Tag: Disney+

How the Antitrust Case Against Facebook Could Upend the Streaming Wars: Most Important Story of the Week – 11 Dec 2

Disney is a marketer’s marketer. With the biggest brands in entertainment, they can serve up an investor day—an investor day that is for Wall Street investors!—that gets regular folks to turn in and trends on Twitter. Yet, for all the buzz, the basic story was that Disney is releasing Disney content on the Disney branded streamer. We’ll get to that, but another story could have bigger implications for entertainment.

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Most Important Story of the Week – The Antitrust Case Against Facebook

A few months back, following Epic’s Games epic lawsuit against Apple, I stated that I planned to follow “antitrust” news fairly closely. Because antitrust could be the new “deregulation”:

I’ve been scanning the landscape more over the last couple of months to look at the future. And the “blue ocean” space in the entertainment strategy landscape for me isn’t technology–again, the futurists have it covered–but how regulation could change business models. And this is a hypothesis I’m monitoring: 

Could antitrust enforcement could become the new deregulation?

Deregulation was arguably the biggest driver of disruption in the 1970s and 1980s. Deregulating industries across the globe from airlines to energy to telecommunications repeatedly enabled smart firms to seize new advantages. That airlines example above is a perfect example; Southwest likely doesn’t become Southwest without deregulation.

Generally, everything has been deregulated. So what comes next? My guess is a reversal of antitrust. 

Since then, the signs that antitrust is on the agenda have only picked up steam. Consider:

– The House Antitrust Subcommittee released the “Cicilline Report” which laid out how the four big tech firms have used their market power to hinder competition.

– The Department of Justice filed a lawsuit against Google for specific antitrust violations. State Attorneys General are expected to follow suit.

– Joe Biden was elected as the next President of the United States. While there is some bipartisan support of renewed antitrust legislation (see Google’s antitrust suit, filed by a Republican), Democrats are still clearly more supportive than Republicans on antitrust.

– This week, 48 states and the Federal Trade Commission filed an antitrust lawsuit against Facebook. (Also a bipartisan move.)

In August, I laid out a few waypoints that I would watch to see if increased antitrust enforcement was likely coming. We hit the big one (Biden’s election), the next biggest (Congress increasing pressure) and now antitrust is headed to the courts (Specific lawsuits against Google and Facebook). As the future becomes slightly clearer, then, it’s worth expanding the potential for what comes next, especially for entertainment and media.

Predictions

What happens next?

To start, more antitrust lawsuits for the rest of big tech feels inevitable. Amazon seems particularly easy given that they have leveraged their market power in retail for years to enter new industries or stifle competition. The complaints from smaller vendors are legion. (The diapers.com affair from the start of the decade is particularly egregious.) Apple is more beloved than Amazon, but the Fortnite fiasco basically illustrated in stark terms Apple’s market power, and brought up a host of smaller competitors crushed under their power. Both Amazon and Apple, though, are more popular than Google and Facebook, which have both been embroiled in partisan bickering.

After that? The states/FTC/DoJ will either win or lose their lawsuits. That proposition is dicey because these suits are decided by individual judges, many of whom were appointed by Republican presidents with The Federalist society backing “Borkians” who tend to downplay antitrust concerns. Or in some cases just don’t believe antitrust is worthy of government attention.

If the states lose their lawsuit, then it would require Congress to change the laws around antitrust. That’s a much tougher challenge in today’s political landscape. But not impossible. (The Georgia run-offs will say a lot on whether this is possible.) Assuming that the Big Tech companies lose their fight, then come the potential remedies, which adds another layer of complexity to predicting what happens next.

Potential Outcomes

Let’s be honest and let the air out of the balloon right off the bat: The most likely outcome is that Big Tech is mostly left in place. Think Microsoft in the 1990s. In the worst case, the companies agree to some measures to control their behavior, but immediately go back to not following them and paying minuscule fines.

