Category: Weekly News Update

Most Important Story of the Week and Other Good Reads – 12 July 2019: Netflix Has It’s First Merchandised Hit

Stranger Things season 3 came out for the Fourth of July weekend and I think it is safe to say it’s the biggest TV series in America, whether or not we truly believe Netflix’s latest datecdote or third parties, like Nielsen or Parrot Analytics.

If you really want to know if something is “popular”, I recommend waiting until people put their money where their eyes are. In other words, are businesses willing to stake their real world cash on a show?

In Stranger Things’s case, the answer is a resounding yes. Which means that: 1. Netflix has their biggest show and 2. I have a most important story of the week.

The Most Important Story of the Week – Netflix Has It’s First Licensed Merchandise Hit

How do you know Stranger Things has made it? Well, they have a Funko Pop.

Funko Website Image.png

Stranger Things actually has quite a few pops, and Funko is the type of company who can be choosey with who they do deals with. (Hence, this reporter’s quest for a Funko Pop for Bosch.) Given that Netflix finally got a Funko for a series they only just released data for, we can safely say this series is popular enough to get merchandise treatment. As far as I can tell, there aren’t any Amazon or Hulu Funkos, and previous to this, Netflix only had an Orange is the New Black pop. But those efforts pale in comparison to this Stranger Things take over.

For all the success of Netflix and Stranger Things, the future of licensing is far from assured for the streaming giant. Moreover, I’ve seen some misconceptions about product licensing and confusion. So let’s clear that up and dig into Netflix’s strategy just a bit.

Misconception 1: Product licensing is the golden goose.

The problem with product licensing is that Disney is so good at it. As I’ve written before, Disney has some really merchandise-able properties and expertise in licensing going back to the 1920s. Then Disney bought the other champion of product licensing, Star Wars/Lucasfilm. Thus, whenever licensing is mentioned, inevitably Disney is cited as the potential upside.

This is like comparing your pick up basketball game to Kawhi Leonard’s. Kawhi isn’t just good, he may be the best player in the world. Maybe you do play tenacious defense like him, but if you don’t have inhumanely long arms and athleticism, well you aren’t Kawhi. So don’t compare yourself to him. Disney is the same way: they have an entire division focused on licensing…do you? Disney takes up 50% of the shelf space in some retailers…can you compete with that? So sure, Disney’s upside is huge, but what is your real upside?

Licensing upside is also usually overhyped in the press. As I’ve written twice now (the explainer is really this piece on Lucasfilm), retail sales are usually cited by licensing folks, though a studio or network only takes home 5% or so of total sales. If you read that Star Wars has sold $20 billion in toys and licensed products, that means they “only” made $1 billion. Which is a huge number, but 20 times less than reported. You need to move a LOT of merchandise to make a dent in your revenue. I just found this Hollywood Reporter table showing Disney’s revenue by segment, and it helps get this point across:

Screen Shot 2019-07-15 at 12.46.29 PM.png

Misconception 2: Now that Netflix has conquered licensing, it can move kids products.

The irony of the success of Netflix’s success with Stranger Things is that it comes as I continue to read articles about how much trouble Netflix has had with product merchandise aimed at kids. For all the hype of primetime licensed merchandise, outside of Game of Thrones, kids series and movies dominate the sales.

Netflix faces three challenges in moving successfully into kids merchandise. First, they still don’t release ratings data. And while for adult products you can use alternative methods to triangulate demand–Google Trend data, social data, etc–those methods don’t work nearly as well for preschoolers who (I hope to god) aren’t using Twitter.

Second, the binge release/marketing model has proven extremely poor for licensing. All the episodes drop at one time, and then quickly decay as new shows are promoted to replace them. Disney Junior and PBS roll their shows out every day–on their own apps too–which keep kids more engaged with the properties on the TV side. On the feature film side, Disney and Universal roll out with 9 figure marketing campaigns. No kids property on Netflix gets that kind of love/spending.

Third, Netflix still doesn’t own a lot of their own kids content. A lot of their kids series–especially the Dreamworks series–are co-productions where the licensing rights are often owned by the owner of the IP. Hence, Netflix doesn’t have the rights to make products. (Tying back to Orange is the New Black, that was a series co-produced by Lionsgate, which probably helped make the Funko Pop.)

Misconception 3: Product-ties ins are not product licensing.

Stranger Things product roll outs have been much more about integrated marketing campaigns than true money-making consumer products. Which you’ve like seen on everything from KFC to Coca-Cola to Eggos. That’s free advertising for Netflix, which is a model Disney and Lucasfilm had also perfected over the years. While valuable, there is also much less risk for the CPG company, who doesn’t lose much by changing its packaging. If you want to know how much Stranger Things is potentially making for Netflix, ignore the Eggos and Coca-Colas, and even Windows 1, and look for shirts, toys, and games (both board and video).

