Category: Weekly News Update

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

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

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

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

Well, HBO Max launched.

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

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

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

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

The Issue: Operating System vs Device

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

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

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

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

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

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

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

The Key Negotiating Deal Points

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

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

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

But that’s not all the revenue Amazon wants…

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

 

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

The Major Streamers Don’t Allow Bundling

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

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

Screen Shot 2020-05-29 at 12.18.15 PM

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

Who is right?

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

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

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

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

Other Contenders for Most Important Story

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

DAZN Shops Itself

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

Quibi Programming Strategy Reset

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

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

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

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

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

Disney World and Universal Studios Plan Summer Openings

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

Peacock Originals Slate on July 15th

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

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

Data of the Week – Nielsen Top 100 Broadcast TV Shows

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

Entertainment Strategy Guy Update – Apple Content Moves

Apple Snags the New Scorsese Film from Paramount…

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

But not with Netflix? What went wrong!!!

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

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

…and Fraggle Rock from Henson Company

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

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

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

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

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

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

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

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

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

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

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

My theory of the case is pretty simple:

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

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

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

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

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

Screen Shot 2020-05-22 at 8.58.49 AM

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

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

M&A May Not Solve This Problem

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

There is Always a Lot of Content Available, but…

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

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

Screen Shot 2020-05-22 at 9.11.41 AM

Source: Mike Raab on Medium

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

Does Licensed Content Matter Compared to Originals?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But…

The “Malevolent” View

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

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

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

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

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

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

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

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

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

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

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

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

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

Other Contenders for Most Important Story

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

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

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

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

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

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

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

Netflix Is Helping to Cancel Inactive Accounts

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

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

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

M&A – STX mergers with Eros

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

Fake Data of The Week – Datecdotes Spread!

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

Screen Shot 2020-05-22 at 9.37.19 AM

Some quick takes on that:

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

Most Important Story of the Week – 15 May 20: Does It Matter That Hulu is Delaying International?

This week’s column started out as an extended essay on the future of TV and Film production in the age of coronavirus. It went long, so expect it early next week. (Next week’s article already written? Check!)

Before we get to the news, a quick set of housekeeping. On Twitter, I put out the offer to build my network with any of my readers. If you’d like to chat, send me an email and we’ll see if we can set something up. I’m in particular looking for new opportunities to grow my audience or partner with businesses (be it consulting or writing or what not). Even if you don’t have an opportunity, but just want to chat, let’s do it.

Meanwhile, my website is still free. So if you want to support my work, the best way is to follow on social media (Twitter, Linked-In, newsletter) and share any articles you like with friends, peers and colleagues. Seriously, forward my column to everyone in your company. Why not? 

Most Important Story of the Week – Hulu International Launch Delayed

Sometimes, I wonder why everyone in media leads with the same headline after certain events. This goes from politics to sports to entertainment journalism. Take post-debate coverage. Somehow CNN, The New York Times, the Washington Post and Politico all take the exact same quote as the most important of the debate. How is it that dozens of political reporters can watch the same event and all come to the same conclusion?

(The answer? Group think and herding. As soon as one outlet goes with something, the rest copy it so they don’t look like outliers. Or “biased”.)

Personally, I think you’d get more credit by zigging while everyone else zags. Which is what I try to do. So when everyone else focused on Disney’s earning report for the losses to theme park–which were totally expected–I saw this line about Hulu’s International roll out from Bob Chapek:

Screen Shot 2020-05-15 at 9.34.33 AM(Credit to Twitterzen TMTonka for reminding me of it.)

In the short term, aggressive Hulu international expansion is on pause. At first, I was ready to write about how bad this was for Disney. But then I paused and thought about it. While it is a bad sign for Disney’s cash flow, the Hulu international rollout is less of a surefire hit than Disney+. It’s more important that Disney figures out Hulu’s international brand than launching it quickly.

Frankly, as bullish as I am on Disney+, I understand it’s limitations. Disney+ is like the best children and blockbuster content from Netflix, stripped out into its own service, and taken to the max. Yet that has a ceiling. Even four quadrant content (industry lingo for broadly appealing to men, women, young and old) still doesn’t do it for everyone. Some folks don’t like superheroes. (“Some folks” being code for critics.) Or don’t have kids.

Which is why Hulu is there to fill in the gaps. It features prestige dramas from FX and day-after air broadcast fare for everyone else. (If I were advising Disney’s head of streaming Kevin Mayer, that latter category is where I’d tell him to lean into. See my last article on ignoring “middle America”.) If broadcast TV “does multiple jobs” for customers, Hulu & Disney+ reaches pretty much covers all those bases. Add in ESPN+ and Disney recreated a great bundle.

As an added benefit, with three sets of subscribers to count, Disney is hot on Netflix’s heels in “total subscriber” count. My guess is Disney will soon match Netflix in the United States for total subscribers. And will tell us when they reach that milestone in a future earnings call. (Disney doesn’t yet break out by territory, but I still think a majority of customers are US.)

The shiny object, though, is for Disney to catch up with Netflix internationally as well. That’s the downside to delaying Hulu international expansion. Now it will take that much longer to match Netflix.

Or will it? I’ve long been skeptical about arguments about “global scale”. Not that being international doesn’t confer some advantages, but that most valuable content doesn’t travel globally. You see this in Netflix’s Top Ten lists, which feature some outliers, but for the most part feature local content. Does global scale really exist if you still have to buy local originals for every territory?

Of Disney’s catalogue, Hulu is the brand that will travel the least well. Lots of Hulu/FX originals, while lauded at home, are fairly esoteric for foreign audiences. International audiences don’t get subtle humor about life in New York by/for millennials. (Again, neither do many audiences in the United States.) The best traveling content is animated kids movies and Marvel films. Both of which are on Disney+! So Hulu’s upside globally is probably more limited than we suspect. Which means even if it did launch internationally, I’m not sure it has nearly the same growth prospects as Disney+.

Disney will still try, of course. The rewards for a global streamer are too big to ignore. Which gets back to the delay. It is a really bad sign that cash flow has dried up so much they can’t invest in growth. Whether or not I think Hulu will thrive internationally, that was their next major capital expenditure. Which is still bad.

