Tag: Streaming

Nothing Compares to Bridgerton in January: The EntStrategyGuy Streaming Ratings Report for 24-Feb-21

[Editor’s Note: Today, I am testing a new website feature, a weekly report on streaming ratings. One of the biggest pain points of the coverage of the streaming wars seems to be that no one knows what is doing well, what is doing poorly and, frankly, what customers want. For example, folks saying that here, here or here for just three examples. 

As this website enters its fourth calendar year, I’ve been looking for ways to expand my coverage. Solving the ratings problem seems like a pretty good way to do it. I’ll be explaining more in the future, but for now, I hope you enjoy and let me know what you think.]

One of the challenges in reporting on ratings is the lag time from when a show premieres to when we get actual data on it. If we rely only on Netflix, for example, we can get results sometimes after the first weekend, but sometimes delayed up to nearly eight weeks. Nielsen is the most reliable and regular reporter on streaming ratings, but they delay ratings by four weeks to double check their data.

So yes, this is a ratings report for the week of “February 24th”, but it covers mostly the data through January 24th. Confused? Yeah, welcome to the streaming wars. 

[Another Editor’s Note: My analysis will be only of the United States to start. We have the best data in the US so far. As data expands, so will my coverage.]

(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.)

Television

IMAGE 1 - TV Ratings Last Six Weeks

The biggest winner of January is Bridgerton, which continued its dominance of the Netflix top ratings charts. Notably, new releases such as Cobra Kai, Disenchanted, and Lupin all failed to knock Bridgerton from the top spot in the US. This type of performance is really what separates truly “elite” TV series from simply “good” series.

As for competition, Disney+ remains the best competitor to Netlfix in streaming. (Since the fall, Disney has had two original series on the list, and the last non-Disney was Prime Video’s The Boys.) And the total viewing hours might actually undersell how popular the Disney shows are. For example, here’s the January release chart by “Hours viewed per episode”. 

IMAGE 2 - Hours Viewed per Episode

Hours viewed per episode is a temporary metric I’ve been using to gauge how well new series are launching. It isn’t perfect—for example, WandaVision is half as long as some of these other series, so arguably this even undercounts WandaVision viewers—but for now it works as a proxy for demand per episode. The takeaway continues to be, like The Mandalorian, Disney has high “bang for the buck” when it comes to viewers per series.

[Another Editor Note: Yes, this first edition is Nielsen heavy. Going forward, I will add additional data sources to my analysis, including top ten ratings, Google Trends, and new metrics/scores for how well content is doing. It will be a process.]

Other Quick Notes on TV

– Library TV series continue to do well on Netflix, but the departure of The Office provided an opening for other series. For example, Jenni Rivera: Mariposa del Barrio made the top ten list, and that’s a licensed show (originally from Telemundo, produced by NBC Universal) that has been on Netlfix since 2017. New Girl also seems to be a regular feature on the acquired TV list.
– New content still drives Netflix viewership, showing that even more than library, customers flock to what’s recently premiered. Henry Danger for kids and L.A.’s Finest are examples of library or second run content doing well in January.
Lupin is the first French title to make a Nielsen list, but it wouldn’t have made the top ten in either week. Given that Netflix announced it will have an estimated 70 million global viewers in the first four weeks, this is another data point that international titles just don’t perform as well in the US as they do abroad, despite narratives otherwise.

Film

IMAGE 3 - Film first and second

Outside the Wire is Netflix’s latest big action film and it bucked the trend of big declines from the first opening weekend to the second. However, it also launched much smaller than Extraction (18.5 million hours) or The Old Guard (16 million). We’ll see if it can sustain this into a third weekend. 

Otherwise, the story is similar to the one I described in my last “visual of the week” in that the film list is the home from kids content. Frozen 2, Moana and Soul look set to stay well streamed going forward. A fun question will be if We Can Be Heroes drops down like other Netflix titles or acts more like the Disney stalwarts.

Other quick notes on Film

– Amazon Prime Video’s Oscar candidate One Night in Miami didn’t have a big opening, but it did have minimal week-over-week decay. The question going forward is whether all Amazon titles act like this (due to a smaller catalogue, hence more promotion on the home page) or if this represents some genuine growth via word of mouth praise.
Pieces of a Woman on Netflix did experience the likely expected big decay from its opening weekend, dropping off the list after it’s opening weekend.
The White Tiger actually got a Netflix datecdote with an estimated 27 million global viewers in the first four weeks. With presumably 1-2 million or so viewers in the US—dividing the two hour run time with a 70% watch rate—this likely shows that the film under-indexed in US viewing, as most intentional titles do.

[Yet Another Editor Note: My goal with this weekly report is to keep it to 800-1,200 words, which is short for me.]

Competition

My big question for the streaming wars this year is simple: will this fight be competitive?

Looking at the last year, you’d say it isn’t a fair fight. Netflix is far and away the biggest streamer in America, whether you measure by subscriber or by total usage. That’s why I’ll be tracking a few metrics to determine whether Netflix is pulling away from the pack, or whether the pack is catching up to Netflix.

Here are the top ten pieces of content in film or TV series by streamer going back through the last six weeks:

IMAGE 4 - Streamrs Share Top Ten

The good news if you’re not Netflix? Well, when the traditional studios went all in, they took quite a bit of market share from Netflix. Christmas was the Soul/Wonder Woman 1984 deluge, and frankly it got a lot of eyeballs to Disney+ and HBO Max.

The good news if you are Netflix? As soon as the studios stopped releasing their big guns, Netflix went back to owning the entire list. For example, in the past a show like WandaVision, with only 3 episodes generating 6.3 million hours watched, would have dropped off our radar. 

IMAGE 5 - Top 30 List

The goal for the Amazons and Disneys of the world is to move up from owning the “film” portion of this list to owning more spots on the top ten and fifteen. We’ll see if they can do it.

[Last editor note: I hope you enjoyed the first installment of the EntStrategyGuy ratings report. I’d love to hear from you on what you liked, what you didn’t and what you want more of. Thanks in advance!]

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.

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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.

Was Prime Video a Loss Leader or Loss Loser? – Most Important Story of the Week – 5 Feb 21

Jeff Bezos ending his run as CEO of Amazon is certainly neé clearly neé absolutely the biggest story in business this week. Is it also the biggest story in media, entertainment and communications broadly? Sure. 

Bezos is a man who built Amazon to be “the everything store”. That includes your video watching habits. As I’ll explain, if there is a way to deliver video, Jeff Bezos’ Amazon has launched a business unit for it. That makes this big announcement an easy winner of the “most important story of the week”.

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Most Important Story of the Week – Was Prime Video a Loss Leader or Loss Loser?

When I opine on Twitter about Amazon, usually critically, someone inevitably opines that Prime Video is a “loss leader”, as if I didn’t know that it was the purpose of Prime Video. But I’ve been around the entertainment-strategy-take game long enough to have read that rationale for Prime Video’s existence. Multiple times. 

The challenge, for me, is that “loss leader” is a vague term. Like it’s cousin “flywheel”–read my thoughts on that phrase here or here–my concern is that loss leader can be used to justify bad decisions. The logic goes: Amazon/Apple/Google/Facebook are big and successful, they invested in Product/Business/Vertical, then even if it doesn’t make money it must be worth it.

When I’m questioning Big Tech’s strategy in video, the words I’m focused on aren’t “loss leader”, but the words “investment” and “worth it”. That’s where we need to start to understand how all of Amazon’s entertainment/media enterprises will fare under Andrew Jassy.

Loss Leaders vs Loss Losers: Is the Investment Worth It?

A “loss leader” is a simple concept: a business sells a given product at a loss to sell more of a different product.

Take an example from the legal world that I just heard on All The Presidents’ Lawyers. Sometimes, a defense attorney will take a high profile case and waive the fees. They do this because the case is so notorious they will get lots of free publicity. The gain in additional paying clients offsets the initial lack of payment.

But consider a defense attorney who represented President Donald Trump in his election lawsuits. Normally, representing the President would be worth reduced fees, because the publicity would be huge. But Trump was so toxic that many firms risked losing paying clients because they were associated with frivolous election lawsuits that were destroying democracy. That’s not a “loss leader”, but the opposite.

For lack of a better term, I’d call bad loss leaders “loss losers”. How do we judge if a potential “loss leader” is good or bad? Well, if the extra sales exceed the costs. One could simplify that to:

A loss leader is worth it if the costs (the losses) are exceeded by the benefit (the sales elsewhere).

Take Roku. They sell their hardware at cost, meaning almost exactly what they pay for it. Devices are loss leaders. They make up the revenue by selling subscriptions and advertising. But if “loss leaders” are good, why not go further? Why doesn’t Roku lose money on each device? Don’t stop there. Could Roku pay every American $100 to take a device? Or higher? $1,000? 

Obviously not. Because at some point the losses don’t lead to enough additional sales. So the question isn’t “Is Amazon’s video investment a loss leader?”. Instead the question is, “Has this loss leader strategy worked?”

Beyond the Black Box: The Hazy Economics of Big Tech

So the obvious question becomes, “What has been Amazon’s return on investment in all of entertainment?”

And we have no idea.

I’m tempted to say we can’t know because Prime Video is a “black box”. Honestly, even calling it a “black box” would be wrong. A true black box is when you have known inputs, that go into an equation/algorithm/process, which spits out known outputs. The black box is the process. For Amazon, we don’t know the inputs (costs, mainly), the process (how Amazon accounts for success) or, most importantly, the outputs (performance, revenue, usage, etc). 

This applies to a range of Big Tech investments. Google, until very recently, reported no financials for Youtube in their earnings reports. Apple hasn’t told us any performance details of everything from Apple News to Apple Music to Apple Arcade to Apple TV+. Amazon has a range of smaller investments beyond Prime Video, all of which are bundled under three vague business lines in their earnings report. 

I’d call it an “invisible box”, where we don’t even know what is going in or out of the system. To compound it further, Amazon isn’t one invisible box, but a stack of several, sometimes competing, invisible boxes.

Amazon Prime/Video/Studios/Twitch/Channels/IMDb TV/Music: Amazon’s Voluminous Investment

Even defining “video” for Amazon is probably the most confusing of the Big Tech firms. Google is primarily focused on Youtube (though it also owns Google Play and Youtube TV), Netflix is only Netflix, Facebook has Facebook Watch (though it also owns Instagram videos), and Apple only has Apple TV, TV+…okay it’s confusing for all the tech companies except Netflix.

