Tag: Netflix

The Content Battles are Competitive in the Streaming Wars

(Welcome to my series on an “Intelligence Preparation of the “Streaming Wars” Battlefield”. Combining my experience as a former Army intelligence officer and streaming video strategy planner, I’m applying a military planning framework to the “streaming wars” to explain where entertainment is right now, and where I think it is going. Read the rest of the series through these links:

An Introduction
Part I – Define the Battlefield
Defining the Area of Operations, Interest and Influence in the Streaming Wars
Unrolling the Map – The Video Value Web…Explained
Aggreggedon: The Key Terrain of the Streaming Wars is Bundling
The Flywheel Is a Lie!

Wars tend to have their own cadences. Some start quickly and one side gains an advantage, and wins the war. Sometimes in months. (The Franco-Prussian War, for example.) Some wars bog down into stalemates, that take years, with neither side getting an advantage. (The first World War, for example.) And in some wars, one side gains a huge advantage, everyone assumes they will win for sure, only to find that the initial leaders lose the war. (The Axis in the second World War, for example.)

For years, a lot of folks have assumed the streaming wars are the first type of war. Netflix started streaming in 2008, and got out to such a commanding lead it looked unlikely that anyone would catch them. And as I’ve shown in charts before, Netflix really is far ahead.

IMAGE 1 Netflix a Broadcast

Netflix is so far ahead, some analysts say the war is over. (You know who they are, so even though I’m not linking to them, this isn’t a straw man argument.)

Of course, this begs the question: what type of war is this? Is this a Franco-Prussian War that is already over before it starts? Or a World War II, where Germany and Japan are doomed, they just don’t know it yet? 

Over at Decider, I’m writing a recurring feature where I’ll take stock of the last month (or so) and declare a “winner” for the most popular piece of content. (The latest went up last Friday.) I’m in love with the concept, because it forces me to check in regularly with how well shows are actually doing. In last week’s edition, I got a TON of insights that one article couldn’t contain them all. So here is one for today:

The streaming wars are increasingly competitive.

In other words, I think the streaming wars will look more like World War II than the Franco-Prussian war. (Fine, enough with the war metaphors.) 

If you want to know what separates the “bulls” from the “bears” on Netflix’s strategy/future/stock price, it’s this view of the war. If the streaming wars are already over, then Netflix is priced too low. If new entrants can gain audience share, then it’s a genuine competition. The last two months of data show an increasingly completive content landscape, and it’s a trend which will likely pick up stream. Let me explain why.

To start, we have more and more data to understand (American) streaming viewing.

Back in July, I mostly used Google Trends data to estimate what was the most popular film in America. I used some of the customer ratings too, but not much more. The problem is that each of these data sources can be noisy. Since then, though, the data situation keeps getting a lot clearer, as I wrote about in August:

– FlixPatrol is having their data consolidated by Variety VIP. FlixPatrol has shared their data with other folks as well. (They count Netflix, Amazon, Disney and other top ten lists around the world.)
– Nielsen started releasing SVOD Top Ten lists (though four weeks delayed) by total minutes viewed.
– And after Mulan came out a few companies gave peaks at their data, including 7 Park, Reelgood and Antenna. (They all measure in slightly different ways.)
– Parrot Analytics has been releasing their weekly top ten since last year.

Are any of these data analytics firms perfect? No. In fact, I have issues with each of them, ranging from questions about their methodology to questions about their sample size/make up.  Be assured, when the Entertainment Strategy Guy is reviewing a data set, I’m looking for outliers which make me question the data. If I see them, I’ll try to call them out.

Thankfully, most of the data sources are directionally aligned, meaning they are all likely measuring signal, not noise. 

Next, all of the sources are showing the trend of more and more “non-Netflix” shows/films in the top ratings

I noticed this first when reading Variety VIP’s write up of 7 Park’s subscriber data from August and July. 7 Park analyzes wether a unique customer watches a piece of content, so it’s gives some insight into how many different shows are being watched by various customers. Here’s the data from August and September that 7 Park shared with me. This is measuring “audience share” meaning it doesn’t account for how much customer watches, simply whether a unique customer engaged with a piece of content:

IMAGE 2 IPB Streaming Content Battle

That’s four different streamers in both charts. Hulu, Amazon and Disney+ each put a top show into the measurement. AA year ago, it would have been all Netflix red. Even Amazon wasn’t breaking through. 

(A note on 7Park data: I do have some questions about their sample size. It may over-represent avid streamers, as the Apple TV+ usage is higher than I would have guessed. This applies to some of the other folks as well, such as Reelgood.)

Like I said, though, directionally this lines up with other sources. Yesterday Nielsen updated their latest Weekly SVOD Top Ten. For the first time since they launched in August, a non-Netflix streamer made the list. And not just one, two!

IMAGE 3 - Nielsen Data

Again, Netflix is still the king. This is because usage makes it even harder for the smaller streamers to catch up, so Netflix owns 80% of the list. But the story isn’t about who is currently leading, but who is catching up. Here’s Parrot Analytics look at the current most “in-demand” series.

