Tag: Film

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.

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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.

Coronavirus Impact on Entertainment – Film and TV Production

Over the last few articles, I’ve avoided the “C word”. Not that one, the Covid-19/Coronavirus words. If some of you are like me, you both devour coronavirus content, but sometimes find yourself sick of reading any more of it. (Every so often I just delete all my news podcasts that mention Covid-19 or the economic impacts. I need a break.)

I’ve been trying to strike the right balance between ensuring we cover one of the most important events of American history, but also focusing on all the other stories as well. Since my column last week was mostly non-Covid-19, let’s pull out the crystal ball to ask: how will the coronavirus impact the production of filmed entertainment?

Before we get any further, you can read my two previous analyses of the future of entertainment in a post-Covid-19 world.

The Entertainment Recession
Feature Films and Coronavirus
Pay TV

Compared to many analysts, I’m very uncertain about the future. If I could predict the future accurately, I wouldn’t be writing articles. I’d be trading stocks. (Read my first article to understand my methodology and approach.)

Still, we can sketch out some details and try to separate some overreactions from the proper reactions. And since we don’t have clean “demand vs supply” issues the way other parts of the value chain have, forecasting production changes should be a bit easier. (Customers are usually the problem in forecasts.) I’ll break out my analysis into two time frames, long and short term for how Coronavirus could impact production.

(By the way, I use “Hollywood” as a stand in for all global film production in this article.)

Long Term – Somewhere Between Two Extremes

Given my uncertainty, I’ll review all the scenarios using the good old Hegelian method. I’ll explore both extremes and try to guess where the middle of “the impact on production” could land.

Thesis – Coronavirus will make “Youtube-style” the norm.

I’ve seen a narrative that since Covid-19 has enforced universal lockdowns, this somehow represents the triumph of self-produced content. In the future, we won’t need fancy set ups and teams of people to produce content. It turns out that a celebrity sitting in their home can put out a content in HD that looks pretty damn good.

Call this the “triumph of Youtube/Twitch” narrative. (Yes, I loathe narratives.)

In some cases, constraints become the style. With lots of folks watching vlogs and Youtube videos from home, and everyone staring at Zoom cameras, people are used to this style. It permeates the culture.

We’ve already this style invade traditional broadcasting. The broadcasters have mostly embraced the Youtube style for live shows. Disney’s Sing-a-longs in particular had fairly strong production quality, all from at home. Same for Saturday Night Live at Home editions. And Hollywood Game Night’s special worked really well for a remote production.

Expand this view to Instagram/Snap Chat/Tik Tok influences on video, and you could argue there is no future for traditional Hollywood-style production.

I’d emphasize why “filmed from home” productions look so good. While I’ve used the term “Youtube style”, the distribution method has nothing to do with it. Instead, the reason why filming from home looks so good is because cameras have gotten so, so, so much better than even ten years ago. Or more precisely, they’ve gotten much much smaller. 

 

This was fueled by the push to have phones on everyone’s cameras and the push to shrink the technology down. In turn, Go-Pro made fantastic cameras that are also incredibly small. And surprisingly easy to use in production. Like an actual camera. Or to mount in different places. As a result, professional cameras have also gotten cheaper and cheaper to rent or buy.

Combined with increasingly powerful home computers, anyone can shoot, edit and produce their own TV shows or films from their own home. Even do post-production work in many cases.

So that’s that. Everyone can shoot from home and it will look great.  

Antithesis – At home productions still have some key flaws.

How can you tell a production is cheaply made nowadays? Well, the sound is no good. 

For all the advances in video recording, the advances in audio have been much slower. As a result, poorly made student films tend to have bad audio, but can still look fantastic.

Some of the at home productions have solved this, but a few have run into issues. (The musical ones have also likely featured a lot of recording at home separately from the video with high quality equipment. It is fairly easy to do audio recording—ADR—at home with the right investment in equipment.) 

Lighting is another issue. Properly lit films are hard to do well, but make a genuine difference to the final quality. And folks can tell. Make-up is another hurdle. Folks just aren’t great at putting on “TV make up” and that shows up every so often.

Finally, and obviously, the limitations on the number of people in one place has been stark. And no one has loved that experience. It’s still really hard to overcome issues of lag, which are functions as much from computing power as they are functions of raw physics, in some cases. So while everyone is making it work, it just works even better if two people are in a room talking to each other. Or even better a whole group of people.

It also helps to have a team of people behind the camera too. Even with the advances of camera technology, having someone behind the camera to dynamically move it just looks better. That’s why productions in many cases have stubbornly held on to teams and teams of people. Reality shows taught everyone two decades ago that you could make a show with a limited crew of a producer and some cameras. Same for independent productions that have made it by on shoestring budgets for years.

So why do armies of people still exist? Because in most cases they add value. The grips get better lighting and the sound folks record better audio. Add a camera man to free up the director. Then an AD to balance the demands of the lighting and camera. Then add another AD to organize it all. Plus makeup, costumes, sets, props, special effects, actors, craft services. And producers to you know “produce”. Suddenly, you have an army of people. 

So that’s that. Eventually traditional production will return.

Synthesis – The Longest Term Impact is Somewhere in Between

Likely, the future is somewhere in between. Which is the “aggressively moderate” take on it.

When studios can get people back together in the same room, they will. That’s a no-brainer. If studios decided years ago that they preferred smaller teams, they could have made it happen. Guerrilla filmmaking or independent filmmaking isn’t new. Again, reality TV has been making very cheap shows for two decades now for cable in particular.

Contrariwise, Hollywood can see change but not embrace it. Until it is forced to. (Example: streaming.) Will coronavirus cause a complete rethink for how many folks are really needed on set to make a TV show?

In the long term, maybe. Hollywood—and Bollywood, Nollywood, Hong Kong, European and anywhere that makes movies—production isn’t monolithic even now. My gut is this will further expand the divide between huge blockbuster productions—super hero, sci fi and fantasy films and TV series—and everything else. If dramas can be made with less people, they probably will be. Meanwhile, most reality production is probably about as cheap as it can go.

In most cases when production can go back to what it was before, it will. Broadcast multi-cam sitcoms will go back to multi-cam and single-cam will stay single-cam. All the folks making their own shows from home will continue to do so. And when it’s safe to go outside, the low-budget productions of the world will return too. And the blockbusters will be blockbusters. Some folks may try to innovate on the margins, but it’s uncertain if they’ll succeed.

Short Term Impacts on Production – Definitely Smaller Productions in the next 3-9 months

That’s the higher level impact, in the near term there will be some inescapable impacts on productions, whenever they get the green light. You’ve probably read about these impacts, here’s my take on who will benefit.

– Less shooting on location, which is good for production hubs. I don’t think talent will want to travel for fear of airplanes. While I mostly think worries about travel will be overcome quicker than folks expect, in this case, an over-abundance of caution will limit travel. (For instance, traveling on an airplane is actually a low likelihood of transmission.) This will be good for Los Angeles and New York in the short term, assuming demand returns. Potentially Montreal as well, but likely not as much for New Orleans, Georgia or eastern Europe.

– More shooting in soundstage and controlled environments, which is good for studios. If you’re not traveling, and worried about moving around, studio lots provide a controlled environment with centralized testing. While this is generally good for the studios, owning a studio lot isn’t a cash cow business anyways.

– Limited number of people on set, which is bad for support staff. Given the demands for testing everyone on a production, studios will likely limit the number of people to keep headcount down. This should limit costs slightly. (And studio execs/producers won’t be allowed to just hang out on set as much.)

– Fewer shows in front of live studio audience, which is bad for the vibe. Which you know if you watch any late night show. But shooting in front of live audiences will follow the reopening of live events. I’m more bullish on theaters, but could see studios being more risk averse than theaters. 

Bottom Line: So When Are TV Shows Coming Back? 

The question is how long these changes last. I’m more bullish in the upside case then most, but if you expect lockdowns to last for 18 months—which would ensure a depression as deep as the 1930s—then that’s how long they will last. However, like lots of things as people get used to opening up, as long as new outbreaks don’t flare up, they restrictions will gradually decrease. 

Again, this is just my read on the situation, given the huge amount of uncertainty. And studios/productions will keep innovating under restrictions to get as much done as possible.

Will this hurt content output? It’s tough to say for sure. 

Given how many different countries and how many different time frames for when lockdowns could be lifted, it’s tough to know when the slow down will end. (Everything being shut down is definitely delaying shows being made in America.) Meanwhile, other countries are figuring out how to restart production, which will encourage others to start back up.

Netflix is a Broadcast Channel: Comparing Streamers to TV Channels in an Age of Nielsen Data

One of my big frustrations with the “debate” over Netflix is how little we know. That’s a gripe I share with a lot of folks. 

One of my big frustrations with coverage of Netflix is how seldom folks try to step into the gap and estimate data points for Netflix. In this gripe I’m mostly by myself. I understand that some journalistic outfits can’t do this. They can only report facts or estimates from other established firms.

