Category: Weekly News Update

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.

Most Important Story of the Week and Other Good Reads – 17 August 2018

For some reason, last week seemed like it started with a lot of news. But then as the week went on, I saw more popular news stories than impact news stories. And I went so far down an Oscar rabbit hole that this post got delayed until today.

The Most Important Story of the Week – Netflix CEO David Wells Steps Down

Why is this important? Well, CFOs get too little credit. Not “finance people”, mind you. The former get too little credit; the latter way too much (and way too little blame for our current politico-economic situation).

CFOs can do a lot to power a company’s rise, especially when it comes to Wall Street perceptions. And the FAANGs have done a lot to curry Wall Street favor, rightly or wrongly. Time will tell.

That said, Netflix has always struck me as the riskiest of the FAANGs when it comes to money. They lose cash, which makes them unique among those five giants in tech. Again, not profit, which they profess to make every year and quarter. Instead, alone among the FAANGs, Netflix loses tons of cash each year, while it professes to make a profit. Some FAANGs have tons of cash in the bank (Apple and Facebook), some don’t make a profit (Amazon) and some make a lot of profit (Apple and Google). But only Netflix loses lots of cash each year.

Their CFO was very involved in that decision. So him leaving is notable. I’d also say the CFO for Netflix was very influential in deciding how Netflix amortized the costs of its programming. I’d argue their clever, but legal, amortization schedule has convinced the entire world that filmed content is a good business, and the other FAANGs followed their lead. Again, time will tell.

Lots of News with No News – Walmart launching its own subscription service

Sorry, did I say that Netflix convinced the FAANGs to make original video? Well, now they’ve convinced Walmart to do it too!

So what keeps this from being “Lots of news with no news”? Well, it hasn’t officially happened yet, and I tend to wait until it does until I officially react. The previous example that comes to mind for me was when Microsoft launched Microsoft Studios, spent something like a hundred million dollars, and then shuttered with nothing much left to its name.

So let’s react to the Walmart news in the same way, with a healthy dose of skepticism that this ever actually launches. My “blink” analogy would be naturally bearish/negative. Unlike Google or Facebook, people aren’t used to going to Walmart’s website to watch videos, so having a huge website won’t help. (This problem I would argue impacts Amazon Prime/Video/Studios as well.) Unlike Disney or AT&T-Time-Warner-monstrosity or NBC-Universal, Walmart doesn’t have a content library to see the SVOD platform. Unlike Amazon, Google or Apple, Walmart doesn’t have an army of programmers to set lose on this problem. So that’s three strikes off the bat. If this progresses, I’ll try to dig a little deeper.

Long Read of the Week – Time-Warner’s Previous Owner

New owner same as the old owner?

That could be the conclusion of this article from three years ago about AOL’s unsuccessful merger with Time-Warner on the fifteenth anniversary. I found it searching for M&A examples in my database and loved it so much, I decided to make it my long read for the week.

It’s almost impossible not to compare the similarities between the AOL of old with the AT&T of now, both acquiring the same content company (or similar content company) for HUGE sums. Let’s start with the similarities, including some great quotes.

First, what did people at the time think?

“A lot of people thought that the merger was a brilliant move and worried that their own companies would be left behind.”

What about the strategic logic?

“Time Warner, via AOL, would now have a footprint of tens of millions of new subscribers. AOL, in turn, would benefit from access to Time Warner’s cable network as well as to the content, adding its layer of so-called ‘user friendly’ interfaces on top of the pipes. The whole thing was “transformative” (a word that gets really old really fast when reading about this period).”

What about the two cultures combining?

Merging the cultures of the combined companies was problematic from the get go. Certainly the lawyers and professionals involved with the merger did the conventional due diligence on the numbers. What also needed to happen, and evidently didn’t, was due diligence on the culture. The aggressive and, many said, arrogant AOL people “horrified” the more staid and corporate Time Warner side. Cooperation and promised synergies failed to materialize as mutual disrespect came to color their relationships.

So on to the differences to be fair. (And these weren’t really pulled out in the article.) First, the Time-Warner of the past actually had a cable company to their name, and that was spun off after AOL collapsed. Further, the acquirer in this case definitely has a more stable financial position as AT&T has a lot of people paying it huge monthly subscriptions in broadband, wireless or satellite. That alone makes it different. I’d also add the concerns about culture this time seem to be more about the Warner side being concerned about the AT&T people versus the opposite situation in the previous iteration.

That said, the foundational logic just seems so similar, and again, I can’t wait to look back on this deal to see how it all shakes out in 15 or 20 years.