Misconception 4: There is ONLY so much you can do in licensing in the first place.

The final point with Netflix is that Stranger Things surprised them in how big it got and how quickly. I’d say that Game of Thrones likely surprised HBO in the same way as they’d never had a franchise like that before. 

This speaks to the core point of licensing. You can’t force it on customers. When a series gets popular, it gets orders of magnitude more popular than competitors, and basically licenses itself. What you have to do is be prepared to take advantage of these series when they come, and Netflix is finally ready to do that. We’ll see if they can sustain it.

M&A Update – Univision Is Looking for Suitors

The winds of merging entertainment giants may be blowing again. For instance, if you look to Wall Street, America had a banner year in the first six months when it came to “deals”, which the New York Times uses to mean anything from mergers, acquisitions, divestitures and what not. For all the hype, though, as I’ve laid out repeatedly since last summer, we’ve seen hardly any M&A in entertainment.

Is this about to change? Maybe.

The scoop is from the WSJ, but I saw it first by Jessica Toonkel in The Information (and I also saw it quoted in The Ankler). Basically, the one sentence hint is that Univision executives are at the Sun Valley conference looking for potential buyers and have hired investment banks to do the due diligence. And they should have a few. Univision would complement nearly every media conglomerate, except Comcast-NBCU (who owns Telemundo). Disney’s films already do well with Hispanic audiences. CBS needs more OTT services for the future retransmission wars. And Warner…nevermind AT&T is likely out of money.

Meanwhile, the news that Univision wants to sell itself makes this leak of monster Up Front sales records a little more self-interested.

Other Contenders for Most Important Story

Warner Media’s Streaming Service Has a Name (and Friends)

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Long Reads for the Long Weekend – 3 July 2019

It’s about to be the long Fourth of July weekend, so I’m not going to post tomorrow or Friday because who should be reading about entertainment on a holiday weekend? (And since people aren’t at their desks “working”, traffic plummets for the whole internet.)

Wait, you still want something to read? Me too. The weekends are an underserved time for iPad wielding parents looking to avoid their children. The job of the Sunday paper hasn’t been adequately replaced as most websites I read don’t update on weekends. (See my above parenthetical.)

In honor of the long weekend, here are some “Long Reads” to take up your time, collated into one place. This is a grab bag of articles covering everything from social media to journalism to great investigative pieces. We’ll start with some great pieces on that last topic. When entertainment journalists go in-depth, they show how great entertainment journalism can be at its peak.

1. “How Movie Theaters are Exploiting Their Janitors” by Gene Maddaus in Variety

Maddaus describes how the forces of contracting, immigrant labor and lax oversight–with the pressure on profit margins–result in vulnerable people working for less than minimum wages in troubling conditions. (I linked to it here.)

2. “L.A.’s Housing Crisis Hits Hollywood: The Entertainment Workers Living in Their Cars” by Katie Kilkenny in The Hollywood Reporter

This long read never made it into a weekly column, which is a shame. Los Angeles has a housing shortage problem, and it impacts all workers, but especially those at the bottom of the income ladder due to rising rents. Unfortunately, that includes a lot of workers in Hollywood, like those “below the line”, even folks like writer’s assistants, which should tell you how widespread this problem is.

3. “The Dark Forest of the Internet” by Yancey Strickland

I’d read a few years back about the concept of “dark social media”. That’s the idea that while we can track and observe some social platforms like Facebook, Twitter and Youtube, others are mostly unobservable to marketers, like text messages and email. (If only we knew how many old men emailed about Blue Bloods, in between emails with dirty jokes and political diatribes.)

Strickland flips this analogy, warning that the observable internet is actively dangerous, using the analogy of a dark forest. A thought-provoking read, and you have to love a Liu Cixin reference to start. (It also pairs well with my final article recommendation; hat tip to MediaREDEF for surfacing; part II here.)

4. “Shady Numbers and Bad Business: Inside the Esports Bubble” by Cecilia D’Anastasio

D’Anastasio approaches the world of esports as someone who understands the passion of esports fans, but also as a sober journalist aware of the hype cycle the industry is undergoing. Lots of good numbers and, more importantly, analysis of potentially bad numbers. (I wrote about this in a weekly column a few weeks back.)

5. Youtube’s Problems in 2 Articles: 

“On Youtube a Network of Pedophiles is Hiding in Plain Site” by K.G. Orphanides in Wired 

& “YouTube Executives Ignored Warnings, Letting Toxic Videos Run Rampant” by Mark Bergen in Bloomberg

As a society, are we overreacting to the dangers of “engagement”? Reading this pair of articles on Youtube, I’d say not. Even if you understand the scale of the problem for Youtube is immense–a problem in the billions of videos and trillions of interactions–these articles impart the idea that Youtube traded off the risk of pedophilia and pushing conspiracies for profit. (My extended thoughts here.)

