Tag: Disney

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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Mulan vs Tenet: I (Don’t) Declare a Winner

At first, I was tempted to call “Mulan vs Tenet” the biggest battle of the streaming wars. Each weekend in September, we’ve eagerly awaited answers to the hottest questions in film: Will Tenet save theaters? Will Mulan blow up the model? Who is making more money? Who is WINNING?!?!?

It turns out that the answer to the first two questions is probably no. As for the third and fourth, well, that’s tricky to answer. But since it’s the logical follow-up to my article on Monday, I’ll do my best.

But I wouldn’t call this a battle. If anything it’s a “skirmish” on one end of the larger distribution battle. (The sort of way that Pickett’s Charge was one tactical engagement in the larger Battle of Gettysburg.) Just because it is a skirmish doesn’t mean it isn’t important. Skirmishes are what win or lose battles! (For want of a nail…) 

So after three weeks of data, let’s analyze what we know. Here’s the outline of today’s article:

– First, two lessons on data that set the terms of the debate.
– Second, an analysis of what we know about each film, including US box office, International box office, and PVOD sales to date.
– Third, thoughts on each film’s revenue potential after these initial windows.
– Fourth, a comparison between the two films and declaring a winner.

Kidding! I won’t do that last part because I don’t know the answer. Moreover, I won’t draw giant conclusions about what this means for the future of film. Because frankly two films won’t fundamentally change the landscape. But I’ll explain that point in future articles. For now, the performance of these films to date.

(Also, I found that I was linking to a lot of my articles explaining the business of film. To keep this article clean and not polluted with links, I put a “reading list” at the bottom.)

Bottom Line, Up Front

– Comparing the box office of Tenet to PVOD of Mulan is comparing two different windows to each other. That isn’t apples to apples.
– That said, we can’t know the future value of either film because both “inputs” are “n of 1” meaning so unique that we can’t build a model.
Tenet will likely gross $325-350 in global box office.
Mulan will likely gross $70-100 million in global box office.
Mulan will end up with likely $155 million in global PVOD (with a big range of $105-$270 million.)
– As for lifetime earnings? No one really knows, because there aren’t good comps to make accurate estimates.

Two Data Lessons: Apples to Apples and “n of 1”

My primary job on this site, as I see it, is to explain the entertainment business. You can find lots of places on the internet opining about the entertainment business; I’m trying to teach you why it works the way it does. And in the “Mulan v Tenet” debate, I see two major mistakes being made.

First, Apples-To-Apples

That’s my simple term for comparing like-to-like. In some ways, statistics/data analysis/science is essentially the quest for comparing things like-to-like as much as possible. That way you can isolate the the true drivers of causality. (That’s why random controlled trials are random and controlled.)

Here’s a simple example from last week: folks saw that 7 Park’s data was much larger than peer analytics companies for Mulan’s debut. The key, though, was that they were measuring eight days of data, and not just the opening weekend. They were also measuring the percentage of folks who watched Mulan who were active users, not all subscribers. Once you accounted for this, their math (1.5 million subscribers), was close to other estimates (1 million at the low end for Antenna and 1.1 from Samba TV). Comparing things apples-to-apples solved the problem.

In “Mulan v Tenet”, the key question/claim at the center of the debate misunderstands this notion. Consider these major windows of movie revenue:

IMAGE 1 - Table Second Window Waterfall

The question I’ve seen written and been asked repeated is, “Is Mulan making more than Tenet?” We could reframe it based on the windows in question. Basically, “Is Mulan making more money in PVOD than Tenet in domestic box office?” That would look like this:

IMAGE 2 - MvT Current Debate

But this isn’t the right question. It’s comparing apples-to-hammers. (A Chuck Klosterman phrase.) Look:

Image 3 - MvT Good

This framing really sets the terms of debate better, in my opinion. Even after Tenet leaves theaters, it can go to US domestic TVOD and home entertainment. So even if the answer to the current question is, “Yes, Mulan has likely made more in PVOD than Tenet at the domestic box office,” the question doesn’t make sense.

(Since PVOD wasn’t a window when I first made this table, I added it above. And I summarized all digital/streaming the “pay windows” to show the timeline better.) 

Really the question is, who will make more domestic revenue? So we should fill in this whole chart, accounting for blacked out windows:

Screen Shot 2020-09-23 at 1.23.54 PM

And we can see that two big chunks of revenue for that are the same: who will make more in Pay 1, Pay 2 and library distribution? (That means all the future revenue implied by streaming (like Netflix), airing on premium channels (like HBO), cable (like TNT) and other places. Now that question is tricky because of our next data point.)

“n” of 1

I was inspired by the “n” of 1 after reading earlier this year an article in the Economist about the rise of “n” of 1 medicine. “n” is statistics jargon for sample size. If you poll 3,000 folks about the Presidency, your “n” is 3,000. If your sample size is all Americans, that’s a sample (population technically) of 300 million. “n” of 1 medicine is referring to treatments designed for one individual with a unique life-threatening condition. It means the “sample size” is so unique it’s a category by itself.

This applies to box office and film revenue analysis. When we make forecasts based on opening weekend performance, we can do that because movies are similar and we can account for the differences to compare things apples-to-apples. Hence, we use Marvel films to forecast how much money films based on superheroes will make, while accounting for the time of year of the release and various other factors. (Scott Mendelson at Forbes is my favorite analyst at this.)

Once we have box office, we can use its results to forecast all the other windows a feature film is sold into. That’s how my film forecasting model works. It’s a fairly accurate system. We can also do it for PVOD, TVOD, streaming, TV and any revenue stream. Once we have an input, we can derive the rest.

The challenge for both Mulan and Tenet is they are unprecedented. They are without comps in the United States because: 1. No other blockbuster film has released during a pandemic that closed 70% of theaters and 2. No other film released to Disney+ exclusively for a one-time $30 payment. 

Because of this, making any forecasts about profitability is perilous. Or should I say, highly uncertain. Meaning, while I know what Mulan did in PVOD—see Monday—I’m much more uncertain about what this means for future windows. Conversely, while I know how well Tenet is doing, I don’t know what that means for future revenue streams, since Tenet is only available in 70% of US markets, that account for about 40% ticket sales.

So let’s start with what we do know.

The Data: International and US Box Office, Mulan PVOD and Forecasts

The easiest data to find is domestic and international box office. Since Tenet has been out a bit longer, it’s getting easier to see what its final total will be. So I’ve included the likely final box office total ranges offered by Scott Mendelson.

IMAGE 5 - Box Office with Rnagers

Are those numbers good or bad? Well, we’re in the middle of a pandemic, so who knows? As Mendelson makes the case, for an original material sci-fi live action film, Tenet is doing really well!

Meanwhile, even the ranges on Tenet are fairly uncertain. I put $350 million as the likely ceiling, but if New York and California reopen theaters, there could be give it a late boost (and stronger “legs”) as folks go to see it. Or not! A recovery that happens quickly is also unlikely so it could stay middling. 

Meanwhile, we know from Monday about how well Mulan is doing on PVOD.

IMAGE 6 Mulan Summary PVOD

The wildcard of the Mulan PVOD numbers is the fact that Mulan wasn’t just PVOD in the United States, but globally where Disney+ is available. My analysis from Monday focused on US analytics firms since there aren’t a lot of estimates for global performance. It turns out Mulan was released in every Disney+ territory but France and India, which includes these territories:

IMAGE 7 - Territories and Price

You’ll note it’s also cheaper in dollar terms in other territories. Time to go to the comps. What I did was find the last five Disney live-action remakes, pull down their box office by territory, and use that as a comp for demand:

IMAGE 8 - Disney Live Action Comps

The way to read this chart is that the “Disney+ territories that have Mulan” tend to account for 43-75% of the box office of the United States box office. Great! That becomes our tool to forecast PVOD revenue in those other territories. My low will be 40% (slightly lower than the Jungle Book comp) and I made a high of 100% based on Scott Mendelson’s back-of-the-envelope estimate. I consider that the far outlier, but with this much uncertainty that’s okay. Here’s the results:

IMAGE 9 Mulan International

Of course, I had high case and low case forecasts from Monday, which we could combine. The worry with our estimates now is that we’re making estimates on estimates, which doubles the uncertainty. Which you’ll see in how big our range is getting:

Screen Shot 2020-09-23 at 1.27.19 PM

What do we know? We have estimates for how Tenet and Mulan both did in their opening “windows”, one of which was PVOD/theatrical, and one which was theatrical only.

