Tag: Carousel

Read My Latest at Athletic Director U – Where should the NCAA look for growth?

When Athletic Director U asked me, “What do you think of college baseball?” I’ll be honest, I didn’t have an angle. Sure, it could grow, but how much? And compared to what? Then, I read an article about eSports. Apparently the NCAA–technically a consultancy hired by the NCAA–was exploring whether to bring eSports under the NCAA fold. I thought, “Huh, baseball or eSports?”

That’s a fun challenge, thinking about growth and deciding between opportunities how to think about growth. So in true “Entertainment Strategy Guy idea spiral fashion”, I didn’t just write an article about college baseball, but developed the idea to write a series on how the NCAA could look at generating revenue. The goal is to explain my approach to looking at new businesses and to explain some business frameworks along the way.

Over the next few months, I’ll look at college baseball, international growth, eSports, women’s basketball (and other rising sports) and maybe a few more topics. But before I do that, I needed to explain my approach. It’s a framework that isn’t unusual for my regular readers—see my Game of Thrones articles here—but I wanted to explain it again.

Check it out over at Athletic Director U, “Where Should the NCAA Look for Growth?”

And if you’re new to my site, follow me on Twitter, Linked-In or subscribe on WordPress for regular updates. My goal is to explain the business of entertainment, using fun examples like Star Wars or college sports. If you’d like to reach out, my contact information is on a page up top.

How Much Money Did HBO Make on Game of Thrones – Director’s Commentary Part III: Sanity Checking the Model

Today, is the “sanity check” of my Game of Thrones article guessing how much money it made. I’ve explained where the numbers came from, the high and low cases and all my math. But does this make sense? Can we double check my work? Sure. Again, this is in an FAQ format.

Last big area. Double checking your work. Did you do that?

Yeah, I went through the model a few times. I actually woke up in the night it published in a cold sweat worried I had added or subtracted a line wrong and checked the model in the AM right before it published. I didn’t find anything.

I’ll add, building the high and low cases after the fact caused me to go through the model at least twice more line by line. Still no mistakes found, so the numbers add up correctly. (If you disagree with the inputs, that’s a different question.)

(Though, I could tell stories about models not adding up and really, really, really well paid executives missing it. I mean, REALLY well paid executives.)

That’s not what I meant. Is there anyway to triangulate if these numbers are right?

Ahh. As I think I mentioned elsewhere, getting actual profit participation statements from talent would be the best place to start. Some of the agencies or management companies or talent themselves would have these, and they’d give us the nitty gritty details. HBO, though, wouldn’t admit that the series drove subscribers growth in those statements. We’d need HBO’s analysis of subscribers and trends for that, but that won’t get shared outside of HBO.

To be clear, you don’t have those?

No, I don’t. (I don’t think anyone else does. At least, they won’t go on the record about it.)

What other methods could we use sanity check your model?

I tried to double check my work in a few different ways. The first was to try to find other estimates. 

One of my biggest disappointments of this process was that so few people had tried to do this similar calculation. I think the biggest hold up for journalists proper is that it requires estimating and guessing for a lot of pieces, and most websites/newspapers deal in cold hard facts. (Or other people guessing.) The best articles still tend to to talk “top line” costs, and really just say that Game of Thrones cost a lot, and sold lots of merchandise, without quantifying either. Here are some of the better examples:

2011 – The Hollywood Reporter, “Game of Thrones by the Numbers”

2012 – Slate“How HBO and Showtime Make Money Despite Low Ratings”

2014 – Yahoo, “The Burning Question: How Does Game of Thrones Thrive?” (though caution, this has the terrible “mutliply number of subscribers by months GoT is on)

2017 – The Conversation“How Game of Thrones Became TV’s First Global Blockbuster” (Also, not really answering the same question, but a great read.)

2017 – Marketplace“Let’s Do the Numbers on Game of Thrones

Also, this pops up all the time on Quora, and the answers historically are either just revenue totals or way off. (However, I’ve started hopping in some of the threads to correct the record.)

Finally, I just today found this Wikipedia article on “the most highest grossing media franchises”. Like this morning.

