Tag: Apple

Most Important Story of the Week – 15 November 19: Disney+ “Sparks Joy” in Customers. What Are the Business Ramifications?

Is content is king?

After this week, how could anyone doubt it? Disney+ showed what having the biggest movies of the last few decades can do for a streaming launch.

But that’s not all! Apple landed one of the biggest free agent producers in former HBO chief Richard Plepler, for a deal whose terms aren’t disclosed. Nor even his role. But we can’t look past Disney can we? Nope. In fact, we’re giving a triple shot of Disney: first, the strategic implications; second, the competitive ramificaitons; third, the numbers.

[Programming note: Starting next week, I’ll be on paternity leave for the birth of my child. I have some articles mostly finished to keep posting, but the weekly column will be on hold until December.]

Most Important Story of the Week – Disney+ and Its Customer Value Proposition

When in doubt, we should default back to the “value creation” model for every business. Is a company capturing value or creating it? 

Disney+ Value Creation Model

I’m going to use my personal example to get at where I see the customer value proposition here. Specifically why me—and apparently 10 million other folks—rushed to sign-up or log-in on day one. Marie Kondo—the famed personal organizer—has a simple test for whether or not you keep something in your house. When you look at it, “Does it spark joy?”

That’s how I personally felt about Disney+.

For once, every Disney film my daughter loves was in one location. Every Marvel and Star Wars film I love was there too. Along with hidden joys like the Swiss Family Robinson or The Journey of Natty Gann. Or the X-Men Animated Series! And Gargoyles! Seeing those films brought visions of how I will binge TV for the next few weeks. 

As I was scrolling through the interface—I didn’t have any troubles—Kondo’s phrase hit me, “Spark joy”. 

It’s fairly incredible a streaming video service can evoke that level of emotion. But that’s the best way to describe the initial experience. Caveat galore that this is just my anecdote. But to judge by my texts and social feeds, the majority of the Disney conversation was celebrating all these films that were previously divvied up between FX, USA, TNT, Starz, Netflix and DVDs into one easy location. By a few reports, some folks even stayed home from work for the launch. That’s the type of devotion only major sporting events or, um, Marvel/Star Wars movies can evoke. 

(Yes, plenty of people gave it an “eh” online too.) 

To put this into the “value creation model”, if my price is $4 a month, the difference between the amount I would pay and $4 is the “consumer surplus”. Right now, I have to imagine that for hardcore fans like me, even an HBO level price would probably make sense, if the shows stay at the quality of The Mandalorian. 

Critically for this analysis, just because the price is so low now doesn’t mean it will stay that way. Disney—like Netflix, Hulu and likely every streamer—is definitely underwater from a pricing perspective. Lots of folks locked in at $4 a month, and to produce even the new content will likely be more expensive than that. The key for Disney is figuring out how quickly they can make the price exceed costs. (Yes, as my big series of the year goes on, “An IPB of the Streaming Wars”, I’ll try to quantify this more exactly.)

Then the question is: at profitability, is Disney capturing value (just pricing below costs) or truly creating it? Given that Disney boosted my WTP for a streaming service, I’m leaning towards the latter. Moreover, Disney+ as a platform may drive some value beyond the access to its incredibly popular films. In other words, the whole of Disney+ may be greater than the sum of its parts. And these are valuable parts. (The biggest driver of entertainment WTP is simply having hit shows and movies.) 

So let’s explore the upside theories for Disney+’s value-added future. Since I’m never satisfied, I have some concerns too about some of their strategy.

Upside Theory: The Simpler User Interface – Decluttered

Let’s stay on Marie Kondo idea for a moment. Mary McNamara wrote an article in the LA Times not too long ago making the case that Netflix needs a Marie Kondo-style clean up. She’s not wrong. The reason—as emphasized by AT&T in their recent inventor presentation—is that it takes customers 7 minutes to find a show to watch. (Using a DVR, conversely, takes about 30 seconds…) Netflix is filled with lots and lots of shows and films, many of them “sub-optimal” from a customer perspective. Which makes finding shows difficult.

Well, the Disney+ app is made for McNamara (assuming she likes Disney movies!). Disney+ has a fairly limited interface—reminiscent of the HBO Go application—organized by the various content families. Within each section are the cream of the crop movies at the top, with the rest down below. In other words, the service doesn’t overwhelm you, and what is left will will “spark joy”. This is the best case for Disney+.

