Most Important Story of the Week and Other Good Reads – 23 Nov 2018: Here Comes the Retailers

If you own a retail company, you know what you should do? Enter the TV business. In the glorious tradition of electric companies and liquor salesmen, now the big box and online retailers are entering the biz. Here come the retailers!

Other Contender for Most Important Story of the Week – Retailers Enter the Streaming Fray

When we think of strategy in the business context, we usually imagine an innovative business leader sitting down with his team, brainstorming plans, debating options and making a bold call. This sometimes happens in corporate America. The ur-example is Steve Jobs deciding to make the iPod and then the iPhone. Revolutionary!

You know what happens a lot though? (And isn’t the subject of books or HBR articles.) Instead of all that thinking, someone asks, “What are our competitors doing?” Then says, “Why don’t we do that too?” (Notably, the iPod followed the Zune and the iPhone followed the Blackberry. Apple just made both products much, much better.)

Disney launched the Marvel Cinematic Universe, and I’d call that a truly remarkable strategic initiative. Of course, Universal tried to launch a monsters-verse, Warners is trying to launch DC universe and a “big monsters”-verse, and Paramount even flirted with a GI Joe/Transformers universe. That’s not creative strategy, that’s copying.

Netflix decided to binge release all its shows. Amazon thought about going week to week, then said, “Nah, we’ll just follow Netflix’ lead.” Now lots of platforms are aping the binge-release model without understanding the strategic ramifications. Again, that’s not creative strategy, that’s copying.

Which brings us to retailers. Amazon sells lots of things, and at some point launched a video streaming service to help improve the Prime memberships and presumably sell more memberships. As a result, early this year there was news that Walmart would enter the fray to launch its own streaming service. (It had purchased Vudu, a transactional video-on-demand service earlier, so this was an evolution of the strategy.) Not to be left out, there are now rumors that Costco may also start its own streaming service. Can Target and eBay and Kroger and others be too far behind?

(The Ankler pointed me to the CNBC article from October which inspired this section. This isn’t exactly breaking news, but a topic I wanted to cover nonetheless.)

The Costco news has been generally overhyped. They haven’t actually announced a streaming service and it seems very clear their goal is to partner with a streaming platform to offer it for free to their customers as a bonus for renewing. Then they get all the benefits of a streaming platform without having to do the work. (And don’t neglect the work all you aspiring streamers. If you have a sub-par product from a user experience, customers won’t use it. Netflix has usually excelled in this area, until autoplay trailers started.)

But guess what? They haven’t actually announced a partnership and it seems like negotiations stalled with the potential streamers. And I think I know why: Costco realized that offering a ten dollar a month streaming service won’t actually help boost the amount of memberships they sell. Getting people to pay $100 a year for a membership is great because they buy tons of stuff at your locations, and pay you for the privilege. But if you give all that away in costs for streaming–that your customers may not even use–well you lost all your revenue. Even at a discounted price, the economics are really tough. Walmart is likely realizing this too.

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Most Important Story of the Week and Other Good Reads – 16 November 2018: Goodbye to FilmStruck

The streaming wheel keeps spinning. More and more companies want to join the future of entertainment and release their shows on-demand. Yet, what intrigued me most was one of those massive conglomerates not announcing new businesses, but shuttering old ones.

Most Important Story of the Week – WarnerMedia shut down FilmStruck

Wait, did Warner Media just close FilmStruck? Did it really close DramaFever? What’s going on?

(Punctuation aside: in the age of digital websites, I never know if names of companies are one word or two. According to Wikipedia, both of these companies are joined words.)

As I mentioned in my article on the very vague announcement by AT&T/Warner Media, this generally augurs a smarter strategy by AT&T/Warner Media (a name I hate typing because it doesn’t make sense). Here’s the list of at least 13 streaming services currently run or planning to launch by the conglomerate: WarnerTBD, DirecTVNow, HBONow, Boomerang, DCU Streaming Something, Machinima, Uninterrupted, VRV, Stage 13, Ellen Digital Ventures, CrunchyRoll, FullScreen, Rooster Teeth and I’m sure there are more. And get this: Turner (with CNN, TNT, TBS and the NBA channel) has its own set of digital initiatives.