But Amazon makes an art of how many different investments in video they have: 

– Amazon makes its own content via Amazon Studios.
– It distributes this via Prime Video, while also licensing a huge content library content.
– Folks can upload their own videos to Prime Video using Prime Video Direct.
– Amazon also sells movies from all the studios to rent or buy. (This was actually Amazon’s first digital video business.)
– Further, Amazon also sells other streaming services via its Amazon Channels business.
– On top of it all, it sells devices that can be used to stream, the Fire TV and stick.
– Lastly, Amazon has other investments in video including Twitch, IMDb TV and Amazon Live. 

And honestly, if you told me there were five more businesses I missed I’d believe you. That list also leaves out music, podcasts, Alexa and video games. That’s a lot of stacked up invisible boxes.

If we can’t say if the investment was good or bad, what can we say? That there were good arguments on both sides.

So is All of Amazon’s Video Investment a Loss Leader or Loss Loser?

I don’t know. Without the inputs and outputs, it’s all guess work. But the alternatives–relying on the CEO interviews, stock price, vague assertions of flywheels and loss leaders –just aren’t very informative.

Instead of providing a definitive answer, I’ll provide both sides. Consider this both the prosecution and defense arguments around Amazon Video broadly, though I’ll center it around “Prime Video”, which is still probably the most well known investment. 

The Cases For Amazon’s Video Investment

The Customer Lifetime Value Math is Very Enticing. 

Given that Prime renews yearly, even a small increase in retention year-over-year can have huge impacts on the potential customer lifetime value of Prime. The best upside math for this comes from Scott Galloway. In his accounting, boosting Prime retention from 80% to 91%–based on some survey data–essentially results in $47 billion in market capitalization for Amazon…and that was pre-pandemic!

Galloway Flywheel

(Source: Scott Galloway Talk)

Now, I quibble with some of his math, but this is clearly the upside. If Prime Video–and the Channels ecosystem broadly–can lock folks in for a cost of a few billion per year, that’s worth it.

Prime Video enabled the Amazon Fire TV Ecosystem. 

Like flywheel, “ecosystem” is overused. But this is a true ecosystem! Amazon leveraged Amazon Video (selling movies/TV series) and Prime Video to launch the Fire TV system, which launched Amazon Channels. Now that they’ve built it, there is the question if it makes money on its own, since it is increasingly removed from additional retail sales, but they did build a valuable ecosystem.

Some analysts think the media/entertainment upside is even higher. 

For example, Laura Martin of Needham. Including advertising on Amazon–which I don’t count as entertainment, since it is the price of doing business on their retail platform–she puts it at $500 billion in value. In other words, Amazon likely spent a few billion dollars every year on content, but it built a $500 billion business, about 30% of their current value.

It seems like Amazon has been successful. 

If you care about awards, Amazon Studios has won with Manchester by the Sea, Transparent and The Marvelous Mrs. Maisel. And the trendline is good: The Boys is likely their biggest hit yet and Upload, Hanna and Hunters made the Nielsen top ten last year. Moreover, the Channels business may exceed them all as Amazon is likely the biggest seller of third party subscriptions, including Showtime, CBS-All Access and HBO/HBO-Max.

Moreover, Amazon hasn’t killed off its video investments yet.

Amazon isn’t innovative so much as adaptive. Or put uncharitably, they’re a copycat. Amazon doesn’t innovate, they let others do that, and then “fast follow” with a copycat product. Diapers dot com. Angie’s List dot com. Etsy dot com. Amazon has created clone businesses of them all. (Indeed, Prime Video is a Netflix clone, IMDb TV is a Pluto clone, and even Fire TV is a Roku/Chromecast clone.) Yet Amazon has axed many businesses if they don’t work. Video, though, has lasted. This would be circumstantial evidence that it must be doing well.

All of Big Tech is into video. 

More circumstantial evidence that video surely must be worth it. If it were a bad investment, why are Google, Facebook, Apple and Amazon all investing billions in it?

The upside in success is that Amazon would likely have built the oft searched for “moat” in digital video. 

Or “monopoly” in layman’s terms. With millions of devices and tens of millions of subscriptions sold, Amazon can demand better and better terms for supply of content, be it movies to rent, subscription to sell, or content to buy. In short, they used profits from AWS to acquire a dominant position in digital TV and now will be able to generate big returns (in pro-business terms) or extract rents (in pro-market terms). There is nothing more profitable than oligopoly, and if Prime Video paved the way for that for Amazon, then that justifies all the investment.

(Consider if Fire TV acts as one of say three distributors of streaming TV by the 2030s, presumably with Apple and Roku. Instead of collecting huge rents on a regional basis, as cable did in the 2000s in America, Fire TV could do that globally. That upside is huge!)

The Cases Against Amazon’s Video Investment

At this point, going all-in on video seems like the smartest decision made by an executive of all time. Not so fast…

The spending was likely out of control. 

Richard Rushfield called Netflix’s last half decade the “drunken sailor” era of spending. Was Amazon the “Not-drunk-but-can’t-drive-home sailor” era of spending then? Whenever you see estimates of spending, Prime Video is usually right behind Netflix in terms of spending on streaming at about $6-7 billion per year. Including traditional content producers, Amazon still spends more than everyone except Netflix, Comcast and Disney.

Screen Shot 2021-02-05 at 8.55.00 AM

(Source: Variety 2019 Dare to Stream Report)

And Amazon discounts other parts of video too. Fire TVs were often aggressively discounted to move units as well. Same for Amazon Channels, which often offered extremely low or subsidized rates to get users. In other words, Amazon sold Fire TVs at a loss, so they could sell more Prime Video at a loss, all to sell more socks. That’s a double loss leader. 

Usage is still low comparatively. 

Going strictly by Prime Video, has the investment been worth it? Prime Video is either second (using Comscore data), third (using Nielsen data) or fourth (using my estimates) place in the streaming wars. Moreover, the streaming wars are just getting started. Can Prime Video hold off Disney+ and HBO Max forever?

Comscore via Hedgeye by Type

(Source: Hedgeye Comm)

In other words, if Amazon’s content spend was about half of Netflix’s spend, but it got about 1/4th of the usage. That’s not great.

screen-shot-2020-09-02-at-9.20.15-am

chart-us-paid-streaming-subscribers

What would a third party pay for all of Amazon’s entertainment products? 

When in doubt, in other words, let the market be our guide. Far from Martin’s valuation, I think you would struggle to find a valuation for all of these businesses even approaching Netflix’s $250 billion valuation. And that’s because while everyone currently subscribed to Netflix is doing it (mostly) deliberately, the vast majority of Prime Video users consider it a luxury. If you sever that link, how many folks keep using Prime Video? I can’t begin to guess.

(Fine, I’ll try. If Roku’s market capitalization is $50 or so billion, say the Fire TV/Channels business gets 100% of that value. Then call it $25 billion (one tenth of Netflix) for video and $6 billion for Amazon Music (10% of Spotify) and say everything else is $2 billion. So is “Amazon Entertainment” worth $82 billion? That would be about 5% of Amazon’s current value.)

Did Amazon have to “build it”? 

Imagine instead of Prime Video and Music, Amazon had offered free Netflix and Spotify to every customer. What would be the better subscription, the current version or those? Most folks would prefer free Netflix and Spotify to free Prime Video and Amazon Music. In other words, Amazon could just do what Verizon does and partner with other streamers to give away better video products than Prime Video.

Presumably, licensing the rights temporarily is much cheaper than building an entire video ecosystem. This is why Verizon doesn’t build it’s own streamer, but simply gives away whatever the buzzy streamer of the moment is, from Netflix to Disney+ to Discovery+. If the return is the same in terms of customer retention, then the better ROI is in partnering, not building a new video subscription.

Most folks overvalue the “hidden business” model. 

In addition to CLV, folks love to repeat the Bezos quote that Amazon invested in Prime Video so customers would “buy more socks”. I call this a hidden business model because most folks stop there and don’t do the simple math to ask, “Well how many more socks?” (The previous king of the hidden business model was MoviePass. It would lose money on tickets to sell “data”. But data isn’t worth that much.)

I’ve done the math, and frankly because retail margins are so low, this is at best about $5.50 per month:

Amazon Retail Margins

(By the way, it’s tricky to nail down exactly what the lift is for new sales and what Amazon’s actual retail margins are. Some folks claim they are still really low (actually under 2-3%!), but then advertising is booming, which is really the price of doing business on Amazon. Play with the numbers to make your own estimate.)

Yes, it’s valuable to sell more socks. But that’s not an unlimited pot of gold. In fact, it’s an increasingly tapped out mine. (The highest net worth customers have already adopted Amazon, so Prime acquisitions will decrease in value.) So for Prime Video to act as a loss leader, its costs need to be under $5.50 per customer per month. And that’s for the folks who use Prime Video. In other words, you could imagine that the content budget definitely doesn’t make up for itself in extra socks sold. 

Big Tech loves video, everyone else can’t make the math work.

Interestingly, whenever conventional companies look into video, they tend not to have the stomach for it. Microsoft abandoned Microsoft Studios very early on. Verizon gave up on Go90. And most notably, Wal-Mart looked at video, even launched its own membership, and bought Vudu. Then they decided that video is not a good business. Clearly they weren’t going to sell more socks! And thus Walmart sold Vudu to Comcast. What does Wal-mart see that Amazon doesn’t? 

Big Tech may be into video because there is nowhere else to go. 

As Matt Stoller has written, as consolidation has risen across industries, firms and investors have few places to park their cash. And since firms can only do so many share buybacks–like Apple–video is the logical extension. Video is one of the more simple/obvious ways to use digital technology, so Big Tech is into video because they have so much cash from their monopolies/oligopolies (cloud/ecommerce, search, social or app store, depending) that they’re blowing it on video. This doesn’t really mean it’s a bad investment, but probably a sign something is wrong with our economy.

It is a loss loser, but Jeff Bezos didn’t care.

I said I’d use this quote quite a bit, and here’s my first chance. The question isn’t if Prime Video is a loss leader, but a loss leader for what?

Screen Shot 2021-02-05 at 9.03.56 AM

Results: Shrug emoji

Look at those lists and draw your own conclusion. Each pro has its similar con. All of Big Tech is into video, but Walmart/Verizon abandoned it. The CLV gains are huge, but the additional sales are likely overrated. Prime Video may be second place in usage, but hardly anyone would pay for it. Again, this is the shoulder shrug emoji of analysis.

So what’s my point? Simply that I’d like more skepticism about Amazon out there in the world.