Downside Theory: The Nostalgia Factor Wears Off

Credit for this one goes to a Twitter conversation about how quickly “nostalgia” will wear off from the devoted fans. My answer is that in some cases, it never will. Those are the hardcore fans who go to D23. They aren’t enough, though, to build a media business.

For the rest, this is the biggest risk. Sure, I’ve had joy sparked at launch. How long does that last? How much does my daughter actually use the application? (We actually don’t let her watch alone on the iPad.) Especially for the older TV shows. Do they need more TV series to drive adult viewership, as I speculated here? I may find it cool to watch Duck Tales (1980s version), but do I actually binge the entire thing? Nostalgia may get folks in the door but a compelling offering will need new content to keep folks engaged.

Upside Theory: I Was Wrong about The Vault (It’s All Here)

Disney proved my August theory about missing films completely wrong. In the 11th hour they went out and got them all. Which is probably pricey, but helped the value proposition. Since they have all these movies, Disney+ would has something like 20% of the box office demand of the last decade on its service. That’s incredible compared to rival services. I was wrong and they have the entire vault for the most part. Here’s the box office films from the last four years:

image-5-disney-last-five-years.png

But this isn’t all good news. They likely had to pay huge amounts to other distributors to facilitate bringing all these films over. Will this immediate launch help pay that off? Absolutely, but they are deficit spending to make it happen.

Downside Theory: Why Did Disney+ Launch with Avengers Endgame?

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Most Important Story of the Week – 11 October 19: Evolving Feature Film Strategies By The Streamers

I’ll admit it: I have a key question on my brain this month:

Should you release your film in theaters or straight to streaming?

Obsessed with it. Trying to compare Netflix to Disney to Amazon to Apple and the rest of the traditional studios is tough enough, and each has a different answer to that question. How can we tell who is right? Well, I’ll try. But I can’t answer it in one column. Instead, this is the amuse bouche for that discussion…

The Most Important Story of the Week – Evolving Feature Film Strategies By The Streamers

The “fun” story of the week was about He-Man and his potential reboot at Sony moving over to Netflix. Whether or not this move specifically happens–this story falls into the category of “are exploring” which half the time means it won’t–it pairs well with this in-depth New York Times article about Amazon Prim-Video-Studios’ evolving theatrical release strategy. Essentially, they (Amazon) won’t. 

For today, though, instead of focusing on “how” they release their films, I’ve been thinking about “what” types of films the streamers are releasing. Especially with Amazon releasing the relatively expensive (for them) Aeronauts, Netflix releasing a probably pricey Breaking Bad spinoff film El Camino and Netflix about to release the supremely expensive Martin Scorcese The Irishman

As I started to explain this shift, I came up with a thesis, but it didn’t really work. But then I had an opposite explanation. An antithesis if you will. So with that start, you know what? We’re going “Hegelian” on this today.

Thesis – Introduce the Low Priced Option and Then Move Up Cost/Quality Frontier

On the surface, this looks like a great way to explain what Netflix and Amazon are doing in feature films. Essentially, the low-cost entry method is all about finding a way to make a product for much, much cheaper and competing with incumbents by offering this cheaper option. Then, once you’ve established a foothold, you start making more expensive options and competing with incumbents directly. Presumably with higher quality and hence better margins. 

Take cars. Japanese automakers started by making cars that are safer and cheaper (Toyota, Nissan) then they moved into luxury market (Lexus, Infiniti). 

On the surface, that looks like what Netflix and Amazon are both doing. They start by making “prestige”-type films. (I do a quick definition of this in my latest Linked-In article.) So the streamers head to film festivals and buy films for “only” $14 million or so. They buy a bunch though, and give these to their customers. After the prestige films, they move onto the mid-tier films–say $20-50 million dollar price tags–like romantic comedies or horror films. And now both are graduating to the top of the income bracket: big budget films like The Irishman or He-Man. (Besides Aeronauts, Amazon hasn’t shown a willingness to go much bigger budget, but facts are no reason to spoil a nice narrative.) (As for previous studios trying to do this, Lionsgate is the best example.)

