How the Antitrust Case Against Facebook Could Upend the Streaming Wars: Most Important Story of the Week – 11 Dec 2

Disney is a marketer’s marketer. With the biggest brands in entertainment, they can serve up an investor day—an investor day that is for Wall Street investors!—that gets regular folks to turn in and trends on Twitter. Yet, for all the buzz, the basic story was that Disney is releasing Disney content on the Disney branded streamer. We’ll get to that, but another story could have bigger implications for entertainment.

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Most Important Story of the Week – The Antitrust Case Against Facebook

A few months back, following Epic’s Games epic lawsuit against Apple, I stated that I planned to follow “antitrust” news fairly closely. Because antitrust could be the new “deregulation”:

I’ve been scanning the landscape more over the last couple of months to look at the future. And the “blue ocean” space in the entertainment strategy landscape for me isn’t technology–again, the futurists have it covered–but how regulation could change business models. And this is a hypothesis I’m monitoring: 

Could antitrust enforcement could become the new deregulation?

Deregulation was arguably the biggest driver of disruption in the 1970s and 1980s. Deregulating industries across the globe from airlines to energy to telecommunications repeatedly enabled smart firms to seize new advantages. That airlines example above is a perfect example; Southwest likely doesn’t become Southwest without deregulation.

Generally, everything has been deregulated. So what comes next? My guess is a reversal of antitrust. 

Since then, the signs that antitrust is on the agenda have only picked up steam. Consider:

– The House Antitrust Subcommittee released the “Cicilline Report” which laid out how the four big tech firms have used their market power to hinder competition.

– The Department of Justice filed a lawsuit against Google for specific antitrust violations. State Attorneys General are expected to follow suit.

– Joe Biden was elected as the next President of the United States. While there is some bipartisan support of renewed antitrust legislation (see Google’s antitrust suit, filed by a Republican), Democrats are still clearly more supportive than Republicans on antitrust.

– This week, 48 states and the Federal Trade Commission filed an antitrust lawsuit against Facebook. (Also a bipartisan move.)

In August, I laid out a few waypoints that I would watch to see if increased antitrust enforcement was likely coming. We hit the big one (Biden’s election), the next biggest (Congress increasing pressure) and now antitrust is headed to the courts (Specific lawsuits against Google and Facebook). As the future becomes slightly clearer, then, it’s worth expanding the potential for what comes next, especially for entertainment and media.

Predictions

What happens next?

To start, more antitrust lawsuits for the rest of big tech feels inevitable. Amazon seems particularly easy given that they have leveraged their market power in retail for years to enter new industries or stifle competition. The complaints from smaller vendors are legion. (The diapers.com affair from the start of the decade is particularly egregious.) Apple is more beloved than Amazon, but the Fortnite fiasco basically illustrated in stark terms Apple’s market power, and brought up a host of smaller competitors crushed under their power. Both Amazon and Apple, though, are more popular than Google and Facebook, which have both been embroiled in partisan bickering.

After that? The states/FTC/DoJ will either win or lose their lawsuits. That proposition is dicey because these suits are decided by individual judges, many of whom were appointed by Republican presidents with The Federalist society backing “Borkians” who tend to downplay antitrust concerns. Or in some cases just don’t believe antitrust is worthy of government attention.

If the states lose their lawsuit, then it would require Congress to change the laws around antitrust. That’s a much tougher challenge in today’s political landscape. But not impossible. (The Georgia run-offs will say a lot on whether this is possible.) Assuming that the Big Tech companies lose their fight, then come the potential remedies, which adds another layer of complexity to predicting what happens next.

Potential Outcomes

Let’s be honest and let the air out of the balloon right off the bat: The most likely outcome is that Big Tech is mostly left in place. Think Microsoft in the 1990s. In the worst case, the companies agree to some measures to control their behavior, but immediately go back to not following them and paying minuscule fines.

This is, essentially, what has happened with most merger consent decrees this decade. Facebook said it wouldn’t integrate What’s App’s data, then did it anyways. AT&T said prices wouldn’t go up after mergers, then raised prices. The companies pay the fines and keep consolidating. Disney said it would keep producing Fox movies, but now may release fewer films in theaters post merger than they did before.

The best case would be consent decrees that are enforced. Like the Paramount Consent Decrees of the 1950s. This helped movie studios and theaters thrive. Or AT&T’s forced divestment of patents in the 1950s. This spurred innovation across the U.S. landscape, which really did help competition. (It does say something that success examples of this happened 70 years ago…)

The bigger, and more fun to imagine, scenario is breaking up big tech. (And while I try to avoid my own policy recommendations, this is the outcome that I believe would benefit America the most.) These breakups could be either horizontal (the same industry) or vertical (different business units in the same company in related fields). 

Vertical is actually easier in most cases since the different companies don’t need each other to survive. So for Amazon, spinning off AWS, for example, would hardly impact Amazon’s retail business. (Though it would deprive Amazon of a valuable profit stream.) Google has multiple business units that could easily survive on their own. I’d add that splitting up Instagram and What’s App from Facebook are horizontal break ups, but relatively easy to contemplate since customers wouldn’t notice a change. (I’d make the same case for Amazon breaking up their marketplace from their other retail enterprises.) 

While vertical break ups in many cases don’t address market power, they are still very helpful for competition, since it means the firms left in a given industry can compete more evenly. (And most vertical integration tends to be followed by price gouging, product tying or other anti-competitive behavior.)

The key question for entertainment is whether each of the big tech titan’s entertainment enterprises get divested individually or remain as part of the bigger conglomerate. I could argue that Google should easily divest Youtube. Youtube can clearly survive on its own, but this would also give a powerful new internet advertising option to marketers. Apple could divest its media fairly easily (they are all just apps running on their operating system). Amazon has a better case for Prime Video staying in Prime, but even that isn’t ironclad. (Ask yourself: couldn’t Amazon pay the new Prime Video to stay in their Prime bundle? Yes, obviously. So why wouldn’t they? Because the value isn’t actually in the current video/data, it’s the market penetration to gain dominance overall.)

This is an unlikely scenario I’ve laid out. The plaintiffs have to win their lawsuits and then the remedy has to be the most extreme of remedies (break up). But imagine we do get here. Who are the winners and losers of this world? Imagine that Prime Video becomes its own company (with Twitch, Amazon Music, Audible and maybe a few other assets). Apple One becomes its own company (Apple Music, iTunes, TV+, Arcade and so on). And Google spins off Youtube.

Who wins or loses in this scenario?

Winner: Netflix

Say what you will about being bearish on Netflix’s business model, they aren’t a monopoly. Some investors want them to become one (building a “moat”), but a company with only 8% of all viewing in the United States is hardly a monopoly. Indeed, the biggest threat to Netflix, in my mind, is the unlimited cash reserves of Apple and Amazon. If forced to compete on an even playing field, this would benefit Netflix. (With the caveat that multiple new streaming companies on the NASDAQ may impact all share prices simultaneously, for good or ill.)

Winners: Traditional Streamers

Cord cutting is the biggest pain point for traditional media. But the biggest challenge, more than anything, is competing against competitors who don’t have to make money. If Big Tech had to compete on a level playing field–read not deficit financed–traditional media has a much better chance to survive in a streaming world.

Further, there is a big difference between radical disruption (where revenue drops by double digits year over year), and slow evolution (where profit margins slowly decline). Both get to the same place (which is the likely outcome from streaming), but one has a lot less pain for the incumbents and their suppliers. 

Losers: Prime Video and Apple

These seem like the two biggest losers in all this because most folks acknowledge that their streaming business models just aren’t based on actually delivering a valuable product. Phrased differently, no VC firm would invest in Apple TV+ if it weren’t owned by Apple; there is no business plan there. Spun off from their parents, these new media companies would be valuable, but much less invincible.

Losers: AT&T and Comcast

After Big Tech, if Congress wanted to find the industries that are heavily consolidated and hated by customers, cellular and cable are next on their wishlist. (Then health care.) Breaking up Big Cable would probably be the most popular move of the Biden administration. 

Winners: Roku and Sonos

If devices are sold at cost, the independent device makers have a chance to succeed and thrive.

Winners: Talent…probably.