But I won’t settle. If Netflix won’t tell us how many folks watch their programming, then I’ll take things into my own hands. (See Ted Sarandos’ latest on Reliable Sources. All he said was “Viewership is ‘up”.) I just need enough data to make my estimates reasonable.

And guess what? Over the last three months I think I’ve collected enough. 

Normally, at this point I’d launch into a bit of a strategy lesson. I mean, it’s right there in the name of this website. Instead I’m getting right to my results. I’ll put my “Bottom Line, Up Front”, what this is, why it’s a good look and then how I calculated it. Then in my next article, I’ll analyze some implications from all this data, and finally my strategic lesson for folks out there.

Bottom Line, Up Front  – My Estimates for Primetime Viewing

The breakthrough for this project came from three summaries of viewing. All came from Nielsen, which means the measurement system is “apples-to-apples”. Even if you’re measuring subtly different things, at least having the same person measuring is better than multiple different measurement systems. 

Here’s my prediction of the top 20 “channels/platforms”—across both linear and streaming—in Primetime (8-11pm) in the United States, as measured by “Average Minute Audience”. 

Image 1 - Estimates

To be clear, this is the “average minute audience” during primetime in 2019. The best way to explain “average minute audience” is that it is the average number of people tuned in or watching during primetime. It can be different people who tuned in for only part of a show in traditional linear TV. Notably, it does include delayed viewing of shows, so it’s better described as “shows that debuted during primetime.”

Why use “average minute audience”? 

First, because it isn’t subscribers, which is the numbers we most often see reported. (And duly covered by me, for example here or here or here.) 

AMA is pretty damn useful because it captures actual usage, not just folks who are subscribed to a service, but don’t use it. While AMA can have wild swings—for example live sports skew ratings heavily—over 365 days it absolutely evens out. In other words, it’s a pretty good sample of the average amount of usage.

I’d add, the business rationale for tracking both usage and subscribers is because they are a chicken and egg problem. If you have lots of subscribers, but they don’t use the service, they’ll quit being subscribers. And if you have lots of usage, that ends up getting more subscribers. (Meanwhile, coronavirus is going to screw all this up as the old models of usage to sub growth will be pretty inaccurate during this time of crisis.)

Here’s a fun example. Who has more subscribers, CBS or Netflix? Well, CBS obviously. Through all the linear cable channels. (If you count those as subscribers, and they do pay a monthly fee, even if they don’t know it.) But since usage is declining, so is linear channel subscriptions.

How the relationship between usage and subscribers evolves overtime will have a big impact on how the streaming wars progress. We have subscriber numbers for the most part; AMA balances it out nicely in the interim. (Though if I had a preference, I’d just prefer total hours consumed by streamer and linear channel.)

The other main reason I used it? Well, it’s the data I have. So you use what you have.

Methodology

How did I pull off this feat of estimation? Let’s go step by step through it.

First, gather your sources. 

One. Every year Michael Schneider releases a roll up of every channel by average primetime minute audience. This means for the 3 hours of prime-time (8pm to 11pm) he averages how many folks watch by every single channel. That gave me this chart of the last four years, since he linked to his past columns at IndieWire: 

IMAGE 2 - Top 25 Channels

Two. In February, Nielsen released their “Total Viewing Report” for 2019 Q4. They then released some juicy nuggets about streaming and Netflix’s share of viewership. Covered in every outlet possible, here’s the pie chart from Bloomberg converted to a table:

IMAGE 3 - Total Viewing Q4

Three. In another scoop, Michael Schneider in Variety got the weekly Nielsen streaming data on a show-by-show, top ten basis, which we hardly ever get:

IMAGE 4 - Nielsen Originals March

Second, make an estimate between the first two sources.

This actually just becomes a math problem. To start, I calculated the total viewing of primetime shows each year. You can see on the top line of the 2016-2019 chart that I calculated total viewership year over year, and it’s decline. With Nielsen’s estimate that streaming is 19% of viewership, we can combine these two estimates:

IMAGE 5 - Total Viewership

Once we have that, we can just multiply the percentage of streaming by percentage of viewing. Assuming that the percentage of prime-time viewing on Netflix is on average the same as broadcast and cable channels—which seems reasonable—we get this updated table:

IMAGE 6 - Updated Implied Total Viewership

That gave me the table above, which I’ll post again because I love it so much…

Image 1 - Estimates

Third, make some margin of error.

See, Netflix has in the past estimated they are 10% of TV viewing. So I wanted to give them their due and put the number out in case that’s closer to reality. So that number made it in as the “high case”. In this case, Netflix would surge past CBS and NBC to 9.4 million AMA on average. 

Of course, I’ve also heard that Netflix has something like 60% of their viewing is kids or family content. While this doesn’t show up often in their season data, you see this in their film viewing. So if I were estimating total Netflix usage, I’d consider lowering the primetime ratio down a bit, say to 4%. This would mean that Netflix severely under indexes on primetime viewership because it is essentially a kids TV platform. This would make Netflix’s primetime AMA around 3.7 million.

I’d call those two numbers our high and low case for Netflix in 2019. So 3.7 million to 9.4, with a like 5.5 million average AMA.

Fourth, sanity check your estimate.

This is where Michael Schneider’s latest Nielsen scoop in Variety comes in. In his latest scoop, he got the top ten ratings by “average minute audience”  from the first week of March for both Amazon and Netflix across a range of originals and films. 

We can use these weekly snapshots to evaluate our previous estimates. Because if the top ten had multiple shows in the high 8 digits of viewership, then obviously way more people are tuning in nightly than *just* 5.5 million per night. And since I unveiled this article, well you know the math doesn’t add up. First, here are Nielsen/Variety’s charts, converted to Excel so I can “math” it.

IMAGE 7 - Raw Tables

If we add up each of the 30 Netflix data points, we get 34.8 million AMA. Which is way higher than my 5.5 million per night. But…this viewing was spread out over 7 days. Someone could have watched multiple series each night. On a streamer, there isn’t a constraint on viewing. Since this is 7 days of data, at a 5.5 million AMA we’d have expected about 38.8 million. That’s pretty close to the 34.8 we actually had. This is why overall I think my methodology is pretty accurate.

But I have some huge caveats.

First, this is seven days of around the clock Netflix viewing. Which is way more than what Michael Schneider was tracking in his “top channels” run down which is strictly a primetime measurement. (8pm to 11pm) So if we’re trying to balance the books, we’d need to draw down the Netflix numbers to account for non-primetime viewing. Try as I might, I couldn’t find a good data source showing Netflix viewing by time of day.

Second, you could also point out that these 30 shows weren’t the only things available on Netflix. What about all their hundreds of other shows?

Good point. So here’s a table of the Netflix shows whose data we do know.

Image 8 - without additionsWhat should jump out at you right away? The logarithmic distribution of returns. In other words, in the content game, the winners aren’t just a pinch better than the others, but they are orders of magnitude bigger. We see that starkly here. Of just these 30 pieces of content, a plurality had less than 500K AMA and a majority had less than 1 million.

But we know that’s far from all the content Netflix has. They’re a machine churning out, according to Variety’s estimates 371 new TV series in 2019. That’s in addition to a hundred plus original films. 

Why does this matter? Well, I made my own estimate of the rest of Netflix’s viewership based on these trend lines. Here’s how that looks:

IMAGE 9 - with additions

In other words, even though Netflix has hundreds of other shows, they don’t really impact the ratings after the launch. Likely the majority of series launched on Netflix last year average a ratings-wise insignificant number of views. (Say 10-25K per week. Or less.) If you have 300 shows earning 10,000 views a week, that’s only a 3 million AMA. Which would bring the estimates above right in line.

In other words, after my sanity check, I think my nightly AMA number for Netflix looks pretty good. Arguably the primetime only numbers would bring it down—meaning I was too high—but the other not included shows would bring it back up. And likely still a majority of adults watch Netflix at primetime, regardless of anecdote about binge watching at all hours of the night.

So that’s my data estimate of the day. But what does it mean for Netflix? 

Next Time and My Data

Let me be honest: if you unleash me on a data set like this, I generate way more insights than just this one article. In my next article, I’ll run through some implications and provide a piece of strategic advice. 

Also, I built a fun Excel for this. It’s not super complicated and you could go get all the data yourself if you wanted. But like I’ve done a few times before, I’m going to give it away. The price? You have to subscribe to my newsletter at Substack. It goes out weekly if I don’t have a consulting assignment; once or twice a month if I do.

Email me from the email you subscribe to the newsletter with, and I’ll reply with the Excel. (Email is on the contact page.)

Most Important Story of the Week – 21 February 20: Rumors! Bob Iger and Apple TV+ Edition

Sometimes, you really don’t need to overthink your weekly column. Thank you, Disney, and really Bob Iger, for making this easy.

Most Important Story of the Week – Bob Iger Steps Down

Bob Iger stepped down from his role as CEO of Disney on Tuesday, but will remain as the company’s chairman of the board. What else do we know for sure?

