Tag: TV

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

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

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

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

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

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

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

Apple One – From a Value Creation Standpoint

Here’s the three versions of Apple One:

Screen Shot 2020-09-18 at 9.17.03 AM

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

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

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

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

Screen Shot 2020-09-18 at 8.54.32 AM

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

Screen Shot 2020-09-18 at 9.17.25 AM

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

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

Screen Shot 2020-09-18 at 9.16.51 AM

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

Thus, the “Moderate” Case for Apple One

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

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

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

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

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

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

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

Eh. 

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

Quick Hits on Apple One

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

Data of the Week – ???

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

Other Contenders for Most Important Story

Peacock and Roku Come to an Agreement

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

Bloomberg TV New (Not Tik Tok) Streaming Plan

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

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

More AT&T Plans!

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

Entertainment Strategy Guy Update

Paramount+

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

More Agency Pain and then CAA’s Agency Confusion

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

PS5 Will Cost $500 too

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusions

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

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

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

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

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

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

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

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

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

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

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

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

Unless…

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

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

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

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

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

Other ESG Update: Cobra Kai’s Migration to Netflix

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

Other Contenders for Most Important Story

AT&T Is Selling Some Assets, but Not Others

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

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

Walmart’s New Subscription

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

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

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

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

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

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

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

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

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

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

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

Lots of News with No News

Another Netflix Producing Deal

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

Sound Issues in Tenet

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

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

 

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

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

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

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

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

No more! Today I’ll review:

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

Summary of Where We Were

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

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

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

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

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

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

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

People
Opportunity
Context
Deal

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

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

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

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

All The News Since Last Summer

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

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

 Since then a few fantasy series have come out…

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

And more have been developed or are in production…

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

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

The Specific Updates

HBO and Game of Thrones prequel

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

Amazon and Lord of the Rings prequel

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

Netflix and Chronicles of Narnia

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

The Dark Crystal and Carnival Row 

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

HBO and His Dark Materials

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

The Witcher on Netflix

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

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

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

Most Important Story of the Week – 10 July 20: Sports Streaming Price Hikes

I hope everyone–and this probably just applies to the Americans–enjoyed the long weekend. The only thing missing really was America’s pastime of baseball. Or any sports really.

But all that has changed. Sports are back! Which is really the story of the week. But I’ll tackle that next week in the next installment of “Coronavirus and Entertainment”. In the meantime, let’s look at another sports-adjacent story.

Most Important Story of the Week – Sports Streaming Price Hikes

Everyone is raising prices, from Youtube TV to ESPN+ to Fubo TV

While all these services are sports based, it’s also important to note the differences between them. Youtube TV is a vMVPD, meaning they’re trying to replicate the cable bundle via streaming. ESPN+ is a streaming service that only offers sports. Fubo TV is a hybrid: it’s a vMVPD, but focused on sports.

The least shocking price raise should be Youtube TV. Of all the services, it was the most clearly trying to offer a $65 product for $45. Despite the bells and whistles, the vMVPD model is essentially the traditional cable model: the vMVPDs pay each channel a given rate per subscriber who receives it. The only difference is that instead of a cable box it goes through a streaming TV, device or iPad. So if you see the rates for various channels–for example this chart in this article by Dan Rayburn–you see how expensive it is to own all those channels. (Especially ESPN.)

Add all them up, and you quickly see that the reason cable is so expensive is because cable channels are expensive. Hence, virtual cable is expensive because virtual channels are expensive. The core economics aren’t different.

How did Youtube TV last this long without a price increase? Because they were losing money on it! 

Frankly, that’s why any articles or tweets I saw praising Youtube TV always baffled me. Of course they were beating everyone on price! Google subsidized the losses! But they hadn’t actually created any value, they were simply capturing market share. (They had created some value with a good UX, but that value is easily superseded by selling at a loss.) 

Losses in cable can add up really quickly, and even Google couldn’t stomach the Youtube TV losses. If they were losing $15 per customer per month, at 2 million customers, that’s $360 million a year. Adding customers would just make the situation worse. You can’t make up these losses on volume. Hence the price increase.

The challenge is what happens next. Since there are no natural digital monopolies, I wouldn’t be shocked to see either the FASTs or new vMVPDs rise up to offer “skinny bundles” again. Clearly customers want lots and lots of channels–hence why MVPDs and vMVPDs exist–but don’t want to pay as much as the local monopolies charge. Since the barriers to entry are relatively low, a new skinny bundle can easily enter. The actual solution is to have the cable channels finally start lowering their affiliate fees, but that’s a tough pill for a business unit to swallow.

On to ESPN+. If you look at Disney’s earnings report, you know that Disney is losing money on streaming. How much they are losing on ESPN+ in particular is unknown. ESPN+ doesn’t really have a lot of in-demand live sports, so it’s not like they can increase prices too much before folks will unsubscribe. This could portend some additional sports deals, or just Disney shoring up the bottom line in a world without theme parks and movie theaters. Either way, I expect both to keep happening: Disney will try to get better rights for ESPN+ (think NBA or NFL) while raising prices..

Other Contenders for Most Important Story

WGA Puts Their Strike on Hold?

This happened over a week ago and I missed it, so shame on me. (Thanks to KCRW’s The Business podcast for shouting it out.) The caveat is nothing has been officially announced as of yet. So the deal could still fall apart. From reports, the deal is inline with the gains of the most recent DGA deal.

