Category: Weekly News Update

Most Important Story of the Week – 31 July 20: CAA Fires Some Agents…What Does it Mean?

Let’s zig while everyone else is zagging, shall we?

Sure, PVOD is officially a thing for one theater chain and one studio. But we knew a compromise was coming eventually. Meanwhile, I’m looking at the power brokers of entertainment for my story of the week.

Most Important Story of the Week – CAA Finally Lays Off Agents

When Covid-19 began it’s spread, everyone was impacted. Lots of companies had to furlough workers, cut hours, start work from home and begin to plan for a pandemic-impacted future.

The challenge is trying to figure out which impacts are temporary, and which could be permanent. (Which I’ve tried to do a few times.) 

In film and TV specifically, studios were hit with both supply and demand shocks: they couldn’t release films in theaters and had to stop production. The logical next step was for studios to severely curtailing deal making. Why spend money if you’re not making money? 

Unfortunately for Los Angeles–and similar regions around the globe–the Hollywood economy is like an ecosystem in the natural sense of the word. The studios are the plankton that feeds all the animals in the sea from theaters to cable channels to cable distributors to home entertainment video producers to independent PR shops to swaths of entertainment lawyers to unknown hordes of marketing consultancies to…agencies/managers.

I highlight that last group because of all the support groups it’s not clear that they have to exist. They do serve roles in the system and one could (maybe) make the case they even add value. But most industries work just fine without dedicated third parties hoarding/managing talent. (Head hunters exist, but are much less prominent in other industries.) 

Moreover, as time has passed and agencies have consolidated, their business model–being blunt–is much more about being gatekeepers who charge rents to reach talent than connecting the right people with the right projects. Gatekeepers then extract rents, which exceed their value and you can tell they’re succeeding because they build lavish offices and have enormous expense accounts. See CAA and WME.

Thus the news this week feels bigger than just “industry being impacted by Coronavirus”. Theaters are being impacted too, but most have reduced costs and will survive until a therapeutic or vaccine is developed. Cable TV made it through. Theme parks are reopening, though limited. Sports will see revenue cut in maybe half, but everyone will cut salaries and continue on.

At first, I would have said the same thing about agencies. The agencies matched other businesses by cutting hours and expense accounts. (Though honestly, who had meals to go to under quarantine?)

Now the agencies are laying off agents. Specifically, CAA is last to the party. “Laying off” is a step more dire than “furlough”. Agents could be furloughed if there is no work to do. Laying them off means, generally, that they can’t come back. While lots of businesses are laying off workers, an agency is literally only its workers! They don’t make or produce anything; without agents, an agency isn’t an agency!

This change is potentially seismic. 

If you have fewer people to make deals, it means you anticipate fewer deals to make in the future. One explanation could be that studios will pull back from making new shows. I don’t buy that at all, especially with the boom in streaming services.

Instead, the reality may be that we don’t really need agents, and the pandemic threw that into sharp relief. At least one group of talent proved that it doesn’t really need agents. (Or not agents from the two major firms.) The writers fired all their agents last year and still film and TV development continued. If agents are a vital cog in the machine, what to make of the fact that when that cog was removed for writers…nothing changed?

Let’s not overreact too much. It’s *only* 5% of the workforce that is being laid off and likely none of the top agents. (Furloughs are temporary so I’m less likely to consider that a permanent change.) Every other agency has already let go of their staff. Maybe this was as inevitable as AMC Theaters and Comcast coming to a deal. Or maybe I’m not going far enough: WME is a debt burdened goliath that failed to IPO and doesn’t actually have a strategy for the future.

If I’m a studio or production company, I’d look to a post-agent future. In addition to being gatekeepers, agents in a lot of ways are bad talent spotters. They send the same writers and same directors and same actors to development executives. This makes for so much of the dross that comes to screens. Worse, because they do all the packaging, many development execs have lost the ability to find great talent and great projects. (A role producers used to play more prominently in the system.) 

If a studio can re-develop the skill at developing projects–a role the agencies were happy to do for them for a fee–it could pay dividends.

The Next Most Important Story of the Week – Comcast-AMC Theaters Truce

It’s still a big deal! But in a change, I was asked to write my thoughts for Decider.  It’s a good one and may change how you look at this big news. (When that article goes up, I’ll provide a link.

Data of the Week – ESPN’s Huge Baseball Ratings

We have our first test of the thesis that Covid-19 changed everything. First up, sports. With everyone stuck at home, and experimenting with TikToks, Fortnites, and Twitches, maybe they’ve moved past live sports?

Well, not really

Screen Shot 2020-07-30 at 11.24.14 AM

My prediction is that when Lebron and the Lakers take on Kawhi and the Clippers last night for the NBA’s return it will set similar ratings. (This article was written before it happened.) 

Long term what are the impacts? Well, if sports dominate linear TV, they’ll become even more important to the cable bundle’s survival. Meanwhile, if sports really do grab the attention of 1/3rd to 1/2 of viewers, we could see viewership decline on the streamers, new channels and scripted cable/broadcast proportionally. Sports news websites should see a spike in traffic too. If the streaming wars are really the “attention wars”, then a new battleground of attention is returning.

M&A Updates

Antitrust hearings

There wasn’t a lot of news out of the antitrust hearings on capitol hill, besides headlines speculating this is a “Big Tobacco” moment. My overall takeaway is only one of two things can be true:

  1. The lead executives for major tech companies are surprisingly uninformed about large parts of their businesses. As such, they should be fired for incompetence and poor leadership. Tank their stocks!
  2. The executives were lying when they said they “couldn’t recall” many details about their companies.

Obviously, number 2 is true.

Don’t sleep on antitrust as the defining business issue of the 2020s. If breaking up conglomerates of all shapes and sizes becomes a trend, that will have ramifications up and down every value chain. Smart business leaders can strategize around that. But that’s a big “if”. 

M&A is Down for 2020 (duh)

One of my favorite corners was predicting in 2018 that M&A wouldn’t “explode” following the approval of the AT&T/Time-Warner merger. And indeed it remained mostly flat, and then got walloped by Covid-19. (Which does not count as something I predicted!) Here’s the table from PwC, recreated by Axios:

Screen Shot 2020-07-29 at 9.06.35 PM

While PwC provides the best in class data for M&A–I used it extensively back in 2018–their headline is straight boiler plate “this changes everything” unexplored assertion. Yawn.

Other Contenders for Most Important Story

HBO Max Got “4 Million” New Subscribers

On last week’s The Business Kim Masters pointed out that it’s unclear if 4 million additional HBO Max/HBO subscribers is good or bad news for AT&T. She’s totally right: if you don’t set expectations ahead of time, when you do get a data point, you end up fitting it into your pre-existing narrative. That’s bad.

Unfortunately, I didn’t follow this advice myself. I didn’t expect HBO Max to give us subscriber numbers so I didn’t plop down a forecast.

I do have a tentative prediction. For new services with brands like this, I’m beginning to see a curve I’m calling the “substack” curve. I call it that because I first saw it when a substack author showed their subscriber growth. If someone has a preexisting brand, then they sign up lots of people at first. Then it slows down, but often it picks up momentum later on. (My curve has done something similar, though my “brand” was still small at launch.) If you’re familiar with the typical S-curve/bass diffusion curve, this is almost the opposite: start out big, slow down, then accelerate later.

We’ve already seen this with Disney+, which added huge numbers in November–the brand!–and then slowly added folks and has likely seen a pick up with Hamilton, and will see more acquisitions with the big Marvel shows. HBO Max is on a similar path. Four million was the branding launch, and then it will slow down and they hope to add more later when the next Game of Thrones prequel comes out. 

In other words, we could read this as the HBO Max to Disney+ is about 40% of the value. My caveat? Most of HBO Max is just HBO, and 30 million folks already have that. Plus, Covid-19 killed any chance at a good, buzzy original series, which Disney+ had.

(The best read I came across this week was this Variety VIP article in front of their pay wall. Also, after I published this Peacock announced it had 10 million sign-ups. I’ll tackle that next week.)

Hulu Redesign

Folks seem to like Hulu’s redesign. Others have said it mirrors Netflix, which begs the question, “Do you like Netflix’s interface?” I think half of customers do and half don’t. Meanwhile, I just long for the streamer with the play list feature that most closely mirrors my current DVR. The DVR is the best UX period.

Tenet’s Latest Plan

Open worldwide end of August, and then Labor Day weekend where possible in the United States. Given this is fairly convoluted, it’s probably the most likely to stick. Also, Disney moved Mulan again, date unknown. It also pushed Star Wars and Avatar, but that has more to do with production being paused than theaters not being open.

Tom Cruise “Space” Movie Plans for a Theatrical Launch

Not the biggest story of the week, but it did cause me to pause. Cruise may just be risk averse for streaming, or maybe he knows he’ll get much bigger paychecks in theaters. I opt for the latter. (With the caveat that my favorite line in any story is “The movie is also said to not yet have a script.”)

Management Advice of the Week – Don’t Bring Your Laptop to Class (or Meeting)

One of the sections I’ve neglected in this newsletter is my management advice for entertainment professionals. Cleaning out links, I stumbled on this gem that still holds up.

Essentially, under experimental conditions, if you’re on a laptop you can’t pay attention as well to a lecture. Multiple studies back this experimental finding up and I’ve read studies extending it to smartphones.

So what can you do about it? Easy: don’t bring electronics to meetings. You’ll retain more information in the meeting and be more engaged. What about our coronavirus zoom world? Well, close every screen beside the open Zoom room and use a pad and paper to take notes/plan. 

Lots of News with No News – Emmy 2020 Edition

Every year the Emmys garner tons of news coverage and every year I tell you to ignore this shiny bauble. As nominations per category have generally increased, and studios compete in more and more categories, the odds that a studio sets a record for Emmy nominations increases, which Netflix did this year. However, this Variety chart was the most telling graph I saw:

Screen Shot 2020-07-30 at 9.07.13 AM

In other words, Netflix’s skill is buying shows in bulk; HBO’s and other traditional studios is making shows.

Most Important Story of the Week – 24 July 20: The Incredible Shrinking Libraries of Peacock and HBO Max

The initial draft of this weekly column went very long in the “data of the week” section. So long it’s going to be its own article next week. (It isn’t that time sensitive.)

Meanwhile, the biggest story is one of omission…

Most Important Story of the Week – The Incredible Shrinking Libraries of Peacock and HBO Max

While the entertainment press often stares at shiny objects–Tenet’s delayed again is the example this week–I still can’t quite believe my eyes on this one:

The Harry Potter films are leaving HBO Max in August!

