Category: Weekly News Update

Most Important Story of the Week and Other Good Reads – 17 May 19: The CW Ends Their Netflix Deal (and that Hulu/Disney news)

Distracted by a new birth in my (extended) family, and a big article that will launch next week, I didn’t get to write a lot for this website this week. But I’ll be back in a big way next week. In the meantime, I had lots of stories to choose from for this week’s round up of entertainment business news.

(Seriously, if you’re a TV journalist, be on the lookout around Tuesday for a big number you should definitely retweet or pick up as an article. It involves GoT. So you’ll get clicks. Consider this my first “hey, pick up this story” plea.)

The Most Important Story of the Week – The CW Ends Their Netflix Output Deal

This story made the usual “Upfronts” news cycle, but I think it deserves a bigger look than that. And yeah, I think it is bigger than the Hulu news. Disney was going to get Comcast’s Hulu portion eventually. Meanwhile, I don’t trust AT&T and CBS to pass up cash when they can get it, so kudos for making the right call here. We may look back on this move as when AT&T finally took control of their streaming future. (CBS has already done that.)

That said, the headlines gave a different flavor of the news than the full articles did. Even my headline is slightly misleading, so before the strategy implications, let’s correct some initial misconceptions.

First, “The CW” is less accurate than “Warner Bros TV/CBS TV”

Because The CW is a network. The shows are produced and eventually owned by the parent TV studios of Warner Bros TV and CBS TV. These are licensed shows on The CW, not shows owned by The CW. I explained the difference between owned and licensed here.

The CW has been one of my favorite channels since business school. They are the subject of a pretty widely used Harvard case study–if you take the entertainment biz classes–and I’ve followed them since. The CW is is a fascinating joint venture between CBS and Warner Bros (get where the C and W come from, if you didn’t know?) that only exists so that those TV production studios have another broadcast channel to sell to. So the vast majority of CW series come from Warner Bros/DC, Warner Bros TV, CBS TV or, in a lot of cases, both. So that’s really who we should say ended this output deal, those parent library companies.

Second, this only applies to new shows going forward.

This is key, because these CW series are really valuable to Netflix. In the last two weeks, Netflix has started releasing weekly “top ten most popular” lists in the UK and Ireland as tests. Assuming the data is accurate–and with the caveat we have no idea how this is calculated–here is what Netflix is telling us is popular on their platform in the UK (hat tip to All Your Screen Rick for the data)…

Screen Shot 2019-05-17 at 3.10.09 PM

So in the UK, CW series make up 3 of the top 10 in these last two weeks. That’s really valuable. Is it irreplaceable? Surely not. But you can only lose so much content before it begins to impact engagement, retention, acquisition and general content performance.

The key, though, as I first read in The Verge, is that these shows won’t be leaving. If a show premiered before 2018/19 season, it will eventually wind up on Netlfix. So it’s not like suddenly a lot of Riverdale fans will need to subscribe to another streaming service to catch up.

Third, Netflix will still bid on individual series (and may have cancelled the deal).

Meanwhile, it seems like both sides wanted to end a library output deal and move to individual series acquisitions. I can see the logic. For the TV studios, you can now put the series directly on your aspiring streaming platforms. For Netflix, the entire deal may not be as worth it as individual series–so Riverdale isn’t worth the tax of the underperforming series in the deal–especially if you won’t control the rights in perpetuity. As Netflix moves to a wholly-owned strategy, this makes sense.

(Though, I’ll be honest, most of the tech sites seem to default to “Netflix is right” in their commentary, so part of me thinks this may be Netflix positive spin, and Netflix may have wanted to keep the deal going.)

The Strategy Impacts for the Future

With those misconceptions cleared up, it’s time for the lessons for us for the streaming strategy going forward. Well, as I started saying, AT&T and CBS are getting serious about streaming. Couple this with the AT&T news that they plan make Friends and ER exclusive to their new streaming platform, and you start to see a serious strategy. (I’m focusing on AT&T, because CBS has at least already launched its streaming service.)


If you’ve been following me, you know how valuable I think some of these library TV series are. Both at engaging customers–especially as no Netflix shows make it to fourth seasons–but even for acquiring customers. When you scan the homepage of a streaming site, it helps to see a bunch of shows you recognize. Warner Bros TV has a killer library catalogue, in this respect, and finally getting it all on their own streaming platform could be a huge head start.

Meanwhile, I love the approach used by The CW. If you believe internet Twitter, literally no one watches broadcast TV. Not a soul. That’s what some Netflix bulls will tell you. And yet, these shows often get 500K live viewers and multiple in later viewings. Those are real customers, in just one windwo. Here’s a Salil Dalvi tweet that explains the CW business model:

I’m a Mark Pedowitz fan in general, and he sees his job to launch TV series into future windows. This strategy for the CW makes sense given both the state of his network and his dual corporate ownership. He provides a channel to build awareness, and meanwhile he lets his corporate studios sell into lucrative second windows.