Other Contenders for Most Important Story

Quibi Blames the Pandemic

This week Jeffrey Katzenberg blamed the pandemic for Quibi’s soft launch. Let’s play out both sides, and you can decide how right he is.

On one hand, situations absolutely matter. The role of luck in life is increasingly apparent. At its core, if Jeff Bezos graduated in 2000, instead of being a VP at an investment bank during the 1980/90s, he doesn’t start Amazon. Is he still successful? Yes. Is he Jeff Bezos? Maybe not.

Same for the pandemic. If the pandemic started a year from now, it would likely still wreak the same havoc on the economy. But HBO Max, Quibi, Peacock and Disney+ would all be safely launched. And likely benefit due to their established services. (It’s hard for HBO Max to benefit when it isn’t even launched.) 

Quibi’s core value proposition was damaged by the pandemic. It was meant to be watched on the go, and we as a society aren’t going. Katzenberg is right about that. 

On the other hand, come on. I’d long believed that Quibi needed to be on living room TVs to succeed. This was regardless of a pandemic or not. Quibi didn’t have a big hit to lean into, and that means that they’re fundamentally at a disadvantage. And no library content. Even with no pandemic, I could see Quibi having the exact same number of subscribers as it does now. Maybe a little more, maybe a little less. 

Either way, I think we can say that Quibi is in trouble. How much will require some scoops by some intrepid journalists.

Potential Original Trouble in Netflix-Land

While all other studios and TV producers announce their schedule will be impacted by Covid-19, Netflix insists all it’s content is produced and there won’t be any impact to their schedule. But then, despite having a policy to release all content day-and-date dubbed in original languages, the Unbreakable Kimmy Schmidt special came out in English only.

Hmmm.

Entertainment Strategy Guy Update – Coronavirus Edition

Theaters – Studios/Theaters Locking in Schedules

That’s my take on Warner Bros and Disney both reaffirming their late July release schedules. At some point, films can only be pushed back for so long without hurting the bottom line. If theaters will only be partially reopened from July to December anyways, you may as well recoup what you can. My read of the coverage is that Tenet and Mulan are increasingly likely to stick at the end of July. As THR wisely points out, blockbuster films are likely to do okay post-pandemic since theater chains can flex them into as many theaters as necessary. 

This gives theaters 8 weeks or so to get customers ready to go back to theaters. My guess? The return of library films like Star Wars or Wizard of Oz or John Wick or you name it will allow a bunch of fun experimentation in June.

Meanwhile, Solstice Studios (a new independent production house) grabbed the July 4th weekend with its Russel Crowe thriller Unhinged. If people start returning to theaters in June, part of me still wonders if another studio jumps up to July 4th. Usually, long lead times for advertising campaigns would prevent this. But given the pain in linear TV for advertising, I think the networks would make an exception. (Ad prices are so low that a film could quickly get share of voice.)

Still, all of this is incredibly uncertain. So we’ll see. 

Pay TV – Losses Continue in MVPDs in Q1 (in Context)

The quarterly Moffett-Nathanson report is out on the status of cord cutting and the results are expectedly grim:

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Of course, the funny thing–as I tried to warn you on Twitter the week before–is that this isn’t proof that Covid-19 is accelerating the trends underlying economics. I know, I know. You read everywhere–I mean everywhere–that coronavirus will “change everything” and “accelerate all the underlying trends in entertainment”. Seriously, I won’t link to them, but I’m the only entertainment biz analyst NOT making this unfounded claim.

So where do I get off challenging them?

Well, I start with the numbers. Frankly, adoption of new trends is a well studied phenomena. Usually summarized by the “Bass Diffusion curve”, a topic I went deep into last fall.

Cord cutting is following the same pattern in reverse. So should we have expected growth of cord cutting to accelerate this quarter, as even more streaming options launch? Absotutely. To be clear, we expected the “growth to grow” this quarter if cord cutting is an adoption trend. Which is exactly what happened!

In other words, where everyone is ready to give Covid-19 credit for hurting Pay-TV, I see a trend that is continuing at the same pace. Which is still really, really, really bad for the Pay-TV business. But it would have been bad whether or not Covid-19 happened. Meanwhile, if coronavirus did temporarily accelerate teh trend, when sports return it could reverse itself.

Still, all of this is incredibly uncertain. So we’ll see. 

Data of the Week – Did Coronavirus Save Fortnite/Epic Games?

I’m a bit more bearish on Fortnite’s future than a lot of others. I get it; they’re about as buzzy as you can get. And like Tik Tok, they’re also mysterious to adults. That’s a double whammy for hype. 

Instead of relying on hype or their datecdotes, I look for the data. The news from last week is they passed 350 million registered players. The last update was last March when they had 250 million subscribers.

So what should be the narrative of Fortnite? I’ll give you two options. Then we can look at the data.

  1. Fortnite has grown consistently and will consume the world via it’s metaverse.
  2. Fortnite was declining, then Covid-19 freed up a lot of time for kids.

For the data, start with my article on Fortnite from last year on Linked-In. I projected they’d end up with 300-325 million registered users. So they passed my expectations. (To be fair to me, given the very limited data points my margin of error was fairly wide. I was overfitting the curve to the data.) Here’s my chart of updated Google Trends. See if you notice what happened.

Screen Shot 2020-05-15 at 9.32.12 AM

The explanation? Well, kids are the ones consuming the most content–video and video games–during the Coronavirus. Parents are trying to work from home where possible, but schooling is for the most part not happening. (Is this bad for society? Yes.) Look at this excellent Nielsen chart on it.

Screen Shot 2020-05-15 at 9.33.07 AM

To finish, here’s my line chart of Fortnite registered users. It looks pretty “Bass-y”.

Screen Shot 2020-05-15 at 9.30.24 AM

Without reliable traffic numbers, we’re limited on what we can judge externally about Epic Games. But I will say this: they are one of the winners of Covid-19. 

Lots of News with No News and M&A Update

AMC Theaters Acquisition Target

Yes, a giant tech company is considering buying AMC Theaters, though we have no idea how real this is or if it will happen. Amazon is an unrepentant tire kicker on new businesses and acquisitions. They’ll run the numbers on any acquisition and they’ve been circling entertainment–while largely building their own–for decades. (They own IMDb!) AMC is in huge financial straits, which makes it doubly attractive. 