In a lot of ways, the boom of streaming and peak TV is the best of times and the worst of times for talent. More shows and films are being made than ever before, but back end cuts are smaller than ever before. Meanwhile, junior writers work for some of the worst pay in the last few decades. Arguably, with many more streamers who are less powerful, the guilds could negotiate better rates, especially down the line. 

However, this may be offset by the end of the so-called “Drunken Sailor Era” (™ Richard Rushfield) as firms have to start making actual money. So they could cut back on content spend. That means less potential jobs overall.

TBD: Customers

Like talent, this could go either way. On the one hand, it has been great for customers to have multiple firms willing to subsidize cord cutting. The problem is those subsidies are harmful long term and entrenched market power is awful too. So prices could go up, but they’d reflect economic reality. Meanwhile, customer choice would come either way.

The Caveat: All of this is Unlikely

Does a huge break up of Big Tech, including spinning of media firms actually happen? Probably not. But without throwing out random probabilities, it’s probably twice as likely as it was even in August. (So yes, this is like a streamer saying a show grew 50% year over year. 50% of what?)

Yet, Biden was elected President, and that’s huge. Combined with renewed emphasis by the Democratic coalition, and I think corporate consolidation is on the table for change. He’ll likely appoint attorneys general, federal judges and administrators who could put a renewed emphasis on antitrust. That will impact entertainment eventually.

Other Contenders for Most Important Story

Disney Investor Day

Few analysts are (and have been) as bullish on Disney’s streaming future as I have been. I write that to put in context what I’ll write next: I don’t think this Disney Investor’s Day deserves the hype it has been given.

Take a few of the headlines touting “10 New Star Wars and Marvel” series coming to Disney+. That sounds huge. But given that this will take place over the next few years, is it? In context? Take this analysis by Emily Horgan:

Or take my timeline I’ve been using to model Lucasfilm’s financials:

base

And for kids…

kids

In other words, Disney confirmed what I’ve been modeling for a while now. This Star Wars volume is a pinch higher, but considering the volume of one-offs, not that much more than I modeled. But most of Wall Street/the trades seem surprised by it. I’d add there are a few more caveats for why the total volume of content may not match the reality:

– Shows will likely get cancelled. Like Ghost Rider, Benioff and Weiss’ Star Wars Trilogy, Howard the Duck, Rion Johnson’s Star Wars Trilogy, more Han Solo films, and countless other projects over the years.
– A lot of this content is animated and for kids. Which is crucial to Disney’s future, but likely replaces exactly what they were making for Disney Channel, Disney XD and Disney Junior. Which we weren’t getting super excited for before streaming times.
– Some of the announcements really are for a long way off (like a Rogue Squadron film in 2023). Most announcements didn’t have dates.

In total, then, I don’t think this is really much more content than Disney was planning on making last year or the year before. Some of it may have shifted from film (previous pitches for movies may have turned into TV series, like potentially Obi-Wan), but it’s probably similar. At the end of the day, it looks like from 2021-2023 we can bank on a Disney live-action adult series every 2 months or so on the platform for Marvel and Star Wars. 

That feels about perfect. If they can keep up the quality, that’s a big slate that will keep folks subscribed. It’s also the “if” that defines all success in entertainment.

(Though Disney+ still has a big hole for adult TV outside of Marvel and Star Wars. That’s a tough hole to fill.)

As for business strategy, the biggest news is no news. Hulu stays where it is. Star is officially becoming Disney’s adult brand globally. ESPN+ will continue expanding, and be available within Hulu. And lastly only one film is “breaking” the theatrical window, with Raya going to Premiere Access (like Mulan’s $30 release) simultaneous with theaters. (I have a feeling it will do much smaller business than Mulan on PA.)

An NFL Update: Ratings are Down, but Good for Broadcast

Is the state of the NFL viewership good or bad? Maybe both. Americans consume NFL football more than any other sport–arguably more than any other type of content period–yet the ratings aren’t as high as past years (down about 8%) because linear TV viewing just isn’t as high as it was (down about 30%). This of course begs the question for what happens next. I can’t see a world where broadcast TV doesn’t nab a few more years of NFL rights, even non-exclusively, but the key question is, “At what price?” Likely they will be high.

Disney+/HBO Max and Comcast Integration

Disney+ and HBO Max will soon be available on Comcast’s Flex operating system. This is a smart next step for both Disney+ and HBO Max. (If anything it should have come sooner.) For all the talk of cord cutting–and there is a lot!–one of the surprising survivors is the cable box. This makes it much easier to reach another big group of customers that Netflix and Prime Video are already reaching.

Data of the Week – The Hallmark Channel Is Still Winning Christmas

Josef Adalian has the details in a recent newsletter, but 3.4 million folks tuned in on one Sunday for a Christmas movie. Linear TV is dead, but it won’t lie down.

M&A Updates

Just because antitrust is back on the agenda doesn’t mean that mergers won’t continue fast and furious. The two latest biggies both have tangential relations to entertainment. Slack is the de facto messaging service of lots of Hollywood, and it was just purchased by Salesforce. Meanwhile, S&P and IHS are merging for a huge price tag because they are both financial data firms. S&P fascinates me because they had earlier purchased SNL Kagan, and Kagan was a tremendous source for entertainment data back in the day.

The Top Four Licensed Shows on Netflix Account for 6% of Netflix’s Viewing in the US – Visual of the Week

In 2020, Netflix lost the rights to Friends. In 2021, they lose the rights to The Office. How much do those big shows impact viewing on Netflix? 

Quantifying that via Netflix’s data is fairly hard, though, since they focus overwhelmingly on their original series, as that’s the key to “building a moat” in the eyes of shareholders. Fortunately, Nielsen is now tracking consumption in the United States. Which means we have one third party firm who can help us answer the question.

Today’s visual answers this question:

How have the top four licensed shows on Netflix done this year?

Here’s the “Data Ws” to answer how I calculated this:

Who – Streaming customers
What – Total hours viewed (Nielsen million minutes divided by 60)
What (platform) – Any service
Where – In the United States
When – From week starting March 9th to Nov 2nd 2020, minus March 23rd
When (time period) – Measured Monday to Sunday.
How (did I get it) – Nielsen provided weekly top ten.

Here’s the answer in visual form:

IMAGE 1 - Chart of Top 4

However, we need context. As in, what does this mean? Well, to start, here’s the total viewing over the 34 weeks I have data for. And you can see what a big percentage of this top ten viewing this makes up.

Screen Shot 2020-12-08 at 2.00.59 PM

To quote Shawshank, if you’ve come this far, Red, maybe you’ll go a bit further. And that is really asking this question, “Hey, EntStrategyGuy, does this matter in terms of all Netflix’s viewing? Nielsen doesn’t provide that, do they?”

No, but Netflix has!

In two different earnings reports, Netflix reported that they make up about 100 million hours of viewing per day in the US. (In the 2018 end of year report and again in 2019.) Let’s make some scenarios to cover our bases. First, we could assume Netflix has grown somewhat during Coronavirus. That’s the high case, and I’ll use Nielsen’s estimate of 44% growth from this year for that. But Netflix could have been cherry picking their 10 million hours per day number too, so I’ll use the lower estimate of 6% of all viewing Nielsen estimated in Q1. That gives us this range:

Screen Shot 2020-12-08 at 2.01.32 PM

Is 6% a lot of content to lose? I’d say yes, and we don’t know how losing Friends impacted them because we don’t have the data. The good news is Grey’s Anatomy isn’t going anywhere as long as it stays on the air. The bad news is The Office is gone this month. (I’m not sure for NCIS or Criminal Minds.)

One bonus insight: Folks may be tempted to say that the higher viewership of licensed shows happens during times when content is weak. This actually isn’t true. Netflix’s highest viewership of originals actually peaked this year in March, according to Nielsen, and licensed shows saw higher numbers during that time period. 

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Discovery+ Is Almost As Big as the Warner Bros 2021 News – Most Important Story of the Week: 4 Dec 20

Well, after two and a half years of writing this column, I’ve finally come to a tie. Sure, the buzz is with Warner Bros and the decision to finally end the exclusivity part of the theatrical window. Every columnist from here to Timbuktu will feature that in their entertainment newsletter this week.