The headline is that the deal prevents a strike because the WGA can’t add a third tsunami to the twin waves of firing all their agents and coronavirus. Really, this is a victory for the pandemic. 

The other victor–as Kim Masters noted–is for the studios and streamers, and I tend to agree. The current deal hurts younger and lower level writers that are caught between exclusively writing on one show at a time, but also the reduced episode commitments of the streamers. Not changing that really hurts writers. But they didn’t have a choice.

Disney World on Track to Reopen this weekend

Theme parks are on track to reopen in Florida, with all eyes on Disney World. (As of this writing.) Depending on how cases, hospitalizations and deaths trend over the next few weeks, this will be a story to monitor. On the one hand, people could end up being too scared to go. On the other, theme parks may not end up being a huge source of transmission if they’re at reduced capacity with lots of effective countermeasures.

I remain bullish for theme parks. Unlike sports stadiums, they have more control over keeping folks outdoors and hence controlling transmission. The analogy is the return to restaurants and bars in June. As soon as lock down was lifted, folks returned to their old behaviors relatively rapidly, with just facemasks and spacing as the key differences. Of course, it wasn’t the same volume as previously, but enough to make the business models work.

If theme parks prove safe, I could see the same thing happening: folks come back as before. That said, America’s outbreaks are surging across the southern states whose temperatures have increased in recent weeks. It’s one thing to open a theme park when cases are plummeting; another when they’re surging. That will have to tamp down some demand.

The Landing Spot of Mad Men is…Everywhere?

Read More

Most Important Story of the Week – 26 June 20: How The Card Game Uno Explains Spongebob Squarepants (Release Plan)

After a few weeks without a lot of news, we finally got a week with some stories to sink our teeth into. But how to choose? The late breaking story that Disney is ending it’s Disney Channel in the UK is a pretty big deal, but then what about Microsoft ceding the livestreaming battleground to Twitch? Or a whole set of TV series moving from traditional TV to streamers. Surely I could oversell the narrative that this is the end of TV?

When in doubt, ballpark the financial size of each story and compare them. Sure, Mixer is a big deal, but how much is Microsoft really spending on that per year? A couple hundred million? We know Twitch is only earning $300-500 million per year in revenue, and Mixer is multiples smaller. What about the TV shows? Well, assuming $3-5 million per episode, we’re still talking max about $100 million in costs. Even the UK Disney channels aren’t worth that much considering they have about 15 million subscribers in the UK

What does that leave us with? The potential end of theatrical filmgoing as we know it. Given that’s a $10-12 billion dollar industry in the United States alone, it’s our story of the week.

(By the way, if you aren’t a subscriber, I have a newsletter. It’s fairly simple and provides links to my latest articles and the best reads/socials/listens on the business of entertainment I come across. It’s published every two weeks and next issue is Monday. Subscribe here.)

Most Important Story of the Week – How Uno and Blockbusters Explain Why Spongebob is Skipping Theaters

The latest studio to take an animated film destined for theaters straight to video-on-demand is Paramount. And in the all too common twist, it will then transition to their streaming service, CBS All-Access. On the one hand, this is another potential tentpole abandoning 2020 for greener digital pastures. Surely, Entertainment Strategy Guy, if anything portends the death of theatrical films, it’s Spongebob too leaving theaters.

Eh. 

I’m still less pessimistic on theaters surviving. And I write this as cases are noticeably ticking upwards in the US and deaths (my preferred metric) remain plateaued. I’d explain this latest move as less of a portend of the future disruption of all theaters then as the logical extension of coronavirus keeping theaters shut. 

Let’s explain that.

(After this column was written, news that Tenet had moved back an additional two weeks broke, which only reinforces the point of this column. You’ll see.)

Two Ideas. First, blockbuster strategy.

The big trend in feature films over the last four decades has been the move towards larger and larger blockbusters, and the hollowing out of the “middle-class” of films. The mid-tier, if you will. The magnum opus on this trend is Anita Elberse’s book, but everyone has written something about it. I wrote about mid-tier films in a column back in February, and one of my first deep dives explains the economics of blockbusters.

But there’s a related concept that is key to understanding this pressure. As more blockbusters have come to theaters, the number of weekends a film has “to itself” has shrunk. Which makes it even more important for a blockbuster to win the opening weekend. In some cases, the goal is to make most of your money on this opening weekend. 

Second Idea: Uno Strategy

The second idea I’ve been tossing around is what I’ve decided to call Uno strategy. For those not familiar with the card game, you deal out cards, then toss them on the pile to match the color or number of the recently tossed out card.

The game doesn’t have a whole lot of strategy to it. Most of the time you can only play one or two cards, so it’s not like you have a whole lot of choice. If it’s a “blue 8”, and I only have a “red 8” and the rest are green or yellow, I’m playing that blue 8.

A lot of business strategy–for all our high-minded discussion of it–is usually obvious moves like this. Here’s an example for Disney+. Despite this article I wrote for them, if pushed there is really one move that would have the biggest impact on their year: finish Falcon and Winter Soldier and trust that Kevin Feige will make it great. That’s not innovative advice, but the obvious “Uno strategy” move.

So let’s apply these two ideas.

