Category: Weekly News Update

Most Important Story of the Week and Other Good Reads – 5 October 2018

Ever think you published your weekly column, then realize you imagined it Friday afternoon? Bummer.

Well, these have been coming out on Monday’s pretty reliably anyways, so it’s all good. The theme of last week (and then some) is pretty clear: turnover and people movement! Usually, I’d call one or two hirings and firings “lots of news with no news” but so many happened in different parts of media & entertainment & communications, that I elevated to the top story this week:

The Most Important Story of the Week – All the Hirings, Firings, Departings and Renewings

The Instagram founders are out!

Kathleen Kennedy is staying!

Bob Greenblatt is out! Ben Sherwood will be out! (In addition to Moonves being ousted earlier this month.)

And in the firings cases, they all got replaced by another very qualified executive (or executives plural).

The question, for me, as always, is the impact of all of it. That’s tough to assess because it requires predicting the future and/or assessing track records, that I just don’t have enough data to do. (For now. I’m working on it.) Anyways, I’ll blast some quick (as in not even gut, just blink) thoughts out, in rough order of impact:

Instagram Founders – Departing

I don’t know anything about the two founders, and I’ve been debating if “social media” is really entertainment. Given the time it sucks up from users, I default to “yes” even though tech has more than enough strategy guys covering it. (One great one in particular who I recommend for his Instagram take here.) Here’s my quick take: it’s a shame Facebook owns Instagram and society would be better if it didn’t. As for Instagram, it’ll be fine.

Kathleen Kennedy – Renewing

Everyone has said this is a show of confidence in Kennedy, (The Hollywood Reporter broke the story.) It’s hard to disagree. That’s what an extension is. The question is, “Should they have?”

This little section could act as a mini-update on some of my old ideas. To take just one from last week, the question isn’t “Did Kennedy do well?” (She did.) but how much better did she do than the “replacement”? VORP, in other words.

If I did have a “VORCEO” focused on entertainment, it would track chaotic productions versus smooth ones. Kennedy wouldn’t do well there. But it would also track box office success. So three $1 billion films in a row? That’s tough to beat. On the other other hand, Star Wars is an amazing brand, meaning context-wise I think a lot of people could have launched 3 billion dollars films with Disney’s support. I mean, the prequels were widely reviled, and they did really well financially.

Put it all together, can I just say, “I don’t know”?

Really, we’ll judge this move when the movie after next comes out. Episode 9 will do just fine…but after that it is unclear what fans want/will support. I’ve written about Lucasfilm a lot (links here and here) and overall I think she’s done well, but it’s unclear how well above replacement.

All the Broadcast TV people – Hirings, Firings and Departings

I will have more to say on development execs (my stand in term for studio heads) coming in future articles, but honestly, besides CBS, every network is constantly battling with other networks for ratings leader. That’s why I assessed this impact as a giant “Eh”. So Bob Greenblatt and Ben Sherwood are out. Okay, we’ll see what happens. New people are in. Okay. On the whole, probably nothing much will change, by which I don’t mean a vote of confidence. I enjoyed Joy Press’ coverage in Vanity Fair, though it is probably a bit too pessimistic.

Long Read of the Week – Apple News Gets Eyeballs, not Money

As a struggling independent write/publisher–trying to launch my own website in this day and age, can you believe it?–I really enjoyed this read by Will Oremus on Slate about how little revenue Apple News delivers to content creators. (He links to an earlier article on how Facebook’s changes to the news feed has crushed pageviews of websites. Both are good reads)

Not to make a second “anti-trust” argument in the same update, but giant “aggregator” apps like Google News, Facebook and Apples News may make the world worse for news consumers. Not, of course, in the simple world of Chicago School economics, where antitrust folks just ask, “Hey is it free?”. And reply with, “Well, if it is then the world is better.” In that world, we’re great with giant tech companies.

In the real, complex world where you ask, “Is the amount and quality and variety of content increasing or decreasing?” Then you have a more complicated answer. In that complicated answer, a lot of Apple, Facebook and Google’s behavior seems potentially beneficial to customers, potentially destructive to content creators and obviously monopolistic. It’s complicated.

The key quote in Slate–and like all things it ties back to “value creation”–is here:

Slate makes more money from a single article that gets 50,000 page views on its site than it does from the 6 million page views it receives on Apple News in an average month.

If true–and I’m always skeptical of all numbers always–then you’re seeing value capture in action. Slate can’t stay in business with this model; if it disappears than Apple captured all the revenue by modestly improving the customer experience in the short term. But customers are worse off and Slate is definitely worse off.

Another Long Read of the Week – Advertising on Broadcast and Streaming

I’ve been sitting on this article for months now, waiting for a slow news week. As long as I’m writing about advertising above, we might as well continue the trend, but applied to TV and streaming.

First up is an article about how NBC won the ratings game in 2017-2018. This is one of those great perspectives that ignore the week to week ratings game, and look at the larger trend. It seems even more appropriate to remind everyone of this as Bob Greenblatt leaves, while also noting a lot of it was “sports” even as we focus ont he creative. That trend is that across networks, the average among viewers 18-49 is 1.5 rating, and NBC had a 2.2, which was a huge lead. As this article explains, that lead was driven mainly by a lot of sports (Sunday NFL, the Super Bowl and the Olympics) along with some other good performers like This is Us and Will and Grace. That said, CBS remains on top with the most viewers total, at around 9 million.