The challenge? As a reader pointed out on Twitter quite a while back, it isn’t like Netflix or Amazon Studios really figured out a way to make the films for lower costs. Netflix did when it came to licensed content; they routinely got studios to license them library films and TV series for way below the market value because studios considered in “found money”. (Indeed, back in August, I described how cable channels launched with reruns as a low cost option, then moved up the value chain as Netflix did here.) (Lionsgate tended to sell international rights to fund production, then made money off US distribution.)

Indeed, the main “innovation” of Netflix and Amazon was to take films that previously sold for $5 million at Sundance and pay three times as much for them. Definitively, then, this is NOT a low cost strategy. So what is it?

Antithesis – Make Increasingly Popular Films

Maybe this is moving up the “popularity” value chain. I like this approach because it combines two of my old bailiwicks. First, as I repeat ad nauseam, is that popularity is logarithmically distributed:

chart-2-movies-again(More examples here.)

In other words, the most popular film in America–Avengers: Endgame–is as popular as the bottom 500 films released in America in 2018 put together. My second bailiwick is that something that is popular on one platform is popular everywhere it airs. (ie The Force Awakens was the most popular film in the US on theatrical, home entertainment and linear TV. And very, very probably streaming too, if Netflix would share the data.) With this knowledge, we could reframe the initial strategy of both Netflix and Amazon as: 

Start by making pretty unpopular films, then make slightly more popular films and finally start making very popular films.

Prestige films and documentaries are less popular than teen rom-coms, gross out comedies and horror films, which are less popular than superhero movies. Crucially, the popularity is still roughly the same whether it goes to theaters or straight-to-streaming; popularity is popularity.

Does this help explain the behavior of our streamers better? Probably. According to the article, Netflix wants to make one “quality tentpole” quarterly AND it needs international appeal. Presumably films getting 80 million subscribers like Bird Box and Murder Mystery show the value of moving up this popularity theshold. The Breaking Bad film El Camino likely fits this category as well, being the equivalent of a Downton Abbey-sized film, bigger than many Sundance acquisitions but smaller than superhero films. And Aeronauts will likely have more appeal than a lot of other Amazon Studios acquisitions that were geared for awards season only. 

Presumably, a well done He-Man could do even better. Specifically, whereas prestige dramas and TV spinoffs may have a limited appeal globally, we know superhero and big budget sci-fi/fantasy can travel. He-Man fits that bill.

Synthesis – Moving Up the “ROI Cost/Quality Frontier”

The problem with just focusing on popularity is that, yes if all things were equal, you want more popular films. But these films specifically aren’t equal in one key regard: while most Sundance acquisitions are at most $5-15 million, The Irishman and He-Man could easily be in the $150 to $250 million. You could buy all of Sundance for those prices. 

I bring this up because of another Netflix film I haven’t mentioned yet, which is Triple Frontier. A key report in The Information leaked news that even with 40 million customers, it wasn’t “profitable” (though they probably said cost effective) for Netflix. It cost $100 million to make this mid-tier actioner.

That’s because popularity and cost combine together for ROI, or return on investment. Just because something isn’t “popular” doesn’t mean it isn’t cost effective. Horror movies are the gold standard here. Many are nowhere near as popular as superhero films, but they cost so much less that even middling popularity gives great ROI. A few weeks back on Strictly Business the CEO of Walden Media bragged about their strong ROI on their family films, despite not making as much money as say the Disney tentpoles. He’s totally right. I’d add animation has been an ROI gold mine for studios too.

But…

The best ROI really is big four quadrant tentpoles, even with the huge costs. If you can create a franchise, the hit rate skyrockets. Even as it decays over time (see Lord of The Rings Hobbit films, Pirates of the Carribean or Transformers), the films still often make their money back. (See my “economics of blockbusters” here.) That’s more than can be said for most Sundance acquisitions or even mid-tier comedies and horror flicks. I’d add, given that they travel well, big budget tentpoles have even better ROI for a global streaming service.

Netlix knows this and knows that 40 million for $100 million isn’t enough. It needs 150 million global viewers for $200 million. Hence, He-Man. (If it works.) Amazon Studios in a way is already doing this too, just in TV, essentially turning Lord of the Rings into the most expensive TV series of all time. Now, it does require more cash to compete in this expensive arena, but Netflix and Amazon seem willing to do that.

