Category: Weekly News Update

Most Important Story of the Week – 24 January 20: Why is Facebook Unfriending Scripted Originals?

The Los Angeles region, and the entire basketball universe, is reeling from the death of Kobe Bryant, the legendary Lakers basketball player. If you’re looking for the “Hollywood” connection, I have two. First, the Lakers and “showtime” basketball have always been an influential part of the entertainment ecosystem in Los Angeles. A place to go to see and be seen. Second, Kobe was an emerging film producer who won an Oscar. His contribution to his passion for film was tragically cut short.

As a long time Lakers fan–read here for some insight on this–this death is shocking and hurts.

Most Important Story of the Week – Facebook Watch Decreases Investment on Scripted Originals

This news is two-fold for Facebook Watch. First, two big series–Limetown and Sorry For Your Loss–were not renewed for subsequent seasons by Facebook. Still, cancellations happen. When you pair that news with reporting from Deadline that Facebook is generally pulling back from scripted original content, well you have a new story. 

Mostly, though, this story seemed to pass by in the night. But it’s the perfect story for my column because the significant doesn’t seem to match the coverage. 

So let’s try to explain why Facebook may be pulling back on scripted originals. And we have to start with the fact that Facebook is a tech behemoth. Facebook resembles the cash rich fellow M-GAFA titans (Microsoft, Google, Apple, and Amazon) that throw off billions in free cash each year. Really, companies minting free cash have three options to do with it:

Option 1: Give it back to shareholders.
Option 2: Invest it in new businesses.
Option 3: Light it on fire.

Well, as Matt Levine would note, Option 3 is securities fraud so don’t do that. Of course, we could just change it to…

Option 1: Give it back to shareholders.
Option 2: Invest it in new businesses.
Option 3: Enter the original content business!

They’re the same thing anyways. Companies come in with grand ambitions, realize the cash flows in don’t match the cash flows out, and they leave the originals business (or dial back their investment). Facebook follows on the heels of Microsoft and Youtube in this regard. Heck, even MoviePass had started making original content at some point. 

The key is how the original content supports the core business model and value proposition. With that in mind, let’s explore why Facebook Watch is leaving the original scripted business, floating some theories, discarding others and looking for lessons for other entertainment and tech companies. Since I’m not a big believer in single causes, I’ll proportion my judgement out too.

Theory 1: Ad-supported video just can’t scripted content.

If this theory were true, woe be to the giant cable company launching a new ad-supported business!

Let’s make the best case for this take. The working theory is that folks just don’t want to watch advertising anymore, so they just can’t get behind a video service like Facebook Watch that is only supported by ads. With the launch of Peacock, I saw this hot take a bit on social media. 

Of the theories, I’d give this the least likelihood of being true. From AVOD to FAST to combos (Hulu, Peacock, etc), advertising is alive and well in entertainment. Despite what customers say about hating advertising, they end up putting up with quite a bit. It’s not like Youtube is struggling with viewership, is it?

Judgement: 0% responsible.

Theory 2: Scripted content is too expensive (or doesn’t have the ROI).

If this theory is true, woe be to the traditional studios getting into the scripted TV originals game.

This is the flip side of the above theory. It’s not about the monetization (ads versus subscriptions) but about the costs of goods sold (the cost to make and market content). What I like about this theory is, if you’re honestly looking at monetization, it’s not like entertainment has seen booming revenue in the US. If anything, folks pay about what they always have.

So what’s fueling the boom in original content? Deficit financing and super high earnings multiples.

Worse, deficits are financing a boom in production costs as everyone is fighting over the same relatively limited supple (top end talent) so paying increasingly more. Consider this: in 2004, ABC spent $5 million per hour on it’s Lost pilot, up to that point the historical highpoint. Most dramas cost in the low seven figures.  Now, word on the street is that Lord of the Rings, The Falcon and Winter Soldier and Game of Thrones could cost 5 times that amount. Meanwhile, each of the streamers, I’d estimate, would have double digit shows that cost $10 million plus. Did revenues increase five times over the last fifteen years? Nope. 

Thus, Facebook may just be on the cutting edge–with Youtube–of realizing that scripted originals aren’t the golden goose Netflix and Amazon make them out to be. It’s not that they can’t make some money on them, just not nearly enough to support the skyrocketing budgets.

Judgement: 25% responsible.

Theory 3: Facebook Watch needed more library content.

