Tag: Roku

Kids Programming is “Easy Strategy” – Most Important Story of the Week – 19-Feb-21

Last week got away from me. Fine, I got away from it by diving down a data hole. Specifically, a Covid-19 data problem. For all the forecasting being done, few people are answering the query, “Hey, when will all this end?” I’ve seen answers ranging from “Never” to “2022” to “maybe a few weeks”. Hence I dove deep into the data to make my own guess, especially as it relates to theaters. Check it out here.

It was a good week to be distracted, since the week felt light on big news. (Unlike this week, which is already trending upwards in big stories.) The most consequential story was actually spread out between a few different streamers, who all announced new forays into producing kids programming.

(Sign up for my newsletter to get all my writings and my favorite entertainment business picks from the last 2 weeks or so. Next issue goes out early next week.)

Most Important Story of the Week – Why Every Streamer is Investing in Kids Programming

Take a gander at these headlines:

“Apple/Skydance Animation Set Multi-Year Feature & TV Deal”
“Warner Media Kids Debut Cartoonito Preschool Programming Block”
“Youtube Announces 2021 Slate of More than 30 Kids Originals”
“Netflix Plans Six Animated Feature Films Per Year”

That’s a lot of kids content. And with it a lot of hyperbolic headlines and coverage. Kids content is a key part of the streaming wars, but it deserves more nuance than most coverage provides.

Consider an actual war. Many battles are important, but they aren’t all equally important. In the Civil War–since I use too many World War II analogies–the main event was the Army of the Potomac fighting the Confederate Army of Northern Virginia. That’s the adult content battlefield. The main event. The showdown that truly decided the war. But the campaigns to retake the Mississippi River, Sherman’s March through Georgia and the naval blockade of the South were all crucial to winning the war as well. All were important, but none were the main event.

Why Kids Content is a Pinch Overrated

Often, explanations for why a company gets into kids programming is treated as obvious. As if it’s a no-brainer decision that every streamer is right to pursue it. I don’t buy that for a few reasons that don’t get nearly as much press:

– First, there are way less kids than adults. This seems obvious, and yet it’s worth pointing out to make it explicit. Given that I just pulled a bunch of demographic data, it’s worth reminding everyone that these are the number of kids in America. In other words, if the “total addressable market” for adult TV in the United States is 130 million households, by definition the market for kids is a fraction of that. If you target preschoolers–5 and under–then your market is, by definition, 6% as large as the entire US viewing market.

IMAGE Kids

– Second, licensed consumer products (toys, shirts, what not) aren’t as lucrative as some casual observations make it seem. In the past, I’ve said that on average they make up 5-10% of a film’s total revenue. Further, it’s not like licensed products are a growth industry. If anything it’s the opposite. There are a few factors driving this, from Disney’s dominance on one end to consolidation in sellers (Amazon, Walmart and Target) on the other to disruption by digital in the middle. In all, yes, if you have a Spongebob, Mickey Mouse or Peppa Pig, you can generate billions in retail sales, of which you keep 5%. But if you aren’t in that top tier, you make much, much less. Toy sales alone cannot justify kids programming.

– Third, competition is fierce, as the headlines suggest. There are a lot of folks competing for a limited number of kids eyeballs.

– Fourth, replacements for TV are legion, from video games to social media, which makes it even harder to compete.

Add those four variables up, and it doesn’t scream out that kids content is a business you want to be in. It seems as competitive as adult competition, with only marginally better upside. Using Porter’s Five Forces analysis, arguably every variable is against you. It’s easy for competitors to enter, the competition is fierce within the field, sellers of toys offer poor margins, and there are lots of replacements to kids TV competing with you as well!

As a result, we probably have too many firms competing for kids’ attention right now. There is an old saw that there are always six major film studios. They may change names, but there are always six. (I’ve been meaning to write an article on this since I launched.) Well, given the smaller market size, then I’d say there are only 3-4 major kids content producers. In the 1980s, this was Disney with the three broadcast channels. By the 1990s to 2000s, this shifted to Disney/Dreamworks in movies and Disney Channel, Nickelodeon and Cartoon Network. (PBS also has had a place for preschoolers. Again, it’s complicated.) As streaming took kids attention, this has shifted to Disney, Universal (Dreamworks/Illumination), Netflix and Youtube.