IMAGE 4 - Parrot Analytics

In this case, since they measure demand not simply viewership, the spread is much broader. This is driven by the popularity of a lot of traditional firm’s IP. 

(Regarding Parrot Analytics, I have concerns their data overrates the conversation around super heroes and genre. It also lags a bit too much for my taste.)

The Viewership Wars are Joining the Streaming Wars

Overall, this change shouldn’t be too surprising. The battle for viewership and dominance of ratings has been the quest of TV channel executives since the dawn of TV. And the battle for the dominance of box office has been even longer. 

Over both those battles, various channels and studios have taken leads. In the 1990s, NBC looked unstoppable. (Must See TV) CBS took over broadcast ratings in the 2000s by launching a series of “acronym” shows and Chuck Lorre comedies. In film, Disney took over box office in the late 1980s, then again in the 2010s. Even as most executives can’t sustain permanent advantages, everyone so often someone does.

Netflix is currently the leader. Can they retain it indefinitely? Probably not. 

Even now, as far ahead as Netflix is in viewership, it doesn’t own a majority of all TV viewership. In fact, it doesn’t own a majority of streaming time. This is why when you look at Parrot Analytics demand measurements for all TV, the view features even fewer Netflix shows, since streaming is still only 25% of all TV time.

IMAGE 5 - Parrot Analytics

This shows up in the Reelgood data as well. Reelgood tracks audience behaviors on a range of services, but inevitably their customers seek a wide range of shows and films. Take this look from the week Mulan launched.

IMAGE 6 - Reelgood

That’s everything from Disney films to films only on TVOD to Netflix Originals. In short, viewership is diverse in America. Netflix doesn’t own it all, even if it owns the mental headspace of many critics, analysts and decision-makers in the United States.

It seems clear that as more traditional broadcasters, cablers and studios launch their own streamers, they’re going to fight more and more for the streaming viewership audience. Ideally, if I had Nielsen’s data for the last two years, we’d be able to chart this rise. Ideally, I’d have Nielsen data for the last two years, and show that August or maybe last November was the first time a show made the top ten list.

But I don’t have that data and Nielsen just started releasing weekly top ten lists. Instead, I’m speculating here, but increasingly, it seems like the Disney’s, Prime Video’s and HBO’s of the world are launching the most popular shows in the world.

What Does this Mean for the Future? What Should We Look For?

Well, the streaming wars are going to be competitive. That’s what this means. The more shows that become “must watch” means the more services folks will need to own. Game of Thrones and Lord of The Rings prequels will fit this bill. Same for Disney’s big shows. And I think Peacock has the best chance of developing new additional shows that fit this bill since they have a track record of doing that. (Their library with HBO’s is also the strongest.) Don’t count out Hulu or Paramount+ nee CBS: All Access either.

This means that split wallets are likely to be the case in the future. I don’t think anyone should have a model that implies that Netflix owns 50% or greater of a customer’s wallet. Probably even less than 25%. 

Obviously, this means that Netflix will be fine for the streaming wars. No one should say “Netflix killer” because they are clearly such an indispensable part of the streaming diet for so many customers.

Unless, of course, you care about the stock price. This competition means that Netflix can’t pull back on spending, because then the top shows chart will only feature more shows from other streamers. It also means they can’t raise prices or can only do so slowly. Given that Netflix has one of the mostly highly valued stocks compared to underlying economics, any situation where it fails to conquer all TV has a lot of downside.

If content is king—it is—this is a battleground to continue monitoring in the streaming wars. Looking at the colors on these streaming charts is key. If they stay all red, that’s great for Netflix. If they look like—pun intended—a peacock’s feathers, that’s good for the traditional players.

Most Important Story of the Week – 4 Sep 20: The Fall of Fall (TV Advertising Revenue)

I’ve been too positive about the entertainment industry recently. Especially the traditional players. I think theaters by the end of 2021 will be fine. I think the traditional entertainment streamers can compete with Netflix (and Amazon). And I even think Disney will see a thriving theme park business sooner rather than later.

So let’s get negative. Really inspire some fear. Of course, that means broadcast TV.

(As always, if you’d like the Entertainment Strategy Guy delivered to your inbox, sign up over at Substack. My newsletter is free and goes out every two weeks.)

Most Important Story of the Week – TV Network Ad-Revenue is at Risk

While it may be “dying”, the linear TV business is still good money for traditional media conglomerates (Disney, Comcast/NBCU, AT&T/Warner Media). I like to tell this story via this chart via Disney’s revenue:

In addition to the total revenue, media networks also make tons of operating profit. As I laid out in one of my most popular articles of the year, if you imagine a world where, in complete disruption, they lose all their “media networks” operating profit, and streaming still isn’t profitable, they aren’t just losing $3 billion per year like Netflix, they’d have lost $10.5 billion in operating profit on net! 

Thus, as they pivot from linear to streaming, the traditional players need to be careful. They need to find out how to make streaming profitable and not destroy their cash cows that quickly. It’s unclear if anyone can do the former, and the Coronavirus may have pushed the latter from their control.