And yet, Discovery+ feels as big. I could even make some back of the envelope numbers work for it too. Discovery makes $11 billion in revenue every year, which is, funnily, the same size as the US box office. If Discovery+ is as big of a success as David Zaslav hopes, that feels as important as the $10 billion a year theatrical window. (And that’s assuming theaters die completely, which is unlikely as I’ll cover below.)

But sure, I hear you. You want thoughts on both. We’ll start with Discovery+, and move to Warner Bros big plans.

Most Important Story of the Week – Discovery Announces Discovery+

Maybe it’s just the contrarian in me, but I’m fine with Discovery’s late entry to the streaming wars and their general plan. Actually, “fine” probably doesn’t cover it. I think this could be a shockingly strong entrant, given how many folks have given Discovery up for dead.

Let’s start with Discovery’s biggest strength, which is owning its own content library. This is one of the first things that Discovery pointed to during their announcement of Discovery+ and it’s a great thing to point to. There’s the old saying that you don’t make money making movies, you make money owning a content library. Well, Discovery has that with, as they said, 55,000 episodes of reality TV to provide. Sure, this isn’t “buzzy” content like Disney or HBO’s libraries, but it is a lot of content. And it’s valuable to different demographics.

Discovery is late to the streaming game, but in this case, I don’t think that’s the worst outcome. As I’ve been writing a bit over the last few weeks, the name of the game is building streaming revenue while not obliterating the more valuable cable revenue. And don’t kid yourself, that revenue is valuable for Discovery. Here are their affiliate fees for their top four channels on linear TV:

Screen Shot 2020-12-04 at 11.41.09 AM

And that’s leaving out a few channels and all their advertising revenue. In other words, for every customer that leaves traditional cable for streaming, Discovery will lose money. So they waited as long as they could. Plus, Discovery probably figured that their customers are some of the laggards in cord cutting, so they could hold off as most of the early adopters of Netflix were hungry for prestige, scripted content, which isn’t Discovery’s forte anyways.

Discovery also flies under the buzzy radar. If you use linear viewing as a proxy for overall value, Discovery doesn’t have a presence in the top five channels. But after that? Yeah, Discovery is basically the channels to go to watch something pointless in the background, especially after the merger with Scripps:

Screen Shot 2020-12-04 at 11.41.37 AM

Even if you, the New York or Los Angeles Millennial/Gen-Xer, don’t watch those channels–and in some cases look down on those who do–tons of folks do watch. (Maybe even folks you know. We just don’t talk about it…) And since this isn’t buzzy content, those primetime ratings probably undersell Discovery’s content a bit.

To finish, this is also a great “zig while others zag” move. HBO Max and Disney+ went right at Netflix, Hulu and Prime Video with scripted content. Discovery is playing a different game and it will be interesting to see if it works. (To be fair to Disney+, it has its share of cheaper reality content too.)

What’s Next? A Merger with A&E Would Make Sense

The other distinctive part of Discovery’s plan is to include some A&E content in the lineup, specifically from their more reality/lifestyle brands. I haven’t heard anything specifically, but you’d have to wonder if Discovery has floated buying out Disney’s 50% ownership so that they could get a near stranglehold on cheap reality programming. Adding the buzzy A&E channels would also help Discovery brace for the reduced channel lineup world with even more channels to negotiate with MVPDs and vMVPDs.

The What If? Netflix Had Bought Discovery…

In a lot of ways, Netflix knows how valuable Discovery’s content is. That’s why so many of their shows are clearly in the mold of Discovery programming that has left the service or will leave as Discovery+ launches its own programming. Nature programming? Netflix is building that. Shows where folks buy houses? Sure. Shows where folks renovate houses? Check. Cooking shows? Check. Cooking shows that are just reality shows? Check that box too. 

The problem is Netflix has to buy or rent it all. And they can’t replace nearly that volume or for nearly that price. From scratch. Can you imagine if they had bought Discovery a few years back and could add 55,000 episodes to their catalogue? Heck, even the cash flow from Discovery would have made Netflix breakeven. I’m not a fan of M&A as a strategy in general, but this move would have made sense to me.

Most Important Story of the Week – Warner Bros. Sends Their 2021 Slate “Straight” to HBO Max

If AT&T was reading my advice, they’d have seen a few pieces urging them not to release films straight to streaming. Like here. Or here. Or here. If anyone on the Internet writes about how valuable the theatrical window is to traditional movie studios more than I do, I’d love to see it.

My thesis is simple: skipping multiple windows decreases the overall revenue of a given film. Even today I was tweeting that:

Yet, multiple big studios seem to have said by their actions that I’m wrong:

– Disney’s Studio chief speculated that that several live-action adaptions would be headed for Disney+.
– Warner Bros. moved Wonder Woman 1984 straight to HBO Max on Christmas.
– Universal launched a new partnership with theaters for a new 3-week premium window for their films.
– Then, the big move, Warner Media moving its entire 2021 slate to a “day-and-date” HBO Max window with theaters.
– (Plus, there has been a lot of speculation, including hints from Disney, that on their investor day next week they’ll announce an expansion of their premium plan.) 

Who are you gonna trust, some guy on the internet or all the studio heads? Taken together, this seems like a clear indictment of my belief that studios will make more money by keeping theaters around then going straight-to-streaming. 

So how do I explain this discrepancy? Well, I did that over at Decider. And I have four reasons:

            – Clearly subscribers are the only metric that matters to Wall Street.

            – If you’re in the growth phase, losing money to gain subscribers makes some sense.

            – Covid-19. Covid-19. Covid-19.

            – The calendar is going to be jammed in 2021 anyways for box office.

For the details, head over to Decider. 

Yet, while I explained why this move happened, I didn’t explain what happens next. Because I don’t know. Because I can’t predict the future. Still, that’s the fun part, right? And there is one key tradeoff that will impact all the players. 

The Big The Tradeoff (Defined)

The best article I’ve read this year is from Doug Shapiro’s “One Casualty of the Streaming Wars: Profit”. Shaprio focuses on TV in that article, roughly arriving at the idea that TV in the United States is something like a $110 billion dollar industry. And one with some of the highest profit margins around.

Well, theaters are an extra $10 billion piece of that pie in the United States, of which the studios take home about 50%. Moreover, that leads into a fairly lucrative window of purchasing, whether formerly of physical discs, but now mostly digital sales. Which is billions more. 

As Shapiro quantifies, this streaming window just doesn’t have the same margins or volume as the old theater to home entertainment to premium to secondary windows model had. There are lots of folks who insist this isn’t the case, and they usually base their view on rosy customer lifetime value scenarios. But the math is the math. (Even if Celebrity Wall Street Media Futurists insist it is the case.)

This is why studios held off from going straight-to-streaming for so long. They don’t want to add $10 billion more in lost revenue to the huge potential lost revenue coming too. As I wrote in Decider, though, they may have finally been forced by this once in a century pandemic. 

This also explains why the studios all have different plans. No one quite knows what the right new distribution plan, but straight-to-streaming by itself likely won’t cut it. Here’s my landscape of the current situation:

IMAGE 1 - Approaches to Theaterical

Or this septet chart: 

Screen Shot 2020-12-03 at 2.57.33 PM

 What does this mean for all the parts of the value chain? Let’s explore. 

Theaters

One of the big questions is whether Warner Bros. had a plan for the theaters. The answer? No.

As of now, the theaters won’t get an extra piece of the theatrical pie. I expect this to change and both sides will keep negotiating, but if theaters don’t get on board, then a lot of extra revenue is at risk. 

Let’s assume Warner Bros (and Disney if they follow a similar course with “Premium Access”) eventually come to terms with theaters as Comcast did. What does this mean for the future of theaters?

Well, I don’t know. Here’s a range I’d give you: theatrical revenue could drop to $0, or stay the same ($10-11 billion per year) or even grow. And that’s in the United States. In China, where the streamers aren’t allowed, there will be much less change. 

If I had to bet, I’d guess theaters definitely lose some theatrical window revenue. How could they not when subscribers could watch the films for free? On the other hand, Comcast’s plan may not change things very much. And Disney hasn’t committed to this path for all films. 

Yet there is a large range from “lose some” revenue to “wiped out to zero”. (Which I saw headlines touting the “death knell” for theaters. Death knell implies zero.) It’s very rare for an industry to go to zero overnight, and even if theaters are losing some revenue, like DVDs it will likely take decades to truly, if ever, disappear. 