I’ve been telling everyone that the streaming wars aren’t a sprint, they’re a marathon. Heck, they’re an ultramarathon. Just like (most) real wars. World War II wasn’t won on December 7th. (Fine, 26th of May 1940 for my UK readers.) It slogged on for half a decade more. The Vietnam War or Iraq War were twice as long at least. Historically, wars have gone even longer. (Like 30 or 100 year time spans!) Even the Galactic Civil War in Star Wars lasted ten years. 

Yet the newly launched streamers tried to win it on day 1. In addition to the departure of Harry Potter, we have…

– The Jurassic Park films are leaving Peacock this month for Netflix.
– The Hobbit films quietly left HBO Max sometime in July.
– The Matrix films are leaving Peacock along with some Fast and Furious films.
And more

As far as content planning goes, this is bad strategy. The thinking for the traditional streamers must have been that buzz would never be higher than launch, so the goal was to present the impression that there are tons of blockbuster movies. (Just like Disney+.)

Of course, when folks see tons of movies, they expect them to stay there. If they leave without similar high-powered replacements coming in, the result is disappointment. Traditional HBO knows this, which is why every Saturday they usually have a big new movie, but it leaves after a few months. (And why no defining films have left Disney+.)

Why haven’t they paid more to keep these buzzy films around? Traditional companies like making money. And Wall Street still expects them too. It’s cheaper to pay for a limited, non-exclusive streaming window measured in months (or even days) than to permanently end some of these lucrative exclusive linear deals in the United States. (TNT/TBS, USA Network/Syfy, and FX/FXX still pay handsomely for blockbuster films. So do Netflix, Hulu and Prime Video.)

Disney paid dearly to get nearly all their rights back and keep them. As a result, Disney streaming has lost lots of money so far. (It did have some films leave the service, such as Home Alone.) Meanwhile, it stays focused on the numbers that drive Netflix’s stock price: subscriber counts.

In defense of HBO Max and Peacock, I’m not sure losing any of these titles besides Harry Potter and Jurassic Park will really hurt the brand. If I were offering them advice, though, it would be to end these old habits of shifting films around constantly. Some library rotation will make sense; windows under a year do not. The key to the traditional streamers competing with Netflix is to offer consistent libraries of classic films. Their value proposition is that their films are better on average than Netflix. Rotating films in and out won’t provide that. 

This does mean, frighteningly, to ignore the money guys. At least for now. Since the economics are all in flux anyways, the cash now doesn’t actually exceed the potential cash later, but that’s a tough case to make.

M&A Update

IMG and Learfield’s merger was cleared last week, consolidating another industry, this time sports viewing rights, mainly college. This will likely be anti-competitive and Sports Business Daily has the details. (Hat tip to Matt Stoller for pointing me to it.)

Meanwhile, the tech giants can’t seem to help themselves. First the Wall Street Journal reports that Google specifically preferences Youtube for video searches. Second, the Wall Street Journal reports that Amazon explores buying start ups, then copies their business models. 

Other Contenders for Most Important Story

Let’s do quick hits on other stories that piqued my interest.

UTA Signs the WGA Code of Conduct

Whoa! Why did I spend so much time on Netflix last week when this story is a way bigger deal?

It doesn’t end everything with the writer’s-firing-their-agents-strike, but this is the first major agency to break ranks. Though the deal definitely will have compromises on the writer’s side. I have to imagine that we’ll see WME and CAA strike deals soon, but I could be wrong.

Amazon’s New Video Game is a Dud

Amazon released a big new “shooter” video game out of private beta testing into public beta testing, then put it back into private. In other words, Amazon’s quest to be the “everything store” isn’t going about as well as their quest to make movies/TV shows: it may take a decade to make a profit, if they ever do. 

AMC Wins Latest Profit Sharing Deal

It looks like the talent for The Walking Dead will lose their suit against AMC Networks over profit sharing. Of course, with these legal opinions you never know how it will actually end or if it ever will.

Entertainment Strategy Guy Updates – The Films Moving Backwards

My take on Disney moving the dates for some of its films for next year–and following Tenet by delaying Mulan–is that the production pause is finally starting to impact the 2021 calendar. Every month that you can’t be shooting is another delay to already tight production/effects calendars.

Really, this issue has been covered widely, but with theaters closed in California, Texas and Florida, it doesn’t make sense to release blockbusters in America. And throws off the entire calculus. 

The solution to break the logjam is for someone to just reopen with the library titles doing well in drive-thrus. Obviously this would have to be done safely, using the best procedures to keep everyone as safe as possible. And not in locations with spiking cases. And this seems to be what AMC is planning to do. Which could finally break the impasse.

Most Important Story of the Week – 17 July 20: Peacock Symbolizes the Battlegrounds of the Streaming Wars

We have a special treat today…an interview with Matt Strauss, head of Peacock’s launch.

Kidding!

I guess I’m the one entertainment outlet that didn’t get that interview. (Seriously, how many interviews did he do over the last month or so?) Like America in World War II, our last entrant joins the streaming wars and that’s our story of the week.

(As a reminder, if you want to connect on social media, try me on Twitter or Linked-In.)

Most Important Story of the Week – Peacock Launches!!!

The last entrant of a major streamer has landed for American distribution. Comcast’s NBC Universal’s streaming platform launched on Wednesday. In full-disclosure, I haven’t used it yet.

(Why? Because I find most “reviews” of UX/UI aren’t objective measures of quality but subjective repetition of preexisting positions. If you thought Peacock would be a bust at launch, you’ll likely hate it. If you’re bullish on traditional entertainment companies–like me–you’ll likely find positive elements.)

From what I hear, the service announced in January is the service we’ve gotten. Strategically, I think Peacock is a pretty smart play by Comcast. First, it’s free, which means it’s competing on price. Second, it’s a FAST on steroids, meaning it’s got a lineup that IMDb TV and Roku Channels (and Tumo/Xumi) can’t match. Third, live sports and news are differentiators. I summarized this is in a thread:

(For my longer-ish take, go back to January after their announcement.)

Instead of their strategy, then, let’s explore how Peacock really is the synthesis of many ideas impacting the streaming wars. (Many of which I’ve written about previously.)

Device/Distribution Wars are the Nu-Carriage Wars

Another streaming service, another holdout by Amazon and Roku against offering the app as a standalone on their devices. Last summer, all the news was about MVPD retransmission battles, such that it made my story of the week in July. But already, I could see the future battleground moving from retransmission to devices. (The Apple/Amazon distribution fight was particularly fierce, if not widely covered.) EMC Capital provided a good summary chart of the landscape:

Screen Shot 2020-07-17 at 9.22.07 AM

(This is one of those simple charts that I’m jealous I didn’t make myself. Click here to subscribe to EMC’s newsletter.)

It seems that the traditional entertainment companies have finally realized how valuable owning the customer relationship (and data) is for direct-to-consumer businesses. The challenge is that the device owners (Roku, Amazon, Apple and maybe Google) are in a better position. Because they control the user experience and potentially billing, they can offer better bundles and experience. More importantly, the key applications (Netflix, Prime Video, and Hulu) take the bulk of customer’s time, so as long as a device has those, it’s likely won’t offend customers by not having the newly launched entrants (not named Disney+).

As I wrote in June, it is in the interests of HBO Max and Peacock to hold out as long as possible. Amazon’s user experience has always been sub-par, and it devalues their content to be mixed in with who knows what content is on Prime Video. (Seriously, Amazon just added profiles to their interface…) Meanwhile, it’s one thing to pay a fee to be on a service; it’s another to let Roku or Amazon own the customer relationship. Or to take the bulk of your ad-inventory.

Can the dual absences of HBO Max and Peacock hurt Roku or Fire TV sales? That’s unclear. Clearly Amazon and Roku looked at Disney+ and saw an app they couldn’t say no to. But that set a precedent HBO Max and Peacock will cling to. 

Part of me thinks this will help Apple TV devices, but only for new customers. I myself may be purchasing a new streaming device this fall; the clear winner for me is Apple TV or X-Box since they have every service I want. (I’m not convinced I need Apple TV+ just yet.)

Comcast Is Powering It’s Flywheel

I kid! Obviously, I think flywheels are an overused concept in streaming video. And tech period. (See my two very, very long articles explaining this here and here.)

One can’t discuss Comcast’s business model without seeing the similarities to Apple or Amazon. Comcast is launching a potential Deficit-Financed Business Unit (DFBUs) in Peacock to increase revenue in another line of business, cable internet. They are bringing folks into their “cable ecosystem” via deficits because they offer Peacock’s $5 plan for free to existing Comcast and Cox subscribers. If you think it’s a good idea for Amazon to sell Prime Video at a loss to drive Prime memberships or Apple to offer Apple TV+ to sell more iPhones (both DFBUs into ecosystems), then you should be fine with Comcast selling streaming at a loss to keep cable subscribers. 

The difference? Apple and Amazon are supported by tech valuations, and Comcast has a lowly cable company valuation. That and my next point.

Comcast Really Does Everything in Digital Media

Now that Comcast has their ad-supported and subscription-supported service, to add to Vudu/Fandango’s TVOD business, and NBC’s broadcast business and Bravo/USA Network/et al’s cable business, and Universal’s movie business, man, Comcast does have it all!

I hold to my thesis from a few months back: Comcast wants to pivot into partially being a tech company. Hence the push to have a holistic digital offering very similar to Apple or Amazon. This will hopefully supplement and/or replace their declining cable and satellite businesses.

Of course, you can see the clash with the “flywheel” thought above. Whereas Apple and Amazon can afford to lose lots of money–though affording to does not mean they should–Comcast doesn’t have that luxury. Further, for anyone not in Comcast’s cable footprint, there is no ecosystem to bring customers into. Like Disney and AT&T, Comcast needs to make money in streaming.

One Thing to Watch: The Churn Hypothesis

A big theory of Netflix bears–those pessimistic on its stock price–is NOT that Netflix will die. There is no way that suddenly 63 million US subscribers abandon the service. That’s not the argument.

Instead, the argument is that with digital subscriptions the name of the game is “churn”. The number of folks leaving a service versus the number joining. 

Historically, Netflix has had astoundingly low churn. Some have estimated it at 3% per month, though I’ve speculated it’s higher. Since Disney+ launched, we’ve seen evidence that churn is up. And while the data is super noisy–and part of the “asterisk extraordinaire” coronavirus times–that churn has picked up during Covid-19.

This has matched a thesis I’ve supported, but discovered through conversations with Hedgeye’s Andrew Freedman and Twitterzen MasaSonCapital. The thesis isn’t that anyone will “kill” Netflix. Instead, the launch of new streamers powered by the three best studios for content (Disney, then Warner Bros, then NBC-Universal) will make life more expensive for Netflix. That will show up in churn. 

Between HBO Max and Peacock, I think there are bundles that are increasingly viable that don’t have Netflix in them. Obviously, this isn’t for everyone! Some folks will always have Netflix. But other folks will start to use Netflix in chunks watching for a period, disconnecting and coming back.