– Iger said he’ll stay on in an active role to guide and manage content.
– His replacement, Bob Chapek, has had roles throughout Disney, from studios to merchandise to theme parks.
– Iger has long been speculated to want to retire, but kept staying on, first to see the 21st Century Fox Acquisition, and then to see the Disney+ launch.

Everything else is speculation. And there was plenty in the aftermath of this genuinely surprising news. The question for this column isn’t what happened or why or what fun rumor to promote, but what it means for the strategic landscape

The Entertainment CEO Hype Cycle

I occasionally write about CEO departures, but usually not as the most important story of the week. Why not? Well, frankly, most CEOs are “average”. Their company is moving along before they get there, and will mostly continue after they leavd. (Unless, of course, you’re a CEO reading this. I think you’re above average. Definitely. This is about all those other CEOs.)

This is especially true for lower level executives. For example, Discovery hired a new DTC boss from Hulu, Hulu promoted a new president, and CBS rearranged programming execs at All-Access, but neither will get a mention in my “other contenders” section down below. (Again, unless you’re a lower lever exec. You’re above average. Definitely. It’s all the other ones I’m talking about.)

To be clear, this isn’t because CEOs aren’t important. It’s more a comment that I don’t think anyone is really good at accurately judging who is good or not. Especially via the Hollywood trades. When a new head of a studio is hired, one or multiple trades/important papers (roughly, Variety, Hollywood Reporter, Deadline, NY Times, LA Times, Bloomberg and Wall Street Journal) writes a long in-depth article based around an interview with the executive. Their strengths are highlighted; their weaknesses minimized.

This makes sense. If you want to get Jen Salke to join your executive roundtable, you better talk her up right after she takes the job.

Then comes the downfall. Kevin Drum mentioned this on his blog a few weeks back and I’d call it the “candidate hype cycles”. UCLA political scientists have called this process in elections the “discover, scrutiny and decline” cycle. 

Image 1 - Hype Cycle

Well, the same thing happens with CEOs. They start, get tons of hype, and inevitably either fail or retire quietly. We could call it “hype, status quo and departure”. Like a politician, they have two paths at the end: If they get fired, you bury them; if they retire you celebrate their run.

Meanwhile, we never hear the bad things until they get fired or leave. For example, The Information revealed that Amazon hired Mike Hopkins was hired due to concerns about shows being late, over budget and, presumably, not that popular. Which would speak poorly of Salke, but again I’ve never seen a trade report that.

Every so often a CEO comes along though, who never loses the hype cycle. 

Value Over Replacement CEO

In the knowledge economy, the best workers aren’t just a little more valuable than their peers, but multiples better. The returns aren’t linear, but logarithmic. This applies to CEOs too; the best CEO isn’t just a little better than their peers, they are miles and miles better in terms of return on investment.

The best way to think about this, as I’ve written before, is the “Value over Replacement” concept from baseball and basketball. In basketball, this is LeBron James. His dominance is so much that singlehandedly he gave Miami and Cleveland championships and may do the same for the Lakers. As a result, he’s worth much more than any other player.

Let’s put this in a chart. Imagine every executive is ranked on a zero to 100 point scale. A fifty is the “average” employee or student or basketball player or CEO. The top is the 99th percentile employees, the one delivering outsized returns. The 1% are the folks who don’t just do average work, but actively damage your organization.

(And by the way, this is how I categorize every person I work/worked/could work with. At business school, since we did so many group projects, I was constantly scouting for who would help deliver outsized returns. Which made getting good grades easy. And yes this doesn’t apply to you if I worked with you. You were way above average. It’s about everyone else.)

This is how the chart would look. The percentiles are on the right; the returns on the left.

IMAGE 2 - VORCEO Chart

The question for Disney is…where is Bob Iger on that chart? Where is Bob Chapek?

The Disney Challenge

As I said above, I’m pretty brutally honest about where executives are on that “value over” chart and so often I’ve seen that when one executives gets replaced, despite all the internal worry, it usually ends up being about the same. So 95% of the time, say, if a CEO leaves a big company, since they were probably average, and their replacement will be average, everything will go on just the same. (Just usually paid more. See next section.)

Iger, was, though, firmly planted in the top 99%. Here’s Disney’s performance the last 20 years compared to the S&P 500. (He took over four years in to this chart.)

Image 3b DIS vs SP with Label

That’s an elite performance. And if like me you think stock performance isn’t the be-all-end-all, well, all the other narrative stuff from the acquisitions to the box office dominance to the pivot to streaming reinforces this. Iger was an elite CEO, which is a statement. Being top 1% of CEOs is supremely rare and valuable.

The challenge for Chapek is that no matter how good he is or isn’t, odds are he isn’t a 99% CEO. Just run the numbers: if we can’t predict how a CEO will turn out, then we have a “uniform distribution” meaning each outcome is equally likely. Therefore, Chapek has about a 1 in hundred chance matching or exceeding Iger’s performance. (That’s obviously why the board tried to cling to Iger for as long as possible.)

The Disney Nightmare Scenario

Does this mean the “end of Disney’s run”? Absolutely not. The situation Chapek is walking into is about as strong as you can get. Just being average means the company will be fine. If he’s slightly above average they’ll keep growing.

But every company has upside scenarios and downside scenarios, and the downside scenario feels a little more likely for me. If Chapek turns out to be worse than “average”, and there’s a fifty percent chance of that, then the company could regress.

But it could pair with four other potential risks:

– First, Lasseter turns out to be have been crucial for animation. (Like Frank G Wells was in the 1980s.) Arguably, since Iger moved Lasseter to Disney Animation, that side of the business rebounded. (Why might this not be true? Read Kim Master’s take here.) We’ll find out in about 1 to 2 years if this is true.
– Second, something happens to Kevin Feige. He runs the Marvel golden goose, If another company poached him, that would be “sub-optimal”.
– Third, streaming ins’t profitable and cord cutting accelerates. This your regular reminder that for all the value in parks and merchandise, uh, networks (specifically ESPN) actually powered Iger’s rise.

Screen Shot 2019-07-15 at 12.46.29 PM

– Fourth, the studios run out of creative energy on all the non-Marvel, Star Wars and animated films, having mostly coasted on remakes of classic Disney films. 

Those five risks could, to be clear, could not happen. And probably not all together.

But if I’m a Disney competitor, I’m happy with this news. I’d be optimistic that my studio/network/streamer has a chance to catch up to Disney. It’ll still be tough, but the chance is there.

Other Thoughts

– Is there another shoe to drop?
I have no idea. And based on all the reporting and speculation either way, I don’t think anyone knows anything. So your guess is as good as mine, so I’d guess status quo.

– What about the dual bosses structure?
I’m a little more concerned about this. Dual CEO structures are tricky. Sometimes a minor change like this can actually muck things up, more than the previous boss retiring and just exiting stage left. But we’ll see.

– Was Iger really that good?
Yes. I love hot takes as much as anyone. I’m one of the few folks who think that Plepler leaving HBO and then joining Apple could be the most overhyped stories of the year. But even I can’t with good conscious argue against Iger’s run.

That said, the context was also tremendous. While we rightfully praise Iger for his acquisitions, we sometimes forget that the real income driver in the 2000s was ESPN and it’s sky high sub-fee. (Look that chart just above!) Take that revenue/operating income from Iger and arguably he doesn’t have the cash for Marvel or Star Wars.

– If so many CEOs are average why do they get paid so much?
Bad oversight. Most corporate boards are fairly poor at actually identifying the value their CEOs generate. This is mostly to do with institutional structures. Even though they have average CEOs, they don’t realize it and pay them above average.

Data (?) of the Week – Apple TV+ Ratings?

In a few different conversations, I’ve been hearing that Apple TV+ is underperforming expectations. Honestly, even that isn’t strong enough. The ratings, the rumors imply, are so low that most observers wouldn’t actually believe it.

The challenge is to separate out the rumors that end up being completely false from those based on a nugget of truth. And fortunately, I spent some time doing this in a completely different field: military intelligence.

In intelligence, the hardest part is to manage “human intelligence”, meaning people. Specifically people who are usually betraying their country or allies and providing you information. The goal is to run a “source” who is well placed, so that they can provide a track record of accurate information. That builds trust.

Still, you only trust them so far. Even if one source tells you something, you always want to confirm it. Multiple sources is always better than one source. And ideally from multiple types of intelligence. So a good analyst pairs signals intelligence (tapping phones) with human intelligence (people telling you what is happening) with imagery and other analysis.

I trust the rumor mill in this case. And I wouldn’t pass this rumor on if I only had one source. Like I said, I’ve heard this in a few conversations and from folks I really trust. I know they’re hearing this from folks on the inside. (None of my sources come from Apple directly, in full disclosure.)

Still, that’s just human intelligence. Can we triangulate this? Sure. Take this “open source” intelligence from Bernstein Research via Bloomberg. According to their research, via analyzing Apple’s earnings report, fewer than 10% of eligible Apple customers signed up for Apple TV+, or about 10 million folks.