He also got on the comic book trend early–while finding a hit maker in Greg Berlanti–and meanwhile he doesn’t cancel all his shows every year, meaning he can let shows build audiences. He also saw how much more valuable scripted series were than reality series for the streamers, so almost all of his programming is scripted dramas.


As to the comic books, and since whenever we mention AT&T, invariably we find some messed up part of their strategy their screwing up, what the hell is going to happen to DC Universe, their streaming platform? I mean, if you’re taking back the rights to Batgirl, and it could be a hit, why wouldn’t you put it on your DC streaming site instead of the WarnerMedia site? I don’t in general believe in the niche approach to OTT sites, and I can’t tell if AT&T does either. Sometimes they support niche sites and then other times they don’t.

Other Contender for Most Important Story – Disney Acquires the Rest of Hulu Stake (Eventually)

Early this week, we had our lead contender for “the most important story of the week” and it is big enough news I’m giving it it’s own section.

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Most Important Story of the Week and Other Good Reads – 10 May 19: M&A in Media and Entertainment Stayed Flat in 2018

Let’s get this update out on a Friday like it is intended.

Most Important Story of the Week – Mergers and Acquisitions in 2018 Update (Finally!)

For some reason, PwC never released their 2018 update for Media and Telecommunications merger & acquisitions update. Or if they did, I never saw it. But PwC did release a first quarter 2019 update and it happens to include the quarterly data for the last two years, so we can update our table from last July! First, the data update, then some insights. (Also, hat tip to Axios’ Sara Fischer who pointed wrote about mergers in her weekly newsletter.)

Before I dig into, the basic headline is above: despite the headlines in June, M&A in media, entertainment and communications was basically flat in 2018 compared to 2017. Yeah, it didn’t seem like it, but it was.

The Data Update

I’ve been looking at three measures for mergers and acquisitions (which PwC calls “deal activity, including some investor activity) which is: total number of deals, total deal value and the number of “mega-deals” or deals valued over $5 billion. Fortunately, PwC has been keeping this data for a few years now, so, for the most part, I’ve been able to figure out the data going back to 2009 in a consistent way.

(I’ve been meaning to write a post with all the links, but search PwC and mergers and you can find regular articles in Variety, The Hollywood Reporter and their website going back a few years.)

The basic trend for M&A is that the deal activity was there, but it wasn’t as big as past years. Total deal value fell from $140 billion or so in 2017 to $122 billion in 2018. Which is still one of the five biggest years for deal activity, but also the lowest in the last five years. Here’s my updated table:

MA in 3 Measures.png

Oh, you don’t like tables? Okay, here’s the total number of deals going back to 2009 in visual form:

Chart Number of Deals

Like I said, that looks flat, doesn’t it? That’s why I use three measures and that’s just the first. Here’s the other two,  total value and mega-deals:

Chart Deal Value

I like this chart because you can definitely see that M&A has been picking up in terms of mega-deals and total value, but the last two years we’ve been coming back down. Also, the PwC report didn’t include the number of mega-deals in 2018, so I can’t speak to how that number has changed, though my gut says it stayed about the same.

Looking at all this, I’d say that M&A will continue, just on the same path it has been. What is that? Well, my favorite look at M&A has been the rolling five years, and here’s that updated chart which is a pretty good prediction for me for this year (so another 800 or so deals, with say about $120-$175 in total deal value with 15-20 mega-deals, again).

MA Rolling Ave


To start, I’ll toot my own horn. I called out last July that the “tsunami of deals” soon to swamp entertainment, media and communications may not ever land. And sure enough it hasn’t . That’s what the numbers clearly show.

My working theory is two fold. Part I is about how even though deals were approved, they haven’t been approved easily. AT&T still had to go to court and fears of deals not getting approved scared of Comcast and AT&T from bidding on Disney’s RSNs. Moreover, a Democratic congress looks to be hungering to take on Big Tech, which may discourage them from doing more deals.

Part II is about uncertainty. There have been rumors of a trade war with China since last year and a few stock market scares. So I think that has scared of some mergers and acquisitions, along with the fear that already bloated balance sheets with debt can’t really absorb more mergers. So unless an Apple or Google or Amazon want to buy something, there aren’t a lot of available buyers. Also, as the table above shows, in a recession all deal-making basically freezes and it takes years to recover.

Other M&A News – Netflix buys Story Bots (kids TV Producers)

As if to prove the point above, the recent deals that I’ve seen again fall into the bucket of smaller deals that are far from needle-movers. Like Netflix buying Story Bots. 

Apparently, Netflix has only ever acquired three companies. All I can say is, “respect”. One of my favorite questions in b-school was “build it versus buy it?” My natural leaning is to “build it”, though most people on the finance side tend toward the “buy it”. Netflix appears to really, really insist on the “build it” approach, really only buying a production company for studio space and two other companies for IP. (Though I see the counter that if they had bought a content library, they’d be in a better place content-wise. But with what money?)