Was the Wikipedia article on total revenue helpful?

In some ways, absolutely. In others, not.

Let’s start with the not. This Wikipedia article cites an article that misquotes a New York Times article, confusing HBO’s annual profit with Game of Thrones profit, which is how they estimate the series earned $4 to 5 billion in subscription revenue. Also, the video games and book sales are likely on the low end, and merchandise isn’t included. However, they pointed me to The-Numbers.com for physical disc sales—a website I used in my Star Wars series—and well, I wish I had found these specific pages before. (I couldn’t find them after a bunch of searching.)

So you updated your Game of Thrones home entertainment numbers?

Oh, no. But their estimates were mighty close to mine and I think it shows both the difficulty and fun of trying to get these estimates right. (When I dive back into Star Wars—around December this year #ClickBait—I’m going to tie The-Numbers estimates to that series too.) Anyways, I pulled the last 8 years of top 100 titles sold in physical disks (Blu-Ray and DVD) and calculated how much GoT earned. For fun, here’s a few other TV titles I saw too:

Table 1 - Total DVD Sales By Year

This is another data point that Game of Thrones is just a monster across every other category. The two other arguably biggest shows in TV at the time didn’t even make it past 2013 with sales. However, to put TV disc sales in context, they’re still dwarfed by movie sales. Here’s Harry Potter and Star Wars this decade:

Table 2 Total Movie Sales

Let’s take those numbers, and compare them to my estimates, and see how close I was:

Table 3 - Initial Estimates w THe Numbers

On the one hand, my numbers get to a gross revenue about twice as high, though my exact sales figures are nearly exact. Exact! 

Huh. What happened?

Well, to start, my initial number is lower, while my decay is similar. My sales figures after season four factor raised the price too, compensating for the idea of selling box sets. Or multiple seasons. I also estimated the sales in the last year.

Moreover, The-Numbers numbers have some limitations. First, these are US only numbers. Game of Thrones, as we’ve mentioned before, is huge overseas, including the UK, Australia and Germany, and Europe has a stronger home entertainment market than the US.

Second, these are only top 100 lists. We don’t have, for example, sales of previous seasons. (They never rated high enough to make the top 100, meaning they have a ceiling of $10 million in 2015, which is pretty high when you think about it.) Also, the biggest unit sales were for individual seasons. We don’t know how many box sets were sold in any given year for past seasons.

Third, this year is the year of the whole series box set. And I have 2 million units projected to sell for it this year and going forward. And even with the decline in home entertainment sales (see my later question on this), I still think it will be a thing. (I think entire Star Wars and Marvel Cinematic Universe box sets will be a thing too.)

Would you change your home entertainment estimates then?

Probably, I would drive my base case up by a little bit. I’d use this as the base case for the US—for new series sales. Then I’d have a library sales figure with some box sets driving up the US average. Then, I’d factor in international sales. However, I think the number would get pretty close to the estimates I already have. I’d consider moving down the top estimate to as well. However, these tweaks wouldn’t drastically change the model as HBO was only keeping 20% of these sales in my model.

How has the decay in physical discs impacted this analysis?

Sure, yeah, home entreatment is declining. It still $23 billion in total retail sales, which is more than streamers are displacing. In other words, the studios and all of entertainment will feel this loss at some point. Here’s the total home entertainment sales by year:

Read More

Who is a “creative” in Hollywood? My Creative-to-Business Spectrum

When I worked at a studio, I found it funny that we referred to our development execs as the creatives. Not that they were creating the shows, but compared to finance or strategy folks, development execs were way more creative. They read scripts all day, took tons of pitches, provided story notes and helped decide who to cast in the show. That’s pretty creative work, when you think about it. 

So I had to cut them some slack if they couldn’t quantify everything; they’re creatives!

I say funny, because along the way I heard some talent on one of our shows—a showrunner, so the top writer/producer—refer to our development executives as the “suits” at our studio. And, they weren’t wrong?

I’d never considered the development execs the suits, but if your only point of contact with our studio is a development exec, then they seem like the business side of the house, don’t they?