6. TVAnswerman’s 50 Rules of Good Journalism by Phillip Swann

If you’re not an aspiring journalist, this may not interest you. But I found it fascinating and think a lot of breathless media coverage would deflate just a bit if we all followed these rules. I don’t agree with every rule, as a commentator I don’t follow a few, but still found quite a few good ideas. In particular, read and write everyday and understand that your social media feed is still your journalism. A good reminder.

7. “Reddit and the Struggle to Detoxify the Internet” by Andrew Marantz in The New Yorker

The opening paragraph captures what I find fascinating about Reddit: it’s huge but many Americans have never heard of it. Or just vaguely heard of it. It’s a social platform I’ve dabbled in, but tend to avoid because it’s too good. Too addicted. As a result, I call it the underrated social platform. (Read that here.) Marantz has the best long piece I’ve read on Reddit. 

8. “Status as a Service” by Eugene Wei at The Remains of the Day

Ideally, I don’t link to an article until I’ve actually, you know, read it. Twitter would have a different feeling of virality if we all followed that rule. (I definitely retweet lots of articles without reading them.) Eugene Wei’s article (nee novella) was popular when it dropped and I’ve finally read the entire thing. It resonated with me in particular because while ostensibly I want to share my thoughts on the business of entertainment, really I’m a status seeking monkey using my writing to build social capital. Brilliant.

And since I’m late to my chosen social platforms–Twitter, Linked-In and Quora–which makes accumulating social capital even harder. Two lessons in one article is a great hit rate.

Some other thoughts:

– I love a good quad chart. This article gives us a great one.

This idea pairs well with a recent HBR article on the “first 1,000 customers” that’s been in my head too.

– The entertainment dimension explains why so many social platforms want original video content…but I’m still skeptical those videos add value if the platform isn’t useful in other ways.

– Being “skilled” in the way each platform demands may be why I find Twitter unhelpful. My thoughts naturally run longer than 240 characters.

Enjoy the reads and the long weekend. 

(Oh, and of course, if you haven’t read my long series on Game of Thrones or Star Wars or M&A, obviously start there!)


Most Important Story of the Week and Other Good Reads – 28 June 2019: The Office Is Leaving Netflix

A “Most Important” column on a Thursday? What’s going on with the Entertainment Strategy Guy’s usual Friday column? Well, an out of town wedding, which means I’ll be on the road tomorrow. So enjoy an early bite at the entertainment biz apple. 

Also, next week, with a birthday, Fourth of July, and some household projects lined up, posting will be light again. However, I have a lot of fun ideas planned for July, so keep checking in.

Most Important Story of the Week – The Office Is Leaving Netflix (in 2021)

Imagine that you have a favorite restaurant. A fancy small plates restaurant with a named chef. The first time you go, the meal is incredible. Almost all the dishes are delicious. (The service is impeccable too.) And for how much food you get, well, the price isn’t too bad!

Naturally, this becomes a restaurant you visit often.

Fast forward a bit. A year or two later. The small plate place has changed its entire menu. It’s a bit more adventurous. You try a few plates, and well this time there are a few dishes that are misses. Meanwhile, your old favorites are gone. (The service is still impeccable.) Do the portions seem a bit smaller? Man, this bill is kinda pricey for what we got.

Naturally, you don’t go as often anymore. 

Since this is a business strategy site, let’s take the above two scenarios and put them in terms of the old quality drivers: the product–in this case the food–isn’t quite as good. Though part of the product–the service–is the same. Meanwhile, the price for the food (both in terms of quantity delivered and quality of dish) is much lower. Hence, you don’t go as often because it isn’t as valuable.

You see the Netflix analogy, right?

One part of Netflix’s product is just fine: the user experience. They’re way out in front of everyone else in streaming. But the prices are going up, starting in the US and expanding to the EU. These prices are going up right as the quality of the product (in terms of both size of offering and quality of individual titles) is about to potentially fall off a cliff facing. Starting about two years ago–and continuing for the next half decade or so–Netflix has lost or will lose theatrical movies from Disney and Universal, new shows from The CW, library TV content from Disney, Fox, and others (including The Office which was widely speculated about online) and more.

Let’s not pretend that losing thousands of hours of the most valuable content is nothing. You can’t lower quality while raising prices and say, “This will have no impact.” Signs are Friends and The Office are Netflix’s most valuable TV series in terms of hours viewed; I continue to believe that Disney has the most popular movies being made because…they do. (See box office.) Moreover, the biggest shows and movies aren’t just bigger by a little bit–long time readers know where I’m going with this–they are MULTIPLES more important. (Article explaining that here.)