Other Quick Thoughts

I had some other quick thoughts I couldn’t fit into the above narrative too:

– There are additional ramifications for Netflix’s spending. Because if you can make Triple Frontier for $40 million, maybe it is “profitable”. In other words, if costs matter–they do!–then freewheeling spending may not be sustainable. 

– This doesn’t quite explain why Amazon isn’t releasing films to theaters anymore, I’ll admit. Instead, I’d focus on the marketing spend. The mistake wasn’t acquiring Late Night per se, but spending $30 million (at least, maybe higher) to market it unsuccessfully. If the films aren’t even going to make back that marketing spend, well just release them straight to your platform.

– Apple spent a ton of money for a Will Ferrell and Ryan Reynolds Christmas musical. (Yes you read that right.) Does this explain that? Sure, they’re hopping to the middle tier after their first set of films are mostly awards bait. 

– But why the overspending from the streamers? Right now, my working theory is that the marginal benefits of new subs is so high that overspending makes sense financially. As you hit maturity, though, those benefits decline precipitously, so you can’t keep doing it. That’s Netflix’s world right now. (I need to write an article to flesh this out.)

– What about Sony? Well, essentially take my feature film model, and apply your own percentages to it. If you accurately account for all the potential revenue streams (including a successful franchise), and still Netflix will pay you more in a “cost plus 30%” model, then you make that sale.

That’s it for feature film on streaming musings. For now. We still haven’t gotten to the rationale (or lack of) for skipping the theatrical window, which will be a future article series.

Oh, one more thing.

Post-Script: Man, He-Man? Seriously?

Also, just rewatch this trailer:

Maybe that’s why Sony hasn’t been able to get a working script in 12 years.

Other Contenders for Most Important Story – NBCU Reshuffle

I read this Variety story twice to make sure I got everything. Wait a minute. Okay, just read it a third time. Then listened to TV’s Top Five.  

Honestly, I feel like I could read a powerpoint presentation of this and still not quite understand who controls what and who reports to who(m?). There are presidents and chairmen and vice-chairs and folks reporting to multiple bosses galore. (Cue the Office Space joke.) Basically, who will make what decisions on what? I don’t quite know.

I almost elevated this to my top story because I’ve long wanted to explore Bonnie Hammer’s role at NBC Universal. She’s right on the cusp of being a top development exec–meaning I put her in that Moonves/Burnett level–but she stops just short. Syfy has had just too many slip ups to make her track record spotless and she doesn’t get credit for Bravo’s success rate. Meanwhile, USA Network had a great 2000s (silently) but the 2010s have been…fine.

As for the final piece of this puzzle–Comcast veteran Matt Strauss moving to head Peacock–we don’t know. Strauss helped spearhead Xfinity’s operating system. That’s a great user experience. But streaming is much bigger and he won’t really have control over the content side. Hammer and the dozens of execs over there will determine what ends up on Peacock as originals and second runs. Which means that the internal turf wars at NBC Universal aren’t going anywhere anytime soon. Also, call me old fashioned but I still like it when one boss leads a business. Don’t divide, the technical and creative sides to keep execs happy; find a boss who can lead.

Data of the Week – TV Ratings Bump from 3 Days to 4 Weeks

What is your default for streaming video? Either you believe that customer behavior is truly different on Netflix or it’s basically the same. That’s my take for DVRs, and Rick Porter has fun details on how long folks wait to watch content on delay on traditional TV, which certainly matches my experience. (We’re currently watching season 3 of Mr. Robot in preparation for the new season. We recorded it two years ago, so yes those commercials are out of date.) Porter’s data gives a tiny glimpse into this phenomenon.

My only so-so hot take is that this shows that TV viewing across platforms is more similar (sometimes very delayed, but the majority within the first four weeks) than it is different.

Entertainment Strategy Guy Update

TV Ratings Updates!

We had a lot of data from last week. Batwoman came out strong in the ratings–for The CW–and the All American may be getting a “Netflix bump”. Lessons? Some combination of marketing, buzzy IP and easy catch-up help ratings. Meanwhile, the NFL ratings are still strong, which does hell for narratives and helps create narratives galore. (Maybe the NFL ratings were a politics thing? Or maybe folks got over their concussion fears? Is cord cutting dead?) Honestly, we don’t know.