Can HBO Max, Viacom CBS, Prime Video and Apple all break/rebreak into that and succeed? Probably not.

Why Kids Content is Valuable

Still, I’ve presented a bit of a conundrum. Clearly kids content is a tough biz to be in, yet everyone wants in! What do they see that I don’t?

Going back to the Five Forces, it’s not an insurmountably tough business to be in. In technical terms, the barriers to entry are low, especially once you’ve set up a streamer. The marginal costs of adding kids programming to general entertainment is fairly low, once you’ve set up a streamer in the first place. Animation tends to be much cheaper than producing full-episodes of live-action television. Moreover, kids, especially preschoolers, don’t know what legacy brands are. Except for Mickey Mouse, new preschool brands can and do break it. Just look at Peppa Pig.

And if it works, it’s sticky. Sure, kids are a small population, but they’re influential to their parent’s decision-making process. If kids want the content, and the content passes the parental approval test, it can be very sticky. The kids who watched Frozen every week weren’t going to just stop watching it when it left Netflix.

However, if I’m being cynical–and if you’ve read me for any length of time you know I am–then partly it’s an easy strategy. Which isn’t “good strategy”. Easy strategy is when there is an opportunity in front of a company and they take it simply because they can. It can sometimes allow business leaders to “empire build” as well. Going into kids programming lets you hire a brand new direct report and team of people. That’s easy strategy, like mergers & acquisitions or getting into original content.

Who Will Win The Kids Space?

Not everyone can win in kids programming. There are only so many preschoolers and elementary schoolers to bring into your ecosystem to justify the costs. Some folks will quietly dial back their investment. Indeed, some streamers seem to have realized there is already so much kids programming out there–and again kids don’t need new content to be satisfied–that you can rent all the programming you need, instead of making originals.

Still, if you do want to win, I have two (fairly obvious) recommendations. First, building a defined brand really is a differentiator. Disney has this. Netflix does too. Quietly PBS also has one of the stronger brands (and fairly high viewership on mobile devices). Even those brands need constant renewal to stay fresh. Nickelodeon lost brand equity rapidly in the last decade. But a brand is valuable.

The second way is to make hits. It seems obvious, but sometimes the best strategy is obvious. Disney is “Disney” because of three immensely lucrative time periods, driven by three innovative development executives: Walt Disney in the 1930s and 1960s, Frank G. Wells in the 1980s and John Lasseter from the 2000s. John Lasseter, the creative force behind Pixar before he was fired and then hired by Skydance, just signed the big deal with Apple. Indeed, of all the headlines above, the Apple/Skydance partnership interest me the most.

If I had one overwhelming recommendation for everyone except Disney, really, it would be to not just produce kids content or have kids content, but to have a kids strategy. This battlefield will be fierce coming up, and simply dabbling in it won’t be enough.

Entertainment Strategy Guy Update/Lots of News with No News – Roku’s Push Into Originals?

Based on one job opening, the speculation mill was unleashed last week that Roku may be starting a big push into “Originals”. Like I said, originals are an “easy strategy”.

When they announced earnings, Roku splashed cold water on this idea. Likely they are evaluating originals as a space to be in. There is a great reason to make original content, but just as good of a reason to skip it altogether. Let’s explain each:

The Best Reason for Roku to Make Originals: To Sell Targeted Advertising

One of the profit drivers over at Roku has been The Roku Channel, which is their version of an advertising streamer. (Either AVOD or FAST, whichever acronym you prefer.) Unlike other FASTs, the genius of Roku’s platform is that they can sell advertising targeted to any streaming service’s customers. Think of it like this, you’re an advertiser. You want to sell ads to folks who watch The Queen’s Gambit. With Roku, you can do that, since Roku knows everything a customer watches.

This is why Roku is so insistent that they get advertising share for any ad-supported service on their platform. Because they can charge higher CPMs (cost per thousand) to advertisers with this unique targeting. (This demand notably held up Peacock and HBO Max launches. Amazon demands something similar.)

Of course, this genius system only works if customers aren’t watching Netflix. Which is where the free Roku Channel comes in. It’s basically a vehicle for Roku to sell extra, highly targeted ads. But it only works if folks are watching it. Hence, the need for programming. Mostly, this has been library programming.

