Tag: CBS

The 2019-2020 NBA-to-Entertainment Translator: The Update

Basketball, in my opinion, is a great testing ground for theories on strategy, valuing assets and data analysis. That’s why I developed my ownValue Over Replacement Executive” theory last fall. Or why I used the NBA to explain the misleading statistics here. Or compared overall deals to NBA trades here. Or why I’ll roll out the “four factors of streaming video” in a few weeks. 

It works because basketball—and really all sports—are a controlled environment, with standardized statistics and clear winners and losers. That makes it a great laboratory to test out a lot of theories. The challenge for entertainment executives is understanding that the data is a lot messier in business than sport.

My favorite basketball-inspired series was from last fall where I rolled out my “NBA-to-Entertainment” translator, comparing each NBA team to its analogue in the crazy world of the Hollywood. I did this in three articles:

Part I: The Eastern Conference

Part II: The Western Conference

Part III: The Rest

In honor of the return of America’s 2nd (or 3rd) biggest sport, I’m going to take a gander back at what I wrote last year. I won’t hit every team/company, but will call out some of the biggest hits, misses or just fun teams/companies to write about. 

(By the way, this is an exercise in narrative building fun, not an accurate, data-crunched analysis. With essentially each “input”—either team or company—being filled with thousands of variables over the course of a year, I can pick and choose to build mostly any narrative I desire. Which makes for a fun read, but should be a sneaky lesson for those of us crafting strategies.)

The Walt Disney Company is…The Los Angeles Lakers

Call: Biggest miss

Let’s not pull punches, fellow Lakers fans. While Disney was having arguably the greatest year in theatrical performance in its history—Avengers: Endgame, Captain Marvel, Toy Story 4, The Lion King—the Los Angeles Lakers were tanking. It wasn’t the worst season in team history, but it wasn’t great. And we had Lebron James on the roster!

Lebron—who I also called the “Marvel Studios” of entertainment—was still Lebron. And the same way that Disney put together superstar studios (Star Wars, Pixar, Marvel), the Lakers added Anthony Davis in the off season. That’s why I have to keep this pairing for now. The Lakers added a superstar and Disney is about to add Disney+. Plus, cynically, both Lebron and Disney have ongoing China business that clouds their moral judgement, so that feels appropriate.

Netflix is…The Golden State Warriors

Call: Biggest hit

Wow, does anything capture Netflix’s last year—continued global subscriber growth, but one earnings miss tanked their stock price—than Golden State making the finals, but losing to Toronto? Emotionally, those feel identical. Other similarities: Golden State lost Kevin Durant, and Netflix is losing all the Disney movies. 

As we gaze towards the future, both Netflix and the Dubs face competing, viable visions of the future. In optimism, Golden State gets back Klay Thompson, De’Angelo Russell becomes a super star, and by next year they’re competing for championships. In pessimism, it all falls apart. In optimism, Netflix gets its costs under control, keeps growing globally, and takes over the world. In pessimism, it all falls apart.

This is a fun one to keep watching.

Amazon Prime/Video/Studios is…The Toronto Raptors

Call: Close miss

One could squint and make the case that Amazon crushed it in 2019. An Emmy win for Fleabag, the super hot Marvelous Mrs. Maisel (also winning awards) and then you have The Boys being a sneaky popular series! Amazon has the hardware and so too do the Raptors.

But it doesn’t quite capture Amazon’s year. For all the TV success, Amazon had a string of movie misses from Booksmart to Brittany Runs a Marathon. Those misses feel like not re-signing Kawhi Leonard. Most importantly, for all its talk about 100 million global subscribers, no analysts really think that the Prime Video service has taken the crown from Netflix. As for Twitch, it’s huge. But how huge? We don’t know.

HBO is…The Houston Rockets

Call: Hit

How can you have the biggest show on television, and feel like your company is falling apart? By having every executive leave and your corporate parent trying to change who you are. The Rockets have the greatest scorer in the NBA, but they didn’t make the Western Conference finals because of a poor regular season, sort of how HBO’s slate outside of GoT is very “okay”. 