Plus, if the losses mount without driving huge subscribers growth, or tapping out at some level, theater only windows could subtly creep back into our lives.               

Smaller Studios

Meanwhile, without streamers boosting the bottom line, it’s tough to see what Sony and Lionsgate do from here. In some ways, theaters may appreciate their films even more since they are—for now—exclusive to theaters. You could also expect some “arms dealing” as some of the streamers vie for their films as they’ll need inventory. (Amazon and Netflix)

Still, if the overall theatrical pie shrinks (say some theaters go out of business), that’s bad for the smaller studios overall, especially as streaming will eventually pay less for films. (See below.) 

Other Streamers    

For Warner Bros in particular, this move will be great for HBO Max adoption. Though how great, sort of like for theaters above, remains to be seen. It’s not like HBO didn’t have a supply of top tier theatrical films. They’ve always had a steady selection of Warner Bros, Universal and Lionsgate films in the first window after home entertainment. It’s unclear how much bringing films 3-6 months early will boost the perceived value.

Still, even more than buzzy TV shows, theatrical films are great at acquiring new subscribers. This is the dirty secret of most straight-to-streaming films by Netflix and Prime Video. Yes, they’ve had some “hits”, but nothing compares to true box office blockbusters like Avengers, Star Wars or animated kids films. The key question though is what drives that: is it the films themselves, or the marketing of the films which builds anticipation? If HBO Max drastically cuts marketing budgets with less theatrical revenue coming in, then maybe these films don’t play as theatrical releases on streaming.

I’d be willing to wager that Netflix’s films will keep doing well on their platform, but the HBO Max slate in 2021 will likely beat it overall in terms of minutes viewed (in the United States).

As for Apple TV+, they have the biggest opportunity here. If they committed to theatrical and big back end, they could easily become a go to spot for filmmakers. Plus, Richard Plepler has the cachet to make this work.

Production Budgets

Right now, HBO Max, Comcast and Disney are making a lot of release decisions for films that are already made. Those are sunk costs. Meaning they are just trying to maximize what they can going forward.

However, with these new models, films that are greenlit going forward are in this new reality. And if the new, streaming only reality really does have less upside than the old model, then something has to give.

Doesn’t it?

That’s why, when I first heard about Disney+ floating the idea of some of their live-action films going to Disney+, my response was “Oh, they’ll lower the budgets.” Even Alan Horn mentioned that going straight to Disney+ would save on marketing costs. But that was fine because no one cares about cutting costs on marketing. 

Folks do care, though, if you skimp on production budgets. (And talent cares about their pay!) Making a film that could cost $80 million for $20 million feels cheap. But it’s also inevitable. Again, Disney Channel, HBO and even Lifetime have made movies for years for TV. But they know that a movie going straight to TV has a limited upside, so the budgets are similarly limited.

That’s something to watch in 2021. If films really aren’t marking as much going forward, something has to give.

Talent and Backend

This is the biggest wildcard for me. Right now, the current workaround to go straight to streaming is to just guarantee more payment to top talent up front. This has its own risks, though. Mainly that instead of shifting the risk of backend to only guaranteed hits, you essentially make every film a “hit” in terms of talent costs. That hurts the bottom line.

So again, something will have to give. Either talent will make less money or the studios will.

Data of the Week – Daytime TV Viewing Is Up

I just wanted to point out this fun article from Nielsen because it is the worst indictment of working from home imaginable, and I think more managers should be aware of it. If your employees have time to watch TV, you need less employees. (And probably fewer Zoom meetings, not more.)

“The Mandalorian vs The Queen’s Gambit: Who Won November” at Decider

In what is now a recurring column, over at Decider I took a look at all the ratings data I could find to declare the streaming winner in the US for November. This one is packed with with charts, tables and data.

(If you’re curious for the older editions, here’s September and July.)

Also, I discuss the latest Nielsen streaming data in this thread:

Read My Latest “‘Freaky’ is The First Test of Comcast’s Big New Release Strategy”

It’s fascinating that between now and essentially March, Universal will be the only studio releasing films to theaters. And it’s able to do so because of its big “PVOD after three weeks” strategy it announced with AMC Theaters (and since others) in March.

The first film under this new partnership debuted two weeks back, Freaky, and The Croods 2 debuts today in whatever theaters are open in America. So what do I think? Check out Decider to find out.

Wonder Woman 1984 and the Messy Estimates of Customer Lifetime Value – Most Important Story of the Week: 24 Nov 20

HBO Max made lots of news last week. First with a deal with Amazon. I thought nothing could top that. Then they announced that Wonder Woman 1984 was going to HBO Max. That’s a big deal, so let’s make that our story of the week.

Programming note: I delayed last week’s column to today due to the shortened work week for the U.S. Thanksgiving celebration on Thursday. I’ll be off until next Monday.

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Most Important Story of the Week – Wonder Woman 1984 to HBO Max and the Messy Estimates of Customer Lifetime Value

One of my favorite media criticisms comes from Ryen Russillo, formerly of ESPN and currently of the Ringer. He brought up the point that whenever a radio or TV personality says the phrase, “And frankly, it isn’t even a DEBATE!” it usually means it is definitely a debate. In the spring, the basketball version of this was folks saying, “Michael Jordan is the greatest basketball player to ever live, and frankly, it isn’t even a DEBATE!” Of course, it is absolutely a debate since LeBron James has a terrific case.

(And crazily enough, both sides are wrong. Kareem Abdul-Jabbar is the greatest to ever play. And frankly, it isn’t even a debate.)

Do we see this in the streaming wars? Of course. My Twitter feed is filled with folks letting me know that Netflix has already won the streaming wars, and frankly it isn’t even a debate. (Reminder from last week’s article, the more a person tells you the more certain they are about the future, the less you should listen to them.)

The news that HBO Max is moving Wonder Woman 1984 to HBO Max for one month in December brought out a lot of hot takes about streaming, theaters and the future of film. Including some, “This isn’t even a debate”-type commentary. This baffles me given how many known unknowns, unknown unknowns and assumptions we have to make about everything related to film right now. Today, let’s debunk some of the worst takes. Or, if not quite debunk, more try to cast some doubt on them.

Starting with the biggest known unknown of HBO Max: the value of a subscriber. Because once you see how little we understand about it, you’ll understand why I’m so hesitant to make a lot of predictions.

Estimating Customer Lifetime Value for HBO Max is Nigh Impossible

One of my rules to live life by is that “Strategy is Numbers”. If you read a media analyst, but they don’t use any numbers, well you should be very hesitant to trust them. (And by numbers, I mean predictions with dollar signs.) They don’t need to have all numbers, but if they don’t use any models to forecast, well they are likely more soothsayer than business strategist.

Thus, when it comes to analyzing Warner Media’s decision to release Wonder Woman 1984 to HBO Max, if I’m taking my own advice, it would seem like the best place to start is with some numbers, right? After all, I”ve done this math for The Irishman and Extraction on Netflix. Surely I could do the same here?

Not at all!

For all the gruff I give Netflix about hiding numbers, they provide a fair deal of information about the performance of their business (because their business is only streaming and they have to comply with SEC regulations, if they didn’t provide the details, they’d be providing nothing). This enables us to estimate, with a good bit of confidence, the customer lifetime value of a given Netflix subscriber.

Customer Lifetime Value (or CLV) is really the name of the game in subscriptions. It’s the financial tool that says, “Hey, if you attract this many folks, this is how much money you’ll make in the long run.” As I’ve written before, it can be used and abused, but it’s why Wall Street loves subscriptions for everything. (Basically, recurring revenue.)

Here’s the thing: if you don’t know any of the inputs, you can’t calculate it. Or even estimate it. Because little swings can have huge changes to the output. Moreover, CLV is an estimate. Meaning a forecast. Meaning a prediction. Predictions are more accurate with lots of data. And they can still be wrong. Frankly even HBO Max has very little data on HBO Max, because it’s only been around since May.