The Situation

It seems clear to me that theaters will reopen soon. In some fashion. The current rise in cases delayed the July time frame, but at some point theaters will reopen. Especially if deaths don’t rise at the same rate as past outbreaks. I see calls on Twitter to cancel all theaters until a vaccine is developed, but frankly I doubt that happens. I think the theater going experience can actually be safer than a lot of other activities, especially with a few appropriate precautions.

(It’s unlikely to happen, but the current cases are definitely skewing younger. The converse is that hospitalizations have increased, but not as quickly as the first few montsh. Meanwhile, some treatments are emerging, including better diagnosis of severe cases and some moderate therapeutics. Meanwhile, better knowledge about the threat to institutional facilities like nursing homes and retirement communities has helped protect the most vulnerable. But this isn’t a Covid-19 column.)

Moreover, these trends have us headed directly for the “median case” I had forecast back in April. My best case was films releasing by July 4th and my median case was August for releases. Still, July is gone, which has implications.

Implication One: A Limited Number of Weekends Cause the Cascade

The biggest impact of Covid-19 has been to compress the back half off the release calendar. Nearly every week will have a blockbuster vying to win that weekend. Just doing the simple math, if theaters had reopened in the beginning of July, that’s 26 weekends left in the year. Meaning 26 potential blockbuster releases. If that moves to August first, that’s four more weekends gone. 22 movies for those slots. 

We were already in one of the most condensed calendars for a second half of a movie year. 

Every weekend lost just makes it tighter.

In comes Uno strategy. The studios know where their films fit on the hierarchy of potential blockbusters. Spongebob is much smaller than Top Gun 2. Or Mulan. Or Tenet. Or A Quiet Place Part II. Hence, as the number of weekends to win shrinks, it gets pushed around the most.

Implication Two: Release or Delay?

In a way, this where the decision-making for each executive comes in. Once your film is bumped, you could move it back in the calendar, or accept that the production costs are in a lot of ways sunk. Same for a lot of the marketing costs. And since a lot of films for 2021 are already in some state of production, you can keep delaying your 2021 slate–which would cost money–or you can get what you can.

But this is where blockbuster strategy comes in. It’s not like Spongebob is “as blockbuster-y” as Mulan. It doesn’t surprise me that so many of the “straight to VOD” films are kids films. A true blockbuster is a “four quadrant film”, meaning old, young, men and women. (Yes, crude, but that’s still how studio’s look at it.) Is Spongebob four quadrants? Absolutely not. No couples are going to it for date night. Same with Trolls: World Tour.

The one strange caveat to me is the timing. Spongebob won’t hit VOD until 2021, with a premiere on CBS All-Access later that year. In this case, the studios also have the added incentive that theatrical films on streaming are going to have their biggest “bang for the buck” when streaming services are small. Hence Disney seeing huge value for putting Hamilton and Artemis Fowl on Disney+ right away. 

So does the latest move mean the end of theaters? No.

Theaters will have a downright awful year. And AMC Theaters has a lot of debt that will hurt their growth prospects in the near term. But the current moves are tweaks to the schedule, not major disruptions. The biggest sign is that even though Warner Bros keeps moving back Tenet two weeks at a time, they aren’t moving it all the way to December.

(Fun bonus: Steven Spielberg is crushing the box office, which is mostly drive-in theaters. The shame is that theaters should open cautiously with more of this library fare, but they are waiting for the blockbusters.)

Entertainment Strategy Guy Update – Microsoft Shutters Mixer

I’ve never written about Microsoft’s Mixer before this, and won’t after, but I have written about livestreaming before

Before we get to Mixer specifically, let’s start with understanding the livestreaming landscape. And correcting the most common misunderstandings I see. Take this chart from Evolution Media Capital (a good newsletter subscription by the way):

Screen Shot 2020-06-26 at 9.08.30 AM.png

Now, your eye is drawn to the shiny object of the growth during coronavirus. But remember my magician analogy from last week. Or the Kansas City Shuffle from Lucky Number Slevin. While everyone is looking at the shiny object, the con man/magician is doing the real work where you can’t see.

My eye ignores the shiny growth and looks at the numbers preceding it. From December 2018 to December 2019, Twitch saw year-over-year growth of…1.7%!

Honestly, what unicorn has 1% growth?

Sure, the lockdown has been great for live-streaming. But in the future we’re going to call this time the “ Asterisk Extraordinaire” in every chart or graph. Meaning, things will return back to normal-ish and any analysis will have to caveat these last four months. My guess is Twitch sees a big decline in the fall when schools reopen, but not as far down as they were. In other words, they brought forward say 2-3 years of real growth due to lockdown.

Meanwhile, note too that Twitch also tends to be compared only to other gaming sites. This chart is specifically comparing all of Twitch to only Youtube Gaming. When I’m watching a live stream of an EDM show on Youtube, that doesn’t make it in this data set. Which is why I remain tentatively bullish on Youtube on livestreams long term. If the biggest network wins, they have it (and the ability to save videos forever).

Which brings us to Mixer, the story another M-FAANG practicing “innovation”, which in today’s context means shamelessly copying other business models in search of another way to spend down their huge pile of cash. (Except Netflix, which doesn’t have the free cash flow.) Meanwhile, it turns out paying for high profile talent doesn’t matter if your video service is more of a network with demand-side increased returns (see my article for an explanation) than a true channel. 

Other Contenders for Most Important Story

Let’s run through some smaller stories that caught my interest.