Other Contenders for Most Important – Earnings Reports Galore

As I’ve started writing full-time, I’ve found myself paying more attention to earnings reports. The logic is fairly simple: they’re news generating juggernauts. Over the span of a few weeks, we get all sorts of news tidbits dribbled out. While we do get some fun facts, most of the time we don’t learn that much. Most of the coverage regards earnings estimates compared to actual earnings, which is vital for investors, but from a strategic standpoint how does it matter that Wall Street is either good or bad at its job?

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Most Important Story of the Week and Other Good Reads – 3 May 19: Sinclair Buys Disney RSNs

Since I took off two Fridays ago, I had a lot of content to sift through for this week’s update. If you have to know, I took off to see Avengers: Endgame (loved it), then, my wife and I threw a baby shower (she threw it; I cleaned), and then we both got sick (and I’d taken the previous day off to take care of our sick toddler) so basically all my writing plans got delayed. Then I spent almost all of last Friday trying to read through all the news to get this out.

But…I won’t have a “double-sized” weekly column this week because that would drive you crazy. (Or you just won’t finish reading it.) Instead, a lot of stories are going to get cut for space and maybe a few held for next week.

Most Important Story of the Week – Sinclair Buys Disney’s RSNs

Ironically, with all the extra time, I still had trouble finding a “most important story” of the week. One story–The Avengers mauling both Thanos and the box office–clearly sucked up all the oxygen in the room. Did it mean the most, though? Probably not.

When in doubt, I try go to the dollar signs to determine the most important event of the week. If one story is valued in 11 figures (the Sinclair buying Disney RSNs deal) and the other is “just” 10 figures ($3 billion total box office for Avengers), well, Sinclair wins by a hair. (Consider, though, that Avengers is making that revenue on just one window. The entire film will generate much more than that over its lifetime.)

Yet this deal stuck out to me because it has interesting ramifications on all sides.

For Disney

What a revenue week all around. Huge box office and now another $10 billion or so to play with. You can use that to buyout Comcast’s Hulu stake, pay down debt or fund 10 years worth of streaming losses (at a billion lost per year). Or go really crazy and get that NFL Sunday Ticket for ESPN (with ABC Super Bowl rights?). Throw in the previous $3.5 billion they got from the YES Network sale, and their bottom line will look much better. Meanwhile, unlike AT&T, they’re selling assets that aren’t core to their future streaming plans.

Of course, there is always the question of how much more they could have made. We don’t know the cash flow of the RSNs, but right now instead of the expected $20ish billion Disney thought they could get, they ended up with $10.6, off about $3.8 billion in revenue. The pressure to sell (the FCC made them as part of the terms of closing the Fox acquisition) could be partly to blame here, along with general uncertainty for the lifespan of the cable bundle, coupled with the fact that Comcast and AT&T didn’t think they’d get regulatory approval, so didn’t bid. Given that Sinclair saw their stock price jump after the deal was announced and I’d say Disney could have gotten a better price for the RSNs if they had more forces in their favor.

For Sinclair

You have to admire their focus. They want to expand their broadcast/cable footprint and even if the FCC shuts off one lane, they’ll move to another. Meanwhile they have a streaming product, so the RSNs could provide “must have” programming for them. If they can offer all these games as part of their ad-supported streaming platform, that’s interesting. So again, without running the numbers, this gives them good content. If it lasts. (See sports teams below.)

For Comcast

They can now convince Disney to pay top dollar for their Hulu stake. That rumor even dropped early in the week as this deal was closing. Now Disney has the cash to buy out Comcast from Hulu, and that cash can be used by Comcast to pay off its Sky debt. (Though, Comcast would benefit more from keeping their 30% stake in Hulu for strategic reasons. But the debt probably scares them more.) So yeah that Sinclair money could help someone pay down some debt, be it Disney or Comcast.

For MLB and Other Sports Leagues

I wonder if this deal shakes up the status quo just a bit. Sure, you still have your RSNs paying you top dollar for local rights, for now, but everyone knows this auction was avoided by a lot of traditional media companies. Worse, none of the big tech giants jumped in with serious bids. Is now the time to sell your rights to an ESPN+ or DAZN? Or Amazon or Apple? Or do your own thing?

For Amazon (and other rumored big tech buyers)

They still haven’t jumped all in. Sure, Amazon was part of the team buying the Yes Network, but we don’t know at what percentage (that deal has multiple players in it) and they blinked at buying into these RSNs too. As of this moment, no streaming company has decided to go “all in” on sports rights, which honestly could leave it open for ESPN+ or DAZN. (Though if DAZN does well enough, then it’s an acquisition candidate.)

Other Contenders for Most Important Story

Avengers: Endgame Box Office

I didn’t want to put this as the most important story on the heels of praising Game of Thrones for its TV debut. Ratings are one off events. They don’t deserve these spots.

