Category: Disney

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, 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.)

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 2019 Star Wars Business Report – Theme Parks

This is part III in a multi-part series estimating how much money Disney made off “Star Wars” in 2019. Go here for my larger series on Disney purchasing Lucasfilm in 2012.)

Introduction and Feature Films
Television
Toys

As a tremendous Star Wars fan, I couldn’t shake the feeling that Star Wars had a rough year. “Rough” from a certain point of view. Consider…

– It arguably had the third most popular TV series in America.
– It definitely had the third most popular film in America.
– And it launched a new “land” in two of it’s parks. 

And yet…since this is Star Wars we’re talking about…we’re worried.

IMAGE 3 Bloomberg Headline 3IMAGE 2 - Bloomberg Headline 1IMAGE 1 - WSJ Headline

The theme parks were the biggest disturbance in the force. Based on hyper-charged expectations, observers expected the new park to be utterly jam packed. Instead, Disney saw a decline in total attendance at Disneyland. Stories about Disneyland being “empty”—for July—were blamed on Star Wars. 

On the other hand, Disney raised prices again, finally topping a $200 per day ticket.

It’s all worth unpacking in our continuing series “How Much Money Did Lucasfilm Make in 2019?” (I promise we’ll have this done before the year ends.) This is an extension of the big series I wrote analyzing how much money Star Wars has made for Disney compared to its purchase price. Today it’s all about theme parks, the trickiest business unit to assign value to individual franchises. 

(And also the one most impacted by Coronavirus. Unlike past articles, some of which were written pre-Covid-19, I’ll address that in the final section. As a reminder, this series is about 2019, but it does have some forward looking elements.)

Bottom Line, Up Front

In 2019 Star Wars lost about $60 million in total across the theme parks business. The parks still had big costs in 2019 to finish the lands, which hurt the cash flow.

The story is actually more positive than the headlines suggest, though. Disney was able to drive through incredible ticket price increases (the combined average growth rate is well above 6%, depending on the time period). Given that attendance stayed flat in Disneyland and had the second year over year increase at Hollywood Studios, the new lands are working. (At least, until Covid-19 crushes the top and bottom lines.)

Theme Parks – A Cause for Concern?

The performance of Galaxy’s Edge epitomizes Star Wars’s 2019. The “best of times or worst of times” for Victorian literature, or the “light side and dark side” for Star Wars fans.

As befits everything Disney launches, the buzz was phenomenal back in May when it launched. With headlines like this…

IMAGE 4 - CNN Review

That’s Frank Palotta raving about it in CNN. Other outlets and Twitter matched this hype. These positive reviews—generated from previews given to journalists when the lands were virtually empty—matched the reviews of fans. The folks I know who have visited rave about it. I myself haven’t visited because I was worried the lines were too long. And it’s so damn expensive.

Actually, those two latter points really matter. I wasn’t the only one thinking that way. By July, the word was out that Disneyland wasn’t exactly full. It turns out the price increase was doing its job and keeping folks out of the park. Which led to an article in Bloomberg with this headline:

IMAGE 5 Bloomberg Headline 3

Did Galaxy’s Edge fail then? Not really. If folks were avoiding Disneyland, they weren’t avoiding Galaxy’s Edge, which required reservations to get into for most of the summer and was packed with people. Anecdotally, I think a lot of folks skipped visiting Galaxy’s Edge last year to wait for the crowds to thin out, or for the second ride which debuted in January of this year.

That said, this website is about “business strategy” not a travelogue. From that perspective, two things really matter when evaluating the launch of Galaxy’s Edge. First, Disneyland is thinking very long term with these investments. Like 20 years long time. So if we were evaluating the success of Galaxy’s Edge in July, that’s roughly 1.5% of the time period Disney expect to make it’s money back!

Further, the larger Disney strategy with parks is not to add more people, but to space them out throughout the year while charging them more. That’s summarized by this quote from the Orange County Register.

IMAGE 6 Disneyland Yield Strategy at Parks

The goal isn’t to have a one time bump in revenue, but to establish a brand new reason for families to visit every year. Meanwhile, they are charging those fans more to attend, and selling them more things. When Bob Iger says the Star Wars expansions are exceeding expectations—as he did in the first quarter earnings report in January—normally I’d throw my BS flag. In this case, I think the numbers back him up.

But how do we quantify that?