Streamers Grab a Lot of Content

It’s hard not to see a story in the stream of news that happened in rapid succession this week…

Youtube Original Cobra Kai Moves to Netflix
Y: Last Man and American Horror Story move to Hulu (permanently)
AT&T Original Kingdom Moves to Netflix too.

These moves are notable, for sure, but at least two are from dead or dying platforms (AT&T and Youtube Originals). Even Y: The Last Man is more notable for being stuck in development hell for ever than anything else. The point is that streamers will continue rescuing sub-par projects in the near term.

Disney Shutters Their Pay TV Channels in UK

As I said in the introduction, this is a big move to get rid of a cable channel, but it’s not as big as the United States. Whereas Pay-TV has pretty widespread adoption in the US, in the UK the Disney Channel was only on Sky and Virgin, which amounted to about 15 million households. Given that Sky also offers–from what I understand–Disney+ access, this move makes a bit more sense.

(Side story for Disney+ that could be a bigger deal: Apparently customers do in fact love it. My caveat with any brand survey like this is that I think they’re fairly noisy. When you read past the headlines, you see that Disney+ has a rating of 80, and Netflix has a rating of 78. And Prime Video is a 76. Does that seem within the “margin of error” for a survey like this? Absolutely. So the most accurate conclusion is Disney+ has matched Netflix.)

Charter Seeks to Charge Net Non-Neutrality Fees to Video Streamers

Charter is calling these “interconnectivity fees” but I like “Non-Net Neutrality” fees better. A lot of folks are worried about this move, but I’m a pinch more sanguine. Who occupies the White House next January will have a lot more to say about the future of net neutrality.

The Netflix Effect Again

Netflix’s global top ten lists have been a welcome oasis of data in a desert of silence. I wish I were tracking them by country daily, but I don’t have the time, and others like Flix Patrol are on it.

For those who do have time to track, some interesting tidbits are emerging, like Josef Adalian spotting the latest “Netflix Effect”. The “Netflix Effect”–which I think Kasey Moore of Whats-On-Netflix has coined, or at least pointed out a bunch–is that when a show goes global on Netflix it gets a renewed boost in popularity. Adalian pointed this out for Avatar: The Last Airbender, which has trended in Netflix’s top ten since it premiered. Moore pointed this out using IMDb data for Community.

The only small amount of cold water I can splash on this–and this is like tapping water in the bathtub, not a cannonball into the deep end amount of splashing–is that I’m still wondering if some of the ability for Space Force, Avatar or Community to stay on Netflix’s top ten list isn’t a function of the fact that their content quality is decaying somewhat with the coronavirus. I don’t have the data yet to prove this, but my thesis is that Netflix has slowed the pace of US original releases globally, but haven’t admitted it yet. To be seen.

Data(s) of the Week

HBO Max Had 1.6 million Downloads over First Two Weeks – Sensor Tower

This data is the best corrective I saw to the narrative that HBO Max *only* had 90,000 downloads on day 1. Sure, that was probably accurate, but they also had months to add customers. And they indeed still bested previous HBO Now download records.

Prime Video Leads on Most High Quality TV Shows – Reel Good

Reelgood has a simple yet effective way to measure quality for streaming services, by just tracking which services have which number of films and series with a given IMDb rating. This method is fairly simple, but sometimes simple is pretty accurate. I’ll admit, Prime Video did better than I would have guessed on high quality movies, with the caveat that they still have the most “things” in general, which means a clunky interface problem. (And in full disclosure, Reel Good PR folks reached out to me to point out this article.)

M&A Updates – It’s as Down as You Thought It Was

If you’re right for the wrong reasons, to be clear, it doesn’t count. So I’m not taking a victory lap over my series from two years ago–wow is that date right? Two years?–where I predicted that M&A wasn’t accelerating in media and entertainment, but progressing at the same rate if not slower. (Read the whole series here, for the introduction, or here, for the conclusion.)

As I just wrote, coronavirus is the big “Asterisk Extraordinaire” for the future. Every time series graph will have a giant asterisk for this time period saying, “And then covid-19 happened.” Meaning the lessons we draw will be less confident, because coronavirus is the categorical variable that will screw up our models.

Same for mergers and acquisitions. We’ll go back to normal eventually, which means mergers and acquisitions will continue as they have for the last two decades.

Most Important Story of the Week – 5 June 20: We’re All Streamers Now, a Look at Fall Broadcast TV

With no “big” entertainment news, my gaze fell on a story simmering all month. Call it the “story of the month”, which is that TV is planning its return to the small screen. By TV, I mean broadcast and cable television. Which are, obviously, dead. That’s the narrative.

But since they still, somehow, impossibly, are watched by tens of millions of people in American and rake in billions of dollars, it’s worth at least one column.

Most Important Story of the Week – When Fall TV returns, It Will Look LIke Old-School Streaming

Here’s the plan, first I’ll explain the logistics of producing an episode of TV. Next, I’ll drop my big theory. Then, I’ll run through each network and my thoughts on their strategy. Good? Good. Let’s do it.

(By the by, everyone should listen to all of May’s TV Top Five podcasts. I don’t listen to as many entertainment biz podcasts as you’d guess because podcasting is my escape from my day job. But they do such great coverage it’s a must listen. May was basically explaining what we know and don’t about each broadcast network.)

TV Series Production Timelines…Explained!

