Tag: Carousel

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 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 fort 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 know 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 oldest. 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.)

The Decay is Real: Streaming Films on Netflix (and others) Lose Viewership Very Quickly – Visual of the Week

In December of 2018, Netflix let loose with their first datecdote™. They told us this…

But they went further! By their earnings report, they started telling us how many folks were watching their films in the first 28 days. Including an updated number for Bird Box of 80 millions subscribers watching 70%. Which allowed me to draw this conclusion:

IMAGE 1 - Film Decay Bird Box

As I wrote at the time, “the decay is real!”

Specifically, films that premiere on Netflix tend to have a significant chunk of their viewership in the first week or weekend. This is a binge-release wide phenomenon. Yet I had trouble proving the case. The other main piece of data I use is Google Trends data. But Google Trends isn’t viewership, just interest. I needed another data source (or leak) to prove it.

(Prove it to you, by the way. Not me. I know it’s true from personal experience at a major streamer. But non-disclosure agreements mean I can’t use that data.)

The decay of films has direct ramifications on the streaming wars. The steeper a film decays, the harder it is to monetize long term. So knowing how shows and films perform over time is important for the streaming wars. To show just one example, my Mulan analysis relied on forecasting its decay over time.

So I had a pretty strong hypothesis but couldn’t prove it beyond one example. Until today!

See Nielsen has been releasing weekly top ten lists of the most streamed shows. By total minutes viewed. They provided my their data going back to April of 2020. What I can do now is analyze movie performance to see if my hypothesis bears out. And it does. 

But let’s start with what this data is. I complain bitterly that most articles don’t lay this out, so here you go.

Who – Streaming customers
What – Total hours viewed (Nielsen provides million minutes and I divide by 60)
What (platform) – Any service
Where – In the United States
When – From March 30th to October 18th 2020
When (time period) – Measured Monday to Sunday.
How (did I get it) – Nielsen provided.

This data set ended up being 29 weeks of data, or 290 data points. Separating out the films gave me 17 unique films that ended up on the streaming top ten, 16 Netflix and one Disney. Of the 17 films, only six had two weeks of data. So I plotted the decay and got this:

IMAGE 2 - Total per WeekHypothesis failed! Look at Extraction or Old Guard. They only decayed at roughly the rate of 28% and 20% respectively. 

Ah, but apples-to-apples, am I right? Nielsen starts their data on Mondays. And not all Netflix films were released on the same day of the week. Historically, Netflix released big films on Fridays, but started moving some films to Wednesday. Like Enola Holmes. So let’s account for this and change our metric to hours per day (millions):

IMAGE 3 - Per WEekThere you go! See, the decay is real! (69 and 65% decay for Extraction and The Old Guard.)

But we can go one final step further. See, no Netflix film made it in the top ten for three weeks in a row. (With the caveat that we won’t know Hubie Halloween results until next week. Maybe it breaks the trend due to its theme.) This means we know that at the very least the lowest rated film in the top ten is the ceiling for our five films decay. That gives us this chart:

IMAGE 4 - Per WEek with with 3To iterate, the week 3 numbers is the maximum number of hours per day a film could have received based on the number 10 film in Nielsen’s streaming rates. The actual number could be even lower. So I’d say Extraction, The Old Guard and Project Power (all Friday releases) are the best look at what decay for a given title looks on Netflix week-to-week. (I would bet lots of money Enola Holmes and The Wrong Missy lost viewership into week 3.)

In total, this makes 9 films that show this sharp decay. The six above, plus Bird Box (see opening) and The Irishman and Murder Mystery, which are the only two other films that Netflix confirmed the opening weekend and 28 day totals. (Murder Mystery had 45 million subscribers opening weeekend and 73 million at 28 days, at 70% completion. Irishman had 26 million opening week at 70% completion into 47 million 28 days.)

Now that I have my film data set cleaned up, there are a lot more questions to answer. What type of films made the top ten list? What does this say about Netflix’s strategy? What about the correlation of US Nielsen minutes viewed to Netflix global 2 minute datecdotes? What films made Nielsen’s list but not Netflix’s datecdote list? Those are all great questions, but will come in future articles. 