Listen of the Week – HBR Ideacast on “Learning from GE Stumbles”

We’ll keep with the mini-theme on mergers & acquisitions. This HBR Ideacast on General Electric should just serve as a caution that M&A that helps reinforce strategic advantages is good M&A, but M&A isn’t a strategy in and of itself. With all the talk about Disney and Fox and AT&T and Time-Warner and Viacom and CBS, it’s a good lesson. GE went from being a cash machine and M&A beast to being removed/replaced/delisted from the Dow Industrial Average.

Could AT&T or Comcast or other aggressive media & entertainment firms suffer the same fate? Time will tell. (I guess another theme of this week.)

Most Important Story of the Week and Other Good Reads – 10 August 2018

I love it when the “most important story” ties directly into the topic I’ve been writing about a lot since July: “mergers & acquisitions in media and entertainment”. Call this the “Updating Your Priors” edition of my most important story.

Most Important Story of the Week: An M&A Tidal Wave…Stalled

The great thing about the analogy of the tidal wave is the unstoppable nature of it. If you want a real life version of the “immovable object versus unstoppable force” it’s a tsunami heading towards land. Unstoppable force hits immovable object.

So how could the AT&T decision have unleashed a tsunami if it’s already been stopped? Hardly an unstoppable force, I’d say.

First, the FCC came out opposing the Sinclair/Tribune merger. Or more specifically, it sent the deal to an administrative hearing, which ended up killing the deal. By Thursday of this week, Tribune withdrew from the deal. Then the Justice Department decided to appeal the AT&T-Time Warner merger decision, even after the judge strongly discouraged the DoJ from filing an appeal. (Though, consider the logic of that, shouldn’t every judge insist you don’t appeal their decision?)

Imagine a world where the DC Circuit appeals court overturns Judge Leon’s ruling. Imagine if Sinclair abandons it’s Tribune merger. Does the narrative suddenly shift that M&A is doomed in America?

Nope.

Back to my admonition above to “update your priors”. No single news story should swing the narrative from “M&A will be a flood” to “M&A will ground to a halt”. Instead, all these moves and counter-moves are just a part of the regular ebb and flow of M&A. The largest force in M&A is the general trend towards consolidation in general. The current tax and regulatory environment are just the current drivers.

Moreover, the overriding “tsunami” changing all regulatory agencies in America is still Donald Trump. He and his administration are enforcing the law haphazardly and primarily due to whoever courts his or his party’s favor.

Added Thought: This is Sinclair’s Fault

This quick summary of the legal issues by Eric Gardner was the best summary/history/legal read I saw on the Tribune-Sinclair issue. The issue for me seems like one of over-reach by Sinclair. They, in my opinion, over-estimated the value of the Trump nomination and how easy it would make to flount or skirt the laws related to media ownership. And it backfired.

Lots of News with No News: The Oscars Is Adding a Category Called “Popular Film”

Listen, I loved this story. As a fan of the Oscars. But is this an “important” story in that it will impact how entertainment studios do business? Barely. There might be more of a push by the big studios to get popular films some Oscar buzz, but the size of that buzz is already baked into these films. In most cases, blockbuster films have been out on DVD since Christmas by the time the Oscars get nominated. Also, arguably only the Best Picture category really generates buzz. Add on top none of this may happen, and you have a story with a lot of fun news, but not a lot of news.

(I will still try to dig into the economics of it next week.)

Data of the Week: “Open” Offices aren’t effective

One of my favorite types of news stories to debunk is the one that leaves out the most obvious example. Take the fun story of the last few weeks about the study showing that open offices may not actually help foster collaboration. Most of the takes on this study tried to explain why “open” office floor plans have proliferated, offering these explanations:

– They foster collaboration.

– They look better than cubicle farms.

– They’re less dehumanizing than cubicle farms.

I have a simpler take: They take up less square footage than cubicles, which were already cheaper than offices. This is why most people moved to open offices, and the above reasons were just the window dressing.

Still, I have one giant caution. So Harvard Business School–or professors associated with it–conducted a study showing open offices don’t work. Could another group of professors do a study showing the opposite? Sure, and they probably will. This doesn’t mean the new study isn’t useful and research we need, but it doesn’t end the discussion, which is how the article sounded.

Most Important Story of the Week and Other Good Reads – 27 July 2018

So this post was supposed to go up last Friday, like usual. Then all that stuff happened. All of it with Les Moonves. So I took the weekend to think about it, waited to read some takes, and then decided how I felt about it.

It isn’t the most important story of the week…though it could be. So enjoy the “Most Important Story” of last week, two days into this week, with some other good reads.

