Tag: Streaming Wars

Mulan vs Tenet: I (Don’t) Declare a Winner

At first, I was tempted to call “Mulan vs Tenet” the biggest battle of the streaming wars. Each weekend in September, we’ve eagerly awaited answers to the hottest questions in film: Will Tenet save theaters? Will Mulan blow up the model? Who is making more money? Who is WINNING?!?!?

It turns out that the answer to the first two questions is probably no. As for the third and fourth, well, that’s tricky to answer. But since it’s the logical follow-up to my article on Monday, I’ll do my best.

But I wouldn’t call this a battle. If anything it’s a “skirmish” on one end of the larger distribution battle. (The sort of way that Pickett’s Charge was one tactical engagement in the larger Battle of Gettysburg.) Just because it is a skirmish doesn’t mean it isn’t important. Skirmishes are what win or lose battles! (For want of a nail…) 

So after three weeks of data, let’s analyze what we know. Here’s the outline of today’s article:

– First, two lessons on data that set the terms of the debate.
– Second, an analysis of what we know about each film, including US box office, International box office, and PVOD sales to date.
– Third, thoughts on each film’s revenue potential after these initial windows.
– Fourth, a comparison between the two films and declaring a winner.

Kidding! I won’t do that last part because I don’t know the answer. Moreover, I won’t draw giant conclusions about what this means for the future of film. Because frankly two films won’t fundamentally change the landscape. But I’ll explain that point in future articles. For now, the performance of these films to date.

(Also, I found that I was linking to a lot of my articles explaining the business of film. To keep this article clean and not polluted with links, I put a “reading list” at the bottom.)

Bottom Line, Up Front

– Comparing the box office of Tenet to PVOD of Mulan is comparing two different windows to each other. That isn’t apples to apples.
– That said, we can’t know the future value of either film because both “inputs” are “n of 1” meaning so unique that we can’t build a model.
Tenet will likely gross $325-350 in global box office.
Mulan will likely gross $70-100 million in global box office.
Mulan will end up with likely $155 million in global PVOD (with a big range of $105-$270 million.)
– As for lifetime earnings? No one really knows, because there aren’t good comps to make accurate estimates.

Two Data Lessons: Apples to Apples and “n of 1”

My primary job on this site, as I see it, is to explain the entertainment business. You can find lots of places on the internet opining about the entertainment business; I’m trying to teach you why it works the way it does. And in the “Mulan v Tenet” debate, I see two major mistakes being made.

First, Apples-To-Apples

That’s my simple term for comparing like-to-like. In some ways, statistics/data analysis/science is essentially the quest for comparing things like-to-like as much as possible. That way you can isolate the the true drivers of causality. (That’s why random controlled trials are random and controlled.)

Here’s a simple example from last week: folks saw that 7 Park’s data was much larger than peer analytics companies for Mulan’s debut. The key, though, was that they were measuring eight days of data, and not just the opening weekend. They were also measuring the percentage of folks who watched Mulan who were active users, not all subscribers. Once you accounted for this, their math (1.5 million subscribers), was close to other estimates (1 million at the low end for Antenna and 1.1 from Samba TV). Comparing things apples-to-apples solved the problem.

In “Mulan v Tenet”, the key question/claim at the center of the debate misunderstands this notion. Consider these major windows of movie revenue:

IMAGE 1 - Table Second Window Waterfall

The question I’ve seen written and been asked repeated is, “Is Mulan making more than Tenet?” We could reframe it based on the windows in question. Basically, “Is Mulan making more money in PVOD than Tenet in domestic box office?” That would look like this:

IMAGE 2 - MvT Current Debate

But this isn’t the right question. It’s comparing apples-to-hammers. (A Chuck Klosterman phrase.) Look:

Image 3 - MvT Good

This framing really sets the terms of debate better, in my opinion. Even after Tenet leaves theaters, it can go to US domestic TVOD and home entertainment. So even if the answer to the current question is, “Yes, Mulan has likely made more in PVOD than Tenet at the domestic box office,” the question doesn’t make sense.