Either way, this is what I’m watching as Peacock launches and all the streamers begin to compete.

Entertainment Strategy Guy Update – Apple’s Services Business Model Weaknesses

Over the last month or so, Apple’s seen a string of bad news stories that add up to a trend. That trend being that they aren’t very good at launching entertainment subscription services.

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Most Important Story of the Week – 10 July 20: Sports Streaming Price Hikes

I hope everyone–and this probably just applies to the Americans–enjoyed the long weekend. The only thing missing really was America’s pastime of baseball. Or any sports really.

But all that has changed. Sports are back! Which is really the story of the week. But I’ll tackle that next week in the next installment of “Coronavirus and Entertainment”. In the meantime, let’s look at another sports-adjacent story.

Most Important Story of the Week – Sports Streaming Price Hikes

Everyone is raising prices, from Youtube TV to ESPN+ to Fubo TV

While all these services are sports based, it’s also important to note the differences between them. Youtube TV is a vMVPD, meaning they’re trying to replicate the cable bundle via streaming. ESPN+ is a streaming service that only offers sports. Fubo TV is a hybrid: it’s a vMVPD, but focused on sports.

The least shocking price raise should be Youtube TV. Of all the services, it was the most clearly trying to offer a $65 product for $45. Despite the bells and whistles, the vMVPD model is essentially the traditional cable model: the vMVPDs pay each channel a given rate per subscriber who receives it. The only difference is that instead of a cable box it goes through a streaming TV, device or iPad. So if you see the rates for various channels–for example this chart in this article by Dan Rayburn–you see how expensive it is to own all those channels. (Especially ESPN.)

Add all them up, and you quickly see that the reason cable is so expensive is because cable channels are expensive. Hence, virtual cable is expensive because virtual channels are expensive. The core economics aren’t different.

How did Youtube TV last this long without a price increase? Because they were losing money on it! 

Frankly, that’s why any articles or tweets I saw praising Youtube TV always baffled me. Of course they were beating everyone on price! Google subsidized the losses! But they hadn’t actually created any value, they were simply capturing market share. (They had created some value with a good UX, but that value is easily superseded by selling at a loss.) 

Losses in cable can add up really quickly, and even Google couldn’t stomach the Youtube TV losses. If they were losing $15 per customer per month, at 2 million customers, that’s $360 million a year. Adding customers would just make the situation worse. You can’t make up these losses on volume. Hence the price increase.

The challenge is what happens next. Since there are no natural digital monopolies, I wouldn’t be shocked to see either the FASTs or new vMVPDs rise up to offer “skinny bundles” again. Clearly customers want lots and lots of channels–hence why MVPDs and vMVPDs exist–but don’t want to pay as much as the local monopolies charge. Since the barriers to entry are relatively low, a new skinny bundle can easily enter. The actual solution is to have the cable channels finally start lowering their affiliate fees, but that’s a tough pill for a business unit to swallow.

On to ESPN+. If you look at Disney’s earnings report, you know that Disney is losing money on streaming. How much they are losing on ESPN+ in particular is unknown. ESPN+ doesn’t really have a lot of in-demand live sports, so it’s not like they can increase prices too much before folks will unsubscribe. This could portend some additional sports deals, or just Disney shoring up the bottom line in a world without theme parks and movie theaters. Either way, I expect both to keep happening: Disney will try to get better rights for ESPN+ (think NBA or NFL) while raising prices..

Other Contenders for Most Important Story

WGA Puts Their Strike on Hold?

This happened over a week ago and I missed it, so shame on me. (Thanks to KCRW’s The Business podcast for shouting it out.) The caveat is nothing has been officially announced as of yet. So the deal could still fall apart. From reports, the deal is inline with the gains of the most recent DGA deal.

The headline is that the deal prevents a strike because the WGA can’t add a third tsunami to the twin waves of firing all their agents and coronavirus. Really, this is a victory for the pandemic. 

The other victor–as Kim Masters noted–is for the studios and streamers, and I tend to agree. The current deal hurts younger and lower level writers that are caught between exclusively writing on one show at a time, but also the reduced episode commitments of the streamers. Not changing that really hurts writers. But they didn’t have a choice.

Disney World on Track to Reopen this weekend

Theme parks are on track to reopen in Florida, with all eyes on Disney World. (As of this writing.) Depending on how cases, hospitalizations and deaths trend over the next few weeks, this will be a story to monitor. On the one hand, people could end up being too scared to go. On the other, theme parks may not end up being a huge source of transmission if they’re at reduced capacity with lots of effective countermeasures.

I remain bullish for theme parks. Unlike sports stadiums, they have more control over keeping folks outdoors and hence controlling transmission. The analogy is the return to restaurants and bars in June. As soon as lock down was lifted, folks returned to their old behaviors relatively rapidly, with just facemasks and spacing as the key differences. Of course, it wasn’t the same volume as previously, but enough to make the business models work.

If theme parks prove safe, I could see the same thing happening: folks come back as before. That said, America’s outbreaks are surging across the southern states whose temperatures have increased in recent weeks. It’s one thing to open a theme park when cases are plummeting; another when they’re surging. That will have to tamp down some demand.

The Landing Spot of Mad Men is…Everywhere?

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Long Reads for the Long Weekend – 2 July 2020

This isn’t my usual column, is it? I’ll be honest, I plan to take the July Fourth Weekend off, and I wrote this gem ahead of time. (Just like I did last year.)

Instead of commenting on the week’s news, I made a list of the best articles I read over the last year or so. (My calendar year starts in July. It makes more sense.) This is similar to what I try to do in my bi-weekly newsletter (Sign up here!) by offering a “best of the best” reading list. 

Unlike the newsletter, this is a bit more discursive and esoteric. It’s not the stories that matter the most for entertainment, but the stories that stuck with me the most when I reflected on the last year. Some of them may not have even made the newsletter. As a bonus, this year I’ll also provide a quick list of my best articles to provide you with even more thousands of words to enjoy.

  1. “Was Email a Mistake?” and “Can Remote Work Be Fixed?” by Cal Newport in the New Yorker. 

Newport will be the only author featured twice in this list. But he’s easily been the most influential writer I’ve read over the last five years. I would confidently say that if any of my readers read his books Deep Work and Digital Minimalism they’ll be better performers at work. Easily. These two New Yorker articles take his voluminous research into productivity and apply them to our current era, both before and after Covid-19. 

  1. “Red Dead Redemption 2: one year after the hype” by Film Crit Hulk at Polygon

It’s hard to describe what this article is really about. It isn’t just a video game review, though that’s part of it. It isn’t just an exploration into video game mechanics, though that’s part of it too. It isn’t just an exploration of storytelling, though it has that too. What I can tell you is it is as well written as it is long. And I plan to reread it, it’s that good.

  1. “The TV Subscriptions You’ll Need to Watch Your Favorite Shows” by Mike Raab at Medium

This is the best use of data I’ve come across in the last year and I’ve cited it repeatedly in my columns and writing. The best thing is most of the data is publicly available, but Raab was one of the few folks to actually do the analysis. This still sets the baseline, in my opinion, for how Disney+, Peacock and HBO Max can compete with Netflix and Amazon in the streaming wars.

  1. “How (And Why) I Cut the Cord: A TV Critic’s Journey Over the Top” by Tim Goodman in THR

Scrolling through my list of potential articles, as soon as I reminded myself of this headline, I knew that it this article had to make the cut. Former TV critic Goodman explains the hows and whys of cord cutting through multiple parts. From a business perspective, he’s basically laying out how cutting the cord creates value for many customers. Plus, it’s a very clear guide, probably the best of its ilk. 

  1. “Social Media Strategies for Comedians that Actually Work” by Josh Spector

This is an article that is simply the best “how to” advice I used in the last year or so. (It was published in May of 2019, but I used it all of 2020.) While ostensibly about comedians, any entrepreneur or publisher can use the advice in this piece. In particular, I love the advice to use fewer social media platforms, to think like a “magazine” and to actually pay to advertise your creations. That last point in particular resonates: I haven’t been using paid promotion for this website, and frankly it was a business mistake. This has tons to learn for everyone.

  1. “Streaming Services and the Theory of Perceived Value” at All Your Screens

Rick Ellis does a great job separating price from value in this “Saturday Speculation” column. He focuses the debate on streaming services to the “perceived value” they create and pulls some implications from that. Along the way he mentions nearly every streamer and how their perceived value, explaining why some are priced super low and some high.

  1. “It’s the Austerity, Stupid: How We Were Sold an Economy-Killing Lie” by Kevin Drum at Mother-Jones

Since it’s my list, I’ll break the rules. This story isn’t even from last year, but 2013. So why is it still relevant? Because the core lesson of the Great Recession still isn’t being learned! In times of recession, we need government spending more than ever, and we’re still debating whether or not we give it in response to the greatest economic disaster since the Great Depression. This decision by Congress will have the biggest impact on the economy for the next ten years. Let’s hope they make the right one.

  1. “Whatever Happened To ‘Mr. Robot’?” By Alex Zalben at Decider

I too wondered this question, even as I was–seemingly alone with my wife–watching season 4. Zalben tells a story about Mr. Robot that happens to explain the history of streaming over the last four years as well. It also has lessons about network branding, global streaming services and frankly how the quality of a TV show dipping can permanently alienate its audience. 

Honorable Mentions

I enjoyed a few other articles or wanted to shout out my favorite writers. Here’s a quick list:

“How AT&T Took HBO to the Max” by MasaSonCapital

“What Economists Have Gotten Wrong for Decades” by Jared Bernstein

“Meet Bob Chapek, Disney’s New CEO and the Tim Cook to Iger’s Steve Jobs” by Julia Alexander

“20 Charts for 2020” by Evolution Media Capital

“Keyboards of the World: How China Made the Piano its Own” in the Economist (and the entire double issue)

The Best of the Entertainment Strategy Guy

If you still need something to read, here are my four most popular articles (probably) from the last year or so:

“Netflix is a Broadcast Channel”

How HBO Made Billions on Game of Thrones” (Director’s Commentary here)

“Aggreggedon: The Key Terrain of the Streaming Wars is Bundling”

“Netflix is Five Guys and Hulu is McDonalds: How Hamburgers Can Help Explain the Streaming Wars” 

Enjoy the long weekend!

Most Important Story of the Week – 26 June 20: How The Card Game Uno Explains Spongebob Squarepants (Release Plan)

After a few weeks without a lot of news, we finally got a week with some stories to sink our teeth into. But how to choose? The late breaking story that Disney is ending it’s Disney Channel in the UK is a pretty big deal, but then what about Microsoft ceding the livestreaming battleground to Twitch? Or a whole set of TV series moving from traditional TV to streamers. Surely I could oversell the narrative that this is the end of TV?