My rumor is about viewership specifically, but the two are correlated. If you only get 10 million folks to sign up in the first place, the available folks to watch the shows is just smaller. Similarly, if the content isn’t resonating or buzzy, then you won’t get folks to sign up. 

Moreover, the rumors I’m hearing are about recent viewership. As in since the new year started. The key driver there is, of the folks who signed up, how many hung around? Well, when in doubt, Google Trends…

IMAGE 5 -GTrend NFLX vs Dis vs ATV

In other words, this look at Google Trends implies that Apple TV+ has never quite had the brand resonance as either Netflix or Disney. Notably, this is just using search terms, which tells a slightly different story than this Google Trends look, by topic, which shows a Disney+ decline. Google Trends is just one measurement I use, and it can have some quirks that don’t capture the true underlying awareness.

For Apple TV+, I still think the name is clunky. Which may hurt it in Google searches. So let’s look for specific shows instead. In the rumors, I’m hearing that Apple is seeing a big decline since the launch. So look at this chart:

IMAGE 6 - G Trend without Mando

In other words, the decay is real. It’s a little slower than Netflix or Amazon series, because the weekly release still generates news stories when the series concludes, which you see in The Morning Show, but the decay is there. Worse, the new shows aren’t launching nearly as well as the initial batch and accompanying marketing spend.

And how do the Apple shows do compared to, say, The Mandalorian?

IMAGE 7 - G Trend with Mando

They disappear entirely.

This matches other metrics that are publicly available. Say what you will about IMDb and Rotten Tomatoes, but the volume of reviews actually is fairly predictive of viewership. Not everyone leaves a review, but more viewed shows tend to have more reviews. Which makes sense. You can see the decline in popularity in Apple shows recently in reviews too:

IMAGE 8 - Ratings Data

Here’s my whole table if you want to see the by show look:

IMAGE 9 Ratings TableMaybe Amazing Stories comes out in April and completely arrests this slide. But Apple will have to rely almost entirely on paid marketing to get the word out since usage of their app seems to be low. Moreover, the biggest challenge is just that Apple TV+ won’t have a lot of shows for the rest of the year, if the lack of announced shows is to be believed. Here’s that table converted to chart form:

IMAGE 9 Count of Shows by Year

And that’s assuming a lot of the renewed shows make it by the end of 2020, which I bet doesn’t happen.

What Does this Mean for Apple’s Plans?

This week Tim Cook repeated that he’s not in the business of renting content. Apple TV+ is originals. That’s the brand.

This strategy doesn’t make sense. Netflix and Amazon had tons of licensed content to keep folks engaged while they built out originals. Disney+, HBO Max and Peacock will have loads of library content as originals ramp. Apple TV+ has none of that. So Apple needs to either ramp originals much more quickly than they are…or they need to rent some TV shows.

Here’s the analogy I’d use. Say about 25,000 people per night tune into Apple TV+. Using Michael Schneider’s annual look at cable channels, that means Apple TV+ is the El Rey Network. Which is bad. 

Would you buy a phone for the El Rey Network? Probably not.

Other Contenders for Most Important Story

A+E Networks signs a big licensing deal with Peacock

The definition of a conglomerate should be any firm so big you forget they own half of another big company. In this case, A&E Networks is a legitimate cable business, but Disney quietly owns half. Instead of licensing their highly viewed unscripted originals for Hulu, Peacock got the rights. This is another bold move for Peacock. They are leaning into broad content, which I respect. (The History content pairs well with Law and Order and Chicago series.) Meanwhile, Hulu seems increasingly falling into the prestige lane. This leaves a gap for Disney: they need a streaming service that’s broad, but not genre like Disney+. It should be Hulu, but they’re not making the moves for that.

Discovery May Launch a Streamer

Discovery had their earnings, which were overwhelmed by the surge of news about stock market declines. On the streaming side, they’re contemplating launching a streamer in the US later this year, while happy with their other efforts. So continue to monitor for now.

Most Important Story of the Week – 7 February 20: Why Timmy Failure Launching on Disney+ Spells the Death of Mid-Budget Films

With the Oscars airing on Sunday, it seems appropriate to join the crowd asking, “What will happen to the mid-budget theatrical film?” This seems to always come up this time of year as folks–usually critics–bemoan that Hollywood doesn’t “make these types of movies any more”. But what types of moveis? And for whom?

So let’s dig in.

Most Important Story – Why Timmy Failure Launching on Disney+ Spells the Death of Mid-Budget Theatrical Films

If you’re looking for the canary in the coal mine for mid-budget films–again, hold on a moment for a definition of that–don’t worry about the Oscars or Sundance. Instead, look at this:

Timmy_Failure_Mistakes_Were_Made_Poster.jpeg

Disney, not Netflix, is the place to watch for the future of movies. If even Disney abandons theaters, then all hope is lost. (They won’t; the economics don’t work as I’ve written before. Many times.) But just because Disney will keep major franchises in theaters doesn’t mean mid-budget films have the same hope. 

The traditional narrative goes that fortunately, even as mid-budget films abandon theaters Netflix will swoop into save them. Sort of like Disney+ with Timmy Failure. 

But will they? I don’t know. So let’s explore this issue fresh. I’m going to ask a few questions to myself to figure it out. (Consider this a mini-extension of this series on releasing films straight to streaming.)

Definition: What is a mid-budget film?

As a business writer, I tend to find a lot of articles about Hollywood tend to play fast and loose with definitions. Take, for example,  “independent film”. Most indie films are made or now distributed by giant studios. Which is hardly independent! Instead, we use “independent” as a catch all for “prestige” or “award-contending” films. This makes data analysis tough.

Defining “mid-budget films” has the same challenge. I can probably tell you what is too high to count, anything over 9 figures in production costs. And too low. Anything below $10 million.

But a range of $10-$99 million in production costs seems too big. And likely some films around $75-100 million are still big budget films, just slightly cheaper than others. If I had to pick a number, I’d say production budgets of $40 million is what most people are thinking of as “mid-budget”, with a range of $20-50 million. (This isn’t an exact science.)

What does the narrative say?

If you search for articles on mid-budget films, you’ll find critics or reporters saying they are dead, dying, returning or thriving. So it depends on how you define mid-budget, what you consider success and really whether or not a mid-budget film (Get Out, Knives Out) has come out recently or not to provide an anecdote for the author. 

Instead, let’s turn to…

What does the data say?

Well, I don’t have it. Why not? Because no website tracks production costs in easy to download tables. Or in ways that I trust. Wikipedia usually has estimates, but those are often unreliably sourced. Since I don’t have a data set to manipulate, I can’t figure out the answer for myself.

Sleuthing the internet, I did find one data based article by Stephen Follows. I’ve used his data before and I love this work. He used IMDb data and the answer turns out, like it often does, to be complicated. The number of “mid-budget drama” films is actually fine. He tracks the percentage of films that have production budgets between $15 and $60 million and he finds virtually no change in the percentage of mid-budget films. 

He did find, though, that drama budgets have been declining. And so have budgets for romantic comedies, action films or comedies. This–combined with lack of box office success compared to franchises, sequels and remakes–does support the thesis that mid-budget films are dying. Of course, data can only tell us what happened. For what will happen, I’d argue we need to turn to the models.

What do the models say?

Well, they do sort of make the case that studios should make fewer “mid-budget” films. By models, I mean this distribution chart of box office:

Chart 2 Movies AgainIf you learn nothing else from the Entertainment Strategy Guy, learn “logarithmic distribution”. That’s the shape of the table above. In other words, a few films earn outsized returns whereas everything else fails. On its own, though, the performance of films doesn’t quite tell the whole story.

Instead, the key is the correlations between budgets and performance. Blockbuster budgets and campaigns (which means franchises, sequels and remakes) are highly correlated with higher box office. Again, look at my hit rate from my recent Star Wars series:

Table 7 PErcentage with buckets

Unfortunately, I don’t have the data to compare blockbuster franchises to comedies, dramas or rom-coms. If I did–this is based on my personal experience–I’d tell you that those other categories don’t have as high of ceilings as fantasy, sci-fi or super hero films. They just don’t.

This means—and this is what I mean by using the model–that you may as well make your comedies and dramas for as cheap as possible to get the greatest return on investment. But if this is the case, why did we have so many mid-budget films in those genres in the 1980s, 90s and 2000s?

What are the forces hurting mid-budget films?

I see three major forces, and they aren’t the ones usually mentioned (which is just “streaming!”:

  1. First, the death of home entertainment. Physical home entertainment had some of the best margins in the revenue stream. The rule of thumb in the 90s was a film could make it’s production budget in box office, then home entertainment could pay for the rest. While DVDs aren’t completely dead, like music they are way below their peak.
  2. Second, the decline of median incomes. Subscribe here to read my Ankler guest post, but my theory is that the stagnation of American income has stalled theatrical revenue growth.

unnamed

  1. Third, the blockbusters are getting bigger. This is because digital distribution in theaters means that a theater can now expand a movie to every available theater if its a huge, huge hit. So when Avengers: Endgame came out, it set a record for the number of theaters showing it, which means all the mid-budget films got crushed. Counter-programming sometimes works, but often doesn’t. 