This is, essentially, what has happened with most merger consent decrees this decade. Facebook said it wouldn’t integrate What’s App’s data, then did it anyways. AT&T said prices wouldn’t go up after mergers, then raised prices. The companies pay the fines and keep consolidating. Disney said it would keep producing Fox movies, but now may release fewer films in theaters post merger than they did before.

The best case would be consent decrees that are enforced. Like the Paramount Consent Decrees of the 1950s. This helped movie studios and theaters thrive. Or AT&T’s forced divestment of patents in the 1950s. This spurred innovation across the U.S. landscape, which really did help competition. (It does say something that success examples of this happened 70 years ago…)

The bigger, and more fun to imagine, scenario is breaking up big tech. (And while I try to avoid my own policy recommendations, this is the outcome that I believe would benefit America the most.) These breakups could be either horizontal (the same industry) or vertical (different business units in the same company in related fields). 

Vertical is actually easier in most cases since the different companies don’t need each other to survive. So for Amazon, spinning off AWS, for example, would hardly impact Amazon’s retail business. (Though it would deprive Amazon of a valuable profit stream.) Google has multiple business units that could easily survive on their own. I’d add that splitting up Instagram and What’s App from Facebook are horizontal break ups, but relatively easy to contemplate since customers wouldn’t notice a change. (I’d make the same case for Amazon breaking up their marketplace from their other retail enterprises.) 

While vertical break ups in many cases don’t address market power, they are still very helpful for competition, since it means the firms left in a given industry can compete more evenly. (And most vertical integration tends to be followed by price gouging, product tying or other anti-competitive behavior.)

The key question for entertainment is whether each of the big tech titan’s entertainment enterprises get divested individually or remain as part of the bigger conglomerate. I could argue that Google should easily divest Youtube. Youtube can clearly survive on its own, but this would also give a powerful new internet advertising option to marketers. Apple could divest its media fairly easily (they are all just apps running on their operating system). Amazon has a better case for Prime Video staying in Prime, but even that isn’t ironclad. (Ask yourself: couldn’t Amazon pay the new Prime Video to stay in their Prime bundle? Yes, obviously. So why wouldn’t they? Because the value isn’t actually in the current video/data, it’s the market penetration to gain dominance overall.)

This is an unlikely scenario I’ve laid out. The plaintiffs have to win their lawsuits and then the remedy has to be the most extreme of remedies (break up). But imagine we do get here. Who are the winners and losers of this world? Imagine that Prime Video becomes its own company (with Twitch, Amazon Music, Audible and maybe a few other assets). Apple One becomes its own company (Apple Music, iTunes, TV+, Arcade and so on). And Google spins off Youtube.

Who wins or loses in this scenario?

Winner: Netflix

Say what you will about being bearish on Netflix’s business model, they aren’t a monopoly. Some investors want them to become one (building a “moat”), but a company with only 8% of all viewing in the United States is hardly a monopoly. Indeed, the biggest threat to Netflix, in my mind, is the unlimited cash reserves of Apple and Amazon. If forced to compete on an even playing field, this would benefit Netflix. (With the caveat that multiple new streaming companies on the NASDAQ may impact all share prices simultaneously, for good or ill.)

Winners: Traditional Streamers

Cord cutting is the biggest pain point for traditional media. But the biggest challenge, more than anything, is competing against competitors who don’t have to make money. If Big Tech had to compete on a level playing field–read not deficit financed–traditional media has a much better chance to survive in a streaming world.

Further, there is a big difference between radical disruption (where revenue drops by double digits year over year), and slow evolution (where profit margins slowly decline). Both get to the same place (which is the likely outcome from streaming), but one has a lot less pain for the incumbents and their suppliers. 

Losers: Prime Video and Apple

These seem like the two biggest losers in all this because most folks acknowledge that their streaming business models just aren’t based on actually delivering a valuable product. Phrased differently, no VC firm would invest in Apple TV+ if it weren’t owned by Apple; there is no business plan there. Spun off from their parents, these new media companies would be valuable, but much less invincible.

Losers: AT&T and Comcast

After Big Tech, if Congress wanted to find the industries that are heavily consolidated and hated by customers, cellular and cable are next on their wishlist. (Then health care.) Breaking up Big Cable would probably be the most popular move of the Biden administration. 