If this theory is true, woe be to the giant device company that launched a streaming platform sans library.

The best case for this is that after you come to watch a prestige original, you need to find something else to occupy your time until the next original comes. That’s library content. While I josh on Netflix for lots of things, I do absolutely believe that Reed Hastings is right when he says he’s in a battle for folks’ time. But I’d rephrase it slightly in that you’re also battling for space in people’s mental headspace. When they decide to watch TV, they then pick a service to watch. Library content’s purpose is to keep permanent space in people’s mental headspace. Having loads of library content makes it more likely that you’re folks’ first choice to find something.

The problem is Facebook Watch doesn’t have this. Fellow ad-supported titan Youtube clearly does. It’s purpose was videos first and foremost, so there is always something else to watch. Netflix has it. Even Amazon has it. Facebook has socially generated videos, which aren’t the same ballpark as scripted video.

Judgement: 20% responsible.

Theory 4: Social video can’t support scripted content. 

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Most Important Story of the Week – 17 January 20: The Optimistic and Pessimistic Strategy Cases for Peacock

With that, the final major entrant of the streaming wars has called their shot. (Besides SuperCBS. Is holding on to CBS All-Access and Showtime really their entire plan?) So we didn’t have to go very far to find our…

Most Important Story of the Week – Peacock Announces Their Plan

Investor day presentations are the ultimate in needing to see through the flash for the substance. In data, it’s all about “signal versus noise”. In presentations, the noise is deliberate. It’s designed to confuse, overwhelm and mislead to get you to invest, support or buy. (Which is why I think most biz presentations internally should be in black and white. Let ideas stand on their own merits, not the quality of powerpointing.)

From that angle, I’d put Comcast-NBC-Universal’s Peacock debut above HBO Max and Apple TV+, but still lagging Disney+ (who knocked everyone’s socks off). They leaned into the “30 Rock” angle, which is smart branding. This is all the more reason we need to wear our skeptical glasses to look for what NBC-Universal didn’t tell us, or what Comcast overhyped.

Overall, my gut take is more bullish than when I first heard of “Peacock”, with some huge lingering caveats. Reading my draft today, I found the positives more compelling than negatives, which surprised me. I’ll dive into this area in three parts: The upside case, the downside case, and implications for (selected) competitors.

The Upside/Bull/Optimistic Case for Peacock

Strategy: Zigging while others zag means becoming the “broadcast streamer”

By the time Peacock is fully launched–while April is the target date, it won’t go national until July–it will be the last streaming platform to the party. NBC’s logic seems to be, if you’re late to the party, be free. 

Not a bad plan!

Then that way all the already spent wallets still have room. Since broadcast has always been “free”, you just pay with your time, there is some justification in saying, “We’re the broadcast platform of streaming.” I’ve always felt that NBC-Universal had the most broadly appealing cable channel offering. They have sports, news, dramas, comedies, and reality. Now it’s all coming to one platform.

Really, the way to look at this isn’t that Peacock is a slow follow of Netflix, but a fast follow of Pluto/Tumi/Xumo. Since I think those companies really do fill a customer need, I like the idea. Moreover, they have a differentiator, as they themselves pointed out, Peacock is essentially the premium FAST

Screen Shot 2020-01-17 at 1.18.25 PMWhile I respect the “zig while others zag” approach to business, it doesn’t work if you don’t have a strategy. My initial take is Comcast has a strategy here.

Customer Targeting: Latinx viewers

A natural part of business analysis is to assume everyone is like you. Avoid this temptation. In entertainment, this means I, for example, have huge blind spots in international viewership. This even applies to the US, where I lag in coverage on Spanish language programming. Comcast has owned Telemundo for a bit now, so they don’t have this blindspot:

Screen Shot 2020-01-17 at 11.42.07 AMCredit to Peacock for seeing this customer need and serving this demographic. (Netflix does serve this too, and entered Latin America very early on.) The “Spanish Language Streaming Wars” are probably worth a deep dive article.

Company: A surprising willingness to be innovative.

Consider this an extension of the “zigging while others zag”, but I had a genuine worry that Peacock would end up as another clone of Disney+, Netflix, Prime Video and HBO Max. (Mostly the same product and similar content profiles.) 