The multi-billion dollar question, though, is can streaming offset all those forces? In other words, can streaming revenue replace the lost mid-budget theatrical movie. 

How does all this impact Disney/Disney+?

Which brings us to the House of Mouse. And Timmy Failure, a film very few of us probably heard got released. Unless you went to Disney+ this weekend. As with any film, I like to use “comps”, meaning a comparable film. In this case, not only can I find a kids movie that Disney released for families, I can find one about another Tim:

The_Odd_Life_of_Timothy_Green

They both are mid-budget films (Failure was $40 million; Green was $25 million), both based on preexisting IP, both targeted at families. But one went to theaters and made $53 million; the other went straight to Disney+ last week. Hmmm.

Or take films about Alaska featuring canines and aging A-List actors. Togo was a Disney film costing $40 million and it went straight to Disney+ last December. Meanwhile, Call of the Wild comes out at the end of the month. The difference? It cost $109 million.

What do I take from all this? Well, when it can, Disney is deciding that mid-budget films are going straight to streaming too. Even it has started to skip theaters. If you want to know why this is the most important story of the week, here you go. 

What about Netflix?

Who started skipping theaters altogether? Netflix. That’s why there are so many articles about how they’ve killed theaters and/or changed cinema for good

This narrative is both obviously true and frankly also unknown. On the one hand, yes they clearly decided to launch a stream of mid-budget films from their Adam Sandler films to their summer of rom-coms to Bird Box. 

On the other hand, are those mid-budget films? In some cases, I think their budgets may actually be more equivalent to low-budget films, especially the rom-coms. In other cases, say any film with A or B-List talent, I think they may blow past my $50 million threshold. (As we know The Irishman did.) So how many “mid-budget films” Netflix actually makes we don’t know. 

For a good take on this as well, and partly the inspiration of this series, here’s The Netflix Film Project on a recent Netflix mid-budget film, The Shadow of the Moon that no one is talking about. It’s cool they made a mid-budget film…but if no one sees it did it matter?

Which brings us to the crux of the issue. So Netflix is making mid-budget films? Are they working for them? Or for Disney?

The Implications (and huge worry) for Mid-Budget Films Direct to Streamers

Is anyone watching mid-budget films on Netflix? Or Disney+?

We have no idea.

A point I’ve made over and over and so has half of the journalists covering Netflix. 

But I’ll say this. My models that show that you may as well either make huge tentpole movies or small films that cost nothing has the exact same logic on streamers. If you’re going to spend $50 million making a film, you may as well spend $100 and quadruple your viewership. Or decrease spending to $10 million and get about the same viewership for a quarter the cost. What you don’t want to do is get stuck in the middle. 

As long as profit and making money don’t matter, then mid-budget films are fine to draw in talent. Why not? It’s not like Wall Street cares. If that changes though, it’s hard not to see mid-budget films as the first casualties in the content budget.

In other words, if you want mid-budget films, don’t hold your breath for streamers to be your savior. They are now, but the forces that decreased the budgets of theatrical mid-budget films (they didn’t die) are coming for streaming. At some point.

Other Contenders for Most Important Story

Hulu’s Big Week

Meanwhile, the biggest “event” news story was the departure of another CEO from Hulu, with the consequences that Hulu is now reporting in to Kevin Mayer at Disney. The Disney consolidation of Hulu is nearly complete and combined with Disney+ this gives Disney their both shot at disrupting Netflix globally.

When will that happen? Sometime in 2021. Disney is going to roll out Disney+ internationally, learn it’s lessons, then roll out Hulu (backed by FX content) next year. Which is a smart strategy.

Earnings Report Summary – Disney+ gets to 28.6 million subscribers.

This week’s buzziest story was all about the Disney earnings report. But, like Netflix, it’s really a tale of two numbers for me. The headline number is the Disney+, ESPN+ and Hulu subscribers, which were all up in big, big ways. Obviously, this was driven by their aggressive pricing and discounts, but it worked:

Screen Shot 2020-02-04 at 1.44.49 PM(Yes, Disney+ is available in Canada, Australia, New Zealand and the Netherlands. Even if you subtract 25% from the Disney+ total, it’s still likely Disney has more “subscribers” than Netflix by the end of the year if not the next quarter.)

If I had a caution, and it’s the same one I have for Netflix, it’s that these costs are being born by Disney in the terms of declining free cash flow. Disney in 2018 Q1 made $900 in cash; in 2019, that dropped to $292 million. In other words, they are on track to lose $2.4 billion in free cash flow this year. Just like Netflix! 

Screen Shot 2020-02-04 at 2.11.32 PM

Pay attention to this story as HBO and NBC join the money losing crowd this year.

Data of the Week – Youtube Earnings

I’ve long had the wish that Google would disclose Youtube’s financial numbers. Well, it must have been my birthday because I got my wish. The headline numbers are that Youtube makes $15 billion dollars a year, has 2 million Youtube Live Subscribers and 20 million Youtube Music and Premium subscribers. In other words, Youtube is the behemoth we thought it was. 

M&A Updates – 2019 Off to a Slow Start

That’s the headline of this Financial Times article and it matches the broader feeling of the landscape. I still think the fundamentals mean that M&A will likely stay slow for the foreseeable future in entertainment. (My series on M&A provides a good long term look at M&A in entertainment, without some of the hyperbole you see.)

Screen Shot 2020-02-10 at 12.52.49 PM

EntStrategyGuy Update – Checking Back in with Luminary/The Ringer

When a company launches as the “Netflix of Podcasting” you have my attention. In a negative way. I was skeptical folks would pay more than Disney+ for access to a few exclusive podcasts. (And I’m also skeptical of companies founded by the children of billionaires with access to capital.) Sure enough, Luminary has lowered their price

The biggest worry, though, has to be Spotify’s continued gobbling up for podcasting companies, the latest being Bill Simmon’s The Ringer for $250 million.

Lots of News with No News – Super Bowl Ratings Are Slightly Up

The ratings for the Super Bowl were up year over year for the first time in five years. Why is this not “news”? Because any one year’s ratings can be noisy, and despite being slightly up are still in line with the historical average. My recommendation? Check out Wikipedia for the charts that tell the best story:

Screen Shot 2020-02-11 at 3.37.39 PM

So while I’d love to tell you this means the Patriots are bad for ratings, I can’t in good faith do that. (Though I was glad I didn’t have to watch them again. Sorry Boston fans.)

The 2019 Star Wars Business Report – Part I: The Economics of Star Wars Films

If I didn’t have a little Padawan join my family in November, one of my goals was to update my massive “How Much Money did Disney Make on the Lucasfilm Acquisition?” series. That delay actually helped because I wouldn’t have been able to get that article up before Rise of the Skywalker came out. Meaning I would have had to guess on a billion dollar variable!

And since I didn’t have to guess, we know that Rise of Skywalker joined the caravan of Disney billion dollar box office film in 2010s. Still following Lucasfilm/Star Wars in 2019 had a sense of dread. For every good news story there was a bad one. So how do we truly judge—from a business sense—how well Lucasfilm did in 2019?

We use numbers. Strategy is numbers, right?

Since Disney doesn’t release franchise financials—why would they?—I have my own estimates. I last updated these in the beginning of 2019 (with films updated in 2018) so I’ll do a big update to the model to learn what we can about how well Lucasfilm did in 2019. I’ll break it into two parts. Today’s article will cover movies; next week, I’ll review the rest of the business units, TV, licensing and theme parks. Previously, I only focused on the price Disney paid compared to their performance. Today and next week’s article will instead act as a report card on how 2019 impacted Lucasfilm and Disney’s business/future.

What this Analysis is NOT

There are so many cultural takes on Star Wars, especially since The Last Jedi, that I feel it’s important to clarify what I’m NOT doing here. (A UCLA forum I follow, for example, had a 60 page “debate” on the latest two films.) 

To start, this isn’t my “fan” opinion on the franchise. My opinion is just one person’s opinion, so whether or not I “loved” the latest film, or the one before it or “the baby of the same species as Yoda” doesn’t matter. In the aggregate, Disney does and they track this via surveys and focus groups. But lone individuals online? Whether they love or hate recent moves? Not so much.

To follow that, this isn’t a “critical” perspective either. I haven’t been trained in the dark arts of cultural and film criticism, so my opinion again just doesn’t matter. (Does Disney care about the critics? Controversially, I’d argue not really.)

What this Analysis IS

Instead, I’ll focus on three areas per business unit for Star Wars (read Lucasfilm):

Profit from 2019 (most accurately, operating profit)

In my big series on the Lucasfilm acquisition, I was looking at a specific question about the value of Star Wars vis a vis the price Disney paid. But if you’re Disney, that deal is now a sunk cost. What matters for Disney strategists or brand managers is how much money the franchise is making now. That’s the focus.