In conventional wisdom, Prime Video and related investments have been considered tremendous successes. I don’t see the evidence or data to justify that. If you just glance a pinch more skeptically at Amazon next time someone touts their success, then I’ll consider my job done.

Bonus Most Important Thought: What Happens Next?

Probably nothing. Jeff Bezos has said as chairman of the board, he’ll likely have final say on any “one way” decisions. Selling or giving up on devices or video would be fairly final, and given Bezos’ clear backing of those investments, I can’t see him approving that. Moreover, as the con side laid out above, who would buy Prime Video and related businesses if most of their value is tied to the Prime ecosystem? $82 billion is likely the high watermark and I could see, under scrutiny, most potential buyers fleeing to the hills.

However, levels of investment can fluctuate, and that could impact Amazon’s multitude of entertainment investments. Amazon has famously often competed with itself, for example two different business units now produce original audio, Audible and Wondery. Maybe Jassy streamlines video/music and kills underperforming units. Or just drastically cuts back on “investment”, meaning content spend. 

Moreover, there is the antitrust wild card. One article mentioned that Jeff Bezos would likely break up his creation before letting regulators do itEven if Amazon did get ahead of the curve in breaking itself up before regulators can try, it’s hard to see video getting cleaved from retail. Even if Prime Video sells less socks than they claim, it’s value is still clearly as part of a Prime membership. And that serves as the basis for Fire TV devices, so it will likely stay bundled together. AWS could, though, be split off with fairly little disruption. Twitch is part of AWS, from what I understand, and I could see it going with either AWS or staying in the remaining retail/Prime Amazon.

I’d argue that even if Prime Video isn’t performing well enough to actually boost the CLV of Prime, simply the dream in Amazon’s head of selling more sock has/will keep Prime Video alive.

(How well does Amazon retail do without AWS covering any potential losses? The finances are so entangled it is impossible to say and makes the mind reel at the ramifications.)

Oh, Fine GameStop and Other Contenders for Most Important Story of Last Week – 1 Feb 21

For the last two weeks, my weekly column overflowed into two articles. I promise I won’t make this a habit…unless everyone likes it better. Let me know on Twitter. Meanwhile, here were the other stories vying for the top spot last week. But we’ll start with the story that had zero chance of making it.

Lots of News with No News – GameStop Owned the Week in News

How do you know that the Trump administration–and with it all the media upheaval of the last four years–is truly behind us?

Instead of talking politics, everyone is obsessed with GameStop!

It’s not like the Covid-19 crisis has passed. Far from it, January was the worst month yet for the virus. And that’s vying with potentially the best story of the year, which is the vaccine roll out. While stymied by terrible distribution issues initially, vaccine distribution is growing each week and slowing being solved (though with much less media coverage to this good news story). 

You’d think that all the media would be obsessed by virus coverage. 

Nope!

Instead, the journalists covering the White House asked more questions about GameStop to the new Press Secretary, Jen Psaki, than about Covid-19! Every newsletter or podcast I follow had to mention GameStop, usually with the tremendous caveat of, “I have no idea what I’m talking about” before opining on it. 

Does the rise in GameStop’s stock price due to a sub-Reddit (Wall Street Bets) going publicly long on a stock to hurt short sells change the entertainment business landscape? No. So this is “lots of news with no news”. 

With two caveats.

First Caveat, AMC Theaters Received the Wall Street Bets “Long” Position

When the Wall Streets Bet collective was searching for other stocks that were big “short” positions, one they stumbled on was AMC Theaters. So they collectively “went long” on it, which is the charitable way to describe it. (Uncharitably? They coordinated buying to pump up the stock.) 

Amazingly this allowed AMC Theaters–who is famously over-leveraged/in-debt–to convert some debt to equity, and they were able to raise additional equity. All of which would normally dilute shareholders, but the price was acting bubblish because of Wall Bets’ users enthusiasm. And they were able to to secure additional financing. In short, AMC Theaters has now likely avoided bankruptcy for the year. That’s a crazy, and unpredictable, set of circumstances.

Second Caveat, If Regulators Try to Regulate Media Coverage, That Will Be Tough

The key here is to focus on the word “media”.

Short sellers love to use the media to publicize their short positions. (I’m sure by now everyone has read/listened to ten explanations for how short selling works.) Typically, it works like this. A hedge fund decides to go short on a stock. Usually, they write a report on why they’re going short, and then they publicize that report. This includes but is not limited to: 

– Leaking the report to the Wall Street Journal and NY Times for positive coverage
– Releasing a press release to all journalists.
– Going on CNBC/Bloomberg to explain their short position.

In other words, they try to use “mass” media to publicize their short position. If they enter into their short position before publicizing it, obviously a successful campaign could generate millions of dollars. They’re trying to use a publicity campaign to lower the stock price and make money. The main difference between this behavior and Reddit is that it is 1. Centralized and 2. Mass, not social media. But the impetus is the same: use media to drive stock prices.

On the opposite side of the coin, there are also folks who want to go long who use media to influence stock buying behavior. For example, this guy with a button and lights shrieking “Buy This Stock!”

Is what Jim Cramer doing fundamentally different than a bunch of Redditors collectively deciding they love a stock? I’d say at a core level no, but in the details yes.

My point is that if regulators want to tamp down on what a sub-Reddit is doing to drive stock prices, good luck. Regulating speech is incredibly tricky and often ends up casting a much wider net than intended. Which is why the First Amendment protects so much speech. If the GameStop saga has revealed flaws in the US financial system, those problems likely won’t be solved by the SEC cracking down on anonymous internet message boards.

Other Contenders for Most Important Story

HBO Max’s Franchise Strategy

It doesn’t seem like an accident that in the last few weeks we’ve heard about a Game of Thrones Dunk and Egg spin-off, a Harry Potter TV series, and an animated Game of Thrones series in the works. Clearly, HBO Max is trying to emulate the Disney+ success. As a fan, I’m here for it. As an observer, I’m curious why they didn’t do this earlier. As a biz strategist, I know that quality will still be the differentiator. So far, Warner Bros hasn’t proven they can deliver that in their franchises. Still, better late than never.

Oh, and you probably want to know about…

AT&T Announced 41 Million US HBO Subscribers and 17 million activations

This is probably the strongest candidate to be the story of the week besides NBC Universal/Peacock’s big double story drop. AT&T announced that HBO Max is up to between 17.1 and 41 million subscribers in the US. Why between? Because it depends how you count, as I explained in my most popular series of 2020 “Who Has the Most US Subscribers?” Frankly, if you just count people paying HBO for the privilege of subscribing–a very rational way to do it!–you take the higher number. If you want to focus exclusively on over-the-top delivery–while not my preferred method, this isn’t irrational either!–then you look at “activations” or folks who have used the HBO Max application.

Screen Shot 2021-02-01 at 11.39.08 AM

Either way, Wonder Woman 1984/Roku/Fire TV partnerships/Christmas holidays have worked to grow both numbers in the US. If you take the higher number, then they’re roughly 62% of Netflix’s US user base. If you take the lower, they’re at 26%. If they can sustain these numbers, growing the activation total, they’ll join Disney with a seat at the “viable streaming business” table by the end of the year.

Sling TV is Raising Prices

Another virtual MVPD is raising prices to survive, which is as commonplace as it is unsurprising in today’s day and age. The fact is, especially when thinking about the TV habit which I described on Friday, most folks loved the old cable bundle. Sure, there were hundreds of channels, and no one watched them all. But folks actually browsed and watched more of those channels than they realized. The problem was the prices driven by cable’s local monopolies. To replicate a bundle, frankly, is expensive.

M&A Updates – Twitter is Entering the Newsletter Business

Twitter is expanding their business into newsletters by buying Revue, a rival to Substacks’s newsletter platform. I love this acquisition for Twitter, who has really struggled to monetize as effectively as Google or Facebook via ads. Thus, subscriptions seem the way to go and newsletters offer a middle position between paywalls for access to Twitter accounts and the completely ad-supported version. It will be fascinating to watch this integration. (Hat tip to Andrew Freedman’s write up for informing this take.)

Entertainment Strategy Guy Update

Netflix Isn’t a Part of Chromecast’s Browsing

One of the apparent innovations of Google’s new Chromecast/Google TV was that Netflix shows were, for the first time, included in the homepage browsing. This would have indeed been a big deal, since most streamers are very hesitant to allow the devices/operating systems control the user experience. (Read why here.) Indeed, Netflix has been the most restrictive to date. Which was why I was skeptical they would join this effort, which undercuts their entire competitive advantage.

Sure enough, I saw a headline over the last week that Netflix has been quietly removed from Google TV’s homepage. (Though the author of this headline fails to understand why Netflix would make this move.) Netflix did this because their goal is to be “the TV habit“. That means forcing users out of Google’s operating system and onto their application. Hence this move.

Disneyland is Trying Win Back Annual Passholders

As expected, Disney got a lot of blowback from annual passholder for cancelling the program, so Disney released a new program with some benefits for “legacy passholders”. Former passholders are still upset, as this article describes well, but frankly the article also explains why Disney made this move: demand to go back to Disneyland is higher than the Matterhorn. PR-wise this move would always have hurt Disney, but they made the right decision.

The Christmas Chronicles Was Netflix’s Most Watched Film in the US in 2020 and Other Data Thoughts from “Who Won December”

December was a big battle in the streaming wars. The Christmas Day/end of year is becoming increasingly important to the streamers since it is the last time to grab subscribers before annual reporting. This is why the latest installment of my “Who Won the Month” series at Decider may be the most important one of 2020. 

So check it out!

To keep that article flowing, I ended up cutting a few insights/thoughts from that article that still felt good enough to share. Consider this the “DVD extras” addendum to that great piece. (Seriously, read it before you continue.) 

Other Contenders That I Didn’t Mention

The biggest drawback to a word count is having to cut a few shows from contention. Last month that mainly meant some shows from the smaller streamers. CBS All-Access released their latest Stephen King thriller The Stand. (It had a peak of 9 on Google Trends.) The challenge is a word like “stand” is fairly generic, so it just may not be picked up in the Google Trends data. However, on IMDb, its ratings are 6,600, so likely it isn’t really catching on. Showtime released Your Honor, but it didn’t really budge the popularity needle.

Apple TV+ focused on kids in the holidays, airing both A Charlie Brown Christmas and Wolfwalkers. Again, I didn’t really see the Wolfwalkers trending. (Charlie Brown is too generic.)