How did Warner and AT&T manage to launch so many simultaneously? And all for different price points? (Though, Otter Media did launch VRV to make one price point for multiple streaming options.) Warner Bros. and AT&T separately tried to launch streaming services, they just took a wildly different path than Netflix, Amazon and others by trying to micro-target a lot of these streaming services.

Now that they’re together under one roof, they’re consolidating. This is natural; as part of a “micro-target” strategy, though, if something doesn’t work you need to pull the plug. Closing down the least successful options should make sense if they weren’t profitable–but as long as the next step also makes sense: which is continuing to consolidate all the brands under one roof. There are two really compelling reasons to do this. First, recreating the bundle is ultimately what customers want. Sure, you may not like the idea of paying for ESPN if you don’t watch sports, but many viewers don’t want to pay for your Bravo or Syfy or History Channel fix either. The bundle ultimately spreads the wealth; everyone suffers and wins together.

More importantly, Netflix set that expectation for consumers. When I’ve spoken with legacy media companies, they’ve always insisted that they just can’t lose money the way Netflix does. Fair enough, but customers expect a product like that. Charging $3 a month for access to only cartoons or only DC, when Netflix charges just $11 for both superheroes and cartoons and sitcoms, well what would you rather buy? You may not like that Netflix has set unrealistic expectations, but there you have it.

2019 will be fun to see how these different strategies finally collide.

Side Note: Really DramaFever is closed? This is one of those companies that two years ago seemed like the “hot new thing”. But like many things that are reported in the growth phase and ignored in the death phase, seems to not quite have matched the hype of its initial growth.

Side side note: Just because Netflix and Amazon Prime/Video/Studios have a “big tent” approaches doesn’t mean that they aren’t losing the equivalent amount of money on their international programming. Essentially, snapping up a bunch of international originals from Japan to Korea to Latin America–which both have done–is the same thing as launching your own channel, you just cover the costs in the upfront fee. The key becomes “allocation”. How much of an original productions costs are allocated to the US, UK, EU and other foreign territories versus the country of origin? If it’s a lot–and from Netflix and Amazon’s statements this seems to be true–and no one tunes in, well you’re losing money on those bets, even if shareholders can’t see those losses. But if they are over-indexing in viewers globally, they could be making money. At the end of the day we don’t know enough to say, but it is a risk.

Context Update – WeWork is Too Big To Fail…Who Else is?

This is a new feature for me: the context update. I’ve been seeing a lot of general economic stories that had me thinking. Stories about a possible recession, about a possible stock market crash, and about the debt markets. Just last week, I had an update on how the election could impact regulation of media & entertainment. So in addition to strategic moves, it felt right to regularly make room from “context” updates, stories I want to call out because I think they could change the context in which we conduct the business of entertainment.

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NBA-to-Entertainment Company Translator: Part III “The Rest”

(Read Part I and Part II here and here.

The only downside of my NBA-to-Entertainment translator was that I only had 30 NBA teams to unleash my snark. In entertainment, we have many more companies that just couldn’t make the cut. So I had to expand the world of the NBA just a little bit to fit in a few remaining “just too perfect to exclude” translations.

Here you go: the Rest.

The G-League – Discovery (Scripps) and A&E Networks

I’m a hard core basketball fan like many people. But if you asked me to tell you how many teams are in the G-League, I couldn’t do it. (It turns out there are 27.)

I follow entertainment pretty closely. I couldn’t tell you how many channels Discovery (with Scripps post acquisition) and A&E Networks have either. So I looked it up:

19! For just Discovery (with Scripps).

10! For A&E.

That’s more than I would have guessed for both, and you know what, that gives these two a lot in common. Sure, they have a lot of channels/teams you can’t name, but they keep doing their thing. (The difference is a lot of Americans still watch a lot of these channels, which can’t be said for the G-League.)

LeBron James – Marvel Studios

Not the whole enterprise, just the part run by Kevin Feige. Consider these fun connections:

Both LeBron and Marvel started making waves in the early 2000s. Spider-man and X-Men made a lot of news, and you could tell something was brewing, just as LeBron was being called the greatest high school prospect in the world. Marvel Studios released the mammoth hit Iron Man in 2009, the first year LeBron won the MVP. Marvel Studios released the mammoth world building Avengers in 2012, the first year LeBrown won a championship. In 2014, nobody thought LeBron would leave Miami, but he did, and no one thought Guardians of the Galaxy would be a smash hit, but it was. Either way, both LeBrown and his 14 straight All NBA appearances is the equivalent of Marvel Studios launching all successful films since 2009.