A Reminder – Theme Parks are Devilishly Tough to Assign Value

The last time I modeled theme park revenue, I complained bitterly about how hard it was. With a film, if you know box office, you can pretty well guess at everything else. 

Theme parks are more like evaluating a streaming video library. How much value do you assign to an individual TV series at retaining customers? If a streamer watches a dozen shows and four movies in a month, that’s a tough question to answer. (And I’ve attempted this before.)

Likewise, how much credit does any single ride get to bringing someone to Disneyland? Don’t many families go every year? Or multiple times? Or on scheduled vacations? It’s not like Star Wars on its own will bring in families.

Yet, if you didn’t add any new rides, the park would get stagnant. Thus, Disneyland needs to constantly add new attractions, and balance those costs against the expected gains. These new attractions then provide fodder for marketing people, new content for fans who go often and generally keep the park up-to-date.

Further, this is a tougher analysis to make for Disneyland than some other theme parks. For example, the Harry Potter lands at Universal Orlando and Hollywood boosted attendance by up to 30% in some cases. That connection is much tighter than Disneyland, which operates at near capacity anyways.

I model those gains in two ways. First, the increase in attendance year-over-year. Second, the increase in ticket prices (which have outpaced the gains in attendance). Once we have those for theme parks at large, the tough part is just assigning value. Which I’ve done, but it’s the biggest “magic number” in this model.

(What’s a magic number? I explained that in this article, but it’s usually the key number that makes a model work but is also the hardest to model.)

The Theme Park Results – An Analysis

To evaluate 2019, then, we just need to look at visitors and price increases. The story with visitors is fine for Disneyland and great for Hollywood Studios. (For those who don’t know, the Star Wars land in Walt Disney World opened in Disney’s Hollywood Studio, the most poorly attended of the Orlando parks.)

IMAGE 7 Theme Park Attendance

For those expecting blockbuster attendance at Disneyland, the results were mostly flat. However, the people were more spread out throughout the year, which helped Disney improve customer opinion. (Indeed, by December Disney had a day where they had to stop selling tickets.)

(By the way, all these numbers come from the Themed Entertainment Association annual report on theme parks. This report just came out on July 20th, so this data is fresh.)

The story is much better for Hollywood Studios. A park that often lacked a purpose, a Toy Story land opened in 2018 and Galaxy’s Edge opened in 2019. Combined, these new lands have boosted attendance from 10.7 million per year in 2017 to 11.5 million in 2019. (And likely would have gone up again in 2020 had Covid-19 not hit.)

As I said above, the real money make isn’t increasing the number of visitors, but increasing the price per ticket. In that lens, 2019 was another great year for Disney. Ticket prices hit new highs. The quick highlights:

– The top ticket price in 2020 at Disneyland was $154, up from $43 in 2000.
– Disneyland was able to introduce a tiered pricing system, allowing Disneyland to spread out customers throughout the year.
– In just the last 10 years, the average growth rate has been 10.3% at Disneyland, and CAGR of 7.5%.

Indeed, the tiered pricing system worked so well, Disney went from three tiers in 2018 to five tiers in February of this year. Meanwhile, the Hollywood Studios prices have started to match the Magic Kingdom prices.

There is one other piece I’ve modeled which is how much guests spend at the parks. Based on reports and some general industry rule of thumbs, I’ve estimated this at $40 per ticket. However, Iger has said that Galaxy’s Edge have driven this up another 10%, so I increased that in my model.

The Theme Parks Model

Let’s take that performance and put it into the model. I updated the 2018 and 2019 numbers with the actual performance for visitors, ticket prices and consumer spending. Here’s the results:

IMAGE 8 - Theme Park Model 2020

My initial estimates for attendance were relatively close. I had guessed that Star Wars could start bumping attendance by 2% at Hollywood Studios, and that’s what happened. (While Disneyland stayed flat, which I did not anticipate.) As a result, my model increased by about $50 million over the course of 2012-2028.

Given the demand for Galaxy’s Edge, I’m still going to allocate value as I had previously, which was starting at 100% of any gains and lowering year over year. These are definitely my magic numbers, and they’re in purple at the top of the model.

The big worry comes from looking at how much Disney still needs to make on the two Star Wars lands. My model only goes to 2028, and even then I don’t think Disney will make its money back on these two parks. Here’s a comparison:

IMAGE 9 Comparison

Of course, we’re not on track for that type of year in 2020, are we?

Coronavirus and Theme Parks

This year is devastating for theme parks. With Disney owning the most valuable theme parks in the world, this is particularly devastating for them.