(Since PVOD wasn’t a window when I first made this table, I added it above. And I summarized all digital/streaming the “pay windows” to show the timeline better.) 

Really the question is, who will make more domestic revenue? So we should fill in this whole chart, accounting for blacked out windows:

Screen Shot 2020-09-23 at 1.23.54 PM

And we can see that two big chunks of revenue for that are the same: who will make more in Pay 1, Pay 2 and library distribution? (That means all the future revenue implied by streaming (like Netflix), airing on premium channels (like HBO), cable (like TNT) and other places. Now that question is tricky because of our next data point.)

“n” of 1

I was inspired by the “n” of 1 after reading earlier this year an article in the Economist about the rise of “n” of 1 medicine. “n” is statistics jargon for sample size. If you poll 3,000 folks about the Presidency, your “n” is 3,000. If your sample size is all Americans, that’s a sample (population technically) of 300 million. “n” of 1 medicine is referring to treatments designed for one individual with a unique life-threatening condition. It means the “sample size” is so unique it’s a category by itself.

This applies to box office and film revenue analysis. When we make forecasts based on opening weekend performance, we can do that because movies are similar and we can account for the differences to compare things apples-to-apples. Hence, we use Marvel films to forecast how much money films based on superheroes will make, while accounting for the time of year of the release and various other factors. (Scott Mendelson at Forbes is my favorite analyst at this.)

Once we have box office, we can use its results to forecast all the other windows a feature film is sold into. That’s how my film forecasting model works. It’s a fairly accurate system. We can also do it for PVOD, TVOD, streaming, TV and any revenue stream. Once we have an input, we can derive the rest.

The challenge for both Mulan and Tenet is they are unprecedented. They are without comps in the United States because: 1. No other blockbuster film has released during a pandemic that closed 70% of theaters and 2. No other film released to Disney+ exclusively for a one-time $30 payment. 

Because of this, making any forecasts about profitability is perilous. Or should I say, highly uncertain. Meaning, while I know what Mulan did in PVOD—see Monday—I’m much more uncertain about what this means for future windows. Conversely, while I know how well Tenet is doing, I don’t know what that means for future revenue streams, since Tenet is only available in 70% of US markets, that account for about 40% ticket sales.

So let’s start with what we do know.

The Data: International and US Box Office, Mulan PVOD and Forecasts

The easiest data to find is domestic and international box office. Since Tenet has been out a bit longer, it’s getting easier to see what its final total will be. So I’ve included the likely final box office total ranges offered by Scott Mendelson.

IMAGE 5 - Box Office with Rnagers

Are those numbers good or bad? Well, we’re in the middle of a pandemic, so who knows? As Mendelson makes the case, for an original material sci-fi live action film, Tenet is doing really well!

Meanwhile, even the ranges on Tenet are fairly uncertain. I put $350 million as the likely ceiling, but if New York and California reopen theaters, there could be give it a late boost (and stronger “legs”) as folks go to see it. Or not! A recovery that happens quickly is also unlikely so it could stay middling. 

Meanwhile, we know from Monday about how well Mulan is doing on PVOD.

IMAGE 6 Mulan Summary PVOD

The wildcard of the Mulan PVOD numbers is the fact that Mulan wasn’t just PVOD in the United States, but globally where Disney+ is available. My analysis from Monday focused on US analytics firms since there aren’t a lot of estimates for global performance. It turns out Mulan was released in every Disney+ territory but France and India, which includes these territories:

IMAGE 7 - Territories and Price

You’ll note it’s also cheaper in dollar terms in other territories. Time to go to the comps. What I did was find the last five Disney live-action remakes, pull down their box office by territory, and use that as a comp for demand:

IMAGE 8 - Disney Live Action Comps

The way to read this chart is that the “Disney+ territories that have Mulan” tend to account for 43-75% of the box office of the United States box office. Great! That becomes our tool to forecast PVOD revenue in those other territories. My low will be 40% (slightly lower than the Jungle Book comp) and I made a high of 100% based on Scott Mendelson’s back-of-the-envelope estimate. I consider that the far outlier, but with this much uncertainty that’s okay. Here’s the results:

IMAGE 9 Mulan International

Of course, I had high case and low case forecasts from Monday, which we could combine. The worry with our estimates now is that we’re making estimates on estimates, which doubles the uncertainty. Which you’ll see in how big our range is getting:

Screen Shot 2020-09-23 at 1.27.19 PM

What do we know? We have estimates for how Tenet and Mulan both did in their opening “windows”, one of which was PVOD/theatrical, and one which was theatrical only.