Could this deal happen? Sure. Could it not? Just as easily, if not more likely.

All The Earnings News

Usually, I walk through the earnings reports news but this quarter is such an outlier that, besides the Disney news above, it just doesn’t make sense this time. Ad sales are down everywhere. Customers are dialing back spending. I’ve called this the “outlier earnings report” and I hold to that. Until things calm down, it’s worth accepting they are and will be bad everywhere.

Most Important Story of the Week – 8 May 20: Two Stories for the Price of One Column

Welcome back to my weekly column! Each week I try to suss out the most important story in entertainment. Since I have several weeks worth of news stories to cull through, this week I’ll have to take care of some house cleaning to start. First,I’ll cover my thoughts on the coronavirus. Then, I’ll briefly touch on the biggest story of last week (the one ending May 1st), since it spilled into this week. Then, we’ll get into the other biggest story of the week.

As for dealing with the Coronavirus, I’ll encourage everyone to read my previous takes on the potential impact of the virus. In short, I’m fairly bearish on the long term impact since it seems like everyone else is so negative. The current hypothesis–this will accelerate underlying trends–doesn’t really seem to be supported by the evidence, as I laid out here and here. It could; it could not; but acting certain seems wildly over-confident. If you want more of these aggressively moderate takes, read about the future of theaters on Twitter here. Or the future of Pay-TV here. (I’ll get to streaming, sports, live events and production soon.)

On to this week.

Most Important Story of the Week (May 1st Edition) – AMC Theaters Goes to War with Comcast

This is the biggest story of the last two weeks. And I have a patented “EntStrategyGuy unique take on it”, but it will be going up early next week at Decider. (It’s not really about the theaters, but why Comcast is waging this fight.)

Still, I have a few thoughts that didn’t make it in there.

– First, as Andrew Rosen has been emphasizing, a lot of this is negotiating in public. So the individual declarations and public relations moves are posturing to get a better result when the negotiating is over. Which means we shouldn’t hyperventilate over some of the specific moves.

– Second, Comcast is going to keep pointing out their great digital sales. But that’s not why they’re making this move. They don’t actually think they replace all their former theatrical revenue with TVOD/EST. They’re real motivation, though, will be explained in my guest article.

– Third, the current through-the-roof digital sales are still a red herring. The Covid-19 crisis is an outlier in historical terms. Meaning we won’t know what the new “normal” is for months. Maybe years. So yes, it’s better to have renewed interest in VOD, but it’s unlikely to stay at this level.

– Last, theaters just make a ton of money. As I wrote here, at least 35% of the total revenue for a given film. That’s not changing, which emphasizes how much is at stake here. Not just for Comcast, but all the studios.

Most Important Story of the Week (May 8th EditionThe Top HBO Max News, Ranked

By the end of this month, the long awaited “HBO Max” streaming service will be released. Will it be much different than HBO? Or just HBO with Friends? We’ll have to wait to judge until it launches. (I’ve said before I’m fairly optimistic it will be a permanent part of the entertainment landscape. And that’s a risk for Netflix.)

As you’d expect, the execs at AT&T have been as busy. Which led to a stream of stories over the last week or so. While each story feels minor, on a whole I’d give all the HBO Max news the crown for the most important story of the last week. Here are the major stories I came across, with them ranked in terms of most important to least important.

  1. HBO Max Gets Apple Distribution
  2. HBO Max Gets Youtube Distribution
  3. HBO Max Gets Hulu Distribution

Distribution is the ignored battlefield in the streaming wars. As I’ve written before, though, it’s the “key terrain”. That’s why Apple and Amazon are fiercely battling for it. Why Comcast wants to get in on the game, and likely Disney too. 

Why? Because if you don’t own the pipes, you’re fundamentally at a disadvantage. This is why Amazon and Apple went to battle for years about who pays whom as they both tried to create the pipes. For a streamer, though, it’s key to getting your service in front of as many people as possible. Which cannot be underestimated. Many services have tried to launch without broad distribution, and they usually don’t succeed. 

HBO knows this, which is why HBO Max is likely going to get broad distribution.

  1. HBO Offers A Price Discount

This was probably the most hyperventilated of the HBO Max stories. Particularly for the skeptics, who view any AT&T news negatively. (Is that position wrong? I mean the name is still terrible.) Will HBO Max pricing be confusing for lots of folks? Definitely.

Is there a simple method for HBO’s madness, though? Yep. As I’ve tried to keep emphasizing when it comes to distribution, the “bundlers” take a cut of streamers revenue. This can range from 30-50%. Which means if a new streamer can get you to subscribe directly through their application they make 30% more money. Which means any slight confusion for customers is easily outweighed by the extra revenue. Not to mention, all the data that comes with the direct subscription.

Given that AT&T is well experienced gouging cable channels  with distribution fees, it understands how to play this game.

  1. HBO Will Have Anime

This news is fairly minor, but still notable in that anime is the one sub-genre of content that it feels like every streamer thinks they can get an edge on. Netflix? Got it. Hulu? Got it. Prime Video? Got it. Crunchyroll-into-HBO Max? Got it. Qubi? Not yet. But wait.

By the end of the streaming wars, every service will have a show by Anna Kendricks and a library of anime series.

  1. Randall Stephenson Is Leaving

One of the biggest forces in consolidation in telecoms is leaving. Stephenson tried to acquire any and everything, from Time Warner cable to T-Mobile to Time Warner entertainment. He successfully got some and was denied other deals.

As a result, is AT&T better off? It’s unclear which is why him leaving is likely a “lot of news with no news” story. We knew it was coming, and if AT&T can get to a post-Stephenson future with an operator focused on customers, the better for them. Whether or not that’s John Stankey, I don’t know. 

Data of the Week – Netflix’s Most Consumed Shows (By Hours) Are Still Library

I came across a press release from a TV producer with Nielsen data on streaming. It turns out the top three TV series on Netflix by total viewing in the United States are:

  1. The Office
  2. Parks and Recreation
  3. That 70s Show

Each racked up over 181 million episode views.

What’s the takeaway? Well, library shows will continue to have big value in this marketplace. Certain great shows drive lots of repeat viewing, which is great for retention for a service. Meanwhile, if those are the three biggest series by viewership, clearly the “Top Ten” metric only tells a portion of the picture.