This doesn’t, though, invalidate the building of Galaxy’s Edge lands. A global pandemic is like a recession: we all knew it was coming, but had no idea when it would happen. When Disney bought Lucasfilm in 2012, it made the right strategic decision to build these two new lands. And again they will pay off for the next two to three decades. 

What’s that? You still want to see a coronavirus-impacted model? Fine.

Screen Shot 2020-07-22 at 10.03.36 AM

Here’s the comparison to the other two models (my model from 2018, from this year without coronavirus, and with coronavirus).

Screen Shot 2020-07-22 at 10.03.44 AM

In other words, a world with coronavirus could cost Disney nearly a $750 million dollars in value. And that’s just the Star Wars allocation. The actual costs are much much higher.

Theme Parks and Resorts: A summary

Money from 2019 (most accurately, operating profit)

It’s a pinch misleading, but likely Star Wars still didn’t make any theme park money this year as it spent big to launch both new parks. It almost broke even, as I allocated most of the price increases in 2019 to Star Wars Galaxy’s Edge. As such, I have Disney losing about $60 million dollars on Star Wars theme parks in 2019.

Long term impacts on the financial model and the 2014 deal

That said, the overall year was positive for the model since the price increases and attendance increases will likely help drive even better profitability in the future. In particular, the spending increase per customer really helps the model long term. 

At least, until coronavirus ruined everything.

I think Covid-19 in the average case will still cost Disney about $750 million dollars when it comes to Star Wars. Mainly this comes from the time it will take to get attendance back to pre-coronavirus levels. Though my margin for error is huge with this forecast.

Brand Value

Longer term, I don’t think Galaxy’s Edge will hurt Star Wars brand at all. If anything it will reinforce the brand position. Despite the lack of crowds, the reviews have been phenomenal for Galaxy’s Edge. That’s the piece I can’t look past. Even as the films disappoint (some) folks, the fans still want to relive and experience Star Wars in the real world. By all accounts the park delivers on that.

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:

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My Unasked for Recommendations for Disney Streaming (2020 Edition)

Do you remember last year before Disney+ launched and I had this series of recommendations for how they could catch up to Netflix? They were…

1. Go dirt cheap on the prices. [Check]
2. Schedule weekly releases for adults [Check]
3. Bundle with other streamers [Check]
4. Get all your key library content on board. [Check]
5. Give it for free to all theme park attendees [No]
6. Release weekly ratings. [Hell no.]

You might have trouble finding that article. Why? Because I never actually finished it and published it. If I had, I could keep pointing back to it for how right I was. 

(Instead, I published an article worrying that Disney+ wouldn’t have the Marvel films or half the princess movies. Oops.)

Given that last week was a bit of big news for Disney+, I think it’s worth providing Disney another round of unasked for recommendations. Rebecca Campbell—the new head of streaming—definitely doesn’t need my advice, but everyone else might find it interesting to know what I would do if I were offering my strategic advice.

I’ll focus on streaming here, with the knowledge tha the entire Disney enterprise has a had a bad few months. It’s almost the perfectly designed disaster to hurt Disney’s business. But given that forecasting the course of a pandemic is pretty uncertain, I’ll wait to opine on Disney’s business model for a pinch.

Recommendation 1: Add a local streamer to your “bundle” overseas.

This was the “a ha” that got me to finally write this article. Two weeks ago, I called my biggest story of the week Disney’s decision to pause international growth plans for Hulu. In these cash strapped times, Disney is worried about the costs of Hulu internationally. Some of this is marketing, some is product, but most of it is likely licensing claw backs. Or foregone licensing revenue. 

As I wrote two weeks ago, I’m not sure a streamer built around the FX stable of content will be a huge winner internationally. American TV shows don’t travel as well as folks think, and really “prestige-y” type shows travel even worse. (This isn’t a uniform pronouncement. Some of the Fox TV studios shows will travel. Like How I Met Your Mother. Just not all.) The Fox movies will have some appeal too, though a lot of the best have been pulled for Disney+ already.

The challenge is that if Disney doesn’t launch Hulu internationally, it will lag Netflix for potentially ever.

What to do? 

Well, keep bundling. The bundle with ESPN+, Hulu and Disney+ has already been successful in America. Likely internationally it will have some appeal. That’s a no brainer.