As we move into the next wave of the streaming wars, the value of a content library will be increasingly important in separating the services. Consider this (hypothetical) situation with (made up) numbers. Netflix has a service that most customers value at a “5”. Disney offers a service most customers value at a “4”. But Netflix costs twice as much as Disney’s service…so how many keep both? How many cut the cord for Disney? What if HBO ends up with a service customers (hypothetically again) value at an “8”, but it costs even more than Netflix? What if NBC and Hulu are free…but have better content valued at “3”?

I don’t know! That’s a complex equation with too many variables to compute. Then we’ll have to repeat the exercise country by country around the world. But whereas we know one key piece in that equation absolutely—price per month isn’t a secret—we’re left guessing on how much less valuable the Netflix library will be after The Office, Friends and Disney movies (after Dreamworks movies, Fox TV series and others have already left) depart the platform. So will this hurt Netflix? Yes. How much? It remains to be seen.

(Here is where I wish I could link to my article explaining how to value content libraries (versus series, which I did here), and my take on which service has the most valuable content library. But, um, I haven’t written those yet. Yes, I’m on it. I’ll do what I can.)

Other Contenders

Kanopy Dropped by New York City Public Libraries

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Most Important Story of the Week and Other Good Reads – 21 June 2019: Overall Deals…Explained!

Here’s a fun factoid about the news:

JJ Abrams hasn’t actually closed his deal with Warner Media for $500 million.

By the news coverage I read, I assumed he had. And by coverage, of course, I mean Twitter and Linked-In headlines. It’s only when you read Lesley Goldberg’s actual story that you find out that the deal is in “final negotiations”, not actually signed, sealed and delivered. Still, let’s call it 94% that it happens, so the biggest piece on the showrunner chess board has been officially removed, so it’s my….

Most Important Story of the Week – JJ Abrams/Bad Robot Land at Warners Bros.

Like a giant NBA trade—cough Lakers cough Anthony Davis cough—everyone wants to immediately determine if this free agent signing was a good deal.

Unfortunately, I can’t tell you that.

Someday, I hope to evaluate all these deals like a Zach Lowe of entertainment business, but we’re currently at an information deficit. Consider what we don’t know about the deal…


Type of projects included?

First look or true overall?

Overhead paid?

Fees for TV and Movies?

That’s a lot to not know! And while I’d love to trot out my POCD framework for all overall deals—it’s a pretty flexible framework and it fits easily here too—we just can’t determine if the price was too high without knowing what they’re paying for. Then, on the TV Top Five podcast, Lesley Goldberg even admits that the $500 million is really just an estimate.

(Here’s a good summary of who has overall and first look deals and with whom, but not price tags, lengths or type of deal by Variety. And it’s from 2018.)

Instead, I think there is still a lot of confusion about overall deals in general. So today I’m providing a mini-explainer on the key pieces of an overall deal, and how they can impact the bottom line. Let’s start with the “what” you get in an overall deal, because it differs.

The Differences between Showrunners, Creators, Executive Producers and Development Executives

Have you ever looked at Steven Spielberg’s IMDb page? Here’s his IMDb clip for just producing for 2019 and beyond:

Screen Shot 2019-06-20 at 9.01.03 AM

Holy cow. Here’s one of the showrunners of Game of Thrones for comparison, David Benioff, for his entire producing career:

Screen Shot 2019-06-20 at 9.02.34 AM

Those two IMDb extremes capture the range of participation in a producing/overall deal. On one end of the spectrum, you have the showrunner, who is in the trenches everyday ensuring the writing gets done and the product is great. Benioff & Weiss, Michelle and Robert King’s on The Good Wife and Vince Gilligan on Breaking Bad are examples of this.

On the other end of the spectrum are famous producers who lend their name as “executive producers” to a whole host of projects. Spielberg, Ridley Scott, and the emerging Jordan Peele are all examples of famous directors who still make movies, but find time to attach their names to a host of projects as executive producers.

Understanding the differences in these titles and roles explains a lot of the value a creative can add to the final TV or film project, meaning it’s likelihood to succeed. Which reminds me of my “creative to business” spectrum. The less involved the showrunners are, the more “business” they become, and hence less value they add to the ultimate quality.Creative vs Biz SpectrumSo here are the definitions keeping that in mind:

Showrunners – A showrunner is the person who runs the day-to-day operations of a TV series. This includes managing the writing of the series–either supervising the writer’s room, or sometimes by writing all the episodes–overseeing day-to-day production, sometimes hiring of directors, and producing the show.