It all depends on your point of view for who is a creative, doesn’t it? The director probably seems like a suit to an actor—an authoritarian bossing them around—while that same director drives the producer crazy with their creative demands. Meanwhile, the production folks are just trying to get shows made, which makes them seem like creative types to the finance folks just trying to get everyone paid. 

As I was starting my website—writing the first articles and sketching out a business plan—I set about to define my target audience. I knew I wanted to target the business side of Hollywood, but thinking about “what is business versus creative?”, I realized there isn’t just two sides on the “creative vs business” battle, but it’s a spectrum. 

Here is that spectrum that I jotted down and eventually turned into a Powerpoint slide.

Creative vs Biz Spectrum

For the most part I think everyone on this line would call everyone to their right a “suit”. Which means business. So I like this spectrum.

Some quick insights

Definitions

A lot of this depends on what I define as “creative” versus “ business” in the first place. I used those terms since that seems to echo the jargon in the industry. I debated calling this left brain-right brain, though I’ve never liked that terminology since apparently the science behind it isn’t great. I also debated some other definitions (see below), but this worked best.

And the reason I think it works is it captures two inherent tensions, in my mind. First, who cares most about making the product? The closer you get to it, the more you are talent, actively crafting the final product. A creative. On the other side, who cares most about the bottom line? Well, the business folks. If you want a rule of thumb, ask this question, “Who would care the most about going over budget?” The more you care, the more “business” you are.

I debated calling this the “qualitative versus quantitative, but that doesn’t work either.

Or you could call it the “gut versus data” debate. But that doesn’t get at the difference between the business folks and the creatives, really. Some business folks eschew numbers, sort of like the development execs I mentioned above. That’s a pretty qualitative group of people—in my experience—though they are more business than screenwriters.

Creativity is the pretty clear driver on the left. And the opposite of creativity isn’t data. Data analytics and math actually require a lot of creativity. Not that business should be the death of creativity, but it’s what we all assume.

Not Included Jobs

These jobs aren’t left out because they don’t deserve a spot, but because I ran out of space. And for some, I didn’t know where to fit them in. As is, this was a pretty clean line of the people involved in getting a piece of content out there in the world. 

I did want to get in the below the line folks—like set design and make up and wardrobe—but again couldn’t get them to fit neatly. They would be on the more creative side, though to the right of some talent because they start and end with a budget. Precisely where, I’m not sure.

I had no idea where to put production assistants. Probably near the directors—which is where many want to end up—but they aren’t really creatives, just following orders. Programming folks balance both and are probably in the middle. Script readers are likely on the creative end, as they are usually aspiring screenwriters themselves.

Did the spectrum help with the website?

Definitely. I knew my goal was to skew towards the business end of the spectrum, but this helped put what jobs are in that side of the spectrum. And how close or far they are from the creative end. While I think everyone in Hollywood could learn something from my website, the business side could probably apply the most.

And it helped convince me this is a niche I could grow. There is a gap, in my opinion, between investor-focused publishers, who mainly parse 10Ks for stock price information, and the Hollywood trades, who focus on the who is cast in what.

Read My Latest at Decider – How HBO Made Billions on Game of Thrones

I’ve been in a bunker these last couple of weeks and that bunker was an Excel bunker with internet access where I had one quest: to estimate how much money HBO made off Game of Thrones.

As I was writing my big series, “The game of thrones for the Next Game of Thrones”, I realized I needed a starting point. And figuring how much money Game of Thrones made was that starting point. It helped me understand exactly how the GoT Prequel could make money, but also tested my model. And I learned a ton figuring it all out. I’m up to 20 pages of research for this series and growing by the day.

(And I’m not close to being finished…this model inspired at least two more spinoff articles and maybe more guest articles.)

It was so good, I pitched Decider on it, and they accepted all 2,000 words of it (with tables).  Go check it out and share it on Twitter, Linked-In, Facebook and everywhere.

Seriously, I don’t ask for a lot of favors from my small, but growing, audience and this is one of those moments. If you’re a journalist, consider picking up the story, and I can answer any questions you have. (Email on the contact page or DM.) If you’re just a fan, still consider or emailing it to your entire office. Any little bit helps. Thanks in advance!