Second up, I’ve been sitting on this article for months about how NBC-Universal wants to decrease the number of ads in primetime, specifically by making one minute ad breaks for certain shows. With a few months hindsight, did this happen? I think it did as I’ve noticed on some DVR’ed shows you can’t fast forward becasue the one minute ad breaks go too quickly. If so, bravo for changing. I appreciate the effort at innovation. As always, though, the economics are really tough; as both this Ad Age article and this Variety article points out, the math is not in NBC’s favor.

Third up, well, what are streaming platforms doing for advertising? It turns out a lot, or in Netflix’ case, still nothing. A report Hub Research from a few weeks back said that if Netflix added advertising, a lot of people would drop the platform. (Hat tip to IndiWire.) Maybe. But advertising is a seductive mistress. When you build a business model with ads, it gets really easy to increase revenue by just increasing the number of ads delivered. If Netflix ever experiences a cash crunch, be prepared for that trade off. That’s why Hulu offers ads now.

Listen of the Week – NPR’s Planet Money with Little Tweaks

For a just great economics in action podcast, take a listen to NPR’s Planet Money episode on “Tweak This”, where they ask economists for little proposals to improve the world. Their first idea is one I love: make all businesses put all taxes and fees up front in prices. This would overall tend to lower prices for consumers. (It would also decrease the information asymmetry in most business transactions.)

I have two proposed tweaks. One, which isn’t entertainment related is that on airplanes people in window seats should wait for the airplane to clear before getting up. Don’t make people wait for you to get your baggage, in other words.

My second tweak is for entertainment. Basically, I wish we had a common measurement system for all video that was open to all. So linear, DVR, Youtube, streaming, social: all videos are measured under one system with the same metrics and shared to all. Totally impossible; would be awesome though. (Again, it would drastically decrease information asymmetry in negotiations.)

Most Important Story of the Week and Other Good Reads – 28 September 2018

I got to work on a fun (and paid) consulting project last week and like all good consultations, it hoovered up a lot of time, eventually going into the weekend and into the nights. But it warmed my heart to know that I’d have a classic story to return to: Comcast buying something.

Ahhh. Good old fashioned M&A news. Truly this feature has returned to its roots. Let’s get into it.

The Most Important Story of the Week – Comcast wins bid over 21st Century Fox for Sky.

The prize? Sky TV in the UK, formerly called BSkyB, which sounds way cooler than just “Sky”. (I know the BSkyB terminology not because I lived in the UK, but because of a Harvard case study on it.) 21st Century Fox owns 39% of Sky, and was bidding to take a majority share. (They continued with merger talks even as the Disney takeover continued.) Instead of going quietly into the night, Comcast stepped into the breach to offer their own bid. This all happened months ago.

Fast forward to recent weeks and since both companies had submitted compelling bids that were approved by regulators, it went to a silent auction…and Comcast won. By paying a huge premium to do so too. It seems like it was only my last update that Comcast CEO Brian Roberts was saying that he didn’t think Comcast “was under pressure” to pursue M&A, they just, you know, keep doing it and wildly overbidding for it.

Let’s talk impact, since many of you knew what happened above. Ironically, the biggest winner may be Disney. Comcast may try to buy the rest of Sky from Disney, which could provide Disney with a huge cash inflow. (Disney would likely insist on the same price as their bid.) So instead of having to take on more debt to run Sky–and Disney doesn’t have MVPD experience–it gets cash. That’s a huge swing. (Comcast may then sell it’s share of Hulu to Disney. Dizzying the deals now.)

Does this invalidate my skepticism about the impending “M&A tidal wave”? Hardly, this negotiation was already in process as the June AT&T decision was being announced. Further, it involves one of the two major forces in M&A activity, which is Comcast. Comcast and AT&T have decided that size (with some content creation) is the key to success in the future, but both companies decided that years ago. I mean, a decade or more ago. With the Trump Administration looking kindly on companies that praise it in public, we can expect these trends to continue.

Size though isn’t a strategy, and we may have seen one of the few brakes on M&A…

M&A Update – Comcast Shares Lose Value in Reaction to Price

In a previous update, I mentioned the “winner’s curse” in auctions. Basically, at $50 billion, 21st Century Fox was probably a great deal for Disney. At $71 billion? Not as much. Comcast forced Disney to go higher in that deal, and Murdoch forced Comcast to likely overbid here. As a result, investors fled Comcast in early trading after the auction weekend. Investors think, initially at least, that this was an overbid.

Apparently, investors have felt the same way about AT&T buying DirecTV, which was likely overpriced. That didn’t stop AT&T from acquiring another large company for size’s sake. This could be one of the few brakes on M&A, thought it hasn’t yet: If investors crush stock prices after large acquisitions, then companies would presumably stop doing it.

Other Contender for Most Important Story: Telltale Games Goes Out of Business

I posted a couple of times on Twitter how interesting I found the fact that Telltale Games went out of business. And I won’t hide the analogy I’m making: I’d apply these lessons to any digital companies with questionable finances, especially for cash flow.

Honestly, as far as I knew, Telltale was a monster. It had games with high sales. It had tremendous critical acclaim. It claimed to have licensees pounding on their door to work with them (Game of Thrones, MineCraft, Walking Dead, Batman…) It had high sell-through of subscriptions. It had high ratings on the games by customers.

Yet, it ran out of cash and fired all its employees.

Some of the digital streaming platforms have the exact same stories: tons of subscribers, tons of critical acclaim, hints that tons of people watch their shows…and yet costs are way above revenue at this point. The difference is one of scale (streaming is mutliples larger) and backing: Hulu is backed by four huge entertainment conglomerates, Amazon is backed by Jeff Bezos’ Prime subscription and Netflix has stock market.