What don’t we know? What comes next.

The Comparison: Mulan v Tenet

Here’s a rough look at the current revenue of both Mulan and Tenet. As in how much each film has brought their studios as of this (rough) moment, roughly through their first month of releases:

IMAGE 11 Current Revenue

To answer the question I said you shouldn’t ask up above, yes Mulan globally has made more money than Tenet as of this moment. Crucially, the presumed 90% net take beats the 50% domestic/35% international split of theatrical. (Though I think that Disney’s split with PVOD partners like Apple, and Amazon may actually be lower than 90%, but don’t know for sure.) Here’s the look at the question I said we should ask:

IMAGE 12 Lifetime Estimate

I love this look because it clarifies how much we don’t know. Which is frankly how much Tenet will make on TVOD/DVD, how much Mulan will make in home entertainment, how much more Tenet can make by going to premium cable, and how much both will make in streaming.

Why not try to estimate it? 

Because I don’t believe the Tenet or Mulan numbers are good comps for forecasting. 

If Tenet’s US box office is depressed because of Covid-19, then it’s home entertainment could make as much as Trolls: World Tour or Mulan at home. Meaning it could have as large a window as Mulan had since 60% of theatrical attendees couldn’t see it. It’s rumored that Mulan will go wide on TVOD (including iTunes, Amazon and maybe even Pay-Per-View), but I don’t know if that viewership has already been cannibalized by this PVOD experiment. If it hasn’t, it could add 33% more revenue as Trolls: World Tour did when it went cheaper on TVOD in July.

Meanwhile, Tenet will eventually be on HBO and likely HBO Max. But Mulan will stay on Disney+ exclusively? Could I calculate that exclusivity value? Nope. Because I still don’t know enough about Disney subscribers to conclude that this PVOD experiment drove subscribers or that Mulan will have good replay value on the platform. (Unlike Netflix, who we have multiple years of US-only data to parse.)

This is the “n of 1” problem I discussed above. There are so many conflicting variables that my usual methods of forecasting are out the window. Same for the studios. They’ll basically have to collect the revenue and see what shakes out.

Thus, at $35 million dollars difference between the two, I’m calling this a push. It’s as likely Tenet makes more money for Warner Bros. as it is Mulan makes more money for Disney.

In short, we’ll never really know who “won” this skirmish since our numbers are close enough to call it a draw. I’d add, using one proxy for demand, Google Trends, it looks like Mulan peaked higher, but Tenet may last longer.

IMAGE 13 G Trends Tenet vs Mulan WW

As for how demand shifts from here, we’ll see as they release on additional platforms.

Reading List

Really, this article is a continuation of this series I started in December on “Should You Release Your Film Straight to Netflix? Part I” and “Part II” In that series, I explore the economics of taking a film straight to streaming.

Previously, I built a model on how to forecast “revenue” for straight to streaming titles in this series, “The Great Irishman Project”. It’s fairly tricky to forecast streaming revenue, but definitely possible. (Netflix does it!) See my methods explained here.

I also built and explained a film finance model for feature films released traditionally, which I first explained back when I launched the site in a series evaluating the Disney-Lucasfilm acquisition.

How Fortnite vs Apple Could Impact The Streaming Wars: Imagining a “Maximalist” Scenario

The first thing to know about the streaming wars is that it is really multiple wars simultaneously. One war is between the streamers. They compete fiercely against each other, with Netflix in the lead. (This is by far the most covered battleground.) 

If those are the established powers, the upstarts are the free, ad-supported streamers are trying to take territory, er attention/mindspace/viewership, from both. Youtube leads here, but is followed by the hot new crowd of Pluto, Xumi, Tubo, Roku/IMDb Channels, and more.