Except Peacock is definitely trying out a few new things, which shows a commitment to change we don’t usually see. Specifically, the “live channels” approach, which only furthers the “fast follow of PlutoTV” thesis. If you know what you want to watch, the UX will have on-demand video. But for everyone else–or the folks who just want something on in the background–Peacock will have live/streaming channels. Will this work? Maybe, maybe not, but at least it shows some innovation. (For example, nothing in the Disney+ launch was innovative to that platform, just more streamlined than Netflix.)

Content: Pretty darn strong, especially in TV.

Peacock helpfully provided a list of the shows they plan to air. (Probably not an exhaustive list.) And it’s pretty strong. I’m as impressed as I was during the HBO Max roll out. (Also credit to NBC PR for making the document available and hence easy on journalists to absorb.) Here are some specific content pieces I think will be strengths:

The USA Network Shows: This is the bread and butter that built Bonnie Hammer’s career–former head of NBC Universal Cable Productions, she now runs content for all NBC Universal–so naturally a lot of these shows will be on Peacock including Suits, Covert Affairs, Monk and Psych. It remains to be seen if they are “exclusive” digitally, but still a good slate. USA Network is historically underrated because it’s popular in middle America, not one the coasts.

The big broadcast shows: Everyone knows about The Office, but everything from Cheers to Brooklyn 99 to Frasier to Everybody Loves Raymond to Two and a Half Men will be on Peacock. That’s a hefty dose of rewatchable series. And lots of rewatchable procedurals in Law & Order and Chicago series.

Bravo/E! tentpoles: One of the strengths of NBC-Universal, I’ve always felt, is that they have a broad reach of channels to draw content from, for example, the unscripted reality space. At first, I didn’t see these shows on the list, but a lot of them will be on Peacock. While most reality doesn’t fare well in bingeing long term, some does.

Late Night: Premiering their two Late Night shows in the primetime window is a great change for customers, such as myself who usually watch tape delayed. This feels smart to me, as more and more content gets time shifted.

Content: New categories to one streaming platform: sports and news.

HBO Max won’t have sports; Disney is pushing all sports to ESPN+, and Netflix refuses to even consider it. Thus, NBC steps into the breach and says their streaming platform will have sports in the same interface. (Amazon, of course, has toyed with sports for a while and offers a few sports channels as add-ons, plus one NFL game in America.) Thus, ignoring the type of content, NBC may have an advantage here. ESPN+ and DAZN remain separate apps which could decrease engagement, except for hardcore sports fans.

But we can’t ignore content forever. The question is whether English soccer, NHL and two weeks of Olympics every two years is enough to sustain sports. I don’t think so, which is why I think Comcast could be a buyer for additional sports rights, be it more NFL, NBA, MLB or college rights. (The great pitch too is that this is both digital and physical, keeping both windows. I think professional leagues are rightfully scared of a “digital only” approach that risks losing viewership/fan engagement overall.)

As for news, the best thing about news is it’s much cheaper than sports to get into. Plus, NBC has a fairly strong brand, if titled toward one side of the political aisle on cable.

The Downside/Bear/Pessimistic Case for Peacock

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

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

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

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

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

“in the new economy”

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

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

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

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

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

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

But…

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

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

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

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

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

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

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

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

The Streaming Wars

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

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

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

Other Candidates for Most Important Story of the Week

College Humor Laying Off Employees

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

Twitch Doesn’t Make a Lot of Money

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

$300 million 

In 2019. And only $230 million in 2018. 

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

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

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

Data of the Week – Scripted Series Grows to 532

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

Lots of News with No News

The Golden Globes

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

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

Quibi, Quibi, Quibi

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

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

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

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

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

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

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

The Data Set

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

Table 1 Sub Numbers

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

The NBA Analogy

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

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

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

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

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

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

Table 2 3PA

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

So which number should we pair with “subscribers”?

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

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

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

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

Table 3 Sub with Price

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

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

Implications for Streamers

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

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

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

Screen Shot 2019-12-20 at 4.01.09 PM

Screen Shot 2019-12-20 at 4.01.15 PM

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

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

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

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

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

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

Table 4 Disney Plus Numbers

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

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

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

Other Contenders for Most Important Story

A Peacock Check-In

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

PGA Deal Sticks with traditional TV

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

NBA is launching NBA TV as a streaming service.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Screen Shot 2019-12-13 at 9.48.21 AM

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

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

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

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

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

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

On the other hand, Baby Yoda.