Other Contenders for Most Important Story

Viacom Tweaking Strategy (Again)

I like to imagine frustrated traditional media executives. They put out a strategy. They get criticized for it. They pivot to the strategy everyone wants. They get criticized for it. 

That’s SuperCBS in a nutshell. Having a multi-tiered streamer would have been confusing for some customers–though I do like having 3-5 different services if they’re differentiated enough–but SuperCBS has decided to launch a larger, more consolidated streaming service. Of course, details are still light. So wait and see continues. 

WME Lay Offs

I’m of two minds about the layoffs at WME. When it comes to “beta risk”, those risks that impact the whole industry, WME is probably representative. Their income streams have dried up during the Coronavirus, especially dealmaking since all productions are paused, and WME has quite a bit of overhead ot pay off.

But the second mind is all about the “alpha risk”, which is the unique factors of WME. And WME, like lots of PE backed companies, is loaded up on debt. Arguably, WME is just crushed by its own bad decisions, not forces bringing down the whole economy.

Subscriber Rebates for Live Sports

I’ve seen the push in my Twitter feed for cable channels to return subscriber fees for not having live sports since the live sports are cancelled. While I’m sympathetic to this argument, most of the money being returned to customers is legally mandated refunds. Not the generosity of spirit of State Farm or USAA. (Though you’d think State Farm was donating this willining.)

Likely, given the multiple complications between sports leagues, force majeur legal interpretations and more, this issue is far from settled. Especially if sports return soon.

Most Important Story of the Week – 10 April 20: Some Quick Bites on Quibi

The common wisdom of the Coronavirus may have calmed down slightly. The hyperbolic take that “Everything has changed”–see Politico here. Or Deal Book this week. Or countless others–has given way to the narrative that, “Recessions/pandemics accelerate trends that were already occurring.”

At first, I bought into this little bit of folk wisdom. Then, as I reflected, I realized I was basing a lot of assumptions on a bit of common sense that frankly, has no evidence to support it.  It’s rebutted mainly with this key question:

Wait, what data/research/experiments/history have shown that recessions or pandemics accelerate trends?

My goal is to arm folks with antidotes to narrative-based thinking. Sometimes that just means calling it out when I see it. The above narrative absolutely falls into that category. Just because some trends may get accelerated in a recession doesn’t all trends do. Then, consider that we don’t have enough data points to justify this thinking. (We’ve had two pandemics and only a handful of recessions in the last fifty years. 5 data points does not a trend make.) Finally, since we don’t actually have any data to support this, it’s mainly used as a tool to reinforce pre-existing biases. (If you’ve long predicted tech/digital will disrupt everything, the above saying simply reinforces your priors without any additional evidence.)

If some of the thinkers/forecasters/soothsayers out there led their pronouncements with “I believe this will accelerate trends”, then I’d have less of an issue. But instead, it’s put as if it’s a proven law, “Since we all know recessions accelerate underlying trends…” 

Now more than ever, predicting the future is incredibly hard. So be careful out there folks. Especially when you come across fortune tellers disguised as experts. On to the story of the week.

Most Important Story of the Week – Quibi Launches. Success or Failure TBD.

Over the last two weeks, if you squint through the news, you could just make out a front page of a website that entirely ignores Covid-19. For example, this week I was able to stack up a series of important stories, none of which are directly Coronavirus related.

The most important story this week has to be Quibi, a big bet in a time when everyone is making huge bets in an age of tremendous disruption. You almost (but don’t) feel bad for Jeffrey Katzenberg and Meg Whitman when they planned a huge $1.7 billion content war chest…and then Apple just quadrupled that on a TV service that is their sixth most important priority.

Yet, this week we all finally got a look at Quibi. And I read a ton of great takes. Here are my favorite insights I came across:

My Favorite Insights from the Interwebs

Quibi has news…which could be an edge by @TZM

Here’s that thought in Tweet form:

As I wrote in my column on live TV a few weeks back, television is a bundle of five different types of programming: scripted TV, reality, news, sports and kids. Actually, scripted TV, reality TV and films all serve roughly the same purpose: general entertainment. Most streamers are entirely focused on general entertainment and kids.

Which leaves a gap for sports and news.

This is another sub-tweet at Netflix. “Neverflix”, as I’ve called them before, has decided that certain content categories will never appear on the service. Like news and sports. Which means there is white space for people to carve time into consumers viewing habits. Quibi having a good supply of quality news could help drive customer adoption. (Peacock could benefit from this too.)

Quibi Needs to Be On TVs by Variety (and others)

Everything in the subscription game comes down to “total addressable market”, an often wildly inflated estimate used to justify skyhigh valuations. Quibi could point to everyone who owns a smartphone and say, “That’s our addressable market.” This would be wrong.

The addressable market is really people who watch TV. BUT! People tend to watch on certain devices. And despite the rise in mobile viewing, a huge majority of TV viewing is still via television screen. Even for kids! This means that the actual targeted segment for Quibi is a fraction of the total addressable market compared to every other streamer. That’s a huge disadvantage right out of the gate. Why artificially shrink your addressable market?

(BTW, this problem just plagued Spectrum, which rebooted Mad About You and plagued AT&T’s Audience Network. And it doomed Microsoft Studios before it started.)

My benefit-of-the-doubt guess is that Quibi prioritized launching on mobile only (Android, iOS) before providing functionality to all living room viewing. Again, I hope that’s the explanation. But it still feels like a miss.

Is Quibi’s 90 Day Free Trial is Too Long? by Kirby Grines

Yes! Especially since all their content is particularly short to begin with, there’s a very good chance customers will be able to watch all they want in those 90 days. Churn is the name of the game in subscription streaming. Notably, Netflix is moving away from free trials globally. 

This seems risky.

It’s Too Soon to Bury Quibi by Andrew Freedman/Alison Herman

I’m giving Quibi a shot and putting them in my ten part acronym for the streaming wars:

NPv-HD-CA-HPQ-Y

Why? Because with the content spend and hype, I think they have a chance. Should they be above Showtime and Starz? Maybe not. But those apps don’t seem to be gaining in customers. Honestly, my upside case for Quibi is 5 million subscribers in a year. Or they could run out of money well before then. Or get acquired. But it is too early to bury them. They have a shot.