And yeah, if you want to talk “importance”, breaking a box office record is essentially a once a decade phenomenon. By my reckoning, backed up by Wikipedia, since Star Wars started the contemporary box office blockbuster phenomenon in 1978, we’ve averaged about one new champion per decade.

1978 – Star Wars ($410 million)

1983 – ET ($619 million)

1993 – Jurassic Park ($914 million)

1998 – Titanic ($1.8 billion)

2010 – Avatar ($2.7 billion)

2019 – Avengers: Endgame ($2.2 billion and growing)

(And these are unadjusted numbers. Yeah, I know it’s better to always use adjusted box office. Ticket price inflation is the real driver here.)

Avengers: Endgame is just this decade’s box office champion. If anything, I’m surprised the unseating of Avatar didn’t happen sooner. There are a few trends that have made the “winner takes all” economics even stronger. (And yes, technically Avengers: Endgame hasn’t displaced Avatar yet and may not do it. But it will take second which is close enough for this analysis.)

First, as I linked to last week on Twitter, digital is the big change in the game. When you have to cart six physical rolls of film into a theater, you can’t rapidly increase the number of screenings the way you can with digital projection. So Avengers: Endgame got to have round the clock showings as the demand filled up screens everywhere in multiplexes.

Second, China. The incredible growth in the Chinese market has basically created three massive markets: the US, China and the rest of the world. In the 2000s, it was still “the US” and “rest of the world”. It’s rare for a film to do amazing in all three markets simultaneously. The Force Awakens was huge in the US, but not “huge” in China, just really big. Wolf Warrior 2 and the Wandering Earth were huge in China but anonymous in America. Avengers: Endgame did well everywhere.

Third, social media did help make this an event people had to see before it got spoiled. That probably helped push even more people to the theaters for the first weekend. You just knew someone was going to die, but who? So that “conversation” likely had network effects for everyone.

My mild prediction is that this won’t be the last film to break box office records. It will happen again, before you know it. I won’t even try to predict who it will be, but it will happen, sometime in the next ten years.

More Original Content – Twitter and Walmart

This was the news out of the New Fronts last week that both Walmart and Twitter planned to expand their “original” content offerings on their platforms. I’m more skeptical of Twitter because I just don’t think people use Twitter for video. They use it to be a part of conversations. Instead, the logic, from Twitter’s perspective, seems to be, “We get paid more for video ads, so we want more video.” Notice, that doesn’t actually talk about the customer. Though customers do get news and sports updates from Twitter, and that seems to be the push for their new content. So it’s the right content, I’m just not convinced video is the right product.

Walmart is planning on originals for its Vudu service too. They want Vudu to succeed so they can try to move their DVD sales business online. So fine. You can lose a lot of money trying to compete in originals and failing, and I don’t’ think Walmart has the same Wall Street blank check that Amazon enjoys. But we’ll see. (And I may research further.)

Lots of News with No News

We also had a surfeit of stories that got headlines, but I feel will amount to very little. So I’ll run through them, with quick “Why this isn’t really news” explainer.

Santa Clarita Diet cancelled

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Most Important Story of the Week and Other Good Reads – 19 April 19: Game of Thrones Adds Viewers in 8th Season

Ever feel like not taking your own advice?

I regularly admonish my readers to avoid overhyping single data points. I repeat this piece of guidance when things flop—Solo, The Lego Movie 2, NFL Ratings last season—or when they go skyhigh—most Disney movies, Netflix datecdotes.

And now a single data point—the Game of Thrones premiere is up to 17.4 million viewers—made my most important story? What?

Most Important Story of The Week – Game of Thrones Grows Its Audience

In my defense, this is more about the phenomenon than the data point: the fact that Game of Thrones has increased ratings year over year. That to me deserves a call out for the economics it implies. Let’s dig in.

The Rarity of “Mega-Hits”

I don’t have a huge data set of past TV shows and all their ratings by season year over year (yet), but based off my experience and some quick Wikipedia searching, I came up with roughly three (technically four) models for a how a series viewership changes over time. (And I saw this repeated a lot when I was analyzing viewership in my previous job.)

The most common model is to start out big and decay over time. I call this the “usual” because if a show doesn’t get an audience to start or build it quickly, well, it doesn’t make it to season 4 in the first place. I’d call this the “decay over time” model. (Again, by “common” I mean 80% of the time or more.) Here’s a great HBO example:

Boardwalk Empire Viewership

Source: Nielsen via Wikipedia

That’s from Wikipedia for Boardwalk Empire. As you can see, the huge names involved and its huge marketing as the successor to The Sopranos got it launched to a huge initial number. Then it declined over time. Looking for drama/genre examples that match this, my current example is Syfy-turned-Amazon’s The Expanse, which started at 1.2 million viewers, and its last season was about half that. I’d put Westworld in here too. (I can and have found more.)