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

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

Data(s) of the Week

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

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

parks-ott-vs-pay-tv-churn

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

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

M&A Updates

Viacom and CBS Closed

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

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

The DoJ will Try to End the Paramount Consent Decrees

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

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

Sprint-T-Mobile Merger Goes to Trial

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

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

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

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

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:

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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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Most Important Story of the Week – 8 November 19: Franchise Lessons from all the Game of Thrones and Star Wars News

What happens when one week has so much news and the next has very little? Well, you roll one topic over. So the “most important story” this week is last week’s runner-up. 

The Most Important Story of the Week – Game of Thrones and Star Wars Franchise Lessons

Last week began and ended with dueling Star Wars and Game of Thrones news….

– First, HBO cancelled it’s “Age of Heroes” prequel series for Game of Thrones.
– Second, HBO announced another prequel series for Game of Thrones, based on the book Fire & Blood about the Targaryens.
– Third, David Benioff & DB Weiss—the Game of Thrones showrunners—had left the Star Wars prequel they planned to make

Since HBO Max sucked up the oxygen out of the entertainment biz room last week, I didn’t really have time to examine what the big franchise moves meant for entertainment. Which is a shame; monetarily, these announcements would have been the most important story in most weeks.

Here’s why: both of these franchises are worth billions. As I’ve written extensively on here and here. And it’s not too bold to say that how HBO manages Game of Thrones and how Disney manages Star Wars will play a key role in either launching successful streaming services or failing (and losing billions).

Today, let’s look beyond how fans will feel about these announcements, to what we can learn from a business strategy perspective. Meanwhile, Marvel will keep coming up, because it’s the most well-run franchise in the game right now.

Business Issue 1: Pilots Are Great Investments

You’ve probably heard the old story that Seinfeld tested very poorly as a pilot. Development executives bring this up all the time when a pilot inevitably gets bad reviews. “Well, Seinfeld tested poorly too!” It ignores obvious counters that most pilots that test poorly ended up being poor TV series. Conversely, quality pilots are highly correlated with successful series. Take Game of Thrones. Sure, the initial pilot tested poorly, but the reshot pilot is one of the greatest in TV. The Breaking Bad pilot was similarly fantastic. 

This is why, I praised HBO for making a pilot for their “Age of Heroes” GoT prequel. You’re about to invest maybe a hundred million dollars in a TV series. Make a pilot and see if it’s good. Except then HBO went straight-to-series on their House of the Dragon prequel series. Sigh. Essentially, HBO Max made a good decision (make a pilot, it tested poorly, don’t go forward) and then made a bad decision (go straight to series). 

When it comes down to it, overall going straight-to-series is just another example of how prices are increasing for distributors without actually increasing the top line. It increases the upfront costs (full season commitments to talent) while decreasing the hit rate (no pilot data to kill duds early). HBO feels like it has no choice, though; since Netflix and Amazon are pushing everything straight-to-series, to stay competitive, everyone has to make everything straight-to-series.

Creative Issue 2: The Source of Game of Thrones Greatness

Still, there may be business logic for why HBO chose one pilot over the other here to go straight-to-series. Looking at what made Game of Thrones great, a lot of things contributed from the showrunners crafting a great story to Peter Dinklage just owning it. But if I had to pick the single biggest driver, it would be George R.R. Martin. Yes, Benioff & Weiss successfully managed a monster TV show, but at its core they wrote in an extremely fleshed out world of George R.R. Martin’s creation.

As a Game of Thrones fanatic, I’ve read everything GRRM has written on the series. Including a history book and the Targaryens Fire & Blood book (the one that is the basis for the straight-to-series order). If you asked me, what has a more fleshed out world, the Targaryen reign or the “Age of Heroes”, it’s the former by a landslide. (The Dunk & Egg books seem like a no brainer for a limited series as well.)

If that’s where you think the source of GoT’s success comes from, that makes the decision for which prequel series to order much easier. Go with the “Targaryens” every time. It has literally hundreds of pages of source material that will require much less from its showrunners than the “Age of Heroes”, which has about a dozen pages of material to draw from. 