Value – Immense, but limited in output (about one show/film a year)

Creator – Usually, a showrunner is a creator of a given TV series. But commonly, some of the great TV showrunners launch a TV series as the creator, but then pass day-to-day showrunning to another writer, while continuing  as an executive producer. The epically prolific Greg Berlanti follows this framework. He has creator credit on most of his shows, but in many cases hasn’t written an episode in years. Shonda Rhimes also fits this mold, though with her and Ryan Murphy I don’t know their day-to-day involvement in all their shows.

Value – Big, and potentially for multiple show launches simultaneously.

Producer/Executive Producer – These are the fuzziest terms in the list of definitions I’ll give you. For this reason, the Producers Guild of America has actually worked to define the roles of producers on TV series to try to limit the list of people being called producers who aren’t actually producing something. To get the “p.g.a.” after your name on a project, you actually have to be heavily involved making a show or movie happen.

This is opposed to “executive producers”, which means an executive who oversees a project. Again, look at that Spielberg list of projects. Is he really reading the scripts of all those projects? Add the fact that some top tier actors and directors insist on EP credit (with bonus producer payments), then the value of an EP ranges from vital to totally unnecessary.

Value – A huge range, but mostly little value added to final project, besides increasing odds of initial greenlight.

Development Executives – The development executive is the person at the studio who helps pick out and shepherd projects from pitch to pilot to series and beyond. But you don’t give overall deals to development executives, so why are they included? Because the difference between a development executive and many executive producers is just a matter of perspective. In some of these overall deals, they’re really just elevated development executives.

Value – Great development execs are worth their weight in bitcoin; the rest are average, meaning interchangeable.

Additionally, some overall deals are with directors who can direct projects, but everyone knows what a director does.

When you ask, “Is the JJ Abrams deal a good deal?”, the question should be, “To do what?” How many movies is he directing? How many shows is he creating? How many is he writing? How many will he just EP and slap his name on it? I don’t know, but then it begs the next question: does Warner Bros own these projects, or just get the first look?

The Difference Between a First Look Deal and an Overall Deal

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Most Important Story of the Week and Other Good Reads – 14 June 19: AT&T-Time-Warner Approval Decision Turns One

This week, The Starters (an NBA talk show and wildly popular podcast) was cancelled by…well we don’t know who. The Washington Post identified a few potential suspects. It could have been Turner or NBA TV–for the usual ratings reasons–or it could have been their corporate overlord, AT&T, mandating cuts across all businesses to pay off debt. (For a good read on how influential The Starters are, Business Insider has the story.)

Just because I’m a huge fan of these guys doesn’t mean this is the most important story of the week. But it does remind us that AT&T may still have no idea how to build brands in the streaming wars. You’re trying to launch a platform…which needs to acquire a lot of new subscribers…and you’re cancelling a cheap show with a devoted fan base that amplifies it on social media? Gotcha.

In another sense, it’s just a small ramification among all the huge ramifications of AT&T/Time-Warner merger had on entertainment. Which was approved a year ago this week by one (unelected) judge (legislating from the bench). (That’s me being slightly cheeky on politics.) Let’s reflect on that massive story with a bit of distance, focusing on the true consequences of that merger.

Most Important – AT&T and Time-Warner Merger and the Ramifications

Let’s be clear on the official, Entertainment Strategy Guy take, on this issue: the decision to allow these two companies to merge was huge. It was big. Not unprecedented, but big. (I mean, Comcast and NBC-Universal was unprecedented, though Comcast had tried to buy Disney in the early 2000s.) Though the impact it had on future mergers was much smaller than anticipated, as I’ve written a ton on.

First, it caused Disney to pay more for 21st Century Fox.

This is one of those instances where you just have to marvel at what happened. As soon as the dust settled, Comcast genuinely saw a greenlight to grow. So Comcast put in an offer on 21st Century Fox that eventually forced Disney to increase their bid to $71.3 billion, an increase of about $20 billion dollars.

This boost likely turned the deal from a no-brainer win for Disney to an open question. The economics lesson is the “winner’s curse” in auctions. Meaning, if the value of something is an unknown future value of X, but each bidder has a different value on that X, the more bids you accept, the more likely someone is to overpay to win the auction. Did Disney have to overpay to win the deal?

Maybe. At $50 billion, I think they make up the value even if they don’t launch a game-changing streaming platform.  At $70.3 billion? Well, that’s $20 billion in free cash flow–discounted over time–that you need to add. That’s a tougher sell. Even if Hulu allows them to launch a transformational subscription service, they still could have done a version of that without Fox. But the raising in price made Disney worried about debt. So…

Second, after it raised the price on Disney, Comcast bought Sky.

Bundle this with “another merger that was in process that Comcast hopped in on”. Fox was looking to expand its stake in Sky, and Disney was hoping keep Sky in the deal. Then Comcast came in still looking to buy something. Without the AT&T verdict that caused Disney to increase its asking price, this deal doesn’t go through.