I said “technically four” because a variation of this first model is just a series which never started out big in the first place. Specifically, it doesn’t grow or really decay. I’d call it the “stay flat over time” model. I’d put Mad Men roughly in this category or The Magicians currently on Syfy. (One of the few others fantasy series that has gone for more than four seasons, which is relevant to my Game of Thrones versus Lord of the Rings series.)

Of course, sometimes series turn out to be so good, they build an audience overtime. This is my second model, what I call the “build then decay” model. Wikipedia doesn’t have a neat chart for me to demonstrate this, but the example here is The Walking Dead. It started at 5 million viewers per episode, eventually hitting its stride at 16, 17, 14, and 17 million viewers for premieres between seasons 4 and 7. However the last two seasons have finally seen the decay at 11 and 6 million viewers respectively for the premiere episodes. So it tripled its ratings, and has since seen ratings decay over time.

Doing some quick research, The Big Bang Theory followed a roughly similar path. Starting small, comparatively to itself, and then hitting peaks, with an eventual decline. If I kept searching, I bet I could find a few more examples. This category is more common than the next type, but is still pretty rare.

Even harder, though is building an audience and not having it decay…ever. That, my friends, is the far right of my logarithmic distribution chart. In fact, I can only think of really two shows that have pulled that off. First, the king of the hill in modern TV, Game of Thrones:

GoT Viewership

That’s certainly impressive. Even better is this one other show, Breaking Bad.

Breaking Bad Viewership

I’d argue that hardly any other TV shows have had this sort of progression where they build and build, rising to 6 or 10x multiples of their initial viewership and never losing them. Especially in the post-2000s world of declining TV ratings.

Streaming Viewership: Even faster decay?

This is a particularly relevant time to look at these numbers, because my working theory is that streaming exacerbates the decays of all shows. Again, from my view of the numbers and experience. In short, streaming video accelerates the decay of viewership because of binge releasing (if you don’t like a season, you decide quicker to stop watching), the lack of set viewership time (meaning if a show isn’t working the algorithms bury it) and the “too much to watch” state of TV (meaning if a show starts losing creative steam, well you have a lot of other options). As a result, my gut says TV shows decay viewership faster than ever.

I realize, I’m not presenting any tables with an exhaustive view of how many shows fit into my four models of viewership decay and to prove this thesis. I wish I had that data, but let’s just stipulate it for now.

Streaming Business Models: The Economics of Fewer Seasons

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Most Important Story of the Week and Other Good Reads – 12 April 19: The Rise of Disney+

The best lingering question from the Disney presentation has nothing to do with Disney:

How long until we get these type of details from Comcast-NBCU, AT&T-Warners or Apple?

The wild enthusiasm that accompanied Disney’s parade of content is what Apple was going for two weeks ago. But Disney actually did it because, well, they have the content. Content is still king. But I’m getting ahead of myself.

Most Important Story of the Week – Disney+ Announcement

When Apple unveiled Apple+ and Apple Channels, I mentioned how much I love the traditional “marketing framework” of 3Cs-STP-4Ps. My biggest gripe about Apple was they didn’t tell us anything. Price? Distribution? Content even? We knew hardly any of it. Not so with Disney! In fact, we can use my “Digital Video 5Ps” to evaluate the offering. (I added a P, you’ll see.) Though, to quote myself, you can’t use the 5Ps until you know who you’re targeting.

(In the parentheses, I’ll put my unasked for recommendations, as if Disney needs them.)

Who are they targeting?

Disney families.

That’s my gut, without seeing the actual marketing plan. Disney has always been about the family and it is the king of tent pole films that the entire family can see, from Star Wars to Pixar to Marvel. They want families to buy, watch and travel Disney. So how do their 5 Ps reinforce that target segment?

(Recommendation: None. This is the right segment. And yes, everyone should have a segment. “Everyone” is not a segment.)

Product – Content

Content is still king, so it goes first. This is the most important piece of any digital video service. And Disney owns the best real estate on the content landscape. My working hypothesis is that Disney films were the most popular content on Netflix. And since Netflix doesn’t release data, I can’t be proven wrong. When it comes to box office, toys, even TV ratings for its movies in the second window on TNT, FX and other movie channels, Disney’s content gets the most eyeballs. Launching with such an incredible bench of content is a huge advantage.

That will help the launch, and presumably the movie teams under Alan Horn will continue to work their magic–though, I do have a “Disney Nightmare Scenario” article half-sketched out about how it could all go wrong here–but are the new TV teams up to the task? That I honestly don’t know. A lot is riding on the armored shoulders of The Mandalorian.

(Recommendation: Dig through the Disney TV library too. Gargoyles, Rescue Rangers and old Mickey cartoons are all prime candidates for this service. That can instantly add hundreds of hours of kids content. Kids need “new” less than any other demographic.)

Product – UX

No one chooses to watch Netflix because it has a good user experience. In fact, people are complaining that the UX can be hard to navigate with so much content, so many scrolling windows and auto-playing previews. But people still use it. Because the content and price.