Here’s how little we know about HBO Max:

– First, we don’t know the average revenue per user of an HBO Max subscriber. AT&T doesn’t break out HBO Max and HBO subscribers separately. We don’t know their splits with device manufacturers or have any historical data.
– Second, we have no idea what it costs to acquire an HBO Max subscriber in marketing.
– Third, and most important, we have no idea how long a new HBO Max subscriber will hang around. If it’s 12 months, that’s pretty bad. If it’s 36 months, that’s pretty good. I’ve seen one estimate of this, but it came from the summer, right after HBO Max launched. No one knows if that number will be above or below trend. Moreover, even HBO Max doesn’t know this number, because it is happening in the future!
– Fourth, we don’t know how much Wonder Woman 1984 would have grossed at the box office either. And now we never will.
– Finally, none of this matters since the real question isn’t what is the value of a new customer, but what is the value of HBO Max on the CLV of an existing HBO subscriber. Meaning, what is the value of an “activation” which is the AT&T term for someone who downloads and logs into HBO Max. Again, we won’t know this for years.

If you don’t have CLV, you can’t even begin to answer the question, “Will Wonder Woman 1984 make money?” or the related, “Should they have waited to release it in the summer?” All the other methods to do this–taking a month or year of subscribers and attributing them to viewers–end up either double counting customers or making every other piece of content worthless on the site. (In short, if a customer signs up to watch Wonder Woman 1984, but then binges all of Game of Thrones and stays for a year, why does WW84 get 100% of their subscriber revenue? See that doesn’t make sense.)

Now that we know how little we know for this key variable, we can “debunk” the strangest narratives about HBO Max following this announcement. 

The HBO Max/Wonder Woman 1984 Hot Takes

1. Warner Media will Make Much More Money with This Strategy

How would you know? I just showed how uncertain the math is, so how could an analyst with way less data make that claim? This ties back to my introduction. The reason why Warner Media struggled so much with the decision to move Wonder Woman 1984 or release it to HBO Max is because they know as little as we do. They had to make a call, and it was clearly a tough debate, with likely evidence that they could lose or make lots of money with either decision. So how can an analyst outside Warner Media confidently predict the future?

2. This Will Kill Theaters

We don’t know if Warner Media will make any money off this release (and in lots of scenarios they’ll still lose money), so why wouldn’t they keep sending films to theaters? Instead, one thing is killing theaters right now, and that’s Covid 19. Full stop. If the virus were under control, then Warner Media would be happily planning on Wonder Woman 1984 being the big Christmas Day film.

3. Warner Media Will Pivot to “Day-and-Date” for Future Films.

I’m sure there are some folks inside Warner Media debating and even advocating for this future. But then there are likely others pointing to the economics of theatrical releases showing that having a theatrical window has some clear benefits for movie studios, mainly much more additional revenue. Meanwhile, any idea that this “test” can provide future guidance means accounting for the coronavirus, which is a tough variable to pull out of the analysis!

4. Alternatively, Warner Media Definitely Should Have Waited on Wonder Woman 1984

I’m not so sure. HBO Max needs a win, and this looks like a great opportunity to convince a lot of folks who don’t use HBO Max to try it out. If it turns out that a one-time blockbuster can single handedly boost usage, I can see how that’s a big win for Warner Media. A billion dollar box office win? I don’t know, but I won’t dismiss it out of hand.

5. Wonder Woman 1984 isn’t HBO Material

This is maybe the take that shows the least understanding of the HBO subscriber base. Sure, on the coasts, especially in the business, we think of HBO and think Emmys/Succession/Euphoria. Big critically acclaimed shows that drive “the conversation”. But guess what? Every Saturday HBO debuts a big new blockbuster film, including all the DC films and hosts of other big blockbusters. After all, it is the “Home Box Office”. HBO is known for this by customers as much as anything else. Wonder Woman 1984 isn’t a departure from HBO programming, but a reinforcement of it.

6. Amazon/Roku Did/Will Make a Deal Because of Wonder Woman 1984

No, they made a deal because they came to terms. These are 3-5 year partnerships. No big film, no matter how buzzy, will make one of these deals happen. Frankly, it just doesn’t move the needle enough. It may have helped some of the accounting on the HBO side, or provided some pressure, but on the device side it mattered very little. (The Christmas season in general was more of a driver than this specific launch.

End of the Day: We Don’t Know if Wonder Woman 1984 Will “Make Money” on HBO Max

Frankly, even getting the return of just its domestic box office haul, in the hypothetical non-Covid 19 world, will be tough. Yet, given how much HBO Max needs to pull in subscribers, this deficit financed maneuver may be worth it. Will it set trends for all future releases? Doubtful, unless lots of actors are willing to take pay cuts on current projects. At the end of the day, this is a big decision but as for whether or not it was a good call or bad call remains to be seen. (And likely we’ll never know.)

Context Update – A Second and Third Vaccine

By the end of 2021, society will be in a better place than it is right now. If for no other reason than Covid-19 has a good chance to be under control. Of course, variables could still stymy this, from a double dip recession to unwarranted vaccine fears preventing widespread vaccination. Still this is good news. In the summer, many headlines worried that Covid-19 wouldn’t be responsive to a vaccine. Those fears have been almost entirely dismissed (and evidence is increasingly showing a vaccine could be good for multiple years even), which is great news for the economy in the long run.

(We just need a good transition of government in the United States to ensure vaccines are distributed as quickly and effectively as possible. We also definitely need additional stimulus. Both of these scenarios are at risk.)

Other Contenders for Most Important Story

Speaking of the HBO Max/Amazon Deal…

This likely would have been the biggest story of the week but for the Wonder Woman 1984 news. Ultimately, though, like most big deals, we know very little about the terms. From what I can tell, the deal does seem like a bit of give on both sides. HBO shows will stay on Amazon Prime Channels until the end of the year while HBO Channel subscribers get access to HBO Max. As for everything else (pricing, marketing agreements or content sharing), we just don’t know.

The most important variable, for me, is that HBO will ultimately control the user experience. We often talk about “controlling the data” and that is important. Obviously. But for streaming, controlling the UX is much more valuable. Truthfully, Prime Channels does a terrible job featuring third-party series and films, and HBO Max is a much better experience. That’s the win for HBO Max here more than anything else.

The next question is when does Roku do a deal with HBO Max? Some folks say a deal is close, whereas others say it is far apart. Likely they are “negotiating in public” but it will be fascinating to see how it ends up.

Disney Live-Action Films Headed for Disney+

The news is that Disney is considering putting some of its live-action remakes straight to Disney+. Unlike Wonder Woman 1984, this is much more “signal” than noise that Disney could change release plans. Still, there is also some Disney obfuscation of how much of a real change this is, which is what you expect from any streamer.

The key for Disney isn’t how it releases these films, but what budget the films are. My guess is that if these films were destined for theaters, they’d be 9 figure production budgets. When they go to Disney+, my guess is they’ll be around a quarter to half that. Disney could say it’s only about the marketing budget, but I think the production budgets see a hit too. If that’s the case, then it really isn’t that Disney is releasing theatrical films to streaming, but straight-to-video films to streaming. 

Roblox IPOs (and is losing money?)

Roblox released its “S1” to file publicly on the stock market. Like every digital company, it loses money every year. The key question is whether it loses money in as bad a fashion as others, and from what I can tell the cash losses seem to be exactly what Roblox spends on R&D. Assuming the R&D is accurately classified (not actually COGS). The worry here is that while Roblox saw nearly 100% growth in the Covid-19 lockdown, it saw its losses quadruple. 

Roblox is like most digital companies executing the underpants gnomes digital strategy: attract users, something something something, profit.

Rick & Morty Are Very Popular

In a world with no ratings–which we don’t live in, but it feels like it–you could always default to another metric: where the money goes. In that world, Rick & Morty may be one of the most popular shows on television. The latest product the animated show is pushing is the Playstation 5, but that’s just the latest in a long line of product tie-ins. The other candidate for this is Stranger Things, which did a ton of branding last summer, but even there traditional TV has an edge. Rick & Morty is coming out much more frequently (about twice a year) and replayed much more often, which helps advertisers.

Netflix and Cinemark Testing The Christmas Chronicles 2 in Theaters

Lastly, as theaters are “dying”, Netflix is partnering with Cinemark to release Christmas Chronicles sequel to theaters. See, Covid-19 makes strange bedfellows of us all. I love this move for Netflix since theaters will provide straight revenue to the bottom line.