Caveats to IMDb Data

For the first time, I compared shows using IMDb ratings data. I both want to explain how and why I used this data source and also some other insights into last month’s results.

The “why” is because I love capturing qualitative feedback on a given show or film in addition to viewership. In particular for TV, this can be somewhat of a leading indicator to forecast if subsequent seasons of a show are going to build momentum or begin to flag. This applies to TV series as well as film franchises. Especially for franchises, actually. A big marketing campaign can result in a strong opening weekend, but if the IMDb ratings are low, then eventually the series will decay in viewership. (See Fantastic Beasts or The Hobbit series for some examples.)

As for how, I tend to use both the rating itself and the number of ratings. The number of ratings is fairly correlated with viewership overall. Thus, if you don’t have viewership itself, IMDb can act as a proxy, like Google Trends. The actual rating itself (the 1-10 numbers) doesn’t account for small but well-liked films and TV series. My approach is to make a scatter plot, and see which films are in the upper right: lots of reviews and high ratings. (If you want to pay for it—and I can’t afford it—IMDb page traffic is also a good proxy.)

Now the caveat: some folks hate using IMDb ratings because online trolls have attacked certain films.

You can see this in Wonder Woman 1984. While it has nearly as many ratings as Soul, its average rating is much, much lower. Which raises the question of whether or not Wonder Woman 1984 is being intentionally dragged by trolls online. And this is the main problem with IMDb data: some folks will intentionally drag down shows for political reasons, which skew the value of this data source. 

But I won’t throw the baby out with the bath water. Because it’s the best publicly available, qualitative data set we have.

Rotten Tomatoes and Metacritic are probably the next two biggest review sites, and their numbers are orders of magnitude smaller than IMDb. The caveat here, of course, is that larger sample sizes of biased data are still biased, meaning that doesn’t justify using IMDb. The problem is that for Rotten Tomatoes and Metacritic, their sample sizes in many cases aren’t big enough to be representative. I’ve considered using Amazon ratings, but in that case some films are available in streaming, but some are available for free and some are available for purchase. This makes ratings not apples-to-apples, and that’s before the fraud problem with Amazon ratings.  

So when I use IMDb data, I tend to accept its shortcomings and use it carefully. To start, I know IMDb tends to skew “genre” in its ratings. This means for shows like The Expanse or Wonder Woman 1984, I’d say the reviews on IMDb are relevant. Since The Expanse has done well on IMDb, that shows some genuine fan interest. For something like Bridgerton, I’m less concerned if its score is weak.

Then, I try to figure out if a given show has been dragged by potential online trolls. When they have—eg The Last Jedi, Black Panther or Captain Marvel—I just wouldn’t use those ratings. Though don’t go overboard: don’t pretend that every poorly rated film is just a victim of online trolls. Some films are bad and fans don’t like them.

For Wonder Woman 1984 specifically, while I haven’t heard of any specific campaigns, on another user review site, Rotten Tomatoes, Wonder Woman 1984 has done better than its IMDb score. This likely indicates there is some intentional downvoting, but even with that it is unlikely Wonder Woman would have been a 8.0 or higher film.

IMAGE 1 - RT vs IMDb for Wonder Woman

A score of an “8” on IMDb tends to separate the merely good from the great. Meanwhile, The Midnight Sky did poorly in both locations. So it may be widely watched, but folks didn’t really love it.

(Also, never use the Tomatometer. That has very little nuance since it simply measures “good vs bad”.)

Did Netflix Have a Good December?

Probably, but not as good as last year. If you just casually read the news, you heard a series of great Netflix reports, and you’d assume they’re crushing it again.

Fortunately, I’ve collected every Netflix datecdote over the last few years and can put those numbers in context. Here’s the last three December releases that we have datecdotes for from Netflix. (These are films released in December. I’ll look at Netflix’s entire Q4 in a future article.)

IMAGE 2 - NFLX Decembers

The best way to describe this is that Netflix’s top film and top TV show released in December both underperformed their peers who launched last year. This looks even worse in context of the growth of the service during that time frame. The key question every quarter is whether Netflix’s content can help propel growth, or merely hold subscriber counts steady. And it seems to me like Netflix held steady in December compared to 2019.

Did Disney Really Win the Month?

For the first time in December, I didn’t just declare The Mandalorian as the winner in December, I also said that Disney won the month compared to Netflix. Essentially, between Soul and The Mandalorian, Netflix didn’t have a blockbuster show that drove the same level of interest.

The counter could be: but what if you added up every new thing Netflix released? Would it pass Disney by sheer volume?

So I looked for any Netflix series that seemed to generate interest and tried to figure that out. However, even after that, Disney was still the winner:

IMAGE 3 - Google Trends Expanded Look

There is a lesson in here about content planning and “return on investment”. Essentially, Disney could match Netflix for interest with only two hit releases. Now, those two may not generate as much time on the platform as Netflix currently has (their usage is much higher), but as for keeping subscribers, Disney may be able to do that more efficiently. I say “may” because it’s not like the two pieces of content Disney made are cheap by any means. (The Mandalorian may be the most expensive show on TV until Lord of the Rings comes out.) That’s its own form of inefficiency.

This also repeats a point I constantly make about the streaming wars: the best shows aren’t a little better than other shows, but multiples better. Thus, you don’t win the streaming wars with singles and doubles, but grand slams. And in July, November and December, Disney hit a grand slam each month. And with much fewer at bats than Netflix. That is an efficient form of content spend.

November Flashback: What Can Nielsen’s Data Tell Us?

The one drawback to my “Who Won the Month” series is that Nielsen data usually isn’t ready by the time I write my initial article. (They perform better near the month they cover, so I try to write them for the last day of the month or so.) This means that we can now look back and see which calls I made in December are either confirmed or refuted by the Nielsen data. 

So let’s hold myself accountable for my calls:

– Was The Mandalorian bigger than The Queen’s Gambit? I said yes, but according to Nielsen it depends how you count. The Queen’s Gambit was able to sustain higher week to week viewing than The Mandalorian, but Mando outpaced in terms of weeks on the Nielsen top ten:

IMAGE 4 - Week by Week Nielsen Ratings

– So The Crown was big? Yeah, that’s what the Nielsen data says. However, this is partly expected because The Crown now has four seasons airing, so that’s a lot of episodes to catch up on. The limitation of Nielsen’s data is we can’t see season level viewership. (That’s right, they give us some data and I just want more!)

– Did I undersell The Christmas Chronicles? Maybe. According to Nielsen’s data through the beginning of April, The Christmas Chronicles 2 had Netflix’s biggest film launch of this year in the United States by minutes viewed through the first two weeks! (36 million hours to Extraction’s 31.6 million hours in the first two weeks.)

– Did Hulu overhype Run? I think so. Hulu went so far as to release a vague press release calling Run its best performing film launch of all time. The problem for my system is that “run” is so vague that it didn’t register on Google Trends. So I said we’d wait for the Nielsen data to make a final call. When Nielsen released its weekly ratings for Thanksgiving weekend, Run didn’t make the cut.

Nielsen 2020.11.23 copy

– What about The Flight Attendant? At first, I was tempted to say that this HBO Max drama underperformed as well, because it didn’t make the Nielsen Top Ten. Then folks on Twitter (helpfully) pointed out that Nielsen isn’t tracking HBO Max yet. So we don’t know. Though, given that they only track services with a significant volume of regular viewers, likely The Flight Attendant wouldn’t have made the Nielsen top ten either.

My Favorite Ratings Tweet of the Quarter

This comes from Michael Mulvihill, who analyzes ratings for Fox Sports:

I would add, while he’s comparing 60 Minutes viewership to The Queen’s Gambit viewing, but that’s US only numbers compared to Netflix’s global viewership.  (Correction: I initially wrote NFL instead of 60 Minutes. As I’m supposed to say, I regret the error.)

Is Streaming Winner Take All? My Question of the Year for 2021

Well, give 2021 credit for trying to catch up with 2020 in terms of monumental new stories. This is absolutely one of the craziest weeks in my lifetime and I assume many of the folks who read. (Though, for historical hindsight, we tend to forget how absolutely chaotic the 1960s were, which featured the assassinations of at least 3 major political leaders. This isn’t to downplay the events of this week, but to emphasize that US democracy is always a fragile creature.)

The holidays tend to be slow for entertainment news, so we can take our time catching up on it. The biggest story–how did the big straight-to-streaming films perform?–I’ll handled over at Decider. In the meantime, let’s get reflective on the year that will be.

(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 Question of the Year – Is Streaming a Winner-Take-All Market?

In my first column last year, I said that 2020 would be defined by this question:

“What is the same and what is different between streaming and traditional distribution?”

Little did I know that we’d have a lot of things that were extremely different in 2020, namely a global pandemic that threatened to upend streaming and traditional media. (The biggest hypothesis is still that Covid-19 “changed everything”. I don’t really buy that; flashy world-altering headlines get the clicks but I’m a little skeptical about how much actually changed. We’ll see.)

My 2020 question and the lack of an answer shows a lot of the problem with articles predicting the future. It turns out that’s really hard! That’s why I like the approach of not predicting the future, but figuring out the most important question for the given year. And I have the question that I think 2021 will potentially answer. And if it does answer it, the consequences for entertainment are huge:

Is Streaming Video a “Winner-Take-All” Market?

Specifically, will one firm take a commanding lead? Will they capture a huge portion of the marketplace? Something like 70-90% of the value of the market? Contrariwise, do the streamers split the market—defined by subscribers, revenue, viewership, you name it—roughly evenly? Or does it land somewhere in-between? Say a few big winners with a lot of smaller players fighting for scraps?

Take the United States, which is probably the most mature market. As it stands, we’re in between the extremes of market consolidation. There is one clear dominant streamer, but it has by no means a monopoly on viewing. Specifically, Netflix has roughly 30-35% of the viewership depending who is measuring and when:

Comscore via Hedgeye by Type copy

This year, that number grew a pinch. Long term, that share of streaming viewership is declining. This massive viewership translates into the largest streamer by total subscribers:

chart-us-paid-streaming-subscribers

That said, Netflix got to develop such a dominant position because until 2019, Netflix only had two real rivals, Hulu and Prime Video (CBS All-Access is older than you think, but until recently has felt like a side project for CBS.) Now Disney, HBO and NBC are all-in on streaming. And ViacomCBS is half-in on streaming.

Can those firms catch up to Netflix? Or does Netflix keep growing and outpace its rivals? Can Disney+ catch up with Netflix in total US subscribers? Or Peacock and HBO Max? 