Oh, Another M&A Update – Sirius Buys Pandora for $3 billion

We finally have proof that the tidal wave is washing ashore. One distribution channel just paid $3 billion for a digital streaming company! Yeah, I’m being a bit sarcastic.

Though it is another sign that the scale of M&A has scaled up. As firms have consolidated, the new deals naturally get larger: a $3 billion dollar total price barely moves the news needle. My gut thinking is I see the point of the acquisition by Sirius–have a new way to reach customers using music you’ve already licensed–but this has all the hallmarks of a distribution company buying a digital company, and wondering where all the promised revenue went five years later. Though Pandora does have a lot of monthly active users, to its credit.

EntStratGuy Story Update – Verizon Offering 5G Wireless and impact on Subscriptions

Now that I have a pretty good run of articles, I’m coming across more and more news stories that update my thinking on old ideas. Here’s a perfect one for this week:

Coming to Los Angeles this fall: no more cable company, 5G broadband internet through Verizon, for your home! This story was big enough that it could change my mind on how I view “distribution”, the final piece of the “media, entertainment and communication” industry. If we no longer need “cables” going from house to house, a lot of opportunities are unlocked. It’s also an old story we’ve seen before.

The Power of the Subscription

The first thing I noticed about the descriptions of the 5G plans it he giveaways giveaways to get people to sign up to 5G broadband. This is just an echo of why I explained why companies love subscriptions. Who cares about giving away an Apple TV or Google Chromecast when you’re locked in to however many months as a broadband subscriber? Given the high switching costs, it’s just extremely lucrative. (Even if wireless companies don’t explicitly lock you into a long term contract, there are huge switching costs between broadband services. These are amplified by bundling multiple, multiple services.

The Power of the Consolidation

Are consumers in a better place when you can bundle internet, TV and now wireless phone service, all with one provider? This is one of those questions that just depends on time frame. In the short term? Sure, it’s a good deal.

In the long term, though, I wonder. As prices increase inexorably year after year, will the larger bundles just allow for larger price increases? It doesn’t seem like even with cord cutting prices are really getting that much cheaper, especially in wireless and internet access. (Man, that’s a great topic to research how prices have been increasing and I now have to write that down as a research article.)

The Power of the Competition?

Does this bring competition up in Los Angeles to three providers? Do we have a market now? With AT&T/DirecTV, Spectrum and now Verizon?

Yeah, probably not. Likely LA will be better than other markets, but still overall, this isn’t a “market” if traditional economics defines a market as “a place with many, many sellers and buyers”. This is just three, which is a far cry from “many, many”.

Most Important Story of the Week and Other Good Reads – 21 September 2018

Was there a big awards show last week? There was! I should write a lot about that, right? Nope. My most important story of the week isn’t the Emmy, though it’s a story that is a few weeks old, so the “this week” part seems not quite right. But it’s a good story.

The Most Important Story of the Week – European Content Quotas Will Impact Streaming Services

Variety had an exclusive (that I saw via Engadget, to give them credit) about the proposed EU law/regulation requiring streamers to have 30% of their content to be local content. The news is that the head of the EU agency said, “Oh this will happen.” I’ve been following this story since my time at a streaming company, and seeing it in the news gave me a chance to write about it.

It’s the “most important” because it passes the “dollar amount” test: potentially Youtube, Amazon, Disney, CBS, HBO, Hulu (if it goes global) and Netflix will have to spend hundreds of millions (or more) in smaller countries to build out local content. The devil, of course, is in the details.

Depending how the regulations are specifically written will go a long way to determining how Netflix and other streamers will comply. If you do it by just number of shows, then Netflix will buy a lot of content very cheaply for volume. If you do it by hours, same thing. If you do it by dollars spent, then you could have a small number of shows that cost a lot. The best way would be to weight by “demand” but that gets really, really tricky for a regulation. My advice? Stick to money. That’s what “markets” are based on.

Also, is it “European” content or country specific? A place like Poland already imports a lot of content–from what I understand (I’m not the entertainment strategy guy for every country, to be honest)–so how much local content is available?  If it is just “European content” there is already a lot available and the current big players (France, Germany and UK if it doesn’t leave) will benefit from this regulation.

(Side note: I tried to look for the text of this regulation, and honestly I couldn’t find it. I’d love to read the actual text if someone can find it.)

The US and other places with less restrictions could benefit from this in that more original productions with worldwide rights may be available in more places. That said, if every country passed these restrictions, then by definition Netflix would have a larger catalogue than is available to all customer, but with lots of restrictions by territory. Let’s see what happens.

Other Contenders for Most Important Story – Warner Bros. Reorganization in “Franchises”

I have a rule of thumb when debating the most impactful story of the week: when in doubt, just calculate the net profit impact of various decisions. Or cash flows. Whatever financial metric could move the most dollars. This is why most box office weekends don’t make my list, but Solo flopping did.

So I thought about being flippant or joking and putting the news that Warner Bros. elevated Pam Lifford to head of a new group handling “consumer products, DC comics, theme parks and global franchise teams” above the Les Moonves story last week. The logic being that if Warner Bros. can finally make DC successful than billions are to be had. Currently, they make a lot on licensing and merchandise, but as I’ve said before, not as much as you think.

Ultimately, I don’t know that Lifford will have control over the creative. Or even how much influence. Content is king, and franchise management is at best the bishop, more likely the knight. Overall, though, it is the “DC-ness” of this that made it a candidate. Next year, Warner Bros. will launch a DC-only streaming platform, for some reason. The DC digital platform will be interesting, but I don’t quite understand why Warner Bros. is narrowcasting all their streaming plans, with prices near what Netflix charges. I can’t wait to analyze Warner Bros. digital/streaming strategy in a future article.