What don’t we know? What comes next.

The Comparison: Mulan v Tenet

Here’s a rough look at the current revenue of both Mulan and Tenet. As in how much each film has brought their studios as of this (rough) moment, roughly through their first month of releases:

IMAGE 11 Current Revenue

To answer the question I said you shouldn’t ask up above, yes Mulan globally has made more money than Tenet as of this moment. Crucially, the presumed 90% net take beats the 50% domestic/35% international split of theatrical. (Though I think that Disney’s split with PVOD partners like Apple, and Amazon may actually be lower than 90%, but don’t know for sure.) Here’s the look at the question I said we should ask:

IMAGE 12 Lifetime Estimate

I love this look because it clarifies how much we don’t know. Which is frankly how much Tenet will make on TVOD/DVD, how much Mulan will make in home entertainment, how much more Tenet can make by going to premium cable, and how much both will make in streaming.

Why not try to estimate it? 

Because I don’t believe the Tenet or Mulan numbers are good comps for forecasting. 

If Tenet’s US box office is depressed because of Covid-19, then it’s home entertainment could make as much as Trolls: World Tour or Mulan at home. Meaning it could have as large a window as Mulan had since 60% of theatrical attendees couldn’t see it. It’s rumored that Mulan will go wide on TVOD (including iTunes, Amazon and maybe even Pay-Per-View), but I don’t know if that viewership has already been cannibalized by this PVOD experiment. If it hasn’t, it could add 33% more revenue as Trolls: World Tour did when it went cheaper on TVOD in July.

Meanwhile, Tenet will eventually be on HBO and likely HBO Max. But Mulan will stay on Disney+ exclusively? Could I calculate that exclusivity value? Nope. Because I still don’t know enough about Disney subscribers to conclude that this PVOD experiment drove subscribers or that Mulan will have good replay value on the platform. (Unlike Netflix, who we have multiple years of US-only data to parse.)

This is the “n of 1” problem I discussed above. There are so many conflicting variables that my usual methods of forecasting are out the window. Same for the studios. They’ll basically have to collect the revenue and see what shakes out.

Thus, at $35 million dollars difference between the two, I’m calling this a push. It’s as likely Tenet makes more money for Warner Bros. as it is Mulan makes more money for Disney.

In short, we’ll never really know who “won” this skirmish since our numbers are close enough to call it a draw. I’d add, using one proxy for demand, Google Trends, it looks like Mulan peaked higher, but Tenet may last longer.

IMAGE 13 G Trends Tenet vs Mulan WW

As for how demand shifts from here, we’ll see as they release on additional platforms.

Reading List

Really, this article is a continuation of this series I started in December on “Should You Release Your Film Straight to Netflix? Part I” and “Part II” In that series, I explore the economics of taking a film straight to streaming.

Previously, I built a model on how to forecast “revenue” for straight to streaming titles in this series, “The Great Irishman Project”. It’s fairly tricky to forecast streaming revenue, but definitely possible. (Netflix does it!) See my methods explained here.

I also built and explained a film finance model for feature films released traditionally, which I first explained back when I launched the site in a series evaluating the Disney-Lucasfilm acquisition.

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.

Visual of the Week – The Biggest Broadway Musicals of the 2010s

Well, the race is on to get your Broadway musical. First, Disney set the standard with Hamilton. Now, Netflix is fast on their heels, getting the rights to a Princess Diana musical.

This got me wondering, especially the Hamilton news, about how big was Hamilton in the 2010s? Was it the biggest live musical show in the world in the 2010s?

Fortunately, Wikipedia has us covered with data from The Broadway League, so here’s a chart that didn’t make it into my Decider piece. When you look at “Per show” revenue, Hamilton was a popular monster that has few peers.

IMAGE 1 Revenue Per Performance

Some quick insights:

– First yes, winner take all. It shouldn’t even be a surprise at this point. Which was Wicked, until Hamilton, which will likely earn twice over however long it’s lifespan runs. Moreover, the Disney+ platform will likely only boost long term receipts as more folks want to see it in person.

– Second, here’s the table if you want the data yourself. This is sorted in total Gross Revenue to provide a different look.

Image 2 Table

– Third, if you look at “Revenue per Year”, you can see another look at just how much Hamilton was making. 

IMAGE 3 - Revenue Per Year

Read My Latest at Decider “‘Hamilton’ vs. ‘The Old Guard’ vs. ‘Greyhound’ vs. ‘Palm Springs’: Which Movie Was Straight-To-Streaming Champion of July?”

July was a big month for straight-to-streaming films. With theaters still shut down in the United States (and in large parts of the world) streaming is where the action is.

A couple of weeks back, I started dabbling with Google Trends to look at the big streaming movies in July for my weekly column. One thing led to another…and I ended up writing nearly 2,000 words on it.

I pitched it to Decider and they just published it. So if you want to know:

– What was the most popular film globally in July on streaming…
– Or how well Hulu and Apple TV+ stacked up against Netflix…
– Or how well Netflix’s action films are doing…
– And who–if anyone–is making money on these films?

Then check out my latest. I give winners and losers and talk about what we can divine of the economics in this one.

And the winners—specifically how much they won by—may shock you.

Cut for Room Thought: Since Tenet is Delayed

…should Warner Bros put it straight to HBO Max?

Hmmm. 

That’s essentially the question I’ve been asking in my long series, “Should your film go straight to Netflix?”. We’re in very different times than 2019, where I would have said no way. 80% of me still says, “No way.” (And it sounds like Warner Media agrees, based on their earnings call.) Potentially grossing a billion dollars at the box office is worth the risks. And then the film will be on HBO/HBO Max anyways.

That said…

…HBO Max needs something. They’re losing the Harry Potter films in August! The new Game of Thrones series is delayed for who knows how long. Is it worth taking a hit on Tenet to drive new subscribers to HBO Max in the US? 20% of me could see that argument. 

The 2019 Star Wars Business Report – Theme Parks

This is part III in a multi-part series estimating how much money Disney made off “Star Wars” in 2019. Go here for my larger series on Disney purchasing Lucasfilm in 2012.)

Introduction and Feature Films
Television
Toys

As a tremendous Star Wars fan, I couldn’t shake the feeling that Star Wars had a rough year. “Rough” from a certain point of view. Consider…

– It arguably had the third most popular TV series in America.
– It definitely had the third most popular film in America.
– And it launched a new “land” in two of it’s parks. 

And yet…since this is Star Wars we’re talking about…we’re worried.

IMAGE 3 Bloomberg Headline 3IMAGE 2 - Bloomberg Headline 1IMAGE 1 - WSJ Headline

The theme parks were the biggest disturbance in the force. Based on hyper-charged expectations, observers expected the new park to be utterly jam packed. Instead, Disney saw a decline in total attendance at Disneyland. Stories about Disneyland being “empty”—for July—were blamed on Star Wars. 

On the other hand, Disney raised prices again, finally topping a $200 per day ticket.