I think 2021 is the year we find out. Not all the services will catch up to Netflix in one year, but we’ll at least find out if this is going to be competitive or not. And that’s huge.

The Ramifications of this Question

To start, Netflix is the biggest beneficiary of the assumption that there will be one winner in streaming. The thesis is that “Netflix will become TV”. Not just a channel, but the whole shebang. That’s a winner-take-all economy. That’s network effects. That’s what has driven the huge valuations of the rest of the FAANGs (Facebook, Apple, Amazon and Google).

If Netflix can’t dominate streaming, then the better analogy is that Netflix is a new “bundle of channels”, much like what Disney, NBC-Universal and Viacom-CBS already were in cable. What has changed is the distribution. If that’s the case, woe to Netflix’s stock price.

This also matters for all the other streamers. They want to be a piece of the streaming pie. If Netflix owns the whole pie outright, then the investments of Amazon, AT&T, Disney and Comcast will utterly fail.

Further, this impacts the device and operating systems of the world, Roku, Amazon, Microsoft, Apple and Sony (the RAMAS if you will). If Netflix is the once and future king, it will have the leverage to negotiate those devices into oblivion. If they aren’t, then all the streamers may lose to the RAMAS’ value capture. (Their fees to sell subscriptions will capture most of the profit margin from the streamers.) 

My Take? Streaming Won’t Consolidate

If you’ve read my website for any amount of time, you can guess how I think this question will be answered. (So fine, I am making a prediction!) While content often performs with “logarithmic distribution of returns”, channels don’t have quite the same variability. (Or the winners can shift over time fairly easily. NBC won the 1990s, CBS won the 2000s; HBO won the 2000s, but Showtime almost caught them until Game of Thrones.) Frankly, this is where I see streaming headed: consumers will have multiple streaming services simultaneously, meaning there will be leaders, but not dominant winners.

Notably, part of this thesis stems from a skepticism on the presence of “network effects” for streaming video. (And the dreaded “flywheel” for Netflix.) For user-generated content, network effects were very, very real. The more users posting videos on one platform, the more viewers used the platform, so the more creators who posted videos on that platform. Hence, Youtube has demand-side increased returns, and it’s winner-take-all. Same for Google in search, Facebook in social, and Amazon more web marketplaces. 

The biggest input for streaming video, though, isn’t user data—which allegedly is Netflix’s driver of their winner-take-all flywheel—but the quality of content. And since the difference between 30 million subscribers and 60 million in data terms doesn’t produce that much better content, network effects in streaming video likely won’t appear. So it won’t be a winner-take-all market.

At least that’s my theory!

I’m not certain and as an analyst I’m willing to be upfront with you, instead of pretending to a level of uncertainty most analysts can’t truly possess. (Is this a bit of shade throwing at some of my entertainment business peers? Sure. Welcome to 2021!) The rest of this year will help me/us figure out if we are/were right or wrong. 

Other Questions That Will Define 2021

Does the live/experiential economy feature a boom?

When a vaccine was announced, I speculated about the upcoming “year of bacchanalia”. Over the break, I was glad to see another pundit take this same stand in Andrew Sullivan. His/my thesis is that once the vaccine begins rolling out in force, we’ll see folks make up for the lost time of 2021 by partying. For entertainment, this means lots of potential revenue. Concerts will see booming attendance, same with music festivals, bars, parties, travel, theme parks. You name it, we celebrate it. Quoting myself:

Customers in 2021. My biggest prediction is that we see a big rebound emotionally/culturally/socially. Take the Roaring 1920s and pack it into one year. Folks throwing big parties. Or holding double birthday parties. Splurging on outdoor concerts and festivals. Big vacations. In other words, 2021 becomes the year of the party. The pent up demand hypothesis.

The challenge will be figuring out if this is happening. If we use full-year numbers, it will be hard to see, since no one knows when we’ll feel safe to party again. It could be by March (if deaths fall quicker than expected) or fall (when we achieve herd immunity). Or somewhere in between. I’ll be looking to use per capita numbers as much as possible to untangle this.

What happens to theaters?

They’ll suffer the same uncertainty as the live economy, with more pronounced scheduling problems. The key date for me is May 7th, when Black Widow premieres. If theaters can be at full capacity in America by then, the entire world looks better. The other question is how firm the theatrical release slate is and how much the studios are willing to spend on marketing. And then whether or not the theaters can make it to May. Lots of question marks.

What happens to the economy?

The entertainment industry isn’t quite as recession proof as folks have made it out before. If wallets are trimmed, some entertainment spending goes with it. Some cheaper forms of entertainment, though, can resist this trend (like theaters) and some limited capacity forms of entertainment can also focus on high-wealth individuals (like concerts, sporting events and some theme parks). 

Thus, in 2021, entertainment folks would rather have a booming economy than a stagnant one. Folks are now openly speculating about a “v-shaped” recovery again, but it remains to be seen if the damage of 2020 can be overcome that easily. (Lots of businesses closed that may never come back, and that damage can take years to overcome.) The solution is lots of stimulus, which it sounds like Biden is considering.

Other Contenders for Most Important Story

If I weren’t speculating about the future of this year, what could have been the story of the week? Glad you asked. 

Roku Acquires Quibi’s Library

Is this a good deal for Roku? Who knows. If I knew the price, I still couldn’t tell you because I don’t know how good these shows are. If the price was very, very low, then maybe. Really, though, this is still a content licensing deal since Quibi didn’t own most of the shows, but was either licensing them or co-producing them with top talent.

Apple TV+’s Bold January Release Schedule

I’m sure if Apple TV+ could have, they would have released a lot of season 2 TV series back in the fall, a year or so after they launched. Instead, a lot of shows got the “Covid-19 pause” and it looks like Apple TV+ is on track for a big January, with Dickinson, Servant, Losing Alice and Palmer releasing each week in January. Also–and this is big–Apple TV+ is moving some shows to a weekly release

The upside is this will keep folks engaged (hopefully) through Q1. So I love that. The downside is a few other big shows still have vague “2021” release dates, like The Morning Show and Foundation. Apple TV+ still has new service growing pains, clearly.

For those keeping track, Disney+,  Apple TV+ and Prime Video have all released some shows weekly. (HBO Max has flip flopped on this point.) At this point we have to ask, who really knows more about release schedules: the rest of the market or Netflix?

Discovery Plus Launched

And it’s here! Discovery+ launched this week, and the reviews are much stronger than I anticipated. Rick Ellis makes the case that Discovery+ will help a lot of folks cut the cord, what I would call the next gen of cord cutters. Dan Rayburn says it is intuitive to use and has a massive library. I’ll be curious when we see the numbers on this one.

I’d also add, the Food Network Kitchen experiment doesn’t seem to be going well, and I wonder how long that standalone service lasts.

Netflix Increases Prices in the UK

This brings the UK in line with US prices (roughly) so it wasn’t unexpected. (The price increase in the US was!) Still, it will be fascinating to see how these latest price hikes fare in the next year with much more competition.

CyberPunk 2077 Security Fraud Case

Read about this interesting case either at Sportico or Matt Levine’s newsletter. Essentially, some folks are suing the makers of CyberPunk 2077 for releasing a game that was so bad it had to be recalled. Of course, some entrepreneurial lawyers will always sue claiming “securities fraud” for almost anything. However, this could set a precedent for digital products that are released and fail to meet their billing.

M&A Updates

Amazon is acquiring another audio platform, podcaster Wondery, to boost its Amazon Music platform. As the article notes, Amazon also owns Audible, which competes with a separate subscription in narrative audio. When a company is so big it’s competing against itself, that’s probably too big, right?

As for the strategy, it’s fine. The biggest harbinger of doom is for Spotify, though. It would be much easier to corner the market on audio if Apple, Google and Amazon weren’t all fighting you for it. (We could also ask, is music streaming winner take all?)

Context Update 

When it comes to regulations, I have my eye on antitrust for 2021. (I should have put that in the other questions above!) I hadn’t really considered unionization, but this could absolutely become an issue for the big tech firms. Like antitrust, this is a regulatory issue where a motivated Biden Presidency could make lots of changes without Congress passing new laws. So keep an eye on Amazon to see if unionization pushes come to them.

How the Antitrust Case Against Facebook Could Upend the Streaming Wars: Most Important Story of the Week – 11 Dec 2

Disney is a marketer’s marketer. With the biggest brands in entertainment, they can serve up an investor day—an investor day that is for Wall Street investors!—that gets regular folks to turn in and trends on Twitter. Yet, for all the buzz, the basic story was that Disney is releasing Disney content on the Disney branded streamer. We’ll get to that, but another story could have bigger implications for entertainment.

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Most Important Story of the Week – The Antitrust Case Against Facebook

A few months back, following Epic’s Games epic lawsuit against Apple, I stated that I planned to follow “antitrust” news fairly closely. Because antitrust could be the new “deregulation”:

I’ve been scanning the landscape more over the last couple of months to look at the future. And the “blue ocean” space in the entertainment strategy landscape for me isn’t technology–again, the futurists have it covered–but how regulation could change business models. And this is a hypothesis I’m monitoring: 

Could antitrust enforcement could become the new deregulation?

Deregulation was arguably the biggest driver of disruption in the 1970s and 1980s. Deregulating industries across the globe from airlines to energy to telecommunications repeatedly enabled smart firms to seize new advantages. That airlines example above is a perfect example; Southwest likely doesn’t become Southwest without deregulation.

Generally, everything has been deregulated. So what comes next? My guess is a reversal of antitrust. 

Since then, the signs that antitrust is on the agenda have only picked up steam. Consider:

– The House Antitrust Subcommittee released the “Cicilline Report” which laid out how the four big tech firms have used their market power to hinder competition.

– The Department of Justice filed a lawsuit against Google for specific antitrust violations. State Attorneys General are expected to follow suit.

– Joe Biden was elected as the next President of the United States. While there is some bipartisan support of renewed antitrust legislation (see Google’s antitrust suit, filed by a Republican), Democrats are still clearly more supportive than Republicans on antitrust.

– This week, 48 states and the Federal Trade Commission filed an antitrust lawsuit against Facebook. (Also a bipartisan move.)

In August, I laid out a few waypoints that I would watch to see if increased antitrust enforcement was likely coming. We hit the big one (Biden’s election), the next biggest (Congress increasing pressure) and now antitrust is headed to the courts (Specific lawsuits against Google and Facebook). As the future becomes slightly clearer, then, it’s worth expanding the potential for what comes next, especially for entertainment and media.