Advertising revenue will be the first part of the traditional linear pie to feel the pain. (And actually has been suffering in the last few years.) It’s not a majority of the revenue–that honor belongs to subscriber fees–but it’s a big portion of the puzzle. Across broadcast and cable, it’s a $44 billion dollar piece! Depending on the channel, it can be 20-50% of total revenue.

And the biggest piece of advertising revenue comes from the broadcasters, which are still the biggest channels in the linear bundle. The threats to advertising come from both the demand and supply sides, which is what makes the Covid-19 inspired recession particularly challenging. (Past articles on Covid-19’s impact on entertainment here, here, here, here or here.)

On the demand side, advertisers love to advertise on sports because live sports still get great ratings and viewers don’t usually skip the ads. And when I say sports, I mean football. Both college and NFL, but particularly the NFL, which dominates annual ratings. While the NFL is still scheduled for this season, it could disappear in a moment’s notice if Covid-19 rates skyrocket again. Thus, the Wall Street Journal reports that advertisers are seeking to claw back proposed ad spending if NFL games don’t happen.

(As for college football, a majority of college football games have been cancelled, but some leagues–the SEC, Big 12 and ACC–are trying anyways.)

If the broadcast networks lose NFL games, it’s doubly-brutal since the rest of their primetime schedule is fairly “meh”. The same force that could cancel NFL games caused studios to shut down all of production for new TV shows. Reruns don’t do as well as new TV shows. Thus, the linear channels will have fairly weak lineups this fall, even as customers have more free time than ever to watch.

There is one bright spot in the demand-side: out-of-home viewership. For years Nielsen didn’t mention viewership in bars or restaurants or anywhere that wasn’t in someone’s home. But obviously sports bars only exist to show sports and serve beer. After years of promise, and some last minute waffling, Nielsen plans to roll this out this fall. It should boost the role of sports/ESPN even further in the ratings. (And 24/7 news networks.) That said, if the NFL doesn’t happen, no amount of out-of-home viewing will help.

The supply side of ads is arguably in an even worse state than the demand. When you’re in a recession, the first thing that goes is marketing expenses, and that’s precisely what happened in this recession. Some of the biggest drivers of ads are under as much threat as the broadcasters, like car companies, airlines, or hotels. And they’ve pulled back on advertising. Meanwhile, digital advertising beckons with its “targeted” ads, since Google, Apple, Amazon and Facebook hoover up all your data to sell.

And one of the biggest advertisers, Hollywood itself, will probably spend the least on linear advertising in recent memory. Since, theaters have been shuttered in large parts of the country, there is no big opening weekend to push customers towards. Digital advertising can take up that slack. That’s the take in this Variety story.

Conclusions

That’s the doom and gloom for the near term. Will it last? 

Again, when everything is tied to Covid-19, there is as much a chance that things snap mostly back when the pandemic passes as it is that they are permanently altered. (For the record, I expected/will expect double digit drops in linear viewership since cord-cutting adoption is following an S-curve.) For example, if theaters are back to “normal” in the mid-point of 2021, the focus on opening weekends will return, and with it linear advertising.

If I had to point to one wildcard, though, it’s football. Which is really the issue suffusing the conversation above. (Even feature films are really talking about advertising against football.) As long as football wants to reach every household in America, it needs linear TV as much as digital. And that should support this ecosystem for another 5-10 years.

Still, we’ve likely seen a high watermark in linear advertising revenue. Which isn’t too surprising, since advertising revenue has been under pressure for years. It just means that, even if it bounces back, between cord cutting and reduced quality content, broadcast advertising will never regain its past heights.

Entertainment Strategy Guy Story Updates – Licensing Is Still Very Important for Streamers

This story is really a combination of three stories that all competed for my top slot this week. 

Combine the three and the story is fairly inescapable: for all their tens of billions in content spend each year, Netflix cannot give up on licensed content. This shouldn’t be that surprising, but it does contradict the story Netflix projects to Wall Street. 

Let’s start with why licensing is still crucial: because it moves the needle! When you look at the Pay-1 movies–films in their first linear TV or streaming window after theaters, usually in the first year–you can see that every streamer is desperate to get Universal’s output. This is because new Fast and the Furious, Minions, and Jurassic Park films move the subscriber needle. Just take a gander at VIP’s August report:

(Go to Variety VIP to read. Full disclosure: I’m on a free trial from Variety.)

That’s a lot of licensed film content in Netflix’s Top Ten! The story is the same on Nielsen (hat tip Alex Zalben) when it comes to top TV series on Netflix in the last week:

That top ten list is almost all licensed content. (Which contradicts Netflix’s daily Top Ten lists, a point I’ll explore in a future article/Tweets.) 

On the whole, the fact that Netflix needs licensed content should be the least surprising story in media. TV has always been about renting content. Syndication built up numerous channels from Fox to USA to AMC to you name it. Even HBO was built off Pay 1 films. So renting content to enter a market is a tried and true strategy.. 

Unless…

…your stock price involves “building a moat” of original content. Which Netflix’s does. Specifically, making a moat with original content that will bring “pricing power”.