Thanks to Nielsen for providing the data. If you’re an analytics company that wants to give me data, send me an email.

(By the way, if you wanted to know the Google Trends look of those films, here you go:

IMAGE 5 - GTrends

Visual of the Week – Netflix Top Ten Series by Total Minutes Viewed

One of the big questions every quarter is whether or not Netflix will hit its quarterly subscriber growth estimate. This leaves analysts scrambling to read the tea leaves from app downloads and what not to try to figure out if they are on track or not. Tomorrow (Tuesday Oct 20th) will tell us one way or another.

My contribution to this is to note that often having valuable content drives adoption and usage, and hence subscriber growth. This sounds relatively benign, as a statement, but has profound implications for whether or not Netflix has a “moat”. Or indestructible defensive position. If Netflix is simply another content creator whose success depends on producing good content, well they’re as mortal as the rest.

So my data of the week is one look at content. There are lots of ways to do this (Hedgeye Communications used Google Trends to brilliantly show this in a newsletter last night), and the data set I’ve been playing with recently is Nielsen’s top ten streaming shows each week. Here is the total minutes viewed for Netflix from Nielsen by week for the United States from end of March to present, with a big gap:

Screen Shot 2020-10-19 at 10.45.22 AM

And here’s the table for folks who want the raw numbers. I also included how many titles they had in the top ten.

Screen Shot 2020-10-19 at 10.50.29 AM

Ramifications/Thoughts/Insights

– Hits drive the ratings. Again, this is so obvious and has been true for decades it sounds silly to restate it, but in the “digitally disrupted” world, we have to relearn old lessons.

– Man, look at March! It turns out Tiger King and Ozark drove huge viewing to the platform. Almost 2.5 times more viewing to the top ten.

– Likely this means that content in Q2 was much more popular than Q3. Tentatively, this would portend a drop in US and Canadian subscribers in the next earnings report. (Some application sign-up and download data is presaging this outcome as well.)

– Yes, the last three weeks have seen 1 to 2 non-Netflix shows make the list, making this time series not totally apples-to-apples over time. That said, I ran the list with the Amazon and Disney shows, and it looks mostly the same. Meaning that the top 3-5 shows tend to account for most of the viewership, so having one or two small shows with 500 million minutes viewed doesn’t radically change the numbers.

– I have a ton to unpack for these Nielsen numbers to learn/prove more insights about how content behaves on Netflix and other streamers. (Trust me, I know a ton from my previous role about how the content behaves, but I want to show/prove it in the data. And for the most part, it behaves the way I expect.)

– Long term, I hope to compare Nielsen’s data to Netflix’s Top 10 data (provided by Flix Patrol) to Netflix’s own datecdotes to Google Trends and more, but that takes time. Also, if you have a data set you want to share, my email is on the contact page!

– Specifically, I’m on the look out for the missing weeks of top ten data from this Nielsen data set. Someone sent me the April and May numbers, I’d love to have March, June and July if anyone has them. Your confidentiality assured.

Visual of the Week – Netflix Produces 3.3% of Its Top Streaming Shows

Over the last six weeks, Nielsen has released a top ten list of the most streamed series/films by total minutes viewed. I’ve been taking this data and adding a layer of detail on top, specifically who produces and who distributes what shows on Netflix, Amazon and so on. Now that we have six weeks of data, we can start to parse some insights. 

(Thanks to Kasey Moore of Whats-On-Netflix for saving the Nielsen lists for me.)

The visual of the week for this week is just a look at who owns what in the streaming wars. Of the 52 billion minutes of TV tracked by Nielsen, here’s who produced what and what shows they own (by parent company):

Screen Shot 2020-10-14 at 8.48.12 AM

And here is the table if you want to see how the sausage is made.

Screen Shot 2020-10-14 at 8.48.19 AM

Now some insights/details.