Long term impacts on the financial model and the 2014 deal

Since I have a gigantic spreadsheet filled numbers that I can update putting this all in terms of the $4 billion (in 2014 dollars) context, I may as well update how the model has changed. Further, some decisions Disney makes now will directly impact how much potential profit they can keep making on Star Wars. So I’ll update that too.

Brand Value

This last part is the hardest part to quantify, but is crucial as well for putting the above two decisions into context. See, a brand manager doesn’t just care about making money this year, they care about making money next year and the year after and so on. And there are ways to make money in the short term that damage a brand in the long. Threading the needle of making money while building brand equity, not just drawing it down, is crucial for a brand manager. 

This is admittedly a tough section to quantify, but it still feels particularly important. (Again, the goal is not to sneak in my opinion, but use data where possible to figure this out. Though narratives will likely figure in.)

With those caveats, let’s hop into the most important business unit, the straw that stirs the blue milk, films.

Movies

As of publishing, Rise of the Skywalker grossed $1.05 billion, with a 48% US/Canada to 52% international split. In my model—which I’ll repeat is a lifetime model, meaning all future revenue streams—I’d expect Rise of the Skywalker to net Lucasfilm $798 million, nearly identical to Rogue One. (As I clarified before, my model is a bit high compared to Deadlines’ model. There are a few reasons, but mainly I calculate lifetime value.) So that’s the first building block for how Star Wars did in 2019. In my framework of films, I’d have called this a “hit”. Here’s a table with Disney’s 5 Star Wars films in the 2010s:

Table 1 - First Five Windowing ModelBut what does this mean?

Star Wars Feature Film Trend Lines

That’s where things get tricky. The key question for me is context. If we were using “value over replacement” theory, and you looked at the last Star Wars in “value over replacement film”, well it does terrific. Very few films get over a billion dollars at the box office!

However, I’d argue that’s the wrong context. This is a Star Wars film. So how did Episode IX do in “value over replacement Star Wars films” context? Not very good. To show this, I updated my giant “franchise” tracker through 2019. 

Let’s start by just charting Star Wars film performance. First by category, separating “A Star Wars Story” into their own category. Second, by release order by decade.

Chart 3 - Star Wars v03

Chart 2 - Star Wars v01

The worrying issue for Star Wars brand strategists are the trend lines. This isn’t a series trending upwards or even maintaining consistent film launches. If Disney wanted to reassure themselves, they could say it isn’t their fault, lots of franchises lose their mojo over time, like Lord of The Rings, Transformers or Pirates of the Caribbean. Here is the chart I made in 2018 for franchise performance, updated through 2019 launches. They show the US adjusted box office and how series have trended over time:

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Most Important Story of the Week – 24 January 20: Why is Facebook Unfriending Scripted Originals?

The Los Angeles region, and the entire basketball universe, is reeling from the death of Kobe Bryant, the legendary Lakers basketball player. If you’re looking for the “Hollywood” connection, I have two. First, the Lakers and “showtime” basketball have always been an influential part of the entertainment ecosystem in Los Angeles. A place to go to see and be seen. Second, Kobe was an emerging film producer who won an Oscar. His contribution to his passion for film was tragically cut short.

As a long time Lakers fan–read here for some insight on this–this death is shocking and hurts.

Most Important Story of the Week – Facebook Watch Decreases Investment on Scripted Originals

This news is two-fold for Facebook Watch. First, two big series–Limetown and Sorry For Your Loss–were not renewed for subsequent seasons by Facebook. Still, cancellations happen. When you pair that news with reporting from Deadline that Facebook is generally pulling back from scripted original content, well you have a new story. 

Mostly, though, this story seemed to pass by in the night. But it’s the perfect story for my column because the significant doesn’t seem to match the coverage. 

So let’s try to explain why Facebook may be pulling back on scripted originals. And we have to start with the fact that Facebook is a tech behemoth. Facebook resembles the cash rich fellow M-GAFA titans (Microsoft, Google, Apple, and Amazon) that throw off billions in free cash each year. Really, companies minting free cash have three options to do with it:

Option 1: Give it back to shareholders.
Option 2: Invest it in new businesses.
Option 3: Light it on fire.

Well, as Matt Levine would note, Option 3 is securities fraud so don’t do that. Of course, we could just change it to…

Option 1: Give it back to shareholders.
Option 2: Invest it in new businesses.
Option 3: Enter the original content business!

They’re the same thing anyways. Companies come in with grand ambitions, realize the cash flows in don’t match the cash flows out, and they leave the originals business (or dial back their investment). Facebook follows on the heels of Microsoft and Youtube in this regard. Heck, even MoviePass had started making original content at some point. 

The key is how the original content supports the core business model and value proposition. With that in mind, let’s explore why Facebook Watch is leaving the original scripted business, floating some theories, discarding others and looking for lessons for other entertainment and tech companies. Since I’m not a big believer in single causes, I’ll proportion my judgement out too.

Theory 1: Ad-supported video just can’t scripted content.

If this theory were true, woe be to the giant cable company launching a new ad-supported business!

Let’s make the best case for this take. The working theory is that folks just don’t want to watch advertising anymore, so they just can’t get behind a video service like Facebook Watch that is only supported by ads. With the launch of Peacock, I saw this hot take a bit on social media. 

Of the theories, I’d give this the least likelihood of being true. From AVOD to FAST to combos (Hulu, Peacock, etc), advertising is alive and well in entertainment. Despite what customers say about hating advertising, they end up putting up with quite a bit. It’s not like Youtube is struggling with viewership, is it?

Judgement: 0% responsible.

Theory 2: Scripted content is too expensive (or doesn’t have the ROI).

If this theory is true, woe be to the traditional studios getting into the scripted TV originals game.

This is the flip side of the above theory. It’s not about the monetization (ads versus subscriptions) but about the costs of goods sold (the cost to make and market content). What I like about this theory is, if you’re honestly looking at monetization, it’s not like entertainment has seen booming revenue in the US. If anything, folks pay about what they always have.

So what’s fueling the boom in original content? Deficit financing and super high earnings multiples.

Worse, deficits are financing a boom in production costs as everyone is fighting over the same relatively limited supple (top end talent) so paying increasingly more. Consider this: in 2004, ABC spent $5 million per hour on it’s Lost pilot, up to that point the historical highpoint. Most dramas cost in the low seven figures.  Now, word on the street is that Lord of the Rings, The Falcon and Winter Soldier and Game of Thrones could cost 5 times that amount. Meanwhile, each of the streamers, I’d estimate, would have double digit shows that cost $10 million plus. Did revenues increase five times over the last fifteen years? Nope. 

Thus, Facebook may just be on the cutting edge–with Youtube–of realizing that scripted originals aren’t the golden goose Netflix and Amazon make them out to be. It’s not that they can’t make some money on them, just not nearly enough to support the skyrocketing budgets.

Judgement: 25% responsible.

Theory 3: Facebook Watch needed more library content.

If this theory is true, woe be to the giant device company that launched a streaming platform sans library.

The best case for this is that after you come to watch a prestige original, you need to find something else to occupy your time until the next original comes. That’s library content. While I josh on Netflix for lots of things, I do absolutely believe that Reed Hastings is right when he says he’s in a battle for folks’ time. But I’d rephrase it slightly in that you’re also battling for space in people’s mental headspace. When they decide to watch TV, they then pick a service to watch. Library content’s purpose is to keep permanent space in people’s mental headspace. Having loads of library content makes it more likely that you’re folks’ first choice to find something.

The problem is Facebook Watch doesn’t have this. Fellow ad-supported titan Youtube clearly does. It’s purpose was videos first and foremost, so there is always something else to watch. Netflix has it. Even Amazon has it. Facebook has socially generated videos, which aren’t the same ballpark as scripted video.

Judgement: 20% responsible.

Theory 4: Social video can’t support scripted content. 

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Most Important Story of the Week – 17 January 20: The Optimistic and Pessimistic Strategy Cases for Peacock

With that, the final major entrant of the streaming wars has called their shot. (Besides SuperCBS. Is holding on to CBS All-Access and Showtime really their entire plan?) So we didn’t have to go very far to find our…

Most Important Story of the Week – Peacock Announces Their Plan

Investor day presentations are the ultimate in needing to see through the flash for the substance. In data, it’s all about “signal versus noise”. In presentations, the noise is deliberate. It’s designed to confuse, overwhelm and mislead to get you to invest, support or buy. (Which is why I think most biz presentations internally should be in black and white. Let ideas stand on their own merits, not the quality of powerpointing.)

From that angle, I’d put Comcast-NBC-Universal’s Peacock debut above HBO Max and Apple TV+, but still lagging Disney+ (who knocked everyone’s socks off). They leaned into the “30 Rock” angle, which is smart branding. This is all the more reason we need to wear our skeptical glasses to look for what NBC-Universal didn’t tell us, or what Comcast overhyped.