Overall Deals

Jordan Peele re-upped his overall deal with Universal films. I didn’t see a price, but I like this fine for Universal. However, if I had a first look with him–cough Amazon cough–I’d be pretty mad. I mean, between these films, CBS’ Twilight Zone, HBO’s Lovecraft Country, when is he going to give you any attention to pitch?

Management Advice – Email

I’ve had this article by Cal Newport bookmarked for a while now. I absolutely love his (deep) work. In my mind, your team, division or business–yes, you right there–can drastically improve its effectiveness by limiting, controlling and managing work outside of email. Key quote here:

Cal Newport Quote

Most Important Story of the Week – 13 September 2019: Debunking Some Apple Myths

This is my third try writing this week’s column. Apple TV+ is clearly the “most important story” this week since it’s Apple’s entry into the streaming wars. That’s like the United States entering World War II. What did my first two takes look like?

Attempt 1: An article about “ecosystems”, since that was the explanation du jour of the week. I wrote too much for this column.

Attempt 2: Really calling folks out for not digging into Apple’s financials. But that required me to do them too, which took too long for this week’s column. That’s an analysis article.

Still, I had so many thoughts on Apple that we’ll have enough for thoughts on Apple TV+/Channels today and in the future. Don’t worry.

(Programming note: I’m traveling for a music festival—Kaaboo 2019, the film festival for the middle-aged. Seriously, that’s how the bill it—so if I make any mistakes, I was rushed. And I’ll have my newsletter next week! Sign up now!)

Most Important Story of the Week – Debunking Some Apple TV+ Myths

Reading the coverage of Apple TV+’s pricing announcement, the media ecosystem swung from “$10 is way too expensive” to “$5 wins the content wars” immediately. That sort of surprised me. Bit of an overreaction, wouldn’t you say? Along the way, too, I noticed a lot of observers leveraging a lot of the same explanations and even numbers to explain the news. 

Let’s debunk a couple of those. Plus, I’ll add in the strategic risks for Apple implied by these mistakes. First, though, a new product that actually does make sense.

Apple Arcade Solves a Customer Problem: No in-app purchases

I play a few more iPad games then I probably want to admit. I loath pay-to-play, though. Just not how I was brought up to play games and the best games don’t feature this mechanic, in my opinion. Apple Arcade, their subscription video game service, solves this problem. Potentially. Right now, they probably don’t have enough games to warrant a subscription, but like all new businesses it will grow. And I hate subscription biz models anyways (for customers). So we’ll see. 

However, compared to Apple TV+, at least Arcade solves a customer need. Now how many customers are like me–which is market sizing–is a future question. But at least it solves a problem; it isn’t clear that folks were clamoring for more TV to subscribe to.

Debunking One: Apple TV+ is free. 

This is kind of true, in that yes, if you buy an Apple device, the service is free. But I saw tons of folks saying this free first year meant that Apple made it essentially free. That’s too far.

After a year, customers will need to start paying. I assume some others assumed that if customers buy multiple devices, they can keep stacking on year long free trials, but that doesn’t sound like any free trial I’ve ever seen. Most likely, after a year, the device that logged the free 12 months will have to start paying. And that, my friends, is where the true test of a business starts.

Strategic Risk for Apple: The Promotional Carousel Is Hard to Get Off.

Ask DirecTV or Hulu how offering ridiculously low prices worked for customer churn. Even if Apple doesn’t report subscriber numbers—they probably won’t—we’ll be able to tell by the discounts Apple does or doesn’t offer whether or not churn is happening.

Debunking Two: Apple will have 250 million potential customers.

This number is in fact true. It’s roughly how many iOS devices Apple sells per year. Roughly. The implications are not.

But is number of devices really the potential market? Consider two things. First, many families are on Apple’ plans. Which means even if the family owns four devices, or bought four, they’re still only subscribing once. More critically, look at this chart from Business Insider on iPhone sales.

58d04a02112f701f008b57db-750-563

Huh. So the US portion is really 70 million phones per year, with another chunk of iPad and laptops, which I didn’t see reported anywhere. Everyone breathlessly went with the 250 million. Sure, Apple TV+ is launching in 100 countries, does that include China? It’s notoriously hard to launch content in China, and Netflix and Amazon aren’t there. So I’m skeptical. Overall, if you’re discussing Apple’s plans, be very careful about mixing up US-focused strategies and global numbers.