Yet, those land armies’ power is dwarfed by that of the air forces of the world. Who in many cases set the terms of the streaming wars. And in this analogy, that’s the platforms that deliver the streamers, be they devices or operating systems or other bundlers have just as much, if not more, power. In a moment, a platform could blow up an entire business model, like dropping a nuclear bomb on an opponent’s army.

(The Game of Thrones analogy patented by Dylan Byers also explains this well: streamers are the traditional houses of Westeros, ad-supported streamers are Daenerys and the Dothraki, and the platforms are the White Walkers.)

If you want to understand the scope of Epic Games going to war with Apple, this is it. Epic Game’s army is fighting Apple’s air force, with the expected outcome that Apple nukes Epic’s business.

For those who don’t know, Epic Games (maker of the Fortnite game and Unreal video game engine) tried to implement in-app purchasing outside of Apple’s payments system. This resulted in them being kicked off the Apple app store, lawsuits and countersuits.

The Fortnite gambit will directly impact the streaming wars. The ability of platforms to dictate terms to the streamers directly hits streamers’ top, bottom and cash flow lines. If Fortnite wins, it is like taking away Apple’s (and Google, Roku and Amazon’s) ability to drop bombs. (Okay, I’ve taken this analogy about as far as it will go.) That’s what I’m going to explore today:

  •  First, explaining the relationship between aggregators, streamers, bundlers and platforms.
  •  Second, describing the “maximalist” scenario where platforms are heavily regulated.
  • Third, understanding the impact across the three forms of streaming business models: 

–  Transactions (Pay per usage)
– Subscriptions (Pay a recurring fee for access)
– Advertising (Free, but watch/listen to advertisements)

Putting this In Context

As I wrote last November, the key to understanding the streaming wars is to know that a huge amount of power is vested in what I call “Digital Video Bundlers”, the folks bundling multiple streamers into one experience. Here’s where they are on the map, yellow:

Image 1 Video Value Web copy

Fortnite would slot in where I put “aggregators”, though that term is more apt for streamers than gamers like Fortnite. Apple is the bundler, since they allow a user the opportunity to play multiple games on one device. Crucially, Fortnite—like many app makers—wants to be more. They want to sell additional things within its game to make more money. Epic Games also wants to set up an entire app store on its own. (Really, Epic Games has dreams of being a bundler as well.)

The conflict stems from those in-app purchases. Since Apple owns the operating system, it wants a piece of any money being exchanged on its platform. When you buy an application, you pay Apple 30% of that price. On some level this makes sense. Apple set up the platform so they should get paid for letting you on the platform.

This is a “platform tax” that Apple charges to have an application on its App Store. And Amazon and Google have similar taxes. (You could call it a “fee”, “rent”, or other term, but I like tax.) A tax for doing business on their platform. Apple says this is the price needed to run its App Store.

That’s what makes the terms of this court case so large. If Fortnite wins, they won’t just change their own terms, but alter the fundamental case law around platforms. The results could impact Apple, Microsoft, Sony, Google, Amazon, Roku and any other platform.

The Maximalist Scenario

That’s the world I want to imagine today. I’m calling this the “maximalist” scenario. It assumes a judge/judges/legislative bodies/regulatory agencies use the Fortnite case to legislate/regulate/litigate maximum concessions from an Apple, Amazon or Google on their platforms. Call this the “worst case” for platforms or the “best case” for streamers, applications and games. Say…

– A 3% cap on fees (or cap on fees up to a given maximum).
– Guaranteed carriage on non-business issues
– No tying disparate business unit negotiations together.

Essentially, in this scenario digital market places like app stores are governed as utilities. The government would be saying, “Since you have de facto monopoly power over app stores, we have to regulate your business to ensure you don’t abuse your power.” I’m not assuming this happens, but exploring the “what if” scenario where it does. 

Impact on Transactional Business Models

The impacts on the transactional video-on-demand (TVOD) market would probably be the starkest of any of the business models.