Winners: Roku and Sonos

If devices are sold at cost, the independent device makers have a chance to succeed and thrive.

Winners: Talent…probably.

In a lot of ways, the boom of streaming and peak TV is the best of times and the worst of times for talent. More shows and films are being made than ever before, but back end cuts are smaller than ever before. Meanwhile, junior writers work for some of the worst pay in the last few decades. Arguably, with many more streamers who are less powerful, the guilds could negotiate better rates, especially down the line. 

However, this may be offset by the end of the so-called “Drunken Sailor Era” (™ Richard Rushfield) as firms have to start making actual money. So they could cut back on content spend. That means less potential jobs overall.

TBD: Customers

Like talent, this could go either way. On the one hand, it has been great for customers to have multiple firms willing to subsidize cord cutting. The problem is those subsidies are harmful long term and entrenched market power is awful too. So prices could go up, but they’d reflect economic reality. Meanwhile, customer choice would come either way.

The Caveat: All of this is Unlikely

Does a huge break up of Big Tech, including spinning of media firms actually happen? Probably not. But without throwing out random probabilities, it’s probably twice as likely as it was even in August. (So yes, this is like a streamer saying a show grew 50% year over year. 50% of what?)

Yet, Biden was elected President, and that’s huge. Combined with renewed emphasis by the Democratic coalition, and I think corporate consolidation is on the table for change. He’ll likely appoint attorneys general, federal judges and administrators who could put a renewed emphasis on antitrust. That will impact entertainment eventually.

Other Contenders for Most Important Story

Disney Investor Day

Few analysts are (and have been) as bullish on Disney’s streaming future as I have been. I write that to put in context what I’ll write next: I don’t think this Disney Investor’s Day deserves the hype it has been given.

Take a few of the headlines touting “10 New Star Wars and Marvel” series coming to Disney+. That sounds huge. But given that this will take place over the next few years, is it? In context? Take this analysis by Emily Horgan:

Or take my timeline I’ve been using to model Lucasfilm’s financials:

base

And for kids…

kids

In other words, Disney confirmed what I’ve been modeling for a while now. This Star Wars volume is a pinch higher, but considering the volume of one-offs, not that much more than I modeled. But most of Wall Street/the trades seem surprised by it. I’d add there are a few more caveats for why the total volume of content may not match the reality:

– Shows will likely get cancelled. Like Ghost Rider, Benioff and Weiss’ Star Wars Trilogy, Howard the Duck, Rion Johnson’s Star Wars Trilogy, more Han Solo films, and countless other projects over the years.
– A lot of this content is animated and for kids. Which is crucial to Disney’s future, but likely replaces exactly what they were making for Disney Channel, Disney XD and Disney Junior. Which we weren’t getting super excited for before streaming times.
– Some of the announcements really are for a long way off (like a Rogue Squadron film in 2023). Most announcements didn’t have dates.

In total, then, I don’t think this is really much more content than Disney was planning on making last year or the year before. Some of it may have shifted from film (previous pitches for movies may have turned into TV series, like potentially Obi-Wan), but it’s probably similar. At the end of the day, it looks like from 2021-2023 we can bank on a Disney live-action adult series every 2 months or so on the platform for Marvel and Star Wars. 

That feels about perfect. If they can keep up the quality, that’s a big slate that will keep folks subscribed. It’s also the “if” that defines all success in entertainment.

(Though Disney+ still has a big hole for adult TV outside of Marvel and Star Wars. That’s a tough hole to fill.)

As for business strategy, the biggest news is no news. Hulu stays where it is. Star is officially becoming Disney’s adult brand globally. ESPN+ will continue expanding, and be available within Hulu. And lastly only one film is “breaking” the theatrical window, with Raya going to Premiere Access (like Mulan’s $30 release) simultaneous with theaters. (I have a feeling it will do much smaller business than Mulan on PA.)