The future isn’t terrible, with another polarizing superstar—Russell Westbrook aka The Watchmen—joining the crew, but definitely filled with question marks. (Will the GoT prequel live up to the hype? Will Westbrook and Harden co-exist? Will HBO Max ruin the HBO brand? Will Harden come through in the playoffs?)

While we’re here, we may as well knock out the rest of the AT&T/Time-Warner conglomerate.

Warner Bros is…The Milwaukee Bucks
AT&T/Time Warner is…The Los Angeles Clippers
Dallas Mavericks is…Turner (CNN/TNT/TBS)

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On Content Arms Dealers, Aggregation and the Perfect Bundle: What Is/Should Be ViacomCBS’ Competitive Advantage?

Let’s get right into Part II of my a quest to find SuperCBS’ competitive advantage. (Reminder: SuperCBS is my nickname for ViacomCBS.)

Competitive Advantage: Become a Content Arm’s Dealer

Why?

I’ll be honest, I didn’t come up with this on my own. I first read it on Twitter by Rich Greenfield. Then I heard it from Matt Belloni and Kim Masters on The Business. The logic goes, with 140,000 episodes of television and 3,600 movies, the combined ViacomCBS has the content people already need for their libraries. Moreover, they’ve been making TV and film for decades. So as new entrants like Amazon and Apple struggle to make good shows, CBS already knows how to do that. They boast 750 shows currently in production or ordered. 

Reading their press release announcing the merger makes one even more inclined to consider this position. They clearly think their advantage is content production. Most of the facts from above came from that announcement.

Upside?

Quantifying the upside here is fairly difficult because you need to separate how many shows SuperCBS will sell to its linear channels, its digital outlets and then other folks. Or what happens to their movie output deals. (For instance, Paramount is already making some films for Netflix.) Instead, the main opportunity is feeding the hunger for content from people like Apple, Amazon and Netflix. They’re buying lots of shows to air globally. It’s a sellers market. You should be able to make money off that.

However, as they grow, Netflix has pioneered the trend of controlling more and more of a show’s distribution. In return, the streamers like Netflix pay something like 130% of the production budget of a show to have its rights for 5-10 years. Except that Netflix then takes a 30% distribution fee, and can cancel a show at anytime, while keeping the rights in the near term. This means you essentially are selling your content for exactly what you make it for, which is a zero margin business.

Skepticism?

The reason that there is even a debate between “distribution versus content” (content is king!), is that everyone wants to be a distributor. The way you make money, the conventional wisdom goes, isn’t to be a content producer, but a distributor. As soon as the FCC relaxed rules on the amount of owned content aired on broadcast channels, all the broadcast channels went to majority self-produced content. As a result, many independent TV producers went out of business by the end of the 1990s

TV Value Chain

In the TV or movie value chain, the worst place to be (besides being a customer?) Is to be the producer in the middle. They’re squeezed on both ends. The creatives demand increasingly higher payments to work on the shows or films. (Creatives like JJ Abrams, Shonda Rhimes, Ryan Murphy or Benioff & Weiss are the rare commodities in this market.) Meanwhile, the distributors insist on huge margins for simply putting out your content. (The traditional film distribution “fee”, for example is 25-30%. The streamers have similar fees.)

Sure, the TV producer “owns” the content, but if they can’t sell it anywhere else, where does the extra money come from to pay for overhead, studio lots and, eventually, shareholders?

Worse, the biggest upside TV producers had is potentially disappearing. That was syndication revenue, which was a monster. Shows like Friends, The Simpsons and, now, The Big Bang Theory are worth billion dollar pay days. But it required making hundreds of shows to get those handful of hits that could be sold into syndication. (Netflix doesn’t let a lot of shows get that far anymore.) If the bundle falls apart, syndication goes too. Will streaming be as valuable as syndication? I’m skeptical long term.

Making matters even worse, companies like Netflix are moving to owning more of their shows, so they can keep these margins low. (Netflix can say, “Don’t like our deal? Well, we have Benioff & Weiss, why do we need you?”)

Future M&A Needed?

MGM and/or Lionsgate. 