— Some shows were co-productions, in which case I split ownership between the two companies. Meaning, the percentages won’t add up to 100%, since some shows were counted in both owners’ percentages.
— Two films/series were not on Netflix (The Boys and Mulan), but that only boosts Netflix to 3.3% in “Netflix-only” series.
— I focused on major producers only. The traditional conglomerates. Usually, any of these shows has a bunch of smaller producers attached; I counted who likely paid the production budget.
— I use Wikipedia to determine producers with another source who tracks everything on Netflix by copyright ownership. The closest call was Umbrella Academy, which is also co-distributed by Netflix. However, NBC Universal owns the copyright outright so Netflix will not own it in perpetuity. Moreover, they aren’t listed as a producer, so didn’t make this list.
— That’s really what I’m trying to get at by focusing on producers versus distributors. The idea that who “owns” a piece of content so they can eventually maximize the value of it.
— I can hear the criticism, “Well this list is mostly library content.” And that’s true, but not 100% correct. Even the list of first and second run content by Netflix is almost entirely licensed content.
Seriously, don’t use “Netflix Originals” as a descriptor. It really doesn’t capture the key parts of ownership in content.
— I will run this same analysis on the FlixPatrol data for Netflix’s Top Ten list, but I haven’t had time to do that yet.

Bottom Line: A core thesis of Netflix’s content spend has been to build a “moat” of original content they own in perpetuity. Clearly they have a ways to go before they truly own their content.

4 Insights on Disney’s Content Strategy from the Last Summer

My last few weeks have been spent digging through all the data I could find on the streaming wars. What makes this different than the past is that we finally have a lot of data to parse. Firms like Nielsen, Reelgood, 7 Park and even Netflix themselves have started releasing insights into the streaming wars.

And for the first time, I started to get some insights into Disney’s streaming adventures. Since I was searching for the answer to “How well did Mulan do?”, naturally I found a lot of Disney+ viewership data. And some clear trends emerging about that platform. 

Without further ado, 4 insights on Disney’s streaming content strategy. (By the way, these insights are almost exclusively American since we still don’t have great global data.)

Insight 1: Disney is a Hit Driven Business

In entertainment, you don’t win with doubles and singles. You win with grand slams, since grand slams aren’t worth a bit more, but orders of magnitude more. The top film at the box office earns as much as hundreds of other films, for example.

Streaming hasn’t changed that. Hits are as important as ever. In the last quarter, Disney arguably had the most popular streaming release of the year with Hamilton. Check out Google Trends to see how much more interest there was than any other film in over the last three months:

Image 1 - G Trends with Hamilton

That’s the power of a traditional entertainment studio to find top IP and market it successfully. Going back to launch, arguably Disney+ only succeeded because it launched what is by many metrics the most popular new series in America, The Mandalorian. In other words, in less than a year of existence, Disney launched a show arguably as popular on steaming as Netflix’s top shows (either Stranger Things or The Witcher) and the most popular film of the last quarter. This is a look at just the last week to show how eagerly awaited it still is:

IMAGE 2 - Parrot Analytics Recent Demand

Moreover, as you’d expect, this drives adoption. Here’s Antenna’s sign ups by day chart:

IMAGE 3 - Antenna Longer Time Period copy

No surprise, but big events drive sign-ups. (And the Covid-19 lock down clearly drove signs up in early March, along with Disney releasing Frozen 2 and Onward early.)

Ramifications

The trouble with a hit driven business is you need to keep producing hits. Something Netflix has learned and worked to address in having a big hit each quarter. Disney will need to do the same, and their approach seems two fold: 

– They are building up to a Star Wars or Marvel TV series releasing roughly every quarter.
– Meanwhile, they’ll have their blockbuster films release on roughly a monthly schedule across all their brands likes Disney Animation, Pixar, Star Wars and Marvel. 

Of course, the coronavirus-field production shut downs are mauling this plan. Black Widow was delayed into 2021 and the first Marvel TV series—Falcon and Winter Soldier—due in August still hasn’t had a release date announced. As such, until Disney gets the hits rolling, their new subscriber additions will suffer.