This is where original programming could (big tentative could) come in. If the higher CPMs provide a true edge, Roku can outbid for AVOD programming since it will have higher margins. Hypothetically this could even include original content. Except…

The Best Reason for Roku NOT to Make Originals: They are limited by distribution.

Every so often some cable, satellite, cellular or device maker contemplates getting into the originals game. The logic goes: if originals work at driving customer acquisition, and since our customers are really valuable, maybe we should make originals. Think AT&T Originals, Spectrum Originals, Verizon’s Go 90 and Microsoft Studios. In the end, they all get shut down.

Why? Because unlike a streamer, who is available in at least 90% of connected households, devices and MVPDs are not as widely available. A simple thought exercise shows why. If someone wants to watch The Mandalorian, they can find a way to download Disney+ to their iPad, iPhone or connected TV. Then they can watch. Literally, almost anyone in America with broadband. On the contrary: if you didn’t live in an area with Spectrum cable, you couldn’t watch the Mad About You reboot. (Yes, they rebooted that.)

In other words, a device-based original has an upside directly tied to the market share of its device. As big as Roku is in connected devices, it’s far from a monopoly. Roku is only 30% of connected device sales in the US. If you factor in the folks not watching streaming at all, those on mobile devices, and those with connected TV sets not using Roku’s operating system, then the vast majority of TV viewing is not on Roku. That’s always going to limit Roku’s upside in producing originals, since their distribution footprint is that much smaller.

That will be the key element in whether or not Roku does get into originals: The trade off between reduced distribution (which will constrain costs) and higher CPMs with targeted ads (which could boost revenue). We’ll see which side wins out.

Other Contenders for Most Important Story

Theaters: China’s Big Theater Weekend

An Avengers: Endgame milestone–albeit a slightly obscure one–was taken down last weekend. Detective Chinatown 3 launched in China and surpassed Endgame as the biggest single country opening weekend of all time. In other words, theaters are back! (in China)

By the way, if you missed it Soul as well did really well in China too.

Streaming: Disney+ Launching First European Originals

Given that all the major streamers are US-owned (mainly), there was a concern in Europe that local productions would begin to be overtaken by foreing content. So the EU passed a law mandating that streamers would need to have a minimum amount of locally produced content available. Thus Disney+ is staying in line with this law by releasing European produced originals.

I do love the one potential ramification of this law, which is that if every country around the world passed a similar law, it would basically end global originals. If 30% of your content has to be European in Europe, and 30% has to be Brazilian in Brazil, and 30% has to be Indonesian in Indonesia (the last two are hypothetical), then Netflix would only have 10% of their content left to make for global originals! Obviously, they wouldn’t do that, but by definition a market quota will inhibit truly global footprints.

Most Important Story of the Week – 18 Sep 20: Apple One, The Aggressively Moderate Take

Whenever a big tech company sneezes, the entire techno-entertainment industrial complex catches a case of “they’re taking over the world”. Such is my read of the latest announcement that Apple is launching a multimedia bundle called Apple One. For months, CWSMF (Celebrity Wall Street Media Futurists) had speculated and salivated over the idea that Apple would launch a multi-media bundle.

So let’s make that the most important story of the week.

(Enjoy my takes? Sign up for my newsletter to ensure every article hits your inbox. I publish every two weeks and next issue is due next week.)

Most Important Story of the Week – Apple One, The Aggressively Moderate Case

Is Apple One that big of a deal? Sure. Maybe. We’ll see.

That lackluster of a response probably says a lot about my opinion. 

This move isn’t a bust, but probably isn’t the killer app/product Apple needed to win the 2020s the way it won the 2010s. (As a primer, I do recommend my articles on value creation and subscriptions from last year to understand my more skeptical take on subscriptions.)

Apple One – From a Value Creation Standpoint

Here’s the three versions of Apple One:

Screen Shot 2020-09-18 at 9.17.03 AM

The crazy part to me is that I would have bet anything that News would be bundled with Music, TV+ and Arcade. Because that’s really how you find multiple “somethings” for a customer in a bundle. If I was tempted by Apple News (free Wall Street Journal subscription is intriguing), then maybe Arcade is enough to swing me onto the subscription. Then Music and TV+ are the icing on the cake. Or for the many customers who already have Music, it just increases the odds that either news, games or TV+ entices them into the subscription.