Most Important Story of the Week: MAUs, user growth and metrics impact Social Media

I write a lot of “zero drafts” of post ideas, many of which don’t come together into a coherent whole. The ones that do become drafts, and I then try to get them scheduled on the calendar. The problem is that bigger articles like my series on Lucasfilm and M&A in media and entertainment can suck up a ton of time and posting space. So I don’t finish those other articles.

All of which is to say I have a few great ideas on metrics and how we measure the consumers of digital video on the internet. Posts that have been written and rewritten, but not published yet on this site. So I feel like I’ve told you, the reader, those ideas, but I haven’t.

I have a lot of ideas on metrics, especially those ideas on video and social media viewing, but I haven’t told you them yet. And this little post isn’t enough to do that.

So the news before Les Moonves was dominated by the Facebook stock dive, and some people saw the Twitter stock decline too. I’d also pair them with the ongoing user growth struggles of SnapChat. To put those two stories in context, I should really post my larger thoughts on metrics and how unreliable they are.

The media may finally be tamping the breaks on the metrics reported by large social media companies. This is a great thing. As long as we don’t have consistent ways to measure user behavior (do we care about members? Active users? Subscribers?), then a lot of Wall Street, Silicon Valley and Hollywood will be seduced by misleading press releases and public comments into thinking social media is doing better than it really is. This can really easily lead to bad decision-making.

Do I think big social media companies are disappearing? Heavens no. But this may be the beginning of the hype getting closer to the reality.

Other Contenders for Most Important Story: The Three Firings Related to “Me Too” and Behavior

If I had to put the three firings in order, I would do it like this: Les Moonves, Amy Powell and then James Gunn, with about ten five slots between the second and third entry. The only reason any creator ever gets a high ranking is when they are in charge of a billion dollar movie franchise, which Gunn is. If the cast decides not to do Guardians 3 without Gunn (a maybe), then that’s important.

But Powell and Moonves are obviously bigger stories. The only reason they aren’t more important than the stories above is that they are unsettled. Moonves has an investigation to go and Powell is suing Paramount. I want to see how those play out before I make the call on most important event.

Good Read – App Game Giants Crushing Independent Games

This Engadget article by Jessica Condit is just fabulous journalism. A great personal story about how a clever and fun looking game hasn’t even launched but has already been ripped off. Reading to the end I think capture the challenge of this from a regulatory perspective: there aren’t good solutions to this injustice (besides buying the games of indie developers and not paying for ripoffs). If you allow game designers to own in-game elements, arguably first person shooters and platformers would be owned by Nintendo or EA. That would make a less rich gaming landscape.

Any business or strategy implications? Maybe for Apple and Google and other app websites. The key should be customer experience and my gut is that as large as some of the casual gaming companies, they don’t generate as much value as you would hope.

Good Read – On the battle between Iger and Roberts (with Murdoch as the prize)

Yes, the titanic battle between entertainment and distribution giants will probably end sometime this year, but it will be fun to watch it play out. This Variety article has the best description of the players involved. In all, I found Roberts came across the least flattering. The descriptions of him focusing on making the deal but avoiding the details just seemed…odd. That said, it’s hard to argue against his deal-making except for the huge debt load his firm would own if it wins the 21st Century Fox deal. Also, the idea that Disney could walk away if necessary is instructive.

(Though I will mention, this really extended description of the battle between the two waited until the very end to describe the supposed enmity between Iger and Roberts.)

Update to an Old Idea

A few updates back, I called out the “six month summary” of the 2018 theatrical box office as the most important story of the week. That analysis came from Variety, but The Hollywood Reporter has followed up with their own survey with a few unique insights. The headline is that the non-Disney/Universal studios are avoiding releasing in the summer months because of the Disney behemoth. As a result, studios try to launch summer blockbusters year round, even as that strategy gets increasingly crowded. They also have a nice chart on the “seven major studios”, which shows the incredible concentration if Disney or Comcast successfully acquires 21st Century Fox. (But the chart numbers are for summer.)

 

 

Most Important Story of the Week and Other Good Reads – 13 July 2018

Hope you enjoyed a lot of discussion on M&A in entertainment & media, with more to come next week. Here’s my weekly call for the “most important story of the week” and some other good reads or listens.

Most Important Story of the Last Two Weeks – Comcast/Disney/Fox battle for Sky in UK/EU

Listen, I don’t want the most important story of the week to be an “M&A update of the week”. I’ve done AT&T. I’ve done Comcast bidding on 21st Century Fox. I’m sure more will come. So here is another round in the titanic battle between Comcast and Disney. In this round, the prize is Sky TV, which is Europe’s largest pay TV provider. As I follow the latest news, Comcast has been cleared by the UK to bid, and Disney is backing Fox in increasing their bid. More here, here or here. (After I returned from 10 days out of the loop, Comcast dropped their 21st Century Fox bid, but is still bidding on Sky.)