It’s all worth unpacking in our continuing series “How Much Money Did Lucasfilm Make in 2019?” (I promise we’ll have this done before the year ends.) This is an extension of the big series I wrote analyzing how much money Star Wars has made for Disney compared to its purchase price. Today it’s all about theme parks, the trickiest business unit to assign value to individual franchises. 

(And also the one most impacted by Coronavirus. Unlike past articles, some of which were written pre-Covid-19, I’ll address that in the final section. As a reminder, this series is about 2019, but it does have some forward looking elements.)

Bottom Line, Up Front

In 2019 Star Wars lost about $60 million in total across the theme parks business. The parks still had big costs in 2019 to finish the lands, which hurt the cash flow.

The story is actually more positive than the headlines suggest, though. Disney was able to drive through incredible ticket price increases (the combined average growth rate is well above 6%, depending on the time period). Given that attendance stayed flat in Disneyland and had the second year over year increase at Hollywood Studios, the new lands are working. (At least, until Covid-19 crushes the top and bottom lines.)

Theme Parks – A Cause for Concern?

The performance of Galaxy’s Edge epitomizes Star Wars’s 2019. The “best of times or worst of times” for Victorian literature, or the “light side and dark side” for Star Wars fans.

As befits everything Disney launches, the buzz was phenomenal back in May when it launched. With headlines like this…

IMAGE 4 - CNN Review

That’s Frank Palotta raving about it in CNN. Other outlets and Twitter matched this hype. These positive reviews—generated from previews given to journalists when the lands were virtually empty—matched the reviews of fans. The folks I know who have visited rave about it. I myself haven’t visited because I was worried the lines were too long. And it’s so damn expensive.

Actually, those two latter points really matter. I wasn’t the only one thinking that way. By July, the word was out that Disneyland wasn’t exactly full. It turns out the price increase was doing its job and keeping folks out of the park. Which led to an article in Bloomberg with this headline:

IMAGE 5 Bloomberg Headline 3

Did Galaxy’s Edge fail then? Not really. If folks were avoiding Disneyland, they weren’t avoiding Galaxy’s Edge, which required reservations to get into for most of the summer and was packed with people. Anecdotally, I think a lot of folks skipped visiting Galaxy’s Edge last year to wait for the crowds to thin out, or for the second ride which debuted in January of this year.

That said, this website is about “business strategy” not a travelogue. From that perspective, two things really matter when evaluating the launch of Galaxy’s Edge. First, Disneyland is thinking very long term with these investments. Like 20 years long time. So if we were evaluating the success of Galaxy’s Edge in July, that’s roughly 1.5% of the time period Disney expect to make it’s money back!

Further, the larger Disney strategy with parks is not to add more people, but to space them out throughout the year while charging them more. That’s summarized by this quote from the Orange County Register.

IMAGE 6 Disneyland Yield Strategy at Parks

The goal isn’t to have a one time bump in revenue, but to establish a brand new reason for families to visit every year. Meanwhile, they are charging those fans more to attend, and selling them more things. When Bob Iger says the Star Wars expansions are exceeding expectations—as he did in the first quarter earnings report in January—normally I’d throw my BS flag. In this case, I think the numbers back him up.

But how do we quantify that?

A Reminder – Theme Parks are Devilishly Tough to Assign Value

The last time I modeled theme park revenue, I complained bitterly about how hard it was. With a film, if you know box office, you can pretty well guess at everything else. 

Theme parks are more like evaluating a streaming video library. How much value do you assign to an individual TV series at retaining customers? If a streamer watches a dozen shows and four movies in a month, that’s a tough question to answer. (And I’ve attempted this before.)

Likewise, how much credit does any single ride get to bringing someone to Disneyland? Don’t many families go every year? Or multiple times? Or on scheduled vacations? It’s not like Star Wars on its own will bring in families.

Yet, if you didn’t add any new rides, the park would get stagnant. Thus, Disneyland needs to constantly add new attractions, and balance those costs against the expected gains. These new attractions then provide fodder for marketing people, new content for fans who go often and generally keep the park up-to-date.

Further, this is a tougher analysis to make for Disneyland than some other theme parks. For example, the Harry Potter lands at Universal Orlando and Hollywood boosted attendance by up to 30% in some cases. That connection is much tighter than Disneyland, which operates at near capacity anyways.

I model those gains in two ways. First, the increase in attendance year-over-year. Second, the increase in ticket prices (which have outpaced the gains in attendance). Once we have those for theme parks at large, the tough part is just assigning value. Which I’ve done, but it’s the biggest “magic number” in this model.

(What’s a magic number? I explained that in this article, but it’s usually the key number that makes a model work but is also the hardest to model.)

The Theme Park Results – An Analysis

To evaluate 2019, then, we just need to look at visitors and price increases. The story with visitors is fine for Disneyland and great for Hollywood Studios. (For those who don’t know, the Star Wars land in Walt Disney World opened in Disney’s Hollywood Studio, the most poorly attended of the Orlando parks.)

IMAGE 7 Theme Park Attendance

For those expecting blockbuster attendance at Disneyland, the results were mostly flat. However, the people were more spread out throughout the year, which helped Disney improve customer opinion. (Indeed, by December Disney had a day where they had to stop selling tickets.)

(By the way, all these numbers come from the Themed Entertainment Association annual report on theme parks. This report just came out on July 20th, so this data is fresh.)

The story is much better for Hollywood Studios. A park that often lacked a purpose, a Toy Story land opened in 2018 and Galaxy’s Edge opened in 2019. Combined, these new lands have boosted attendance from 10.7 million per year in 2017 to 11.5 million in 2019. (And likely would have gone up again in 2020 had Covid-19 not hit.)

As I said above, the real money make isn’t increasing the number of visitors, but increasing the price per ticket. In that lens, 2019 was another great year for Disney. Ticket prices hit new highs. The quick highlights:

– The top ticket price in 2020 at Disneyland was $154, up from $43 in 2000.
– Disneyland was able to introduce a tiered pricing system, allowing Disneyland to spread out customers throughout the year.
– In just the last 10 years, the average growth rate has been 10.3% at Disneyland, and CAGR of 7.5%.

Indeed, the tiered pricing system worked so well, Disney went from three tiers in 2018 to five tiers in February of this year. Meanwhile, the Hollywood Studios prices have started to match the Magic Kingdom prices.

There is one other piece I’ve modeled which is how much guests spend at the parks. Based on reports and some general industry rule of thumbs, I’ve estimated this at $40 per ticket. However, Iger has said that Galaxy’s Edge have driven this up another 10%, so I increased that in my model.

The Theme Parks Model

Let’s take that performance and put it into the model. I updated the 2018 and 2019 numbers with the actual performance for visitors, ticket prices and consumer spending. Here’s the results:

IMAGE 8 - Theme Park Model 2020

My initial estimates for attendance were relatively close. I had guessed that Star Wars could start bumping attendance by 2% at Hollywood Studios, and that’s what happened. (While Disneyland stayed flat, which I did not anticipate.) As a result, my model increased by about $50 million over the course of 2012-2028.

Given the demand for Galaxy’s Edge, I’m still going to allocate value as I had previously, which was starting at 100% of any gains and lowering year over year. These are definitely my magic numbers, and they’re in purple at the top of the model.

The big worry comes from looking at how much Disney still needs to make on the two Star Wars lands. My model only goes to 2028, and even then I don’t think Disney will make its money back on these two parks. Here’s a comparison:

IMAGE 9 Comparison

Of course, we’re not on track for that type of year in 2020, are we?

Coronavirus and Theme Parks

This year is devastating for theme parks. With Disney owning the most valuable theme parks in the world, this is particularly devastating for them.

This doesn’t, though, invalidate the building of Galaxy’s Edge lands. A global pandemic is like a recession: we all knew it was coming, but had no idea when it would happen. When Disney bought Lucasfilm in 2012, it made the right strategic decision to build these two new lands. And again they will pay off for the next two to three decades. 