Licensed content’s current and continuing importance to Netflix will determine if this strategy works or blows up. If it turns out that Netflix still needs licensed content, after spending billions on originals, then one of two things happen. First, if Netflix loses the content, then they will likely see higher churn among customers. That both lowers the average revenue per user and raises acquisition costs. So they keep losing money. Or Netflix keeps licensed content, but has to pay more and more for it in a competitive bidding environment. That raises their costs. So they keep losing money. 

In short, Netflix desperately wants to decrease its reliance on licensed content. But so far the data doesn’t show that strategy is working.

Over the last few months, I’ve softened on how important licensed content was for Netflix. It seemed like their original films were finally breaking through. And the top ten lists were filled with originals, especially on TV. But the combined FlixPatrol/Nielsen data contradicts that. Even as the licensed content changes–farewell Friends, The Office, and Disney blockbusters–the importance of licensed content remains. (My guess is Hulu and Prime Video are in the exact same boat, by the way.)

(Bonus update: it seems increasingly clear that the future will be measured, as I wrote way back in December of 2018 and October of 2019. Between top ten lists, Nielsen and others, we’ll have some sort of standard to judge which shows are doing well in the ratings.)

Other ESG Update: Cobra Kai’s Migration to Netflix

To quote Marshall McCluhan, the medium is the message. So for Youtube, the medium is ad-supported music videos, box openings and alt-right/alt-left commentariat. Not prestige originals. Clearly Youtube had a good show in Cobra Kai, but after that they didn’t know what to do with it. (Read my past writings on Youtube Originals for more.)

Other Contenders for Most Important Story

AT&T Is Selling Some Assets, but Not Others

The story over the last few weeks has been that AT&T is looking to sell tertiary businesses to reduce debt. On the table are Xandr (their ad-sales unit), DirecTV and CrunchyRoll; not on the table are Warner Media’s video game unit. As some folks have pointed out, though, we shouldn’t read too much into any specific business unit sale or story since these talks are ongoing. And the rumor mill is vicious.

Still, it seems clear based on the volume of rumors that AT&T is looking to sell some assets to help their balance sheet. The management lesson should be clear: M&A is not a strategy. Strategy is strategy. That’s the story of AT&T in the 2010s: buying size mostly to accumulate assets. The investment bankers got paid; the shareholders haven’t yet.

Walmart’s New Subscription

On the surface, Walmart offering “Walmart+” isn’t entertainment related. It’s an ecommerce story, about a battle between two monopolistic giants. Except for the fact that nearly every article had to mention that Walmart+ doesn’t offer any free entertainment streaming. So…

Prime Video = $120 a year, with Prime video and Prime Music
Walmart+ = $98, with no entertainment.

Therefore, Prime Video and Prime Music are worth $22 a year?

Listen, that math isn’t totally correct. There are tons of unaccounted for variables. But generally does it match consumer demand? It probably isn’t that far off either. 

Data of the Week – What is the U.S. Addressable Market for Streaming?

In a lot of ways, isn’t that the question of the streaming wars?

A few weeks back, Leichtman Research group updated their estimate for the number of broadband homes in America. In 2019, America reached 101 million broadband homes. On the bass diffusion curve, clearly broadband adoption is slowing. This could be a good proxy for cord-cutting homes, since if you don’t have broadband you can’t stream.

Meanwhile, Nielsen still counts about 121 million homes as “TV watching” homes. Meaning about 20 million homes are still cut off from cord cutting in general.

So, the natural question is do Netflix, Hulu, Prime Video, HBO Max and Disney+ all have aspiration of 100 million household penetration in the future? Probably not. As my past research has shown, Netflix will likely tap out at around 70 million US subscribers. Meaning we have a gap of about 30 million households.

While overall streaming could end up reaching 100 million homes–similar to cable at its peak–there won’t be one service that every household subscribes to. Either from keeping skinny bundles, sharing passwords or what not, I don’t think we end up with one service as the “universally owned” streamer.  This data from Reelgood shows that while Netflix is the closest to a universal streamer, many streamers have bundles which don’t include it.

And if Netfllix can’t do it, I don’t see anyone else doing it either.

Lots of News with No News

Another Netflix Producing Deal

With royalty no less. Or not, since I believe they renounced their titles? Listen, I’m not an expert on British nobility. And while I can understand the interest from a general entertainment perspective, from a business standpoint this doesn’t move the needle.

Sound Issues in Tenet

Since Tenet isn’t in theaters in the U.S., and won’t be in my neighborhood anytime soon, I can’t speak to this from first hand information. But apparently customers are having trouble hearing crucial pieces of dialogue in Tenet. That said, when it comes to most TV and films it can be hard to hear many of the lines. Sound mixing has a lot of trouble dealing with everyone’s different sound systems nowadays.

Visual of the Week – Is Netflix a (More Watched) Broadcast Channel?

We had a fun bit of data dropped via Nielsen in August which allows me to update my most popular article of the year, “Netflix is a Broadcast Channel”. Nielsen let us know how viewership looks through the Coronavirus lock downs as of August 2020. Here’s the original 2019 data and the update:

Screen Shot 2020-09-02 at 9.19.51 AMSince I promised this is in visual form, here’s the stacked bar charts…

Screen Shot 2020-09-02 at 9.20.15 AMQuick Insights

First, is this statistically significant?

