t offer a simple way to scan between streaming services. Instead, you decide what app to use and go to its platform to browse. Amazon and Apple want to incorporate everything into one user interface, so HBO content would sit next to Disney+ content which is next to CBS All-Access, for example. Meaning you can organize all your video in one place. Here’s Amazon Channels right now to show this vision:

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(By the way, Amazon and Apple both ruin this customer experience with a clear user experience fail. When customers surf TV and streaming, the expect everything to be watchable for free. Pay Per View, historically, was always limited to clearly defined section of the cable interface. In their efforts to have an accurate search, Amazon and Apple both surface results for their TVOD businesses, which customers despise. Loathe. Hate. Keep your “pay for it” shows and movies clearly separated from your TV experience.)

Second, a vague customer value proposition – One source for payments.

The second reason cited by folks selling subscriptions is it offers simplicity in payments. I’m less sold on this value proposition because people will likely still search for the best deals. But it’s a potential for some customers and has some value.

Third, a potential value proposition: the new bundle. (Which everyone is predicting)

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Unrolling the Map – The Video Value Web…Explained

(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:

Part I: An Introduction
Part II: Defining the Area of Operations, Interest and Influence in the Streaming Wars)

As an Army officer, getting lost is sort of the death knell for your career. For the Band of Brothers junkies out there, I’ve always had the “hot take” that if Captain Sobel could have read a map he would have stayed in charge of Easy Company. 

Having had to pull out a map and lead a group of soldiers somewhere, I can testify it’s a nerve-racking experience. There was always this moment when I started planning a mission—from my time in ROTC with squads to training in Ranger School with platoons to being on the ground in Afghanistan—that I essentially had to “unroll my map” and figure out where we were going.

Every time, my stomach would start to churn as I looked to see if I could understand what a bunch of squiggles on paper meant in the real world. Inevitably, I could. We’d start and finish planning and head out. Honestly, my stomach is churning thinking about it.

Today we unroll the map for digital video. But where is the map? There are a few lay outs I’ve seen, like this one from the Wall Street Journal. 

IMAGE 1 - WSJ Map

Or this map from Recode, which is probably the most commonly linked to image I’ve seen in the streaming wars.

IMAGE 2 - Recode Map

Unfortunately, each has flaws. In both cases, neither links how the various companies relate to each other, merely the sheer size in one case, or the type of business in the other. The challenge is that while you can see the various areas, the concept of the “value chain” is totally missing. Who is producing content versus who is distributing it? Yes, ad-supported is different than subscription, but don’t they fill the same customer need? I’d argue they do. (Also, while the Recode map looks really cool, you know I sort of loathe “market capitalization” as a measure of size.)

So I made my own lay-out. This has been an idea I’ve been tweaking for over a year. Essentially, I’m not just reading a map, but drawing my own of the entertainment landscape. Which is even more nerve racking then just reading the map.

Today, I’m going to explain the two business school frameworks that inspired my map of the entertainment landscape. Next, I’ll talk about the “jobs” completed by various steps in the process. Then, I’ll show the “Digital Video Value Web”, with some explanations about the key pieces. Finally, I’ll highlight the most important terrain of the streaming wars.

A Quick Reminder on Value Chains, Porter’s Five Forces and the “Value Web”

The value web is the name I picked for a mashing together of two well established frameworks for business. The first is this little guy, “the value chain”, who I explained back in May:

True Full Value Chain(I use potato chips to explain concepts.)

Reread that article for a fuller description, but a value chain is essentially every step of a business process that results in a good. So suppliers provide the raw materials to factories that turn it into goods, which go to distributors to send to stores, who sell it to customers. The “value” component is really asking creates or captures the most value along the way. 

The limitation to “value chain” analysis is revealed by the WSJ image. I could make a value chain for ad-supported video on demand, for streaming TV hardware, for sports, subscription video and traditional cable bundles. All those value chains would start to get confusing. But to understand the landscape, we need to understand those connections between the value chains.

We have another tool for that, fortunately. In the past, I’ve also explained “Porter’s Five Forces”. (It’s one of my most popular articles, actually.) Read that article here. Here’s a visual of that…

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Porter’s Five Forces is a good organizing tool to lay out the potential threats and opportunities for a specific business. Its limitation is its focus: it only looks at one specific company in one part of the value chain. For example, if I used it for “cable companies”, it would leave out the studios distributing the content, merely the channels providing them content. That’s like a map that is zoomed in to one hillside when we need to look at the whole mountain range.