What’s that? You still want to see a coronavirus-impacted model? Fine.

Screen Shot 2020-07-22 at 10.03.36 AM

Here’s the comparison to the other two models (my model from 2018, from this year without coronavirus, and with coronavirus).

Screen Shot 2020-07-22 at 10.03.44 AM

In other words, a world with coronavirus could cost Disney nearly a $750 million dollars in value. And that’s just the Star Wars allocation. The actual costs are much much higher.

Theme Parks and Resorts: A summary

Money from 2019 (most accurately, operating profit)

It’s a pinch misleading, but likely Star Wars still didn’t make any theme park money this year as it spent big to launch both new parks. It almost broke even, as I allocated most of the price increases in 2019 to Star Wars Galaxy’s Edge. As such, I have Disney losing about $60 million dollars on Star Wars theme parks in 2019.

Long term impacts on the financial model and the 2014 deal

That said, the overall year was positive for the model since the price increases and attendance increases will likely help drive even better profitability in the future. In particular, the spending increase per customer really helps the model long term. 

At least, until coronavirus ruined everything.

I think Covid-19 in the average case will still cost Disney about $750 million dollars when it comes to Star Wars. Mainly this comes from the time it will take to get attendance back to pre-coronavirus levels. Though my margin for error is huge with this forecast.

Brand Value

Longer term, I don’t think Galaxy’s Edge will hurt Star Wars brand at all. If anything it will reinforce the brand position. Despite the lack of crowds, the reviews have been phenomenal for Galaxy’s Edge. That’s the piece I can’t look past. Even as the films disappoint (some) folks, the fans still want to relive and experience Star Wars in the real world. By all accounts the park delivers on that.

Is Disney Is Throwing Away Its Money Generating Machine? Thinking Critically About Deficit-Financed Business Units

(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! Distinguishing Between Ecosystems, Business Models, & Network Effects and How They All Impact the Streaming Wars

If Disney+ has done nothing else, it has given the Disneyphiles tons of extra documentaries to consume. Making of Disneyland here. Insights into props here. More behind the scenes here.

My wife and I have watched some of “The Imagineering Story” documentary and there was a tidbit in the first episode about Disneyland’s launch which has stuck with me:

Disneyland was profitable by the end of the first year.

To compare Disney to the company that led the introduction to last week’s article, if Amazon opens a “BezosLand” in Seattle, do you think it would make money in its first year? 

Heck no!

It would probably never make money. It would be created as a unique bonus for Prime subscribers who could attend for free. We would never find out how much money they make and if there were rumors BezosLand was losing billions every year, they’d leak to a few favorite journalists that the “data” makes it all up for them in selling more socks.

It feels quaint what Walt Disney did in the 1960s: He saw a way to create value—have amusement parks that were clean and cutting edge that emphasized decades old beloved characters—and when he launched it, he was quickly proven right. This is capitalism at its finest: for his bet he earned lots and lots of money. Shareholders still are benefitting from his foresight.

Far from being quaint, Walt Disney was actually on to something. For most companies making money is key. This is true even in the streaming wars. But we’ve lost sight of that fact because so many companies entering the streaming wars with plans to lose oodles of money doing so. 

This is part II of my three part exploration of “flywheels” in the streaming wars. Last time I defined my terms. Next time, I’ll use the principles of this article to look at a few other new streamers. Today, the lesson is all about why making money still matters, even in streaming. And Disney’s future is the case study.

Summary

– The best way to evaluate any business is still Net Present Value.
– Even in flywheels and deficit-financed business units, the goal is still the same: to invest money in net present value positive endeavors.
– The risk of a “flywheel” with a deficit-financed component is that you simply lose money, not start the flywheel spinning.
– Disney provides the case study in this: if streaming can’t/won’t make money, their flywheel of toys, parks and resorts won’t make up for it.
– Thesis: The best business model makes money at every point, not “flywheels” that lose money in one area to make money in others. This is actually the forgotten lesson of Walt Disney.

A Reminder about Net Present Value

Fortunately, the key to evaluating flywheels is the same as the key to evaluating all businesses: 

Net Present Value

Or NPV. The short hand for calculating “net present value of the discounted future cash flows”. That’s a finance-y way of saying that a company should invest in businesses that promise to make money. Again, we’re talking Finance 101 here. But it’s worth repeating because I’ve seen many businesses or ventures praised in the streaming world who likely won’t make money, even on a net present value basis. (They use narratives, not numbers. And strategy is numbers.)

Read my explainer for this concept here. (And no website can do it justice, you really should read your finance textbook to understand the details.) But for a reminder, since I use it a lot, 90% of NPV decisions look like this:

– You invest a lot of money at the start. (Capital expenditure)
– You slowly start to make some money. (Revenue)
– You still have some ongoing costs. (Cost of goods sold.)
– You subtract the two, and keep the remaining. (Profit)
– You take those future sums and account for the time value of money. (Discounting)

Since we’re talking Disney, here’s a look at my big series on how much they made from Star Wars toys:

IMAGE 2 - Discounted Star WarsThe problem I keep running into with streaming video is folks seem very willing to ignore these two core principles when evaluating the streaming wars. Most money losing/unknown streaming or digital video ventures are excused because frankly we don’t know. Since we don’t have the numbers—and it’s hard to calculate them—we use narratives instead.

If you take nothing away from this article, remember that even a flywheel can be evaluated on NPV terms. It’s components can, nee MUST!, be evaluated on NPV positive terms as well. Otherwise, companies run a huge risk.

“A License to Lose Money”: Explaining Deficit-Financed Business Units

Consider:

– Prime Video (money made unknown) isn’t around to make money, but to sell more socks, thus spoke Jeff Bezos.
– Apple TV+ (will spend $6 billion on content) isn’t around to make money, but to sell Apple devices and Apple Channels.
– AT&T (will spend at least $3 billion on HBO Max) isn’t around to make money, but to sell more cellular subscriptions.

In these cases, the explanation is that video is a means to an end. At extremes, defenders of the “lose money in media to make money elsewhere” even call it a “marketing expense”. 

It’s worth dwelling on the concept of “marketing expense” more. Because in the previous world—the old fashioned/traditional business world—it wasn’t like you could just label something as marketing and spend as much as you wanted on it. Indeed, marketing was always taken out of your operating profit. So the more you could trim marketing while keeping sales the same, the more you trimmed! That’s why advertising is the first thing to go in an economic downturn.

Despite the branding as marketing expenses, there is real money being spent on video. These are real products from real business units. Not simply “marketing”. We need a new name, which is why I’ve come up with:

Deficit-Financed Business Units.

DFBUs. Yes, I was in the Army so I acronymize everything. It’s worth unpacking the phrases to see why these definition makes so much sense. 

First, a venture is “deficit-financed” if the plan is to never make money on it. Or to make money, but so far in the future that current financing is still net present value negative. Thinking about this abstractly explains why. Say I offered you a billion dollars a year starting in 2050. The key is you have to pay me $20 billion now. Should you do it? Heck no! You could just invest that $20 billion and probably double it multiple times before 2050, making more than enough to pay yourself $1 billion per year.

That same scenario is a microcosm of “net present value”. Should Apple invest $20 billion right now to make $1 billion a year in 2050? Heck no! Just keep it in cash or cash equivalents. No matter if it is marketing.

Second, I like business unit because it really distinguishes between streaming video companies  and a marketing expense. Plopping down several million dollars for a Super Bowl ad could be a net present value negative decision. (And should be evaluated in those terms.) But we should distinguish from genuine efforts at marketing versus creating brand news businesses, that in most other contexts would need to make money. 