First, it’s important to understand what the three to four month shutdown of TV production means. (Sets were shutting down in mid-march, and may return in June or July.) My rule of thumb for producing an episode of TV looks like this

X Weeks – Writing
6 Weeks – Pre-production
1-2 Weeks – Shooting (5 biz days for half hour; 10 days with a weekend for dramas. Single cam)
4 Weeks – Editing (sometimes up to six)
4 Weeks – Post Production

This is explained in this thread here, but it’s what I used when I did content planning a streaming company. That’s the calendar for scripted TV content. Reality can move faster, also depending on whether it’s a slice of life, game show, documentary, competition or what not. 

What matters is adding them all up. Or about 4 months. Give or take a few weeks. (It’s my ballpark estimate.)

With coronavirus even that four months has a lot of uncertainty. Will pre-production take longer with coronavirus? Same for post production if folks have to edit from home or can’t work as closely. (I can’t imagine editing a show via Zoom!) Plus, if you want all your shows to launch simultaneously, like fall TV seasons of yore, you have to build in slacks for delays.

Add it all up, and if we start shooting in June, we’ll, fingers-crossed, have some half-hour shows ready by October. (Again, my schedules were for streaming, but are mostly the same.) More likely, we won’t have most shows until the end of November, and no broadcaster wants to launch shows then, for pre-existing biases. (We’ll get to whether those concerns are valid shortly.)

My Big Theory – Without Content, the Broadcasters Will Look Like Old School Streamers

I’m really talking about Netflix at its licensed content peak. Shows from other networks that were cancelled? Sure. International dramas that are surprisingly good? Absolutely. Random old shows refurbished? Yep, that too.

That’s what the hodgepodge broadcast season will look like. 

It makes sense because the forces impacting the broadcast business have the same outcome as the forces impacting Netflix at the start. When Netflix started, it needed cheap content. Reruns provided that. Even better were “gently used” content, as Lesley Goldberg brilliantly describes it, that felt new, even if they were old. And they needed a lot of it.

Broadcast needs that now. They’re perfectly calibrated release schedules are in shambles with the shutdown. Meanwhile, they can’t afford to over-produce Netflix-style. So “gently used” content it is. Especially interesting will be how much content from their owned streamers will make it onto networks. 

Each Network Ranked

So with these constraints, each network has to figure out how to get back to normalcy as much as possible. Here’s my ranking of how well I like each network’s plan, balancing roughly their plan to get “originals” back on the air and their plan for rep

  1. The CW: What? The CW is number one? This is the answer to my question for the broadcast exec I have the most respect for right now. His hand is so tough, and yet Marc Pedowitz makes the most out of it every season. As THR called it, his fall season is “coronavirus” proof, yet somehow feels like a typical CW season. A CBS All Access  rerun? Check. A new DC series (that’s already been cancelled) in Swamp Thing? Check. Some doses of cheap, easy to produce reality? Yep. Meanwhile, they greenlight and renew almost everything, but they get the ratings they need. Meanwhile, half of everything is presold to streamers.
  2. Fox: Fox had already implemented a plan that meant they were most protected in a downturn. They’ve turned multiple nights into essentially live sports. Either NFL, WWE, or reality competition shows. Which meant that they’ve locked in their ratings. Throw in their huge animation catalogue for Sunday, and they only needed to fill out two nights. So buying a Spectrum Original no one saw fits that bill. My big caveat is that Fox bought two series that were due for July, and Fox is holding them for fall. I’m sure financially they see the upside, but if current TV is starved for good content, so why not just release them? 
  3. or 6. CBS: CBS is gambling with their fall schedule. They are going to roll out shows when they are available. Right now they are telling Wall Street that will be in October as usual. This is a boom or bust strategy. Hence the 3 or 6 ranking. Which I respect for two reasons. First, I like the idea of getting shows out as soon as they are ready. I don’t know why in these times of turbulence networks are insisting on launching simultaneously. There’s too much content for that to work. Plus, if ABC and NBC have abandoned the fall it’s even easier to get mind share. Finally, CBS All Access provides the most easy to repurpose content. So expect either The Good Fight, Picard or The Twilight Zone to make an appearance.
  4. ABC: They cancelled a bunch of shows, but it’s unclear what their replacements are. Unlike CBS, they are leaning toward January as the return of new content. That feels “suboptimal” compared to the other strategies, but less risky. As for replacement content, it’s tricky. Disney+ only has one series worth ratings (The Mandalorian), but you could see a lot of the documentaries finding time on Saturday night. Hulu has another supply of shows that could work as well. What could push them higher? Well the NBA is going to occupy plenty of nights in September and October which should ease their ratings pain.
  5. NBC. Why so low? For NBC, I’m still not sure what their strategy is. It feels like the least fleshed out. Like ABC, they have leaned towards the January return as the return. Since Peacock hasn’t launched, it doesn’t really have original content to fill out the slate.

Other Contender for Most Important Story – Unions Release Back to Work Schedule

The other big news was that the unions and studios released a set of guidelines to get production back this or next month. It’s a 22 page document and it’s fine.

No one loves regulation more than me. I’m being serious: the idea that regulation strangles business is just wrong. Smart regulation adds tremendous value to society. (See Clean Air Act. See FDA. See antitrust, back when that was a thing.)