Three thoughts that make this unique or fun for this time around:

We’re going international.

As I collected my data/thoughts on M&A, I found it hard to really look beyond the US shores. I forget that T-Mobile is owned by a German company and Sprint is owned by a Japanese company. But deals do happen where US firms acquire foreign businesses to expand internationally, they just usually have price tags well below the $1 billion mark. This deal definitely surpasses that and signals that as firms look to grow, they may not just consolidate but expand overseas, underscoring how much the international Pay TV assets, like 21st Century Fox’s, are driving the merger frenzy.

It’s not business, it’s personal

To quote George Oscar Bluth. Or technically Michael Bluth. Apparently, Bob Iger and Brian Roberts don’t get along personally. Or as CNN called them, “bitter enemies”. This dates back to the 2004 attempted hostile acquisition of Disney by Comcast, shortly after Roberts took over as CEO. (Disney beat back an attempted takeover in the 1980s by Carl Icahn that resulted in Eisner taking over as CEO.)

Whoever wins will lose?

I mentioned this after Comcast forced Disney to raise their offer on 21st Century Fox by nearly $20 billion dollars: in bidding wars, the winners usually lose. In a lot of ways, this reminds me of NBA restricted free agency or high stakes poker. In restricted free agency–as Bill Simmons frequently mentions–teams can inflate the price of role players, hurting their opponents. Essentially, even if he loses out on the Fox deal, Comcast’s Brian Roberts wants Disney to pay too much for the assets.

Big Data of the Week – PwC Forecast on Entertainment Revenue via THR

Actually, this isn’t big data. Quite the opposite, it’s just a few numbers. From early June. It’s PwC’s annual report on the state of the media & entertainment business and I had been putting off sitting down and reading it.

Now I have. So first the caveat: ignore the headline. Yes, Netflix is changing things, but that’s not the only, or even most important, part of story of this study. Take the total size of the market at $2.5 trillion with a T by 2022. Honestly, I didn’t know that number before I read this story. And it puts a lot of other moves and discussions into context.  What sticks out is that the US will own $836 billion of that market. So is growth overseas? Absolutely, but you can see why US performance is still the straw that stirs a lot of the drink.

And even with Netflix, they’re part of a pie in the United States that will grow to $30 billion by 2022…while traditional cable and pay TV will make up $96 billion. Now one of those numbers is growing (SVOD) and one shrinking (Pay TV) and the trend lines could accelerate. But that’s a huge could and meanwhile Pay TV remains huge.

I’d also add the growth in SVOD isn’t all Netflix or Amazon. It could be HBO, CBS All-Access or Disney’s platform. The key challenge, it seems to me is costs. According to these projections–more on that next paragraph–the US OTT bundle is growing by $7 billion through 2022. Will US content costs grow by that same amount or less? Same question for the global growth of another $10 billion. Every year Netflix and Amazon and Hulu have announced larger and larger content spends. I know Netflix says they will soon be positive in cash and revenue, but if they aren’t…how much money will they have lost by 2022?

Finally, it is fun to see how well the authors (PwC) of this report have done in their past predictions. And I’d say pretty well. PwC plays the media game pretty well for a consulting firm and it feeds these report’s top line summaries to the press every year. In 2015, they forecast that total revenue would be $2.36 trillion…and they’re currently forecasting $2.2 trillion. So only off by $160 million (or 8%).

Listen of the Week

Listen to Ezra Klein’s discussion with Jaron Lanier on his podcast a few weeks back about social media. In Lanier’s opinion (and Klein’s too) getting rid of social media can make you more productive and happier. I would marry this discussion with Ezra Klein’s talk with Deep Work author Cal Newport. I’m a huge proponent of Deep Work and huge skeptic of social media, even as I try to leverage it to launch this website. If I opened my day with email and social media, the deep analysis put into the Disney-Lucasfilm deal and M&A analysis wouldn’t be possible. I couldn’t imagine trying to write with those distractions, so I try to rigorously cut those distractions out of my day.

My favorite line in the podcast–which may have sold me on buying it–was when Lanier mentioned distributions. Distributions!!! Do I have several thousand words explaining distributions? Absolutely, but they won’t be ready for a few weeks. Basically, averages suck compared to distributions. Always look for the distribution, not the average.

Most Important Story of the Week and Other Good Reads – 6 July 2018

Happy 4th of July week! If you’re like me a holiday in the middle of the week just crushes my schedule. But that doesn’t mean we don’t have time for some updates on (what I consider) the most important story of the week and some other good reads.