Though, after swallowing this additional piece Comcast now has enough debt that it can’t do anything else. I mean, it had to spend another 26 billion pounds to buy Sky. And as has been written, the debt loads of all of entertainment conglomerates are now so heavy that this has weighed down future M&A. Of course, not for AT&T exactly…

AT&T Buys the Rest of Otter Media.

As the dust settled from the merger, conveniently AT&T bought out the rest of its stake in Otter Media–a collection of OTT brands–from The Chernin Group. Arguably, Otter was really valuable to AT&T since it has subscription video know-how and brands to throw together with Warner Media. And now that the heads of Otter Media are in charge of all the streaming video, well that little move mattered. That didn’t stop AT&T, though, from cleaning house…

AT&T Cancels a Bunch of OTT/Video Services.

Film Struck? Gone.

Drama Fever? Gone.

Super Deluxe? Gone.

Machinima? Rebranded and repurposed.

I applauded these decisions at the time for a larger corporate behemoth, though few customers loved it. In my mind, this strategic decision made sense because as I counted up once, AT&T had over 20 streaming services and was planning to launch more, including DC Universe. So between DirecTV-Now, HBO Now, and everything from Otter Media, well AT&T needed some focus. Maybe they will have that…

AT&T/Warner-Media Announced a New Streaming Service.

Now that you have all this content in one place, AT&T’s master plan was unveiled to launch its own Disney+/Netflix style streaming service. Since then, the price and the content and the number of tiers and the launch date and the distribution plan have all been up in the air. Or have changed multiple times. And whether or not it shuts down more OTT services or bundles them together.

Everyone Left Warner-Media.

Does Richard Plepler leave HBO if AT&T doesn’t buy Warner-Media? Probably not. What about David Levy? Does Bob Greenblatt come in? Likely no to both.

So AT&T’s acquisition started a parade of executives that has only continued, with more HBO executives and then the head of Warner Bros. (Fine, that last one probably would have happened anyways.) Some executives will always leave after a merger; all of the top executive team, though? That seems like too much.

Add this all up: How big was this?

Huge. Monumental in the industry, and some of the ramifications are yet to come.

(This very long read from Nilay Patel at The Verge is still worth reading even a year later.)

Other Candidates For Most important Story of the Week

Lionsgate Does a Library Output Deal with Hulu AND FX

This is the type of synergy we were looking for when Disney swallowed the Fox. As a deal, it finely threads the needle in keeping value in the traditional linear channels, while also helping boost the streaming platform. Of course, the juiciest number–the dollar value–still hasn’t been revealed. (Meanwhile, you also have to wonder how valuable the Lionsgate catalogue will be, coming in as the sixth or seventh best studio recently in box office terms and this doesn’t even include the John Wick films…)

Sky Plans to Double Its Original Content Investment

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Most Important Story of the Week and Other Good Reads – 7 June 19: The Trade War Moves to Hollywood

This week felt important for the news. Sure, we didn’t have any official announcements of new streaming services or any giant mergers, but between censorship, antitrust and trade wars, the world of politics is smashing (back) into the garden of media/tech. And the biggest government intervention was far away from Hollywood…

Most Important Story of the Week – The Trade War Moves to Hollywood

If you want a flippant response, “This is how you trade war.” For the catch up, China is surreptitiously telling distributors to avoid booking US films into the Chinese market. China has tight control over their film industry and this is their latest salvo in response to President Trump’s trade war. Here’s the key quote in Variety (but read the whole thing):

Industry insiders stress that there is nothing in writing – no officially published decree – putting a freeze on U.S. content. The Chinese government tends to exercise such controls internally and unofficially, which allows it to publicly deny the existence of any restrictions and to make exceptions when it suits them. Three years ago, when China blocked South Korean films, pop bands and other cultural exports out of anger over Seoul’s decision to deploy U.S.-made missiles, it took six months before Beijing publicly acknowledged the policy.

Frankly, it’s a smart move. Movies really aren’t as high stakes in total dollar value as something like oil or finance, but customers care way more about them. And some powerful people who are friends with the President will be directly impacted (Bob and Rupert). But the ramifications extend from there.

Franchise Movies

This headline from Scott Mendleson sort of explains it all:

Avengers: Endgame Grossed Less Of Its Money In America Than Any Marvel Movie (Box Office)

And that’s Marvel’s highest grossing film of all time in the US. Yet, overseas is even bigger, including at least $600 million from China. As the studios make more and more franchises and more and more animated films, they rely on this overseas gross, and frankly that support is bolstered by China. 