When in doubt, ballpark the financial size of each story and compare them. Sure, Mixer is a big deal, but how much is Microsoft really spending on that per year? A couple hundred million? We know Twitch is only earning $300-500 million per year in revenue, and Mixer is multiples smaller. What about the TV shows? Well, assuming $3-5 million per episode, we’re still talking max about $100 million in costs. Even the UK Disney channels aren’t worth that much considering they have about 15 million subscribers in the UK

What does that leave us with? The potential end of theatrical filmgoing as we know it. Given that’s a $10-12 billion dollar industry in the United States alone, it’s our story of the week.

(By the way, if you aren’t a subscriber, I have a newsletter. It’s fairly simple and provides links to my latest articles and the best reads/socials/listens on the business of entertainment I come across. It’s published every two weeks and next issue is Monday. Subscribe here.)

Most Important Story of the Week – How Uno and Blockbusters Explain Why Spongebob is Skipping Theaters

The latest studio to take an animated film destined for theaters straight to video-on-demand is Paramount. And in the all too common twist, it will then transition to their streaming service, CBS All-Access. On the one hand, this is another potential tentpole abandoning 2020 for greener digital pastures. Surely, Entertainment Strategy Guy, if anything portends the death of theatrical films, it’s Spongebob too leaving theaters.

Eh. 

I’m still less pessimistic on theaters surviving. And I write this as cases are noticeably ticking upwards in the US and deaths (my preferred metric) remain plateaued. I’d explain this latest move as less of a portend of the future disruption of all theaters then as the logical extension of coronavirus keeping theaters shut. 

Let’s explain that.

(After this column was written, news that Tenet had moved back an additional two weeks broke, which only reinforces the point of this column. You’ll see.)

Two Ideas. First, blockbuster strategy.

The big trend in feature films over the last four decades has been the move towards larger and larger blockbusters, and the hollowing out of the “middle-class” of films. The mid-tier, if you will. The magnum opus on this trend is Anita Elberse’s book, but everyone has written something about it. I wrote about mid-tier films in a column back in February, and one of my first deep dives explains the economics of blockbusters.

But there’s a related concept that is key to understanding this pressure. As more blockbusters have come to theaters, the number of weekends a film has “to itself” has shrunk. Which makes it even more important for a blockbuster to win the opening weekend. In some cases, the goal is to make most of your money on this opening weekend. 

Second Idea: Uno Strategy

The second idea I’ve been tossing around is what I’ve decided to call Uno strategy. For those not familiar with the card game, you deal out cards, then toss them on the pile to match the color or number of the recently tossed out card.

The game doesn’t have a whole lot of strategy to it. Most of the time you can only play one or two cards, so it’s not like you have a whole lot of choice. If it’s a “blue 8”, and I only have a “red 8” and the rest are green or yellow, I’m playing that blue 8.

A lot of business strategy–for all our high-minded discussion of it–is usually obvious moves like this. Here’s an example for Disney+. Despite this article I wrote for them, if pushed there is really one move that would have the biggest impact on their year: finish Falcon and Winter Soldier and trust that Kevin Feige will make it great. That’s not innovative advice, but the obvious “Uno strategy” move.

So let’s apply these two ideas.

The Situation

It seems clear to me that theaters will reopen soon. In some fashion. The current rise in cases delayed the July time frame, but at some point theaters will reopen. Especially if deaths don’t rise at the same rate as past outbreaks. I see calls on Twitter to cancel all theaters until a vaccine is developed, but frankly I doubt that happens. I think the theater going experience can actually be safer than a lot of other activities, especially with a few appropriate precautions.

(It’s unlikely to happen, but the current cases are definitely skewing younger. The converse is that hospitalizations have increased, but not as quickly as the first few montsh. Meanwhile, some treatments are emerging, including better diagnosis of severe cases and some moderate therapeutics. Meanwhile, better knowledge about the threat to institutional facilities like nursing homes and retirement communities has helped protect the most vulnerable. But this isn’t a Covid-19 column.)

Moreover, these trends have us headed directly for the “median case” I had forecast back in April. My best case was films releasing by July 4th and my median case was August for releases. Still, July is gone, which has implications.

Implication One: A Limited Number of Weekends Cause the Cascade

The biggest impact of Covid-19 has been to compress the back half off the release calendar. Nearly every week will have a blockbuster vying to win that weekend. Just doing the simple math, if theaters had reopened in the beginning of July, that’s 26 weekends left in the year. Meaning 26 potential blockbuster releases. If that moves to August first, that’s four more weekends gone. 22 movies for those slots. 

We were already in one of the most condensed calendars for a second half of a movie year. 

Every weekend lost just makes it tighter.

In comes Uno strategy. The studios know where their films fit on the hierarchy of potential blockbusters. Spongebob is much smaller than Top Gun 2. Or Mulan. Or Tenet. Or A Quiet Place Part II. Hence, as the number of weekends to win shrinks, it gets pushed around the most.

Implication Two: Release or Delay?

In a way, this where the decision-making for each executive comes in. Once your film is bumped, you could move it back in the calendar, or accept that the production costs are in a lot of ways sunk. Same for a lot of the marketing costs. And since a lot of films for 2021 are already in some state of production, you can keep delaying your 2021 slate–which would cost money–or you can get what you can.

But this is where blockbuster strategy comes in. It’s not like Spongebob is “as blockbuster-y” as Mulan. It doesn’t surprise me that so many of the “straight to VOD” films are kids films. A true blockbuster is a “four quadrant film”, meaning old, young, men and women. (Yes, crude, but that’s still how studio’s look at it.) Is Spongebob four quadrants? Absolutely not. No couples are going to it for date night. Same with Trolls: World Tour.

The one strange caveat to me is the timing. Spongebob won’t hit VOD until 2021, with a premiere on CBS All-Access later that year. In this case, the studios also have the added incentive that theatrical films on streaming are going to have their biggest “bang for the buck” when streaming services are small. Hence Disney seeing huge value for putting Hamilton and Artemis Fowl on Disney+ right away. 

So does the latest move mean the end of theaters? No.

Theaters will have a downright awful year. And AMC Theaters has a lot of debt that will hurt their growth prospects in the near term. But the current moves are tweaks to the schedule, not major disruptions. The biggest sign is that even though Warner Bros keeps moving back Tenet two weeks at a time, they aren’t moving it all the way to December.

(Fun bonus: Steven Spielberg is crushing the box office, which is mostly drive-in theaters. The shame is that theaters should open cautiously with more of this library fare, but they are waiting for the blockbusters.)

Entertainment Strategy Guy Update – Microsoft Shutters Mixer

I’ve never written about Microsoft’s Mixer before this, and won’t after, but I have written about livestreaming before

Before we get to Mixer specifically, let’s start with understanding the livestreaming landscape. And correcting the most common misunderstandings I see. Take this chart from Evolution Media Capital (a good newsletter subscription by the way):

Screen Shot 2020-06-26 at 9.08.30 AM.png

Now, your eye is drawn to the shiny object of the growth during coronavirus. But remember my magician analogy from last week. Or the Kansas City Shuffle from Lucky Number Slevin. While everyone is looking at the shiny object, the con man/magician is doing the real work where you can’t see.

My eye ignores the shiny growth and looks at the numbers preceding it. From December 2018 to December 2019, Twitch saw year-over-year growth of…1.7%!

Honestly, what unicorn has 1% growth?

Sure, the lockdown has been great for live-streaming. But in the future we’re going to call this time the “ Asterisk Extraordinaire” in every chart or graph. Meaning, things will return back to normal-ish and any analysis will have to caveat these last four months. My guess is Twitch sees a big decline in the fall when schools reopen, but not as far down as they were. In other words, they brought forward say 2-3 years of real growth due to lockdown.

Meanwhile, note too that Twitch also tends to be compared only to other gaming sites. This chart is specifically comparing all of Twitch to only Youtube Gaming. When I’m watching a live stream of an EDM show on Youtube, that doesn’t make it in this data set. Which is why I remain tentatively bullish on Youtube on livestreams long term. If the biggest network wins, they have it (and the ability to save videos forever).

Which brings us to Mixer, the story another M-FAANG practicing “innovation”, which in today’s context means shamelessly copying other business models in search of another way to spend down their huge pile of cash. (Except Netflix, which doesn’t have the free cash flow.) Meanwhile, it turns out paying for high profile talent doesn’t matter if your video service is more of a network with demand-side increased returns (see my article for an explanation) than a true channel. 

Other Contenders for Most Important Story

Let’s run through some smaller stories that caught my interest.

Streamers Grab a Lot of Content

It’s hard not to see a story in the stream of news that happened in rapid succession this week…

Youtube Original Cobra Kai Moves to Netflix
Y: Last Man and American Horror Story move to Hulu (permanently)
AT&T Original Kingdom Moves to Netflix too.

These moves are notable, for sure, but at least two are from dead or dying platforms (AT&T and Youtube Originals). Even Y: The Last Man is more notable for being stuck in development hell for ever than anything else. The point is that streamers will continue rescuing sub-par projects in the near term.

Disney Shutters Their Pay TV Channels in UK

As I said in the introduction, this is a big move to get rid of a cable channel, but it’s not as big as the United States. Whereas Pay-TV has pretty widespread adoption in the US, in the UK the Disney Channel was only on Sky and Virgin, which amounted to about 15 million households. Given that Sky also offers–from what I understand–Disney+ access, this move makes a bit more sense.

(Side story for Disney+ that could be a bigger deal: Apparently customers do in fact love it. My caveat with any brand survey like this is that I think they’re fairly noisy. When you read past the headlines, you see that Disney+ has a rating of 80, and Netflix has a rating of 78. And Prime Video is a 76. Does that seem within the “margin of error” for a survey like this? Absolutely. So the most accurate conclusion is Disney+ has matched Netflix.)

Charter Seeks to Charge Net Non-Neutrality Fees to Video Streamers

Charter is calling these “interconnectivity fees” but I like “Non-Net Neutrality” fees better. A lot of folks are worried about this move, but I’m a pinch more sanguine. Who occupies the White House next January will have a lot more to say about the future of net neutrality.

The Netflix Effect Again

Netflix’s global top ten lists have been a welcome oasis of data in a desert of silence. I wish I were tracking them by country daily, but I don’t have the time, and others like Flix Patrol are on it.

For those who do have time to track, some interesting tidbits are emerging, like Josef Adalian spotting the latest “Netflix Effect”. The “Netflix Effect”–which I think Kasey Moore of Whats-On-Netflix has coined, or at least pointed out a bunch–is that when a show goes global on Netflix it gets a renewed boost in popularity. Adalian pointed this out for Avatar: The Last Airbender, which has trended in Netflix’s top ten since it premiered. Moore pointed this out using IMDb data for Community.