Even better, though, is to add a local streamer to each bundle. If that’s Hulu’s biggest drawback—lack of local content for adults—don’t opt for the expensive proposition of licensing it all, just partner with a local streamer. Essentially make them the fourth pillar in a country-by-country bundle. Especially if ESPN+ isn’t launched globally for sports. 

Even though we in America don’t realize it, nearly every country has a local streamer trying to fight the streaming giants like Amazon and Netflix. Disney could look like a hero by bundling that content with its other shows. Hulu then gets to come along for the ride. And overall, my gut is this strategy would be cheaper than trying to license local content territory-by-territory. 

Consider this too, an extension of what’s already working. Disney+ was tied closely to Hotstar in India. (Which Disney got in the Fox deal.) They’ve also partnered with local companies for distribution deals like with Canal Plus in France. My pitch is to just take that strategy even further with more bundles in more territories. Even if it means giving local partners most of the benefit in the short term, in the long term this will help with adoption.

Recommendation 2: Seriously, give away Disney+ to anyone going to a theme park.

Let’s re-up my biggest recommendation from last year. It’s super expensive to go to the Disneyland or Disney World. Disney+ is very cheap. So just combine the two and if you buy two tickets to a theme park you get 3 months of Disney+ for free. Those free trials are worth it.

(Yes, parks are closed. They won’t be forever.)

Recommendation 3: Add another “F-BOSSS” Level TV Series. My pitch? Modern Family

Back in January, I coined the acronym “F-BOSS” for the big TV series that were being clawed back from Netflix or secured for multi-hundred million dollar licensing deals. (Friends, The The Big Bang Theory, The Office, Seinfeld, Simpsons, South Park) Now that the biggies are off the table, the smaller series are coming off the board too.

Disney, for its part, has mostly moved 21st Century Fox TV series to Hulu. Like How I Met Your Mother. However, 21st Century Fox has a big one coming up that isn’t as big as those others, but could be. That’s Modern Family. Which just ended its last season.  Back in 2013, Fox licensed it to USA network for a big sum. I looked but can’t see when that deal comes off the board. But when it does, either Hulu or Disney+ is its all but guaranteed landing spot. 

Of the two, I’d say that Modern Family should go to Disney+. This isn’t a no brainer by any means, but that’s because of how hard it is to fit content onto the Disney+ brand. The challenge is Disney+ content needs to be both family-friendly, but also adult-appealing. That’s a hard balance to strike.

I considered some of the older “TGIF” series like Home Improvement (distributed by Disney back in the day, and made by Touchstone, which is owned by Disney). Disney should get that series to Disney+, but it probably isn’t a game changer. It is too old to move the needle. (So they shouldn’t’ buy out whatever rights is keeping it off streaming early.) (The other series on TGIF like Full House or Family Matters aren’t worth it even to license from Warner Bros.) I considered some of the Fox animation series, but they feel too edgy. (It’s still funny The Simpsons made the cut when you think about it.)

This makes Modern Family the key choice. It’s got lots of episodes (250) for folks to binge—the main requirement—and both customer/critical acclaim. (High viewership for a long period of time and multiple Emmy wins.) It does touch on some politics, but overall isn’t controversial enough to cause too much hot water with family groups. (It’s on syndication nationally and on USA Network right now.) So for me, this is a big content priority.

Side Note: About the “Big 5” Pillars

I’m not sure they have a name, but the “Five Big Pillars” is what I’m calling these:

Screen Shot 2020-05-26 at 5.06.44 PM

These pillars are both a blessing and a curse for Disney+. Blessing because these pillars have shown that they can launch a streamer. Hence, Disney getting to 50 million subscribers and beyond. It’s an incredibly strong brand defined by these five pieces.

The curse is that they limit what Disney can do going forward. Already, The Simpsons is above the pillars in most applications because they don’t fit one of the four categories. Same for some of the Fox films like Ice Age. Is it Disney? No, but it’s somewhere on Disney+. 

But really the limitation crystallized for me in Disney passing on the Studio Ghibli content, that will appear on HBO Max tomorrow. Studio Ghibli movies are great, but where would Disney put them? I’m not sure they know either, and not saying it’s the only reason but they passed on it for licensing.

If Disney does add a big piece of additional content, like a Modern Family, they may need to rethink these five pillars. 

Recommendation 4: Provide a major product improvement

I probably use the Disney+ app more than other streaming app. My daughter isn’t allowed to use the iPad unsupervised, and we watch one short film before the bath. So I’ve scrolled the app a fair bit. Meaning I know it’s limitations and positives better than any other (iPad) application. (I caveat “iPad” because I don’t know if they are problems on other operating systems.)