Again the story of how HBO made over $2 billion on Game of Thrones here.

GoT vs LoTR vs Narnia – Appendix: Subscription Video Economics… Explained! Part 1)

(This is an “Appendix” to a multi-part series answering the question: “Who will win the battle to make the next Game of Thrones?” Previous articles are here:

Part I: The Introduction and POCD Framework
Appendix: Licensed, Co-Productions and Wholly-Owned Television Shows…Explained!
Appendix: TV Series Business Models…Explained! Part 1
Appendix: TV Series Business Models…Explained Part 2)

Consider my current relationship with HBO’s Sunday night programming. Right now, I record two plus hours of content to watch during the week: first, Game of Thrones, then Barry and finally Last Week Tonight with John Oliver. Then, for the rest of the week, I don’t record any other HBO shows, but will watch the occasional blockbuster I didn’t see in theaters. (In full disclosure, that included The Meg and Skyscraper. Don’t judge me.) Oh, and on Saturday mornings, we often watch Sesame Street. To access this content, I pay $15 a month to my cable company. 

So the fun question is…

…if I were HBO, how much credit do I give each series?

This is not a trivial question or easily answered. Sure it seems simple—the highest rated shows are the most valuable—but quantifying that value is the tricky part. In fact, this requires teams of finance folks and economists and statisticians running “big data” analysis. Literally measuring millions of customer accounts engaging with billions of pieces of content across potentially hundreds of categorical variables. (Unless, of course, you don’t have streaming data, in which case HBO doesn’t actually know what shows I watch, because I’m DVRing them for later.)

The current HBO lineup is a good illustration of how personal motivations can be obscured over the millions of people watching HBO. I’d definitely subscribe to HBO only for Game of Thrones, but would I subscribe to keep watching John Oliver when GoT goes on hiatus? What about Barry? Is it enough to make me stayed subscribed? Probably not on its own. Of course I will wait for Silicon Valley and Westworld and maybe Watchmen and/or His Dark Materials…so…I mean I don’t have an answer for you.

Multiply my anecdote by millions of individuals—all with different profiles and behaviors, and you see the challenge facing both cable channels and streaming networks. Throw in the fact that I’ve now been a loyal subscriber for 5+ years, and it can be hard nee impossible to determine which, if any, specific show kept me on board versus built up brand loyalty and/or inertia

Yet, this question will be crucial to our three streamers to determine the winner in this future-of-TV-series I’m calling “The battle for the next Game of Thrones”. The goal for these three series is to bring in and retain new customers to help win the streaming wars. Since strategy is numbers, I need to quantify those subscribers.

That’s the goal of today’s article. Streaming video economics. With my usual caveat that this is a subject that we could write books on. (Though, it’s obscure enough that there aren’t actually a lot of books on it.) My plan is to…

…Explain a brief history of content libraries and why this is a contemporary problem.
…Briefly remind everyone that for decades TV and movie studios tried to value libraries poorly on purpose.
…Then, I’ll debunk three bad ways to do this. 

Tomorrow, I’ll show my way, but mainly to describe the incredible amount of assumptions I’ll need to make to pull it off. And guess what? I’ll dig into a valuation of a current TV series. Or better said, a just ended TV series.

The Growing Importance of Valuing Content Libraries

When I built my TV production model, I debated making bespoke models for the four main types of TV, broadcast, cable, premium and streaming video. Ultimately, though, I realized that I didn’t have to because among those four business models, there are really just two types of revenue, advertising and subscription, and each model is just on a spectrum for how much they rely on each: 

Spectrum Ad vs SubscriptionThat’s a fun table and way to look at it because over time, we’re moving more and more to streaming. But as we move there, we also see that the ability to determine which piece of content is the most valuable went from “easy and/or not necessary” to “much harder and/or crucial to growing subscribers”. Let’s describe that in the various phases.