The only small amount of cold water I can splash on this–and this is like tapping water in the bathtub, not a cannonball into the deep end amount of splashing–is that I’m still wondering if some of the ability for Space Force, Avatar or Community to stay on Netflix’s top ten list isn’t a function of the fact that their content quality is decaying somewhat with the coronavirus. I don’t have the data yet to prove this, but my thesis is that Netflix has slowed the pace of US original releases globally, but haven’t admitted it yet. To be seen.

Data(s) of the Week

HBO Max Had 1.6 million Downloads over First Two Weeks – Sensor Tower

This data is the best corrective I saw to the narrative that HBO Max *only* had 90,000 downloads on day 1. Sure, that was probably accurate, but they also had months to add customers. And they indeed still bested previous HBO Now download records.

Prime Video Leads on Most High Quality TV Shows – Reel Good

Reelgood has a simple yet effective way to measure quality for streaming services, by just tracking which services have which number of films and series with a given IMDb rating. This method is fairly simple, but sometimes simple is pretty accurate. I’ll admit, Prime Video did better than I would have guessed on high quality movies, with the caveat that they still have the most “things” in general, which means a clunky interface problem. (And in full disclosure, Reel Good PR folks reached out to me to point out this article.)

M&A Updates – It’s as Down as You Thought It Was

If you’re right for the wrong reasons, to be clear, it doesn’t count. So I’m not taking a victory lap over my series from two years ago–wow is that date right? Two years?–where I predicted that M&A wasn’t accelerating in media and entertainment, but progressing at the same rate if not slower. (Read the whole series here, for the introduction, or here, for the conclusion.)

As I just wrote, coronavirus is the big “Asterisk Extraordinaire” for the future. Every time series graph will have a giant asterisk for this time period saying, “And then covid-19 happened.” Meaning the lessons we draw will be less confident, because coronavirus is the categorical variable that will screw up our models.

Same for mergers and acquisitions. We’ll go back to normal eventually, which means mergers and acquisitions will continue as they have for the last two decades.

Most Important Story of the Week – 19 June 20: Live Sports Rights Get Another Big Bump

Does anyone else watch Penn and Teller’s Fool Us? Probably, though it’s not cool to admit it with all the great peak TV shows to watch. In my defense, if you have a four year old, it makes for good family co-viewing. (Narcos does not.) Anyways, I love the magic analogy for how business leaders should use the entertainment biz news.

Your eyes will be drawn to the shiny object, where the magician wants you to look, but the real action is happening elsewhere.

Take this week. You may have your eyes gazing at the AMC mask controversy. It’s buzzy and everyone’s talking about it. (I’ll mention this story with the bigger news, which was the Tenet date move.) Same for new email service Hey and their fight with Apple. (Which in fairness was inches from being the biggest story this week.)

If you’re looking for the story that really is important, shift your gaze to lowly cable channels TNT/TBS…

Most Important Story of the Week – Turner Sports nearing (another) record MLB deal 

Before I started writing this week’s column, I was thinking there was a chance that I’d finally update my series on “How Coronavirus will Impact…” on sports. Alas, there is too much to cover to fit in this column.

However, I can tell you that this little nugget of news will make that column. This Sports Biz Journal headline says it all

Screen Shot 2020-06-19 at 10.57.33 AM

Now first the caveat. The headline is that the average value of the baseball deal increased 40% for the average price per year. This is “true”, but also a bit misleading. And I’m here for nothing else but to take headlines and put them into a more precise context. So the raw numbers are that the previous deal cost $325 million per year and the new deal is $470 per year. A 40% increase.

However, the previous deal was 8 years long. The new deal is 7 years long. What this means is that in practice, year over year, the growth rate for sports media rights is about 5%. Here’s how this looks in a chart if you assume a 5% increase in sports rights year over year:

Screen Shot 2020-06-19 at 12.20.33 PMIs 5% a good growth rate? Absolutely. Many businesses would kill for their revenue to increase that much year over year. Is it much less than 40%? Yes. Be careful out their when reading big numbers.

Besides quibbling over context, what else does this mean for the business of entertainment?

First, we keep waiting for the big tech giant to make a splash…

Another major deal without a M-FAANG plunking down for sports rights. The biggest barrier to me seems to be reach. The worry is if you go exclusively with Amazon or Apple, for example, you’re artificially cutting off a big chunk of your potential customers. Sure, lots of folks have Prime, but many less know how to watch Prime Video. So the wait continues.

..And linear channels are NOT abandoning sports rights.

Most likely, because we live in times of huge uncertainty, the sports leagues continue to go back to their current partners. And they are continuing to spend the same amount even as always. Which is notable because there are definite signs of reckoning for both advertising spends and affiliate fees as customers cut the cord. If you revenues go down while your costs go up–which seems to be the case for TNT/TBS–that’s bad. (The likely thing to give is scripted programming at both.)

Second, for now, the market sees the impact of coronavirus limited to this year.

This is the first deal of the coronavirus era and it looks shockingly like the old deals. (See my next point.) If Covid-19 cancels the next MLB season, then this deal wouldn’t make any sense. Clearly the buyers of sports rights are assuming it won’t. Even then, it seems to me that most sports leagues are assuming business as usual when it comes to live sports. (More on this in a future article.)

Fourth, prices keep going up at a steady rate. 

At the end of last year the PGA extended its deal with CBS/NBC in a deal very similar to the MLB deal. (An announced 60% increase, but spread out over 9 years.) This point is worth repeating since the common sense seems to be that rights are increasing, when I’d say they are holding steady. Meanwhile, I have wondered before if we’ll see the sports media rights bubble pop. Instead, sports rights are fairly resilient. As such, I’d expect 4-5% combined average growth rates to continue.

(If you want to read my deep dive on sports rights, I’d send you to Athletic Director’s U where I went fairly deep on the subject. You can also download my data here.)

Runner-Up for Story of the Week – Apple vs Hey (and the streaming wars)

This week I happened to be rereading Deep Work by Cal Newport and he mentioned David Heinemeier Hansson, one of the partners of Basecamp and the inventor of Ruby on Rails programming language. I happen to follow the Basecamp folks on Twitter and I hadn’t made this explicit connection yet. (And yes, rereading Deep Work is a reminder that I need to “quit social media” and spend less time on Twitter.)

If you follow the Basecamp folks, though, you know that this week they launched their solution to email called Hey. They let users pay on their website, and of course the application is downloadable to iPhones–since likely most of their new users have iPhones and iPads. This is where the problem comes in. Apple objected to Basecamp, telling them that unless they authorize payments through their app store they’ll blacklist their application.

As others have laid out better, the core of this fight is over the fact that Apple controls the gateway, and Basecamp isn’t big enough to hurt Apple’s business on paper. (For example, Apple does not enforce this rule with Netflix.) But since they are a gateway, they can charge a 30% fee to essentially offer very little ongoing value. (Setting up the app store added value; maintaining it much less so.) What do we call a 30% fee for little value? Rents. Or taxes. 

We’ll see where this goes as for the anti-monopolist energy rising across America. In the meantime, I see two insights for entertainment:

Insight 1: Apple’s Service Revenue May Be Rising for Non-Entertainment Related Reasons

I’ve been fairly skeptical of Apple TV+’s performance since before it launched. (See here or here.) Yet, last quarter, when they had record services revenue, many analysts and observers credited this to their new multimedia efforts. Yet, take a gander at this quote from Stratechery’s Ben Thompson:

Screen Shot 2020-06-19 at 10.00.33 AM

The challenge for us as analysts trying to determine how Apple TV+ is doing is that it’s the blackest of black boxes in streaming right now. Well, Prime Video is pretty unknown too. But with Apple TV+, we don’t know how much revenue, subscriber or viewership they have. And given that Apple bundles everything from insurance to payments to music in “services”, untangling that knot will be impossible. 

This Thompson quote speaks to the idea that it is much more likely that other service revenue (think Apple Care or App Store) is driving the business instead of the multimedia stuff (think Arcade, News, TV+ and Music). That’s going to be my position until I see good data otherwise.

Insight 2: Any Decrease in In-app Purchases Would be Great for Streamers

In other words, this fight between Hey and Apple is just an extension of the AT&T and Roku/Amazon fights. Indeed, the terms are fairly similar. Roku, Amazon and Apple are hardware/operating system owners that allow third party apps. And they charge a 30% tax to work on their system.

If the antitrust authorities get involved, it could be a game changer for the streamers. Imagine a ruling in the EU that Apple is capped at 5% rents on in-app purchases. At 5%, the streamers would likely all allow in-app purchases. That’s much more reasonable fee. That would mean they could also potentially lower prices and still make the same revenue.

Is this likely? Not in the United States, but maybe in the EU. So it’s worth monitoring to see how these fees evolve.

Data of the Week – Xfinity VOD From Vulture’s Buffering Newsletter

Read More

Most Important Story of the Week – 5 June 20: We’re All Streamers Now, a Look at Fall Broadcast TV

With no “big” entertainment news, my gaze fell on a story simmering all month. Call it the “story of the month”, which is that TV is planning its return to the small screen. By TV, I mean broadcast and cable television. Which are, obviously, dead. That’s the narrative.

But since they still, somehow, impossibly, are watched by tens of millions of people in American and rake in billions of dollars, it’s worth at least one column.

Most Important Story of the Week – When Fall TV returns, It Will Look LIke Old-School Streaming

Here’s the plan, first I’ll explain the logistics of producing an episode of TV. Next, I’ll drop my big theory. Then, I’ll run through each network and my thoughts on their strategy. Good? Good. Let’s do it.

(By the by, everyone should listen to all of May’s TV Top Five podcasts. I don’t listen to as many entertainment biz podcasts as you’d guess because podcasting is my escape from my day job. But they do such great coverage it’s a must listen. May was basically explaining what we know and don’t about each broadcast network.)

TV Series Production Timelines…Explained!

First, it’s important to understand what the three to four month shutdown of TV production means. (Sets were shutting down in mid-march, and may return in June or July.) My rule of thumb for producing an episode of TV looks like this

X Weeks – Writing
6 Weeks – Pre-production
1-2 Weeks – Shooting (5 biz days for half hour; 10 days with a weekend for dramas. Single cam)
4 Weeks – Editing (sometimes up to six)
4 Weeks – Post Production

This is explained in this thread here, but it’s what I used when I did content planning a streaming company. That’s the calendar for scripted TV content. Reality can move faster, also depending on whether it’s a slice of life, game show, documentary, competition or what not. 

What matters is adding them all up. Or about 4 months. Give or take a few weeks. (It’s my ballpark estimate.)

With coronavirus even that four months has a lot of uncertainty. Will pre-production take longer with coronavirus? Same for post production if folks have to edit from home or can’t work as closely. (I can’t imagine editing a show via Zoom!) Plus, if you want all your shows to launch simultaneously, like fall TV seasons of yore, you have to build in slacks for delays.