My insight was simply to realize that the value chain is going across the middle of a Porter’s Five Forces diagram. If I combined them on one table, I could make essentially an overarching view of any rough industry. My name for this is a “value web” because I couldn’t find anyone else making a similar layout and I elevate value above all other business concepts. Here’s my version from my Porter’s Five Forces article.

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Now we can make one for digital video.

The “Jobs” Done at Each Step of Digital Video

The first step was to pull out my value chain for streaming video. I’d previously made that here:TV Value ChainThe challenge was that I left out a fairly big component of the video value chain when I focused on distributors. Really, after a distributor sells their film to a cable channel, they don’t care how customers get that cable channel. But someone is “providing” that feed of cable channels. For the streaming wars that matters.

To borrow a phrase from Clayton Christensen, essentially the cable companies do the “job” of providing access to bundles of entertainment. I like putting “ing” after a step of the process because it gets at the type of work being performed. Applying this to my value chain you get:

Talent (acting, writing, directing, so on)
Producing
Distribution
TBD
Providing

The challenge is that “TBD”. What is it that a cable channel is doing? Or a movie theater? Or a streaming video service? I’d argue they’re all providing the same job, which is creating a library of content to watch, even if they use different monetization methods for those libraries. Frankly, the best word to describe that is “aggregating”. (And yes, we’ll get to Ben Thompson’s Aggregation Theory later in this series.)

That explains part of the “TBD”, but not really the whole thing. Because cable companies then aggregate the “aggregators” or channels. So what do we call them? They are definitely NOT in the same step of the value chain. A a group of cable channels is a separate business from the channels themselves. In reality, they’re providing access to a “bundle” of content which they charge for one price. I call that bundling.

(To quote a second business thinker—cited by Mike Raab recently—James Barksdale has said all business is either bundling or unbundling.)

With that, we have our six jobs being performed (with customers waiting at the end). 

The Video Value Web

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Defining the Battlefield – Areas of Operation, Interest and Influence 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! Distinguishing Between Ecosystems, Business Models, & Network Effects and How They All Impact the Streaming Wars

Certain parts of the US Army’s IPB process have such a good correlation to business planning it makes me wish I had connected these two ideas—intelligence preparation of the battlefield and business strategy—earlier. (As a professor described me once before, I’m a sucker for frameworks and planning processes.)

Take this map from a Wikipedia page, based on the US Army’s IPB manual (available free/open source online, I was taught off an older version):

Image 1 Battlespace Lay Out

It’s a subtly simple concept: the area you are assigned (your area of operations) is part of larger area you can directly “influence”, but you still need to be aware of the even larger environment, the “area of interest”. 

Today, I’m going to define the entertainment battlefield within those three terms. I have four rough categories: entertainment business, related industries, geography and regulatory environment. But first, let’s define these terms to make sure we’re all on the same page. 

Defining “Area of Operations”, “Area of Influence” and “Area of Interest” in war and business

Let’s start with an example to illustrate this. Say you have an Army Brigade deployed to Afghanistan. (About 5,000 troops.) If they are assigned “Kunar Province”, that’s their area of operations (AO). The definition of this in the manual is (paraphrased) “the territory your boss gives you”. In practice, this means the place with all your troops that you defend, protect or attack into. 

Of course, while your area of operations is “Kunar Province”, that brigade commander could influence a larger territory. This could mean being able to deploy their troops or fire artillery into the surrounding area. In Afghanistan, this would likely mean the provinces around Kunar, like Nuristan, Nangahar or Kabul. (Here’s a map of Afghanistan for reference. Kunar is the upper right.)

IMAGE 2 Map Afghanistan

Of course, the commander can’t influence Pakistan directly, because it’s off-limits, but Pakistan can influence Kunar Province. (Specifically, by acting as a logistics base for insurgents.) Making it an “area of interest” the commander needs to monitor.

It’s a great framework because it reminds you to broaden your thinking to solve your problems. If you only focus on your area of operations, you miss new trends and forces from outside your day-to-day focus. On the other extreme, though you can monitor what is going on in your “area of interest”, you can’t influence it without losing focus. As well, the most important events that could impact your mission will happen in your area of operations. And if your area of operations is bigger than your area of influence, you’re likely spread too thin.

Do these lessons apply to business strategy? Absolutely. 

Let’s use my default explanation of potato chips. The brand manager for Kettle Chips has “chips” as their area of operations. That’s their AO; they focus on managing and impacting potato chip sales. But they can “influence” the entire snack market. They’re fighting for shelf space against pretzels, nuts, healthy snacks and candy. Of course, the rest of the retail industry is an “area of interest”. 