Yes, tentatively. It all depends on what your confidence interval is, but with their panel of about 1,000 folks, Nielsen can have a margin of error either direction of about 3%. This is right on that border line.

That said, why use a 95% confidence interval? If you use a 90% confidence interval, than year we’re reasonably confident Netflix saw a bump. I’d add, everyone else was flat and next grew or declined. (Except for Disney+, which wasn’t on the platform last time.) That’s hard to interpret as anything but good to great news for Netflix. Contrariwise, if you want 99% certainty, then this is firmly within the margin of error.

So we’ll see how this number grows, but I’m inclined to think it measured a real trend.

Second, why not update your Primetime chart from last time?

You mean this one? Image 1 - Estimates

If this were extrapolated to Primetime, then Netflix has exceeded even CBS and taken the top broadcast spot. (They’d be at 8 million primetime viewers if we used the same math from August.)

First, and simply, I don’t have the linear TV viewing numbers to compare. Broadcast ratings could have increased by a similar rate, so it wouldn’t be apples-to-apples. 

Also, while the 3% increase in Netflix viewing is good, and the 7% surge in streaming video is even bigger, I’m skeptical that viewing came during primetime. Sure, folks can’t go out so TV viewing is likely up across the board at Primetime, but the 7% surge in streaming likely came from elsewhere. I see two options.

Option 1: People watching TV during the daytime. The notable thing about coronavirus is that everyone is sitting at home streaming during work. (Are those two things incompatible? I think so, but that doesn’t mean it’s not still happening.)

Option 2: Children. The other group that is probably streaming even more than ever are kids. And children. And teenagers. Again, not during primetime, but throughout the day. And my initial comparison was about primetime viewing. That’s why Disney+ went from not existing last fall to getting 4% share of streaming.

Who Will Win the Battle for the next “Game of Thrones”?: How “People” Change the Odds of Success

(This is another entry to a multi-part series answering the question: “Who will win the battle to make the next Game of Thrones?” Previous articles are here:

Part I: The Introduction and POCD Framework
Appendix: Licensed, Co-Productions and Wholly-Owned Television Shows…Explained!
Appendix: TV Series Business Models…Explained! Part 1
Appendix: TV Series Business Models…Explained Part 2
Appendix: Subscription Video Economics…Explained Part 1
Where We’ve Been)

Two weeks ago, we checked back in on the news about the contenders vying to be the “next Game of Thrones”. Let’s keep the momentum going and get right into the “People” portion of our framework. At the end, I’ll unveil my current working model for evaluating TV series.

Why “People” Matter In Every Deal

The “people” in a typical venture capital deal are the leaders of a start-up. This means the founders and the soon-to-be chief officers. Is the CEO a great technology guy, but not great at scaling? Or an operations guy who has a dynamite CTO already in place, but no marketing experience? Conversely, is the product great and so is the opportunity, but you need to replace the leadership to make the company truly succeed? (Uber/WeWork much?)

In a real world example, lots of investors in Quibi invested because of the team of Jeffrey Katzenberg and Meg Whitman. He could handle content; she’d handle everything else. (Only later did we find out they couldn’t work well together.)

As I use the “POCD framework” for evaluating TV series—a concept I dabbled with at my previous job—I’ve found the “People” portion to be extremely important. Who is the showrunner? Who is the creator? Are they the same person? Or do you need to bring in a more established showrunner to replace the creator’s vision? Does the showrunner have the ability to manager a team, or will they do it all themselves? Can the writers work with the directors to bring their vision to bring the show? Are the producers able to corral the showrunner and bring things in on-time and on-budget?

Hopefully, the answer to all those questions are positive. Meaning the creator has a great vision, the showrunner can deliver on their vision, the writers room writes great content, the directors can film it, and the production team will run everything well. The reason this is important is because, if a studio can hire the right people more consistently than competitors, they can achieve outsized returns.

Those outsized returns fall into two rough buckets. The first bucket is the “quality” bucket: Can the show runner make a good nee great show?

Well it depends. Unfortunately, most showrunners and creators are…average.

Average isn’t bad, you see. It just means that while all showrunners are great people—and indeed highly skilled at what they do—their “hit rate” is average. Which means that most of the time the shows and films they make are bombs/duds and a few times they are blockbusters. (About 1 in ten.) That’s just the math. That’s right, logarithmic distribution of returns applies to the people making shows too:

Slide03 copyAt the far right end, some showrunners can buck this trend to reliably churn out hits, but they are few and far between. Think Greg Berlanti, Shonda Rhimes, Mark Burnett or Chuck Lorre. Even then, they have more duds than you initially remember when you scan their IMDb. If either Game of Thrones or Lord of the Rings had a top tier showrunner attached, it would increase the likelihood that a show becomes a “hit” or “the next GoT/superstar” in our model. (Or if they had a top tier development exec with a similar track record. No streamer does yet.)