Mergers & Acquisitions in Media & Entertainment Update – Comcast Says it Doesn’t Need M&A

Comcast CEO Brian Roberts said Comcast doesn’t need M&A to drive growth. We’ll talk about this in our next update. (Comcast just offered a huge bid on Sky TV in the UK.)

Lots of News with No News

The Emmys! And all awards shows

I put my thoughts on Twitter here, but the most important one for all the entertainment & media news consumers out there is to know this truth first: winning awards is statistically meaningless.

There were only what, 26 awards given out at the ceremony? A few other dozen at the Creative Arts Emmys? So if you’re trying to draw meaningful trends from such a small sample size, well good luck. Especially since most voters tend to “vote in a block” which really just means that in any given category one show was the most popular among Emmy voters.

I italicized that last point to double down on the fact that the body of Emmy voters does a terrible job overlapping with the American or global viewing public. Drawing conclusions about what is popular from an awards show is just several steps removed from accuracy. Draw conclusions about what is popular by measuring popularity.

That doesn’t mean I don’t enjoy the spectacle and have my own thoughts on the best shows. I think, for the most part, the Emmys got it right in a number of categories. (I’m fine with the drama list, because Better Call Saul wasn’t eligible, though GoT is clearly the best show on TV. Comedy should have had The Good Place and Top Chef should win one of these days.)

But don’t draw business conclusions. See my Twitter thread from Wednesday here.

Lebron and his new media company!

I’m a Lakers fan, so let’s put that on the table. Expect a lot of basketball references, especially as the season heats up in a month or so.

But here’s the thing: a super rich and super famous person starting a production company is just not that huge of news. Certainly not worthy a front page story, unless it’s more about selling copies than educating on the business impact.

Not to mention, does every famous NBA player have a production company now? How many documentaries were filmed for people’s “decisions” this off season? Including, the most famous Los Angeles Laker, Kobe Bryant? He has his own, Oscar winning production company. To be honest, I’d love to do an “analysis” piece on “Kobe vs Lebron: Whose Production Company is Winning?” but there isn’t enough publicly available information.

Long Reads of the Week – Dueling Interviews Hinting at Streaming

For some reason, both of the interviews with Bob Greenblatt of NBC at Vulture (now formerly as I publish this) and Bob Iger of Disney at The Hollywood Reporter resonated with me. Both interviewer/interviewee can’t avoid talking about streaming and hinting at what the respective companies are or aren’t doing in response. That said, the idea that Disney will lose billions to move to streaming is the elephant in the distribution room. I’ve tweeted my skepticism before, and a deeper dive into streaming economics (by me) is definitely needed.

Bonus topic: The Iger interview sort of confirms the Star Wars slowdown, which reinforces my point from this article that economically making better movies is more valuable than making more of them.

And as always, be careful of executive speak in the interviews. It’s a PR jungle out there, kiddos.

Most Important Story of the Week and Other Good Reads – 14 September 2018

Hypothetical question: in any given week, do more people in America watch CBS or Netflix?

Think about it for a moment, but  you know why I’m asking: the firing of Les Moonves is the most important story in entertainment. Absolutely for last week, definitely for the month and in competition for the year. I almost put some other articles that were overwhelmed by the news cycle in today, but the Moonves/CBS thoughts went long. Tune in Friday for those other ideas.

The Most Important Story of the Week – Les Moonves is fired/removed as CEO of CBS Corporation

Take that question I asked at the start. My guess is that many folks who live on the “coasts” would say Netflix. Many twenty-somethings and thirty-somethings would say Netflix. (I won’t use that term to describe them.) Heck, many people in entertainment & media would say Netflix, especially if they themselves cut the cord. I wish I knew the answer, but I don’t.

Here’s a bad data approach to comparing CBS and Netflix. One I expect anyone answering Netflix would use. Grab CBS’ highest rated show–The Big Bang Theory–and note that it had 18.6 million viewers. Grab Netflix has about 55 million plus subscribers in the US. Since 60 is greater than 18, Netflix wins!

If only it were so simple. That comparison isn’t “apples-to-apples” (my explanation of that term here). Netflix only releases subscribers. CBS only has TV ratings. The comparison above is subscribers to highest rated show, and logically the highest rated show is only a subset of all subscribers.

We don’t know Netflix’ highest rated show. So we can’t continue our comparison that way. But we do know CBS subscribers, since it is a broadcast channel featured in nearly every cable package, if we know the universe of TV viewing homes–via cable, broadband, satellite or over the air–we know it’s subscribers. That’s a number of something like 95-100 million households. (Note: I’m not counting Showtime or CBS All-Access subscribers either, since I don’t know the crossover.) Thus, the question hinges on the number weekly viewers as a percentage of total subscribers. If 100% of Netflix subscribers watch every week, then CBS needs only 55% of its potential audience to tune in. In other words, CBS has a huge head start in this hypothetical.

If I had to bet, I’d bet on CBS. And that quiet difference between the perception of Netflix and the performance of CBS says a lot about the entertainment industry as we head into the 21st century. Netflix may be the future, but CBS made a lot of money the last few decades as the number one broadcast channel.

Before I go on Les Moonves’ tenure as head of CBS, let’s provide a couple of caveats.

Caveat 1: This is my “gut” thinking.

I would really like to dig in deeper to the numbers behind Moonves’ tenure at CBS. But even something like CBS financial performance isn’t something I’ve studied in-depth. So as a reminder, this is my “gut” thinking as opposed to an analysis. (See the explanation for the difference here.) I’ll pull some data and links, but not a full-blown analysis.