If you’re selling content, having valuable libraries will only help you deliver on that value proposition. To go with the arms dealer analogy specifically, MGM is like adding a lot of AK-47s while Lionsgate is a few additional heavy tanks. MGM can bring you Gone With the Wind and The Wizard of Oz while Lionsgate has Twilight and The Hunger Games. Those aren’t bad additions to a streaming library!

Competitive Advantage: Become a Distributor

Why?

If I could choose anyone to be in the streaming wars to come, it would be the folks who are distributing the content. My working theory is these distributors will be the best positioned companies to thrive. These distributors are stepping between the “pipes” to become the new multi-channel provider. The people not just selling their own subscription streamer services, but taking 30% off every subscription they sell.

The best way to make money in entertainment? Not even distributor, but distributor of distributors, taking a percentage without doing the hard work of making TV shows. So Amazon, Apple, and Disney won’t just be people owning streaming platforms like Prime Video, Apple Plus and Hulu, but also selling HBO, CBS All-Access and Starz. And taking 30% from each “channel” they sell you. (But not Netflix. No one gets to resell them.)

Upside

My quick math is that if you can get to 30 million US subscribers, with an $80 monthly bill, and take 30% of that, well that’s a $8.5 billion dollar business. Add an international business with 50 million subscribers at $40 a month, and you’ve added $15 billion to your top line. Not bad.

The non-monetary upside is considerable too. If my theorizing is correct, the new carriage wars are going to be about distribution on the new distributors. (Article on that here.) Say Disney and CBS are having a tough negotiation over CBS All-Access on Hulu. Well, CBS is in an even stronger position if they can also threaten to drop Disney+ from their distribution platform then if they have to argue just on the merits of CBS All-Access (and Showtime). So if you’re a streamer, owning distribution makes it easier to negotiate with other distributors.

Skepticism?

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What Is/Should Be SuperCBS’ Competitive Advantage?

Competitive advantage is tricky. In a nutshell, it’s a business’ unique attributes that give it an edge. If you don’t like that definition, here’s the Wikipedia article. I looked in my strategy textbook to find a simple definition—again, I’m standing on the shoulder of giant’s here—but couldn’t find a simple one sentence definition. Here’s the best quote, though it has some jargon:

IMAGE 1 - Strategy TextBook

Businesses have two challenges with this. First, having a “unique” capability is tough. Hence, most entertainment conglomerates for the last thirty years looked and operated mostly the same. (Start with a movie and TV studio, add a broadcast channel, then some cable channels, with failed forays into internet “stuff”.) Since it is tough, most companies don’t know or can’t express what their competitive advantage is.

In fact, one of my favorite “corporate America” stories is about competitive advantage and lack thereof. Fresh out of business school, I was participating in our business unit’s annual planning process. We were setting our plan for the upcoming year. When you learn using the “case study” method in b-school, well, 8 times out of ten it’s basically “competitive advantage” boot camp. You’re always studying the innovative companies who had a competitive advantage. Unless it’s the cautionary “failed business” case study, which meant they didn’t have a competitive advantage, and the company who did have one ran them out of business. (See Walmart and K-Mart.)

During this planning process, I foolishly asked, “Well, should we explain what our competitive advantage is?” The answer, was, “Uh, no. We don’t need to do that. We don’t need to have a competitive advantage to do our annual strategy.”

Fair enough! My boss was right. She didn’t really need a strategy to make an annual plan. We were going to spend lots of money making TV shows and movies regardless. What does strategy have to do with it? 

Not to mention, making annual plans is easy; doing strategy is really tough. It takes hard work and sometimes it requires admitting your strategy is either 1. bad or 2. non-existent. Moreover, even if you have a competitive advantage, it may not last, meaning you need to start all over again in a few years. Instead, most companies, leaders and groups just don’t talk about it. Maybe your corporate overlords or investors won’t notice you don’t actually have a strategy.

Keeping in mind most businesses don’t have a strategy, or they have a bad strategy, let’s ask:

What could be ViacomCBS’ competitive advantage?