(Bonus chart. During research, I found this amazing chart at Asymco. It should look familiar.)

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Is Disney Bringing Back the Vault? My Analysis on the Strategic Implications of Disney+ Content Library

If the streaming wars were a medieval war, original content are the mounted knights. Especially the pricey TV series. Like knights of the medieval ages, these extremely expensive weapons will likely win the war for one side or the other. This would make the siege engines the tech stack and distribution infrastructure. The logistics supplying and feeding the armies is the hordes of lawyers and finance folks in the bowels of each studio.

But an army is much more than aristocrats in suits of armor. It needs masses of peasants clinging to sticks and spears, ready to be mowed down by mounted knights or crushed under hails of artillery. Who is that in the streaming wars?

Well, library content, of course. 

Over the last few weeks, we’ve gotten quite a bit of news about the size of the various infantry nee “library content” that a few of the new streaming services are rolling out. Let’s run down the news of the last few weeks:

– First, Disney reveals the number of films and episodes for Disney+ in its earnings call.

– Second, Bloomberg reveals Apple won’t have a content library.

– Third, Disney reveals not just the count of its library, but the specific films and TV series.

Altogether, we now know quite about Disney’s plans for Disney+. As a result, I’m going to dig MUCH too deep into it trying to draw out strategic implications and meaning from Disney+’s future content library. Today, my goal is to focus on the strategic dimensions of Disney’s content plan. Its strengths. Its weaknesses. What it says about Disney’s future plans (and constraints to those plans). 

I have two reasons for doing this. First, since Disney+ is fairly small of a library, we can draw a bit more conclusions than we could about some other streaming services—like Netflix or Amazon—which have thousands of movies that change constantly. 

Second, library content really is important. To continue the martial analogy, infantry won’t win the war on its own—smaller armies often best bigger ones—but having a bigger army sure can help. Having the best library content is a tremendous head start. 

Both those points collide in Disney+’s future catalogue. Despite its smaller library, Disney+ may launch with the most valuable content library in streaming. Pound for pound, this will be the strongest film slate on a streaming platform, with a decent TV slate. But I’ll be honest: it may not be as strong as you think. I’m about as bullish as they come on Disney+, but running through the actual numbers has sobered me up.

Let’s dig in to explain why.

What We Know about Disney+

One of the secretly important parts of the last Disney earnings call was their description of their upcoming content slate. Here’s a screen grab of Variety’s coverage, that quote Disney CEO Bob Iger directly:

IMAGE 1 - Variety Quote

If you’re like me, as you pondered this for a later Twitter thread, you captured the pieces in Excel. Like this:

IMAGE 2 My Capture

Unfortunately, we still had a lot of questions. Marvel films? Which ones? Star Wars films? Which ones? And which animated films? Then, before D23—Disney’s annual convention for super fans—Disney provided the answers to some news outlets, like the LA Times, which had had a huge list of confirmed films. So I dug in. 

Disney+ Film – By The Numbers

The obvious takeaway is that Disney+ won’t come close to the volume of films that other film services will have. To calculate this, I’ll be honest I simply googled “film library count” and looked up Amazon, Netflix and so on. I found a few sources for Netflix and fellow streamers. After that sleuthing, here’s my projections for the biggest streaming services.

IMAGE 3 - Est 2020 Film Smales

Here are the key sources I used: ReelGood (Netflix 2014, 2016), Flixable (Netflix 2010, 2018), HBO (current), Variety (Amazon and Hulu 2016) and Streaming Observer (Amazon, Netflix, Hulu and HBO, 2019). The caution is that I’m not sure the Amazon numbers are accurate and that some of the sources aren’t also counting films available for TVOD/EST. But these numbers were reported in Variety and Streaming Observer, so I’m inclined to trust them.

(Also, these were US numbers only. Other countries complicates it, but from what I can tell library sizes tend to be correlated over time.)