So it’s time for Disney+ to roll out a new feature that doesn’t upend the entire user experience—folks hate that—but provides more functionality. My pitches?

– Make the Disney animated shorts their own section. And make it easier to scroll and search for new shorts to watch.
– Add a “Sing-a-long” version. And make it easy to find the songs to watch as their own thing.
– Fix the “additional content” to be more like a DVD-bonus features. 

Side Note: Disney Needs to “Proof Read” Its Content

If you’re a heavy user of Disney+, you notice little things. My guess is they are mistakes that are the result of automating the entire process. Which is key for a streamer to get launched, but sometimes a human touch can fix the errors. Meaning someone would need to manipulate the metadata to make sure the service is as accurate as possible. For example…

– The timing for the length of short films includes foreign language credits. Which means a Pixar short appears to be 9 minutes long, but four minutes are credits. That needs to be updated.
– A shocking amount of ratings claim that a given Disney short features tobacco use. (The only authentic one is Steamboat Willy.) I have no idea why this is the case.
– Some content still only has one version. For example, Mickey and the Beanstalk is only included in Fun and Fancy Free, when that version features a nigh unwatchable ventriloquism scene. So on one hand, they have this content. On the other, it isn’t the best version of it.

Recommendation 5: Get NFL Sunday Ticket on ESPN+ somehow.

NFL Sunday Ticket is the killer app that gets ESPN+ mandatory adoption. Will this be pricey? Yes. Will Comcast and AT&T still want pieces of the NFL? Yes. Is the least likely recommendation? Yes.

The NFL is the sports straw that stirs the content drink. As it is, ESPN+ doesn’t have enough reasons for folks to subscribe. Plus, Sunday Ticket keeps from cannibalizing linear views as Disney can pitch to MVPDs that it is just adding Sunday Ticket as DirecTV did before. 

Most Important Story of the Week – 15 November 19: Disney+ “Sparks Joy” in Customers. What Are the Business Ramifications?

Is content is king?

After this week, how could anyone doubt it? Disney+ showed what having the biggest movies of the last few decades can do for a streaming launch.

But that’s not all! Apple landed one of the biggest free agent producers in former HBO chief Richard Plepler, for a deal whose terms aren’t disclosed. Nor even his role. But we can’t look past Disney can we? Nope. In fact, we’re giving a triple shot of Disney: first, the strategic implications; second, the competitive ramificaitons; third, the numbers.

[Programming note: Starting next week, I’ll be on paternity leave for the birth of my child. I have some articles mostly finished to keep posting, but the weekly column will be on hold until December.]

Most Important Story of the Week – Disney+ and Its Customer Value Proposition

When in doubt, we should default back to the “value creation” model for every business. Is a company capturing value or creating it? 

Disney+ Value Creation Model

I’m going to use my personal example to get at where I see the customer value proposition here. Specifically why me—and apparently 10 million other folks—rushed to sign-up or log-in on day one. Marie Kondo—the famed personal organizer—has a simple test for whether or not you keep something in your house. When you look at it, “Does it spark joy?”

That’s how I personally felt about Disney+.

For once, every Disney film my daughter loves was in one location. Every Marvel and Star Wars film I love was there too. Along with hidden joys like the Swiss Family Robinson or The Journey of Natty Gann. Or the X-Men Animated Series! And Gargoyles! Seeing those films brought visions of how I will binge TV for the next few weeks. 

As I was scrolling through the interface—I didn’t have any troubles—Kondo’s phrase hit me, “Spark joy”. 

It’s fairly incredible a streaming video service can evoke that level of emotion. But that’s the best way to describe the initial experience. Caveat galore that this is just my anecdote. But to judge by my texts and social feeds, the majority of the Disney conversation was celebrating all these films that were previously divvied up between FX, USA, TNT, Starz, Netflix and DVDs into one easy location. By a few reports, some folks even stayed home from work for the launch. That’s the type of devotion only major sporting events or, um, Marvel/Star Wars movies can evoke. 

(Yes, plenty of people gave it an “eh” online too.) 

To put this into the “value creation model”, if my price is $4 a month, the difference between the amount I would pay and $4 is the “consumer surplus”. Right now, I have to imagine that for hardcore fans like me, even an HBO level price would probably make sense, if the shows stay at the quality of The Mandalorian. 