Phase 1: Broadcast starts with all Advertising

At the dawn of TV, life was simple. All broadcasters had to do was look at ratings. The higher the ratings, the more money made from advertisers. The math here is pretty simple for networks: keep the highest rated TV shows. And since Nielsen kept a scorecard for everyone, they didn’t even need to do this math themselves. 

Phase 2: Cable starts collecting retransmission fees

This was really the first time that channels needed to start considering TV series as more than just advertising revenue drivers. As cable expanded, the channels insisted on fees per subscribers. Eventually these fees—the per subscriber fee a cable company paid each channel to air its content—surpassed advertising for cable channels as the largest source of income. 

The best example that comes to my mind was the dual Mad Men/Breaking Bad success of AMC, followed by The Walking Dead. Those three shows allowed AMC to drastically increase their retransmission fees, and it wasn’t all related to viewership/ratings. Mad Men was never a monster in ratings, but its fans were diehards and it was critically acclaimed, so it was of outsized importance to AMC. They used this to negotiate higher retrains fees. Since individual customers don’t pay retransmission fees, you still, as a cable company, didn’t need to value individual shows precisely, though. Just general feelings fit in, and still most cable companies ended up buckling in retrains battles.

Phase 3: Premium cable doesn’t have any advertising, so libraries are a bit more important

Really, HBO was the first subscription TV company. For years, it justified its extra cost by being exactly what its name portends, the “home box office”. The home for theatrical movies before broadcast and cable. With no commercials.

Then, it bolstered this with The Sopranos and Sex and The City. They weren’t the first series on HBO, but the ones that put them on the map. Really, this is the first time a platform had to grapple with how to value their TV series versus the rest of their content. But HBO didn’t really have the data to do this. It didn’t know if someone who watched The Sopranos was the same subscriber as someone who watched their movies.

It also didn’t really matter, because HBO wasn’t selling the subscriptions in the first place. The cable companies were, so it just needed to give off the imprimatur of value and keep people subscribing. Which it did. To guide its behavior, it could also keep using ratings data in general as guides to what is profitable and what isn’t.

Phase 4: Streaming means direct-to-consumer, which means valuing content libraries

Read More

Read My Latest at Decider! Why Did Hulu Lower Their Price to $5.99?

Last week, I was thrilled to announce that I had a guest article at TVRev, and I’ve followed it up with an article over at Decider. The folks over at Decider asked me about the Hulu price decrease a few weeks back—which as I mention, was really a promotional price continuation—and at first I didn’t have an “angle” on it. But as I thought about it—and really as offers of free Hulu kept coming (by my count Spotify, WaPo, Sprint, with probably more)—I realized I had my view: This is just their “hook” to bring in customers.

So check it out and hopefully I’ll be appearing over at Decider from time to time.

Other Lessons from MoviePass’s Demise

Often, when I write a long article, I have extra thoughts. MoviePass—and its demise—may be my “story of the decade”, when judging off the “hype-to-cash flow” metric. (Remember when I used it to explain subscriptions? Or logarithmic distribution of returns?) Recently, I wrote about the lessons of MoviePass’s demise at TVRev (here for Part I or here for Part II).

Today’s article is is basically the “director’s commentary” of that guest article. Whenever I write a long article, invariably I have a ton of extra ideas. For example, in my first draft, I tried to find historical examples of companies that made my same mistakes. (What is old is new again, or just digital now.) I found some, but couldn’t find others—and I was already long—so I cut that idea from the initial article.

So what to do with all those extra pieces? Well, put them on my website! Enjoy more thoughts on MoviePass. Today is all about “additional lessons” to be learned from the fall of the mighty ticketing giant. These lessons weren’t as great as the initial four in my TVRev piece, but I still wanted to make them. Especially the first problem, which I see happening a lot. 

Lesson 5: Beware of upper 10% companies pitching themselves to the masses.

This is one of the underrated stories in business right now. You know who the business press doesn’t talk to a lot? Poor people. Sure, the political press ventures to Middle America to find Trump voters, and can’t help but write stories about the Dollar Store, but overall, most technology writers talk to software engineers or product managers or venture capitalists or lawyers or biz dev folks who are really, really well off. They don’t do a lot of interviews with the contract workers who are cleaning offices or serving meals or working in retail. (Unless it is an expose. But they don’t usually ask about their thoughts on the newest VC round.) 