An NFL Update: Ratings are Down, but Good for Broadcast

Is the state of the NFL viewership good or bad? Maybe both. Americans consume NFL football more than any other sport–arguably more than any other type of content period–yet the ratings aren’t as high as past years (down about 8%) because linear TV viewing just isn’t as high as it was (down about 30%). This of course begs the question for what happens next. I can’t see a world where broadcast TV doesn’t nab a few more years of NFL rights, even non-exclusively, but the key question is, “At what price?” Likely they will be high.

Disney+/HBO Max and Comcast Integration

Disney+ and HBO Max will soon be available on Comcast’s Flex operating system. This is a smart next step for both Disney+ and HBO Max. (If anything it should have come sooner.) For all the talk of cord cutting–and there is a lot!–one of the surprising survivors is the cable box. This makes it much easier to reach another big group of customers that Netflix and Prime Video are already reaching.

Data of the Week – The Hallmark Channel Is Still Winning Christmas

Josef Adalian has the details in a recent newsletter, but 3.4 million folks tuned in on one Sunday for a Christmas movie. Linear TV is dead, but it won’t lie down.

M&A Updates

Just because antitrust is back on the agenda doesn’t mean that mergers won’t continue fast and furious. The two latest biggies both have tangential relations to entertainment. Slack is the de facto messaging service of lots of Hollywood, and it was just purchased by Salesforce. Meanwhile, S&P and IHS are merging for a huge price tag because they are both financial data firms. S&P fascinates me because they had earlier purchased SNL Kagan, and Kagan was a tremendous source for entertainment data back in the day.

1.2 Million Folks Bought Mulan in the US During It’s Opening Weeknd: The (Not) Definitive Analysis of Disney’s Mulan Experiment

How many folks bought Mulan?

That’s the buzziest question in the streaming wars right now.

Since we don’t know, we’re left to pick at the analytics tea leaves. Fortunately, as each day passes, we’ve got more tea leaves to pick through.

(Partly, the question is relevant because it gets to the buzziest question, “Who’s winning, Tenet or Mulan?”. I’ll answer that on Wednesday.)

Far from throwing my hands up, I’ve started to realize these tea leaves are signal not noise. So if/until Disney tells us otherwise, I’ve done my best to compile all the Mulan on Disney+ data we have. Consider this a “meta-analysis” on Mulan. First, I’ll summarize each data source and what it tells us, next I’ll try to compare this to Trolls: World Tour, then I’ll compare all the data sources, and finally I’ll make my estimates for Mulan’s performance.

(I covered some of these data points in a column and Tweet thread two weeks ago. Today, I’m updating all that data and tossing in my estimates at the end. Also, if you’re new to the EntStrategyGuy, my newsletter goes out every two weeks with links to my writings and the favorite things I read over the last two weeks.)

To start, though…

Bottom Line, Up Front

Don’t want to read the entire thing? Fine, here are the talking points you can deliver confidently without reading the whole article.

— The story about Mulan’s performance is remarkably consistent, if you ensure you are comparing “Apples to Apples”.
— Right now, I’m fairly confident at estimating that its opening weekend Mulan was purchased about 1.2 million times. (Other estimates range between 1 to 1.5 million, giving us a fairly tight range.)
— That implies that it made about $36 million on its opening in total revenue.
— Based on its rapid decay, the Trolls: World Tour comp and the fact that it will only be in PVOD for 8 weeks, I estimate Mulan will generate about $90 million in US sales over its lifetime. (Based on the estiamtes, this could be as smalls $75 million and as high as $135 million.)

What We Know: 6 Different Sources Tell a Remarkably Similar Story about Mulan

Disney took a big swing by releasing Mulan straight to Disney+ (and only Disney+) for $30 a pop. That left multiple analytics firms—each vying to get new customers to buy its data, a important point about self-interest to note—to fill in the gap. Reelgood said one thing about the popularity; Samba TV said something else; Antenna said something else and then Yahoo took 7 Park’s data in a completely different direction.