The converse to good showrunners is a chaotic leadership situation. If a show has lots of creators moving in and out and lots of directorial turnover, that’s a bad thing. (Though not always. The Walking Dead did just fine and it’s on its fourth showrunner.) 

My model also punishes showrunners with extensive mediocre track records. Which unfortunately is quite a few showrunners out there. For all its admiration of experimentation, Hollywood is surprisingly conservative at decision-making. Development executives hire the same writers and directors instead of trying someone new because it’s “safer”. These showrunners produce a show for a few years that is mostly “Meh” (a technical term), and then move on to another pitch/job. In the model, if I saw a fantasy series had that type of showrunner, it would increase the likelihood that a show is another also ran TV show, not the next Game of Thrones.

The second outcome is the “logistics” bucket. Can a show come out on time and on budget?

When it comes to making blockbusters, this is less important. However, if you’re running a business, given that 95% of showrunners are average, this can be the difference between profit and loss. This can be forecast, with the right data, pretty reliably. I, for example, knew that certain showrunners and directors who worked regularly with our streamer would be late or over budget when we hired them, because they were late or over budget previously. Unfortunately, this type of data isn’t public available—studios don’t make a habit of sharing when they go over budget—so I can’t use it in this series.

It is worth noting that this was part of the genius of HBO and Game of Thrones. They managed to keep that show on every single year while being the most expensive show on television. But an incredibly efficient expensive show, if that makes sense. 

(The great production houses out there—Jason Blum, HBO the last two decades, Marvel this decade—really do deliver on time and on budget, while hitting high quality bars. That’s not an accident.)

Meanwhile, most of the streamers struggle to get second seasons out within 18 months of big shows. We don’t know if these shows are “on budget” but with the way Netflix spends money, probably not? While this is important, it won’t make the model because we won’t know about financial/timing trouble until it happens.

The Results

With that explanation in mind, I’m going to be fairly conservative on evaluating these leadership teams. While picking people is really important, the benefits don’t show up on an individual show, but on a long-term/portfolio level.

Thus, I’m more worried about overvaluing “noise” than true signal in evaluating these leadership teams. (Long term, I hope to do more data analysis to better judge creative hires, but I don’t have those databases yet.) As a result, I’ll default to the “null hypothesis” more than usual.

Let’s go show by show.

Read More

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

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

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

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

IMAGE 1 Revenue Per Performance

Some quick insights:

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

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

Image 2 Table

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

IMAGE 3 - Revenue Per Year

Who Will Win the Battle for the next “Game of Thrones”? : Where We’ve Been

 

(This is another entry to a multi-part series answering the question: “Who will win the battle to make the next Game of Thrones?” Previous articles are here:

Part I: The Introduction and POCD Framework
Appendix: Licensed, Co-Productions and Wholly-Owned Television Shows…Explained!
Appendix: TV Series Business Models…Explained! Part 1
Appendix: TV Series Business Models…Explained Part 2
Appendix: Subscription Video Economics…Explained Part 1
)

A trope of genre fiction is the character with unfinished business. The lone wolf who harbors a grudge against someone or something that harmed his family, destroyed his life or stole his (or her) kingdom. 

July was “unfinished business” month at The Entertainment Strategy Guy headquarters. I’ve started quite a few series and let news or time distract me from finishing them.  Having checked back in on “Should Your Film Go Straight to Netflix?”, “Coronavirus Impact on Entertainment” and “The Star Wars 2019 Business Report”, it’s time to return to a series that’s over a year old, diving into a deliciously provocative topic: which TV series will make the most money for its streamer, the next Game of Thrones or the next Lord of The Rings?

Why didn’t this series get finished? Two reasons. First, I got severely distracted by explaining all the math behind my models as I was building them. This resulted in five articles that were essentially “appendices”. (Seriously, if you want to understand the economics of streaming TV, check them out.) Second, pulling the data on past fantasy TV series and movies took longer than I anticipated.

No more! Today I’ll review:

– A summary of this series so far.
– An update on the news in “fantasy TV” since last summer.

Summary of Where We Were

Cue the narrator voice for a genre series returning after a two year hiatus: “Previously, on GoT vs LoTR vs Narnia”. My challenge is about as difficult: explain a several thousand word series in a few hundred words. 

This series was inspired by the general rise in fantasy programming at all the streamers. It wasn’t just Amazon that wanted the next Game of Thrones, so did Netflix and Disney+ and even HBO itself. I framed the question as:

Which franchise will make the most money for its streamer in the future, Game of Thrones, Lord of the Rings or Chronicles of Narnia?

My initial assessment—what I call a “Blink” look—is that HBO will win. Frankly, they paid way less than Amazon. (Initially described as a $250 million dollar deal for Amazon.) Then I heard that Amazon guaranteed 5 seasons! That’s at least $1.25 billion, and maybe more. That only gives the edge even further to HBO. At first, I didn’t really consider Netflix a viable competitor. (I was wrong.)