Caveat 2: This is from a business/strategy perspective.

Following the financial crisis, the big question for business schools was ethics. Should/does business have any? Being a card-carrying liberal, in that tradition, I think it should. Conservatives in the religious sense should tend to agree. Only soulless free-marketeers would disagree. That said, today I’m writing about Moonves’ impact on the entertainment industry, and that means evaluating his performance by largely ignoring the ethical and social implications of the #Metoo movement. More importantly, others have written about it better, and my goal isn’t to echo good ideas, but to create new ones.

Regarding Moonves in particular, if a CEO commits unethical and/or illegal behavior, he needs to be fired without pay. A strong, independent board of directors should facilitate that based on a fair reading of the evidence. It’s pretty clear where the evidence led in this situation so despite his success, he shouldn’t be at CBS anymore.

So my conclusions/thoughts/predictions:

1. CBS was hugely popular in unpopular ways.

If you created a word cloud to describe CBS in the popular perception of Hollywood, you’d get something along the lines of…

    …middle America

    …rural

    …white

    …middle to lower class

    …older people

    …and lowbrow.

Here’s the thing: that’s the perception, but is it the reality? Was CBS successful in middle America? Sure, but his shows were still among the most popular shows in LA and New York. Was CBS only successful among lower class viewers? Maybe he over-indexed there, but you’d be surprised how many wealthy people watch CSI or NCIS or Blue Bloods. Were their shows popular and hence lowbrow? I think this is fair in that critics couldn’t wait to pan most of CBS shows, but The Big Bang Theory is an awards juggernaut. (Which is a conundrum. You can’t call the Emmy voters out of touch when they vote The Big Bang Theory or Modern Family, then praise them for awarding Transparent or Veep.)

Les Moonves success as a TV executive mostly went unremarked by TV critics. Or at least it wasn’t a buzzy topic. Being popular tends to make you “unpopular” with critics, so CBS was generally not buzzed about. Or at least less buzzed about compared to the coverage of Netflix, Hulu or even Amazon Studios/Prime/Video during awards seasons.

CBS appealed to the masses and by doing it so it managed to be popular with just about every group. Not everyone, but every group. Since The Big Bang Theory and the NCIS/CSI families were super popular, they were popular across almost every demographic, geographic and social category you could find.

Why don’t we know this as a business community? Well that will take some time to explain, but to summarize, poor segmentation driven by “over-indexing” means that the entertainment business tends to stereotypes certain networks/companies.

(This little section inspired two future articles for me: 1. “Indexing…Explained!” and 2. An analysis of CBS to find the data or lack of data supporting the CBS stereotypes.)

2. Les Moonves really was a hit maker.

The watchers of the media world weren’t focusing on CBS, so it kept accumulating viewers even if it wasn’t accumulating reams of Emmy and Golden Globe awards. This is a very “gut” statement, and I hope to do the analysis on it, but it seems like every season CBS trotted out successful new shows to replace the ones leaving, across both drama, comedy and reality. If we charted out all the successful broadcast/cable shows in the 2000s and 2010s, we’d see that Moonves/CBS shows would take an out sized portion of the top 20% of shows. Given the logarithmic distribution of returns (so excited to use that already!), that means he had an outsized impact in creating hugely popular shows.

That’s why I call him a hit maker. Moreover, I didn’t realize until this week he was at Warner Bros. television during the dawn of Friends and ER. He really did seem to have the talent to make hit TV shows. Or at least identify those people who could make hit TV shows.

(This section is just the tip of an iceberg for a third article I’m writing, this one on “development executives” and how many hit makers there truly are. It’ll be fun and super controversial.)

The only caution to all this is the idea of “network effects”, which isn’t quite the right word, but close enough. Network effects are when a business that has a network gains additional benefits as the network grows in size. Facebook or Amazon Marketplace are the best examples; if everyone is on Facebook, you benefit more from joining the social network; if everyone is selling on Amazon, customers go there more often to buy things.

In TV, though, “owned-and-operated” media is the one place where size can beget size. So if you’re launching a new TV show, would you rather have Comedy Central advertising it to it’s hundreds of thousands of viewers, or CBS advertising it to the millions of The Big Bang Theory viewers? You want to be on the latter, which means it can be easier to launch new TV shows. CBS definitely benefited from this effect, but it can’t explain all of CBS sheer dominance.

3. This makes the CBS/Viacom merger more likely.

Pretty simply, the CBS board would have backed Moonves against the Redstones in the takeover. Now I can’t see that happening.

4. And I would agree with this merger from CBS’ perspective.

Clearly, I hate industry consolidation. But I hate it because it is a prisoner’s dilemma: if everyone else is consolidating (instead of growing by adding value), then everyone has to consolidate. If you don’t, as your competitors grow, they can use size as a weapon to negotiate with buyers, suppliers and customers. That’s bad for customers, and for the remaining small firms.

An independent CBS would have been fine with Moonves. Probably. Then, CBS could have bulked itself up to prepare for the impending “streaming wars”. Without Moonves, CBS really risks becoming an also-ran. Moonves was a hit maker and I have no guarantees his successors (whether in the CEO role or as head of development) will have the same ability. If his successors are just average, overtime the network effects will wane and CBS will go away. Instead, I’d recommend that CBS join Viacom and let size help them negotiate.

5. Who will step into the CBS void?

I don’t know.