My Insights

Another Platform…Another Lack of Library Content

The solution to not having a library seems to be to focus on just having a lot of originals. As opposed to Apple TV+, that didn’t even have a lot of content.

From what I can tell, Quibi is going to start with lots of essentially movies. (An estimated 7,000 pieces of content in year one, but it’s unclear if that counts the 10 minute episodes or not.) If it is, that’s 1,000+ hours of content. Which is good…but that’s over one year. And up to half could be news stories, which isn’t quite the same thing. Add in the fact that lots of content won’t appeal to lots of people and I could see it running out quickly.

Mobile May Just Be a Music/Kids Platform

That was my take earlier in the week and I stand by it. If you look at this quick glimpse at Youtube’s most subscribed channels, then it seems pretty clear that mobile video is not-so-secretly “mobile music videos”. 

The Content Deals…

Quibi has also let it leak that it’s deals with talent are very talent friendly. As in after a few years talent can walk away with their shows scot free. I don’t know if that’s genius or madness, but it’s one or the other.

Is the content good?

I don’t know! And honestly don’t trust any analyst who says they can tell. Critics can tell you what is critically acclaimed, but evne that doesn’t hold much sway with customers. Let’s wait a few months for the IMDb, Rotten Tomatoes and Metacritic customer ratings to roll in before we judge quality.

Other Contenders for Most Important Story

Meanwhile, there was a lot of other news! 

Jason Kilar joins Warner Media

The trouble with predicting executive performance is two fold. First, there are so many variables we often fail to account for. Sometimes great executives work for terrible companies and other times terrible executives happen to work in great companies. And sometimes, it’s a bull market so everyone looks good. Second, when it comes to most executives, except for those at the tippity-top, it can be tough to figure out exactly what they did versus what they took credit for. To add a third fold, there is also the complication that some executives are great with the media, and get glowing praise regardless, and others aren’t. (So they succeed, make money for shareholders, just never get heaping praise in the press/trades.)

The hiring of Jason Kilar–of very early Hulu and then Vessel–by AT&T to run Warner Media is a big swing. He’s not a content guy, which could either be a big deal or a nothing burger. He ran Hulu well, but he was also sitting on literally the best asset of all streamers in the 2010s, day-after-air television. I could argue that the fact he didn’t keep pace with Netflix despite having that asset–and have no doubt it was/is a huge asset still–is as much an indictment as a credit.

But then the context. Sure, he had those great assets, but he was also stuck in a super messy joint venture, trying to please multiple masters in a cash burning industry that is streaming. Could many executives have thrived in that context? 

Then he launched Vessel to acclaim, but it was eventually acquired by Verizon and shuttered. That point about acclaim should give us the most pause. (And a bit of worry for Quibi too!) 

To top it off, well his press is too good for the accomplishments. I’ve heard his praises sung for years, but again he ran Hulu 8 years ago. Now, it could be because he is the real deal and watch out Netflix, Disney and Comcast, Kilar is coming. Or…it’s just really good press. (He could be the “Kenny Atkinson” of the NBA, for the Bill Simmons super fans.)

We’ll see. My 95% confidence interval in predicting his success or failure is pretty wide.

Disney+ Launches in Europe; India…then Gets 50 million Global Paid Subscribers

Well, Disney+ is firmly ahead of all analyst estimates. Notably, after launches in India and Europe, they’ve now passed 50 million subscribers globally. Someday, they’ll add Hulu subscribers to these numbers too. 

Frankly, even as a Disney super fan I didn’t think they’d do this well this quickly.

Apple and Amazon Strike a Deal

Someone called them frenemies. I think that’s actually too close. I wouldn’t have called Russia and Germany “frenemies” in the lead up to World War II. They were just two enemies who had paused hostilities temporarily.

That’s the same situation for Apple and Amazon. Both run platforms (iTunes/Amazon Video) that sell VOD. Both have streaming TV sticks. Both have streaming platforms that want/need to be on the other’s streaming devices. And they fight like cats and dogs to take as much money from the other as possible. But for now Amazon Prime users can buy shows and movies on Apple devices. Presumably Amazon doesn’t have to pay as high of a bounty as Apple usually demands for in-app purchases. (Normally it’s 30%.)

Still, a big deal for distribution purposes. That Amazon lack of in-app purchases has been a thorn in Amazon’s side for a while. (Now we’ll see if Amazon can get the next Fire Phone right…)

M&A Updates

Sprint/T-Mobile Closed

Going from three to four cellular phone providers is a big deal for customers. (Mostly bad.) Given the role mobile plays in connecting customers to streaming–and the fact that they all provide free streamers too–this is a key move for America. We’ll see how it works out.

Univision Was Sold

This happened right before all the Coronavirus news, but is worth noting, given how popular Univision is, and how far it has fallen in value. Being a broadcast only option just isn’t valued by the markets anymore, and for good reason.

Most Important Story of the Week – 20 March 20: Coronavirus and Pay/Linear TV…Boom or Bust?

You can tell we’ve hit peak coronavirus coverage when you see the headline “Did Disney predict the virus?” Because the film Tangled features a “quarantined” character in a town called “Corona”. Yep.

In more serious coverage, the predictions that coronavirus is “no big deal” have shifted to “we’ll be in lock down for 9 months” and folks are as confident as ever. Meanwhile, everyone is quite confident in all their predictions. 

I’m not. So my public service is to try to separate what we know from what we don’t in the entertainment business in the age of Covid-19.

Most Important Story of the Week – Linear/Pay TV…Boom or Bust?

In case you missed it last week, I picked a few tools to use to try to figure out how the coronavirus is impacting various parts of the video value chain. Including:

– Ignoring Narratives vs building out scenarios
– Demand, Supply and Employment
– What we know vs what we don’t
– And “what will change” and “what will stay the same”.

If you want a good example of how narratives can take us in the age of Coronavirus, consider Pay TV. This could simultaneously be the end of Pay TV as we know it or a boom time for live TV.