The Most Important Story of the Week – Sony gives an ultimatum to movie studio head

I’ll give credit to the Ankler/Richard Rushfield for this story. (I hadn’t seen it otherwise.) From the June 28th letter, we found out that Sony has let new-ish boss Tony Vinciquerra and movie head Tom Rothman know that they have three years to get a better return on equity before they sell the studio. As Rushfield, ably points out, their movie pipeline is essentially already built out, so how much better could they make things run?

So why is this the most important story? Well, it encapsulates the history of Hollywood in one movie studio. Or two that merged together. In a way, Sony was the “Amazon” of the 1980s: a huge new firm in a burgeoning industry. This time, electronics instead of technology. And like Amazon or Apple or Facebook or Youtube, the company saw “synergies” in owning content, so it bought a movie studio. Then, the new owner could never figure out how to apply the lessons that helped it dominate another industry to Hollywood. Film-making defies other business logic. Sony could also never quite find the right person to run its new operation and ultimately, had a huge write down for entering this business.

The question is: will the tech companies make the same mistake(s) as Sony? Will the tech companies pay too much for content? Remember–and most deal analysis forgets this–no matter how much of a strategic advantage something is, if you pay too much for something you still lose money. You can absolutely destroy shareholder and customer value by overpaying for an asset.

Other Contenders for Most Important Story

US officially enacts tariffs on China.

The ongoing impact of trade tariffs will be a story to monitor. So far, technology and entertainment have been left out of the fray. That said, a lot of the genesis for why the Trump administration feels hostility for tariffs–China steals IP; China bans foreign ownership–is acutely felt by internet firms. American companies want to do business in China and given the easy ability for tech firms to enter new markets, this stings especially bad. (Though if you’ve ever wondered why Sony doesn’t own a TV network, the US bans foreign ownership of broadcast and cable channels. Imagine a world where Rupert Murdoch never received US citizenship.) Now, I’m still looking more to Europe to see if they will target US media or entertainment or tech companies, but I do think the China tariffs news signals Trump’s resolve to plow ahead with a trade war.

Netflix wins challenge against Fox on lawsuit on executive compensation.

This article popped up in my “Twitter thinks you’d like this” feed. I’m not sure I love that feature, but in this case, yeah I’m interested in that. This is a legal issue that I haven’t read up on–the THR summary is pretty good–but anything that could end a common employment practice (fixed-term employment contracts) that is currently standard feels important. I will add that on initial read, the Fox employment contracts sound very one-sided, which in a rapidly consolidating industry, is both awful and predictable.

An Update to an Old idea

We love crafting narratives. Especially when it comes to our favorite intellectual property. So if the next Star Wars films bombs, it will be blamed on The Last Jedi or Solo: A Star Wars Story or both. Or it will be some combination of critical acclaim and customer feedback.

Or, as Scott Mendelson writes, it could just be because the November/December of 2019 will literally be crazy filled with BIG movies. We could try to assemble a complicated narrative for why Episode 9 will under-perform, or we could just understand it has huge headwinds going against it. Money quote:

November alone will see Warner Bros./Time Warner Inc.’s Wonder Woman 1984, Paramount/Viacom Inc.’s Sonic the Hedgehog, Annapurna’s James Bond 25, Paramount’s Terminator reboot and Walt Disney’s Frozen 2. And then December will have Walt Disney’s Star Wars 9, Fox’s Death on the Nile, Universal’s Wicked and Sony’s Jumanji 3 all likely/possibly opening on or around Episode 9’s Dec. 20 release.

Listen of the Week

So last week I was fairly complimentary of the “listen of the week”, an episode of NPR’s Planet Money’s The Indicator (that’s what I call it) about MoviePass, a company I can’t stop reading about. This week, I’m recommending an episode of “Money Talks”, an Economist Radio podcast. (I subscribe to their podcast feed for all their episodes.)

It’s about Netflix.

Unlike MoviePass, I avoid reading about Netflix. Most articles cover the same spin, and you’ve heard this all before: Netflix is changing the game in content production by spending huge amounts of money. The Economist calls this Netflixonomics.

To their credit, the podcast does ask Reed Hastings on exactly how much money Netflix is losing. The fascinating part, to me, is that Hasting’s answers come across as “disruptive” but are as old as Hollywood. He mentions that costs in TV production are front loaded. Okay, that’s true for blockbusters and big TV series for everyone. He also mentions that one hit can help a network/streaming platform for years. Okay, that’s also true for everyone. Earlier, the podcast mentioned that Netflix is producing shows for a global audience. Okay, that’s true for every studio. (Ask HBO is they’re selling Game of Thrones globally.)