It doesn’t have to be another broadcast channel. It could be, but no network has shown they have a reliable hit maker. It could be a cable channel, but again, no obvious examples jumps to mind. (If this were the mid-2000s, I’d have bet on USA, but they’ve under performed compared to their 2000s performance.) It could be a streaming service or premium cable, but only Netflix has flirted with popular programming for popular sake. The downside with Netflix is that their hit rate could be the lowest in the industry, which is the opposite of “hit making”.

Or no one. There isn’t a law that one channel/platform has to rise up and achieve dominance. But if a streaming/cable/broadcast platform wanted to seize TV market share, now is the time. If you have a hit maker, you could take CBS place.

The challenge is the development execs. In Hollywood, it’s sexy to make award winning, buzzy, prestige shows for peak TV. TNT, FX, Netflix, Starz, HBO, Amazon, Hulu, NBC and USA/Syfy have all dabbled or tried to pursue this strategy. It isn’t sexy to make cop shows. It isn’t sexy to make multi-cam sitcoms. They can make lots of money, though.

If you run a content company, do you have development executives willing to risk industry scorn for making popular shows that don’t appeal to critics? A lot of money and market share can be won by making popular things.

Long Reads of the Week – Other Good Reads on Les Moonves’ Exit

I enjoyed a few reads this week.

To start, listen to the emergency banter with Kim Masters and Matt Belloni of The Hollywood Reporter and KCRW on The Business. Alway worth a check in, and in their banter from this week on reporting on CBS board.

Next, The Ankler’s Richard Rushfield published in Vanity Fair about Hollywood protecting powerful men in Hollywood, with the flair he usually writes with.

I said others wrote better about the larger #MeToo explanations, and I’d point to Todd Vanderwerff at Vox (my go to general news site right now) as the best example.

Finally, I’d point out Joe Adalian’s piece for the “CBS will be fine” narrative that I sort of challenge above. That said, I’m simplifying Adalian’s poin. He has faith that CBS is the work of a few people, many of whom could have absorbed Moonves’ style.

Most Important Story of the Week and Other Good Reads – 7 September 2018

I try to write these updates to post by late afternoon on a Friday. Often–most weeks actually–I miss that optimistic target and finish them over the weekend/first thing Monday morning, then back date them to the week they cover.

Obviously the biggest story of entertainment was Les Moonves being fired, but that happened on September 9th, two days after this “update”. So I’ll cover another story and this week, but rest assured I’ll chime in on the Les Moonves controversy at the end of this week. (Or early next Monday morning.)

The Most Important Story of the Week – Broadcast TV Ratings Continue a Slide

A few weeks back, I checked in on the box office results for the summer so far. In my ideal world, all senior executives–heck, all managers period?–would “react” to data by not reacting. That’s right, in my opinion, the real-world-ification of data hasn’t made us better at making decisions. If anything, it causes us to react to bad data or uncorrelated data. (This includes “real-time dashboards” and “email alerts” for data. Even weekly updates can be misleading if the trends are sustained.)

Let’s apply this philosophy to TV ratings. Do executives “need” to know how a show did in over-night ratings, especially since they focus on C+3? For instance, the Thursday night football game from last night had a three year low in viewership. Does this portend down ratings all season? Maybe, but we won’t know. What if Sunday has a high in viewership and some combination of the teams involved, the rain delay and the fact that a lot of people (like me and Bill Simmons) hate the idea of Thursday night football games?

So we can step back and look at the ratings from the season as a whole, which the Hollywood Reporter did for us, including emphasizing that broadcast generally, and  scripted shows particularly, were down. So that trend continues. I also love learning that a show I’d never heard of–Yellowstone–was a beast in the ratings on a network most people haven’t heard of. (The new Paramount TV, converted from Spike.) Also, for all the buzz I heard about Succession, Sharp Objects actually delivered higher ratings, which I feel like happens a lot for HBO series (the more popular series have less buzz and vice versa).

Other Candidates for Most Important Story – Amazon Had Technical Problems in US Open Coverage in UK

This is one of the stories I have a feeling most people missed. In short, Amazon Prime Video is distributing live sports in various territories, like how it did in the NFL Thursday night games last year. The big debut in the UK was it’s coverage of the US Open in tennis, but it had a lot of technical issues such as a limited number of games and lagging.

This isn’t THE most important story because surely Amazon can throw engineers at the problem. But it’s a good lesson. As a community, the mantra goes that “content is king”. Don’t forget, though, that “UX is the bishop”. Or hand of the king? So the metaphor isn’t great, but know that a crappy

Big Bad Data of the Week – The Hollywood Reporter on International Film Sales of African-American movies

Honestly, I hesitate to even write this little blurb for fear of offending people. So let’s be clear: I want more “variety” in my movies (wait until my listen of the week to explain that term). I love diverse movies on a variety of topics. I celebrate those. And celebrate diverse voices in directing, acting and writing. I also think I have a better grasp on the problem than most execs (panels and reports don’t solve problems; economics do), but they will never solve it because of self-interest. (Basically, nepotism, self-dealing and bias towards class prevent true diversity/variety.)

To solve our problem–a serious lack of diversity–we need to be precise in diagnosing the problem. We have to let the data guide our decisions. The old axiom, “multiple anecdotes don’t make data” applies here. Unfortunately, too often the latter happens when discussing diversity.

I see this a lot in coverage about the success of films featuring diverse casts, including African-American, Latino and, recently, Asian-American casts. Instead of drawing an entire data set of all movies, articles such as this prominent one by The Hollywood Reporter rely on a self-selected dataset featuring a biased sample of successful movies.

To start, this is an example of the availability heuristic at work. The availability heuristic is when your brain calls out easily “available” examples. Often, these are misleading examples and not a representative samples. In films, it’s easy to think of popular/successful movies–especially if you have an emotional connection to them. It’s much harder to think of flops.