Fundamentally, the platform tax makes any external TVOD business unworkable on any mobile device. The math is fairly simple. If you’re Apple, and you own your own TVOD business in iTunes, your gross margins look like this:

Image 2 - Apple TVOD

Now compare that to an independent service trying to run a TVOD business on iTunes:

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If The Streaming Wars are a War…Then What War Are They?

(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

In November, a war started. 

Fortunately, in this war, no one will die and the biggest risk is to the stock price of ViacomCBS. If the biggest war our current generation is a streaming war, then the future isn’t all gloom and doom.

Since I’m writing an “intelligence preparation of the battlefield” for the streaming wars, it sort of begs the question: if the streaming wars are a war, what kind of war are they? To prove I’m not making a straw man here, here’s a host of articles asking about the streaming wars, but no one tying them to the best comparable war.

Screen Shot 2019-11-18 at 10.45.42 AM

Screen Shot 2019-11-18 at 10.46.25 AM

Screen Shot 2019-11-18 at 10.47.02 AM

Screen Shot 2019-11-18 at 10.48.09 AM

I was a history major and in the military. I should be able to figure this out. Let’s do it.

The Plan

1. Will rank wars from “easily discarded” to “Pretty darn close”. Scroll down to the bottom to find out the winner(s).

2. One imaginary war per section. 

3. I’m fairly “American” so all of these wars will inevitably come from that bias viewpoint.

Easily Discarded

The Civil War (and most other civil wars)

The case for the Civil War—and other civil wars—is that the entertainment industry itself is like a country riven by sectarian strife. The Confederates would be the traditional studio conglomerates and cable MVPDs clinging to their profits, while upstart streamers are, I guess, the Union? Trying to impede the new movement? Or maybe switch the two and the streamers are the Confederates splitting off from the Union? See, it doesn’t really work.

The Persian Gulf War or Franco-Prussian War

The problem with these wars is they were too darn quick, each lasting under a year. The streaming wars won’t end any time soon.

Alexander the Great, The Huns or The Khans Conquer the Known World

Every so often, some military leader just up and conquered most of the known world. Four years ago, we probably would have said Netflix was set up to do just this. Yet, unlike the foes who fell under Alexander, Attila and Genghis, the traditional studios may have a fighting chance to defend their territory.

Independence Day War

This is the fictional version of massively powerful invaders taking over everything, just this time with aliens. We only have two sides in this war, where the streaming wars are multi-polar, so we’ll need some better analogies.

Closer, but Key Flaws

Punic Wars

We have our first “traditional” war where two massive powers square off for domination of, literally, Western civilization. If Carthage had defeated Rome, all of human history may have taken a different course. (Instead of Rome, the Western World would have been centered around North Africa.) If the upstart tech streamers defeat the traditional entertainment conglomerates, the results for investors may be similarly momentous.

The challenge is we’re not dealing with two united sides in the streaming wars. Disney+ is fighting for control from HBO Max as much as they are fighting Netflix and Amazon. However, if I did make this analogy, it would mean Ted Sarandos is Hannibal and his elephants are Netflix originals powered by algorithms. Which could mean Bob Iger is Scipio Africanus, but now we’re going too far.

The French Revolution

Revolutions are like Civil Wars, just without sides or uniforms. Which make it tough to compare to our streaming wars. Sure, our combatants don’t wear uniforms—well, NBC Pages do, but you know what I mean—but you have to like the symbolism of revolution. Streamings isn’t a war, but a “digital revolution” in how we receive content! 

That has an ethos of “power to the people” who are rising up and saying, “No more high cable prices, I’m cutting the cord!” Of course, the data doesn’t support that—most Netflix subscribers have cable; most cord cutters pay well below costs for content—but it sounds good.

The Cold War

If I took points from The French Revolution for not wearing uniforms, well no one wore any uniforms in the Cold War either. This war was waged via proxies, spies and nuclear stock piles. All of which I have a tough time comparing to the streaming wars. In its favor, The Cold War was a global enterprise, with battlefields from a divided Germany to Vietnam to Latin America to China to Korea to Afghanistan. The streaming wars will match that scope.