So again, keep a skeptical eye out when you read/listen to entertainment news.

Weekly News Round Up – 29 June 2018

Welcome back to another week of my read on the most important story of the week and some other reads or listens to keep you informed on the business of entertainment.

Most Important Story of the Week – Box Office is Strong in 2018

As I wrote after the Solo: A Star Wars Story opening, I don’t follow weekly box office updates too closely. Or more precisely, I don’t consider them the “most important story of the week” most weeks since there is a lot of noise. Instead, I recommend waiting to judge the box office until we have a large enough sample size to draw a conclusion.

Which we had this week in this Variety article analyzing the box office of the first six months. Yeah, six months is a good time to sit back and observe the trends. So far, driven a lot by the surprise monster hit of Black Panther, the unsurprising Avengers: Infinity War performance and solid openings for Deadpool 2, Incredibles 2 and Jurassic World: Fallen Kingdom, box office is up.

The one question, which I’ll reference in a few seconds, is the “MoviePass” of it all. Is MoviePass bumping up attendance by offering artificially lower prices? As the podcast below says, MoviePass claims to sell 5% of all box office tickets in the US. If the MoviePass effect disappears–if it is real and does disappear–could that hurt box office?

Other Contenders for Most Important Story

First, the Justice Department signed off on the Disney-Fox merger if Disney spins off Fox’ Regional Sports Networks. Again, we’ve covered this deal before, but this step does make the merger immensely more likely. (And as the above article on box office highlights, combined the movie studio would have 48.5% of box office this year, which seems…high.)

Second, another social media platform launched more original video. This time Instagram. I want to shrug mainly because everyone making original TV and we don’t have any real metrics to judge success. Which is a topic for a future article. But this does mean more potential capital flowing into Hollywood.

Listen of the Week

Take a listen to The Indicator discussing the implications of MoviePass’ business model. I think MoviePass is one of the more fascinating stories out there, but it remains to see how big of an impact will it have. (Consider this the fill-in for AMC announcing their own subscription service.)

In addition to a business consultant, the good folks at The Indicator interviewed the CEO of MoviePass, Mitch Lowe. This isn’t necessarily a bad thing–CEOs obviously have a ton of knowledge about the company they’re talking about–but it is a red flag on reliability. CEOs and PR folks are well trained in phrasing everything to pass SEC scrutiny, but presenting the best possible case about their company. So you have to have your eagle eyes to spot misleading data.

And I found one glaring one. The CEO of Movie Pass happily passes along this tidbit: the average MoviePass attendee only sees 1.7 movies per month. As a result, MoviePass is confident they can make money with some additional revenue by the end of the year.

But can we take even that “1.7 movies per month” number at face value? Is that the median or mean average? Wait, which month is it from? Is it a rolling average or the number from last month? Or–and this is where it gets potentially shady–was it from a month selected because it looks the best?

He also said at some point that they are “fast approaching 3 million” subscribers. Again, you could take that a lot of ways from they have 3 million currently paying subscribers or they have huge customer churn (or will) when all the annual subscriptions end.

The lesson? Listen to CEOs, but try to hear what they’re leaving out.

An Update to an Old idea

In my first article, I wrote a sentence that critics have bemoaned the number of franchises, sequels and blockbusters going back to when I first started reading the newspaper. But I couldn’t find a lot of historical examples since the internet isn’t great about searching the pre-internet age.

But Sean Fennessey helped me out with this article in The Ringer laying out the sheer volume of sequels coming out. This headline in particular captures the feeling of so many critics: “The Summer of Sequels No One Asked for (or Even Thought Possible)”. He later said,

“It is the first in a series of movies arriving in coming months appearing out of no evident desire, without the breathless anticipation that the studios have churned out for bigger, louder franchises. They’re crypto-franchises, ginned up without anything better to do.

Weekly News Round Up – 22 June 2018

Enjoy this week’s updates. A little calmer than last week!

The Most Important Story of the Week – Disney Increased Its Fox Bid to $70+ Billion

So I think I mentioned it before, but if you’re enjoying my long “analysis” article on the Disney-Acquisition of Lucasfilm, you’ll love a sequel coming in a few months: “Who Won the Deal, Rupert or Bob? Analyzing the Disney merger/acquisition of 21st Century Fox”. I started it a few months back, and back then the deal was only worth $50 or so billion (with a b) dollars.

Then a judge cleared the way for the AT&T-Time Warner merger, the topic of last week’s update. With ostensibly the path clear for distributors to acquire content creators, Comcast put in a bid on 21st Century Fox (though Comcast itself proved the government wouldn’t stop these deals six years ago). Not wanting to lose, Disney increased their bid.