In the present times, LeBron coming to the Lakers was the event of the season, like Black Panther or Avengers: Infinity War, take your pick.

Yet, the questions remain for the future. Can LeBron’s health last? Will Kevin Feige keep churning out the hits? So enjoy the ride of Marvel Studios and LeBron while it lasts.

The ABA – 21st Century Fox

Their spirits live on! The ABA brought us the Brooklyn Nets, Denver Nuggets, Indiana Pacers and San Antonio Spurs. And 21st Century Fox will live on in Avatar and Spider-Man.

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Disney-Lucasfilm Deal Part VIII: The Theme Parks Make The Rest of the Money

(This is Part VII of a multi-part series answering the question: “How Much Money Did Disney Make on the Lucasfilm deal?” Previous sections are here:

Part I: Introduction & “The Time Value of Money Explained”
Appendix: Feature Film Finances Explained!
Part II: Star Wars Movie Revenue So Far
Part III: The Economics of Blockbusters
Part IV: Movie Revenue – Modeling the Scenarios
Part V: The Analysis! Implications, Takeaways and Cautions about Projected Revenue
Part VI: Disney-Lucasfilm Deal – Television
Part VII: Licensing (Merchandise, Like Books and Comics and Video Games and Stuff))

If you’ve been reading along after 47 pages and six months of writing, you know that Disney more than made its money back on its purchase of Lucasfilm through releasing wildly successful Star Wars sequels, and then making another $1.7 billion in licensing revenue. So they made their money back.

But to truly get a great return on investment—as I wrote in the introduction in my “gut” section and again when referring the licensing & merchandise—theme parks are the whipped cream and cherry on top. In 2019, if it stays on track, in Disneyland and in Disney’s Hollywood Studios, Disney will open Star Wars: Galaxy’s Edge, which have been under construction since 2016.

And they could be huge money makers.

Theme parks allow The Walt Disney Company to make more off its IP than any other studio. (That’s its competitive advantage.) So let’s figure out how to quantify that benefit. Then, we’ll figure out the costs.

The Challenge: Disentangling the Marginal Benefit of new Theme Parks

With movies, calculating the revenue is messy, but we have lots of data. With toys, forecasting the revenue is easy, but we have way less data. What about for theme parks? In this case, the toughest part of the process is assigning the value.

Think of it like this. We know that putting in a Star Wars: Galaxy’s Edge at Disneyland will drive attendance and revenue. The problem with theme parks is untangling how much revenue they will drive.

In other words, the “marginal benefits”.

Some day I’m going to write “Marginal Benefits Explained!” because it’s a core economic principle—the core principle?—and I’ve seen 7-figure-earning business execs screw it up. Marginal benefits are the additional revenue a business generates by changing an input. So if you’re making a million dollars a year and raise prices, and it goes up to $1.2 million, your “marginal benefit” for the price raise is $200K, the additional revenue you generated.

(You want to know my biggest frustration/pleasure with this website? Every time I write a new article, I think of two more posts to write inspired by it. The “hydra problem” of the Entertainment Strategy Guy.)

This idea is what stymies the analysis with theme parks. Let’s visualize it with an example.

Next year, I’ll walk into Disneyland in the off-season (probably September-ish). I’ll be wearing a Star Wars shirt. My brother will probably rock a Marvel shirt. That said, I’ll also have a three year old wearing, if current trends hold, either an Elsa (Frozen) or Belle (Beauty and the Beast) dress.

So how much of that trip do you allocate to the opening of Galaxy’s Edge? (Punctuation side note: do you italicize theme park lands? I did, but should I?) My family already averages one trip to Disneyland every year, and my daughter knows that Mickey lives at Disneyland. So she’d go anyways. But what about me? I’ll definitely go to see the new park at some point. We could make an analogy of a theme park to a content library on a streaming platform. People pay for the whole thing, not the parts. With content libraries—which is essentially what a theme park is—untangling and clarifying the value offered by each piece can be tough.