Add it all up, and if we start shooting in June, we’ll, fingers-crossed, have some half-hour shows ready by October. (Again, my schedules were for streaming, but are mostly the same.) More likely, we won’t have most shows until the end of November, and no broadcaster wants to launch shows then, for pre-existing biases. (We’ll get to whether those concerns are valid shortly.)

My Big Theory – Without Content, the Broadcasters Will Look Like Old School Streamers

I’m really talking about Netflix at its licensed content peak. Shows from other networks that were cancelled? Sure. International dramas that are surprisingly good? Absolutely. Random old shows refurbished? Yep, that too.

That’s what the hodgepodge broadcast season will look like. 

It makes sense because the forces impacting the broadcast business have the same outcome as the forces impacting Netflix at the start. When Netflix started, it needed cheap content. Reruns provided that. Even better were “gently used” content, as Lesley Goldberg brilliantly describes it, that felt new, even if they were old. And they needed a lot of it.

Broadcast needs that now. They’re perfectly calibrated release schedules are in shambles with the shutdown. Meanwhile, they can’t afford to over-produce Netflix-style. So “gently used” content it is. Especially interesting will be how much content from their owned streamers will make it onto networks. 

Each Network Ranked

So with these constraints, each network has to figure out how to get back to normalcy as much as possible. Here’s my ranking of how well I like each network’s plan, balancing roughly their plan to get “originals” back on the air and their plan for rep

  1. The CW: What? The CW is number one? This is the answer to my question for the broadcast exec I have the most respect for right now. His hand is so tough, and yet Marc Pedowitz makes the most out of it every season. As THR called it, his fall season is “coronavirus” proof, yet somehow feels like a typical CW season. A CBS All Access  rerun? Check. A new DC series (that’s already been cancelled) in Swamp Thing? Check. Some doses of cheap, easy to produce reality? Yep. Meanwhile, they greenlight and renew almost everything, but they get the ratings they need. Meanwhile, half of everything is presold to streamers.
  2. Fox: Fox had already implemented a plan that meant they were most protected in a downturn. They’ve turned multiple nights into essentially live sports. Either NFL, WWE, or reality competition shows. Which meant that they’ve locked in their ratings. Throw in their huge animation catalogue for Sunday, and they only needed to fill out two nights. So buying a Spectrum Original no one saw fits that bill. My big caveat is that Fox bought two series that were due for July, and Fox is holding them for fall. I’m sure financially they see the upside, but if current TV is starved for good content, so why not just release them? 
  3. or 6. CBS: CBS is gambling with their fall schedule. They are going to roll out shows when they are available. Right now they are telling Wall Street that will be in October as usual. This is a boom or bust strategy. Hence the 3 or 6 ranking. Which I respect for two reasons. First, I like the idea of getting shows out as soon as they are ready. I don’t know why in these times of turbulence networks are insisting on launching simultaneously. There’s too much content for that to work. Plus, if ABC and NBC have abandoned the fall it’s even easier to get mind share. Finally, CBS All Access provides the most easy to repurpose content. So expect either The Good Fight, Picard or The Twilight Zone to make an appearance.
  4. ABC: They cancelled a bunch of shows, but it’s unclear what their replacements are. Unlike CBS, they are leaning toward January as the return of new content. That feels “suboptimal” compared to the other strategies, but less risky. As for replacement content, it’s tricky. Disney+ only has one series worth ratings (The Mandalorian), but you could see a lot of the documentaries finding time on Saturday night. Hulu has another supply of shows that could work as well. What could push them higher? Well the NBA is going to occupy plenty of nights in September and October which should ease their ratings pain.
  5. NBC. Why so low? For NBC, I’m still not sure what their strategy is. It feels like the least fleshed out. Like ABC, they have leaned towards the January return as the return. Since Peacock hasn’t launched, it doesn’t really have original content to fill out the slate.

Other Contender for Most Important Story – Unions Release Back to Work Schedule

The other big news was that the unions and studios released a set of guidelines to get production back this or next month. It’s a 22 page document and it’s fine.

No one loves regulation more than me. I’m being serious: the idea that regulation strangles business is just wrong. Smart regulation adds tremendous value to society. (See Clean Air Act. See FDA. See antitrust, back when that was a thing.)

This report by committee is a regulation of a sort and it seems to go slightly overboard. I think 90% of the marginal benefits of preventing coronavirus will be seen by three policies:

  1. Regular (weekly) testing and isolation of individuals with positive tests.
  2. Wearing masks.
  3. Keeping moderate social distancing.

That’s it. So the rest of the 22 pages have what? Tons of stuff on cleaning surfaces? That in particular feels outdated because surfaces have largely been shown to not harbor the disease. Something like 98% of transmission is via airborne droplets. In my mind, that’s where you should focus your efforts. Instead, most of the recommendation is on cleaning surfaces. In my mind, that’s “cleaning theater” the way airport screenings were “security theaters”. They provide the illusion of preventing disease spread, while largely not doing anything.

Still, we have a plan and we’ll get back to work. That’s what matters. And once it happens it may surprise us how quickly it starts.

Data of the Week – Those HBO Max/Roku/Amazon Numbers That Bug Me

Let’s start with this: HBO Max is only launched in the United States.

Therefore, when Warner Media went to war with Amazon Channels and Roku Channels last week–read all about it here–the important thing was to index the size of those services for how big they are in America. If half of your users are in Europe, then it doesn’t really matter about this negotiation, does it? So when you see a headline like this…

Screen Shot 2020-06-05 at 10.56.25 AM

You immediately should think, “Wait, is that global or US only number?” As usual, it’s using the global number for US customers. So I went searching to find the answer.

Now, for Roku, this isn’t as big of an issue. Less than 5% of their revenue comes from international sales, so if we apply that percentage to active users, then we still have a whopping 35 million active users in March. Watching about 4 hours per day. 

What about for Amazon? Well, I have no idea how many folks are international versus US users. Because Amazon doesn’t tell us. Meanwhile, most folks speculate that a big chunk and maybe a majority of sales are overseas. So I looked for data and eventually Andrew Freedman of Hedgeye provided the data I craved:

Screen Shot 2020-06-04 at 8.52.57 AM

If we assume usage is roughly correlated to active users–and I do–then we can see that while Fire TV is huge, it’s also significantly less than Roku. Arguably about 44% of Roku’s audience. I’d add, they may not be perfectly correlated. In that sense, I feel like more Roku users are full-time Roku users, and Fire TV users are a bit more sporadic. A good chunk of customers got Fire TV or Fire Sticks as a gift or add-on and use it way less. So let’s call it 15 million Amazon customers. (Also, this data has Amazon and Roku as 63% of the market, which is lower than the 70% often thrown around.)

So that nets out to about 60 million devices. Which is a lot! But 25% less than 80 million. For the last piece of context, from 2017 Pew had this breakdown of how many devices are in each home. It repeats the point that likely no home has a single solution for TV. And imagine how much it has likely grown since then.

Screen Shot 2020-06-05 at 11.00.33 AM

Entertainment Strategy Guy Updates

We’re going long, so let’s go quickly. 

Apple and Sports

Apple hired Jim DeLorenzo from Amazon. At Amazon, DeLorenzo helped launch the Amazon Channels biz, specifically the big sports deals. So is Apple looking to get into sports? Definitely maybe. DeLorenzo has that expertise. Although, he can also just help with their Channels business in general. I’ve been monitoring sports rights for a while, and this another sign the big tech players are circling, without any major commitments yet.

Disney+-Japan deal

Disney+ is coming to Japan. This is a no brainer territory for Disney, but it likely required extra programming and product management to get a viable product. Japan loves Disney content as seen by the success of Tokyo Disney, though it is particular about lots of other TV, mostly preferring originals. This is more of a problem for other streamers than Disney, because of the catalogue. 

Also, you’ll note they have another local partnership for distribution. Which is now their modus operandi. Does this invalidate my bundle recommendation from last week? No, as that’s more of a content recommendation and think they could still do that with these distribution deals. (Read that recommendation here.)

Disney+ plays with weekly releases

I held on to this one for a bit, but Disney+ released a series “binge-style”. I doubt this presages a new form of distribution for their tent pole series, but even Disney+ is experimenting with release styles. Which is fine! As long as they maximize their tentpole series. (Read that take in Decider here.)

Youtube Sells the Rights to Cobra Kai

Emphasis on the scripted. Meaning, the pricey originals. And really this is just an extension of their pull back I first wrote about in 2018. “Originals” are a buzzy, seductive trap that haven’t paid off for many of the folks running that strategy. And Youtube didn’t need them either. (Hat tip to Kasey Moore.)

Most Important Story of the Week – 29 May 20: All the Complications of the AT&T and Amazon Show Down

Since May kicked off, I’ve been back to writing two articles per week and have had my highest traffic month since launch. So thank you to all the readers and supporters. If you want to stay on top of all my writings, the best method is to either subscribe to my newsletter (at Substack) or through the WordPress application.

Meanwhile, onto one of the more fascinating stories of the year…

Most Important Story of the Week – HBO Max and Amazon Stare Down

Well, HBO Max launched.

If you’re comparing hype, it feels way less substantial than Disney+. Or even Apple TV+. But that’s to be expected. Disney+ was a brand new thing by one of the most powerful brands in America; HBO Max is a retread of a brand most people already know. Meanwhile, while Warner Bros has always had big films and series, but they aren’t associated with their parent company.

Since the HBO Max that launched this week is mostly the service promised last fall, I’m going to focus on the issue we’re all obsessed with: 

HBO Max didn’t launch on Amazon’s devices.

Technically, Roku devices too. But Amazon is the fascinating topic to me, since their negotiating position isn’t just about devices, it’s also about operating systems, content rights, and profit sharing. Let’s try to explain why this negotiating is too contentious, and so critical for AT&T to get right.

The Issue: Operating System vs Device

The core issue of the streaming wars is who gets to aggregate content and who gets to bundle that aggregated content. The aggregators are the streamers, in this case. Think Disney+. HBO Max. Netflix. Prime Video. Previously, they were the linear channels. And formerly ESPN, Disney Channel and HBO.

Bundlers figure out a way to offer access to streamers. In some cases, this is via device. Fire TV. Roku. Apple TV. Sometimes this is via an operating system. Like Apple Channels and Prime Video Channels. Maybe Hulu and Youtube in the future. Formerly, this was the MVPDs like Comcast, DirecTV and Spectrum.

Notice that Amazon has both a device and an operating system.

The trouble is their operating system is a lot like their streaming service. Specifically, if you subscribe to HBO through Prime Video channels, you can access your content via the Prime Video application. This way a customer using Amazon Channels can seamlessly go from Prime Video shows like The Marvelous Mrs. Maisel to Game of Thrones and The Sopranos. Honestly, you couldn’t tell the difference between where the content comes from.