Honestly, the higher price both makes sense and will likely cause the winner to lose money on the deal. How can both things be true? On the one hand, when I had done my analysis comparing Time-Warner to 21st Century Fox, the difference in value seemed more tied to market capitalization than the value of the existing assets, especially the value of those assets under Disney’s management. (I’ll write about stock prices at some point and whether they reflect economic reality. They do and don’t.)

The downside is paying too much for the underlying assets. Which can absolutely happen in a bidding war and is called in economics the “winner’s curse”. It’s not just an economic theory: when you have multiple bidders on assets with uncertain value, you increase the risk that someone pays too much and it happens all the time. For the winner here, the margin for error in the acquisition has shrunk to almost nothing.

There is one clear winner, though: Rupert Murdoch makes more money either way.

Long Read of the Week – MGM’s $260 Million Payout: Making Sense of CEO Gary Barber’s Eye-Popping Exit

This isn’t the longest long read I’ll ever recommend, but it’s worth it for executives at the top of corporations to really understand the dynamics of this industry. Read Stephen Galloway in the Hollywood Reporter on the $260 million being paid to MGM’s ex-CEO Gary Barber here. Put in complicated terms to put a shine on it: entertainment conglomerates are currently and have always paid top executives well due to market conditions. Put in layman’s terms, top studios bosses get paid a ton, and it’s cause of all the other guys.

I would love to say, “On one hand I get this” but honestly I still don’t. Being a development executive is one of the most in demand jobs in America. There are thousands of qualified applicants. Same with aspiring CEO types. So why are salaries so inflated? And why do they go to executives who aren’t truly revolutionary? As the long read shows, many times these exorbitantly paid people are paid even more to leave.

(It’s also interesting that in this case it wasn’t so much for firing someone for incompetence, but because of a threatened hostile takeover. So it’s not quite the same thing.)

Lots of News with No News

Man, I guess the theme of today’s update is reflecting on future articles. Especially, my long form ones. Well, in another great long form article in progress, I’m going to compare Amazon’s Lord of the Rings and HBO’s Game of Thrones. Trust me, you’ll like it.

So I read a lot of news about HBO and Amazon Video/Studios/Prime, including this one about Jennifer Salke’s new approach to Amazon Studios/Prime Video. My takeaway is she has a ton of relationships so is taking a lot more pitches and hands-on approach then the previous head of the studio. Coincidentally, while reading I saw this article about Warner Bros. new approach to the DC cinematic universe. (As a fan boy I tend to read anything about comics too.)

In both cases I see the same general story that appears in the pages of the trades every few months: a talented and self-confident executive is taking it on their own shoulders to turn around development, and hence the finances, of a movie studio. Ironically, these same stories were written about their predecessors. So, that’s all to say, these types of stories offer a lot of news without a lot of actual news.

Data of the Week

And my final bugaboo, Netflix! Hat tip to BGR for this article from the Exstreamist where they polled how many Netflix users are sharing passwords. In short, a lot of people don’t pay for Netflix and share passwords. This is unlike traditional TV or cable, and honestly, and I’m rare in this opinion, I think this is a bad plan by Netflix. But more on that in future posts.

Most Important Story of the Week and Other Reads – 15 June 2018

Today’s update could be called the “don’t hold your breath” edition. Once we knew that Judge Richard Leon would deliver his verdict on the Time Warner-AT&T proposed merger on Tuesday of this week, well we knew we had our biggest impact news event of the week.

And I’ll get to it. But first I want to provide my recommendation on how to read the news.

Listen, I’m just some guy writing on the internet. You don’t have to listen to me. Even if you don’t take my advice, maybe it will cause you to pause for just a moment to question your (unasked) assumptions. Maybe you’ve thought a lot about your daily schedule and your news diet; if you haven’t, maybe my unasked for advice will help you reconsider it. To make you better.

To illustrate my advice, take my schedule. On Monday, as I was planning my week, I considered clearing my Tuesday schedule to wait for the AT&T decision. I thought, “Maybe I should schedule some time to react to that in real time.” Instead, I went the other way: I deliberately avoided all news on Tuesday and spent the time writing my article on the Disney acquisition of Lucasfilm.

Why?

Because I didn’t need to know the results of the decision right away. In fact, by waiting, I could savor the really quality analysis of the decision instead of the simply immediate news. So that’s what I did. Unless you work at Time-Warner, AT&T, Comcast or Disney, you could wait until the news was digested and analyzed.