As the article makes clear, the big tentpole franchises like Spider-Man, Secret Life of Pets 2 and others will likely slide through the de facto ban. There is too much money at stake for both sides. However, the challenge–if China does want to hurt the major studios–is to just make it harder to collect money from China, which is already hard. Studios collect a smaller percentage of box office than other countries (25%) and China sometimes make it hard to take capital out of the country. They could add in a few new taxes, and this could hit bottom lines, even if they films do air in China. So even as box office grosses climb, the actual revenue coming back to California stays flat.

Independent Studios

Instead, these are the type of films who will feel the pinch. China is growing in importance not just for the huge franchise films, but even smaller pictures. In some cases, they presell China foreign sales rights, so that becomes a key source of funding. If China starts restricting films like this, well that’s just another economic headwind for independent and middle budget films to content with.

Other Movie Industries

China will still need foreign films. China has a cap on “revenue sharing” films at a loose 34 per year. (And there are some ways to make co-productions with Chinese backing or talent or locations that can get around these quotas.) Of course, China is also feuding with Australia, Canada and the UK, so they will not be easy replacements for US films. So my gut is that Bollywood, Japan and South Korea could have an advantage here.

China’s Film Industry

Or you know what? Just make more movies at home. And they need it since apparently they’ve been in a slump since actress BingBing was arrested on tax avoidance charges and the industry. This move by China could just be good ol fashioned protectionism than anything else. I’m still curious when we have our first break out Chinese film in the American market. (The biggest Chinese language film was Crouching Tiger, Hidden Dragon, according to Box Office Mojo.)


Listen, Europe, I don’t want to tell you how to run your trade wars. And you made nice with President Trump after the last trade war talk, and you’re just waiting until he leaves office. This little maneuver with China won’t really impact your box office. I mean, Europeans don’t care if Chinese moviegoers can see the latest Star Wars. But if President Trump spur of the moment changes his mind on his trade war with Europe (the way he just did with Mexico), here’s my unasked for advice: adopt China’s tactics.

But not with movies–again, you’re too small for that to matter–but for streaming video.

Europe secretly bristles that Netflix and Amazon and other streamers are all foreign owned, hence the law requiring European content on the streamers. Well, if Trump puts unilateral tariffs again, announce tariffs on streaming video for Amazon, Netflix and Youtube. Sure, that hurts Silicon Valley, not the heartland, but it will hurt the US stock market more. (You may ask for the logic or rationale for this, but it’s a trade war started by an irrational actor. Logic doesn’t matter.)

Speaking of the streamers…


Here’s the thing about Netflix’s growth: None of it is in China. That’s kinda crazy when you think about it. They’re adding 9 million subscribers every month, but none are in the world’s biggest market. Amazon has been similarly stymied in the Middle Kingdom. (I’m not sure about Youtube and Twitch.) If China is ready to block US movies, you better believe they’ll take the same approach to the streamers. Which isn’t a change from the status quo, but a trade war won’t help their long term prospects.

Mergers and Acquisitions

The biggest casualty of the trade war may be the desire of massive conglomerates to get even bigger. As Tara Lachapelle asked, “Would you do a mega deal in this environment?” Not if the market is ready to tank at the next sign of a slowdown. Moreover, with all the China-America squabbling, that takes one huge potential source of money off the table. A few years back, the cool thing was to grab Chinese money (Legendary, STX, Relativity). This obviously complicates that or makes it impossible.

Long Read of the Week – Esports

When I used to read the LA Times as a paper back in the 1990s, as a child, I felt like “extreme” or “action” sports–everything from skateboarding to BMX bikes to anything else on wheels–was the hot new sport. I can’t prove this strawman with links because the internet doesn’t work so great for articles that long ago.

But my inherent skepticism of people touting the next thing that will kill the NFL (and other leagues) starts with the memory of breathless predictions about the inevitable conquest of extreme sports over the NFL. That was a thing in the 90s. So when I hear that esports will kill the NFL, I think maybe not.

Listen, esports is clearly a growth industry. However, when valuations start to get frothy, and investors drop tens of millions on negative cash flow businesses, well, then I naturally revert to bear status. I think esports will be a fixture of entertainment going forward, but I can believe that and believe that 1. The NFL won’t die and 2. An Overwatch team isn’t worth $50 million dollars.

So I loved this article from last week by Cecilia D’Anastasio about esports. Read the whole thing, but here are my key takeaways.

Measurements Are Still All Over The Place

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Most Important Story of the Week and Other Good Reads – 31 May 19: Is Broadcast TV Dead?

I really wanted to figure out a way to make FX turning 25 my biggest story of the week. Fox launched a cable channel that helped define the prestige TV era as much as any other twenty-five years ago tomorrow. (Decider had a good roll up of the top 25 that brought this to my attention.) That feels like it should be a bigger story.

Yet, birthdays aren’t really game changing news, even for the channel that brought us. It’s Always Sunny in Philadelphia, my favorite series on FX. My favorite episode for Hollywood in-jokes is “The Gang Tries to Win an Award” which utterly lampoons the Emmy voting process.