The Riskiness of DFBUs: You Don’t Make Actually Make Money on the Flywheel 

My worry for companies and investors is that they don’t insist on looking at these business ventures with an NPV lens. As a result, DFBUs become a license to lose money for big tech companies. They may even grab market share—that’s certainly the case with all of them—but that doesn’t mean they actually make money.

That license usually has a justifciation, though. If we lose money on this part of a flywheel, can it make more money elsewhere? In other words, the key question is:

Can Deficit-Financed Business Units Turn a Flywheel?

This is really the supposition that has fueled the rise of streaming video. If you have a true flywheel or ecosystem, getting more customers in will help cause it to spin. That’s expressly Jeff Bezos’ logic. Apple’s too. AT&T even.

The answer? Maybe. It depends on the flywheel.

My thesis is that they can, but they are risky and hence rare. Losing money is easy for a business to do. Allowing someone to lose money means they will. It makes their thinking sloppy. Moreover, it’s easy to get the tradeoffs slightly wrong, and you deficit-financed business unit just becomes a money losing hole.

And I think I can illustrate this with Disney. If you’ve been following me on social, you’ll know that my household has been into Disney’s Inside Out recently. Which is appropriate to call back to, for this scene:

That’s how I’d describe DFBUs, they’re shortcuts that should be labeled danger. The current danger-disguised-shortcut facing Disney is losing money on streaming (Disney+, ESPN+ and Hulu.) to make it on extra toy sales. The rationales I’ve seen justifying Disney’s move into streaming reinforce this money losing narrative. I’ve seen the same arguments used by the tech conglomerates trotted out for the House of Mouse. For example, I’ve seen Disney’s streaming efforts explained as…

– They’ll lose money on streaming to get folks into the “ecosystem” of theme parks and toys.
– Disney has a flywheel and streaming video will bring more subscribers into the flywheel.
– Disney should disrupt the theatrical business model to own the customer relationship in streaming. 

So all the buzz words. Of course, since strategy is numbers, the question isn’t what narrative you employ to justify losing money, but whether or not the investment will make it up in the long run. So let’s quantify—for what I think is the first time on the internet—the actual numbers behind those narratives.

The Messy Financials of Disney

One of the first explanations for Disney’s push into streaming was so it could “sell more toys”, just like Jeff Bezos sells more socks. But take a gander at this Hollywood Reporter image I love trotting out:

IMAGE 3 - THR Disney 2018

Toys—from here on “consumer products”—is a small, small part of Disney’s overall operating margin, isn’t it?

Let’s dig deeper. I approach a company’s financials like a hostile witness on the stand. What are they trying to hide? What don’t they want me to know?

For Disney, I looked at their financials going back to 2009. And a huge red flag jumps out, which should be a clue for the quality of the toy business:

Read More

Most Important Story of the Week – 26 June 20: How The Card Game Uno Explains Spongebob Squarepants (Release Plan)

After a few weeks without a lot of news, we finally got a week with some stories to sink our teeth into. But how to choose? The late breaking story that Disney is ending it’s Disney Channel in the UK is a pretty big deal, but then what about Microsoft ceding the livestreaming battleground to Twitch? Or a whole set of TV series moving from traditional TV to streamers. Surely I could oversell the narrative that this is the end of TV?

When in doubt, ballpark the financial size of each story and compare them. Sure, Mixer is a big deal, but how much is Microsoft really spending on that per year? A couple hundred million? We know Twitch is only earning $300-500 million per year in revenue, and Mixer is multiples smaller. What about the TV shows? Well, assuming $3-5 million per episode, we’re still talking max about $100 million in costs. Even the UK Disney channels aren’t worth that much considering they have about 15 million subscribers in the UK

What does that leave us with? The potential end of theatrical filmgoing as we know it. Given that’s a $10-12 billion dollar industry in the United States alone, it’s our story of the week.

(By the way, if you aren’t a subscriber, I have a newsletter. It’s fairly simple and provides links to my latest articles and the best reads/socials/listens on the business of entertainment I come across. It’s published every two weeks and next issue is Monday. Subscribe here.)

Most Important Story of the Week – How Uno and Blockbusters Explain Why Spongebob is Skipping Theaters

The latest studio to take an animated film destined for theaters straight to video-on-demand is Paramount. And in the all too common twist, it will then transition to their streaming service, CBS All-Access. On the one hand, this is another potential tentpole abandoning 2020 for greener digital pastures. Surely, Entertainment Strategy Guy, if anything portends the death of theatrical films, it’s Spongebob too leaving theaters.

Eh. 

I’m still less pessimistic on theaters surviving. And I write this as cases are noticeably ticking upwards in the US and deaths (my preferred metric) remain plateaued. I’d explain this latest move as less of a portend of the future disruption of all theaters then as the logical extension of coronavirus keeping theaters shut. 

Let’s explain that.

(After this column was written, news that Tenet had moved back an additional two weeks broke, which only reinforces the point of this column. You’ll see.)

Two Ideas. First, blockbuster strategy.

The big trend in feature films over the last four decades has been the move towards larger and larger blockbusters, and the hollowing out of the “middle-class” of films. The mid-tier, if you will. The magnum opus on this trend is Anita Elberse’s book, but everyone has written something about it. I wrote about mid-tier films in a column back in February, and one of my first deep dives explains the economics of blockbusters.

But there’s a related concept that is key to understanding this pressure. As more blockbusters have come to theaters, the number of weekends a film has “to itself” has shrunk. Which makes it even more important for a blockbuster to win the opening weekend. In some cases, the goal is to make most of your money on this opening weekend. 

Second Idea: Uno Strategy

The second idea I’ve been tossing around is what I’ve decided to call Uno strategy. For those not familiar with the card game, you deal out cards, then toss them on the pile to match the color or number of the recently tossed out card.

The game doesn’t have a whole lot of strategy to it. Most of the time you can only play one or two cards, so it’s not like you have a whole lot of choice. If it’s a “blue 8”, and I only have a “red 8” and the rest are green or yellow, I’m playing that blue 8.

A lot of business strategy–for all our high-minded discussion of it–is usually obvious moves like this. Here’s an example for Disney+. Despite this article I wrote for them, if pushed there is really one move that would have the biggest impact on their year: finish Falcon and Winter Soldier and trust that Kevin Feige will make it great. That’s not innovative advice, but the obvious “Uno strategy” move.

So let’s apply these two ideas.

The Situation

It seems clear to me that theaters will reopen soon. In some fashion. The current rise in cases delayed the July time frame, but at some point theaters will reopen. Especially if deaths don’t rise at the same rate as past outbreaks. I see calls on Twitter to cancel all theaters until a vaccine is developed, but frankly I doubt that happens. I think the theater going experience can actually be safer than a lot of other activities, especially with a few appropriate precautions.

(It’s unlikely to happen, but the current cases are definitely skewing younger. The converse is that hospitalizations have increased, but not as quickly as the first few montsh. Meanwhile, some treatments are emerging, including better diagnosis of severe cases and some moderate therapeutics. Meanwhile, better knowledge about the threat to institutional facilities like nursing homes and retirement communities has helped protect the most vulnerable. But this isn’t a Covid-19 column.)

Moreover, these trends have us headed directly for the “median case” I had forecast back in April. My best case was films releasing by July 4th and my median case was August for releases. Still, July is gone, which has implications.

Implication One: A Limited Number of Weekends Cause the Cascade

The biggest impact of Covid-19 has been to compress the back half off the release calendar. Nearly every week will have a blockbuster vying to win that weekend. Just doing the simple math, if theaters had reopened in the beginning of July, that’s 26 weekends left in the year. Meaning 26 potential blockbuster releases. If that moves to August first, that’s four more weekends gone. 22 movies for those slots. 

We were already in one of the most condensed calendars for a second half of a movie year. 

Every weekend lost just makes it tighter.