Take the sample set from the above article. These movies are hardly representative of all movies. They feature films nominated for Oscars. Oh, and a Marvel movie, either the first or second most successful franchise in film history. The alternative is to capture all movies in a given time period, give them all diversity categorizations, then measure performance. That takes time, and a lot of journalists and companies don’t take the time to do that analysis.

This is really important for the decision makers. I’ve first hand seen the availability heuristic and, more importantly, a biased sample get a 9 figure business plan launched. It later lost the company lots of money. (The key to the success of the plan? HiPPO. See here or me writing on it here.)

We have a diversity/representation/variety/inequality problem throughout our industry. We need to solve it, and bad data doesn’t do that.

Listen of the Week – “Variety” episode on Martini Shot by KCRW/Rob Long

I loved two things about this episode:

  1. The word play between “variety” and “diversity”. You can just tell by listening that Rob Long is a writer; he’s a wordsmith. Sometimes changing one word can have profound effects on how you look at an issue. This wordplay did that for me. As he points out, the examples of “diverse” films don’t feature diverse casts, they feature in some cases uniform casts, just different than traditional films. So the better word to describe that is “variety”. Rob Long says it better.
  2. He gets at why variety is so valuable. Sometimes we focus on diversity for diversity’s sake. Which may be okay. But from a business standpoint, a well-executed film featuring a unique subject matter can offer audiences something they don’t usually see. That leads to higher box office returns in general, and this applies to all sorts of films.

Most Important Story of the Week and Other Good Reads – 31 August 2018

With this update, we’re officially out of the slowest, dumbest month of news, August. Here’s my round-up of the “Most Important Story of the Week”, a few days late because of that blasted long weekend. (I’ll save my rants on how much better America would be with more 3 and 4 day weekends for a future article.)

The Most Important Story of the Week – The Fall of Global Road

So I held this story for a week. Coincidentally, I’d been mining some box office data for another project, and had looked into Open Road’s film history. I’ll admit when I first saw Global Road when bankrupt, I thought, “Wait, what is Global Road? Oh, it was Open Road.” Then I thought, “What happened?”

The story has been well covered. Since I spend so much time “reacting” to negative news stories, it’s worth praising when the trades really dig in well. (Hat tip to the Hollywood Reporter and Variety.) That said, I have a theory that the trades usually know the dirt on companies, they just wait to dig in until after an adverse incident (bankruptcy, firing, scandal). I, on the other hand, have no problems calling out what I perceive to be bad strategy.

If I had one single take away from the demise of Global Road, it’s this: “content is hard”. Especially when someone is keeping track. Looking at their slate, Global Road, and Open Road before it, didn’t have a huge blockbuster in the US they could hang their hat on. Without that huge hit–and not owning any IP outright–they couldn’t sustain operations.

Who should we watch out for as possibly being next? Well, a candidate off the top of my head–and note this down for a great future project for the Entertainment Strategy Guy, predicting who could go bankrupt next–is STX Entertainment. I devoured the New Yorker profile of that company, and frankly couldn’t understand their competitive advantage beyond “China money”. Let’s compare Open/Global Road’s US domestic box office performance and STX’s same numbers for the last three and a half years:

In chart form, with each film’s gross as the Y value:Slide1 In table form, counting the number of films at various box office levels:Slide2

(Source: Box Office Mojo. Open Road. Global Road. STX.)

(I used unadjusted box office gross from Box Office Mojo, going back to 2015 and deleting any films less than $1 million in total box office, which was three films for Open Road.)

Why did I think of STX? Well, Global Road just released the underwhelming AXL and STX released the underwhelming Mile 22 and Happytime Murders. Both are backed by Chinese money and new mini-majors headed by execs with long careers in Hollywood. But looking at the data, we can see for the near term, STX overall has just a higher trajectory. In addition, STX has had a “hit” that spawned a sequel, Bad Moms and A Bad Mom’s Christmas. Now the “hit” wasn’t tremendous ($113 million US) but that’s enough with their supposedly huge line of credit.

Of course, STX may have higher aspirations and may lose more money when you factor in production budgets and P&A spend. Arguably, they shot the highest on with Valerian and the City of a Thousand Planets, which only did $41 million in the US with a big marketing spend. It had franchise potential, but didn’t love up to the billing. (It did do $184 million in foreign box office; I don’t know how much STX kept of that.)

You know what is really cool, though? The ability to “keep track” of how well movie studios are doing. You know who I can’t do that for? Television shows that premiere on digital platforms like Netflix, CBS All-Access or Amazon Prime/Video/Studios. Instead, everything is a winner based off buzz. With movies, you still need a good box office performance to justify your existence. Enough flops and you go out of business. (First, Relativity, now Global Road.)

Which also brings us to the “successful” part of both Global Road: their TV business. (Paramount is having the same story right now; STX has moved into TV too.) How is it that a company can’t make enough successful movies to stay in business but they can for TV? Well, because SVOD platforms buy TV shows by the boatload, and pay profit up front, instead of in success. Since every show is renewed–no one fails in streaming–everyone in the TV production business is finding buyers for shows.

Which doesn’t mean people aren’t losing money in TV streaming, it’s just that they can afford to lose money and Global Road couldn’t afford it in movies.

Long Read of the Week – How Hollywood is Racing to Catch Up with Netflix in Variety

I’m going to stop writing on the above topic before it turns into a “Long Read” of the week. Instead, you should head to Variety for this good summary by of the state of “direct-to-consumer” offerings in the marketplace. The most useful part is the summary of each DTC service, it’s pricing and some basic information about the services then the summary of the streaming video players. The most glaring omission is something author Cynthia Littleton doesn’t have: the daily, monthly and annual active users and subscribers by platform. (It is also a little too praising of Netflix for losing billions every year, but isn’t everyone?)