M&A Updates

Lastly, Buzzfeed and HuffPost are merging. This is an interesting merger more than anything, because it is unclear to me that this new scale will save either firm’s underlying traffic problems.

Why Most Netflix Subscriber Charts No Longer Include the US Only Numbers – Visual of the Week

This week’s “visual of the week” is a simple one: the number of Netflix subscribers in the United States over time. (You should know the top line number from my chart last week.)

One of my goals with this series isn’t to make all brand new charts, but update some of the best visuals. Last year, one of my best articles was showing how many subscribers Netflix has had over time. The challenge? Netflix changes definitions all the time on us. Meaning making an “apples-to-apples” chart is fairly difficult. This is why most US subscriber charts start around 2012, because that’s when Netflix started separating US streaming subscribers from DVD subscribers. (Technically they provided the 2011 numbers, but for some reason most subscriber counts couldn’t find that 2011 data comparison.)

Earlier this year, Netflix changed definitions again. They combined US and Canadian subscribers to make UCAN. So going forward, we won’t see many “US only” charts since most outlets don’t publish estimates. But I do. Since US subscribers are about 90.3% of UCAN subscribers, I use that to estimate.

Here is the update for Netflix subscriber definitions in the US over time:

NFLX Subscribers by Type

And in chart form.

NFLX Subscribers Over Time

Quick Thoughts

– In other words, every different color in the chart above is when Netflix has changed definitions. Last year, my goal was to find total subscribers, including paying DVD subscribers.

– As for forecasting, in Q3 of last year, I though Netflix would end the year with about 60.1 subscribers and they ended up with 61 million streaming only. Earlier in the year, I’d estimated 60 million subscribers, and I ended up being fairly close (off by about 1.6%). (Notably, my back of the envelope calculation that the price increase was needed to offset cash flow losses hit the 61 million on the head.)

– My other big prediction is that Netflix maxes out at about 70 million total subscribers in the US. So far we’re on track for that, but the Covid-19 lockdowns threw off all the timing. Mainly because Covid-19 pulled forward a lot of subscribers. Which will make 2021 fascinating to see if Netflix continues to add US customers, or if it slows down. (Already Netflix is seeing quarterly fluctuations in the US/UCAN numbers, with three quarters less than 500K adds and one quarter losing US subscribers last year.)

– As for the end of this year, Netflix is currently at 73.1 million UCAN subscribers and my hot take is that I think they stay at about that level for the end of Q4. I could easily be wrong, but it seems safer to predict flat growth with Netflix more than it does high growth. 

– If you’re new to the Entertainment Strategy Guy, these three articles on Netflix are much deeper dives into how I gathered and calculated these Netflix numbers.

Jan 2019 “Prediction Time: Forecasting the Effect of Netflix’s Price Increase on US Subscribers”

Sep 2019 “Why I Think Netflix Will End Up with 70 Million US Subscribers: Applying Bass Diffusion To The Streaming Wars

Oct 2019 “Why Most Netflix Charts Start in 2012: A History of Netflix Subscribers”

Is Prime Video Fifth Place in the Streaming Wars?: Explaining the EntStrategyGuy’s US Paid Streaming Subscriber Estimates- Part II

(This is the last article in a three part series estimating how many US paid streaming subscribers there are in the US. Read the numbers here, and the first half of the explanation here.)

If you’re wondering, yes, I deliberately wrote three (almost) contradictory headlines for the last two days. In one, Netflix is clearly winning the streaming wars. In the other, Disney is almost winning. In the third, the often second place streamer, Prime Video, got ranked in fifth place. What’s the reality?

Somewhere in between. Or somewhere else entirely.

That’s what the point is for these articles the last two days. Not just to see the current subscriber totals, but to understand the nuances between them. To understand how the numbers interact so we can not just figure out not just who is winning the streaming wars, but what could happen as they get more competitive in the next few years.

Today, I’ll continue explaining how I estimated each streamer’s subscribers, but let’s start with why I did this analysis. At the end, I’ll put some fun charts that summarize this analysis.

The Reasons I Did This Deep Dive 

As I’ve been analyzing the streaming wars, it’s been increasingly clear that this is a war fought on a country-by-country basis. Netflix’s global growth is incredible, but it is only one, likely overrated, part of the story. The actual battles are in individual countries. 

Given how big and important the U.S. market is, it makes sense to start there. Since I’ve been evaluating who is “winning” the streaming wars, I needed to know how everyone is doing in America. Subscribers are one of those key metrics. However, if you search the interwebs, you won’t find a reliable estimate for each streamer. Thus, I needed to build these numbers myself and if I was going to do the work, I should share it here. 

Not to mention, I have a bias against using other folk’s numbers. My rule of thumb is that I don’t trust anyone. Especially if the source of a number is vague/uncertain/biased.

Lastly, I can do this analysis because I’m freed of some journalistic conventions. This website features my thoughts and analysis. Most journalists can only cite specific facts via companies or well-established consultancies/investment research. That’s what leaves most estimates wanting. Since I’m allowed to print whatever I want, I can mix estimates with facts. But I’ll just tell you the difference.

Analysis Continued: How I Determined Each Number

Prime Video

Time for some guesswork. 

As I wrote Wednesday, this will require an estimate of an estimate of an estimate. Or a guess.

First, we have to find the number of Prime subscribers globally. (Itself unknown.)

Second, we have to figure out the proportion who are in the US.

Third, we have to figure out how many actually use Prime Video.

Fourth, we have to guess of those who use Prime Video, how many use it and would pay for it?

Like I said, some guess work!

To start, I looked for US estimates of Amazon Prime subscribers and couldn’t find any numbers I loved. One firm does an annual survey, but they estimated 126 million US subscribers the same month Amazon announced 150 million worldwide Prime subscribers. That’s way too high then. However, the estimate isn’t for Prime subscribers, but folks with access to Prime. (Always ask “What is the ‘what’ in this statistic?”) So you could divide their number by 2.2 (for the number of people per household), and get the potential number of subscribers of around 50 million Prime subscribers in the US. That’s a floor.

On the other end, you could assume Prime membership is related to sales in a given country. Since Amazon breaks out revenue by United States versus Rest of World, we can see that here:

IMAGE 8 - AMazon Rvenue

If that’s the high and low ranges, then what I’ll do is take Amazon’s announced membership in January (150 million), and use some nice round numbers. (And yes, I didn’t model any Amazon growth this year, so yeah, more unknowns on top of unknowns.) 

The next question is how many folks actually use Prime Video. We could use third party sources for that—hang on a moment—but it’s worth building out the sensitivity table just to see how wide the range could be. I made a “Monthly Active” users sensitivity table to give myself a range.

IMAGE 10 - MAUs

If someone uses a service monthly, they are much more willingly to keep paying for it if they have to. (ie. if Amazon some how took Prime Video out of the Prime membership.) I also took a look at “annual active users”, but the range was too wide to be useful.

But I had one other piece of data floating around in my head. See, various streamers like Nielsen and Comscore track streaming usage. And Prime Video and Hulu have been remarkably close over the years. 

IMAGE 11 - Nielsen Total Mins copy

That image is from earlier this year, when I wrote that “Netflix Is a Broadcast Channel”. In other words, if Prime Video has about the same usage as Hulu, it stands to reason it will have about the same number of folks willing to subscribe (at a $6 price point). Prime Video looks like it has grown a bit compared to Hulu over the last few years, but in general, they have about the same amount of usage.

What about the range? Well, you could convince me of anything. For my table above, I could see literally as few folks as CBS All-Access (say about 12 million). On the other hand, maybe folks do value Prime Video more than Hulu. So I could see it up to say 50 million US subscribers. (I just can’t imagine it is as valuable as Netflix when few folks watch nearly as many Prime Video shows.)

Starz

Starz, on the other hand, provided us all facts. In fact, some of the best facts of any of the streamers. While they have changed definitions a few time, they straight list out their past numbers. See?

IMAGE 12 - Starz IR

Kudos for the transparency!

However, like HBO Max, the number of potential “streaming” subscribers is somewhere between the total of all linear and OTT subscribers, and the OTT subscribers only. You can decide where you think that falls, but I count them all for now.

Apple TV+

Now back to the guess work!