This was the angle into SuperCBS that got me really excited last week. (Since ViacomCBS hurts my eyes to read, I’ve nicknamed them SuperCBS.) After digging deep into what “size” meant for my weekly column, I started musing on SuperCBS’ potential strategy. Mostly, I was dunking on their lack of a strategy. But as I reread the words, it felt a bit hollow.

It’s really easy to point at a company, find a bunch of different problems with their plans, and point out the flaws. If the company fails, I look smart, and can point at the column with a smug satisfaction. Even if they don’t fail, but merely fail to become the undisputed market leader than the column looks smart.

It’s much harder to look at that same company and imagine them as a beautiful strategic butterfly ready to emerge from the Porter’s Five Forces cocoon and fly into the world with a new competitive strategy that will help them acquire customers, grow marketshare and become an in class leader in entertainment. 

If I had to bet, I’d argue that 9 out of 10 entertainment companies–from telecoms to media to entertainment to tech–don’t really have a strategy. (The GAFA’s do, but subordinate business units may not.) This is the best bet to make for SuperCBS. But let’s pretend for the day that they really do have a strategy. I’ll start by listing the potential competitive advantages I see. I ended up with five. I’ll discuss the logic behind them, the potential upside and the skeptical viewpoint. As a bonus, I’ll recommend a merger or acquisition that could be needed to complete the strategy.

(Two cautions before we start. First, this is my “gut” analysis. I haven’t actually stacked all the options up with proposed financials, so I haven’t finished my thinking yet. And to that point since “strategy is numbers”, I’m going to throw a few in for every option, but these are pretty high level numbers. If I were doing an actual strategy, I’d demand a lot more rigor.)

Competitive Advantage: TV Advertising Oligopolist

Why? 

A fact in Brian Steinberg’s recent article really stuck with me: A combined CBS and Viacom could control up to 20% of TV advertising. This got me thinking that “advertising”  could be a capability that lays the basis of a new competitive advantage. This would pair well with Viacom’s recent acquisition of PlutoTV, an ad-supported video service. (Call that either an AVOD or FAST.) The logic here is, if you’re already great at selling advertising, lean into that capability and build it out. Become the ad-supported behemoth of the new TV landscape.

Upside? 

Well, if you’ve seen all the news articles where ad executives beg, plead and beseech Netflix to sell ads, you can tell they want to deliver Millennials advertising. Can CBS step into that role instead? Maybe. (Again, it’s a myth that CBS is only old people. It’s really popular with Millennials too. Even on the coasts!) So there is customer demand, and that will translate to advertising. Here are eMarketer’s estimates for digital and traditional TV advertising revenue:

In other words, SuperCBS currently has 20% of a $70 billion pie. (I found other similar estimates to eMarketers too.) But 40% would be even better! (Again, when thinking competitive, the goal isn’t a small slice, but the biggest slice.) And 40% of a $140 billion pie is even better. Of course, you know where this is going…

Skepticism?

Is the future of advertising digital or linear? Pretty clearly digital, and Google and Facebook have a tremendous head start, with Amazon as a third. Even if you just wanted digital video, Youtube is much farther ahead. (I’ve seen estimates ranging from Youtube owned $4 billion of digital video market in 2014 to $15 billion now, which is the highest estimate I saw. Though, I’m pretty skeptical they’re $15 billion of an alleged $17 billion pie…) 

I’d add even the ad-supported sphere will be extremely crowded and competitive. Roku is a well-placed competitor here. Or Hulu and ESPN+, depending on how many ads they keep selling. Plus, Amazon is getting into the game with IMDb TV and there are a bunch of other FASTs following them. 

Not to mention, you don’t start with ads, you start with customers, who you then sell ads against. The advantage of Netflix—and the reason Madison Avenue wants to work with them—is they already have 60 million subscribers in the US watching tons of TV. CBS All-Access hasn’t show it can deliver that yet. (Though PlutoTV is allegedly growing.)

Also, this is is a fairly US-centric approach, which limits the overall upside. Let’s pause on this last point. Does the strategy of entertainment conglomerates have to be global? Clearly Netflix and Amazon see global domination as a competitive advantage, but maybe by focusing on one country/region, smaller distributors can carve their own niches. I don’t know that I’d buy that, but I could see it.

Future M&A Needed?

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