In comes Uno strategy. The studios know where their films fit on the hierarchy of potential blockbusters. Spongebob is much smaller than Top Gun 2. Or Mulan. Or Tenet. Or A Quiet Place Part II. Hence, as the number of weekends to win shrinks, it gets pushed around the most.

Implication Two: Release or Delay?

In a way, this where the decision-making for each executive comes in. Once your film is bumped, you could move it back in the calendar, or accept that the production costs are in a lot of ways sunk. Same for a lot of the marketing costs. And since a lot of films for 2021 are already in some state of production, you can keep delaying your 2021 slate–which would cost money–or you can get what you can.

But this is where blockbuster strategy comes in. It’s not like Spongebob is “as blockbuster-y” as Mulan. It doesn’t surprise me that so many of the “straight to VOD” films are kids films. A true blockbuster is a “four quadrant film”, meaning old, young, men and women. (Yes, crude, but that’s still how studio’s look at it.) Is Spongebob four quadrants? Absolutely not. No couples are going to it for date night. Same with Trolls: World Tour.

The one strange caveat to me is the timing. Spongebob won’t hit VOD until 2021, with a premiere on CBS All-Access later that year. In this case, the studios also have the added incentive that theatrical films on streaming are going to have their biggest “bang for the buck” when streaming services are small. Hence Disney seeing huge value for putting Hamilton and Artemis Fowl on Disney+ right away. 

So does the latest move mean the end of theaters? No.

Theaters will have a downright awful year. And AMC Theaters has a lot of debt that will hurt their growth prospects in the near term. But the current moves are tweaks to the schedule, not major disruptions. The biggest sign is that even though Warner Bros keeps moving back Tenet two weeks at a time, they aren’t moving it all the way to December.

(Fun bonus: Steven Spielberg is crushing the box office, which is mostly drive-in theaters. The shame is that theaters should open cautiously with more of this library fare, but they are waiting for the blockbusters.)

Entertainment Strategy Guy Update – Microsoft Shutters Mixer

I’ve never written about Microsoft’s Mixer before this, and won’t after, but I have written about livestreaming before

Before we get to Mixer specifically, let’s start with understanding the livestreaming landscape. And correcting the most common misunderstandings I see. Take this chart from Evolution Media Capital (a good newsletter subscription by the way):

Screen Shot 2020-06-26 at 9.08.30 AM.png

Now, your eye is drawn to the shiny object of the growth during coronavirus. But remember my magician analogy from last week. Or the Kansas City Shuffle from Lucky Number Slevin. While everyone is looking at the shiny object, the con man/magician is doing the real work where you can’t see.

My eye ignores the shiny growth and looks at the numbers preceding it. From December 2018 to December 2019, Twitch saw year-over-year growth of…1.7%!

Honestly, what unicorn has 1% growth?

Sure, the lockdown has been great for live-streaming. But in the future we’re going to call this time the “ Asterisk Extraordinaire” in every chart or graph. Meaning, things will return back to normal-ish and any analysis will have to caveat these last four months. My guess is Twitch sees a big decline in the fall when schools reopen, but not as far down as they were. In other words, they brought forward say 2-3 years of real growth due to lockdown.

Meanwhile, note too that Twitch also tends to be compared only to other gaming sites. This chart is specifically comparing all of Twitch to only Youtube Gaming. When I’m watching a live stream of an EDM show on Youtube, that doesn’t make it in this data set. Which is why I remain tentatively bullish on Youtube on livestreams long term. If the biggest network wins, they have it (and the ability to save videos forever).

Which brings us to Mixer, the story another M-FAANG practicing “innovation”, which in today’s context means shamelessly copying other business models in search of another way to spend down their huge pile of cash. (Except Netflix, which doesn’t have the free cash flow.) Meanwhile, it turns out paying for high profile talent doesn’t matter if your video service is more of a network with demand-side increased returns (see my article for an explanation) than a true channel. 

Other Contenders for Most Important Story

Let’s run through some smaller stories that caught my interest.

Streamers Grab a Lot of Content

It’s hard not to see a story in the stream of news that happened in rapid succession this week…

Youtube Original Cobra Kai Moves to Netflix
Y: Last Man and American Horror Story move to Hulu (permanently)
AT&T Original Kingdom Moves to Netflix too.

These moves are notable, for sure, but at least two are from dead or dying platforms (AT&T and Youtube Originals). Even Y: The Last Man is more notable for being stuck in development hell for ever than anything else. The point is that streamers will continue rescuing sub-par projects in the near term.

Disney Shutters Their Pay TV Channels in UK

As I said in the introduction, this is a big move to get rid of a cable channel, but it’s not as big as the United States. Whereas Pay-TV has pretty widespread adoption in the US, in the UK the Disney Channel was only on Sky and Virgin, which amounted to about 15 million households. Given that Sky also offers–from what I understand–Disney+ access, this move makes a bit more sense.

(Side story for Disney+ that could be a bigger deal: Apparently customers do in fact love it. My caveat with any brand survey like this is that I think they’re fairly noisy. When you read past the headlines, you see that Disney+ has a rating of 80, and Netflix has a rating of 78. And Prime Video is a 76. Does that seem within the “margin of error” for a survey like this? Absolutely. So the most accurate conclusion is Disney+ has matched Netflix.)

Charter Seeks to Charge Net Non-Neutrality Fees to Video Streamers

Charter is calling these “interconnectivity fees” but I like “Non-Net Neutrality” fees better. A lot of folks are worried about this move, but I’m a pinch more sanguine. Who occupies the White House next January will have a lot more to say about the future of net neutrality.

The Netflix Effect Again

Netflix’s global top ten lists have been a welcome oasis of data in a desert of silence. I wish I were tracking them by country daily, but I don’t have the time, and others like Flix Patrol are on it.

For those who do have time to track, some interesting tidbits are emerging, like Josef Adalian spotting the latest “Netflix Effect”. The “Netflix Effect”–which I think Kasey Moore of Whats-On-Netflix has coined, or at least pointed out a bunch–is that when a show goes global on Netflix it gets a renewed boost in popularity. Adalian pointed this out for Avatar: The Last Airbender, which has trended in Netflix’s top ten since it premiered. Moore pointed this out using IMDb data for Community.

The only small amount of cold water I can splash on this–and this is like tapping water in the bathtub, not a cannonball into the deep end amount of splashing–is that I’m still wondering if some of the ability for Space Force, Avatar or Community to stay on Netflix’s top ten list isn’t a function of the fact that their content quality is decaying somewhat with the coronavirus. I don’t have the data yet to prove this, but my thesis is that Netflix has slowed the pace of US original releases globally, but haven’t admitted it yet. To be seen.

Data(s) of the Week

HBO Max Had 1.6 million Downloads over First Two Weeks – Sensor Tower

This data is the best corrective I saw to the narrative that HBO Max *only* had 90,000 downloads on day 1. Sure, that was probably accurate, but they also had months to add customers. And they indeed still bested previous HBO Now download records.

Prime Video Leads on Most High Quality TV Shows – Reel Good

Reelgood has a simple yet effective way to measure quality for streaming services, by just tracking which services have which number of films and series with a given IMDb rating. This method is fairly simple, but sometimes simple is pretty accurate. I’ll admit, Prime Video did better than I would have guessed on high quality movies, with the caveat that they still have the most “things” in general, which means a clunky interface problem. (And in full disclosure, Reel Good PR folks reached out to me to point out this article.)

M&A Updates – It’s as Down as You Thought It Was

If you’re right for the wrong reasons, to be clear, it doesn’t count. So I’m not taking a victory lap over my series from two years ago–wow is that date right? Two years?–where I predicted that M&A wasn’t accelerating in media and entertainment, but progressing at the same rate if not slower. (Read the whole series here, for the introduction, or here, for the conclusion.)