Critically for this analysis, just because the price is so low now doesn’t mean it will stay that way. Disney—like Netflix, Hulu and likely every streamer—is definitely underwater from a pricing perspective. Lots of folks locked in at $4 a month, and to produce even the new content will likely be more expensive than that. The key for Disney is figuring out how quickly they can make the price exceed costs. (Yes, as my big series of the year goes on, “An IPB of the Streaming Wars”, I’ll try to quantify this more exactly.)

Then the question is: at profitability, is Disney capturing value (just pricing below costs) or truly creating it? Given that Disney boosted my WTP for a streaming service, I’m leaning towards the latter. Moreover, Disney+ as a platform may drive some value beyond the access to its incredibly popular films. In other words, the whole of Disney+ may be greater than the sum of its parts. And these are valuable parts. (The biggest driver of entertainment WTP is simply having hit shows and movies.) 

So let’s explore the upside theories for Disney+’s value-added future. Since I’m never satisfied, I have some concerns too about some of their strategy.

Upside Theory: The Simpler User Interface – Decluttered

Let’s stay on Marie Kondo idea for a moment. Mary McNamara wrote an article in the LA Times not too long ago making the case that Netflix needs a Marie Kondo-style clean up. She’s not wrong. The reason—as emphasized by AT&T in their recent inventor presentation—is that it takes customers 7 minutes to find a show to watch. (Using a DVR, conversely, takes about 30 seconds…) Netflix is filled with lots and lots of shows and films, many of them “sub-optimal” from a customer perspective. Which makes finding shows difficult.

Well, the Disney+ app is made for McNamara (assuming she likes Disney movies!). Disney+ has a fairly limited interface—reminiscent of the HBO Go application—organized by the various content families. Within each section are the cream of the crop movies at the top, with the rest down below. In other words, the service doesn’t overwhelm you, and what is left will will “spark joy”. This is the best case for Disney+.

Downside Theory: The Nostalgia Factor Wears Off

Credit for this one goes to a Twitter conversation about how quickly “nostalgia” will wear off from the devoted fans. My answer is that in some cases, it never will. Those are the hardcore fans who go to D23. They aren’t enough, though, to build a media business.

For the rest, this is the biggest risk. Sure, I’ve had joy sparked at launch. How long does that last? How much does my daughter actually use the application? (We actually don’t let her watch alone on the iPad.) Especially for the older TV shows. Do they need more TV series to drive adult viewership, as I speculated here? I may find it cool to watch Duck Tales (1980s version), but do I actually binge the entire thing? Nostalgia may get folks in the door but a compelling offering will need new content to keep folks engaged.

Upside Theory: I Was Wrong about The Vault (It’s All Here)

Disney proved my August theory about missing films completely wrong. In the 11th hour they went out and got them all. Which is probably pricey, but helped the value proposition. Since they have all these movies, Disney+ would has something like 20% of the box office demand of the last decade on its service. That’s incredible compared to rival services. I was wrong and they have the entire vault for the most part. Here’s the box office films from the last four years:

image-5-disney-last-five-years.png

But this isn’t all good news. They likely had to pay huge amounts to other distributors to facilitate bringing all these films over. Will this immediate launch help pay that off? Absolutely, but they are deficit spending to make it happen.

Downside Theory: Why Did Disney+ Launch with Avengers Endgame?

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Is Disney+ Too Kids Focused? Part II on My Thoughts on Disney+’s Catalogue

One of the goals of my website is to try to hold myself to a process. A process means I let the data guide my opinions, not fit new data or anecdotes into preconceived narratives. A good example of this comes from last weekend’s D23 Expo. This picture circulated widely of lines at kiosks to sign up for 3 years of Disney+:

I saw a ton of positive cases. Look at all the sign ups! Look at people forking over their credit cards! This doesn’t even launch for 3 months!

Then I saw some skeptics on that. If it’s so popular, why aren’t there lines? Are we really that excited about the most super-fan of super-fans signing up for a service? Why give a discount for three years for something these fans MUST own?

Even these critiques could have critiques: No lines? Sure, it’s Disney. They are great at making lines short. And three years is a great long time to lock in customers. So in all, did the kiosks sign ups at D23 mean anything?