The Economics for Theme Parks

When in doubt, I like to boil things down to a simple formula. So let’s do the rough “business model” for a theme park. I came up with this:

Slide63

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Most Important Story of the Week and Other Good Reads – 9 November 2018: How the Elections Could Impact Hollywood

Over the last few weeks, there were big stories (elections), tragic stories (devastating forest fires in the southland), and heart-breaking stories (the shooting in Thousand Oaks). So many stories that it gets hard to stay focused on the business of media and entertainment. So a few days/weeks late, here is my round up of stories I’ve been following. I won’t touch the personal tragedies as they’ve been covered better by other news outlets.

I struggled to call out a “most important” story, with the election gobbling up media coverage. So you know what…

Most Important Story of the Weeks – How the Election Could Change Regulation

As everyone knows, Democrats took control of the House of Representatives while Republicans held onto the Senate in the American elections of last week. (Then came a bunch of other political news. If you follow most entertainment journalists on Twitter, you don’t need me to repeat it for you.)

The key is the ramifications for business. First, what I don’t think will happen. I don’t think there will be a sudden wave of anti-trust regulation. I don’t think there will be a wave of pro-consumer legislation like finally addressing the United States unwieldy IP/patent/copyright law. The Democrats only control one branch of the Federal government, and will still battle a hostile Senate and hostile President Trump to pass any new legislation. Betting on the status quo is always a good bet in our current political climate.

What could happen? Well, caution in rolling back some regulations. The chairman of the FCC, Ajit Pai may be just a little be more worried than before the election about his agenda of wholesale deregulation of media & entertainment. (In fact, he’d already blocked one merger in the broadcast space.) Under threat of testifying on the hill multiple times, he may dial back a few of his more controversial proposals. With their newfound agency, Democrats could tie some consumer-protection measures to budget bills, such as support of municipal broadband or, gasp, net neutrality. Again, I’m skeptical but they could try. Also, as Variety noted here, Hollywood could pressure Democrats to put pressure on tech giants to fight piracy. Again, could, but likely no bills will result.

Then you have the wildcards. Not saying they will happen–I mean, is a wildcard a 10% or less probability?–but I’m thinking about them. My first wildcard is President Trump going crazy with antitrust legislation on his enemies: AT&T/Warner (cause CNN), Comcast (cause MSNBC) and Amazon (cause Jeff Bezos). I think he isn’t focused enough to follow through, but wouldn’t bet against him, especially if his new Attorney General sticks in the role. At the local level, I’d look at “municipal broadband”. Since everyone hates their cable providers, with lots of new Democratic gains in state houses, more states and cities could try their hands at alternatives to traditional cable companies.

The final wildcard would be legislation that finally addresses robocalls. Any politician who stopped all the annoying phone calls would become a hero to consumers. (That’s a hint for politicians already thinking about 2020.)

Other Contender for Most Important Story – BlumHouse Does it Again

Another horror film by Jason Blum, another box office smash. (Current numbers are $76 million opening weekend and $151 domestic box office to date.) That said, this one feels a bit more expensive production-wise (Jamie Lee Curtis, Halloween franchise owners) than past BlumHouse super hits. Still, he’ll definitely make his money back. Again. (Blum was rightfully feted in THR in a good read.)

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Most Important Story of the Week and Other Good Reads – 26 October 2018

The last two weeks have featured key new moves in the multi-dimensional chess match that is the future of TV viewing. (For some of my thoughts in general, check out my NBA-to-entertainment translator where I throw a lot of fun analogies out about old and new media.)

Most Important Story of the Week – AT&T/WarnerMedia Enters the Streaming Fray

Well, AT&T had already entered the fray. They just have a new plan.

Warner Media and AT&T both had their own “OTT” options for the consumers of the world. AT&T owns DirecTV Now, a “skinny bundle” of TV channels, and had a stake in Otter Media, which owns SVOD channels such as Crunchy Roll, Full Screen, and Hello Sunshine. These rolled up into VRV, a larger subscription bundle.