Insight 2: Disney+ Is a Kids Platform First and Foremost

In other words, the vast majority of the viewership on the platform comes from kids watching and rewatching Disney films. To emphasize, rewatching popular content. Look at this chart from 7 Park analytics on the most popular content in Q3, through the second weekend of September:

IMAGE 4 - 7 Park Long Time Period

The shiny object is Hamilton. Again it was a beast. But ignore it.

Instead, look at the next film on the list: Frozen 2. Then 5 and 6: Frozen and Moana.

Yep, Frozen 2 is a juggernaut. Kids don’t just watch it, they rewatch it and rewatch it. But notably, this table is of all audience figures, meaning that the largest majority of customers for Disney+ are families streaming kids content. 

Ramifications

Disney has successfully grabbed grabbed audience share from Netflix in the kid’s space. Arguably, as one of the most trusted brands in entertainment, they had never completely lost it. But instead of letting Netflix build its brand with kids, Disney now owns that part of the relationship. Indeed, in 7 Park’s data, kids content never shows up for Netflix, but it routinely shows up for Disney+ content.

As for the strategy going forward, even Disney will need to refresh its kids content, releasing new films and TV series to keep kids engaged. You’ll also notice this list is all content released this decade. (I assume this is the Aladdin live-action film.) As strong as Disney’s library is, you need to constantly build new franchises. 

Moreover, Disney+ will need those superhero and sci-fi series and films to avoid a reputation as “just” a kids channel. If it is seen as that, that fundamentally limits its global upside.

Insight 3: The Straight-to-Streaming Strategy is Working

You might think I’m talking about Mulan, which would seem to contradict my article from a few weeks back explaining why PVOD didn’t work for Disney. I’m not.

Nor am I talk about straight-to-streaming or quick-to-streaming releases such as Onward (from Pixar), Artemis Foul, or Soul, coming in December. (Also from Pixar.) Those aren’t deliberate choices by Disney, more “best option in a sea of bad options” decisions forced onto them by Covid-19.

Instead, I’m talking about this film in particular…

IMAGE 5 - One and Only Ivan

Again, let’s look at that 7 Park data from above:

IMAGE 4 - 7 Park Long Time Period

The One and Only Ivan held its own against other Disney titles with theatrical releases and in some cases major marketing campaigns. Now, some of this is the impact of marketing the film within the app. Shows and films that get “banner” placement on a streaming app naturally get more clicks. Ivan got lots of that love. And content has been light on Disney+ over the summer, so there were banner spots to be had. Still, looking at the summer as a whole, this film did well.

Ramifications

Well, straight-to-series can work, if you satisfy the number one criteria: keeping budgets in-line with potential SVOD revenue upside.

As well as Ivan did, you can’t attribute lots and lots of customers to it. Instead, this is a solid single that keeps families engaged with Disney+. But it doesn’t drive tons of new acquisition (like Hamilton) or tons of retention (like Frozen/Frozen 2). 

What does this mean? Well, it means you need to have budgets that match that level of demand. In other words, straight-to-streaming video needs to have straight-to-streaming budgets. That means that $150 million budgets are out. $50 million production budgets are out. Even budgets about $25 million are dicey.

Disney both understands this and has experience working in this milieu. High School Musical, The Descendants, and Kim Possible are examples of Disney Channel TV movies, some of which were very successful. I’d add the Hallmark Channel and Lifetime have worked in this budget range for decades. 

The challenge is understanding budget limitations despite the pressure to compete by spending LOTS more money on content. Activist investor Dan Loeb wants Disney to deficit finance to acquire subscribers. Netflix routinely shells out big, big bucks for straight-to-streaming films. And I’ve said they are losing money on some of these flops twice now. First the Irishman and then their big action films.

Image 6 Netflix Hard R Financials copy

Disney needs to invest in streaming without forgetting that theatrical really drives extra revenue. Or they risk losing as much money as Netflix.