(Politicians don’t know much more either, since most Congresspersons are millionaires. Same with the interns, whose parents are millionaires.)

There is a gap in lifestyles between the top 10% and the bottom 80%, especially the bottom 50% and the top 5%. MoviePass started as a top 10% company. If you’re an intern at a TV publication and your parents pay your rent, then yeah adding a $10 MoviePass subscription is no big deal. That doesn’t apply to a family eking by to pay rent every month. So MoviePass felt like an upper 10% product to me.

Who else does this apply to?

Not to pick on scooters again—as I did in my TVRev article—but they are a classic top 10% company. A lot of the initial hype around scooters billed them as a way to radically transform urban transformation. And suburban too! This never quite made sense to me, from a mass transit standpoint. If you can barely afford a car to get to work, can you afford a scooter ride?

Let’s do that math. Say you add a scooter to your daily commute. And it is $3 round trip per day (Which may be low, depending on the commute. This also means you live very close to work or to a bus stop, which I didn’t add to the costs.). Well, at the end of two years—assuming you found a scooter every day and never crashed—you’d have paid $1,440 to Bird or Lime or Uber.

Of course, you could have bought a scooter online for…$300.

Scooter rides aren’t replacing commuting (and the math on Uber is the same). Instead, my theory is that ridesharing and scooters are additional expenses to people’s lives. The majority of users—in Los Angeles at least—ride in Ubers or Lyft for convenience: Uber replaces one person in a group staying sober enough to drive when going to a concert or dinner. Any of the stories of people who gave up commuting for Ubers are invariably about wealthy business folks (definitely in the upper 10%).

Why do we get this so wrong? Because the early adopters are rich. At least upper 10%, but in some cases upper one-percenters. Given that they have the extra cash to pay for the convenience, they do it. And they assume this applies to everyone, even those scraping along at the bottom for pennies. This seems to be a feature of 2010 tech companies: they pitch themselves as cost saving, but are usually about adding convenience.

Uber/Lyft – Pay to avoid having to drive home from bars.

GrubHub/UberEats – Pay to avoid driving to fast food.

Amazon Prime – Pay to avoid having to drive to store.

Scooters – Pay to avoid walking.

The Grub Hub rise is the most fascinating one to me too. I mean, delivery from Thai or Chinese or pizza restaurants used to be free! Now we’re paying 10% on top? (In fairness, this convenience, can be value creating, it if boosts willingness to pay.)

The new wave of “bring it to you” from massages to house cleaning to car washes are just variations on the above principle: you used to drive to get it, now it comes to you, for a fee. Which doesn’t mean the companies above are doomed, but if the growth rate for a company—and hence its valuation—is built on 100% market penetration, ask if that is even financially feasible for lower income Americans.

Lesson 6: Beware who you sell your company to.

If MoviePass had been acquired by Amazon, wouldn’t it still be in business? Amazon would hide its revenue losses in some anonymous sub-category of its earnings—or add it as a benefit to Prime—and we’d have no idea what is happening. ($240 million a quarter? Piece of cake for Amazon.) Of course, I don’t mean to imply that Amazon has lost lots of money on other businesses it has acquired or built. But we don’t know, do we?

You can’t explain the demise of MoviePass without acknowledging that it got bought by the wrong company. It was acquired by Helios Matheson, a data company that couldn’t handle exorbitant losses month and after month. It could lose some millions as long as it stayed buzzy and that floated the stock price. But a not-Fortune 500 data company can’t handle losing tens of millions every month like an Amazon or a Netflix. 

Lesson 7: Beware wildly fluctuating prices and/or UX.

Some companies just feel shady to me. Some hallmarks for me are… 

Hastily designed websites. Honestly, do you trust a company who looks like they are working on HTML 2.0?

Dozens of subscription options. Why so many? Where is the catch? 

Or promotional pricing. Is it really 40% off today only? What is in the fine print?

Read More