Even in Disney’s own house, as the latest departure shows, they can’t  learn any of the lessons about leveraging your source material. Star Wars decided to toss out all it’s source material after the Lucasfilm acquisition. Specifically, the dozens of books in its “Legends” universe. (I’ve, uh, read all these too.) Instead, Kathleen Kennedy and team burned it all to the ground, and as a result had to come up with new stories from scratch. (Sometimes these stories had a vague connection to the Legends universe, but emphasis on vague.) Which makes the hit rate much lower than what Marvel is doing. It also requires A-List directors–or at least Kathleen Kennedy wants to work with A-List talent–which makes business point four below much harder.

Alternatively, Kevin Feige leaned into Marvel’s history. This source material is part of the reason Marvel has been so successful. It’s not like Kevin Feige is writing all these Marvel stories from scratch. He’s just adapting the best Marvel stories of all time, like Civil War or The Infinity Saga. 

Business and Creative Issue 3: Avoid Bad Villains

Multiple friends—all Game of Thrones fans; all unsatisfied with the finale season—complained to me about the prequel series being about the rise of the White Walkers. The logic goes, “They were dispatched so quickly and easily, I don’t want to see them in another series.” Yes, this is an unrepresentative sample size, but it speaks to very real creative issues.

If that sentiment showed up in the testing—and I believe HBO tested the latest pilot with focus groups—then that alone could explain why the prequel didn’t move forward. Doubly so if combined with the lack of source material on the “Age of Heroes”. 

There is a business lesson here too, one about coordination and intertwining storylines. If the ending of the White Walker story was more satisfying for viewers, then maybe my friends message saying, “Man, I can’t wait to see the beginning to that.” Instead, the abrupt/rushed downfall of the White Walkers in a dark episode of television fundamentally ended the ability to create another revenue stream for HBO/AT&T. 

Star Wars faces this too. The last trilogy create a brand new bad guy (Snoke), then [spoiler alert] killed him off, and is currently debating if the big bad guy–Kylo Ren–will become a good guy. Notably, in Avengers Thanos stayed bad the whole time. And now Star Wars may bring back Emperor Palpatine. In other words, after one of the best bad guys of all time–Darth Vader–Star Wars doesn’t know what to do.

Business Issue 4: Franchise Management is Hard. Really Hard.

The challenge for a network like HBO or a studio like Disney is managing not just the creative for one series, but thinking how the movements/plots in one TV series impact the larger business. Or one film impact the larger brand perception.

My current working theory is that Warner-Media doesn’t have as ingrained “franchise management” as a skill as someone like Disney. Disney has TV series and movies for Star Wars, Marvel, Disney animation and Pixar. Every character worth their salt has teams dedicated to manage that brand, building value over time. They really are experts at it and integrating it everywhere.

Compare that to GoT. Game of Thrones acts like an HBO property first and foremost. So HBO gets first crack at all the TV shows, but then nothing else happens. (Part of this is due to the fact that George R.R. Martin still owns the rights, but obviously AT&T should try to buy those.) We see the same thing with Harry Potter going the other way: lots of movies, no TV shows. (And slipping viewership.) DC probably has the most things being made, but with little connection between the movies and TV shows, just volume. (And a comic strategy of rebooting the whole thing every five or so years.)

This is likely the key issue with Lucasfilm too, in that top tier talent doesn’t want to sacrifice their creative vision for the larger universe’s needs. Which begs the question, “Why doesn’t Kennedy bring in creatives who will fulfill her vision?” That would mean not flashy names–like Benioff & Weiss–but directors who get the job done.

Really, only one person has figured out how to reliably do this right now.

The Reality: Marvel/Kevin Feige is the Best at Franchise Management Right Now

If you take all the lessons from Game of Thrones and Star Wars above, Marvel does each one well. Pilots? Feige does test shoots for controversial films to make sure they’ll work. (He did with Ant-Man, for example.) Source material? Yep, he picks the best stories and adapts them well. Good bad guys? Yep, Feige finds fresh bad guys each film. (Though arguably kills them off too quickly.) Coordination? Um, yeah we just saw that with Avengers: Endgame. (He found a set of directors who shared his vision, by the way, in the Russo brothers and gave them four huge films.)

Finally, he keeps the quality high. That’s a unique skill he has. (Unique as in one of maybe 5 folks in Hollywood.) Which is a credit to him. Marvel was barely anything when this century started. But by giving Kevin Feige the reins, his successful stewardship has created tons of value. And now he’s taking over TV whereas HBO/HBOMax is trying to figure it out and Lucasfilm fumbles for the next creative vision.

Other Contenders for Most Important Story – Apple TV+ Launched

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