Then I moved onto the analysis. Which means building models to see what they tell us. The basic formula is pretty simple:

(The probability of success X The revenue upside in success ) — Costs = Likelihood of money made

The tricky part is calculating all that. To explain it, I’m using the “POCD” framework: 

People
Opportunity
Context
Deal

It’s a framework from the venture capital world, but I’m applying it uniquely to TV series. Essentially, people, opportunity and context describe how much revenue a company can make, and the deal explains the costs. 

I’ll make a bespoke model for every series under consideration using the various POCD inputs to change the probabilities or potential revenue/costs. I explained the TV profit model here and here, and also explained the tricky nature of streaming video economics here. (Those last two articles laid the ground work for my series on “The Great Irishman Project”.)

Then came the distraction. Since I had built this kick-ass TV series business model, I decided to use it on the original Game of Thrones. In a big piece published on Decider, I estimated how much money I thought GoT had brought in for HBO. (A whopping $2 billion plus.) This provides terrific context for the “upside” of all these fantasy series. (I wrote a few “director’s commentaries” for this article too.)

So that’s where my series left off. But the news didn’t end just because the series was delayed.

All The News Since Last Summer

When I started this series, I focused on three fantasy series based on arguably the three most influential fantasy books of all time…

Game of Thrones prequel (HBO)
Lord of the Rings prequel (Amazon)
Chronicles of Narnia (Netflix)

 Since then a few fantasy series have come out…

The Dark Crystal: Age of Resistance (Netflix)
Carnival Row (Amazon)
His Dark Materials (HBO)
The Witcher (Netflix)

And more have been developed or are in production…

The Wheel of Time (Prime Video)
Sandman (Netflix)
– Untitled Beauty and the Beast (Disney+)

If all those qualify for this battle, we’re up to 10 potential contenders for the replacement for Game of Thrones. And that doesn’t include potential series (Disney’s Book of Enchantments and Lionsgate’s The Kingkiller Chronicles) that died in development. And I haven’t even looked at Syfy’s lineup to see what else could qualify. (The incomparable Magicians just ended after their fifth season. Pay attention to that data point for later.) 

The Specific Updates

HBO and Game of Thrones prequel

In one of the more fascinating single day development moves, HBO both cancelled one prequel series (The Long Night/Bloodmoon) and announced another prequel series about the Targaryens (set about 300 years before GoT) called House of Dragons. I could spin this as good or bad for HBO, but either way their series is still happening. Right now, HBO is saying the prequel will arrive in 2022.

Amazon and Lord of the Rings prequel

Amazon meanwhile is furthest ahead, having started production this spring in New Zealand, only to be another Covid-19 casualty. (Though I believe production is set to start production soon or already has.) Amazon was under time pressure to get a TV series in production within two years, and that appears to have motivated the streamer.

Netflix and Chronicles of Narnia

If you search for Chronicles of Narnia and Netflix, you run into a series of articles asking, “Is this thing still happening?” And no one really knows. Netflix insists it is, and Entertainment One has hired a “creative architect”, but there is no release date or known shooting schedule. Which means we’re going to drop this series from our main contenders for another lower down.

The Dark Crystal and Carnival Row 

I’d describe these two series and “came and went” at Netflix and Amazon (respectively). Like the Magicians, these two series demonstrate that not every fantasy series is a guaranteed blockbuster. Though the former was arguably more popular due to the “Netflix Effect”. Still, neither is set to be the next Game of Thrones. 

HBO and His Dark Materials

As one of HBO’s first “Monday premieres”, this series was overwhelmed by Watchmen in terms of buzz. It has a better chance than either of the two previous series at being a future Game of Thrones, but the odds of that are pretty low.

The Witcher on Netflix

And now we have a legitimate contender! Lots of folks pointed out that I should have dropped Narnia for The Witcher when I first started this series. Indeed, The Witcher may have single handedly helped Netflix meet subscriber targets by releasing right at the end of 2019. It is arguably Netflix’s first or second biggest show currently on the air. (With the acknowledgement that “on the air” is an anachronism.) In other words, The Witcher has a great chance to be the next Game of Thrones.

Meanwhile, I’m going to monitor every other fantasy series that pops up in development or production. (For example, Amazon’s Wheel of Time series has promise.)

Now that we know where we’ve been, and what’s happened since, we can move into our four-part framework for predicting which of these series will win the battle. Tomorrow, we’ll continue with the first letter in our framework, P for People.

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

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

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

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

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

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

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

Cut for Room Thought: Since Tenet is Delayed

…should Warner Bros put it straight to HBO Max?

Hmmm. 

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

That said…

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

Read My Latest “5 Insights from Netflix’s Viewing Data for its Original Movies” at Whats-On-Netflix

If you’re up for some more Netflix data, I got you covered over at Whats-On-Netflix.com. I essentially wrote up this long Twitter thread

…into a full-blown article for them. I added a section as well on genre films to show how dominate action films have been. Check it out.

https://twitter.com/EntStrategyGuy/status/1285304347740352512 

Visual of the Week – The Performance of Netflix Top Films Over Time

(This is a new feature from the Entertainment Strategy Guy. It’s a weekly “visual of the week” that will come out every two weeks. If you like it, consider sharing it on social media, just toss me credit.)