Predictions

What happens next?

To start, more antitrust lawsuits for the rest of big tech feels inevitable. Amazon seems particularly easy given that they have leveraged their market power in retail for years to enter new industries or stifle competition. The complaints from smaller vendors are legion. (The diapers.com affair from the start of the decade is particularly egregious.) Apple is more beloved than Amazon, but the Fortnite fiasco basically illustrated in stark terms Apple’s market power, and brought up a host of smaller competitors crushed under their power. Both Amazon and Apple, though, are more popular than Google and Facebook, which have both been embroiled in partisan bickering.

After that? The states/FTC/DoJ will either win or lose their lawsuits. That proposition is dicey because these suits are decided by individual judges, many of whom were appointed by Republican presidents with The Federalist society backing “Borkians” who tend to downplay antitrust concerns. Or in some cases just don’t believe antitrust is worthy of government attention.

If the states lose their lawsuit, then it would require Congress to change the laws around antitrust. That’s a much tougher challenge in today’s political landscape. But not impossible. (The Georgia run-offs will say a lot on whether this is possible.) Assuming that the Big Tech companies lose their fight, then come the potential remedies, which adds another layer of complexity to predicting what happens next.

Potential Outcomes

Let’s be honest and let the air out of the balloon right off the bat: The most likely outcome is that Big Tech is mostly left in place. Think Microsoft in the 1990s. In the worst case, the companies agree to some measures to control their behavior, but immediately go back to not following them and paying minuscule fines.

This is, essentially, what has happened with most merger consent decrees this decade. Facebook said it wouldn’t integrate What’s App’s data, then did it anyways. AT&T said prices wouldn’t go up after mergers, then raised prices. The companies pay the fines and keep consolidating. Disney said it would keep producing Fox movies, but now may release fewer films in theaters post merger than they did before.

The best case would be consent decrees that are enforced. Like the Paramount Consent Decrees of the 1950s. This helped movie studios and theaters thrive. Or AT&T’s forced divestment of patents in the 1950s. This spurred innovation across the U.S. landscape, which really did help competition. (It does say something that success examples of this happened 70 years ago…)

The bigger, and more fun to imagine, scenario is breaking up big tech. (And while I try to avoid my own policy recommendations, this is the outcome that I believe would benefit America the most.) These breakups could be either horizontal (the same industry) or vertical (different business units in the same company in related fields). 

Vertical is actually easier in most cases since the different companies don’t need each other to survive. So for Amazon, spinning off AWS, for example, would hardly impact Amazon’s retail business. (Though it would deprive Amazon of a valuable profit stream.) Google has multiple business units that could easily survive on their own. I’d add that splitting up Instagram and What’s App from Facebook are horizontal break ups, but relatively easy to contemplate since customers wouldn’t notice a change. (I’d make the same case for Amazon breaking up their marketplace from their other retail enterprises.) 

While vertical break ups in many cases don’t address market power, they are still very helpful for competition, since it means the firms left in a given industry can compete more evenly. (And most vertical integration tends to be followed by price gouging, product tying or other anti-competitive behavior.)

The key question for entertainment is whether each of the big tech titan’s entertainment enterprises get divested individually or remain as part of the bigger conglomerate. I could argue that Google should easily divest Youtube. Youtube can clearly survive on its own, but this would also give a powerful new internet advertising option to marketers. Apple could divest its media fairly easily (they are all just apps running on their operating system). Amazon has a better case for Prime Video staying in Prime, but even that isn’t ironclad. (Ask yourself: couldn’t Amazon pay the new Prime Video to stay in their Prime bundle? Yes, obviously. So why wouldn’t they? Because the value isn’t actually in the current video/data, it’s the market penetration to gain dominance overall.)

This is an unlikely scenario I’ve laid out. The plaintiffs have to win their lawsuits and then the remedy has to be the most extreme of remedies (break up). But imagine we do get here. Who are the winners and losers of this world? Imagine that Prime Video becomes its own company (with Twitch, Amazon Music, Audible and maybe a few other assets). Apple One becomes its own company (Apple Music, iTunes, TV+, Arcade and so on). And Google spins off Youtube.

Who wins or loses in this scenario?

Winner: Netflix

Say what you will about being bearish on Netflix’s business model, they aren’t a monopoly. Some investors want them to become one (building a “moat”), but a company with only 8% of all viewing in the United States is hardly a monopoly. Indeed, the biggest threat to Netflix, in my mind, is the unlimited cash reserves of Apple and Amazon. If forced to compete on an even playing field, this would benefit Netflix. (With the caveat that multiple new streaming companies on the NASDAQ may impact all share prices simultaneously, for good or ill.)

Winners: Traditional Streamers

Cord cutting is the biggest pain point for traditional media. But the biggest challenge, more than anything, is competing against competitors who don’t have to make money. If Big Tech had to compete on a level playing field–read not deficit financed–traditional media has a much better chance to survive in a streaming world.

Further, there is a big difference between radical disruption (where revenue drops by double digits year over year), and slow evolution (where profit margins slowly decline). Both get to the same place (which is the likely outcome from streaming), but one has a lot less pain for the incumbents and their suppliers. 

Losers: Prime Video and Apple

These seem like the two biggest losers in all this because most folks acknowledge that their streaming business models just aren’t based on actually delivering a valuable product. Phrased differently, no VC firm would invest in Apple TV+ if it weren’t owned by Apple; there is no business plan there. Spun off from their parents, these new media companies would be valuable, but much less invincible.

Losers: AT&T and Comcast

After Big Tech, if Congress wanted to find the industries that are heavily consolidated and hated by customers, cellular and cable are next on their wishlist. (Then health care.) Breaking up Big Cable would probably be the most popular move of the Biden administration. 

Winners: Roku and Sonos

If devices are sold at cost, the independent device makers have a chance to succeed and thrive.

Winners: Talent…probably.

In a lot of ways, the boom of streaming and peak TV is the best of times and the worst of times for talent. More shows and films are being made than ever before, but back end cuts are smaller than ever before. Meanwhile, junior writers work for some of the worst pay in the last few decades. Arguably, with many more streamers who are less powerful, the guilds could negotiate better rates, especially down the line. 

However, this may be offset by the end of the so-called “Drunken Sailor Era” (™ Richard Rushfield) as firms have to start making actual money. So they could cut back on content spend. That means less potential jobs overall.

TBD: Customers

Like talent, this could go either way. On the one hand, it has been great for customers to have multiple firms willing to subsidize cord cutting. The problem is those subsidies are harmful long term and entrenched market power is awful too. So prices could go up, but they’d reflect economic reality. Meanwhile, customer choice would come either way.

The Caveat: All of this is Unlikely

Does a huge break up of Big Tech, including spinning of media firms actually happen? Probably not. But without throwing out random probabilities, it’s probably twice as likely as it was even in August. (So yes, this is like a streamer saying a show grew 50% year over year. 50% of what?)

Yet, Biden was elected President, and that’s huge. Combined with renewed emphasis by the Democratic coalition, and I think corporate consolidation is on the table for change. He’ll likely appoint attorneys general, federal judges and administrators who could put a renewed emphasis on antitrust. That will impact entertainment eventually.

Other Contenders for Most Important Story

Disney Investor Day

Few analysts are (and have been) as bullish on Disney’s streaming future as I have been. I write that to put in context what I’ll write next: I don’t think this Disney Investor’s Day deserves the hype it has been given.

Take a few of the headlines touting “10 New Star Wars and Marvel” series coming to Disney+. That sounds huge. But given that this will take place over the next few years, is it? In context? Take this analysis by Emily Horgan:

Or take my timeline I’ve been using to model Lucasfilm’s financials:

base

And for kids…

kids

In other words, Disney confirmed what I’ve been modeling for a while now. This Star Wars volume is a pinch higher, but considering the volume of one-offs, not that much more than I modeled. But most of Wall Street/the trades seem surprised by it. I’d add there are a few more caveats for why the total volume of content may not match the reality:

– Shows will likely get cancelled. Like Ghost Rider, Benioff and Weiss’ Star Wars Trilogy, Howard the Duck, Rion Johnson’s Star Wars Trilogy, more Han Solo films, and countless other projects over the years.
– A lot of this content is animated and for kids. Which is crucial to Disney’s future, but likely replaces exactly what they were making for Disney Channel, Disney XD and Disney Junior. Which we weren’t getting super excited for before streaming times.
– Some of the announcements really are for a long way off (like a Rogue Squadron film in 2023). Most announcements didn’t have dates.

In total, then, I don’t think this is really much more content than Disney was planning on making last year or the year before. Some of it may have shifted from film (previous pitches for movies may have turned into TV series, like potentially Obi-Wan), but it’s probably similar. At the end of the day, it looks like from 2021-2023 we can bank on a Disney live-action adult series every 2 months or so on the platform for Marvel and Star Wars. 

That feels about perfect. If they can keep up the quality, that’s a big slate that will keep folks subscribed. It’s also the “if” that defines all success in entertainment.

(Though Disney+ still has a big hole for adult TV outside of Marvel and Star Wars. That’s a tough hole to fill.)

As for business strategy, the biggest news is no news. Hulu stays where it is. Star is officially becoming Disney’s adult brand globally. ESPN+ will continue expanding, and be available within Hulu. And lastly only one film is “breaking” the theatrical window, with Raya going to Premiere Access (like Mulan’s $30 release) simultaneous with theaters. (I have a feeling it will do much smaller business than Mulan on PA.)

An NFL Update: Ratings are Down, but Good for Broadcast

Is the state of the NFL viewership good or bad? Maybe both. Americans consume NFL football more than any other sport–arguably more than any other type of content period–yet the ratings aren’t as high as past years (down about 8%) because linear TV viewing just isn’t as high as it was (down about 30%). This of course begs the question for what happens next. I can’t see a world where broadcast TV doesn’t nab a few more years of NFL rights, even non-exclusively, but the key question is, “At what price?” Likely they will be high.

Disney+/HBO Max and Comcast Integration

Disney+ and HBO Max will soon be available on Comcast’s Flex operating system. This is a smart next step for both Disney+ and HBO Max. (If anything it should have come sooner.) For all the talk of cord cutting–and there is a lot!–one of the surprising survivors is the cable box. This makes it much easier to reach another big group of customers that Netflix and Prime Video are already reaching.

Data of the Week – The Hallmark Channel Is Still Winning Christmas

Josef Adalian has the details in a recent newsletter, but 3.4 million folks tuned in on one Sunday for a Christmas movie. Linear TV is dead, but it won’t lie down.