Narratives

Let’s start with the most extreme narrative: This is the death of Pay TV. Lest you assume this is the type of hyperbole only left for social media, here’s a Bloomberg headline with itScreen Shot 2020-03-22 at 3.12.58 PM.png

Note the question mark, but this still captures the feeling. The narrative goes: as consumers cut spending due to the impending recession, it will hasten cord cutting. In short, less folks will subscribe to traditional linear TV bundles than before. 

Of course, this trend was going on before the Coronavirus pandemic came to American shores. So will a widespread “quarantine” and consequent recession accelerate, decelerate or not impact the rate of various cord trimmings? What do we know and not? What are we guessing and what are we confidently estimating?

Demand

TV content falls into five rough categories: Scripted. Reality. Sports. Kids. News. I’m not breaking new ground, but that’s how I’ve always thought about it. So how does coronavirus impact demand for those five areas? 

Well, it may cause demand to go up for the first three categories, scripted, kids and reality TV. There is some evidence to support the idea that folks stuck inside turn to more TV consumption to pass the time. This includes films and peak TV series and cheesy reality shows. It will all benefit. So the first few categories should benefit from quarantine.

Given that this is a natural response to be stuck indoors, this is where the “death of pay TV” thesis starts to look shaky for me. Or at least contradictory to the other big narrative “quarantine and chill”. Especially when many folks predict both narratives simulaneously. For both theories to be true requires folks to “watch more streaming” but simultaneously “watch less linear TV”. From a strictly demand perspective, it’s unclear how linear TV doesn’t benefit from increased consumption as much as streaming. In fact, the initial data says both streaming and linear TV are both up.

Notably, it’s not up as much as you’d expect. A healthy chunk of people are still working, just from home. Another chunk have likely added other distractions or hobbies to the mix. But overall TV viewing is up, along with streaming viewing. Demand-wise, they’ve both benefited in the short term. 

Will it last? I doubt it. This doesn’t feel like a permanent viewing behavior shift to me; simply a function of not being allowed to go outside one’s home. Same with kids content: if you force a bunch of kids to skip school, parents will have them watch more TV, especially if the park is closed. When folks go back to work and kids go back to school, it feels more likely that demand returns to normal, not some permanent shift.

Arguably, if supply constraints weren’t present, we’d see a ton of demand of the fourth category too. If sports were available (see supply), that’d be a huge amount of viewing right now. A “not cancelled” March Madness would have shattered records if they could have held it with all 300 million Americans stuck at home. In other words, demand for sports hasn’t abated, just been shifted to other topics. (And meanwhile, most streaming doesn’t have sports programming.) As it is, sports channels have seen ratings plummet:

(My big curiosity? Does some of the sports/demand for competition get shifted to pseudo-competition series as in reality game shows? Top Chef is coming back to the air. Survivor is in mid-season. Even MTV’s The Challenge is coming back in April. Maybe they grab some of that demand for competitive sports.)

As for news? Well, this is the big area that streamers just can’t compete. (For now.) If you want to hear the latest Los Angeles or New York City public announcement on Covid-19, you have to turn to a local station. Frankly, a cable subscription is the easiest way to do that. And the initial data suggests that folks are indeed watching more news content than before. (And I’d expect this too to revert back to “normal” after Coronavirus worries subside.)

Add it up? Well, on the demand side there seems to be plenty in favor of linear TV in “raw demand” terms. Obviously, though, actual sales are a function of price compared to demand. Does a pending recession obliviate pay TV?

Maybe. A recession crunches wallets, which in turn forces high priced luxuries to go by the way side. “High priced luxury” is a pretty good description of cable TV at this point compared to other digital options. So will folks continue to pay outrageously high cable and satellite bills as they get laid off? Maybe. Especially with the proliferation of other options. We know cord cutting is coming. The statistics back that up.

But to make this prediction implies a pretty substantial prediction about the impending recession. And how deep it will be. And whether the cable companies offer cheaper bundles in lieu of losing subscribers or stick to the current business model. In other words, a host of variables (that few folks can predict). 

(Not to mention cord cutting is a misnomer as many more folks “cord shift” or “cord shave”. Turns out cord trimming is complicated.)

I’d flag all this as a big “we don’t know.”  If the recession continues through the end of the year, absolutely that could accelerate cord cutting, though it may be taken up by cord shifting. If the recession is short? Well, the desire to keep things the same may not have the same impact.

Supply

Again, with coronavirus, the pandemic is unique in that it can wallop both demand and supply. 

Coronavirus started by hammering the TV production industry. If groups of more than 10 people can’t get together, well you can’t make a TV show. Period. Right now, nearly every television production is on hold.

The question is how this plays out over the next few months. An extended shut down means that TV will mostly go to reruns or shows—like many reality shows—that were mostly already recorded. However, by June, if production hasn’t resumed on some basis—I imagine at least reduced staffing for the foreseeable future—than linear channels may run out of content.

How long does this last? Well, I’ve seen predictions from 6 weeks to 9 months of shut down. That’s a huge range.

Moreover, it violates the most common mistake in economic forecasting, which is that actors adapt to their surroundings. Productions are shut down because they can’t film in groups of more than 10. But at a certain point, you’d have to imagine that studios and production companies will get creative with how they shoot TV shows or ask for exemptions. Or figure out ways to screen employees. Yes, it may be a while before things are back to “normal”, but shows could return faster than you think. 

I’d apply this to the other big supply constraint, the lack of live sports. Honestly, sports could have the quickest rebound of all TV content. Yes, while it’s unlikely that 10,000 people will get together to watch a game in the next couple of months, to film a basketball game all you need is 12 players on each side, two coaches and the referees. And camera crews. Yes, that’s a lot of people, but way less than 10,000. Could the NBA ask for exemptions with strong testing to get games in front of folks? I imagine so.

Will they? Will TV productions get creative? Maybe. Maybe not.

There is one other huge supply constraint that is honestly the biggest threat to linear TV, and it’s usually the area that soothsayers predicting the demise of Pay TV ignore: advertising. If a recession comes in and comes hard, one of the first areas every business cuts is the promotion and advertising budgets. This could hurt everyone from social media to Google to linear TV.

Yet, linear TV also has all those eyeballs and an election on the way. Still, its the biggest “supply” constraint to watch for TV. How do linear advertising payments shift? I don’t know which way it will go, but it will likely have the biggest impact on the future of this industry.