Most business leaders probably don’t think in these terms, but doing the thought exercise may reveal some insights into either blind spots or areas you’re spread too thin.

Defining Our Area of Operations: Digital Video

Since we don’t have a “battlefield commander”, our “area of operations” is up to me to define. As I said last article, I’m focused on digital video. This is the heart of the “streaming wars”. But I’ll include anything “digital” in this from streaming (SVOD) to ad-supported (AVOD) to virtual MVPDs to FASTs (free-ad-supported streaming). These “areas of operation” mean those things the digital players can directly control, including the apps they roll out, how they distribute those, the prices they charge, but most importantly, the content they put on those platforms.

Geography: The United States

I don’t have enough bandwidth to cover the entire world in this series. Though Netflix and Amazon have notably turned the streaming wars into a world war, with global launches in a hundred plus countries, the start of the streaming wars will be US-centric. The United States produces the most content and if its streaming companies cough, the whole digital ecosystem will catch a cold. 

Other Industries: Communications

In this case, “communications”—my catch all for cellular, telecoms, cable and satellite connections to transmit data—is the key industry included in our area of operations. If you can’t distribute your content over the pipes, you can’t compete. So we’ll check in on the big players in communications like AT&T, Comcast, Charter, Dish, Verizon and Sprint/T-Mobile.

Regulation: The FCC (and Other Antitrust Regulators in the US)

Since our geography is the United States, the roles of the FCC, FTC and antitrust regulators could have a key impact on our area of operations. In the last twenty years, the trend has been toward lax regulatory footprint. Whether that continues is a key question for entertainment companies, and it’s coming right as the streaming wars kicks off. (Meaning November 2020 could be important.)

Defining Our Area of Influence: Video

The story of the streaming wars is really a story of the evolution of “video”. There are the traditional distribution methods (theaters, home entertainment, broadcast, etc) that are being disrupted by digital methods. What that means for us is that the giant conglomerates battling in the streaming wars can heavily influence these others parts of the value chain, even if that’s not the ground being fought for. 

We’ve already seen the influence of digital video in one of the most important areas of Hollywood production: the price of content. Essentially, everyone is paying more for scripted TV series, with a parade of articles on how much more these cost every studio. Netflix—a digital only provider—started this push by its winning bid for House of Cards, but Amazon, Disney+ and now HBO Max are al competing to raise these prices even further.

When I roll out my “map” of our area of operations, I’m going to include all of the video ecosystem since it can so easily be influenced and influence the digital video space. 

Geography: High Income or Growth Countries

Just because I’m focusing on the United States doesn’t mean I won’t acknowledge the rest of the globe. Indeed, one of the descriptions of this battlefield is how certain firms paying for global rights—whether accurately valued or not—is impacting those content prices I just mentioned.

When it comes to what can really influence and be influenced, high income or high growth countries such as the European Union, Latin America, India and parts of Asia fall under this analogy. While lots of potential customers may live outside those limited territories, the bulk of near term streaming revenue will come from there.

Other Industries: Technology

Arguably, the tech firms are already inside the area of operations, but for this category I’m specifically referring to the new innovations in technology that can change the next generation of streaming. Digital video is already our battleground, but what comes next? Virtual reality? Artificial Intelligence? And how can the entertainment companies influence that in turn?

Regulation: The EU Antitrust Authorities

The European Union’s antitrust authority is the biggest influencer here. Already Google and Amazon are heavily trying to influence how they are regulated in Europe, to more or less success. Again, only some of these will impact our United States area of operations, but we need to monitor it.

Defining Our Areas of Interest: Other Entertainment Options

As Reed Hastings pointed out:

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Introducing An Intelligence Preparation of the “Streaming Wars” Battlefield

(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! Distinguishing Between Ecosystems, Business Models, & Network Effects and How They All Impact the Streaming Wars

As the streaming wars kick off this month, one question is dominating every conversation online, whether implicitly or explicitly:

Who will win?

As if this were a professional sports league. And only one studio gets the championship each year. Or even more extreme, like it is a war to be won. To steal a quote from Game of Thrones, “When you play the streaming wars, you win or you die.

Listen, it won’t be that extreme, Mike Raab explained on Medium last week. Or as Alan Wolk has said, no one will “kill” Netflix anytime soon.

But if you’re an executive, there are plenty of questions about the streaming wars you still need answered:

– What is the landscape of digital video, and how is your company positioned?
– Who are the strongest competitors in digital video?
– What are the biggest economic, technological and regulatory forces facing streaming?

If you can answer those questions, you can then answer the most important question for your company, business unit or team:

– What should we do to “win” the streaming wars?