So let’s look bigger than one channel. Like at all of TV.

Most Important Story of the Week – TV Ratings Continue to Decline, in pictures

The TV ratings for the 2018-2019 season are in, so let’s summarize what happened. I have three takes that range from “this is bad” to “oh this is controversial ”.

Bad News/Uncontroversial Take – Broadcast Ratings are Down

Well, ratings are down again. And CBS is still on top. And NBC is on top with the key demo (18-45 year olds). On top, though, means just 8.9 million and 1.6 million people, respectively. Those numbers are pretty small compared to broadcast TV’s peak or even just fifteen years ago. Here’s my version of Deadline’s chart, showing this for the last three years:

1 Table Ratings Broadcast Season

Source: Nielsen, via Deadline

So ratings are down another 7% after falling 3% last year. This matches the annual declines I’ve been monitoring. Here’s the same measurements, but from January to December instead of the broadcast season. (I had pulled these last fall to make a point about CBS.)

2 Table Ratings End of Year

Source: Nielsen, via IndieWire

So two different ways to subtly measure the data, which both show declines. Also, I’ll bang on another point I made about CBS last fall. For the “old people network”, which is the stereotype, it has more young people watch it than ABC, and tied with Fox. So proportionally, yes it has more non-key demo viewers, but it has the same in total numbers. Does one of those things matter more than the other? Maybe, maybe not.

Learning Point – TV Series are declining, but winner still takes all

Every year Michael Schneider does a list of the top 100 shows on cable and broadcast. I love reading through this list. Here’s the top 14, for example:

3 Image Top 14

Source: Nielsen, via Variety

I love it even more as further proof of my favorite learning point, which is to show that TV is, like all entertainment, “winner take all”, meaning that most shows get hardly any ratings, while a few are monsters. Given that FX estimates that between basic cable and broadcast there were 300 scripted series, and that Schneider’s lowest rated series was Hell’s Kitchen with 4 million viewers, we could basically add 200 more scripted series that had under four million viewers. Doing that, here’s how the winner takes all economics look for the traditional TV bundle (with some assumptions for that extra 200 series.)

4 Table Count of Series by Viewership

Actually, since Schneider’s list includes reality and sports, who knows how many more reality shows were made last year? I looked and couldn’t find it. The point is it would make the winner-takes-all shape even sharper.

Potentially Good News/Controversial Take – Top TV Series May Be Getting Bigger

So the inspiration for this hot take comes from Axios’s (must read) media newsletter by Sara Fischer. Her take? Well, TV series finales are getting smaller. She called this TV’s moving goal posts. Here’s the image from her newsletter:

5 Image Axios Goal Posts

Source: Axios

Pretty damning stuff. But it seemed like it was really trying to tell a story about decline over time. To better visualize this, I took the data and put it in a scatter plot by year to see the story over time:

6 Table ratings by Year Live

Still pretty serious decline. Except something bothered me about it. I mean, I’ve been pretty deep into the Game of Thrones ratings lately. And everyone knows that a ton of people watch the series after it airs. With the latest data, Game of Thrones is getting 44 million viewers per episode. If you assume all those people watched within say a week of the final, then GoT is a top 6 show of this data set.

And this makes sense: with DVRs, multiple airings and digital, do we care about how many people watch a show, or how many happen to watch it live? This is always my thing about data: you have to know why you’re asking the question. And so I tried to update this table for all the series with DVR numbers. Along the way, I found this fun image showing DVR’s rise over time:

7 Image dvr-users-590x330

Clearly, the rise of DVRs killed the “live watch” of series finales. (Along with a stretch of not great broadcast series for finales.) But with the 2010 finales like Breaking Bad, Game of Thrones, How I Met Your Mother and The Big Bang Theory, a lot of people tuned in late. So I adjusted some of those series up if I could find the data, and dropped Will and Grace, which wasn’t a series finale, and had my own new data set. I also kicked up The Sopranos since it had delayed viewing and multiple airings too.

8 Table Ratings with DVRI’ll be honest, I had hoped with this table the trend line would be flat, or near to it. And it didn’t go quite that far. The trend for series finales is still…down.

So this take isn’t that hot. But look at the decline in the equation. Instead of series finales losing over a million viewers per year, now it is down to 700K viewers or so. If you pulled just the 2000s, the line would be flat. Yes, I had to make a ton of assumptions, but in the question of, “Is the monoculture dead?”, well I think Game of Thrones is a pretty good argument that one truly great show can still draw in a significant amount of viewers. I wouldn’t go so far as to say that the trend is reversing, but it’s flat. (The biggest shows on “TV” aren’t getting smaller anymore.)

Bonus Point: Eurovision Viewership Over Time

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