Tag: Netflix

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: Youtube Offers HBO Max…and an “All Update” Column

As I stared at the list of stories I wanted to put in my weekly column last week, I couldn’t help but notice that they all connected back to some previous article I’ve written before. So here’s an “All Update” column, starting with a distribution story that hits on the most important trend of the streaming wars.

Most Important Story of the Week – Youtube TV Will Offer an HBO Max Add-On

A contrarian may see this as just another minor move in the distribution landscape. Equivalent to Disney+ finally getting distribution on Fire TV devices. And I didn’t make a big deal about that. 

Well, this is bigger. 

Google/Youtube is moving its troops onto the “key terrain” of the streaming wars. As I wrote back in November, the rise of “digital video bundlers” (or DVBs) is the trend to monitor when looking for who will “win” the streaming wars. The bundlers will, potentially, control the fates of the streamers. And hence have the best chance to capture the most value in the digital video value chain. The Youtube partnership with HBO Max could cause a cascade of strategy moves.

First, this is Youtube getting into the “streaming bundling game” versus just the “vMVPD” game. The distinction is subtle, but important. In the “virtual multichannel video programming distributor” game, the vMVPDs are mostly mimicking traditional cable bunde\le. So Youtube, Hulu, Sony Vue (rest in peace), DirecTV and Sling are mostly offering a bundle of traditional channels in a new package. This has only worked out so-so well so far.

Now that Youtube TV is going to offer HBO Max, they aren’t just about linear channels. While this isn’t their first streaming service they offered—they have the AMC owned niche streamers like Sundance Now, Shudder, and Urban Movie Channel—this will be their biggest streamer add-on. And the broadest offering so far. Likely this won’t be their last move either. Could CBS All-Access be next? Or even Disney+?

If so, then the line between vMVPDs and “channels” businesses will blur further. Here’s my quick take on how the potential DVBs are shaping up:

Screen Shot 2020-02-24 at 2.14.25 PMYoutube also needs this since right now Google is lagging on the device front. While the Chromecast works very, very well, Google can’t monetize it. You can’t download apps to it, just stream from another device. This will mean they need to lean on Youtube/Youtube TV even more to bundle their offerings.

Second, this is a smart move for HBO Max. May is rapidly approaching and scanning the other Live TV services and Channels, I haven’t seen a lot of announcements about where/who will distribute HBO Max. On the one hand, AT&T claimed that if you subscribe to HBO you’ll get HBO Max. But how that will work in practice remains to be seen. Does that just include linear offerings? Or only AT&T owned offerings? Does it include Amazon and Apple? That’s being negotiated right now.

AT&T’s goal, like Disney+, is to get HBO Max out via as many distribution channels as possible. Frankly, to make your money back, this makes sense. (Though it also shows that the power is mostly with the distributors, not the streamers.) Youtube is the first step.

Third, this impacts how the other vMVPDs will respond to HBO Max. Does Hulu—which offers HBO—automatically offer HBO Max as well? It would make sense, but that would then be a game changer for Hulu, which doesn’t offer any other streamers yet. And if it’s offering access to HBO’s streamer, why not sell Disney+ subscriptions and/or access right along side?

So Youtube could be the domino that starts a chain of OTT offerings.

Fourth, Netflix. 

(Legally I have to mention them every week) 

There is a careful balance for each streamer between reach—being on the most devices—and controlling the customer relationship—in both user experience, data and owning the credit card data. Netflix is on the extreme of one end; as the most successful streamer, they don’t care about reach and want to own everything about the customer relationship. 

HBO Max is clearly willing to give up some of that with Youtube TV for the reach. Disney, with Amazon for example, gave up some data to get Disney+ on Fire devices. Disney+ though, is NOT in Amazon’s channel business. Because they don’t want Amazon to own that relationship.

If I were Netflix—and I don’t think they quite understand this—I’d be worried that the distributors are going to offer increasingly compelling user experiences sans Netflix. Be it Youtube or Roku or Hulu or Amazon Channels or Apple Channels, customers are going to increasingly find themselves using one ecosystem. While switching between Disney+ and HBO Max and Netflix isn’t that difficult, it’s still a small barrier to entry. 

But little things can add up. And if folks only use Youtube TV to get 60% of their TV viewing, then that could rise to 70%. Then 80%. And Netflix could be the piece on the outside looking in. (Alternatively, some streamers like CBS All-Access and Peacock could never even get a look.)

Is it guaranteed to happen? Obviously not. But if Youtube TV “becomes TV”, then Netflix can’t. And only one of those two companies is banking on “becoming TV” to support its stock price.

Last note: Youtube TV’s price point is still uncompetitive. It is somehow the only remaining Live TV bundle offered at $50. As a result, it’s boosted it’s subscribers from 1 million last year to roughly 2 million this year, as it announced in its latest earnings. The key question is how much they lose every month. $1? $5? More? The higher the number, then the more Google is using revenue from one business to enter another using predatory pricing. That’s not good business necessarily, but market power. It stifles innovation in the long run and should worry us.

Entertainment Strategy Guy Update – ViacomCBS’ House of Brands 

So did CBS let us know what their strategy is? Scanning their last earnings report, not really.