Insight 4: Hulu has not Had the Same Success as Disney+

When I talk streaming and Disney, most folks immediately talk about Disney+. And likely it will be Disney’s largest streamer in America soon. But it’s not Disney’s only streamer! Hulu still exists.

When I reviewed all the potential winners of the last two months, Hulu was notoriously absent. I checked in on season 2 of Pen 15 and Woke, but they barely moved the needle compared to Amazon and Hulu’s champions. Here’s my Google look:

Image 7 - G Trends Hulu

Yep, Hulu’s big releases are the nearly flat yellow and green lines on the bottom. This matches my perception via 7 Park’s data too:

Image 8 - 7 Park Summer Data

In other words, Hulu didn’t have a great quarter. Hulu’s best content is still library content or second window shows. Which is fine for retaining customers, but not for adding subscribers. Moreover, Hulu runs the same risk that when deals with big traditional studios run out–like Comcast or CBS–they’ll lose those shows.

Ramifications

Frankly, the fewer hits someone has, the likelier their service is to not be used, which means the higher churn will be. That’s the game in the streaming wars. So take a gander at Reelgood’s comparison of Q2 to Q3 performance by it’s users:

Image 9 - Reelgood

Hulu and Netflix were the services that saw declines; Prime Video and HBO Max saw gains; Disney+ was flat. Hulu is aggressively positioning FX as the brand for that platform. We’ll see if that works, but they need some buzzy shows that drive lots of viewing, and fast. I’d also recommend they focus on crowd pleasing shows—procedurals and sitcoms—which may not win awards or critical plaudits, but that lots of folks watch.

The Content Battles are Competitive in the Streaming Wars

(Welcome to my series on an “Intelligence Preparation of the “Streaming Wars” Battlefield”. Combining my experience as a former Army intelligence officer and streaming video strategy planner, I’m applying a military planning framework to the “streaming wars” to explain where entertainment is right now, and where I think it is going. Read the rest of the series through these links:

An Introduction
Part I – Define the Battlefield
Defining the Area of Operations, Interest and Influence in the Streaming Wars
Unrolling the Map – The Video Value Web…Explained
Aggreggedon: The Key Terrain of the Streaming Wars is Bundling
The Flywheel Is a Lie!

Wars tend to have their own cadences. Some start quickly and one side gains an advantage, and wins the war. Sometimes in months. (The Franco-Prussian War, for example.) Some wars bog down into stalemates, that take years, with neither side getting an advantage. (The first World War, for example.) And in some wars, one side gains a huge advantage, everyone assumes they will win for sure, only to find that the initial leaders lose the war. (The Axis in the second World War, for example.)

For years, a lot of folks have assumed the streaming wars are the first type of war. Netflix started streaming in 2008, and got out to such a commanding lead it looked unlikely that anyone would catch them. And as I’ve shown in charts before, Netflix really is far ahead.

IMAGE 1 Netflix a Broadcast

Netflix is so far ahead, some analysts say the war is over. (You know who they are, so even though I’m not linking to them, this isn’t a straw man argument.)

Of course, this begs the question: what type of war is this? Is this a Franco-Prussian War that is already over before it starts? Or a World War II, where Germany and Japan are doomed, they just don’t know it yet? 

Over at Decider, I’m writing a recurring feature where I’ll take stock of the last month (or so) and declare a “winner” for the most popular piece of content. (The latest went up last Friday.) I’m in love with the concept, because it forces me to check in regularly with how well shows are actually doing. In last week’s edition, I got a TON of insights that one article couldn’t contain them all. So here is one for today:

The streaming wars are increasingly competitive.

In other words, I think the streaming wars will look more like World War II than the Franco-Prussian war. (Fine, enough with the war metaphors.) 

If you want to know what separates the “bulls” from the “bears” on Netflix’s strategy/future/stock price, it’s this view of the war. If the streaming wars are already over, then Netflix is priced too low. If new entrants can gain audience share, then it’s a genuine competition. The last two months of data show an increasingly completive content landscape, and it’s a trend which will likely pick up stream. Let me explain why.