Overall, my gut take is more bullish than when I first heard of “Peacock”, with some huge lingering caveats. Reading my draft today, I found the positives more compelling than negatives, which surprised me. I’ll dive into this area in three parts: The upside case, the downside case, and implications for (selected) competitors.

The Upside/Bull/Optimistic Case for Peacock

Strategy: Zigging while others zag means becoming the “broadcast streamer”

By the time Peacock is fully launched–while April is the target date, it won’t go national until July–it will be the last streaming platform to the party. NBC’s logic seems to be, if you’re late to the party, be free. 

Not a bad plan!

Then that way all the already spent wallets still have room. Since broadcast has always been “free”, you just pay with your time, there is some justification in saying, “We’re the broadcast platform of streaming.” I’ve always felt that NBC-Universal had the most broadly appealing cable channel offering. They have sports, news, dramas, comedies, and reality. Now it’s all coming to one platform.

Really, the way to look at this isn’t that Peacock is a slow follow of Netflix, but a fast follow of Pluto/Tumi/Xumo. Since I think those companies really do fill a customer need, I like the idea. Moreover, they have a differentiator, as they themselves pointed out, Peacock is essentially the premium FAST

Screen Shot 2020-01-17 at 1.18.25 PMWhile I respect the “zig while others zag” approach to business, it doesn’t work if you don’t have a strategy. My initial take is Comcast has a strategy here.

Customer Targeting: Latinx viewers

A natural part of business analysis is to assume everyone is like you. Avoid this temptation. In entertainment, this means I, for example, have huge blind spots in international viewership. This even applies to the US, where I lag in coverage on Spanish language programming. Comcast has owned Telemundo for a bit now, so they don’t have this blindspot:

Screen Shot 2020-01-17 at 11.42.07 AMCredit to Peacock for seeing this customer need and serving this demographic. (Netflix does serve this too, and entered Latin America very early on.) The “Spanish Language Streaming Wars” are probably worth a deep dive article.

Company: A surprising willingness to be innovative.

Consider this an extension of the “zigging while others zag”, but I had a genuine worry that Peacock would end up as another clone of Disney+, Netflix, Prime Video and HBO Max. (Mostly the same product and similar content profiles.) 

Except Peacock is definitely trying out a few new things, which shows a commitment to change we don’t usually see. Specifically, the “live channels” approach, which only furthers the “fast follow of PlutoTV” thesis. If you know what you want to watch, the UX will have on-demand video. But for everyone else–or the folks who just want something on in the background–Peacock will have live/streaming channels. Will this work? Maybe, maybe not, but at least it shows some innovation. (For example, nothing in the Disney+ launch was innovative to that platform, just more streamlined than Netflix.)

Content: Pretty darn strong, especially in TV.

Peacock helpfully provided a list of the shows they plan to air. (Probably not an exhaustive list.) And it’s pretty strong. I’m as impressed as I was during the HBO Max roll out. (Also credit to NBC PR for making the document available and hence easy on journalists to absorb.) Here are some specific content pieces I think will be strengths:

The USA Network Shows: This is the bread and butter that built Bonnie Hammer’s career–former head of NBC Universal Cable Productions, she now runs content for all NBC Universal–so naturally a lot of these shows will be on Peacock including Suits, Covert Affairs, Monk and Psych. It remains to be seen if they are “exclusive” digitally, but still a good slate. USA Network is historically underrated because it’s popular in middle America, not one the coasts.

The big broadcast shows: Everyone knows about The Office, but everything from Cheers to Brooklyn 99 to Frasier to Everybody Loves Raymond to Two and a Half Men will be on Peacock. That’s a hefty dose of rewatchable series. And lots of rewatchable procedurals in Law & Order and Chicago series.

Bravo/E! tentpoles: One of the strengths of NBC-Universal, I’ve always felt, is that they have a broad reach of channels to draw content from, for example, the unscripted reality space. At first, I didn’t see these shows on the list, but a lot of them will be on Peacock. While most reality doesn’t fare well in bingeing long term, some does.

Late Night: Premiering their two Late Night shows in the primetime window is a great change for customers, such as myself who usually watch tape delayed. This feels smart to me, as more and more content gets time shifted.

Content: New categories to one streaming platform: sports and news.

HBO Max won’t have sports; Disney is pushing all sports to ESPN+, and Netflix refuses to even consider it. Thus, NBC steps into the breach and says their streaming platform will have sports in the same interface. (Amazon, of course, has toyed with sports for a while and offers a few sports channels as add-ons, plus one NFL game in America.) Thus, ignoring the type of content, NBC may have an advantage here. ESPN+ and DAZN remain separate apps which could decrease engagement, except for hardcore sports fans.

But we can’t ignore content forever. The question is whether English soccer, NHL and two weeks of Olympics every two years is enough to sustain sports. I don’t think so, which is why I think Comcast could be a buyer for additional sports rights, be it more NFL, NBA, MLB or college rights. (The great pitch too is that this is both digital and physical, keeping both windows. I think professional leagues are rightfully scared of a “digital only” approach that risks losing viewership/fan engagement overall.)

As for news, the best thing about news is it’s much cheaper than sports to get into. Plus, NBC has a fairly strong brand, if titled toward one side of the political aisle on cable.

The Downside/Bear/Pessimistic Case for Peacock

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A Netflix Data Dive: What does their “annual” top ten lists reveal about their biz model?

Last December, I unveiled my theory for how big organizations use PR. Big entities—be they corporations, governments, non-profits, even news outlets—share their good information and actively hide bad information. It’s like the iceberg principle on steroids. Especially with digital companies like Netflix:

Slide2

(By the way, in government, the CIA is the absolute best at this. They have feature films like Argo win best picture, then have the gall to go on cable news and say, “You never hear about the good things the CIA does.”)

With this in mind, let’s draw some insights on Netflix’s (kinda) annual tradition to release a top ten “something”. In 2018, they released their top “binged” things. Now they’ve released for both film and TV across three lists in their most prominent territories. Sure, Netflix doesn’t give us much to work with, but I’ll interrogate these numbers to death in the meantime.

The Facts

Before the analysis, though, some facts to keep in mind. Whenever you see data, you should ask the “5Ws” of journalism. Most problems with data come from folks measuring it differently. (If you’re curious, I’ve tried to explain how to understand digital video metrics, and the distinctions, in this big article, which is one of my more popular.) If a news outlet buries these details, you should be skpetical.

– Who: Subscribers
– What: Watching 2 minutes of a given title
– When: During the first 28 days of release
– Where: Country-by-country. I’ll focus on the US, but they released it for a few major territories.
– How: Separated into content types, with all releases, by film/TV, scripted vs documentary.

Here’s a chart, with some additional details of the Top 10 Movies:

Top 10 tablesThat just leaves the why…

Thought 1: If this is the best “datecdote” Netflix could offer, that’s not great

Really, that’s what you think when you see a list that specifically changes the criteria from their previously announced metrics. Netflix had spent all of 2019 giving investors the “70% completion” metric for all their datecdotes. For this release, they dropped it down to “2 minutes of viewing completion”metric.

Using our iceberg principal above, what would the 70% threshold have told us that Netflix didn’t want to know? There’s clearly a narrative they’re deliberately trying to avoid.

Further, why not give us the “most binged” shows again as they did in 2018? Whenever someone changes the data goal posts, you should be very cautious. Yes, you see this all the time in Hollywood when development execs want to greenlight a project. If the numbers don’t look good, they change the measurements to get their greenlight. And yes, this happens all the time in business too. If leaders don’t like the numbers, change the measurements.

But it’s a bad habit.

Thought 2: This new metric doesn’t tie to Netflix’s self-stated goal for monetization.

If you’re looking for more red flags, this is it. In the last earnings call, CEO Reed Hastings said they care more about time on site than anything else. So why not give us that? They have the hours viewed data…they even could have limited it to new releases. (Which would have excluded Avengers: Infinity War, Black Panther, Friends and The Office.) What does the hours viewed tell us that customer counts don’t?

Or take the emphasis on acquiring and retaining subscribers. When Netflix execs speak at conferences, they downplay traditional viewership to focus on how well films bring subscribers to the platform, or keep them there. Clearly completed films would correlate more with sign-ups than only 2 minutes of viewing. (This also jives with my personal experience.)

Thought 3: Netflix Avoided Total Hours Because of Kids Content

I think Netflix avoided “total hours” for two reasons. Let’s start with kids content. Kids rewatch the most content. They don’t watch The Incredibles 2 once, they watch it a dozen times. That gives kids films an edge on viewership hours. Narratively, you don’t want to emphasize how valuable kids content is right after Disney+ launched. As Richard Rushfield has written, something like 60-70% of Netflix viewing may be on “family titles”. That’s a huge win for Disney+ if true.

It also means that if hours on site are the key metric—again as Hastings said in the last earnings call—then kids content seems even more valuable.

Insight 4: Licensed content still made it on.