Apple has had a good year for Apple TV+, but they refuse to release any numbers on its performance. Complicating things, Apple TV+ is also available globally. This was the same problem we ran into with Disney+, only with less data. The last leak we had was from Bloomberg in February, which estimated that about 10 million folks worldwide are signed up for Apple TV+, with the caveat that maybe half are actually using the service. 

Time for the proxies. Since Apple TV+ is mainly for folks buying new devices, we’ll start there. If you want to analyze potential subscribers by iPhone sales, the best proxy for penetration, here’s the non-China iPhone sales numbers from 2017, according to Business Insider:

IMAGE 13 - iPhone Sales

My logic for Apple TV+ was to take that rough percentage, and boost it slightly for the US, given that most Apple TV+ content is US focused. Then we’d add a 35% “Covid bump”. (Roughly what Starz and CBS All-Access saw this year.) Bingo, we get our guess of 6.8 million customers. 

What about the range? Like Amazon, you could convince me of anything. The high could be all 10 million leaked customers were US based (or nearly so) and the Covid bump got it to 13.5 million. The low would be 2 million folks, all of whom are Ted Lasso fans. (The buzziest show among entertainment business Twitter after Succession.) 

AMC

More facts from AMC. They’ve leaked that they expect their portfolio of streaming services to end the year at around 4 million US paid subscribers. To be clear, this is me cheating slightly since their premiere service AMC+ (which includes content from their other streaming services) may not have passed the 2 million threshold. I’m counting all their streaming subscribers, when you could argue they belong with the “niche” services. Still, they expect to pass the 5.5 million mark by the end of the year. So that’s the high point, with 4 million being the low. 

(I haven’t written on AMC+ yet, but I am bullish on it as a “second tier” player. More to come.)

Peacock

Last guess. Peacock has 22 million “sign-ups”, up from 10 million at their first earnings report after Peacock’s launch. So how many of those are paying? 

I have no clue. None. Zip. Zilch.

But it’s likely small. Given that Peacock is advertising forward, the vast majority of users are likely interacting with it that way. (Of all the companies, I’d love this data point most of all. Well, maybe Apple TV+, then this one.) So I built a sensitivity table, and picked 15% as the number that made sense to me. I’d say the floor is 2 million (just making this list) and up to about 20% of subscribers, or 4.4 million subscribers, if folks are beating my estimates.

The Comparison Table

So with that, let’s make a few final fun tables. First, here’s the chart of my ranges of each estimate. In a lot of ways, this is more valuable than yesterday’s chart:

IMAGE 14 - Min Max Table

These ranges really tell us how wide the potential options are. Hopefully, we learn more over time, but you can see that the premium linear to streaming conversion will be an important statistic to monitor.

And now the confidence ranking table.

IMAGE 15 - Confidence Table in Rank

In other words, you can quickly see who provides clear numbes, who we can confidently estimate and who is the guess work.

Lastly, here’s my full table with the definitions and calculations explained:

Table - Full US Sub Estimates

So this provides a short hand way to know how I calculated the numbers.

Hope you enjoyed and again provide your estimates or feedback in the comments or on Twitter.

Disney Has Almost Caught Up To Netflix in the Streaming Wars: Explaining the EntStrategyGuy’s US Paid Streaming Subscriber Estimates- Part I

(This is the last article in a three part series estimating how many US paid streaming subscribers there are in the US. Read the numbers here, and the second half of the explanation here.)

I’ve become a pinch frustrated with media folks who don’t differentiate between the US subscribers compared to global subscribers. Why? Because it violates the number one rule of data, which is to compare things “apples-to-apples”. Meaning, one should compare the most similar numbers to each other. 

Not to pick on them because they do great work, but the wonderful Axios Media Newsletter (which reaches a lot more folks than I do) was guilty of this this week:

IMAGE 1 Axios - Total Subscribers

That looks at Netflix’s global numbers to HBO Max’s US only numbers. That doesn’t make sense, does it? Meanwhile, it’s compares Prime Video customers, who get it for free, to those genuinely paying for Netflix. And Apple TV+ can’t make the list since we know nothing.

So, as I wrote yesterday, I stepped up to provide some estimates for each of the major streamer’s US subscriber totals:

Chart - Updated Totals not title

And the chart. (With some typos fixed from yesterday.)

Table Abbreviated

If yesterday is the data shot, today is the analysis chaser, describing the details of what I did and how. Which is just as important. If you read yesterday’s article, you’ll learn some statistics. If you read today’s—and yes it’s long—you’ll learn about what is driving these numbers.

We have a lot to get to over the next two days. Here’s the outline:

– The rules I used to estimate US subscribers.
– The confidence levels for each estimate.
– The explanation for each of the twelve major streamers.
– The reason for this deep dive. (Mainly the need for “apples-to-apples” comparisons.)
– Finally, a chart with the ranges for each streaming estimate.

(As a reminder, sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so.)

The Rules

In a quest to get to “apples-to-apples”, I had to figure out what type of apples we were dealing with. Here are the ground rules, in rough order of priority:

– First, US only. Global subscribers will come later.
– Second, subscription was the key. Free or advertising-supported services from Youtube to Pluto TV didn’t make the cut.
– Third, the goal is “streaming”, but I added “premium” channels too. Because frankly, lots of folks subscribe to HBO, Showtime and Starz directly. Ignoring that provides less context than more. So the premium companies made the cut. The linear channels paid through a cable bundle did not.
– Fourth, the goal is to focus on who “would pay” for a service. In other words, for Apple and Amazon, to try to figure out who would pay for those services if they suddenly cost money.
– Fifth, I had to draw a line somewhere or I’d have too many subscription services. I decided to focus on “major” services, which I defined as 2 million customers and above.
– Sixth, some services are very cheap as well, so I’m assuming roughly a $5 per month price point as the cut off. Yes, there are tons of discounts that get applied, but this is a good starting point.

My Confidence in Each Prediction Explained

Last year when I calculated how much money Game of Thrones made for HBO (a lot!), I realized I was dealing with a few different types of information. And I needed some categories to describe them. So I came up with this:

IMAGE 2 - Confidence Table

A fact is something a company has confirmed in a specific report or statement. Or in some cases ratings numbers and what not. Those are numbers we can believe in. Leaks are also from companies, but usually anonymous. They are fine, but always be careful with leaks. Companies are very self-interested and their PR folks—who are still good people—will mislead you. Specifically, with data that reinforces how well they are doing and hides any bad news. (The definition of bias.)

Estimates are predictions I am confident in. Usually it means I’m taking a few specific numbers and applying good models to them.

A guess, on the other hand, is usually when I have to estimate too many things. At which point my confidence in the estimate starts dropping. Which doesn’t mean educated guesses are bad, just uncertain. (Magic numbers are briefly explained here.)

Analysis: How I Determined Each Number

Enough preamble to the meat of this article. In order of the table above. 

Netflix

While Netflix discloses a lot of information compared to its streaming peers, on its US numbers it has become frustratingly vague. At the start of this year, Netflix decided to split the world into four territories to better show how its business is doing globally. Which meant for years we knew US subscriber numbers, but now those were bundled with Canada. Fortunately, they provided three years of data. Here you go:

IMAGE 3 - Netflix Subs over Time

In other words, US customers are about 90.3% of the UCAN total. That means we can estimate fairly well the current US subscribers based on the UCAN number. About 66 million US subscribers. Even though these numbers are so tight we probably don’t need it, I made a range for the estimate, and call this my 90% confidence interval:

IMAGE 4 - Est US Subscribers

(If you’re wondering where these numbers come from, I collected every Netflix subscriber number from here to olden times for this article. An update is coming next week as my “visual of the week”.)

Disney

Disney isn’t one service, but three. Two of those services aren’t globally available, which means we know for certain how many US subscribers they have. (ESPN and Hulu.) 

What about Disney+? Well, we have our first tricky estimating process. To figure it out, I looked for some historical data. To start, here’s my historical growth chart:

IMAGE 5 - Chart Disney Subs

That helps, but not perfectly. The best way to estimate Disney+ subscribers is to use some correlated variable we do know, and assume the subscriber numbers are related to that. For example, if a country is 25% of the worlds population, then you assume they are 25% of the Disney+ subscriber total. The problem is that no one variable is perfectly correlated. You could use population, but some countries are wealthier than others. You could use GDP, but it doesn’t quite account for size. Broadband and mobile penetration are also potential options. Ultimately, I decided to compare all the countries by population.