Still, don’t neglect the product experience. Hulu, with its tremendously long ad-breaks that repeat the same commercials, makes people crazy. Apps that crash drive people crazy too. Amazon Prime pretending you can watch a movie, but then asking you to pay for it bugs people.

Behind any product from a UX perspective are teams and teams of product managers, with senior product managers, and eventually bosses up at the top. (Or sometimes at an outsourced company. Sigh to that.) I wish I could tell you I had some statistical way to measure how good product teams are at fixing and improving their products. Especially, before they launch. (In fact, I’ve thought about how to measure this.) BAMTech–the company Disney acquired that the MLB launched to handle its sports streaming–has a lot of experience, and they launched the ESPN+ app, so they’re getting experience on the ground. And I like this initial UX look, even if it will likely iterate ten times before launch:


That feels clean. People said it looked easy to navigate. So I like it. Not needing to support ads also eases the technology burden, while reinforcing the family friendly image by not having to worry about your kids seeing bad ads. And the experience overall will be safer than Youtube. Throw in unlimited downloads and they’re on the right track.

(Recommendation: Avoid auto-play. Use that clever positioning to say, “We’re not Netflix trying to hook you or your kids like a drug.” Engagement is the new tobacco.)

Placement – Distribution

This is the one area we didn’t learn much. Will Disney+ be available everywhere, or only on certain apps? My gut would be they will for sure be available on Hulu (duh), but everything else is up in the air.

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Most Important Story of the Week and Other Good Reads – 5 April 2019: #WGAxit

I’ve been distracted from one part of the entertainment world (the filmed part) because of my deep dive into another (the sports part). But we had BIG news this week. Big enougth to deserve my use of the caps lock key. That’s right, the writers (specifically, the WGA, the Writer’s Guild of America) voted to end package fees. (Technically, to leave agents who accept package fees.)

This is so complicated that one column can’t cover it all, but let’s do what we can while the clock ticks. (The agreement expires on Sunday.)

Most Important Story – The WGA Votes to End Package Fees

Here’s a question that I’ll hopefully explain in detail next week:

How do agents fit in the “filmed entertainment value chain”?

I ask because it is tough. Talent makes shows, that are paid for by studios, who sell them to networks or streamers, who get customers to pay them. So maybe agents are talent? Or related to that? But they don’t actually provide any talent to the actual product, do they? More like they sit between talent and studios. And collect 10% of paychecks for that privilege.

So what is it that agent’s do?

Let’s try to explain it in two ways, charitably and uncharitably. When we’re done with that, we’ll probably have our answer. And I’m not going to focus on just package fees here, but the very idea of having an agent in the first place. (The best package fees explainer is this WGA–so admittedly self-interested–video.)

Charitable Explanation

An agent adds value by finding more work that pays more for the talent. First, they find additional projects for the writer to work on. This increases the number of projects the writer gets paid for. Once they are working, an agent negotiates the payment of the writer, and since they take 10% of the writer’s paycheck, they are incentivized to maximize the writer’s salary. Second, the agent maximizes the pay of a writer by negotiating for the highest possible amount on the projects they do get.

The problem with that explanation is a couple fold. First, do agents find more work for their clients? One of the big complaints with the bulk of the writer members of the WGA is that they tend to use personal networking to get future jobs. Moreover, writers really only work on one TV show at a time. So it is unclear if agents actually do increase the number of jobs. There are also plenty of horror stories from writers where  agents slow played projects that were less financially valuable for the agency as a whole. And do they really negotiate higher payments? Especially for junior writer getting paid guild minimum? The word “minimum” implies…no?

This leads us to the uncharitable explanation.

Uncharitable Explanation

In Hollywood, every writer has an agent. In fact, studios tend to only hire writers with agents. The agents have positioned themselves as gatekeepers to getting access to this extremely walled garden of movie and TV studios. By creating a role for themselves as gatekeepers, they can extract extremely high rents–so they are rentseekers–on people trying to work in Hollywood. (Their currency is top talent. If studios try to go around the agents, the agents will threaten to withhold top talent.)

Consolidation has only increased the size of the walls and the fees to get past the gatekeepers. The agencies have merged into a few super agencies, which work to block out other agencies trying to get into the space. Or they acquire those they can’t block. The biggest agencies have almost all the major talent, so the studios have to work with them.

Which is Right? Neither and Both.

Likely, neither the uncharitable or charitable view is completely true. Or they are both true simultaneously. Agents can help increase the value of certain writers–especially say the top 10% of writers, the showrunners–but are probably extracting value from the middle and lower level writers. Package fees make this whole situation worse, as agents become de facto producers.

(By the way, I’ve punted on the agency’s “costs” issue for today. I’d love to know how a job that can essentially be done from home demands high costs. But I’ll stipulate that for today.)