This report by committee is a regulation of a sort and it seems to go slightly overboard. I think 90% of the marginal benefits of preventing coronavirus will be seen by three policies:

  1. Regular (weekly) testing and isolation of individuals with positive tests.
  2. Wearing masks.
  3. Keeping moderate social distancing.

That’s it. So the rest of the 22 pages have what? Tons of stuff on cleaning surfaces? That in particular feels outdated because surfaces have largely been shown to not harbor the disease. Something like 98% of transmission is via airborne droplets. In my mind, that’s where you should focus your efforts. Instead, most of the recommendation is on cleaning surfaces. In my mind, that’s “cleaning theater” the way airport screenings were “security theaters”. They provide the illusion of preventing disease spread, while largely not doing anything.

Still, we have a plan and we’ll get back to work. That’s what matters. And once it happens it may surprise us how quickly it starts.

Data of the Week – Those HBO Max/Roku/Amazon Numbers That Bug Me

Let’s start with this: HBO Max is only launched in the United States.

Therefore, when Warner Media went to war with Amazon Channels and Roku Channels last week–read all about it here–the important thing was to index the size of those services for how big they are in America. If half of your users are in Europe, then it doesn’t really matter about this negotiation, does it? So when you see a headline like this…

Screen Shot 2020-06-05 at 10.56.25 AM

You immediately should think, “Wait, is that global or US only number?” As usual, it’s using the global number for US customers. So I went searching to find the answer.

Now, for Roku, this isn’t as big of an issue. Less than 5% of their revenue comes from international sales, so if we apply that percentage to active users, then we still have a whopping 35 million active users in March. Watching about 4 hours per day. 

What about for Amazon? Well, I have no idea how many folks are international versus US users. Because Amazon doesn’t tell us. Meanwhile, most folks speculate that a big chunk and maybe a majority of sales are overseas. So I looked for data and eventually Andrew Freedman of Hedgeye provided the data I craved:

Screen Shot 2020-06-04 at 8.52.57 AM

If we assume usage is roughly correlated to active users–and I do–then we can see that while Fire TV is huge, it’s also significantly less than Roku. Arguably about 44% of Roku’s audience. I’d add, they may not be perfectly correlated. In that sense, I feel like more Roku users are full-time Roku users, and Fire TV users are a bit more sporadic. A good chunk of customers got Fire TV or Fire Sticks as a gift or add-on and use it way less. So let’s call it 15 million Amazon customers. (Also, this data has Amazon and Roku as 63% of the market, which is lower than the 70% often thrown around.)

So that nets out to about 60 million devices. Which is a lot! But 25% less than 80 million. For the last piece of context, from 2017 Pew had this breakdown of how many devices are in each home. It repeats the point that likely no home has a single solution for TV. And imagine how much it has likely grown since then.

Screen Shot 2020-06-05 at 11.00.33 AM

Entertainment Strategy Guy Updates

We’re going long, so let’s go quickly. 

Apple and Sports

Apple hired Jim DeLorenzo from Amazon. At Amazon, DeLorenzo helped launch the Amazon Channels biz, specifically the big sports deals. So is Apple looking to get into sports? Definitely maybe. DeLorenzo has that expertise. Although, he can also just help with their Channels business in general. I’ve been monitoring sports rights for a while, and this another sign the big tech players are circling, without any major commitments yet.

Disney+-Japan deal

Disney+ is coming to Japan. This is a no brainer territory for Disney, but it likely required extra programming and product management to get a viable product. Japan loves Disney content as seen by the success of Tokyo Disney, though it is particular about lots of other TV, mostly preferring originals. This is more of a problem for other streamers than Disney, because of the catalogue. 

Also, you’ll note they have another local partnership for distribution. Which is now their modus operandi. Does this invalidate my bundle recommendation from last week? No, as that’s more of a content recommendation and think they could still do that with these distribution deals. (Read that recommendation here.)

Disney+ plays with weekly releases

I held on to this one for a bit, but Disney+ released a series “binge-style”. I doubt this presages a new form of distribution for their tent pole series, but even Disney+ is experimenting with release styles. Which is fine! As long as they maximize their tentpole series. (Read that take in Decider here.)

Youtube Sells the Rights to Cobra Kai

Emphasis on the scripted. Meaning, the pricey originals. And really this is just an extension of their pull back I first wrote about in 2018. “Originals” are a buzzy, seductive trap that haven’t paid off for many of the folks running that strategy. And Youtube didn’t need them either. (Hat tip to Kasey Moore.)

AT&T Really is Going All In, Amazon is the New Standard Oil, and Extra Thoughts on the HBO Max Launch

HBO Max launched last week! A $4 billion endeavor that required a monumental merger to make it happen. Can one measly column capture all my thoughts on HBO Max’s launch? 

Of course not.

So here are my extra thoughts, strategic insights and, in a first, a mail bag of questions/comments from folks on Twitter. (Be sure to follow me here or connect on Linked-In here.)

Strategic Thought – AT&T Really is Going “All In”

If you favor bold, decisive action in strategy—and I do—then AT&T deserves some applause. Two specific readings have helped push me further on this take, both quoted in my recent newsletter.

First, writing in TMT and Chill, anonymous Twitterzen Masa Capital makes the case that AT&T has made a big financial commitment. AT&T is devoting billions just to HBO Max, in addition to whatever they were going to spend at Warner Media, TNT/TBS, and HBO to make original content. That’s a financial spend many analysts said AT&T would never do.

