Tag: Apple

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.

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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.

Screen Shot 2019-08-23 at 8.24.05 AM.png

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.

Other Contenders for Most Important Story

The Big Bang Theory and Two and a Half Men Going to HBO Max; Seinfeld is Next

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