You should follow my example. The fastest breaking news is often wrong. The initial story often times doesn’t hold up to scrutiny. (The Masterpiece Cakeshop decision last week was the most glaring example of this. The initial articles failed to capture that even though the ruling was in favor of the baker, it didn’t set a precedent.) That’s reason one to take your time. The second is that breaking news hardly ever is really relevant to your current decision-making. In other words, if you don’t need the news to make an immediate decision, you can schedule it to later. Like I did with this post.

So, avoid the news during the work day, or until scheduled times. And have a deliberate news reading strategy that avoids the urgent for the important.

Just my advice. On to the regularly scheduled programming.

The Most Important Story of the Week

The AT&T-Time Warner merger is the biggest story this week, probably the month and will likely make the top five in our year-end roundup. So no other stories this week, just this one. Because it is such big news, I won’t just provide my usual one thought but three:

The reason? Netflix

Well, Netflix and all other “innovative” video streamers. I read that Judge Leon approved the merger because of Netflix in a few different articles, and I wondered if Judge Leon really did emphasize this as much as the coverage suggested. Well, he did. Judge Leon put it right on page 2. He says, paraphrasing, customers are cord cutting because of successful business models like Netflix, Hulu and Amazon (in that order, too, which says something) and that means, if you buy it, Time-Warner and AT&T needed this merger to stay relevant.

But what if Judge Leon misunderstands why the streaming companies have gained market share? The answer to that question is crucial to both good governance (via regulation) and good business (via competitor decisions). If Netflix and Amazon are truly creating value for customers, then we shouldn’t allow this merger to hinder that; we should force Time-Warner and AT&T to separately discover how to create value for customers. If Netflix, Hulu and Amazon are, on the other hand, simply capturing value by delivering products at below cost, then we shouldn’t allow this merger because those companies have unsustainable business models. They’ll flame out as soon as the markets correct and we’ll have this colossus remaining.

The predictions of future mergers? Too confident

As soon as the deal was announced, I read this take in The Hollywood Reporter and elsewhere. I’d call this the “generic hot take” analysis of the deal. I just want to raise a flag that says, “Be aware: this is a prediction, not a fact.”

Honestly, the entertainment industry has been consolidating for forty years. This may accelerate that trend, but not by that much. That’s a prediction too, but being more skeptical is usually more reliable than being overly optimistic. Also, while one judge could have stopped this deal the Trump administration seems largely supportive of mergers so the pace in entertainment likely would have continued.

The impact? Bad for consumers

I say this as a committed free-marketeer. Basically, I love Luigi Zingales’ description of himself from an old Planet Money episode:

    “I’m pro-markets, but not necessarily pro-business.”

There’s a difference. I can’t provide all my logic and explanations in this post, but I’ll say that more industry consolidation in any industry tends to be bad for consumers. Yes, consolidation can lead to lower prices, but it can also lead to less consumer choice (including lower prices on average, with a higher floor, if that makes sense). The problem is businesses love consolidation. That’s why “pro-business” isn’t the same as “pro-market”.

I tend to side with Kevin Drum, who has summed it up best, that there are benefits to competition in and of itself. So yes, I side with those who say this is a bad deal for consumers/customers/the public. Having massive monopolies or near monopolies or oligopolies doesn’t help customers. And the entry of other monopolies from a different industry (technology) isn’t an argument for more consolidation.

Good Reads

So those were my three thoughts. I have two more I’m letting marinate for a week as I think about them. I’ll add I had hoped to read better analysis on this topic then I saw, in general. But just because I didn’t read a lot, didn’t mean I didn’t find a few of good ones:

Michael Hiltzick in the LA Times

His opening is good on its own, because it just captures the inanity of the situation. At the same time that a judge can rule this deal protects consumers, most of the public/intelligentsia acknowledge that this merger will likely hurt consumers. That’s a win for the lawyers. But his point is definitely right that this deal isn’t unique at all and Comcast-NBCUniversal cleared the way. That deal at least had a lot of strings that scared off future mergers.

(And he didn’t point out that the judge who approved Comcast-NBCUniversal is the same one who approved this deal. That staggers me. More on that later.)

Tara LaChapelle in Bloomberg

This article is basically a variation on the “mergers are imminent!” theme I semi-questioned above. That said, I’m a sucker for visualizations that help to clarify a complex topic. This one succeeds. (And its predecessor.) It’s a good layout of the landscape. Though it doesn’t mean the pace of mergers will increase as predicted.

Nilay Patel in The Verge

If you don’t have time to read the whole thing, I enjoyed Patel’s thorough read-through of the opinion and summarizing. He also points out how often Judge Leon got the facts about entertainment wrong.  He also shows how the judge’s read of one expert decided basically the entire case. In other words, if you want to know the danger in having one expert approve deals that impact the future of entertainment, this is it.