As has been reported constantly, Netflix is losing content. Specifically, it can’t license as much content for as cheaply. This showed up in the data: 

IMAGE 4 - 2010 to 2020 Film Slates

As studio launches their own streaming service, they take their films from fellow streamers. While Netflix has suffered the worst, Amazon isn’t immune. Meanwhile, HBO has stayed at the same, small level for most of the last decade. (Some estimates had HBO at 800 films, but counting the available films on their site gives me about 300.) Hulu has been shrinking like the others too. 

You may ask, “Where did the CBS All-Access numbers come from?” Well, that’s Paramount’s library of films, which CBS bragged about in the merger announcement. Obviously most of those films are in licensing deals already, but if SuperCBS really wanted to, they could try to get them back. That is the potential library for CBS All-Access. (And it isn’t as bad as the last ten years suggest. The Godfather? Titanic? Mission Impossible? Those have value.)

The Value of those Disney+ Films

The challenge is to take those raw numbers and try to convert them into actual values. If you’re a streamer, you can build a large data set—and I mean big—with streaming performance, Nielsen ratings, IMDb and other metrics, and judge the value of various content catalogues. While that gets you a very accurate number, at the end of the day we don’t need those extra bells and whistles becasuee we have box office performance.

Box office captures about 90% the value of a movie for a streamer. In other words, if you wanted to know if people like a movie (and will rewatch it), box office explains probably 90% of that behavior. 

So I pulled the last ten years of films, looking for how many Disney films ended up in the top 5, ten and 25. The results are, well impressive. Especially recently. (An additional, very safe assumption: that films released in the last year are more valuable than films released two years ago, and films in the last five years are more valuable than films from ten years ago, and so on.) If Disney can put all those films on its streaming service, in comes the money. So take a look at this table, with the top ten films by US box office, with Disney releases highlighted:

IMAGE 5 Disney Last Five YearsBy my reckoning, that’s 18 of the top 5 films of the last five years, 22 of the top 10 films and 32 of the top 25. Incredible. And I realize I’m not breaking any news here.

So here is some new news. As I mentioned above, Disney released to the LA Times a list of films confirmed for Disney+, and well, it’s quite a bit few films. Here’s the last ten years of top 10 box office films, with the films actually making it on to Disney+ highlighted in blue:

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Most Important Story of the Week and Other Good Reads – 23 August 2019: Apple+ and The Case of the Missing Content Library

Last week, I tried to solve the mystery of who killed Game of Thrones. Well, throw on the trenchcoat and Fedora because I have another mystery. This time a missing person, er, library.

The Most Important Story of the Week – Apple’s Non-Existent Library

My theory of the case is pretty simple:

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

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

But as much of a fan as I am of zagging, sometimes you can zag off a cliff. To explain, let’s retell the history of why companies have used library content.

Historical Reasons for Content Libraries

Going back to the dawn of television–we’re talking broadcast here–you had to have something on your channel at all times. Especially in the hours after work. If people turned on the TV, they expected to see something. As the medium matured, the broadcast networks controlled the primetime hours, but the local stations controlled the other hours. Local news was a cheap way to add value, but even then you couldn’t do all local news. So you bought old TV programs and reran them. This was cheaper than making your own shows, but still kept people on your channel.

As the cable bundle turned out to be really valuable, everyone wanted their own cable channels. These channels started as a low-cost proposition of buying old movies and TV series. It was only after years of programming like this that the cable channels eventually turned to premium scripted fare. AMC is the classic example here. Start with classic movies–which are dirt cheap–then move up the value chain. As Jack Donaghy said about another channel, “I remember when Bravo used to air operas.

In a weird twist, in the last two decades new broadcasters have emerged. Same low cost business plan. Leveraging must carry rules, broadcasters like Ion TV (launched 1998, rebranded 2007) and MeTV (launched 2005), are basically all old TV series and some films. Again, the goal is to just get some tune in in the cheapest way possible. (For the TV series, their syndication costs are super low after many previous runs.)

The streamers basically repeated this plan. Netflix and Amazon Prime Video started with old TV series and movies. Then they moved to newer movies and newer TV series and eventually started making their own. But in the beginning, the goal was eyeballs cheaply. Which meant library content. 

In each case, the logic is the same. You have the “bangers”–to steal from the British EDM scene–to get people in the door. That’s Pay 1 movies and new TV series. But to keep people watching, you need a huge volume of cheap content people already like. In short, library content provides “bang for buck”. 