War of the Ring (Lord of the Rings)

Human-Covenant War (Halo)

Lots of science fiction or fantasy works have two sides squaring off for all the marbles just like the Punic Wars:

Lord of The Rings. This is the literary equivalent of the Punic Wars. The humans battled Sauron for literal survival. And somehow a hobbit saved humanity.

Halo. This is the video game equivalent of the Punic Wars. The humans battled the Covenant for literal survival. And somehow a super-soldier saved humanity.

Pretty Darn Close

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Unrolling the Map – The Video Value Web…Explained

(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:

Part I: An Introduction
Part II: Defining the Area of Operations, Interest and Influence in the Streaming Wars)

As an Army officer, getting lost is sort of the death knell for your career. For the Band of Brothers junkies out there, I’ve always had the “hot take” that if Captain Sobel could have read a map he would have stayed in charge of Easy Company. 

Having had to pull out a map and lead a group of soldiers somewhere, I can testify it’s a nerve-racking experience. There was always this moment when I started planning a mission—from my time in ROTC with squads to training in Ranger School with platoons to being on the ground in Afghanistan—that I essentially had to “unroll my map” and figure out where we were going.

Every time, my stomach would start to churn as I looked to see if I could understand what a bunch of squiggles on paper meant in the real world. Inevitably, I could. We’d start and finish planning and head out. Honestly, my stomach is churning thinking about it.

Today we unroll the map for digital video. But where is the map? There are a few lay outs I’ve seen, like this one from the Wall Street Journal. 

IMAGE 1 - WSJ Map

Or this map from Recode, which is probably the most commonly linked to image I’ve seen in the streaming wars.

IMAGE 2 - Recode Map

Unfortunately, each has flaws. In both cases, neither links how the various companies relate to each other, merely the sheer size in one case, or the type of business in the other. The challenge is that while you can see the various areas, the concept of the “value chain” is totally missing. Who is producing content versus who is distributing it? Yes, ad-supported is different than subscription, but don’t they fill the same customer need? I’d argue they do. (Also, while the Recode map looks really cool, you know I sort of loathe “market capitalization” as a measure of size.)

So I made my own lay-out. This has been an idea I’ve been tweaking for over a year. Essentially, I’m not just reading a map, but drawing my own of the entertainment landscape. Which is even more nerve racking then just reading the map.

Today, I’m going to explain the two business school frameworks that inspired my map of the entertainment landscape. Next, I’ll talk about the “jobs” completed by various steps in the process. Then, I’ll show the “Digital Video Value Web”, with some explanations about the key pieces. Finally, I’ll highlight the most important terrain of the streaming wars.

A Quick Reminder on Value Chains, Porter’s Five Forces and the “Value Web”

The value web is the name I picked for a mashing together of two well established frameworks for business. The first is this little guy, “the value chain”, who I explained back in May:

True Full Value Chain(I use potato chips to explain concepts.)

Reread that article for a fuller description, but a value chain is essentially every step of a business process that results in a good. So suppliers provide the raw materials to factories that turn it into goods, which go to distributors to send to stores, who sell it to customers. The “value” component is really asking creates or captures the most value along the way. 

The limitation to “value chain” analysis is revealed by the WSJ image. I could make a value chain for ad-supported video on demand, for streaming TV hardware, for sports, subscription video and traditional cable bundles. All those value chains would start to get confusing. But to understand the landscape, we need to understand those connections between the value chains.

We have another tool for that, fortunately. In the past, I’ve also explained “Porter’s Five Forces”. (It’s one of my most popular articles, actually.) Read that article here. Here’s a visual of that…

Screen Shot 2019-04-10 at 3.11.46 PM

Porter’s Five Forces is a good organizing tool to lay out the potential threats and opportunities for a specific business. Its limitation is its focus: it only looks at one specific company in one part of the value chain. For example, if I used it for “cable companies”, it would leave out the studios distributing the content, merely the channels providing them content. That’s like a map that is zoomed in to one hillside when we need to look at the whole mountain range.