M&A Updates

Just because antitrust is back on the agenda doesn’t mean that mergers won’t continue fast and furious. The two latest biggies both have tangential relations to entertainment. Slack is the de facto messaging service of lots of Hollywood, and it was just purchased by Salesforce. Meanwhile, S&P and IHS are merging for a huge price tag because they are both financial data firms. S&P fascinates me because they had earlier purchased SNL Kagan, and Kagan was a tremendous source for entertainment data back in the day.

The Top Four Licensed Shows on Netflix Account for 6% of Netflix’s Viewing in the US – Visual of the Week

In 2020, Netflix lost the rights to Friends. In 2021, they lose the rights to The Office. How much do those big shows impact viewing on Netflix? 

Quantifying that via Netflix’s data is fairly hard, though, since they focus overwhelmingly on their original series, as that’s the key to “building a moat” in the eyes of shareholders. Fortunately, Nielsen is now tracking consumption in the United States. Which means we have one third party firm who can help us answer the question.

Today’s visual answers this question:

How have the top four licensed shows on Netflix done this year?

Here’s the “Data Ws” to answer how I calculated this:

Who – Streaming customers
What – Total hours viewed (Nielsen million minutes divided by 60)
What (platform) – Any service
Where – In the United States
When – From week starting March 9th to Nov 2nd 2020, minus March 23rd
When (time period) – Measured Monday to Sunday.
How (did I get it) – Nielsen provided weekly top ten.

Here’s the answer in visual form:

IMAGE 1 - Chart of Top 4

However, we need context. As in, what does this mean? Well, to start, here’s the total viewing over the 34 weeks I have data for. And you can see what a big percentage of this top ten viewing this makes up.

Screen Shot 2020-12-08 at 2.00.59 PM

To quote Shawshank, if you’ve come this far, Red, maybe you’ll go a bit further. And that is really asking this question, “Hey, EntStrategyGuy, does this matter in terms of all Netflix’s viewing? Nielsen doesn’t provide that, do they?”

No, but Netflix has!

In two different earnings reports, Netflix reported that they make up about 100 million hours of viewing per day in the US. (In the 2018 end of year report and again in 2019.) Let’s make some scenarios to cover our bases. First, we could assume Netflix has grown somewhat during Coronavirus. That’s the high case, and I’ll use Nielsen’s estimate of 44% growth from this year for that. But Netflix could have been cherry picking their 10 million hours per day number too, so I’ll use the lower estimate of 6% of all viewing Nielsen estimated in Q1. That gives us this range:

Screen Shot 2020-12-08 at 2.01.32 PM

Is 6% a lot of content to lose? I’d say yes, and we don’t know how losing Friends impacted them because we don’t have the data. The good news is Grey’s Anatomy isn’t going anywhere as long as it stays on the air. The bad news is The Office is gone this month. (I’m not sure for NCIS or Criminal Minds.)

One bonus insight: Folks may be tempted to say that the higher viewership of licensed shows happens during times when content is weak. This actually isn’t true. Netflix’s highest viewership of originals actually peaked this year in March, according to Nielsen, and licensed shows saw higher numbers during that time period. 

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Is Prime Video Fifth Place in the Streaming Wars?: Explaining the EntStrategyGuy’s US Paid Streaming Subscriber Estimates- Part II

(This is the last article in a three part series estimating how many US paid streaming subscribers there are in the US. Read the numbers here, and the first half of the explanation here.)

If you’re wondering, yes, I deliberately wrote three (almost) contradictory headlines for the last two days. In one, Netflix is clearly winning the streaming wars. In the other, Disney is almost winning. In the third, the often second place streamer, Prime Video, got ranked in fifth place. What’s the reality?

Somewhere in between. Or somewhere else entirely.

That’s what the point is for these articles the last two days. Not just to see the current subscriber totals, but to understand the nuances between them. To understand how the numbers interact so we can not just figure out not just who is winning the streaming wars, but what could happen as they get more competitive in the next few years.

Today, I’ll continue explaining how I estimated each streamer’s subscribers, but let’s start with why I did this analysis. At the end, I’ll put some fun charts that summarize this analysis.

The Reasons I Did This Deep Dive 

As I’ve been analyzing the streaming wars, it’s been increasingly clear that this is a war fought on a country-by-country basis. Netflix’s global growth is incredible, but it is only one, likely overrated, part of the story. The actual battles are in individual countries. 

Given how big and important the U.S. market is, it makes sense to start there. Since I’ve been evaluating who is “winning” the streaming wars, I needed to know how everyone is doing in America. Subscribers are one of those key metrics. However, if you search the interwebs, you won’t find a reliable estimate for each streamer. Thus, I needed to build these numbers myself and if I was going to do the work, I should share it here. 

Not to mention, I have a bias against using other folk’s numbers. My rule of thumb is that I don’t trust anyone. Especially if the source of a number is vague/uncertain/biased.

Lastly, I can do this analysis because I’m freed of some journalistic conventions. This website features my thoughts and analysis. Most journalists can only cite specific facts via companies or well-established consultancies/investment research. That’s what leaves most estimates wanting. Since I’m allowed to print whatever I want, I can mix estimates with facts. But I’ll just tell you the difference.

Analysis Continued: How I Determined Each Number

Prime Video

Time for some guesswork. 

As I wrote Wednesday, this will require an estimate of an estimate of an estimate. Or a guess.

First, we have to find the number of Prime subscribers globally. (Itself unknown.)

Second, we have to figure out the proportion who are in the US.

Third, we have to figure out how many actually use Prime Video.

Fourth, we have to guess of those who use Prime Video, how many use it and would pay for it?

Like I said, some guess work!

To start, I looked for US estimates of Amazon Prime subscribers and couldn’t find any numbers I loved. One firm does an annual survey, but they estimated 126 million US subscribers the same month Amazon announced 150 million worldwide Prime subscribers. That’s way too high then. However, the estimate isn’t for Prime subscribers, but folks with access to Prime. (Always ask “What is the ‘what’ in this statistic?”) So you could divide their number by 2.2 (for the number of people per household), and get the potential number of subscribers of around 50 million Prime subscribers in the US. That’s a floor.

On the other end, you could assume Prime membership is related to sales in a given country. Since Amazon breaks out revenue by United States versus Rest of World, we can see that here:

IMAGE 8 - AMazon Rvenue

If that’s the high and low ranges, then what I’ll do is take Amazon’s announced membership in January (150 million), and use some nice round numbers. (And yes, I didn’t model any Amazon growth this year, so yeah, more unknowns on top of unknowns.) 

The next question is how many folks actually use Prime Video. We could use third party sources for that—hang on a moment—but it’s worth building out the sensitivity table just to see how wide the range could be. I made a “Monthly Active” users sensitivity table to give myself a range.

IMAGE 10 - MAUs

If someone uses a service monthly, they are much more willingly to keep paying for it if they have to. (ie. if Amazon some how took Prime Video out of the Prime membership.) I also took a look at “annual active users”, but the range was too wide to be useful.

But I had one other piece of data floating around in my head. See, various streamers like Nielsen and Comscore track streaming usage. And Prime Video and Hulu have been remarkably close over the years. 

IMAGE 11 - Nielsen Total Mins copy

That image is from earlier this year, when I wrote that “Netflix Is a Broadcast Channel”. In other words, if Prime Video has about the same usage as Hulu, it stands to reason it will have about the same number of folks willing to subscribe (at a $6 price point). Prime Video looks like it has grown a bit compared to Hulu over the last few years, but in general, they have about the same amount of usage.

What about the range? Well, you could convince me of anything. For my table above, I could see literally as few folks as CBS All-Access (say about 12 million). On the other hand, maybe folks do value Prime Video more than Hulu. So I could see it up to say 50 million US subscribers. (I just can’t imagine it is as valuable as Netflix when few folks watch nearly as many Prime Video shows.)

Starz

Starz, on the other hand, provided us all facts. In fact, some of the best facts of any of the streamers. While they have changed definitions a few time, they straight list out their past numbers. See?

IMAGE 12 - Starz IR

Kudos for the transparency!

However, like HBO Max, the number of potential “streaming” subscribers is somewhere between the total of all linear and OTT subscribers, and the OTT subscribers only. You can decide where you think that falls, but I count them all for now.

Apple TV+

Now back to the guess work!

Apple has had a good year for Apple TV+, but they refuse to release any numbers on its performance. Complicating things, Apple TV+ is also available globally. This was the same problem we ran into with Disney+, only with less data. The last leak we had was from Bloomberg in February, which estimated that about 10 million folks worldwide are signed up for Apple TV+, with the caveat that maybe half are actually using the service. 

Time for the proxies. Since Apple TV+ is mainly for folks buying new devices, we’ll start there. If you want to analyze potential subscribers by iPhone sales, the best proxy for penetration, here’s the non-China iPhone sales numbers from 2017, according to Business Insider:

IMAGE 13 - iPhone Sales

My logic for Apple TV+ was to take that rough percentage, and boost it slightly for the US, given that most Apple TV+ content is US focused. Then we’d add a 35% “Covid bump”. (Roughly what Starz and CBS All-Access saw this year.) Bingo, we get our guess of 6.8 million customers. 

What about the range? Like Amazon, you could convince me of anything. The high could be all 10 million leaked customers were US based (or nearly so) and the Covid bump got it to 13.5 million. The low would be 2 million folks, all of whom are Ted Lasso fans. (The buzziest show among entertainment business Twitter after Succession.) 

AMC

More facts from AMC. They’ve leaked that they expect their portfolio of streaming services to end the year at around 4 million US paid subscribers. To be clear, this is me cheating slightly since their premiere service AMC+ (which includes content from their other streaming services) may not have passed the 2 million threshold. I’m counting all their streaming subscribers, when you could argue they belong with the “niche” services. Still, they expect to pass the 5.5 million mark by the end of the year. So that’s the high point, with 4 million being the low. 

(I haven’t written on AMC+ yet, but I am bullish on it as a “second tier” player. More to come.)

Peacock

Last guess. Peacock has 22 million “sign-ups”, up from 10 million at their first earnings report after Peacock’s launch. So how many of those are paying? 

I have no clue. None. Zip. Zilch.

But it’s likely small. Given that Peacock is advertising forward, the vast majority of users are likely interacting with it that way. (Of all the companies, I’d love this data point most of all. Well, maybe Apple TV+, then this one.) So I built a sensitivity table, and picked 15% as the number that made sense to me. I’d say the floor is 2 million (just making this list) and up to about 20% of subscribers, or 4.4 million subscribers, if folks are beating my estimates.