So what could Apple be thinking? If they weren’t charging for these shows, I’d understand. But they may charge $10 a month for it. (More on that number later.) So I have a ton of conjectures.

Theory 1: Customers have to have a subscription to get channels.

This would be my guess if I knew it weren’t already false. Essentially, Apple+ will be a “tax” folks pay to use Apple Channels. This would resemble Amazon’s approach. You can’t use Amazon Channels if you aren’t already a Prime member. So Prime Video acts as a basis of content to the Amazon Channels line up. (Of course, Prime is 94% about free shipping, but don’t tell them that.) Looking at Apple’s website, this doesn’t seem to be the case. Moving on.

Theory 2: The Apple Bundle

Everyone seems to be assuming that Apple will offer a new bundle where the Apple+ is just added on. If you already pay for Apple Music at $10 a month and Apple News for another $10, well add on Apple+ for the whole thing for $5. Except, $5 is still too much if you don’t watch any of the new shows. Again, library content would help the bundle too. So this doesn’t explain why they don’t have any library content either. Next option.

Theory 3: They needed a library right when it got expensive.

Things escalated quickly–to quote Ron Burgundy–in the streaming wars. 

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I think at the start of 2018, a streamer could have assumed that content libraries would still be available for the right price in 2019. And Apple has been planning this launch since at least then. But then the Friends kerfluffle happened and Disney pulled all its content from Netflix and NBC is pulling all of its content. Yikes! All the content is gone, right when Apple needed a content library,. If you can’t buy a content library, well the other option is…

Theory 4: M&A is expensive, AND they don’t want it.

…buying a studio. If you bought Sony, they’d have to give you their content library. MGM or Lionsgate would be other options. Why make your number 2 a deal guy if you don’t plan to do more M&A? So why haven’t they?

Despite breathless proclamations about tech behemoths buying studios like Sony or Fox or Lionsgate or whoever, most of those tech executives have seen the history of studio acquisitions. You buy a studio to get content (cough Sony cough) and regret it within the year. AT&T and Disney may have both just overpaid to buy studios too. Why buy a studio with all the baggage and extra headcount when you can just build your own studio? Apple made it’s number a deal guy, but yet we haven’t seen any M&A. Maybe they planned to, but just couldn’t find the right deal at the right price.

And they likely said, “You know what, we can just do it ourselves!” Amazon and Netflix are.

I don’t quite buy the “buying a studio” is a worse deal than “building it”. And I have a bias towards building where possible. The challenge is speed. It turns out making TV shows is tough. Especially to do it well, on time and on budget. I’ve heard Apple has had trouble doing all three. And then going from zero shows to hundreds is even harder. So the “building a studio from scratch” plan seems much harder to execute in real life than on paper. (I should write more on this right?)

Really, the two numbers don’t make sense.

At the end of the day, the two numbers released this week don’t make sense. You can either launch a free TV service to bring people in, but then you can’t afford $6 billion in content spend. Or you can spend $6 billion on content, but you desperately need a library. One explanation is that both these numbers are wrong–which to credit reporting press–I’ve seen several arguments for that. Dylan Byers, for example, threw cold water on both numbers. So as long as we’re doubting all the anonymous numbers, let’s doubt teh whole thing.

Theory 5: There will be library content, they just haven’t announced it yet since it isn’t buzzy.

That’s actually a pretty reasonable theory, at which point just ignore this column. 

M&A Updates – Hasbro Buys Entertainment One

Hey there! Last week CBS and Viacom; this week Hasbro buys Entertainment One! The M&A tidal wave truly is rolling into town. Though, to show again how wrong those predictions about the M&A tidal wave were, here’s ANOTHER look into how M&A in entertainment peaked, if anything, four or five years ago.

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Source: Bloomberg

On to this deal specifically. It probably says more about the toy industry than it does the film or TV industry. Toys have been squeezed for a couple of different reasons–not all technological, though that hasn’t helped–and the safe harbor under pressure has been licensed toys, which sell better with brand recognition. As a result, all the toy companies have been trying to launch their own IP, to varying levels of success. Hasbro basically bought the best free agent available. What comes next? Probably not too much. Despite rumors every so often, I don’t think Disney wants or can afford to buy a toy company. Mattel neither.

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