From Amazon’s perspective, if HBO is already included in channels, then so should HBO Max. They signed a deal several years back to make this happen, so why not continue since every other HBO customer (mostly) gets HBO Max with HBO?

Because AT&T learned enough over the last few years to know what matters when launching a streamer. When HBO was mostly a cash play, Amazon was found money. Since HBO was also a key piece to Amazon Channels–clearly their biggest seller– Warner Bro negotiated fairly beneficial deal terms. The partnership worked, as Amazon felt free to leak that 5 million folks subscribe to HBO through their Channels program.

The difference between distributing on Fire TV devices and within Amazon Channels–and the fact that Amazon bundled those discussions together–basically shows how much AT&T stands to lose.

The Key Negotiating Deal Points

  1. User Experience – This issue more than any is what AT&T wants to control. Prime Video has been around for years, and it still gets the most “blah” reviews as a streaming platform. When AT&T sends its content to Prime Video–as it has to for the Channels program–it essentially gives up control for how it will be branded and leveraged. Try as you might to negotiate this, it’s really hard to manage as a third party. Especially a deal point like, “Make your service more user friendly.”

I would add, the other piece is building value in the eyes of customers. If a customer has to go to HBO Max’s application every day, they learn to value the content on that experience. In someone else’s streaming service that just doesn’t happen. It devalues the HBO brand overall. 

  1. Pricing – I haven’t negotiated these type of deals in a few years, but if terms are roughly similar to then, which I believe they are, there is a big monetary difference between a channels revenue split–which is a monthly recurring payment–and a device “bounty” where the device owner gets a one-time payment for signing up new customers. The latter is an enticement to have the device owner market your platform; the former is a deal tax primarily. But they work out to dramatically different financial outcomes for a streamer. A 30% fee in perpetuity can be awfully expensive.

But that’s not all the revenue Amazon wants…

  1. Advertising – This issue came up with Disney+’s negotiations as Amazon wants a cut of advertising revenue from the apps on its platform. On the one hand, this is bonkers as Amazon will have very little to do with creating value from those ads. On the other hand, in the old MVPD world, cable channels shared advertising time with MVPD operators. (That’s how local ads made it on old school cable networks.) Given that AT&T has dreams to launch an ad-supported version of HBO Max, this is likely a huge sticking point.
  2. Content – Andrew Rosen thinks a big hold up is that Amazon wants Warner Media content for IMDb TV’s FAST service. I’m not sure AT&T would ever consent to this, but not long after Disney+’s deal was closed the same group licensed Disney-owned shows to IMDb TV. Consider the market power that when AT&T is trying to negotiate for a device deal for its streamer, Amazon is essentially demanding that some of the content for that service wind up on a competing streamer. Such is Amazon’s market power, that a deal term could be forcing a studio to sell it content. (As I wrote on Twitter, the echoes to Standard Oil are remarkable.)

 

  1. Data – AT&T also wants the customer data. If you don’t control the user experience, you don’t control the data either. They basically go hand in hand. For as much as I love data–look, it was the first theme of this website–I do think “data” has been a bit overhyped in the business sphere. Data is an asset, but it isn’t actually cash. It is something that can generate more cash, but only if you use it properly. Still since it goes hand-in-hand with user experience, they’re tied together.

The Major Streamers Don’t Allow Bundling

That’s really the issue for AT&T. Netflix, Hulu/Disney+ and now HBO Max see themselves as bigger than just content in someone else’s streaming application. Heck, even Prime Video content isn’t available in Apple Channels!

And when you think about it, the ask by Amazon is kind of crazy. It’s not just asking to sell rights to HBO’s content, it’s asking for that content to essentially be bundled with the rest of its content. Which seems a lot more like a retransmission issue than simply allowing an application on your operating system. The best tweet which summarized this for me came from The Verge’s Julia Alexander:

Screen Shot 2020-05-29 at 12.18.15 PM

Exactly. Thus, the whole debate is fairly simple: AT&T considers itself a major player. And won’t allow itself to be bundled. 

Who is right?

First off, no one is right or wrong. The worst thing in the world is to pretend like negotiations between two businesses are about fairness or justice. Or that the needs/wants of customers matter. (If you want the needs of customers taken into account, government regulation is your only hope. And entertainment should be heavily regulated!)

Still, who is more right in holding to their position in this negotiation? AT&T.

When in doubt, ask who is creating value. AT&T has decades of valuable content, is spending billions making more and will have to spend hundreds of millions more to market that content. In other words, they’re doing all the work to launch a streamer. Amazon is a gatekeeper asking for a fee/toll/rent to allow it’s application on its platform. 

Not to mention AT&T bears most of the risk, unlike Amazon. To maximize that investment, they need to distribute and own that customer relationship. So they’re right to hold, and it will be fascinating to see who blinks first. 

Other Contenders for Most Important Story

A few other stories filtered in over the last week that competed for the top spot. A few were generally interesting, but just couldn’t compete with the HBO Max drama.

DAZN Shops Itself

A report from the Financial Times says that sports streamer DAZN is looking to raise money, which could mean anything from selling itself to finding a strategic partner to simply selling equity. Of all the newly launched streamers, DAZN has the toughest road to travel. Sports rights are extremely expensive, meaning they cost almost as much as the value they bring in. As much as I’d like an “indie” sports streamer to survive, DAZN needs cash to compete with the tech giants of the world.

Quibi Programming Strategy Reset

Less than two months in and Quibi is already revamping its programming line up. The plan is to focus more on what is working, which is apparently content that appeals to older, female viewers

Is this too aggressive of a pivot? Maybe. This is the perennial problem with data driving content decisions. Quibi is looking at what is working on their platform, and using that to make future content decisions.

But does that make sense? If your two best shows happened to appeal to that demographic, then it will make it look like that’s your best customer demographic. If you use that data to make more decisions, then you’ll no doubt appeal more and more to older, female viewers.

Do you see how this is a self-reinforcing algorithm? And how that can limit your potential audience.

Want to see how this applies to Netflix? Well, they too made originals, but they also put originals on the top of their home screen. This drove usage, because anything on the top screen gets clicks. But then Netflix made more originals using that data, in a self-reinforcing loop. Hence, why some of Netflix’s content feels so similar or appealing to the same demographics.

Disney World and Universal Studios Plan Summer Openings

July 15th is the planned date for Disney World to reopen at half capacity with tons of restrictions. Universal presented plans as well. This is both expected and seemingly on track for the next stage. My tentative prediction is that as thinks open up, folks will return to old habits and behaviors quicker than currently anticipated. If testing continues to ramp up, we could find this surprisingly normal looking.

Peacock Originals Slate on July 15th

When NBC released their plans for Peacock, my initial reaction was Peacock wants to be the most broadcast network of the streamers. This review of Peacock on Bloomberg essentially describes that as the mission statement. And this made me happy because, in full disclosure, I think broadly popular content has mostly been missing from the streaming wold.

As Peacock prepares its first set of originals for July 15th launch, are we getting a broadly appealing set of shows, or are we getting another rebound of peak-TV/prestige content? Looking at the list of shows–a Brave New World remake, a David Schwimmer comedy and an international thriller–I’m worried it’s more of the latter. However, they do have Psych 2 special. So we’ll see.

Data of the Week – Nielsen Top 100 Broadcast TV Shows

Twice a year, Michael Schneider uses Nielsen data to look at the top shows and then networks for the previous TV season or year. Here’s the 2019 season edition, which feels so bizarre in today’s coronavirus times. I’m mainly looking at it for the next set of shows to come to streaming channels. Look for 9-1-1 to one day get a pay day on streaming.

Entertainment Strategy Guy Update – Apple Content Moves

Apple Snags the New Scorsese Film from Paramount…

This could have been my story of the week, but for HBO Max launching. Dollar wise, it’s relatively small. Just $200 million or so among friends. 

But not with Netflix? What went wrong!!!

Likely the price tag and performance of The Irishman scared off Netflix. As I wrote in multiple outlets last December, Netflix doesn’t have the monetization methods to get a return on $300 million budget films. (That’s what I expect Netflix ended up paying for The Irishman.) Toss in all the controversy about theaters, maybe some DiCaprio nervousness about back end, and I think Apple TV+ with Paramount theatrical was the logical choice.

Is this good for Apple TV+? Sure. It will get a ton of new subscribers to check them out. Without a library, though, how long will they stay? Speaking of…

…and Fraggle Rock from Henson Company

Bloomberg reported last week that Apple was looking at licensing library content. Well, their first “big” purchase is Fraggle Rock’s library to complement an upcoming reboot. Then there was controversy in the entertainment journalism press about whether Apple had changed strategies or not. (Which would directly contradict my column from last week.) Apple PR went to multiple outlets to leak that “No, no, nothing has changed.”

My guess is both scenarios are true. If Apple can’t find a library to buy, they’ll say their strategy hasn’t changed. If they do? Then they’ll happily announce it.

Meanwhile, is Fraggle Rock a game changer? I doubt it. Kids need lots of content to go through. Almost more so than adults. Frankly, Apple TV+ doesn’t have it.

Most Important Story of the Week – 22 May 20: Apple Caves and Buys a Library

Some weeks, you barely have any news to cover. Then, other weeks the deluge comes. Buzzy stories. Executive movement stories. Sneaky scoops. And then Barstool drama.

To help settle the issue, I polled the audience. Everyone wants to talk about Joe Rogan at Spotify. But that’s a $100 million dollar deal. When I look for big moves, I mean big. For new followers, that often means adding up the potential dollar figures involved (and if they’re long term/speculative, discounting them for the cost of entertainment capital, about 8%). So a big streamer potentially dropping billions fits that bill.

If this week’s column has a theme, it’s that many of the biggest moves in entertainment are NOT about adding value for customers. I see that with two big tech titans in particular. That contrasts with a third, Netflix, who is doing right by customers. 

This is good for me, since I’m going to praise Netflix repeatedly. I’m a Netflix bear because the stock price makes no sense. Strategically, though, they do a TON right, with a few key mistakes. The world isn’t black and white and neither should be my Netflix coverage. On to the analysis.

Most Important Story of the Week – Apple (Almost) Caves and Buys a Library

I should bust out my Nikki Finke “Toldja” air horn. (Are there new folks to entertainment who don’t get this reference anymore? Showing my age.)

Anyways, my consistent strategic complaint with Apple has been the lack of library content. To just quote myself:

My theory of the case is pretty simple:

It is BANANAS to launch a streaming platform–and charge $10 a month for it–without library content.

It might be unprecedented. We’ve had subscription services launch without original content. (Netflix, Hulu and Prime Video in the early days; some movie platforms too.) But we’ve never had a service launch the opposite way. All originals–and not even that many–but no library? Truly, Apple is zagging while others zig.