WarnerMedia had its own “digital networks” group that offered subscriptions to Boomerang–featuring cartoons owned by Turner such as Looney Tunes and Hanna Barbera cartoons–DramaFever–Korean dramas–and a soon-to-be-launched DC Universe streaming service. And HBO owns HBO Now. So both companies had played in the “SVOD” or “OTT” universe.

Just not very well.

The announcement–like the “DisneyFlix” announcement before it–was pretty sparse on details. Here’s what we know: in Q4 of 2019 AT&T/WarnerMedia will launch something. The assumption from many people is that AT&T/WarnerMedia’s offering will ultimately be more like a much larger OTT: there is a base bundle, but then multiple options to add on top. This would be similar to Amazon Prime/Video/Studios approach with its “Amazon Channels” business.

Let’s do good and bad of this vague announcement:

The good: The content offering could be compelling…

I mean, it’s basically a cable package, if Turner gets brought in. TNT for drama, TBS for comedies, Cartoon Network for kids, HBO for prestige viewing, CNN for news and Warner Bros. for movies. Make that as the base with other channels as OTT add-ons, and you may have something.

The good: with a much more coherent price offering.

When I first heard about Boomerang, I could never quite believe what I read. “So you’re offering me a lot of cartoons for $4.99 a month? But Netflix is just $10 a month. Are those cartoons worth 50% of that price?”

Not really. If anyone can get away with that, well it’s Disney. Given that they have the top, in demand movies, they can charge a premium when they launch their platform (and will hurt Netflix in the process). Everyone else needs to offer a large bundle that mimics Netflix prices (and cash losses). The reason Warner Media didn’t offer that before is simple: they couldn’t afford it. Netflix can’t really “afford” it either, from a cash perspective (they just took on $2 billion more in debt). But they can lose money and watch their stock go up; formerly Time Warner couldn’t.

The bad: Do consumers want one bundle, or do they want four different bundles?

Do you buy the whole AT&T bundle, or buy that and Disney and Netflix and CBS Now? And if the prices go up on all of those, do you end up paying $100 for internet, and now $80 for OTT, meaning you’re paying more than you do now for internet and cable, just with way less viewing options? That’s bad for customers. (And a prediction I want to look into. I’m not bullish on customer benefit in a future of greater industry consolidation.)

The unknown: Will AT&T/Warner Media stop selling bad OTT services?

From what I understand, the DC streaming platform–that I guess will launch with a per month price of 20-40% of a Netflix subscription–will still launch. That just seems like a bad business model. At the same time, since acquisition, AT&T shuttered other digital platforms like DramaFever and Super Deluxe. So we’ll see. Maybe they’ve learned their lesson, but I’m skeptical.

Other Contender for Most Important Story – SnapChat Launches Originals

I don’t think that social platforms are good for video.

Phew, glad to get that off my chest.

Let’s explain. I’m a big believer in understanding the problem your company is trying to solve, and delivering solutions to that problem. I haven’t written about the “Marketing Framework” (3Cs-STP-4Ps) yet, but I love to use it to analyze business problems. The key insight of the framework is to align all parts of the product with the solution to the problem.

With social platforms, producing “original video” fundamentally misunderstands the core problem these social networks set out ot solve. Twitter connects normal people to the thoughts of other famous people and their friends. Facebook connects social networks online. Instagram is flashy fun images of famous people and your friends.

Video can help that. Hypothetically, people want to see Instagram videos from celebrities. They want to see videos of kids (they know) blowing out candles on a birthday cake. Those reinforce the core solution to the initial problem.

Notice, I never said those platforms were about sitting back and watching entertaining TV shows and movies. Yes, video from famous people or friends is a part of those social networks, but the problem being solved isn’t wanting to watch long-form (or even short form) video. Specific other apps are optimized to do that and do it better. (And even with the rise of mobile viewing, mobile viewing, phone or tablet, is inferior to the living room experience.)

So welcome to the originals game SnapChat. I think you are trying to inject original video production to solve a problem your customers don’t want solved.