Instead, the premium tier offers News–which most customers haven’t opted to buy–or Fitness+. (The most Microsoft in the 1990s move Apple has made yet.) As it stands, most customers don’t use all of these services, so the value creation feels fairly negligible. If you don’t have an Apple Watch, Fitness+ isn’t worth it at all. 

It’s also worth noting what else isn’t included in the bundle: insurance. 

Lots of folks thought Apple Care and/or the Apple phone replacement plan would come in this bundle. And someday they may. But my gut is Apple ran the customer surveys–they have a lot more data than I do!–and saw that adding in insurance for $15-20 bucks a month meant customers HATED the new bundle. Not to mention, for your $15 a month to Apple, the deductibles are still pretty steep:

Screen Shot 2020-09-18 at 8.54.32 AM

So let’s make a couple more “bundles” to understand the range Apple was playing with…

Screen Shot 2020-09-18 at 9.17.25 AM

The other killer app–which is still rumored–is that Apple will eventually add in both insurance and phone upgrades to this model. As the last bundle shows, though, this jacks up the price through the roof. Which maybe makes it worth it for customers, but it also takes a lot of folks out of the running for this type of plan. 

You can also see the media bundle and probably why Apple didn’t include News in the Individual or Family plans: it gives customers way too much value. Which sounds weird to say, but in this case it is a trade off. For every dollar in value you give the customer, Apple is likely losing that value. In fact, I think Apple is losing money on the bundle period. Here’s my back of the envelope value creation model:

Screen Shot 2020-09-18 at 9.16.51 AM

Moreover, I do think initially Apple is losing money on this bundle. Yes, I’m using per unit economics, but it seems clear to that Apple is losing money. Apple Music likely loses money or breaks even (if Spotify is the comp), Apple TV+ likely loses money (and customers only use it if they get it for free), News and Arcade have also both been described as troubled. Meaning the only service that breaks even is iCloud because frankly cloud storage is almost a commodity at this point.

Thus, the “Moderate” Case for Apple One

The upside/aggressive/positive case? Customers may like it! 

There is just enough “money losing” businesses to entice customers. Specifically, Apple Music and most likely in Apple TV. That said, the likeliest customers are current Apple customers who are relatively affluent and already have one or more Apple subscriptions. Upgrading Music to “TV+ and Music” seems like a simple decision.

That said, the “moderate/meh/blah” piece is that Apple has already discounted their own value on this bundle by giving TV+ away for free. Meaning at least one part of this bundle has been price discounted in customers minds. If a customer doesn’t like iPad games either, then basically the bundle isn’t worth it.

Further, Apple isn’t losing as much money as they could. They could have gone very aggressive a la Youtube TV and lost $20-30 per customer, but this plan isn’t that aggressive. However, that’s really how you add lots of subscribers quickly in digital media.

So the downside/pessimistic/negative case? Long term, to make money, Apple will need to either raise prices on the subscription or lower the quality of the product. 

Or, they could add insurance or utilities to the mix. Since those are the true cash cows of subscriptions. The risk is customers tend to hate insurance. (Apple’s current phone insurance by my look is a pretty terrible deal. Just save your money and buy a new phone.) But that’s how you make true money. Thus the tradeoff: make money off products or risk customer ire. In the 2010s, Apple made money while sucking up customer love, I don’t see that path via Apple One in the 2020s. 

Which is really what makes this a moderate take: this is a good subscription for Apple to make some money, lock some customers in for the longer term and diversify services revenue. But is it a game changer?

Eh. 

And that’s because I really am trying to look at this product in a vacuum, not with “Apple-tinged” glasses that says, “Hey, it’s Apple, it must be great!”. That’s why I’m so moderate on this. It isn’t an all-in bundle, or a really great value. But that means it’s also likelier to make money for Apple in the near term. 