To start, we have more and more data to understand (American) streaming viewing.

Back in July, I mostly used Google Trends data to estimate what was the most popular film in America. I used some of the customer ratings too, but not much more. The problem is that each of these data sources can be noisy. Since then, though, the data situation keeps getting a lot clearer, as I wrote about in August:

– FlixPatrol is having their data consolidated by Variety VIP. FlixPatrol has shared their data with other folks as well. (They count Netflix, Amazon, Disney and other top ten lists around the world.)
– Nielsen started releasing SVOD Top Ten lists (though four weeks delayed) by total minutes viewed.
– And after Mulan came out a few companies gave peaks at their data, including 7 Park, Reelgood and Antenna. (They all measure in slightly different ways.)
– Parrot Analytics has been releasing their weekly top ten since last year.

Are any of these data analytics firms perfect? No. In fact, I have issues with each of them, ranging from questions about their methodology to questions about their sample size/make up.  Be assured, when the Entertainment Strategy Guy is reviewing a data set, I’m looking for outliers which make me question the data. If I see them, I’ll try to call them out.

Thankfully, most of the data sources are directionally aligned, meaning they are all likely measuring signal, not noise. 

Next, all of the sources are showing the trend of more and more “non-Netflix” shows/films in the top ratings

I noticed this first when reading Variety VIP’s write up of 7 Park’s subscriber data from August and July. 7 Park analyzes wether a unique customer watches a piece of content, so it’s gives some insight into how many different shows are being watched by various customers. Here’s the data from August and September that 7 Park shared with me. This is measuring “audience share” meaning it doesn’t account for how much customer watches, simply whether a unique customer engaged with a piece of content:

IMAGE 2 IPB Streaming Content Battle

That’s four different streamers in both charts. Hulu, Amazon and Disney+ each put a top show into the measurement. AA year ago, it would have been all Netflix red. Even Amazon wasn’t breaking through. 

(A note on 7Park data: I do have some questions about their sample size. It may over-represent avid streamers, as the Apple TV+ usage is higher than I would have guessed. This applies to some of the other folks as well, such as Reelgood.)

Like I said, though, directionally this lines up with other sources. Yesterday Nielsen updated their latest Weekly SVOD Top Ten. For the first time since they launched in August, a non-Netflix streamer made the list. And not just one, two!

IMAGE 3 - Nielsen Data

Again, Netflix is still the king. This is because usage makes it even harder for the smaller streamers to catch up, so Netflix owns 80% of the list. But the story isn’t about who is currently leading, but who is catching up. Here’s Parrot Analytics look at the current most “in-demand” series.

IMAGE 4 - Parrot Analytics

In this case, since they measure demand not simply viewership, the spread is much broader. This is driven by the popularity of a lot of traditional firm’s IP. 

(Regarding Parrot Analytics, I have concerns their data overrates the conversation around super heroes and genre. It also lags a bit too much for my taste.)

The Viewership Wars are Joining the Streaming Wars

Overall, this change shouldn’t be too surprising. The battle for viewership and dominance of ratings has been the quest of TV channel executives since the dawn of TV. And the battle for the dominance of box office has been even longer. 

Over both those battles, various channels and studios have taken leads. In the 1990s, NBC looked unstoppable. (Must See TV) CBS took over broadcast ratings in the 2000s by launching a series of “acronym” shows and Chuck Lorre comedies. In film, Disney took over box office in the late 1980s, then again in the 2010s. Even as most executives can’t sustain permanent advantages, everyone so often someone does.

Netflix is currently the leader. Can they retain it indefinitely? Probably not. 

Even now, as far ahead as Netflix is in viewership, it doesn’t own a majority of all TV viewership. In fact, it doesn’t own a majority of streaming time. This is why when you look at Parrot Analytics demand measurements for all TV, the view features even fewer Netflix shows, since streaming is still only 25% of all TV time.

IMAGE 5 - Parrot Analytics

This shows up in the Reelgood data as well. Reelgood tracks audience behaviors on a range of services, but inevitably their customers seek a wide range of shows and films. Take this look from the week Mulan launched.