The Comparison Table

So with that, let’s make a few final fun tables. First, here’s the chart of my ranges of each estimate. In a lot of ways, this is more valuable than yesterday’s chart:

IMAGE 14 - Min Max Table

These ranges really tell us how wide the potential options are. Hopefully, we learn more over time, but you can see that the premium linear to streaming conversion will be an important statistic to monitor.

And now the confidence ranking table.

IMAGE 15 - Confidence Table in Rank

In other words, you can quickly see who provides clear numbes, who we can confidently estimate and who is the guess work.

Lastly, here’s my full table with the definitions and calculations explained:

Table - Full US Sub Estimates

So this provides a short hand way to know how I calculated the numbers.

Hope you enjoyed and again provide your estimates or feedback in the comments or on Twitter.

Disney Has Almost Caught Up To Netflix in the Streaming Wars: Explaining the EntStrategyGuy’s US Paid Streaming Subscriber Estimates- Part I

(This is the last article in a three part series estimating how many US paid streaming subscribers there are in the US. Read the numbers here, and the second half of the explanation here.)

I’ve become a pinch frustrated with media folks who don’t differentiate between the US subscribers compared to global subscribers. Why? Because it violates the number one rule of data, which is to compare things “apples-to-apples”. Meaning, one should compare the most similar numbers to each other. 

Not to pick on them because they do great work, but the wonderful Axios Media Newsletter (which reaches a lot more folks than I do) was guilty of this this week:

IMAGE 1 Axios - Total Subscribers

That looks at Netflix’s global numbers to HBO Max’s US only numbers. That doesn’t make sense, does it? Meanwhile, it’s compares Prime Video customers, who get it for free, to those genuinely paying for Netflix. And Apple TV+ can’t make the list since we know nothing.

So, as I wrote yesterday, I stepped up to provide some estimates for each of the major streamer’s US subscriber totals:

Chart - Updated Totals not title

And the chart. (With some typos fixed from yesterday.)

Table Abbreviated

If yesterday is the data shot, today is the analysis chaser, describing the details of what I did and how. Which is just as important. If you read yesterday’s article, you’ll learn some statistics. If you read today’s—and yes it’s long—you’ll learn about what is driving these numbers.

We have a lot to get to over the next two days. Here’s the outline:

– The rules I used to estimate US subscribers.
– The confidence levels for each estimate.
– The explanation for each of the twelve major streamers.
– The reason for this deep dive. (Mainly the need for “apples-to-apples” comparisons.)
– Finally, a chart with the ranges for each streaming estimate.

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The Rules

In a quest to get to “apples-to-apples”, I had to figure out what type of apples we were dealing with. Here are the ground rules, in rough order of priority:

– First, US only. Global subscribers will come later.
– Second, subscription was the key. Free or advertising-supported services from Youtube to Pluto TV didn’t make the cut.
– Third, the goal is “streaming”, but I added “premium” channels too. Because frankly, lots of folks subscribe to HBO, Showtime and Starz directly. Ignoring that provides less context than more. So the premium companies made the cut. The linear channels paid through a cable bundle did not.
– Fourth, the goal is to focus on who “would pay” for a service. In other words, for Apple and Amazon, to try to figure out who would pay for those services if they suddenly cost money.
– Fifth, I had to draw a line somewhere or I’d have too many subscription services. I decided to focus on “major” services, which I defined as 2 million customers and above.
– Sixth, some services are very cheap as well, so I’m assuming roughly a $5 per month price point as the cut off. Yes, there are tons of discounts that get applied, but this is a good starting point.

My Confidence in Each Prediction Explained

Last year when I calculated how much money Game of Thrones made for HBO (a lot!), I realized I was dealing with a few different types of information. And I needed some categories to describe them. So I came up with this:

IMAGE 2 - Confidence Table

A fact is something a company has confirmed in a specific report or statement. Or in some cases ratings numbers and what not. Those are numbers we can believe in. Leaks are also from companies, but usually anonymous. They are fine, but always be careful with leaks. Companies are very self-interested and their PR folks—who are still good people—will mislead you. Specifically, with data that reinforces how well they are doing and hides any bad news. (The definition of bias.)

Estimates are predictions I am confident in. Usually it means I’m taking a few specific numbers and applying good models to them.

A guess, on the other hand, is usually when I have to estimate too many things. At which point my confidence in the estimate starts dropping. Which doesn’t mean educated guesses are bad, just uncertain. (Magic numbers are briefly explained here.)

Analysis: How I Determined Each Number

Enough preamble to the meat of this article. In order of the table above. 

Netflix

While Netflix discloses a lot of information compared to its streaming peers, on its US numbers it has become frustratingly vague. At the start of this year, Netflix decided to split the world into four territories to better show how its business is doing globally. Which meant for years we knew US subscriber numbers, but now those were bundled with Canada. Fortunately, they provided three years of data. Here you go:

IMAGE 3 - Netflix Subs over Time

In other words, US customers are about 90.3% of the UCAN total. That means we can estimate fairly well the current US subscribers based on the UCAN number. About 66 million US subscribers. Even though these numbers are so tight we probably don’t need it, I made a range for the estimate, and call this my 90% confidence interval:

IMAGE 4 - Est US Subscribers

(If you’re wondering where these numbers come from, I collected every Netflix subscriber number from here to olden times for this article. An update is coming next week as my “visual of the week”.)

Disney

Disney isn’t one service, but three. Two of those services aren’t globally available, which means we know for certain how many US subscribers they have. (ESPN and Hulu.) 

What about Disney+? Well, we have our first tricky estimating process. To figure it out, I looked for some historical data. To start, here’s my historical growth chart:

IMAGE 5 - Chart Disney Subs

That helps, but not perfectly. The best way to estimate Disney+ subscribers is to use some correlated variable we do know, and assume the subscriber numbers are related to that. For example, if a country is 25% of the worlds population, then you assume they are 25% of the Disney+ subscriber total. The problem is that no one variable is perfectly correlated. You could use population, but some countries are wealthier than others. You could use GDP, but it doesn’t quite account for size. Broadband and mobile penetration are also potential options. Ultimately, I decided to compare all the countries by population.

Yet this has a big problem for Disney+. The big wild cards are India and Indonesia. While most of Western Europe and Japan have similar economies to the US, India does not. Fortunately, Disney leaked that they have 18.4 million or so (a quarter) of their subscribers from India. So that means we now have to parse out how many of the 55.3 million or so are from the US.

In this case, I looked at various populations of the countries Disney+ has entered, compared to the total size.

IMAGE 6 - Disney Population Numbers

In other words, if countries adopted Disney+ simply by population, Disney has 40% of the population, so jeu would have about would have 22 million subscribers. That’s too low. When Disney first announced numbers in December of 2019, they’d have already been at 21 million subscribers using the population method. So did Disney+ only gain 1 million customers this year? With The Mandalorian season 2 and Hamilton? Probably not. So I made a sensitivity table, which netted me this:

IMAGE 7 Sensitivity Table

Looking at it, the 54% of non-Indian subscribers having Disney+ is the most likely number. Or better phrased, between 25-35 million of all Disney+ subscribers are in the US. Any lower or higher feels unrealistic. And yes, I wish I had a more scientific way of triangulating this. Frankly Disney has released so little US data, and the data they have released has so many confounding variables that it’s probably the best we can do.

(Also, for the first of several times this article, if you want to disagree, feel free to do so in the comments or on Twitter and explain why.)

About The Headline “Disney Has Almost Caught Up To Netflix in the Streaming Wars”

Yesterday, I also included the total unique subscribers by company, because I do think that is the best way to compare companies. (See the table above.) 

Logically, if Disney could get to 50 million Hulu subscribers and 50 million Disney+ subscribers, and each was paying $10 a month—and those are numbers that are only possible 3-5 years in the future—then it would be hard to say they aren’t “beating” Netflix, if Netflix stays at around 65 million subscribers, but at a say $16 price point.

To be clear, I’m not predicting that happening. But that scenario is one of the possible futures. The fact that Disney has nearly caught up to Netflix with its three streaming services in terms of customers matters since it’s just starting out, even if average revenue per user is lower right now. (And yes, I only counted the “bundle” customers once for my summary yesterday. I assumed that all the ESPN+ growth, 6.5 million customers, since Disney+ launched was due to the bundle, which is a conservative assumption.)

HBO

HBO releases US subscribers and the number that have turned on HBO Max, which they call activations. The number of folks who would subscribe to HBO Max (if linear HBO disappeared entirely) is somewhere between those two numbers.

I’ll defend my lumping premium subscribers with streamers now. Frankly, I’ve never understood the logic of not comparing HBO linear subscribers to Netflix subscribers. Yes, one is direct-to-consumer and the other is sold through MVPDs. But ultimately, the customer is what matters. And HBO customers are very loyal. If the bundle goes away tomorrow, some customers may not continue subscribing to HBO, but more will. (And still do, frankly. HBO passwords are as borrowed/shared as Netflix, especially when Game of Thrones was on.)

As for the range, it’s between the activations and the total subscribers. So I provided both numbers. I’ll take the top of that range as my estimate (for now), but you can choose somewhere in the middle.

(If you want more details on HBO subscribers over time, check out my visual of the week from a few weeks back.)

Viacom-CBS

If I was going to count all premium subscribers for HBO, it only made sense to do so for Showtime as well. Fortunately, Viacom-CBS has leaked quite a bit of details to the press over the years, and their financial report provides specific numbers for total streaming subscribers. (For this project, I searched for every number I could find.) For example, in September, sources told Joe Flint of the Wall Street Journal that Showtime had 27 million total subscribers, including 7 million OTT. (That’s a very useful leak, if accurate.)

Meanwhile, in their latest earnings, Viacom CBS told us that between CBS All-Access and Showtime they have 17.9 million OTT subscribers. Assuming that ratio has held constant since the summer, then CBS All-Access has about 11 million subscribers. We can confidently estimate that. If you want an error range, since Viacom has said that subscribers are about evenly split between CBS All-Access and Showtime, the low would be 50% of the about 18 million subscribers and the high is the opposite end of that, or about 12.5 million subscribers.

However, unlike Disney, I didn’t try to disentangle ViacomCBS bundled customers at the company level. While Disney’s growth could easily be attributed to their bundle, it’s much less clear how many dual CBS All-Access and Showtime subscribers are out there.