They could be a content arms dealer. Mentioned it. They could lean into streaming. Mentioned it. They could lean into live TV. Mentioned it. They could be a leader in advertising. Mentioned it too. They want to be all things to all people

So that’s the downside case. They still don’t have one strategy. But if we’re looking for bright spots, at least they are making some smart moves. They plan to expand their streaming offering. Here’s their pitch:

Screen Shot 2020-02-24 at 10.45.03 AM

Ignoring the misuse of the term “ecosystem”, if they execute the “House of Brands” strategy it may provide a better user experience than some other streamers. And it will work better than trying to launch BET+ on its own and Smithsonian on its own and so on. In general, broad services have the advantage over niche platforms, and CBS already has a “broad” advantage like their fellow legacy media conglomerates. As I wrote in August, you could imagine a version of Disney+’s brands…

disney-plus-layout

..with ViacomCBS brands like BET, Paramount, MTV, Comedy Central and Paramount instead. (If I were better at Photoshop, I’d have done it.) Is that better than Disney? No. But it’s a clearer offering than if Netflix tried to offer something similar for its library of Babel offering. (Still probably behind HBO Max and Peacock though.)

I said back in August that trying to offer “the perfect bundle” is their best strategy. I happen to like their three tiers: Free is a great entry price; CBS-All Access can compete with Disney+, Peacock and HBO Max while Showtime goes for HBO and Netflix. That seems to be our three tiers right now. 

Notably, though, I don’t think they can be a streamer and a “content arms dealer”. If you sell genuine hits like South Park, Sponge Bob and Yellowstone to competitors, there won’t be enough left for your service. Given that they can’t survive without a viable streamer, they need to focus on that strategy. 

(For my past articles on SuperCBS, click here, here or here.)

M&A Update – Apple Looks for a Library/MGM on the Sales Block

After it’s nine original TV series—plus or minus 2—there isn’t a lot else to watch on Apple TV+. Which is why I thought it was bonkers launch without a content library for customers. The biggest library on the block is MGM’s and a few months back the Wall Street Journal reported Apple was indeed in talks to acquire the former major studio (and its library).

Yet it didn’t happen then. Still, as Alex Sherman comments in his look at M&A in 2020, it’s probably more likely that MGM gets sold than not. It’s long been rumored that its private equity owners are looking for an exit. So why hasn’t it happened? My gut is that between the PE folks desire for a sizable return and the strings attached to their library—most of it is rented out for the next few years—it gets hard to find the right deal.

(Related note: In the Wall Street Journal article, the Pac-12 was also in negotiations with Apple that apparently didn’t go anywhere. I remain skeptical that going to one distributor like an Apple will be worth it for the Pac-12, but we’ll see. Here are my big articles on the Pac-12 and what that implies about the future of sports here.)

Entertainment Strategy Guy Update – What about the Oscars?

Are the Oscars just an increasingly unpopular TV event or a portent of the eventual declines all feature cinema? Probably just the former. The global box office hit an all time high last year. Instead, as I’ve long suggested, the Academy needs to nominate more popular films to bring in a bigger audience. (And not just via a popular film category.) Here’s an updated table on how unpopular the nominated films were in general:

Screen Shot 2020-02-24 at 2.15.17 PM

Screen Shot 2020-02-24 at 2.14.55 PM

So while there was a slight rise in “unadjusted box office”, the trend is still downward from the 2010 recent peak. (Adjusting box office for inflation shows an even worse decline.) Hence, the ratings were down again.

A related question is whether this push for Oscar nominated films makes sense for those producing the films, such as the streamers. As two recent articles show, Oscar nominations lead to box office revenue. And presumably Netflix viewership. The only caution? Well, the cost of those increasingly expensive awards campaigns may not pay back even that amount of Oscar revenue.

(For my articles on Oscars and popularity, click here, here or here.)

Entertainment Strategy Guy Update – Netflix Originals Aren’t Permanent

Over in the United Kingdom, the Netflix “Original” Happy Valley  is going to be departing the platform soon. This shouldn’t be a huge surprise for business watchers, but I have the feeling that customers won’t quite understand it. If originals are original, then how can they leave? Well, it depends more on how Netflix paid for it (rent it, lease it or buy it) then whether they call it an original. What’s On Netflix has a good article on this here.

(For my articles on what an original is, read my definitions from back in May. Or read my article at Decider from last month which also explains the difference.)

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:

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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.)

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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Read My Latest at Decider – Should Netflix Become A Content “Arms Dealer”?

In the olden days, the real value in a TV show was the long tail selling to syndication. A network, say NBC, would pay for the first run, but then constant reruns would make the true owner, say Warner Bros, all the profit. When streaming came, say Netflix, that was another source of cash.

The question, of course, is what about Netflix? Could they sell their shows to other platforms or channels? Why or why not?

My latest at Decider explores that very question, using Grace and Frankie as the example, given that it’s launching its most recent season today, which happens to bring them to 96 episodes. (As always they crushed it on the key art.)

Along the way I explore or provide the data for…

– The various content deals of the last year or so
– Past streaming to syndication deals
– The relative popularity of Grace and Frankie compared to the “big six” streaming deals.
– Calculate a broad guess at how much G&F would be worth in licesning.

And for the second time, I’m going to give my readers a special offer. If you want to download the Excel file I used to run the calculations—it’s definitely not that complicated, but some have asked for it—click here. (Click on the link.) I also have all my citations in there, and my Google Trends images for completeness.

Here’s all I ask: if you download it, subscribe to my newsletter. That’s the best way to help out the website. 

(As the year progresses, I’m debating monetizing my writing by releasing more of these Excel docs via a Freemium model. If that interests you or you’d pay to support my writing, send me a note to let me know.)

Read it and let me know what you think.

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:

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(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.

Read More

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.