Employment

In some ways, linear TV will have less employment impacts than theaters. Theaters have a mass of low wage employees out there every day. Networks have a lots of people, but not like that. 

Still, the economic impact on the below-the-line workers will likely have the biggest impact. They are the economically most vulnerable and will stay so in a recession.

I’d add: I can see remote productions have even more trouble in the future, which could help Hollywood. If actors don’t feel like boarding airplanes for film/TV shoots, the natural location is old-fashioned Hollywood.

Strategic Recommendations

1. Begin quarantines for sports and talk show staffs, if possible. If folks are quarantined together, they can’t share the disease, but they can generate content. “Getting creative” is always my go to advice for companies. And there are ways to get SNL, the Late Shows and other comedies back on the air in an age of “reduced quarantine”. It requires thinking how to do it and figuring out creative ways to house employees early.

2. If I’m cable, get more aggressive with skinny bundles. Cut the fat, and blame it on coronavirus. Folks will still want news and sports. Fortunately for the cable/satellite bundles, the streamers don’t have any real sports or news capability. So skinny linear bundles can fill that need.

3. I see an edge for vMPVDs too. Really, those are just the nu-cable bundles. (vMVPDs like Hulu Live TV or Youtube TV). They can also offer the sheer tonnage of scripted/reality shows that folks want along with sports and news. So price discounts for those will make a lot of sense. 

4. Lean in to reality when the quarantine ends. That’s the quickest way to get lots of content back on the air, while getting scripted series back on the air.

Other Contenders for Most Important Story

Quibi!!!

It’s no secret I’m hugely skeptical of Quibi. At the core, it’s because they are avoiding an entire method of distribution, which is living room TV. For all the growth in mobile, I just don’t think you can be viable without TV sets in your arsenal. The latest news is that Quibi is offering a 90 day free trial, which will the longest in the industry. We’ll see if it works. I’m still more bullish on HBO Max and Peacock with their huge libraries. Especially in an age of quarantine.

Crowded VOD

Last week, Universal was moving some films to VOD early. This week it became a flood with Onward joining Rise of Skywalker joining Emma (and then Lovebird went straight to Netflix via Paramount). On the one hand this shouldn’t be too surprising, since these films weren’t going anywhere in theaters. (Variety has a good list of how everything has moved.)

But part of me thinks this is still pretty shortsighted. If we are in for a long lock-down, come May a studio could really benefit by having these VOD launch weekends all to themselves. Crowded weekends aren’t good for film, TV or VOD. In the long run, will this be a huge impact? No, but I think some of the studios are rushing.

Most Important Story of the Week – 13 Mar 20: Love (Films) in the Time of Coronavirus

The most important thing in this time of crisis is to focus on staying healthy and being good citizens. So don’t hoard food, avoid public gatherings, and try to donate blood.

Still, the economic consequences will quickly become as real as the pandemic ones. This is really what we pay CEOs for; not how you govern in times of booming stock prices, but times of crisis. 

For the next few weeks, since Coronavirus will dominate the news coverage, it will dominate this column too. I plan to run through how all the parts of the traditional and digital video value chain could be impacted. 

Image 7 Video Value WEb

Emphasis on the “could”, because in times of crisis there is a lot more we don’t know then do.

Most Important Story of the Week – Hollywood Pauses Production; Theaters Begin to Close

In my last weekly column, I speculated that the Coronavirus Pandemic had finally reached the “economic consequences” stage. Arguably, I was too late to make this warning very useful. But if any doubters remained, last weekend cinched it. Every big film moved out of the Q2 time period and nearly every major sporting event was cancelled. This week—I’m dating this for the 13th of March, but posting on the 17th—most major theater chains have closed.

Still, I hedged. Especially about predicting what would happen to entertainment companies.

Indeed, I tried to commit to the position that I wasn’t going to forecast the future. Why? Well, it’s impossible.

Which hasn’t stopped folks of course. Within the swarm of actual news came the opinions you’d expect, usually verging on the apocalyptic. “This is the death of theaters” being a typical example.

How do movie studios banking on theatrical releases handle that uncertainty? Well, they have quite a few strategic options. Given that theaters are the most visible part of the video value chain, we’ll start this mini-series there.

Before that, though, a rant…

Probabilistic Scenarios vs Narratives

The biggest “narrative” impacting actual stock prices goes like this…

…the impending quarantine will leave Americans (and the globe) stuck at home.
…Americans (and the globe) like Netflix.
…Therefore, they will binge a lot of Netflix.
…So Netflix wins the coronavirus sweepstakes.

Um, maybe?

Like most things “Netflix” when it comes to the narratives the only thing larger than the impact of the narrative is the stridency of the belief. Once the “Quarantine and chill” narrative started, it quickly went from “hypothesis’ to “thesis” to “inevitable outcome”. 

But consider this: if all the studios have to freeze productions, and Netflix is a studio, then they will have to freeze productions. While that could definitely help Netflix’s near term cash flow, it also would kill the new content used to bring in new customers. Speaking of cash flow, if credit markets freeze up, then getting new high yield debt could be tricky. 

Or consider this. With the impending budget cuts, cable MVPDs may aggressively cut prices to keep customers around in a pandemic-cause recession. They know folks are stuck at home; don’t let the recession kill your business.

Or this. Free, ad-supported streaming TV service (FASTs) may actually take up viewing. They have the same volume as Netflix for a better price: free. Or Twitch. Or Youtube. Both free too.

Which one of those scenarios will happen? I don’t know. Maybe all of them. Or none of them. We’ll need to set up good metrics to measure the signal of what’s actually happening with customers, not the noise of social media.

Which is my point. While narratives feel good, they don’t tend to make good strategy, since they tend to reinforce stereotypes and biases instead of generate insights and understanding. We need a more systematic approach. Which is what I’ll try to provide. (And I’ll get to Netflix in the streaming article.)

My Tools for Understanding Coronavirus Impacts

To try to think about Coronavirus strategically, I ended up pulling out three tools that I’ll use together.

– Supply, demand, and employment: The impacts of the coranavirus are unique in that they impact both supply and demand, making this a unique crisis.

– What we know; what we don’t: In times of crisis, it’s often good to separate what you know from what you don’t and what you believe from what you assume. Otherwise, you’re likely just building a narrative that reinforces existing and preconceived biases.

