Tag: Food Network

Most Important Story of the Week – 27 Sep 19: Discovery Enters the Niche Streaming Business

Well, we got more Spider-Man news. He’s back at Disney! Hurray! Get ready for 2,000 words on superheroes and…

…I can’t do it. Thankfully, another conglomerate launched another streaming network. As buzzy as Spidey is, he really only moves the needle so much. Let’s talk niche streaming. 

(And apologies for the slight delay. Had some data intensive articles last week so it took the weekend to digest the news.)

The Most Important Story of the Week – Food Network Launches Another Niche App

Right off the bat, I both love and hate this new streaming service from Food Network. Before we start, let’s summarize what I know about the company to set our terms.

– Distribution: iOS, Android and FireTV. Of the latter, it will have an “exclusive” voice partnership.

– What: A cooking app, with live cooking shows and other on-demand recipes. Eventually it will have a live call-in help service.

– Price: $7

– Other Tidbits: You can order recipes directly from the app using Amazon Fresh, Instacart and others. 

– The “pitch”: The Peloton of food

In short, I love the focus on customers and the attempt at a new experience. What I hate is that this plan relies on a few economic mistakes. 

The “love” part comes from a few things. To start, having a target segment is always right, even if you eventually need to expand to all consumers. (And you do if you can’t price discriminate in content.) Does Food Network Kitchen know who their audience is? With this application it’s people who like to cook. As the streaming wars start in earnest, niche services will have a tougher time than broadly appealing service, but if you are niche, at least have a clearly defined audience. Both Food Network Kitchen and BET+, for example, do that. That’s good.

Next, while they clearly have a strong partnership with Amazon, it isn’t exclusive when it comes to distribution. (Except for “voice interactivity”.) When I first read the headlines, I thought this wasn’t the case, and honestly if your streaming service is exclusive to any device/OS, well that’s the end of your service. (Microsoft Studios is the case study here.) This new app will be distributed on all the tablets that matter (Apple and Android) and the ones that may in the future (Amazon). 

What’s not to love? Well, the economics. In this case, it’s pricing models. Frankly, Netflix has set the perception of the value of a streaming video service at rock bottom. (Even as their prices have surreptitiously raised over time.) More importantly, they did this with a “library” of content that is broadly appealing. It’s still a bundle, it’s just their bundle. And that even includes cooking shows!

The inclusion of cooking shows on Netflix makes sense. No single cooking show or channel is worth it on it’s own, but they make the bundle as a whole more valuable. For years, I wasn’t watching anything on Food Network, but now I’m back on the Alton Brown Good Eats train. Would I subscribe to this service just for that by itself? Probably not, but it keeps from any bundle that doesn’t have cooking shows.

But that’s like, “Just your opinion, man”. Sure. To put this in context this, look at the landscape of recent subscriptions across a range of categories. Essentially, $5 is the new barrier to entry to get into streaming anything…

Table 1

Besides Luminary–another biz model I’m skeptical on–Food Network Kitchen has the most niche, smallest library in comparison. If you’re looking at all these things that cost about the same, why would you add Food Network Kitchen, if it seems like a much worse value?  If I needed another data point, I’d point to the subscription fees.

According to Dan Rayburn’s website, Food Network is a $1.75 proposition right now. On say 80 million households. If you quadruple the price, you need the audience to only decay to 25% (20 million people). Worse, what if the $7 launch price needs to go up to truly sustain the model? It only makes it harder to justify the economics. 

The counter is that this is the “premium add-on” to the Food Network experience that the truly devoted fans will sign up for. This is a compelling case; it’s a way to partially “price discriminate” for Food Network viewers. Regular fans will watch Food Network on cable or vMVPD. For the hardcore fans, they can get a ton of new content. The challenge is defining “hardcore”. If hardcore is 1% of your audience–and Food Network reaches 90 million poeple, but doesn’t have nearly that many watching–than that’s not a lot of people. 

Then you ask, “Does this premium segment even exist?” Food Network is barely about cooking anymore. It’s cooking competition shows. And baking competition shows. And diners? It turns out that entertainment is the important part, not cooking. 

Maybe I’m looking at this all wrong. Trust me, at this point I can hear those of you touting a hidden business model:

Licensed merchandise, right?

I’ve written on this twice before, the entertainment press and commentariat tends to drastically overstate the value of licensed merchandise. (Here and here.) First, the actual revenue a studio/network partner makes is pretty small. It’s about 5% of the total revenue of a product. If you hear projections of a firm doing $1 billion in total licensed merchandise sales, they only get $50 million of that. Which is great! And what Star Wars, Marvel and Mickey Mouse do. But is Food Network Kitchen going to generate $1 billion in total retail sales to get $50 million to run everything?

Probably not.

I’d call licensed merchandise the world’s narrowest content funnel. Especially for adults. Even more for household goods. Frankly, for all the Game of Thrones fans, only a few ever plopped down their credit card and bought things. Honestly, it’s probably 2-10% of fans. Say those numbers apply to Food Network Kitchen: 

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