Frankly, what I described above is how an intelligence officer in the United States Army would approach the battlefield in a war. Before a military commander can decide what to do, she needs to know what she is facing. That makes this analogy between real wars and the streaming wars fairly apt. The biggest change is we’ll change “win” to “create or capture value”.

So if we want to explain the streaming wars, we need someone versed in both intelligence planning for the military and the economics of streaming.

Fortunately, I’ve worn both intelligence officer and entertainment strategic planner hats in my life…

Introducing: The Entertainment Strategy Guy’s “Intelligence Preparation of the Battlefield” for the Streaming Wars

As the streaming wars kick off in earnest, it seems like the perfect time to reflect more broadly on the streaming war, going a bit beyond my weekly columns and analysis. There have been some great layouts of the industry the last few months, but none that captured everything I’ve been seeing (with my own unique nee skeptical) take on the industry. 

So that’s my job for November. A lay out of the streaming video landscape. An explanation of the business of streaming. An intelligence briefing for the streaming wars. Since I used to make those for the US Army—a story for another time—that’s the framework I’ll use to organize my thinking.

In today’s article, I’ll explain what the IPB process is, and how I need to translate it to the streaming wars. Then, I’ll explain what I will and won’t cover in my first version of this.

What is an “intelligence preparation of the battlefield”?

In truly US Army fashion, an acronym fills in where regular words will do. So Intelligence Preparation of the Battlefield becomes IPB.

An IPB is both a process completed by a staff (the IPB planning process) and the product(s) that results, usually a powerpoint presentation, but sometimes a document or brief. It also usually results in maps and graphics. It can also include a plan to collect further intelligence.

The strength of an IPB is the clear process. For a bit now, I’ve been collecting thoughts on specific companies and larger issues in the streaming wars, but I didn’t have an organizing framework. The IPB process provides that. It’s a great tool because it’s flexible enough to be used by intelligence officers from small battalions to gigantic corps managing entire theaters of war, in situations involving a pitched battle with tanks in the desert to combating insurgencies in the jungles. 

Or in our case, the streaming wars.

Which battlefield in the streaming wars?

Crucially, I need to pick which battlefield I’m analyzing. The streaming wars will be a global war, but I’m going to start by focusing on the United States. Frankly, each country probably deserves its own analysis because of its own unique situation. But we have to start somewhere and I think covering the entire globe will be too tough for one month. 

Moreover, even in the United States, I’ll be focusing on digital video. Meaning streamers, bundlers, aggregators and virtual MVPDs. But digitally distributed. Broadcast, cable, theaters and home entertainment are all interesting, but for a future analysis.

With that, let’s explain this tool. (By the by, if you want to download a copy yourself. The U.S. Army hosts them online.)

Intelligence Preparation of the Battlefield…Explained

An IPB consists of four parts:

– Define the Battlefield (in jargon terms, “operational environment”)
– Describe the Battlefield
– Evaluate the Threat (formerly “enemy”)
– Determine Threat Courses of Action

Let’s define a few terms to unpack that simple four step process. In previous iterations, the operational environment was called the “battlefield”, but that wasn’t an acronym so the Army had to change it. We’re going to stick with “battlefield” since it is so much clearer of a phrase to use and “IPOE” just doesn’t sound right.

The battlefield is where your unit is conducting its operations. In a lot of was this is the military analogue to properly defining the problem. If you don’t know where you can and can’t operate, you can’t properly plan. It’s also particularly important in the military context because knowing where fellow military units are prevents friendly fire. (It’s a simple leap to make an analogy to a giant conglomerate with competing business units here.)

Once you know the battlefield, you then describe it. For the Army, this usually means three areas: terrain, weather and civilian considerations. Weather is just weather. But the terrain is what most Cold War military veterans were raised on, and it was summarized by the acronym OACOK: Obstacles, Avenues of Approach, Cover and Concealment, Observation, and Key Terrain. After the post 9/11 wars, when counter-insurgency became a thing again, the civilian part of the OE was described with ASCOPE or Area, Structures, Capabilities, Organizations, People, and Events. We’ll use different tools to describe the streaming war’s battlefield.

Next comes the threat. In the olden times, the Army called this the enemy. But then insurgencies were filled with political and non-violent actors, so this became “the threat”. During the evaluation part of IPB, you basically ask, “How dangerous are they? How many of them are there? What weapons do they have? What can they do?” When the Russians were the main bad guy, this meant a lot of maps with graphics describing effective firing ranges for artillery and machine guns and what not. For insurgencies, it meant capturing a lot more data about the relationships of society. The best word to capture this is “capabilities”.

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