The big Netflix news last week was their earnings report. But the most fascinating story for a data wonk like me was Lucas Shaw’s scoop on the top Netflix films by viewership (2 minutes of a film) of all time. With this scoop, I’m up to 30 different “datecdotes” on Netflix film viewership over time.  

This visual of the week has two different presentations. First, Netflix raw viewership overtime, by quarter:

NFLX visual 3

(Details: This is by my estimates for 70% completion of a film by Netflix subscribers. This is global data. Time period is Q4-2018 to Q2-2020.)

Of course, that doesn’t account for the size of Netflix, so here’s the percentage of viewership:

NFLX visual 2

(Details: This is by my estimates for 70% completion of a film by Netflix subscribers divided by subscribers at the time. This is global data. Time period is Q4-2018 to Q2-2020. Constraint: Only films getting over 20 million subscribers are included.)

If you want more details on Netflix feature film performance, I started a big thread on it on Twitter.

Should You Release Your Movie Straight to Netflix? Part II: The Streaming (nee Netflix) Counter-Arguments

Last December, I started a series whose goal was to valiantly defend the theatrical distribution model. This doesn’t come (only) from some soft spot in my heart for theaters, but from the economics of making movies. Studios can earn a lot more money by releasing their films theatrically. I’ve taken to calling this the “Booksmart Conundrum”.

Nevertheless, the question I asked last winter—“Should you release your film straight-to-streaming (Netflix) or to theaters?—is as relevant now as ever. Indeed, it’s almost quaint to imagine an article from last December is still relevant, given all that’s happened:

– Coronavirus came and closed theaters.
– Comcast (via Universal) released Trolls: World Tour straight-to-video.
– Disney put Artemis Fowl straight to Disney+, and later Hamilton.
– Netflix bought the rights to countless films and put them straight on its service too.

Does all that news invalidate my article series? Far from it. Here’s the plan. I’m going to continue my Q&A as I had it planned last December. Then, I’ll dedicate an entire article to the post-Coronavirus landscape and it’s implications. 

So let’s do it.

Question: Seriously, you’re going to pretend “Covid-19/Coronavirus” never happened?

Not at all. Obviously the immediate impacts are real and I’m monitoring them in my weekly column. (Example of my latest back in June, here.)

But the core economics of releasing films in one streaming window versus multiple windows starting with theaters hasn’t really changed. They may have been tweaked given some of the new behaviors—but you know I’m skeptical on that—but Coronavirus is the “Asterisk Extraordinaire” of our time. The more confident someone is in predicting the future impact of Covid-19, the more likely they are to be wrong.

What matters for studios in the immediate term is when traditional theatrical releases restart. I still maintain that will happen before the end of the year, and likely in August. And when that happens 90% of the model will be intact. So that’s what we’ll discuss in this series.

Question: Fine, can you remind me where we were?

Sure, because I had to do it myself. To start, I finally built a straight-to-streaming financial model for films. This means that via Netflix Datecdote I can estimate how much money an individual film made for Netflix. How cool!

You can read how I built the model, why it works, and the results for The Irishman here. I built this model at the behest of the venerable Richard Rushfield for his Ankler newsletter, and showed how I can use this model very recently when I calculated the results for Extraction on Netflix too. I would add, Nina Metz at the Chicago Tribune did a great write up on my methodology too.

The most useful part of a model, though, isn’t the results but what the model tells you about how the world works. That’s the point of this series: take the model and use it to draw insights about streaming versus theatrical business models. In Part I, we focused on how much money a film makes in the various “windows” it transitions through. No matter how you cut it, theatrical distribution is a huge part of that window. Over 30% easily, but that’s actually rising as home video declines. (Also don’t neglect how home entertainment, TVOD, EST, and premium cable can add to the bottom line too.)

Another key insight is how much better the margins are better for theatrical viewing than they are for viewing at home. As a result, if you don’t release in theaters, you’re giving away potential revenue. Did I calculate this specifically for Netflix? I did, and found out, under a pretty reasonable scenario, they could have easily left $750 million dollars on the table in 2019.

Question: Three quarters of a billion dollars? Why would Netflix do that? If you were making the strongest pro-straight to streaming argument, what would it be?

The folks at Netflix aren’t crazy. They can build these models too. And the folks at Amazon tried to release their films in theaters. The most generous explanation I can give would go like this:

When a film goes to theaters first, it risks being viewed as unpopular if it flops. That would destroy the value on the streaming platform. Moreover, by going straight-to-streaming, Netflix and others have the added value of exclusivity on the platform, driving new subscribers. This is really the point of putting films on streaming anyways, to acquire and retain subscribers.

That’s really two explanations in one. First, failure at the box office destroys value and second that exclusivity raises value.

Q: Is this a strawman, or do you have someone making this argument explicitly?

This is the argument Scott Stuber—Netflix head of film— made to Variety at their conference. His quote:

IMAGE 1 - Stuber to Variety QuoteEssentially, he’s more afraid that film will bomb at the box office than it won’t perform on his service.

Well, I have a two word answer for him:

Late Night.

Q: What does Late Night have to do with it?

Read More