IMAGE 6 - Reelgood

That’s everything from Disney films to films only on TVOD to Netflix Originals. In short, viewership is diverse in America. Netflix doesn’t own it all, even if it owns the mental headspace of many critics, analysts and decision-makers in the United States.

It seems clear that as more traditional broadcasters, cablers and studios launch their own streamers, they’re going to fight more and more for the streaming viewership audience. Ideally, if I had Nielsen’s data for the last two years, we’d be able to chart this rise. Ideally, I’d have Nielsen data for the last two years, and show that August or maybe last November was the first time a show made the top ten list.

But I don’t have that data and Nielsen just started releasing weekly top ten lists. Instead, I’m speculating here, but increasingly, it seems like the Disney’s, Prime Video’s and HBO’s of the world are launching the most popular shows in the world.

What Does this Mean for the Future? What Should We Look For?

Well, the streaming wars are going to be competitive. That’s what this means. The more shows that become “must watch” means the more services folks will need to own. Game of Thrones and Lord of The Rings prequels will fit this bill. Same for Disney’s big shows. And I think Peacock has the best chance of developing new additional shows that fit this bill since they have a track record of doing that. (Their library with HBO’s is also the strongest.) Don’t count out Hulu or Paramount+ nee CBS: All Access either.

This means that split wallets are likely to be the case in the future. I don’t think anyone should have a model that implies that Netflix owns 50% or greater of a customer’s wallet. Probably even less than 25%. 

Obviously, this means that Netflix will be fine for the streaming wars. No one should say “Netflix killer” because they are clearly such an indispensable part of the streaming diet for so many customers.

Unless, of course, you care about the stock price. This competition means that Netflix can’t pull back on spending, because then the top shows chart will only feature more shows from other streamers. It also means they can’t raise prices or can only do so slowly. Given that Netflix has one of the mostly highly valued stocks compared to underlying economics, any situation where it fails to conquer all TV has a lot of downside.

If content is king—it is—this is a battleground to continue monitoring in the streaming wars. Looking at the colors on these streaming charts is key. If they stay all red, that’s great for Netflix. If they look like—pun intended—a peacock’s feathers, that’s good for the traditional players.

Should Disney Have Released Mulan to PVOD?: Part III of “Should Your Film Go Straight-To-Streaming?”

Last week, we figured out that Mulan was likely watched by 1.2 million Americans on its opening weekend. (Plus or minus 1-1.5 million.) We estimated this means it likely ends up with a global PVOD of $150 million.

But what I didn’t do was explain what all that data means.

Which is today’s article. As I was writing up my implications, I realized I was really writing another entry in my series on the changing film distribution landscape, “Should you release your film straight-to-streaming (Netflix)?” So here’s the latest version of that. As before (See Part I here or Part II here), I’ll be asking myself the questions.

Was the Mulan PVOD “experiment” worth it?

I’m probably too much of a stickler on language–I called out a much more influential strategic technology analyst on Twitter for mixing up aggregation and bundling this week–but I do believe terms of art have a role in setting strategy. Words have meaning and mixing them up can make for sloppy understanding.

The word “experiment” should be reserved for true experiments. Meaning scientifically rigorous processes to draw statistically significant conclusions. In business, this is incredibly hard to do. Most often, we have a sample size of “1”. Given that a company can’t split the universe into multiple alternate realities to see what happens, if they change their strategy they have only one data point to draw conclusions from. They only have the one strategy to adjust. It’s an “n of 1” as I wrote last Wednesday. Meaning we can’t draw conclusions from it.

I prefer “test” instead.

Fine, was the Mulan “test” worth it?

Probably not. Because most “tests” really don’t help refine strategy. Strategically, it’s usually a mistake to run “tests” that muddy your strategy and/or consumer value/brand proposition. In this case, Mulan was huge news. With tens of millions of dollars on the line, you shouldn’t run “tests”, but make strategic decisions that align with your long term strategy.

