Category: Weekly News Update

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.

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.

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.

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.

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.

Sorry for the delay in posting these. It has been a bit tough getting back up since my family emergency. The goal is to release one of these a week going forward, so fingers crossed. Since it’s been awhile let’s start with the most important story of the last two weeks:

The Biggest Impact of the Last Two Weeks: Solo and the box office “flop”

So I won’t go too far into the weeds on this this week, because I’m thinking of writing a whole article on it for next week. But I do want to explain why this story is so important.

Normally, a movie winning the box office gets a ton of headlines in the Hollywood Reporter or Variety, so you don’t need me to call it out. Same with movies flopping. That said, Disney has a lot riding on the Star Wars franchise. I mean, it was a four billion dollar deal and inspired me to write an entire series on it. And this flop has lowered the floor of future Star Wars films. If audiences really do get tired of these movies, it can limit the ability to make money by billions of dollars. No, really, billions of dollars. The difference between releasing Star Wars movies every 18 months or every six months (or four months) will add up over time.

The Biggest Impact of the Last Six Weeks: Everything “Viacom” related

Everything related to Shari Redstone trying to have Viacom merge with/acquire CBS fascinates me. And clearly is the biggest business story going on. (Hold on a sec for Comcast/Disney/Fox news.) If they successfully merge, but Leslie Mooves leaves, is that a better company? If some how CBS survives with Moonves, what moves do they try to make? Could Paramount get sold at anytime?

Clearly, how this story shakes out will have the biggest impact on the competitive landscape.

Lots of News with No News

Comcast will allegedly put in an all cash bid on 21st Century Fox. I’ll write about that when it happens as in when the bid is actually submitted.

Listen of the Week: Internet a la Carte

I listen to a ton of podcasts, and this one was one of my favorites from The Indicator over the last week. That said, like most great reads I love, it has some flaws. The upside of this story is that I do buy the premise that this is the order in which customers most value internet services. So the survey discussed at the heart of the story is directionally accurate.

That said I have two data complaints. First is one I’ll make all the time: it isn’t the averages that matter but the distribution. Go read The Flaw of Averages to understand what I mean by this.

Second, customers are notoriously bad at putting a price value on something. As in asking them if they would pay $X for something and accepting their answer. Self-reported answers hardly ever matter compared to behavioral data. So its fine to say that people would need to be paid $800 to lose online shopping, but until you actually offer them that money you don’t know if that amount is correct.

Data of the Week

A good example of a host of news stories that don’t really matter is the “who got cancelled; who got renewed” stories. On aggregate, as this link from Vox provides, it is news.

My contention, though, is that each individual story that made up a post on Deadline was not newsworthy. Or at least not enough that you needed to stop you meeting or work to read who got cancelled. So save yourself lots of time and turn of those alerts, and wait until the end of the season to see who got cancelled and who didn’t.

Long Read of the Week

This article from Slate released a few weeks back was one of the most interesting I have read on the media and entertainment landscape. I’d subtly noticed this trend that HBR was becoming mroe and more pervasive by leveraging itself. That said, many b-schools are mimicking this strategy.

Another point: I learned an absolutely ton from case studies while in business school and read almost all the entertainment ones at the time. One of my long term self-improvement projects here is to catch up on new case studies taht have come out since I graduated. My thesis is that the stories and/or data/financials are better than you would guess, providing unique insights to lots of businesses.

 

Welcome to my first “weekly news round up”!

This isn’t a comprehensive list of every story that premiered this week or last week or whenever it came out. (I may have just found it and wanted to share.) You have Twitter and access to Variety/Hollywood Reporter/Deadline so you don’t need me for that. (Or try out MediaREDEF’s feed.) They do it better than I can, so I won’t compete.

My goal, instead, is to provide a bit of commentary on the news. Like calling out the news that might be slightly misleading or over-exaggerated in its importance. Just because something gets the most clicks doesn’t mean it will have the biggest impact in the future.

The Most Important Story of the Week – AT&T and Time Warner deal

I’ve been writing “test updates” for the last few weeks to see how long these would take to put together. I wanted to make sure I wasn’t over-extending myself by committing to one per week. I bring this up because I was tempted to refer to a now unwritten update, and I realized I needed to explain myself.