Second came from Kirby Grines in his latest newsletter. AT&T isn’t just serious about spending money, but owning the customer relationship. That’s why AT&T “spent” the legitimate customer dissatisfaction of last week. Long term they know that controlling the data, identity and experience of customers will pay off long term.

In particular, last year Grines called out how bad Amazon Prime’s UX is for third party content. Frankly, Amazon doesn’t treat third party content well. So if you’re spending billions making content for HBO, is it worth it for Amazon to use your content simply to build their platform, while not even making it easy to use? Strategically, that’s a huge no.

(I mean, has Amazon launched customer profiles yet for Prime Video? For years they didn’t have that basic feature.)

It comes down to this: the streaming wars are divided into the major players and the niche players. Niche players will go to bundles like Amazon, Roku, Apple channels and Hulu and others. The major players will insist on their own apps. 

So yes, AT&T really is all in. Because they insist on their own app.

Media Coverage – It Really Was Anemic

Are you really a major player if you launch and no one cares? 

That was partly my take from the coverage. Yes, the usual Twitterati were obsessed by it. We always would be. But did regular America care? Not the way they cared about Disney. To use one example, the Byer’s Market newsletter put HBO Max news “below the fold” on the days up to and after launch. Facebook/Twitter drama beat it out.

Hey, bring some data to this, EntStrategyGuy. What does Google Trends look like?

IMAGE X - Google Trends

Yikes. Maybe no one can catch up to Netflix.

My “Business” Review of HBO Max?

Given that the HBO Max that just launched is essentially the HBO Max we were promised last fall, I could just push you to my column form last November. 

Now that’s it’s launched, do I have any priors to update? Sure, with the caveat that a lot of “reviews” of a new streamer are often excuses to just find examples to reinforce preconceived biases of whatever narrative we came in with. My process is always the “5Ps” of launching a streaming product: Product (Content), Product (UX), Placement (Distribution), Pricing and Promotion, which is how I’ll look at it.

Product (Content)

From everything I see, this content really does rock. That was my take in the fall and using the service I still see that. From Harry Potter—the big surprise—to all the HBO content to lots and lots of movies, this is a strong lineup. (Also, kids content may be a secret source of strength.)

Warner Media also decided to have the content move in and out of the HBO Max catalogue. I’ll be honest, I love that decision. Given that customers can’t identify all the Warner Media content the way they can with Disney’s content, this will provide a lot of reasons for folks to keep their subscriptions. 

Last point, since content is the most important piece, is that the loss of all the Warner Media/HBO content will be felt on Netflix, Amazon and Hulu. It’s such a big library that all the other libraries will get weaker.

Product (UX)

It worked fine for me, though I had my gripes. The UX doesn’t let you turn off autoplay. For me, I can’t stand kids content that autoplays. It invariably causes fights with my daughter, especially if I miss the opportunity to disconnect. It also didn’t have any playback flaws, which is to be expected since HBO Now made up the backbone of the system, and it’s worked for years.

As for everyone else, some folks didn’t like it; others found it easy to use. So where does that leave me? Honestly, I’m gonna call it a “we don’t know” since that’s my call for most UX. 

Also, I’m beginning to suspect that customers fall into two categories on UX: Those who want the unending scroll and those who don’t. Netflix and Prime Video will appeal to former; HBO and Disney+ to the latter. More to come.

Placement (Distribution)

If we’re judging on results, not the “why”, which I explained in my last column, this is bad. Getting near 100% distribution is key to reaching the most customers. As I just said, they’re in a majority of connected houses, but not over 80% as Disney was. While they’re on lots of cable providers, video games and Apple devices, the Roku and Amazon devices is a big black hole.

Pricing

It’s expensive, that’s for sure. And we’re in a discounted streaming world right now. So this has to count as a negative as well. Is it a negative for HBO customers? No, but likely anyone who isn’t already “borrowing” HBO from a parent isn’t going to start paying for it at this price point.

Promotion

They were never going to be able to promote as Disney could, but overall they’ve done a strong job. Not to mention, ad rates are so low right now I suspect they’re getting a terrific bang for their buck.

Add it all up?

Well, HBO Max has the content, but it’s expensive and not widely available. So not the worst launch, but definitely far from perfect.

The Lack of Datecdotes Is Deafening

This exchange on The Verge’s podcast is a must read for Julia Alexander’s dogged pursuit of a nugget of data. Anything to indicate it’s working. 

IMAGE X - Julia Alexander Quote

Did she get any data? Nope. Meanwhile, the Sensor Tower data is all over the place. And no one has any leaks yet.

So my judgement? The lack of a datecdote on performance is probably a bad sign. Though it’s just the second quarter and we have a lot of game to play still.

Mailbag!

First up, Andy’s Very Good Tweets asks

Why has HBOMAx not just taken over the whole DC Universe library? DCU can’t be making enough to justify two streamers, especially with so much overlap, so what’s the sense in sharing licensing on many (but all) DC titles and only Doom Patrol from the originals?

Let me start by saying I have no inside information so can’t answer concretely. But this is the most glaring error on the platform. My second or third click on the website was the DC universe button, and the general impression was, “Eh.” Call it the inverse of when I clicked on the Marvel button.