Unfortunately, US antitrust law is so weak from decades of being hollowed out that it can’t do anything about the fact that agencies are consolidating and/or gatekeeprs. Sure, agents may be rentseekers, but how does that hurt “consumers” in the “consumer welfare standard”? Since prices likely stay the same–writers are just poorer for it–the US Department of Justice spends its time fighting…AMPAS?

(Wait, that has to be a typo. Nope, it’s real. How could the DoJ go after an awards show? Sadly, this is our state of antitrust law.)

Does this situation make for good movies?

Let’s tie this back to my literal first article on this website: “Why does Hollywood Make Bad Movies?” (And maybe my theme of the week since I talked about “misaligned incentives” and the Pac 12 yesterday.)

If you talk to a fantastic chef, they’ll always tell you great food starts with great ingredients. So if development execs or producers are the chefs, well talent is their ingredients. But development executives don’t really pick ingredients anymore. Here’s the best quote from The Ankler two weeks ago:

In private, [writers have] put it to me that not only is this the way the system has evolved and become a fact on the ground but that it reflects what the agencies actually do at this point. As they put it, the studios have basically withdrawn from the work of developing a show, leaving it to the agencies to turn a concept into a more or less ready to go package, if you want to sell it and get it on the air, that is.

Sadly, this matches my experience. A lot of development teams have outsourced talent acquisition–in the writer, actor, director sense–to the agencies. Many development execs wouldn’t know what to do if agents didn’t send them lists of people to hire. The problem is the incentives of the studio–make great films–isn’t actually aligned with the agencies–maximize salaries for current talent. The agencies have some incentive to make great films–it leads to better paychecks–but only obliquely. Mostly they just want people to get hired and they’ll blame failure on the writers if they rep the actors, actors if they rep the writers, the director if they rep actors or writers or if all else fails, the marketing. If most studios wanted to improve the quality of their movies and TV shows, relying less on agents and finding innovative ways to do identify great talent–which will cost time and money, admittedly–would be my first recommendation.

Listen, I don’t mean to come down on the entire agent/manager system. (Managers are a part of this even if this issue doesn’t address them immediately.) And agents were an improvement over the old studio system, which treated talent incredibly poorly. But just because the current system is better than the old one doesn’t mean we can’t make it better.

Good Reads on WGAxit

Want more WGAxit explanations and thoughts? I have you covered.

The Ankler – Richard Rushfield from two weeks ago covers tons of ground. I’d point out two great ideas in particular. First, California and federal laws prohibit a lot of the current behavior by agents. But since agents donate tons of money to politicians, the regulators don’t do anything. Second, he paints a nightmare where only four entertainment buyers exist in the future. This is the worst case. If you want everyone to get paid better and prices to go down, encourage competition. If you back big business and consolidation, well expect worse shows for more costs as everyone gets paid less.

Variety – And once we’re through with this current fight, we’ll move to a renegotiation of the WGA with the major studios, which probably will include even more digital players. Good read by Cynthia Littleton on what that could look like.

Deadline – Has the best summary of the plans of the WGA going back to last year.

ICYMI – The Entertainment Strategy Guy is Everywhere!

Even as social traffic is increasingly important for traffic to websites, old fashioned “guest posts” have really helped my site this week. So I have been incredibly grateful to Decider and Athletic Director U for letting my write for their two websites under my pseudonym.

First, I had two articles up at Decider since I last shouted myself out.

Why Did Hulu Lower Their Price to $5.99?

Six Crazy Theories about Apple

Which features my favorite art of all time:


Second, I dug into the Pac 12 for Athletics Director U. I think the Pac 12 is a delightful case study in how to optimize an asset, in this case media rights. The Pac 12 bet on themselves to launch their own network with no strategic partners. Well I dug into that decision, with numbers, and the time value of money, net present value, back of the envelope, top down, a director’s commentary and finally my opinion on it, which is the Chancellors and ADs need a second opinion.

Other Contenders for Most Important Story – The Record Industry is Back

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Most Important Story of the Week and Other Good Reads – 29 March 2019: Apple Unveils…More

This was supposed to be “WGAxit Week”. (Has that been coined yet?) I didn’t realize that voting started on Wednesday of last week and went for five days, so passed the deadline for this weekly “most important column”. (It will be next week’s story. It look like it passed, with 95% yes.) So fine, the story of the week is…

Most Important Story of the Week – Apple Unveils…More

Last week, we were looking forward to Apple unveiling something this week. And something was unveiled. In the entertainment space, “Apple Channels”–which is like Amazon Channels, but Apple–and Amazon TV Plus–which is like Disney Plus, but from Apple. Listen, I don’t want to be snarky here, but we still don’t know how well the product will work, what the content looks like, or how much it will cost. Those are almost all my categories to judge a product. (My 5Ps of digital video are: product-content, product-UX, pricing, placement and promotion.) 

Still, I have to opine. Here’s the good news. I’ll have another article up tomorrow at Decider that somehow ties predictions about Apple with Batman. I don’t want to step on that article’s toes.