Who knows? Like all things, the best way to keep yourself honest is to put your predictions down ahead of time. Which is hard to do for a thing like “sign-up kiosks at D23” because you couldn’t have predicted that would happen ahead of time. At the end of the day, sign-ups at kiosks probably don’t predict future customer behavior nearly as well as something like Disney’s box office takeover. This is a minor data point, yet it functions as a Rorschach test, really just telling us if you’re bearish or bullish on Disney+. (Or Netflix, for those data points that come out.)

I’ve been thinking about this as I review Disney+’s content catalogue. I’m trying to approach this fresh. I’m worried about my decidedly positive positions about Disney’s strength will cloud my judgement. 

This would be so much easier too, if I just gave in to the easy push for content. I could just pull a couple slides and confirm my own believes. Because if you take the Disney story from their Investor Day presentation, a slide like this…

IMAGE 9 - Five Brands

Then how can you not come away impressed? Or they drop these next two slides about Marvel and Pixar dominance…

IMAGE 10 - Box office slides

Then just write, “Look at that content!!! How can they fail!”

The problem? As I laid out yesterday, most of those Marvel movies (meaning more than 80%) won’t be on the platform at launch. Many Pixar films won’t be either. And quite a few live action films. So yes, Disney is doing well at theaters, but that won’t help Disney+ launch necessarily. And right now expectations for launch are going through the roof. Maybe we should temper them.

Which brings me to today. The TV side. TV on most streamers is say 60-70% of the value. (Really talking about Amazon and Netflix here.) For HBO, it’s probably 50-50. (Those Warner Bros, Universal and Oscar films matter to renewals.) For Disney, it’s probably 25-30% of the importance, considering how big/valuable the movies are. But if I look at the Disney+ TV library slate objectively—meaning not as a super-excited Star Wars fan; did you see that The Mandalorian trailer?—well, I have some concerns. (Again, this today is all about library content, since the new series are still mostly unknowns.)

Before we get to those, an update/equivocation on yesterday’s article.

An Update to Disney Princesses and Disney Animation

Most of the data I used yesterday came from two places: this LA Times article with confirmed Disney+ films and Bob Iger’s description of the content. An eagle eyed reader pointed me to the Disney Investor Day presentations and it had this quote from Jennifer Lee (head of creative for Disney Animation):

Classics like Snow White and the Seven Dwarfs, Pinocchio, Cinderella, The Jungle Book, The Little Mermaid and The Lion King – the entire 13 film signature collection – will all be available on Day 1 of the U.S. launch of Disney+. Previously kept in the vault, they will now be available to everyone to watch anytime you want as a part of your permanent Disney+ subscription. 

Those 13 signature films really are money. Those are the drivers of lots of the product, home entertainment and theme park revenue Disney was built on. Here’s their image:

IMAGE 11 - 13 Signature Films

Moreover, Lee specifically said they were pulling these movies out of the vault. That’s a pretty definitive statement that Disney is blowing up the vault. This would change my two tables from yesterday, meaning we go up to 9 of the 14 princesses:

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Is Disney Bringing Back the Vault? My Analysis on the Strategic Implications of Disney+ Content Library

If the streaming wars were a medieval war, original content are the mounted knights. Especially the pricey TV series. Like knights of the medieval ages, these extremely expensive weapons will likely win the war for one side or the other. This would make the siege engines the tech stack and distribution infrastructure. The logistics supplying and feeding the armies is the hordes of lawyers and finance folks in the bowels of each studio.

But an army is much more than aristocrats in suits of armor. It needs masses of peasants clinging to sticks and spears, ready to be mowed down by mounted knights or crushed under hails of artillery. Who is that in the streaming wars?

Well, library content, of course. 

Over the last few weeks, we’ve gotten quite a bit of news about the size of the various infantry nee “library content” that a few of the new streaming services are rolling out. Let’s run down the news of the last few weeks:

– First, Disney reveals the number of films and episodes for Disney+ in its earnings call.

– Second, Bloomberg reveals Apple won’t have a content library.

– Third, Disney reveals not just the count of its library, but the specific films and TV series.

Altogether, we now know quite about Disney’s plans for Disney+. As a result, I’m going to dig MUCH too deep into it trying to draw out strategic implications and meaning from Disney+’s future content library. Today, my goal is to focus on the strategic dimensions of Disney’s content plan. Its strengths. Its weaknesses. What it says about Disney’s future plans (and constraints to those plans). 

I have two reasons for doing this. First, since Disney+ is fairly small of a library, we can draw a bit more conclusions than we could about some other streaming services—like Netflix or Amazon—which have thousands of movies that change constantly. 