My insight was simply to realize that the value chain is going across the middle of a Porter’s Five Forces diagram. If I combined them on one table, I could make essentially an overarching view of any rough industry. My name for this is a “value web” because I couldn’t find anyone else making a similar layout and I elevate value above all other business concepts. Here’s my version from my Porter’s Five Forces article.

Screen Shot 2019-04-10 at 3.12.03 PM

Now we can make one for digital video.

The “Jobs” Done at Each Step of Digital Video

The first step was to pull out my value chain for streaming video. I’d previously made that here:TV Value ChainThe challenge was that I left out a fairly big component of the video value chain when I focused on distributors. Really, after a distributor sells their film to a cable channel, they don’t care how customers get that cable channel. But someone is “providing” that feed of cable channels. For the streaming wars that matters.

To borrow a phrase from Clayton Christensen, essentially the cable companies do the “job” of providing access to bundles of entertainment. I like putting “ing” after a step of the process because it gets at the type of work being performed. Applying this to my value chain you get:

Talent (acting, writing, directing, so on)
Producing
Distribution
TBD
Providing

The challenge is that “TBD”. What is it that a cable channel is doing? Or a movie theater? Or a streaming video service? I’d argue they’re all providing the same job, which is creating a library of content to watch, even if they use different monetization methods for those libraries. Frankly, the best word to describe that is “aggregating”. (And yes, we’ll get to Ben Thompson’s Aggregation Theory later in this series.)

That explains part of the “TBD”, but not really the whole thing. Because cable companies then aggregate the “aggregators” or channels. So what do we call them? They are definitely NOT in the same step of the value chain. A a group of cable channels is a separate business from the channels themselves. In reality, they’re providing access to a “bundle” of content which they charge for one price. I call that bundling.

(To quote a second business thinker—cited by Mike Raab recently—James Barksdale has said all business is either bundling or unbundling.)

With that, we have our six jobs being performed (with customers waiting at the end). 

The Video Value Web

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Defining the Battlefield – Areas of Operation, Interest and Influence 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! Distinguishing Between Ecosystems, Business Models, & Network Effects and How They All Impact the Streaming Wars

Certain parts of the US Army’s IPB process have such a good correlation to business planning it makes me wish I had connected these two ideas—intelligence preparation of the battlefield and business strategy—earlier. (As a professor described me once before, I’m a sucker for frameworks and planning processes.)

Take this map from a Wikipedia page, based on the US Army’s IPB manual (available free/open source online, I was taught off an older version):

Image 1 Battlespace Lay Out

It’s a subtly simple concept: the area you are assigned (your area of operations) is part of larger area you can directly “influence”, but you still need to be aware of the even larger environment, the “area of interest”. 

Today, I’m going to define the entertainment battlefield within those three terms. I have four rough categories: entertainment business, related industries, geography and regulatory environment. But first, let’s define these terms to make sure we’re all on the same page. 

Defining “Area of Operations”, “Area of Influence” and “Area of Interest” in war and business

Let’s start with an example to illustrate this. Say you have an Army Brigade deployed to Afghanistan. (About 5,000 troops.) If they are assigned “Kunar Province”, that’s their area of operations (AO). The definition of this in the manual is (paraphrased) “the territory your boss gives you”. In practice, this means the place with all your troops that you defend, protect or attack into. 

Of course, while your area of operations is “Kunar Province”, that brigade commander could influence a larger territory. This could mean being able to deploy their troops or fire artillery into the surrounding area. In Afghanistan, this would likely mean the provinces around Kunar, like Nuristan, Nangahar or Kabul. (Here’s a map of Afghanistan for reference. Kunar is the upper right.)

IMAGE 2 Map Afghanistan

Of course, the commander can’t influence Pakistan directly, because it’s off-limits, but Pakistan can influence Kunar Province. (Specifically, by acting as a logistics base for insurgents.) Making it an “area of interest” the commander needs to monitor.

It’s a great framework because it reminds you to broaden your thinking to solve your problems. If you only focus on your area of operations, you miss new trends and forces from outside your day-to-day focus. On the other extreme, though you can monitor what is going on in your “area of interest”, you can’t influence it without losing focus. As well, the most important events that could impact your mission will happen in your area of operations. And if your area of operations is bigger than your area of influence, you’re likely spread too thin.