– What could change permanently versus what is temporary. This ties back to my “question of the year” I speculated before we started. The question was, “With streaming, what is the same and what is different?” This same question applies to the Coronavirus: what is a temporary change in circumstances, and what could lead to a permanent change in how we consume content and entertain ourselves?

Along the way, I’ll try to call out the biggest narratives I see emerging and I’ll conclude with my tentative strategic recommendations. These are the strategies I’d pitch to CEOs if I worked at a theater or a film studio.

Theatrical Film Going – The Narratives

Theaters hold a special place in the entertainment industry’s heart. For as much as it is being displaced by streaming it still has that “je ne sais quoi” embodied by the Oscars every year. That experience of going to a theater to see a film with a bunch of strangers on opening weekend. And for my money, big budget epics just look better on the big screen.

But how will the industry fare in the Covid-19 times?

I’ve seen a few narratives. Most prominently, is the “This is the death of theaters” theory. Theaters had merged for several years, then spent significantly to upgrade the experience (better seats; alcohol). Meanwhile, theaters have always been a low margin business even in the best of times. While those are true facts financially, the narrative piece seems to be the prediction that somehow customers will turn against theaters as an experience. 

Will being stuck inside for 8 weeks really prove to Americans how little they enjoyed going to theaters in the first place?

Let’s dig in. 

Supply

What we know: Supply gets hit in two ways. First, theaters themselves are now closed in Los Angeles and New York. This will likely spread to other states and cities. Obviously, if folks can’t go to theaters, they can’t see films in those theaters. As of this writing, most major chains have gone dark and most films scheduled for Q2 have been postponed or moved to VOD.

As for release calendars, we know that studios are now getting creative. Some films have moved back to later in the year, some to 2020, some up to VOD and some indefinitely. As a result, we can say that the end of 2020 and start of 2021 will likely be fairly crowded release calendars.

What we don’t know: How long theaters will have to stay closed. As of two weeks ago, it looked like April was gone. Then last week, most would have predicted though the end of May. Now June and July and beyond are on the table. But this crisis is moving quickly, so if by the end of April cases start declining, who knows? Maybe June is available.

The bigger unknown is what happens to the release window now. While Universal has “broken” the theatrical window with Trolls and The Hunt, they have a pretty damn good explanation: theaters are literally shuttered. It’s not breaking a window that doesn’t exist. Some studio chiefs likely would like to experiment with smaller theatrical windows like NBC, while others, especially Disney, like things the way they are. I personally wouldn’t be confident predicting the future of the window in either direction.

As for release calendars, even these are pretty unknown. A few weeks back Richard Rushfield wondered aloud if any big budget films would venture to streaming. There are big financial differences between VOD—which has great unit ecnomics—and straight-to-streaming, which doesn’t. But more than anything none of these moves sets a precedence. 

Meanwhile, studios will be desperate to get films in theaters. Especially blockbusters. Studios make roughly $5 billion from domestic releases alone. You can’t remove $5 billion and expect the same level of production. Globally tosses in another $15-20 billion. And remember, the economics are much better in theaters than even VOD.

Demand

What we know: Honestly? That folks like going to big budget movies. But we also know that America is afraid and as a result no one is going to the theaters. 

What we don’t: How folks will feel about movies in the future. This is a classic narrative you can build to support both sides. Maybe the Coronavirus creates a new normal where Americans decide to permanently live sheltered in their homes. Streaming satisfies all their filmgoing needs.

Or maybe after a two month quarantine, stir crazy Americans flood back into theaters to escape their home. Maybe the theater experience really does have something to it. (Most theater attendees have Netflix right now!) That feels more likely to me. But when and how and if this can happen we don’t know. And how theater attendance fares in a potential extended slump is another unknown.

Meanwhile, if theaters do go bankrupt in the quarantine, the impact on demand could be felt in the death of super hero films. Frankly, without home entertainment and theatrical releases powering billion dollar grosses, major studios will have to cut special effects driven films. What type of content will replace those films, if anything? Will folks miss super hero content when the next round of streaming series don’t have quite the same budgets?

Employment

What we know: Well, theaters employ lots and lots of people. From staff taking tickets to contractors cleaning the theaters. If there are no show times, there are no jobs to be had. And unlike sports teams which could choose to keep salaries going for the foreseeable future, theaters run much tighter margins.  

What we don’t know: What happens to these workers in an extended slowdown. 

My strategic recommendations

Since I started writing this column last Friday, things have already changed. The headline of headlines being that Universal broke the theatrical window.

1. Get creative. The Troll World Tour move to VOD makes a lot of sense. (I’m honestly surprised the price isn’t higher.) I’d recommend this for lots of films that are in this window; triage for what can go to theaters later, what can go to streaming now, and then theaters later and what will go to VOD never to emerge.

2. Be prepared for a “summer snap back”. If the virus is under control, I think August could shatter records as folks desperate for distraction seek entertainment out doors. This requires a lot of things going right, but seems on the table.

3. Assume a government intervention. Or reach out directly. Part of the reason I don’t think the window is irrevocably broken is that thousands of theaters going out of business would put tens of thousands of folks out of work, which would exacerbate the impending recession. If you can get a bail out for lost blockbuster revenue, VOD seems more attractive. 

Other Stories

Well that was the big story, but some other new stories were there too.

Netflix Biz Model Keeps Evolving

First, Netflix ended 30 day free trials in Australia. If I had to speculate? Well, churn is the name of the game. Second, Netflix is expanding their very cheap $3 plan to new territories. If I had to speculate? Subscribers are the name of the game.

Pixar’s Onward Stumble

If I’d gotten this column out on time last week, I would have noted the soft weekend opening of Onward. The most obvious explanation? It was Covid-19 worries. But the film felt like it had soft buzz even before it came out. Why is this big news? Well, I’m monitoring Disney Animation/Pixar for the first sign of stumble post-Lasseter exit and that was Onward. One is a data point, so we’ll look to Soul for a trend.

Fox Sports Brings Back Written Content

The “pivot to video” may be the worst strategic decision universally adopted by media since the dawn of the internet. And no surprise Fox has slowly reversed itself. Now if only ESPN would make their website more functional to read their great writers.