I’ll also say there remains a glaring disconnect between the huge volume Netflix offers and it’s low, low cost compared to all these new DTC options. How is it possible? Well, Netflix loses money and Disney needs to earn a profit, as Littleton points out. This disconnect for me tarnishes the entire Netflix narrative, or at least challenges how disruptive it truly is, but that’s for later articles.

Listen of the Week – Malcolm Gladwell’s Revisionist History on “12 Rules for Life” and Pulling the Goalie

All the development executives of the world should listen to this episode. It argues you should “think the unthinkable” and ignore the responses of fellow humans. For me, the episode illuminated the key challenge of our industry: “relationships”. If you listen to Kim Masters regularly (and you should!), then you can hear her skeptically address outsiders coming into entertainment who don’t understand this is a relationship-driven business.

This is why the hockey coaches in the podcast–not to spoil Malcolm Gladwell too much–won’t pull the goalies. Their relationship with the fans would suffer.

But it’s also why the people who recommend this strategy–pull your goalie! Be unconventional!–work in one of the few fields where you don’t need relationships (or as many), which is hedge funds. They can do their trades automatically via computers…so they don’t really need to worry about pissing off people. In the parts of finance where relationships matter, like investment banking or wealth management, this strategy wouldn’t work. But certain hedge funds can get away with it.

Most Important Story of the Week and Other Good Reads – 24 August 2018

Reflecting on the links I collected for “the most important story of the week”, what stuck out to me is that, well, it seems like political news can crowd out even entertainment stories. Digging a little deeper, I still think we found a pretty fun story.

The Most Important Story of the Week – AMC, A Small Theater and Paramount Consent Decrees

I first learned about the Paramount case in business school, and honestly I had summarized the lesson as, “movie studios can’t own theaters”. But I had never read the case law, so–as this excellent article by Eriq Gardner clarifies–that isn’t quite true. Instead, it’s an agreement that was agreed to in the 1940s and hasn’t really been challenged in court since.

Until now.

AMC is headed to trial over allegedly running a smaller Houston movie theater chain called Viva out of business by forcing studios to not to license other films to the smaller theater chain. If it does go to trial, it could be appealed and so on up the chain. Given today’s Supreme Court, if somehow this case got to that higheest level, I could see five justices saying, “What? Movie studios and theaters are just entering into contracts? In fact, why shouldn’t studios be able to own theaters? Go ahead, it’s all competition.” This is a summary of Gardner from the previous article that I love:

On the other hand, as times change, once-restricted practices that might have been perceived as an illegal restraint 
of trade in one era may be given a fresh look as pro-
competitive in a different era.

So I’m calling this important on the off-chance it goes all the way up to the Supreme Court and is struck down. Yeah, it was a slow news week.

Good Read of the Week – Kevin Spacey’s Box Office Bomb – A Deeper Look by Deadline

I’m always scouring for new stories that explain the context versus slam you with a buzzy headline. This article by  may be the ideal for what I want. When even my dad has sent me an article–and he sent me one on Spacey’s “box office flop”–you know something is a hot take.

This is the unpopular take: the film was only intended as a “straight to video” release, to use 1990s parlance. But this isn’t a world with video anymore. The straight to video for the 2010s is a release on Video-on-Demand, which encompasses platforms from iTunes to Amazon to cable MVPDs. They all love to bill, in particular that a movie is “in theaters now”. To get that, they need to release in some theaters, which they usually pay for by renting the screens.

So learn about how this works in depth a little more in this article. My other takeaways were that the film made iTunes top 20, which is surprisingly good, but also will likely lose a boatload of money, which makes sense for a film the exhibitor isn’t putting ad spending behind.

Other Contender for Most Important Story – Private Equity Firms Looking to Acquire TV Stations

On the one hand, man this is small potatoes. Who cares about TV stations in the digital age?

Well, “finance people” who I’ve now mentioned disparagingly in two weeks in a row. The larger point this smaller story makes–for me, the “business guy”–is to remember that you can still make a lot of money in a “dying” business. Do you make more than growing businesses? No. But you can still get cash. This lesson would apply to DVDs/cable channels going forward.

Mergers & Acquisitions on Media, Entertainment and Communications Updates!

A new feature to this weekly round-up! When I come across a notable acquisition, I’ll try to put it in here (and update my own table). A few weeks back, Viacom purchased AwesomenessTV, and they recently generated news stories from the announcement of layoffs for Awesomeness TV. The notable thing is the price which is between $25 and $100 million dollars, depending on who you read and whether debt is included in the valuation. Overall, though, the trend is clear that former MCNs–multi-channel networks–have been depreciated significantly in their value. AwesomenessTV at one point was valued at $650 million dollars.

Big Data of the Week – Three Stocks in the Micro-Bubble (Amazon, Netflix, and Spotify)?

Working on another article for my website, I stumbled upon this really interesting look at the stock market. As a strategy guy, I’m going to avoid commenting on how or why the stock market moves because frankly, I don’t know why it moves the way it does.

That said, in this case, my criticisms of some companies line up with their recommendations that these stocks are in bubbles. My philosophy on business is that making money tends to be correlated with success, and businesses that can’t make money will struggle to succeed. Some very buzzy tech companies involved with the entertainment business–Amazon, Netflix and Spotify–seem to buck my philosophy with their high valuations. Again, time will tell.