Other Contender for Most Important Story – Annapurna Films Struggles

I considered the news that Megan Ellison’s Annapurna films is (allegedly) in chaos, then (allegedly) not in chaos as my most important story, but there wasn’t enough there there to write it out. But still…

A few months back, I wrote about the fall of Global Road, comparing its performance to STX Entertainment, which felt really similar to me. Well, I could have thrown in Annapurna Films, which I didn’t. In a lot of ways, they’re suffering from the same fate as their predecessor: launching a standalone studio in the age of monopolistic super-conglomerates is tough. In my defense for ignoring Annapurna, until recently they weren’t in the distribution business, sticking to producing films.

I’d add one other point I haven’t really emphasized enough: streaming is my theory for why so many new studios popped up since the financial crisis. (My count? Relativity, Global Road, STX Entertainment, Annapurna Films, and A24, at least.) What fueled this mini-boom was the rise of licensing of movies. Basically, if Amazon or Netflix will pay your production costs in a film output deal–which they may do on a global basis in some cases–then you can make money if you have just one hit at the box office.

I’ll also add that Annapurna plays (mainly) in an even trickier world: prestige films. If you don’t deliver your Best Picture Oscar film each year, then you can lose a lot of money. Initially, Annapurna didn’t have a problem there. Recently, though, they have. That’s also basically the life story of Miramax and The Weinstein Company, that always struggled financially year to year.

Long Read – Streaming Arms Race May Make Cable Look Like a Deal

This is a good summary of the streaming landscape now that AT&T has entered the fray, but I’d really point out they make the same point I do: at some point having a cable bundle may offer more content then all the OTT services put together. I’d add this is doubly so if: 1. SVODs raise their prices or 2. SVOD’s restrict sharing of passwords.

NBA-to-Entertainment Company Translator: Part II “The Western Conference”

In the heyday of Grantland, they featured a piece from the good people at Men in Blazers to develop an “NBA to English Premiere League” translator. It helped novices to soccer pick a team in the most popular sports league in the world. It worked so well, I adopted Chelsea as my premiere league squad based off this little comparison to the Lakers:

“Your winning tradition has been soiled by an arrogance which, real or imagined, has caused you to be roundly despised across the league. You have a young coach attempting to gain the respect of a veteran squad, led by a soft Spanish big man and an aging Kobe, who could be any one of Chelsea’s graying superstars — John Terry, Frank Lampard, or Didier Drogba — attempting to substitute experience for pace.”

In 2011, that made a lot of sense. So if you want to pick an NBA team based off where you work, or want to invest based off your favorite NBA team, well I have you covered.

On to the Western Conference. The one with all the stars, all the hits, all the buzz. The “Bestern” Conference. Of course, they still have some teams near the bottom, just not as many.

Western Conference

Sacramento Kings – Spectrum

Let’s just pull the band aid off this wound: the Sacramento Kings are the worst team in the NBA (and have been since the Lakers beat them fair and square in the early 2000s) and Spectrum is just the worst. Honestly, if someone loves “Spectrum” (previously Time-Warner Cable) send me a message.

I’ll wait. Just like a Spectrum customer on hold trying to cancel.

So to “rebrand” Time-Warner became Spectrum a few years back. They said it was because of a merger, but mainly it was to hide from their past. The Kings changed from the Royals because they moved cities, and wanted to hide from their past.

Also, like T-Mobile failing to merge with AT&T, Time-Warner Cable was almost purchased by Comcast, and instead was purchased by Charter Communications. Those set of moves are the NBA equivalent of drafting Boogie Cousins and Willie Cauley-Stein because they were “buddies”, while trading a lot of future draft picks to Boston.

(Yes, I know Spectrum co-owns the Lakers channel. They still are awful.)

Phoenix Suns – AMC Networks

The Phoenix Suns in the 2000s were the flashiest thing in basketball. The “7 seconds or less” teams featured passing & shooting, running & gunning, and won the hearts of NBA pundits, the equivalent of critics. They set the template for pace & space all that would come in contemporary basketball.

AMC Networks won the hearts of critics repeatedly over the same time frame. Breaking Bad, Mad Men, Better Call Saul and even more obscure shows (Halt and Catch Fire; everything on Sundance TV) were the cultural equivalent of Steve Nash, Joe Johnson and Andre Stoudemire. (Nash is Breaking Bad; Shawn Marion is Mad Men; Amare Stoudamire is the rest of the obscure shows, cause he’s career ended too soon and so do they.)

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