But Apple’s entry is so monumental that even those 1,500+ words don’t capture all my thoughts. I was actually surprised I didn’t see any  “Winners and Losers: Apple TV Plus Launch” since those seem like the article de jour for media. So you know what? Shamelessly “borrowed” from The Ringer or Vox here are my winners and losers from the launch.

Winner – HBO

HBO is the must have streaming service that isn’t Netflix. AT&T is building a strategy around it. Hulu and Amazon had to have it. And once Apple sent invites, it had to get HBO on the platform for launch. I think Apple bent over backwards on deal terms to get it done. Sure, there were a bunch of stars in attendance for Apple, but the biggest star may have been HBO’s dragons.

Loser – Value Creation

When something is priced below market price, that should be the red flag of red flags that a company is using its size to “capture” value instead of “create” it. (And some of this is based on the surplus of rumors that Apple will charge $10 for HBO and Showtime.)

Ask yourself, if we know HBO and Showtime cost $15 on every other platform on the planet, how is Apple lowering the cost? I mean, it isn’t like Apple owns a factory where Apple created some more innovative method to manufacture “HBOs” and while it costs $15 for everyone else to “manufacture HBOs”, there method is 2/3rds cheaper. No, in a licensed content reality, every company negotiates with HBO to get authorization to distribute it. And they split the price customers pay. In the olden days–on cable–this was closer to 50/50 ($7.50 to Comcast, say, and $7.50 to HBO). The terms are better in OTT for the channels, so I believe it is now 70%-30%, as referenced here by Variety. Do that math and that means $4.50 to the distributor (say Amazon) and $10.50 to HBO. (Though, feel free to correct me if someone has seen the specific contracts.)

If those latter numbers are true, then Apple is paying $10.50 to HBO, and losing $0.50, while customers pay $10. That isn’t value creation. It’s value capture. It’s great for customers in the short term, but it just isn’t sustainable. It is like that old saw about “we’re losing money on every unit, but we’ll make it up in volume. Worse, I have a feeling HBO demanded extra fees in order to allow Apple to undercut their prices elsewhere. Or huge marketing spend commitments. Either way, Apple is losing money, which for most businesses (fine, all businesses) is unsustainable in the long run.

Winner – M-FAANGs being big, consolidated and boring

I’m gonna bang this drum for a little while longer. Almost all the M-FAANGs are getting into video. Almost all the M-FAANGs have a music service. Almost all the M-FAANGs have devices. Almost All the M-FAANGs have a social platform. Almost all the M-FAANGs are even launching subscription video services.

They enter each of these new lines of business (usually) not by developing some innovative new product or better operations, but by using size. That’s what Apple and Facebook are doing in video, what Google and Amazon are doing in gaming, and what they are all doing in devices.

Really, the only outlier here is Netflix: it is still just a video service, and I have to give them credit for that. They aren’t making a Netflix stick or a music channel or even a “Netflix for games”. And in a world with strong antitrust enforcement, I’d respect this. But I don’t think we live in a non-vertically integrated world anymore. So I worry about Netflix. (More on that tomorrow.)

Winner – Bundlers (and Loser: Everyone else)

I’m working on getting “bundler” to be used instead of  “aggregators”. Alan Wolk used “aggregators” in a piece that beat me to the punch and obviously Stratechery uses it constantly. But whether it is bundler or aggregator, the point is the same: I can’t look at the state of the industry, and not see a group of people looking to bundle video, and hence offer a lower price to everyone as a result. Sort of like the old cable bundle, but digital.

Netflix stands in the way of this, but just barely.  The big debate was, “Was Apple’s new launch a Netflix killer?” In a bundled world, Netflix looks like just another streaming channel. I made this the centerpiece of my article at Decider, so you can go there to read those thoughts tomorrow.

(Also, the dreams of both Apple and Amazon to own the entire content journey–via discovery and engagement–which means ending the concept of “apps” seems pretty far away. Even Apple admitted that, despite the hype, other bundlers like Hulu, Playstation TV and DirecTV Now won’t play inside their app.)

Loser – Traditional Cable TV

Cause, obviously? The more better options for cord cutters, the more people will switch.

Other Contender for Most Important Story – AT&T and Viacom Carriage Wars

Man, these black out fights feel old school now, don’t they? With all the news about Apple, and an old-fashioned carriage dispute doesn’t get the coverage it used to.

The thing we’re all looking for is that final change. That time when the blackout starts and never ends. (I suppose there is Dish and HBO, but that’s a premium channel, so viewed slightly differently and Dish and Univision, which also ended recently.) Tara Lachappelle in Bloomberg had the best take, linking to her article on why blackouts will become more frequent. In the end, Viacom and DirecTV ended up agreeing on an extension. So we continue to wait for when the cable bundle finally breaks.

Context – Ignore the yield curve (sorry Cardiff Garcia), but watch for Brexit.

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