As I just wrote, coronavirus is the big “Asterisk Extraordinaire” for the future. Every time series graph will have a giant asterisk for this time period saying, “And then covid-19 happened.” Meaning the lessons we draw will be less confident, because coronavirus is the categorical variable that will screw up our models.

Same for mergers and acquisitions. We’ll go back to normal eventually, which means mergers and acquisitions will continue as they have for the last two decades.

The Flywheel Is a Lie! Distinguishing Between Ecosystems, Business Models, & Network Effects and How They All Impact 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

This is probably the most popular image for business school students about Amazon. Heck, anyone describing Amazon has probably used this image. 

Amazon FlywheelIf we’re supposed to be neutral observers of businesses, you can’t help but notice after a moment of reflection how insanely positive this take is. Man, Jeff Bezos can really sell his positive vision and have it repeated universally.

If you were really cynical—hey, I am—what would the pessimistic version of this flywheel look like? The “Flywheel of Evil” if you will…

Screen Shot 2020-06-24 at 9.21.08 AM

What changed? Well, first, the idea that you “sell more things” is great, but if you lose money on every transaction, that’s “sub-optimal” in business speak. Or bad in human speak. And Amazon does in many cases. 

To fund these losses, you need to start a really successful company that is totally unrelated to your retail business or its membership program, which is where Amazon Web Services comes in. There’s an alternate history where an Amazon without AWS (cloud computing) doesn’t take over retail because it doesn’t have a cash flow engine driving its growth. (In that timeline, Ebay becomes our overlords.)

Even more potent, though, is combining already low prices with Amazon’s decades long refusal to pay local taxes. Could you point to the continued imprisonment of poor Americans to online companies not paying local taxes? Maybe! (As local tax bases erode, some communities turned to police forces to extract rents, like in Ferguson, Missouri. Seem relevant to our current times?) Amazon does pay some local taxes—now—but only after it became an advantage to them in furthering their monopoly power.

Now that it has this “flywheel” rolling, Amazon uses its size to both crush new entrants who want to compete and to punish suppliers, capturing all the value from their product creations.

Which flywheel is “right”, then? Well, both actually. Both describe valuable methods for how Amazon grew to the size it did. Some of those methods were good for customers; some were bad for society. You can’t tell their story without both.

Screen Shot 2020-06-24 at 9.21.39 AMWhat’s the lesson? Flywheels are simple whereas reality is complicated. As tools, flywheels are fairly inexact. They’re not even really tools, but narrative devices we use to help make sense of a complicated world. In other words, a “heuristic”. As behavioral economists like Kahneman and Tversky taught us, heuristics are useful, but can carry pitfalls if we aren’t careful.

What’s the point for the streaming wars? Well video has become a spoke on multiple company’s supposed “flywheels”. Everyone from Disney to Amazon, but most critically Apple last fall. Whether or not these were actual flywheels was less important than merely invoking the term and using it to justify nearly any amount of spending. 

Let’s call this another key piece of “terrain” in the streaming wars. The “Forest of Flywheels” if you will. The problem is the business and entertainment press has been fairly sloppy with our language when it comes these types of endeavors. Due to this sloppiness, we’ve allowed a lot of companies to launch video because they’ll “lose money on video to make money on X”. 

Today, I’ll explain the key terms. In my next article I’ll critique deficit-financing in particular. And then I’ll finish it off with an analysis of some of these business models to show their potential strengths and weaknesses. 

Summary

– Flywheels are the most overused term in business, and it’s important to know what different terms mean.
– Ecosystem is probably the most commonly confused term with flywheel. Ecosystems are also rare.
– A true flywheel is a self-perpetuating cycle of growth that is incredibly rare in practice.
– As such, in pursuit of flywheels, we’ve seen many digital players launch money-losing video efforts. I call these “deficit-financed business units”. And they’re one of the biggest factors in the streaming wars.

Defining Traditional Business Strategy Terms

You’ve read articles bemoaning jargon in the workplace. (This New York Magazine piece is the latest in hundreds on the subject.) Even I just denigrated “sub-optimal” above, a term I really don’t like. Still, I don’t take that extreme of a position on business nomenclature. Often, jargon really does have a role in explaining new concepts.

The problem comes in overuse. That’s what is currently happening with “flywheel”. It’s almost become synonymous with “successful business”. But it’s much more specific than that.

So let’s define our terms, so we can better understand what is and is not a flywheel.

Business Model 

It turns out if you want to stymie business school students, just ask them “what is a business model?” Indeed, they’re taking classes called “Strategy and Business Models”, but answering, “What is a business model?” can stump them. I’ve seen it.

At its most basic, a business model is a plan or process to make a good or service and sell it for more than it costs to make. Make a widget for $1, market it for $1 and sell it for $3. Or replace widget with service. The model is how you make money. On a financial statement, this is usually called the income statement. When I build a “model” for this website, that’s usually what I’m building. 

How do business models relate to flywheels? Well, you can have a successful business model that isn’t a flywheel! It’s just a good business. In the olden days, you would have probably described the dividend producing stocks as just good businesses. They don’t have huge growth prospects, but they still generate a return on investment. Cable companies in the 2000s fit this bill. They had good business models, but were absolutely not flywheels.

Where it gets complicated is usually a given company is actually a collection of many business models. Arguably for every product they sell. Or you have distinct models for different business units in the same conglomerate. Which is actually a good transition to our next definition.

Business Unit

Most companies on the S&P 500 aren’t just one business, but multiple types of businesses lumped together. This is the reality for most conglomerated businesses. When analyzing a compnay, it’s key to differentiate between its overall success and the success of its various pieces.

Amazon is a perfect example here. Retail is one business unit. But then it also has media businesses from live streaming to streaming to music. Then it also sells devices like Amazon Echo. Oh, and it has Whole Foods groceries too.

And then there is the cloud computing (AWS). Which I called out above. And it’s worth noting just how distinct that wildly financially successful enterprise is from the rest of Amazon’s consumer-focused retail efforts. It’s a business-to-business service that is powered by lots of fixed capital expenditure data warehouses. It barely relates. Yet, it’s part of Amazon.

How do business units relate to flywheels? Well, flywheels often fail to take into account entire business units. Take the Amazon flywheel of success…it totally ignores AWS! For years Amazon survived because it had an incredibly high margin business in cloud computing that could provide necessary capital that enabled Amazon to continue building its retail business. This also kept Wall Street happy.

That makes the Bezos flywheel not just wrong, but almost negligently wrong. 

It’s business malpractice to point out that a flywheel helped Amazon to succeed if you don’t include AWS’s role in propping up the balance sheet!

I would add, many of the “flywheel” charts you see out there are often just describing a company with multiple business units. (I’ve seen this with Disney and Epic Games.) Every business can benefit from owning multiple business units, from lowering costs or providing learnings. That used to be called “synergy”. Now we call them “flywheels”.

Ecosystem

Read More

My Unasked for Recommendations for Disney Streaming (2020 Edition)

Do you remember last year before Disney+ launched and I had this series of recommendations for how they could catch up to Netflix? They were…

1. Go dirt cheap on the prices. [Check]
2. Schedule weekly releases for adults [Check]
3. Bundle with other streamers [Check]
4. Get all your key library content on board. [Check]
5. Give it for free to all theme park attendees [No]
6. Release weekly ratings. [Hell no.]

You might have trouble finding that article. Why? Because I never actually finished it and published it. If I had, I could keep pointing back to it for how right I was. 

(Instead, I published an article worrying that Disney+ wouldn’t have the Marvel films or half the princess movies. Oops.)

Given that last week was a bit of big news for Disney+, I think it’s worth providing Disney another round of unasked for recommendations. Rebecca Campbell—the new head of streaming—definitely doesn’t need my advice, but everyone else might find it interesting to know what I would do if I were offering my strategic advice.