My goal each week is to call out the most important news story. Not the biggest. Not the flashiest. The one with the longest term impact on the business we call entertainment. The other sections of this update will rotate, but I’m going to try to call this out each week. The story I think will have the biggest impact on the future of entertainment.

The success or failure of the AT&T and Time-Warner merger is clearly the biggest news story of the week, and only dwarfed by Disney and Fox acquisition as the most important story of the last year or so. The ramifications of further media consolidation will force every other player to consider how they react, and will likely spur further mergers.

Also, regulatory context is always important, especially in media and entertainment. Trump’s regulatory environment is, frankly, unprecedented in American history. I don’t like consolidation in most industries because I believe it hurts consumers. This is ostensibly why the DoJ is pursuing the anti-trust lawsuit in the first place as they wrote in their final post-trial brief. If that were the whole reason, I’d be really excited because it would mean the next step is breaking up Comcast-NBCUniversal and forcing other content makers to divest their distribution arms. (I’ll have a post on that in the future.)

But Trump’s Department of Justice isn’t pursuing action against AT&T for that reason; it’s likely pursuing it because Trump hates CNN, which is owned by Time-Warner. They said mean things about him in the election and he calls them fake news. That’s why Trump is okay with the Disney-Fox acquisition, because he likes Ruper Murdoch and Bob Iger hasn’t gotten on his bad side. Again, unprecedented.

(Notice, the Michael Cohen and AT&T payment/consulting story isn’t important in an entertainment and media sense, but it is salacious.)

Fun idea

I’ve said before I’m a sucker for frameworks. Well I looked, and I haven’t said that before. Well I’m a sucker for frameworks. (A professor once said this about me; he was so right.)

So when I see an HBR Ideacast with a framework for launching a start-up, man, I’m probably going to recommend that to my audience. And here I am doing just that. Take a listen to “Choosing a Strategy for Your Startup” by Sarah Green Carmichael interviewing Joshua Gans.

I’ve always thought that entrepreneurship is overrated from the standpoint that most companies should be constantly thinking about entering new lines of business. All companies should launch news businesses or business units. Thus, the lessons from this podcast apply just as much to people in big companies as small ones.

Long Read of the Week

One final caveat, I recommend long reads, even if I disagree with the ultimate point. My favorite type of articles are ones that inspire ideas. Sometimes that’s really good articles that I can apply elsewhere (see the podcast above); sometimes that’s articles that make me so upset, I have to write a rebuttal.

The article I’m recommending this week falls somewhere in the middle, “The Revenue Stream Revolution in Entertainment and Media” by PwC’s strategy+business. Let’s start with the negative. In the title. “Revolution”. France in 1789 was a revolution. Russia in 1917 was a revolution. (America is 1777? Depends who you ask.) New revenue streams are a change, they aren’t a revolution.

There are three ways to make money in entertainment: sell ads, sell subscriptions, or sell product. I call these three–and I didn’t come up with this, I learned this in class–advertising, subscriptions or transactions.

And a quick look at the “revolution” is really just different forms of those three things. “Platform” is basically owning the distribution channel…much like every studio already owns TV networks. (Subscriptions.) So yes, the platform is changing, but it’s not a new business model. Or take “the Omni-brand” which recommends moving into different revenue streams for successful IP. I’d say, “What are you, Walt Disney in 1930?” (Transactions, advertising and subscriptions.)

My other criticism is the use of qualitative descriptions that could be quantified but aren’t. Take these sentences from the opening:

“The competition for user engagement and spending has never been more brutal. All these developments have significantly disrupted the flow of E&M revenues. Gone are the days when TV networks, film studios, or companies of any kind could thrive on one, two, or even three reliable revenue sources. Today, profitable growth increasingly depends on having five, six, or even more revenue streams.”

I think I could take each one of those sentences and interrogate it with data. Now I don’t have it all, but I’m sure PwC does. So are entertainment revenues being disrupted? Does that mean they are down year over year? If so, by how much? Competition for spending has never been more brutal? How do I quantify that? Compared to what time frame?

It’s not that the sentences are wrong, just that I don’t see any proof. Otherwise, it could be conventional wisdom that may not be true. If it isn’t true, and you’re making decisions off of it, you might be misled.

Final point, this is a good article and I like trying to define new business models. The idea I had is to take their framework and try to pin additional companies into their buckets. Not just using successful businesses, but all businesses.