Do these lessons apply to business strategy? Absolutely. 

Let’s use my default explanation of potato chips. The brand manager for Kettle Chips has “chips” as their area of operations. That’s their AO; they focus on managing and impacting potato chip sales. But they can “influence” the entire snack market. They’re fighting for shelf space against pretzels, nuts, healthy snacks and candy. Of course, the rest of the retail industry is an “area of interest”. 

Most business leaders probably don’t think in these terms, but doing the thought exercise may reveal some insights into either blind spots or areas you’re spread too thin.

Defining Our Area of Operations: Digital Video

Since we don’t have a “battlefield commander”, our “area of operations” is up to me to define. As I said last article, I’m focused on digital video. This is the heart of the “streaming wars”. But I’ll include anything “digital” in this from streaming (SVOD) to ad-supported (AVOD) to virtual MVPDs to FASTs (free-ad-supported streaming). These “areas of operation” mean those things the digital players can directly control, including the apps they roll out, how they distribute those, the prices they charge, but most importantly, the content they put on those platforms.

Geography: The United States

I don’t have enough bandwidth to cover the entire world in this series. Though Netflix and Amazon have notably turned the streaming wars into a world war, with global launches in a hundred plus countries, the start of the streaming wars will be US-centric. The United States produces the most content and if its streaming companies cough, the whole digital ecosystem will catch a cold. 

Other Industries: Communications

In this case, “communications”—my catch all for cellular, telecoms, cable and satellite connections to transmit data—is the key industry included in our area of operations. If you can’t distribute your content over the pipes, you can’t compete. So we’ll check in on the big players in communications like AT&T, Comcast, Charter, Dish, Verizon and Sprint/T-Mobile.

Regulation: The FCC (and Other Antitrust Regulators in the US)

Since our geography is the United States, the roles of the FCC, FTC and antitrust regulators could have a key impact on our area of operations. In the last twenty years, the trend has been toward lax regulatory footprint. Whether that continues is a key question for entertainment companies, and it’s coming right as the streaming wars kicks off. (Meaning November 2020 could be important.)

Defining Our Area of Influence: Video

The story of the streaming wars is really a story of the evolution of “video”. There are the traditional distribution methods (theaters, home entertainment, broadcast, etc) that are being disrupted by digital methods. What that means for us is that the giant conglomerates battling in the streaming wars can heavily influence these others parts of the value chain, even if that’s not the ground being fought for. 

We’ve already seen the influence of digital video in one of the most important areas of Hollywood production: the price of content. Essentially, everyone is paying more for scripted TV series, with a parade of articles on how much more these cost every studio. Netflix—a digital only provider—started this push by its winning bid for House of Cards, but Amazon, Disney+ and now HBO Max are al competing to raise these prices even further.

When I roll out my “map” of our area of operations, I’m going to include all of the video ecosystem since it can so easily be influenced and influence the digital video space. 

Geography: High Income or Growth Countries

Just because I’m focusing on the United States doesn’t mean I won’t acknowledge the rest of the globe. Indeed, one of the descriptions of this battlefield is how certain firms paying for global rights—whether accurately valued or not—is impacting those content prices I just mentioned.

When it comes to what can really influence and be influenced, high income or high growth countries such as the European Union, Latin America, India and parts of Asia fall under this analogy. While lots of potential customers may live outside those limited territories, the bulk of near term streaming revenue will come from there.

Other Industries: Technology

Arguably, the tech firms are already inside the area of operations, but for this category I’m specifically referring to the new innovations in technology that can change the next generation of streaming. Digital video is already our battleground, but what comes next? Virtual reality? Artificial Intelligence? And how can the entertainment companies influence that in turn?

Regulation: The EU Antitrust Authorities

The European Union’s antitrust authority is the biggest influencer here. Already Google and Amazon are heavily trying to influence how they are regulated in Europe, to more or less success. Again, only some of these will impact our United States area of operations, but we need to monitor it.

Defining Our Areas of Interest: Other Entertainment Options

As Reed Hastings pointed out:

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