I’ll focus on streaming here, with the knowledge tha the entire Disney enterprise has a had a bad few months. It’s almost the perfectly designed disaster to hurt Disney’s business. But given that forecasting the course of a pandemic is pretty uncertain, I’ll wait to opine on Disney’s business model for a pinch.

Recommendation 1: Add a local streamer to your “bundle” overseas.

This was the “a ha” that got me to finally write this article. Two weeks ago, I called my biggest story of the week Disney’s decision to pause international growth plans for Hulu. In these cash strapped times, Disney is worried about the costs of Hulu internationally. Some of this is marketing, some is product, but most of it is likely licensing claw backs. Or foregone licensing revenue. 

As I wrote two weeks ago, I’m not sure a streamer built around the FX stable of content will be a huge winner internationally. American TV shows don’t travel as well as folks think, and really “prestige-y” type shows travel even worse. (This isn’t a uniform pronouncement. Some of the Fox TV studios shows will travel. Like How I Met Your Mother. Just not all.) The Fox movies will have some appeal too, though a lot of the best have been pulled for Disney+ already.

The challenge is that if Disney doesn’t launch Hulu internationally, it will lag Netflix for potentially ever.

What to do? 

Well, keep bundling. The bundle with ESPN+, Hulu and Disney+ has already been successful in America. Likely internationally it will have some appeal. That’s a no brainer.

Even better, though, is to add a local streamer to each bundle. If that’s Hulu’s biggest drawback—lack of local content for adults—don’t opt for the expensive proposition of licensing it all, just partner with a local streamer. Essentially make them the fourth pillar in a country-by-country bundle. Especially if ESPN+ isn’t launched globally for sports. 

Even though we in America don’t realize it, nearly every country has a local streamer trying to fight the streaming giants like Amazon and Netflix. Disney could look like a hero by bundling that content with its other shows. Hulu then gets to come along for the ride. And overall, my gut is this strategy would be cheaper than trying to license local content territory-by-territory. 

Consider this too, an extension of what’s already working. Disney+ was tied closely to Hotstar in India. (Which Disney got in the Fox deal.) They’ve also partnered with local companies for distribution deals like with Canal Plus in France. My pitch is to just take that strategy even further with more bundles in more territories. Even if it means giving local partners most of the benefit in the short term, in the long term this will help with adoption.

Recommendation 2: Seriously, give away Disney+ to anyone going to a theme park.

Let’s re-up my biggest recommendation from last year. It’s super expensive to go to the Disneyland or Disney World. Disney+ is very cheap. So just combine the two and if you buy two tickets to a theme park you get 3 months of Disney+ for free. Those free trials are worth it.

(Yes, parks are closed. They won’t be forever.)

Recommendation 3: Add another “F-BOSSS” Level TV Series. My pitch? Modern Family

Back in January, I coined the acronym “F-BOSS” for the big TV series that were being clawed back from Netflix or secured for multi-hundred million dollar licensing deals. (Friends, The The Big Bang Theory, The Office, Seinfeld, Simpsons, South Park) Now that the biggies are off the table, the smaller series are coming off the board too.

Disney, for its part, has mostly moved 21st Century Fox TV series to Hulu. Like How I Met Your Mother. However, 21st Century Fox has a big one coming up that isn’t as big as those others, but could be. That’s Modern Family. Which just ended its last season.  Back in 2013, Fox licensed it to USA network for a big sum. I looked but can’t see when that deal comes off the board. But when it does, either Hulu or Disney+ is its all but guaranteed landing spot. 

Of the two, I’d say that Modern Family should go to Disney+. This isn’t a no brainer by any means, but that’s because of how hard it is to fit content onto the Disney+ brand. The challenge is Disney+ content needs to be both family-friendly, but also adult-appealing. That’s a hard balance to strike.

I considered some of the older “TGIF” series like Home Improvement (distributed by Disney back in the day, and made by Touchstone, which is owned by Disney). Disney should get that series to Disney+, but it probably isn’t a game changer. It is too old to move the needle. (So they shouldn’t’ buy out whatever rights is keeping it off streaming early.) (The other series on TGIF like Full House or Family Matters aren’t worth it even to license from Warner Bros.) I considered some of the Fox animation series, but they feel too edgy. (It’s still funny The Simpsons made the cut when you think about it.)

This makes Modern Family the key choice. It’s got lots of episodes (250) for folks to binge—the main requirement—and both customer/critical acclaim. (High viewership for a long period of time and multiple Emmy wins.) It does touch on some politics, but overall isn’t controversial enough to cause too much hot water with family groups. (It’s on syndication nationally and on USA Network right now.) So for me, this is a big content priority.

Side Note: About the “Big 5” Pillars

I’m not sure they have a name, but the “Five Big Pillars” is what I’m calling these:

Screen Shot 2020-05-26 at 5.06.44 PM

These pillars are both a blessing and a curse for Disney+. Blessing because these pillars have shown that they can launch a streamer. Hence, Disney getting to 50 million subscribers and beyond. It’s an incredibly strong brand defined by these five pieces.

The curse is that they limit what Disney can do going forward. Already, The Simpsons is above the pillars in most applications because they don’t fit one of the four categories. Same for some of the Fox films like Ice Age. Is it Disney? No, but it’s somewhere on Disney+. 

But really the limitation crystallized for me in Disney passing on the Studio Ghibli content, that will appear on HBO Max tomorrow. Studio Ghibli movies are great, but where would Disney put them? I’m not sure they know either, and not saying it’s the only reason but they passed on it for licensing.

If Disney does add a big piece of additional content, like a Modern Family, they may need to rethink these five pillars. 

Recommendation 4: Provide a major product improvement

I probably use the Disney+ app more than other streaming app. My daughter isn’t allowed to use the iPad unsupervised, and we watch one short film before the bath. So I’ve scrolled the app a fair bit. Meaning I know it’s limitations and positives better than any other (iPad) application. (I caveat “iPad” because I don’t know if they are problems on other operating systems.)

So it’s time for Disney+ to roll out a new feature that doesn’t upend the entire user experience—folks hate that—but provides more functionality. My pitches?

– Make the Disney animated shorts their own section. And make it easier to scroll and search for new shorts to watch.
– Add a “Sing-a-long” version. And make it easy to find the songs to watch as their own thing.
– Fix the “additional content” to be more like a DVD-bonus features. 

Side Note: Disney Needs to “Proof Read” Its Content

If you’re a heavy user of Disney+, you notice little things. My guess is they are mistakes that are the result of automating the entire process. Which is key for a streamer to get launched, but sometimes a human touch can fix the errors. Meaning someone would need to manipulate the metadata to make sure the service is as accurate as possible. For example…

– The timing for the length of short films includes foreign language credits. Which means a Pixar short appears to be 9 minutes long, but four minutes are credits. That needs to be updated.
– A shocking amount of ratings claim that a given Disney short features tobacco use. (The only authentic one is Steamboat Willy.) I have no idea why this is the case.
– Some content still only has one version. For example, Mickey and the Beanstalk is only included in Fun and Fancy Free, when that version features a nigh unwatchable ventriloquism scene. So on one hand, they have this content. On the other, it isn’t the best version of it.

Recommendation 5: Get NFL Sunday Ticket on ESPN+ somehow.

NFL Sunday Ticket is the killer app that gets ESPN+ mandatory adoption. Will this be pricey? Yes. Will Comcast and AT&T still want pieces of the NFL? Yes. Is the least likely recommendation? Yes.

The NFL is the sports straw that stirs the content drink. As it is, ESPN+ doesn’t have enough reasons for folks to subscribe. Plus, Sunday Ticket keeps from cannibalizing linear views as Disney can pitch to MVPDs that it is just adding Sunday Ticket as DirecTV did before.