Besides the rumored $10 price point, that was dropped to $5/free with purchase, the rest of that column from last August is spot on. Here’s right after they announced the price and most journalists went nuts on the hype:

The counter is that customers value a discount, so a stated price gives it a stated value. Maybe. But the content offering is so sparse—and could be such a dud at launch—that a discount of nothing is still nothing. If you really have no plans to add a library to make this a business that can stand on its own, and it truly is a loss-leading business, just make all the losses explicit and don’t charge for it.

Want another one? Here’s my take in Decider just that last month after Tim Cook told us that for sure they wouldn’t get licensed content:

Screen Shot 2020-05-22 at 8.58.49 AM

The news this week out of the Bloomberg leak machine is that Apple is in serious conversations to acquire a licensed content. And maybe a library. (How could Tim Cook lie to us like that back in February? Remember, executives lie ALL THE TIME!) 

Apple is finally on the licensed content train. What do we make of this?

M&A May Not Solve This Problem

At least not this year. Most libraries worth owning are locked up in multi-year deals. The time to buy MGM/Sony was in 2016. Then, when they launched Apple TV+, all the licensed content would be ready. Now, if they buy one of those two studios, they either have to buy out all the current licensing deals–which is what Disney+ did–which could skyrocket the costs or they have to wait a few years. Hence, the licensing deals to get whatever is there onto the service quickly.

There is Always a Lot of Content Available, but…

We’re not going to run out of content. That said, the top content is still the top content and more and more of it is locked up into multi-year deals at the soon to launch streamers of Peacock and HBO Max, or Hulu. For a good look, this article by Mike Raab uses a few categories to determine a pretty good list of the top shows of the last few decades.

Apple basically has to pick from the last column on the “Potential Libraries”. And already South Park and Seinfeld are off the list. (For a look at quick value, here’s my article talking about FBOSS top series here.)

Screen Shot 2020-05-22 at 9.11.41 AM

Source: Mike Raab on Medium

Does Apple stay prestige and get Mad Men? Broad with That 70s Show? I don’t know, but I doubt it stands up to the potential Hulu, Peacock or HBO Max licensed juggernauts. 

Does Licensed Content Matter Compared to Originals?

Yes. This comes up on Twitter. It absolutely matters. I don’t have time to prove it, but trust me.

Apple TV+ Still Doesn’t Solve Any Problems for Customers

I said this was the theme of the week, and I’ll start with Apple. It’s still tough for me to figure out what Apple is really doing that adds value for customers. Especially with Apple TV+. They’ve just launched another streamer that does mostly what every other streamer does. And they’re losing mountains of money simply to seize market share.

Some of you, will offer this I’m sure: But EntStrategyGuy, it’s free!

Remember, offering something free isn’t the same thing as creating value. Instead, it’s capturing value via predatory marketing pricing. It’s the sign of a non-functioning market. (My primer on value creation is here.)

Contrast this to Netflix. When Netflix started streaming, it really was creating value. Library TV was undervalued, so it streamed it on-demand whenever customers wanted. That is a huge value add. Then in 2012, they started losing money to grab market share. But at the start, Netflix clearly solved problems for customers.

Other Contender for Most Important Story – Joe Rogan Moves to Spotify

To understand the importance of Joe Rogan moving to Spotify, I have two analogies, each with a current story. And I’d call it the “malevolent” versus “benevolent” views.

The “Benevolent View” Talent Gets Paid: Joe Rogan to Spotify; “Call Her Daddy” Deal Terms

The analogy for this is Howard Stern in 2005. In that year, he moved to Sirius XM for a whopping $500 million deal that he subsequently renewed.

In a lot of ways, this current story is no different. Spotify is launching a new product, and is signing up top, top talent for it. Rogan is the 2010s Howard Stern. And note the difference: Stern got $100 million per year whereas Joe Rogan got $100 for 3 to 5 years. (It’s unclear the length.) Earlier this year, Spotify paid $250 million for all of Bill Simmons’ company in perpetuity.

That’s what I also see in the other big podcast story of the week, which is the “Call Her Daddy” drama. For those not familiar, the two hosts of a podcast on Barstool called “Call Her Daddy”–Sofia Franklyn and Alexandra Cooper–started negotiating a renewal. It didn’t go well. The shocking part is that the head of Barstool went public with the dispute, revealing deal terms in the process. Some of them are eye popping for podcasts, in the millions of dollars for two podcast hosts. So Barstool is doing well.

All these cases have something in common, which is they show just how much power talent has in entertainment. What Andrew Rosen has been calling the “curse of the mogul” from the book by the same name. In other words, when cash flow is mostly due to specific talent, the benefits flow to that talent who can help you capture them. (It’s worse when the financials are more apparent, like advertising driven content.)

This is the “benevolent” view. Spotify wants to make money from podcasting, so it’s hiring people to get it there. I don’t complain about studios or networks paying for top talent. That happens all the time in the TV industry. HBO wouldn’t pay John Oliver his millions if he show also went up simultaneously on every other channel. Some exclusivity is needed to justify owning channels and producing content in the first place.

But…

The “Malevolent” View

Let’s stick with the radio example, and compare it to the current situation. In the case of top talent for FM/AM radio, all the providers are competing with each other in the same distribution format. So if one radio channel pays it’s top talent more to woo them to its station, they’re simply taking market share from someone else, who can pay likewise.

That’s the Barstool/Call Her Daddy kerfluffle too. In this case, the talent just wants to get paid more. The option, though, is to go to another podcasting service. But they’d still be distributed in all the same places, just taking more of the revenue.

Not so for the Stern example. Sirius XM’s goal wasn’t just to get ear balls on its service, it was to take over radio. (Indeed, it merged with XM in part because they couldn’t replace all terrestrial radio.) They didn’t succeed, but if they had, the goal would have been to use that newfound power to crush suppliers.

Spotify isn’t just trying to get podcasters to help it make money. It wants exclusive podcasts. Why? So that it can take over the podcasting market. And then when it does, it can use that power to crush suppliers. How do you beat the “curse of the mogul”? Be a monopoly. Then talent has no other choice.

Some of you don’t believe me, so I encourage you to read Matt Stoller’s latest newsletter on this. (He’d written about Spotify before.) The example he uses brilliantly is what Google and Facebook did to local news. Before, if you wanted to advertise on The New York Times, you had to pay the Times. Now, you can advertise to NY Times readers when they leave the site. For cheaper.

That’s essentially the Spotify playbook here. (Once I read Stoller’s take, I couldn’t get it out of my head.) Now if you want to advertise to Bill Simmons or Joe Rogan’s audience, you had to do that on their podcast. In the future, Spotify can serve those ads to anyone else when they are listening to something else. Is that good for podcasts individually? Obviously not. You lose your “exclusivity” value when Spotify can sell your customers elsewhere. Ask local newspapers and their massive extinction event how much dynamic advertising via Google/Facebook has helped their businesses.

By the way the New York Times example is very telling. This week they stopped allowing third party data because they know how bad it is for them overall. Owning the data is the key to monetization. Spotify knows that and that’s their goal. Except…

The Reality: Spotify’s Quest to Take Over Podcasting Is Not Guaranteed

If your goal is to become the monopolist of podcasting, getting Simmons and Rogan is a great start. 

That said, the theme of the week is customers. What is Spotify doing that helps customers? I keep hearing about “dynamic ad targeting”, but I skip ads all the time. If I can’t skip ads on Spotify, and I can on iTunes, I’ll use iTunes. Especially if only a handful of podcasts are exclusive to Spotify. Meanwhile, will Spotify police ad reads for podcasts that premiere on its platform? How could it even do that?

So the problem is that Spotify isn’t solving for any customer pain points. Maybe their UX is better than iTunes, but it’s worse than many other podcast applications. 

Worse, they’ll likely cause pain for their suppliers. Meanwhile, there are enough big media companies that will never go exclusive to Spotify. It just won’t be worth it at one third or less of the audience. So if ESPN, NPR, WNYC, Wondery, etc are all on every other platform, the edge just isn’t there for Spotify. That’s my gut thinking.

(Last point, Luminary is also continuing to prove that subscriptions won’t work for podcasts. It also proves that having a parent in private equity/finance is great at funding news business ventures.)

Other Contenders for Most Important Story

We have more stories. Let’s go quick to wrap things up.

Kevin Mayer Moves to Tik Tok; Rebecca Campbell Takes over Disney Streaming

Say it with me, “We can’t judge executive hires in the moment.”

That doesn’t mean we don’t try. We do all the time. But we’re pretty rough at forecasting executive hit rates.

Still, I want to give a moment of credit to Kevin Mayer and what he can do. His skill set is dealmaking. And that’s what Disney+ needed to launch. Yes, the Mandalorian was a huge hit, and credit to the creative team for that. But Disney+ needed to launch on every potential device. And it did. And Disney needed to claw back rights for all of Star Wars and Marvel and Disney and Pixar movies, which it did! Mayer was the driving force behind these deals. 

Will that skill set help at Tik Tok? Maybe. We’ll see what they acquire. It’s an interesting hire for sure.

As for his replacement? I won’t pretend like the coverage in the trades gives me a clue. Campbell has lots of TV and international experience, but not a lot of development experience. I can’t guess either way.

Netflix Is Helping to Cancel Inactive Accounts

Which really is the right thing to do by customers. It can definitely engender good will. And I’ve long praised Netflix for making it very, very easy to cancel.

That said, some credit goes to Wall Street. Every so often, Wall Street decides they like free cash flow negative business propositions with huge growth. Like Netflix. If Comcast could lose $3 billion a year in pursuit of growth, can you imagine what it could build? Same for Disney. 

If Wall Street collectively changes its mind that losing money is a bad thing–say when subscriber growth stalls–we may see different behavior at Netflix if it isn’t reward.

M&A – STX mergers with Eros

Since STX launched, their goal has always been global. (This New Yorker read is a case study in a confused business model, which even then talks about getting China money.) In total dollars, this is small, but it reflects who in a global buying market even US studios need global power.

Fake Data of The Week – Datecdotes Spread!

Thanks to Andrew Wallenstein for flagging our latest datecdotes. On Hulu, Solar Opposites is huge! On Apple TV+, Defending Jacob is huge! How big?

Screen Shot 2020-05-22 at 9.37.19 AM

Some quick takes on that:

– Damn, Outer Banks is crushing this quarantine in America.
– Sorry, Mythic Quest fans. That show is not. Still.
– Rick and Morty is doing worse than I thought.
– Sure, Solar Opposites is probably doing well. For Hulu. And when I’ve looked at THe Handmaid’s Tale before, it does worse than you’d guess.
– Defending Jacob is probably Apple’s best launch since their premiere, but they have a long road to haul still.