Second, library content really is important. To continue the martial analogy, infantry won’t win the war on its own—smaller armies often best bigger ones—but having a bigger army sure can help. Having the best library content is a tremendous head start. 

Both those points collide in Disney+’s future catalogue. Despite its smaller library, Disney+ may launch with the most valuable content library in streaming. Pound for pound, this will be the strongest film slate on a streaming platform, with a decent TV slate. But I’ll be honest: it may not be as strong as you think. I’m about as bullish as they come on Disney+, but running through the actual numbers has sobered me up.

Let’s dig in to explain why.

What We Know about Disney+

One of the secretly important parts of the last Disney earnings call was their description of their upcoming content slate. Here’s a screen grab of Variety’s coverage, that quote Disney CEO Bob Iger directly:

IMAGE 1 - Variety Quote

If you’re like me, as you pondered this for a later Twitter thread, you captured the pieces in Excel. Like this:

IMAGE 2 My Capture

Unfortunately, we still had a lot of questions. Marvel films? Which ones? Star Wars films? Which ones? And which animated films? Then, before D23—Disney’s annual convention for super fans—Disney provided the answers to some news outlets, like the LA Times, which had had a huge list of confirmed films. So I dug in. 

Disney+ Film – By The Numbers

The obvious takeaway is that Disney+ won’t come close to the volume of films that other film services will have. To calculate this, I’ll be honest I simply googled “film library count” and looked up Amazon, Netflix and so on. I found a few sources for Netflix and fellow streamers. After that sleuthing, here’s my projections for the biggest streaming services.

IMAGE 3 - Est 2020 Film Smales

Here are the key sources I used: ReelGood (Netflix 2014, 2016), Flixable (Netflix 2010, 2018), HBO (current), Variety (Amazon and Hulu 2016) and Streaming Observer (Amazon, Netflix, Hulu and HBO, 2019). The caution is that I’m not sure the Amazon numbers are accurate and that some of the sources aren’t also counting films available for TVOD/EST. But these numbers were reported in Variety and Streaming Observer, so I’m inclined to trust them.

(Also, these were US numbers only. Other countries complicates it, but from what I can tell library sizes tend to be correlated over time.)

As has been reported constantly, Netflix is losing content. Specifically, it can’t license as much content for as cheaply. This showed up in the data: 

IMAGE 4 - 2010 to 2020 Film Slates

As studio launches their own streaming service, they take their films from fellow streamers. While Netflix has suffered the worst, Amazon isn’t immune. Meanwhile, HBO has stayed at the same, small level for most of the last decade. (Some estimates had HBO at 800 films, but counting the available films on their site gives me about 300.) Hulu has been shrinking like the others too. 

You may ask, “Where did the CBS All-Access numbers come from?” Well, that’s Paramount’s library of films, which CBS bragged about in the merger announcement. Obviously most of those films are in licensing deals already, but if SuperCBS really wanted to, they could try to get them back. That is the potential library for CBS All-Access. (And it isn’t as bad as the last ten years suggest. The Godfather? Titanic? Mission Impossible? Those have value.)

The Value of those Disney+ Films

The challenge is to take those raw numbers and try to convert them into actual values. If you’re a streamer, you can build a large data set—and I mean big—with streaming performance, Nielsen ratings, IMDb and other metrics, and judge the value of various content catalogues. While that gets you a very accurate number, at the end of the day we don’t need those extra bells and whistles becasuee we have box office performance.

Box office captures about 90% the value of a movie for a streamer. In other words, if you wanted to know if people like a movie (and will rewatch it), box office explains probably 90% of that behavior. 

So I pulled the last ten years of films, looking for how many Disney films ended up in the top 5, ten and 25. The results are, well impressive. Especially recently. (An additional, very safe assumption: that films released in the last year are more valuable than films released two years ago, and films in the last five years are more valuable than films from ten years ago, and so on.) If Disney can put all those films on its streaming service, in comes the money. So take a look at this table, with the top ten films by US box office, with Disney releases highlighted:

IMAGE 5 Disney Last Five YearsBy my reckoning, that’s 18 of the top 5 films of the last five years, 22 of the top 10 films and 32 of the top 25. Incredible. And I realize I’m not breaking any news here.

So here is some new news. As I mentioned above, Disney released to the LA Times a list of films confirmed for Disney+, and well, it’s quite a bit few films. Here’s the last ten years of top 10 box office films, with the films actually making it on to Disney+ highlighted in blue:

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