Netflix also likely avoided the 70% completion metric because they wanted to downplay licensed content as much as possible. Netflix films have a dramatic marketing edge because when new seasons premiere, they get home page, search engine tinkering and top of screen treatment. This doesn’t necessarily drive completions—if shows aren’t good people don’t finish them—but it does drive 2 minute sampling. 

Still some licensed content made the list, even as it was deliberately curated out. Specifically, three of the top ten films and one of the top ten series. I’d argue this is bad for Netflix; even as they tried to weed out licensed titles a few prominent Disney films made the list.

This is more impressive than it seems because the biggest Disney films weren’t even released in 2019. Specifically, Black Panther and Avengers: Infinity War were 2018 releases. Meanwhile, Netflix was stuck with The Ant-Man and the Wasp—one of the lower grossing recent MCU films—and Solo: A Star War Story. Then the rest of the incredible Disney 2019 slate didn’t make it onto Netflix. 

Thought 5: Focusing on 28 days ignores films and shows with longer legs.

Licensed titles, especially big blockbuster films, also have longer legs than new releases. Don’t you think Avengers: Infinity War had some rewatching going on in the run up to Avengers: Endgame’s release? Absolutely. By focusing on 28 days as the time period, it narrows the window for licensed films to rack up viewership. (They also had a fairly crowded January 2019, with three Disney feature films being released in the same month.)

Thought 6: International Originals Still don’t play in the United States.

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Most Important Story of the Week – 10 January 20: The Most Important Question of 2020

Welcome back to my weekly column. My attempt, usually, to select the story in the business of entertainment that will end up being the “most important” for leaders, strategists and companies. Not the story that is the most buzzy or interesting—though it usually is—but the story that will have true importance.

Having stepped back from writing for holidays—and mostly disconnected from the web—I’m busily digesting a stream of year-end and decade-end articles. Which I promise I’ll get to either here or in the newsletter. Instead, this week, I’ll talk about the question I’ve been thinking about for the new year.

The Most Important Question for 2020: What is the Same and What is Different?

At family gathering this holiday season, a relative used a phrase that has stuck in my head:

“in the new economy”

It’s actually so common to use nomenclature like this, that I think bolding that singular word is important to highlight its truly revolutionary implication.

Embedded in the idea that we have a “new” economy—and you could call this digital disruption, the technology revolution, or any of dozen other buzz words—is the idea that something has fundamentally changed in how the economy works. Not just that the situation is changing. That always happens. But that the economy is different; there was an old economy, now there is a new one. And fundamentally they are different.

Let’s key in on that word “fundamentally”. This doesn’t mean on the surface. But a deeper level of core fundamentals. Imagine if we had a “new physics”. Would that be the equivalent of Albert Einstein replacing Newtonian physics? Not really. Einstein didn’t dispute Newtonian physics, he provided a model that explained more than Newton’s version.

When it comes to the new economy, we’re not refining, but overturning! Futurists hyping the new world say that something has changed in the model itself. It’s as if we woke up one day and suddenly Plank’s constant had changed values. As if the speed of light raised or lowered its speed limit. As if the hydrogen molecule suddenly had a different atomic weight.

For us to truly have a “new” economy, it means that technological changes have invalidated or upended fundamental principles of economics. As if net present value, charging more for products than they cost to make, and creating value for customers are somehow no longer applicable to the business landscape.

My challenge when writing about the streaming wars is that I’m temperamentally conservative by nature. Despite futurist claims to the contrary, while things change and evolve, I don’t think they overturn core, fundamental economic principles. Technology and globalization change the situation and require adaptations, but economics is still economics. Strategy and business are still strategy and business.

But…

I do think the perceptions we are in a “new economy” illuminate the greatest challenge for business leaders (and myself) in 2020, the year the streaming wars become a hot war. Even if the fundamental principles of business, strategy and economics haven’t changed, well a lot else has. The key challenge for strategists is figuring out what has changed and frankly what hasn’t. In my opinion, the broad media—meaning everything form mainstream trades to social conversations to podcasts—does a great job at hyping all the change, and a much worse job at explaining core economic principles/fundamentals that still matter. (Even if they can seem to temporarily hibernate.)

A theory for what really divides the bears and the bulls on Netflix.

If the streaming wars have a psychological battleground, it’s debating Netflix’s future. You have the bulls on one side who see no end to the upside; and the bears fiercely contesting them on the other. Mostly on Twitter, but also spilling into the business and trade press.

Partly, the debate is so fierce and competitive because of this question. My theory is that how you feel about Netflix boils down to how you feel about what is different and what is the same in business, economics and entertainment. We don’t really disagree on the facts, we disagree on what they mean.

Take what is different. On-demand content. This is something no bear can argue is not a fundamental change to how TV is consumed. The idea of having a programming executive filling in a grid every week is gone. That part of the business has irrevocably changed. (Well, maybe. The rise of ad-supported streaming means someone or algorithm needs to program live TV!)

Take what is the same. Losing money is bad. This is something that even the bulls know needs to change for Netflix. The question is how much money they can lose and for how long.

Everything else is up for debate. This is what makes the debate and coverage of Netflix so difficult. On one hand, Netflix is a binge-releasing, algorithmically driven, streamer up-ending business models. Disruption! On the other hand, they are still just making a bunch of TV shows and movie and distributing them to customers who pay by subscriptions. Traditional!

How you feel about Netflix is about these edge cases and asking, is this the same or different? Is skipping theaters revolutionary, or foolishly passing up revenue? Is binge releasing content revolutionary, or needlessly avoiding building anticipation? Does Netflix’s data really help them program the channel, or do they still have teams of development executives doing the same jobs they always have, just with bigger check books? Or lots from column A and B?

The Streaming Wars

I could apply this to the entire streaming wars. What do you think has fundamentally changed in the entertainment business? Technology, certainly. Digital distribution means new ways to send consumers content. But the business models themselves…are still business models. And the same rules apply.

Sure a bunch of traditional entertainment companies are launching their own (money losing) streaming platforms. They need to catch up with Netflix and Amazon and the others who disrupted their business. The question for streaming, really, is what is truly revolutionary, and what isn’t. At the end of the day, collecting subscription revenue from customers is something cable companies and premium channels have been doing for decades.

Anyways, welcome to the new year! We’ve got a lot to explore, understand, explain, discover and more and I’m happy to have you along for the ride.

Other Candidates for Most Important Story of the Week

College Humor Laying Off Employees

The demise of the early generation of video websites such as College Humor and Funny or Die is, in my opinion, directly tied to the rise of Facebook and Google as an advertising duopoly. Potentially advertising share that should be going to publishers is getting captured by them. In total, this decrease in competition is bad for customers and consumers in the long run. And the whole economy, really.

Twitch Doesn’t Make a Lot of Money

Priya Anand of The Information is out with the scoop that Twitch—Amazon’s live TV service—made a whopping…

$300 million 

In 2019. And only $230 million in 2018. 

Those numbers are…bad. For context, just CBS TV network earned $6.1 billion in 2018. Just CBS. You can imagine the rest of cable TV and even Youtube. Likely Twitch isn’t profitable for Amazon, which means that five years in Amazon has only gone further into the $1 billion whole. Assuming just a 15% cost of capital, for tech that’s not bad, and they’re going to need to dramatically scale to make back the investment. That’s my gut thinking on the deal.

The challenge for observers of digital platforms is that we don’t hear the details of companies like Twitch, just gaudy user numbers that have been and are inflated by bots, fake views, and a host of other issues. As a result, advertisers clearly don’t trust the platform and there really isn’t as much money being made as it seems like it should.

I’d be especially worried for those hyping esports leagues. (Which is subtly different from folks making money by being celebrities on Twitch.) Most esports leagues have gaudy projections and financial numbers. But if all of Twitch can only generate $300 million per year, that’s a small pie to split a dozen or so different ways.

Data of the Week – Scripted Series Grows to 532

According to FX’s John Landgraf. To get a sense of all these titles, and the deluge of reality and children shows, I recommend All Your Screen’s running tally. The NY Times has a good visualization of FX’s data. Also, Variety used their insights platform in December for a similar look. My one other caveat is I’ve never seen a good clarification on whether or not this includes  international originals, which I feel is slightly misleading, as those TV series were always being made, just not in the United States. 

Lots of News with No News

The Golden Globes

The Ankler probably blew up this annual awards show best. When nominees can and do invite the entire voting body to their house for a birthday part, well, that’s tough to take the results seriously. Meanwhile, as a driver of buzz, the Globes success. It does generate publicity for the streamers, the question is whether the juice (buzz) is worth that squeeze (awards campaign costs). 

As for the Oscars, if the Globes, guild award and BAFTAs are a sign, I think we’re still on track for a moderately unpopular Academy Awards best picture field. Not the worst, since Joker and Knives Out did well, but not as good as it could be if they had nominated the deserving super hero movie of the year, Avengers: Endgame.

Quibi, Quibi, Quibi

Quibi had a big presentation at CES, which was covered everywhere. Besides a specific launch day and confirmation on price ($5 with ads and $8 without), I’m not sure there was a lot of other news here.