As it is, Disney got the data that PVOD sales didn’t match their expectations. Consider a question I’ll ask later: What if Disney had released Hamilton on PVOD? Then arguably the test would have worked! But the true difference is one film was the most popular musical of the last decade, and the other was a live-action adaptation. The track record on live-action remakes is more mixed: they’ve had a much more up and down reception. (The Lion King and Beauty and the Beast did really well; Cinderella less so.) In other words, we could have guessed that Mulan could not launch well but Hamilton would have.

But that’s why Disney needs to decide if PVOD is a part of their strategy or not going forward.

Okay, my last try: “Was the Mulan PVOD release strategy the best one to maximize revenue?”

That is the best way to ask the question! Thanks, me.

I think it wasn’t. With the caveat that I’m second guessing the executives, let’s review the options Disney had in front of them. They could release in theaters now, or next year. They could try the PVOD test. They could release in TVOD. Or go straight to SVOD on Disney+.

Trying to run the numbers wouldn’t really help since it would require tons of estimates and just guess work. But if we’re ranking the options, my gut is Disney ended up choosing the 3rd or 4th worst option. I’d do it this way:

1. Release on TVOD in September in Disney+ territories, theaters elsewhere.
2. Release in September in theaters globally, with a shortened window.
3. Release sometime next year in theaters globally.
4. Release on PVOD in September as above.
5. Release straight to SVOD in Disney+ territories, theaters elsewhere.

Here’s my logic for number one: Mulan had higher brand equity than Trolls: World Tour, so it would have generated more interest. Indeed, the biggest release tactic that held Mulan back wasn’t the price, it was the distribution strategy. However, you could convince me that options 2 and 3 could have beat option 1.

As I wrote a few weeks back about “exclusive distribution channels” when it came to Spotify, Podcasts and Joe Rogan, when you go “exclusive” you artificially limit your upside. Disney essentially opted for the same path here. The problem was their exclusive channel doesn’t look to be worth it. Essentially, TVOD would have expanded the footprint by so much that it would likely have generated more sales. So that’s my number 1 option to maximize revenue. (And a lower price I think would have further convinced folks to buy it.)

What about the new subscribers Mulan brought in?

Uh, look at the Antenna data of new sign-ups in context of past releases:

antenna-longer-time-period-1

In other words, Mulan didn’t drive new subscribers. Because it was PVOD, fundamentally, it didn’t help with retention either. The number of new subscribers is barely statistically significant.

What about releasing in theaters?

Unlike Universal, Disney hasn’t been expressly antagonistic to theater chains. (Though as soon as AMC and Comcast agreed on a deal, they publicly became best buddies again.) So assuming Disney could have sold the theater chains on it, yes there is a chance they could have released Mulan in theaters followed by a simultaneous or 3 weeks later PVOD release. That would have made more money than PVOD only.

The logic for me is simple: give multiple options for customers to watch a film. The challenge is most theaters in huge markets are still closed. It’s that uncertainty that is hurting theaters more than anything. And the theater chains would have fought fiercely.

Could Disney have held it until next year?

They could, but three things are holding them back. Which I’ve been struggling to explain all summer, and think I just figured out.

First, the financial cost of capital. Which is the idea that if you spend $200 million to make a film, the goal is to eventually make $216 million accounting for inflation since the entertainment industry’s cost of capital is roughly 8%. (No matter what else you know about entertainment, that’s the key math.) If you wait a year, you need to make 8% extra to cover the costs of the delay. That’s the damage “cost of capital” does to a cash flow statement.

(Want an explainer on net present value/the time value of money? Go here.)

For big films, this is clearly worth it; smaller films it isn’t. If the next Fast and Furious film does a billion dollars, taking the 8% cost of capital hit is better than a 60% total revenue hit. Using this logic, Disney should have moved it back.

The second cost, though, may be the real driver. That of what I’m calling “organizational” cost of capital. If everyone moves their films back simultaneously, the problem is many of those films can’t release at the same time. And that means you can’t start making new films, since they won’t have anywhere to go.

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