The better analogy than tea leaves is actually the old parable about the elephant and the five blind men. Each grabs a different part of the elephant, so feels something different. That applies to our measurement firms. One is measuring viewership; another purchases; another app downloads. Toss in different time periods and sources, and it seems bewildering.

But if you put the whole picture together, it’s not that confusing. After 7 Park put out a great thread clarifying their data this weekend, I’m fairly convinced each source is telling the roughly same picture.

Source 1: Google Trends

This source is so easy anyone can use it. So be careful. Google tracks search traffic data which has been shown to be a very good proxy for interest. Here’s the time period going back to when Covid-19 started featuring top streaming films:

G Trends - PVOD Comparison

What’s the simple takeaway? Interest in Hamilton far outpaced anything else in the straight-to-streaming space. (See my article in Decider for details.) This, for me, is the context of Mulan.

However, since we’re triangulating on Disney+, it’s also worth looking at a “Disney+ only” look:

G Trends - PVOD Disney Only v02

Mulan was big, but paled in comparison to Hamilton.

Source 2: Antenna

Antenna tracks subscription behavior across a range of services such as iTunes, Amazon Fire TV, Roku, Google Play and others. Last week, they released their analysis of Mulan’s opening weekend in this great chart:

Antenna Longer Time Period

This is the most skeptical look I have of Mulan’s huge driver in interest from Disney. Yes, it helped boost sign-ups for Disney+, but less than any other major theatrical driver of the last few months. Also note how this aligns/correlates with Google Trend data, but not perfectly. Black is King did better than Mulan, according to Antenna, but Google Trends has lower interest. (Google Trends has more interest in Artemis Fowl than Black is King.) 

There is a similar story with Frozen 2 driving more sign-ups than Onward according to Antenna, and Google Trends telling an opposite story. (This explanation is fairly simple: Frozen 2 launched right as lockdowns started, so that’s more the story of lockdowns driving parents to subscriber, not interest in Frozen 2.)

Antenna’s data goes further on Mulan. They also used their data to breakdown Mulan purchases by sign-up time period. 

Antenna Subscriber Percentages

Antenna also  released purchases by sign-up time period. So I took those numbers, and combined them with the above chart to give us this estimate of the average % of subscribers who dropped $30 on Mulan:

Antenna Subscriber Purchas Rate

Save that number, we’ll get back to it. But it’s not the only look Antenna provided. They gave some data to LightShed Partners (and then tweeted it), which compares daily sales of various PVOD releases with “purchases by day”:

Antenna Daily Purchases

This is great because we can use a few numbers to compare Trolls: World Tour sales to Mulan. Hang on to this number too. And pay attention to those steep decay curves.

Source 3: 7 Park

7Park is another data analytics firm, though they don’t clarify where and how their data is collected. However, they have been releasing streaming data for a while now.

7 Park entered the data fray this week with a buzzy article on Yahoo, that slightly oversold the analysis. 7 Park measured, through the first 12 days of September (which covers through Saturday of Mulan’s second weekend), the percentage of users who watched Mulan among all Disney+ users during the time period measured. That italicized portion is key. Which is why Mulan could get 29% of streams during its opening weekend, but then a much smaller number when you look at Q3 to date:

7 Park Long Time Period

How does that 10.3% compare to Antenna and Google Trends? Favorably. As 7 Park pointed out in their thread, the demand ratio from Hamilton to Mulan matches Google Trend very well. As for their data versus Antenna, they measure different things. One compares to subscriber base while the other compares to active users. Assuming active users are between 50-75% of the total subscriber based, then the numbers tell a similar story.

Source 4: Samba TV

Samba TV measures viewership on connected TVs specifically. Samba TV also ran an analysis on Mulan viewership, from the opening weekend, coming up with the number that 1.12 million folks purchased Mulan during the opening weekend. It’s unclear if this is connected TV’s only or if they extrapolated out to all customers. Does this match the other numbers? Yes, as we’ll see.