Yet this has a big problem for Disney+. The big wild cards are India and Indonesia. While most of Western Europe and Japan have similar economies to the US, India does not. Fortunately, Disney leaked that they have 18.4 million or so (a quarter) of their subscribers from India. So that means we now have to parse out how many of the 55.3 million or so are from the US.

In this case, I looked at various populations of the countries Disney+ has entered, compared to the total size.

IMAGE 6 - Disney Population Numbers

In other words, if countries adopted Disney+ simply by population, Disney has 40% of the population, so jeu would have about would have 22 million subscribers. That’s too low. When Disney first announced numbers in December of 2019, they’d have already been at 21 million subscribers using the population method. So did Disney+ only gain 1 million customers this year? With The Mandalorian season 2 and Hamilton? Probably not. So I made a sensitivity table, which netted me this:

IMAGE 7 Sensitivity Table

Looking at it, the 54% of non-Indian subscribers having Disney+ is the most likely number. Or better phrased, between 25-35 million of all Disney+ subscribers are in the US. Any lower or higher feels unrealistic. And yes, I wish I had a more scientific way of triangulating this. Frankly Disney has released so little US data, and the data they have released has so many confounding variables that it’s probably the best we can do.

(Also, for the first of several times this article, if you want to disagree, feel free to do so in the comments or on Twitter and explain why.)

About The Headline “Disney Has Almost Caught Up To Netflix in the Streaming Wars”

Yesterday, I also included the total unique subscribers by company, because I do think that is the best way to compare companies. (See the table above.) 

Logically, if Disney could get to 50 million Hulu subscribers and 50 million Disney+ subscribers, and each was paying $10 a month—and those are numbers that are only possible 3-5 years in the future—then it would be hard to say they aren’t “beating” Netflix, if Netflix stays at around 65 million subscribers, but at a say $16 price point.

To be clear, I’m not predicting that happening. But that scenario is one of the possible futures. The fact that Disney has nearly caught up to Netflix with its three streaming services in terms of customers matters since it’s just starting out, even if average revenue per user is lower right now. (And yes, I only counted the “bundle” customers once for my summary yesterday. I assumed that all the ESPN+ growth, 6.5 million customers, since Disney+ launched was due to the bundle, which is a conservative assumption.)

HBO

HBO releases US subscribers and the number that have turned on HBO Max, which they call activations. The number of folks who would subscribe to HBO Max (if linear HBO disappeared entirely) is somewhere between those two numbers.

I’ll defend my lumping premium subscribers with streamers now. Frankly, I’ve never understood the logic of not comparing HBO linear subscribers to Netflix subscribers. Yes, one is direct-to-consumer and the other is sold through MVPDs. But ultimately, the customer is what matters. And HBO customers are very loyal. If the bundle goes away tomorrow, some customers may not continue subscribing to HBO, but more will. (And still do, frankly. HBO passwords are as borrowed/shared as Netflix, especially when Game of Thrones was on.)

As for the range, it’s between the activations and the total subscribers. So I provided both numbers. I’ll take the top of that range as my estimate (for now), but you can choose somewhere in the middle.

(If you want more details on HBO subscribers over time, check out my visual of the week from a few weeks back.)

Viacom-CBS

If I was going to count all premium subscribers for HBO, it only made sense to do so for Showtime as well. Fortunately, Viacom-CBS has leaked quite a bit of details to the press over the years, and their financial report provides specific numbers for total streaming subscribers. (For this project, I searched for every number I could find.) For example, in September, sources told Joe Flint of the Wall Street Journal that Showtime had 27 million total subscribers, including 7 million OTT. (That’s a very useful leak, if accurate.)

Meanwhile, in their latest earnings, Viacom CBS told us that between CBS All-Access and Showtime they have 17.9 million OTT subscribers. Assuming that ratio has held constant since the summer, then CBS All-Access has about 11 million subscribers. We can confidently estimate that. If you want an error range, since Viacom has said that subscribers are about evenly split between CBS All-Access and Showtime, the low would be 50% of the about 18 million subscribers and the high is the opposite end of that, or about 12.5 million subscribers.

However, unlike Disney, I didn’t try to disentangle ViacomCBS bundled customers at the company level. While Disney’s growth could easily be attributed to their bundle, it’s much less clear how many dual CBS All-Access and Showtime subscribers are out there.

Netflix Has as Many Subscribers as Disney+ and Prime Video Put Together In the United States – Visual of the Week

Let me tell you a pet peeve of mine. It’s folks citing how many Amazon Prime Video subscribers Amazon has. 

Because they don’t know.

What you know, or have been told once, is how many Amazon Prime subscribers there are. With Prime comes access to Prime Video. We don’t know how many members actually use that service or, more importantly, know how many value the service enough to pay for it on a recurring basis. (What a subscription is, by definition.)

But here’s what’s crazier: we don’t even know how many Amazon Prime subscribers there are by country. They could have 50 million US Prime members…or 125 million. Literally no one knows. (In fact, we haven’t gotten an update on Prime membership since January.)

This is indicative of a larger phenomenon of the “streaming wars”. The streamers have barely told us how well they are doing. By my estimates, only 4 of the 12 biggest streamers have shared actual US subscriber numbers! (Hulu, ESPN+, HBO Max and Starz)

That’s right, due to non-disclosure, global-only numbers, or definitional craziness, we really can’t compare the streamers to each other in the United States.

Well no more!

I’ve decided to fix this glaring mistake. What I’m going to do is provide the EntStrategyGuy Definitive Estimate for all the major streamers US subscriber base. Today, I’ll provide my table, chart and some notes, then tomorrow I’ll provide the longer, gory details. First, here’s the chart:

Chart - US Paid Streaming SubscribersAnd the table, which I’ll explain tomorrow:

Screen Shot 2020-11-18 at 9.03.01 AM

About That Headline

If the internet weren’t a cesspool of clickbait, I could have just explained what this article is, “My estimate of US subscribers for the streamers.” But that doesn’t get the clicks. A flashy headline on Netflix? That does.

Tomorrow, like I will say multiple times, is where I’ll really provide insights into this process and data. For now, though, if you have one takeaway, it should be that the streaming wars are messy. They are filled with nuance. The more that someone online pushes a simplistic narrative (Netflix has already won; Disney+ will kill Netflix; TV is dead) the less you should listen. There are no simple narratives.

So my headline is 100% true, and building this chart makes that clear. When it comes to one single streamer in the United States, Netflix is about twice as far ahead as its nearest competitors. Really, they are in the first tier by themselves. Then there is a second tier of services with about 35 million subscribers (Disney+, Hulu, HBO Max and Prime Video). Then a third tier of folks trying to break into that second tier (Apple, Peacock, Starz, CBS, Showtime, maybe AMC+). 

Yet, this look is in many ways a backwards looking view. The three oldest services happen to be the three biggest. The difficulty is forecasting what comes next. If we’re looking at growth, Netflix at the top was flat last quarter and down earlier in the year. And likely would have stayed that way all year in America except for Covid. Meanwhile, can the new streamers add subscribers? I think they can.

At least now, we/I have a common fact set to evaluate the United States performance of the streamers.

Quick FAQs

– What about global? I’m just focusing on the United States since many of these streamers are US-only. And we have the best data for this country. As the streaming wars continue, though, I’ll do a similar look for worldwide. (Though comparing global numbers to US only numbers is not a good method to do that.)

– How did you get that Amazon number? It’s an estimate of an estimate of an estimate, which makes it a guess. I’ll explain tomorrow.

– Why didn’t “smaller streamer TBD” make the list? I set the cut off at roughly 2 million subscribers. Anything smaller would have made the chart difficult to read. Again, I’ll explain my rules tomorrow.

– What if you disagree? Well, tomorrow I’ll explain how I calculated each one, so if you want to adjust the estimates you can. That will allow you to disagree, but within the right zone of possible answers.

– [From Corporate PR] You got our numbers all wrong! One, if you don’t put them out, then no I didn’t. If any company wants to correct my math, send me three years of financial data and I’ll happily provide an exclusive update.

(This is the first article in a three part series estimating how many US paid streaming subscribers there are in the US. Read about how I calculated the numbers here or here.)

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