Quick Hits on Apple One

  1. First, 2020 Apple is 1990 Microsoft. They have a dominant market position on a key platform, and instead of letting others compete and innovate with add-on services, they plan to make those themselves and drive others out of business. So if you remember how bad Internet Explorer was for years, get ready for those dark times to come back. (They’re also constantly tweaking default settings to prioritize their own apps. Which is so Microsoft as to make your head spin.)
  2. I still don’t know the “thesis” on Apple. I’ve seen articles saying that Apple’s multimedia push is to get more “services” revenue, but also seen articles saying these services will help “Apple sell more iPhones”. If you read my June articles, you know my take: the best business model would do both. (The flywheel should make money at each stop.) But then the question is, “Is Apple making money on these media services?” 
  3. The most compelling argument is the “lock in”, but even that overstates the case as I’d argue most iPhone users are already locked in. The bass diffusion curve is what it is, and with increasing prices, most folks are holding onto phones for longer and longer. I don’t see how this bundle really encourages folks to buy a phone that much faster. And if they lose money per subscriber, then services revenue wont’ go up either.
  4. Apple “services” revenue continues to confuse analysts as well. Part of “services” is revenue from the App Store. Including recurring payments from video games. Which as I noted last week are booming. And as Fortnite, WordPress, Hey, and others have made clear, Apple is increasingly grabbing in-app revenues as a fee for doing business.
  5. Really hard to find prices researching this article and Apple now offers lots of free trials. Basically, it’s a very 2000s cable company strategy. (The opposite of Netflix, by the way.)
  6. Apple News likely forced the Premium tier because it and Apple Fitness aren’t available globally. I think that’s a strategic mistake and it should have been included in the lower tier for a cheaper amount than $30. But this is a minor tactical quibble.
  7. The Twitter Takes. I asked folks for their takes on Apple, and here’s the top tweets.

Data of the Week – ???

I had a good one, but it went just long enough to need it’s own article. Check back in on Monday.

Other Contenders for Most Important Story

Peacock and Roku Come to an Agreement

See, that didn’t take very long. It looks like some NBC content will wind up on Roku’s free channel, which does show the power the distributors have. (Amazon did the same thing to Disney+.) Long term, this means Comcast can take their time with Amazon. (They have many more devices internationally, and I trust that Roku users tend to be stickier than Fire TV, which Amazon gave away to lots of folks for peanuts.) And in general you’d have to think HBO Max will have an easier time finding a deal with Roku.

Bloomberg TV New (Not Tik Tok) Streaming Plan

Bloomberg TV plans to relaunch it’s on-demand streaming news service that was previously named “Tic Toc”. (Clearly that name is out for the relaunch.) They’d previously partnered with Twitter, but this time will go it themselves. I share Dylan Byers skepticism that this move is as disruptive as Bloomberg thinks. In fact, that’s a good rule of thumb: the more a company touts themselves as disruptive, the more skeptical you should consider their plan.

Still, the competition for young, Millennial business eyeballs between them, Cheddar, Morning Brew, all the traditional players and more is fierce. 

More AT&T Plans!

This time, it’s AT&T planning to sell advertisements for cheaper cellular service. From an entertainment perspective, this could further confuse their offerings. For the broader public, though, clearly rising cell phone prices are pricing some segments out of the cellular market so this fills a need. You have to imagine they’d keep Xandr (their digital ad-sales unit), but then again, it’s AT&T so maybe not.

Entertainment Strategy Guy Update

Paramount+

This story almost made the “lots of news with no news” section. Well, CBS All-Access will be rebranded to “Paramount+” as ViacomCBS tries to bolster its streaming service. While I doubt the name change will really help in either direct, it’s interesting that Viacom is telling us that Paramount is the most trusted global brand. That does indicate they’re thinking globally with this move. (My take on CBS’s strategy here from last August.)

More Agency Pain and then CAA’s Agency Confusion

The agency dramas with Covid-19 and the WGA stand-off are worth staying on top of. The latest updates are that Paradigm is doing more permanent layoffs and that CAA tried to fake-sign the WGA deal. Yes, fake-sign, as it refuse to sign a key demand but try to bluff the WGA into agreeing. If agents have one job, its winning negotiations, and this gambit seemed to have misfired. So yeah, not great negotiating.

PS5 Will Cost $500 too

Now that X-Box revealed their price points and timing, Sony followed suit with the Playstation 5. It too will cost $500. To share a different take from Tae Kim’s skeptical look I shared last week, Rob Fahey thinks the X-Box S could change the console paradigm.