Source 5: Sensor Tower

Sensor Tower measures application downloads. For the streaming wars, they track how often folks are installing streaming application. (Hedgeye analyst extraordinaire Andrew Freedman uses their data to forecast Netflix and Disney+ subscribers fairly well.) According to Sensor Tower, Mulan drove a week-over-week increase in downloads of 68%, which compares to 79% for Hamilton during its opening weekend. This is a bit lower than the Antenna, 7Park or Google Trends data. Sensor Tower only tracks mobile viewing, which may explain the difference.

Source 5: Reelgood

The biggest outlier is Reelgood’s data. Reelgood is an application that helps folks find and curate their streaming offerings. Reelgood uses their data (they claim 2 million users) to then estimate demand for various titles. Here’s their chart with notably the streams as a percentage of top 20 streams.

Reelgood Top 20 copy

This genuinely surprised me since customers had to purchase Mulan, which should have decreased its viewership. Instead, in a follow up, Reelgood said that Mulan actually surpassed Hamilton, which only had 9.68% of streams. This is the only source that implies that demand for Mulan was higher than Hamilton. So it’s our biggest outlier.

Missing Sources

Just to note, of the major sources I track, Nielsen and Parrot Analytics both haven’t entered the Mulan fray. The reason is that both focus on TV series with their publicly available data. (Though Nielsen does have feature film viewership data.)

Trolls Would Tour Comparison

That’s the data, let’s make the comparisons. First, here is the leaked details or estimates of Trolls: World Tour’s performance.

Screen Shot 2020-09-21 at 12.59.08 PM

Unlike Disney (so far), Comcast was much more willing to leak positive data about their Trolls: World Tour experiment. A few things to note, these estimates aren’t quite as steep as Antenna’s data, but match real world churn/decay better. We’ve seen this with other streaming titles where the opening weekend is about half the viewership of the first month or so of a title. And then with trolls the opening month is about half the viewership of the title lifetime to date.

This point may be interesting, but its definitely possible that about as many folks watched Trolls: World Tour after it dropped to $6 to rent then watched at $20. This chart from The-Numbers shows how popular Trolls: World Tour was even 3 months after PVOD:

DEG At home

WIth these numbers, we can compare purchases between Trolls: World Tour and Mulan using Antenna’s data. I did this by measuring the various peaks in the above Antenna chart with purchases by day.  Which made this chart:

Antenna Demand as Trolls

Since they’re decaying at roughly the same rate, we can use this to estimate Mulan sales. In other words, I estimate that Mulan had about 61% of the sales of Trolls: World Tour on PVOD. The caveat is that Mulan is available in less places than Trolls or Scoob, meaning demand could have been as high, but without additional TVOD channels it reached less customers. But that still results in lower sales/demand.

Comparing all the Sources

Wow. So if you’re still with me, here’s my summary of everything we know. Here are the estimates I derived for purchases for the first weekend, where the data allowed me to make that estimate:

Summary Comparison v01

Let me explain this. Given that Antenna and 7 Park are percentages of subscribers or active users, the 15-35 million are potential ranges of Disney subscribers/users. Then I picked the number that is my current “best guess” for each. In other words, I think Disney+ has about 30 million US subscribers, and about 20 million active users in a given quarter. If you disagree, pick another input. For Samba TV, I just used their estimates. For Trolls: World Tour I multiplied the estimated 2.25 million Trolls opening weekend customers (40 million divided by $20) by 61%, the rough proportion from the chart above.

All these sources say about 1.1-1.4 million folks watched on the opening weekend. Splitting the difference, and picking the number I like best, gives me an estimate of 1.2 million.

From there, we can estimate lifetime sales. I’m using my estimate that opening weekend will generate 50% of the first month’s sales. Both Antenna and Google Trends back this up. For example, it has already seen a second weekend drop in demand of about 75% in Google Trends. Also, given this decay, I think its second month will only see about 20% more sales:

Summary Estimate Lifetime

Using best case scenarios (33% viewing in the second month, 1.5 million opening weekend), I get to $135 million lifetime PVOD. Using worst case, I get to $75 million.

Phew. I’m wiped out. There are tons more issues to unpack, especially how this compares to Tenet. But I’ll do that next time.