My gut is that HBO Max wants to do the opposite of Disney and rotate content in and out frequently, promoting it when it comes in. Add to that the fact that Netflix still owns the rights to a lot of CW shows that streamed in the last decade, and potentially a lot of the best content just isn’t available. 

Last note on this is that DC Universe is also an amalgam of both video content and digital comic book subscription. Which means Warner Media can’t just kill DC Universe and port it to HBO Max. Which means it’s tricky.

Second up, Masa Capital asks about the biggest immediate strategy change by HBO Max

Takes on the decision to accelerate the release of Love Life. And if that means HBO Max may be considering stepping off the no #BingeAndBurn promise or not.

I bet this is a Jason Kilar special. Most digital media execs preach at the alter of binge model, and I could see Kilar coming in and insisting on this. The other potential explanation is that a lot of content was in production and crushed by Covid-19. Meaning, normally they would have so many originals they could space it out. As is, they need to keep folks on the site until new content arrives.

Are they right? Well, you know I love the weekly release if a show is a hit. But lots of customers don’t. (This could be the second big divide between customers: there are those who love the binge and those who hate it.)

Penultimate Point – The Big Negotiating Hold: Amazon is the New Standard Oil

Last week, I wrote a bit about Spotify’s monopoly play, and I’m returning to that well this week. Not because I want to focus on this issue, but because you can’t understand why Amazon is doing what it is doing without seeing the monopoly implications. It launched Prime Video using profits from AWS. It launched Fire TV the same way, mostly getting expansion by essentially giving away the sticks for free.

Now, Amazon wants its ROI on Fire TV.

That will come as a tax on applications on its service. This tax is passed on to both creators/talent—who will make less money—and customers—who have to pay more because of the tax to be on Amazon’s platform. 

The counter is that Amazon is providing a unified platform. As one Twitterzen pointed out, it’s very convenient to have all your TV shows in one place. This is true.

Of course, if that’s the value Amazon is providing—in other words, the service Amazon offers—Amazon should actually pay streamers to be on its platform. If the value is bundling all the services, then they need to entice the streamers into that user experience. That’s what happened to cable providers. To get channels onto their services, they had to pay the channels a set amount per customer.

So why aren’t they? Because they’re betting on market power, not value creation. If they have market power, they can outlast their competitors. 

Last Point – AT&T Wants to Be a Platform as Well

I speculated this back in the fall, when John Stankey rolled out his thoughts on HBO Max and I’m more convinced hearing the executives talk over the last week or so. 

Part of the reason AT&T won’t just cave into Amazon Channels is that someday they’ll have AT&T channels as well. Heck, AT&T TV is essentially that, just not streaming focused. Yet.

It’s a monopolist’s world, we’re just living in it.

Most Important Story of the Week – 29 May 20: All the Complications of the AT&T and Amazon Show Down

Since May kicked off, I’ve been back to writing two articles per week and have had my highest traffic month since launch. So thank you to all the readers and supporters. If you want to stay on top of all my writings, the best method is to either subscribe to my newsletter (at Substack) or through the WordPress application.

Meanwhile, onto one of the more fascinating stories of the year…

Most Important Story of the Week – HBO Max and Amazon Stare Down

Well, HBO Max launched.

If you’re comparing hype, it feels way less substantial than Disney+. Or even Apple TV+. But that’s to be expected. Disney+ was a brand new thing by one of the most powerful brands in America; HBO Max is a retread of a brand most people already know. Meanwhile, while Warner Bros has always had big films and series, but they aren’t associated with their parent company.

Since the HBO Max that launched this week is mostly the service promised last fall, I’m going to focus on the issue we’re all obsessed with: 

HBO Max didn’t launch on Amazon’s devices.

Technically, Roku devices too. But Amazon is the fascinating topic to me, since their negotiating position isn’t just about devices, it’s also about operating systems, content rights, and profit sharing. Let’s try to explain why this negotiating is too contentious, and so critical for AT&T to get right.

The Issue: Operating System vs Device

The core issue of the streaming wars is who gets to aggregate content and who gets to bundle that aggregated content. The aggregators are the streamers, in this case. Think Disney+. HBO Max. Netflix. Prime Video. Previously, they were the linear channels. And formerly ESPN, Disney Channel and HBO.

Bundlers figure out a way to offer access to streamers. In some cases, this is via device. Fire TV. Roku. Apple TV. Sometimes this is via an operating system. Like Apple Channels and Prime Video Channels. Maybe Hulu and Youtube in the future. Formerly, this was the MVPDs like Comcast, DirecTV and Spectrum.

Notice that Amazon has both a device and an operating system.

The trouble is their operating system is a lot like their streaming service. Specifically, if you subscribe to HBO through Prime Video channels, you can access your content via the Prime Video application. This way a customer using Amazon Channels can seamlessly go from Prime Video shows like The Marvelous Mrs. Maisel to Game of Thrones and The Sopranos. Honestly, you couldn’t tell the difference between where the content comes from.

From Amazon’s perspective, if HBO is already included in channels, then so should HBO Max. They signed a deal several years back to make this happen, so why not continue since every other HBO customer (mostly) gets HBO Max with HBO?

Because AT&T learned enough over the last few years to know what matters when launching a streamer. When HBO was mostly a cash play, Amazon was found money. Since HBO was also a key piece to Amazon Channels–clearly their biggest seller– Warner Bro negotiated fairly beneficial deal terms. The partnership worked, as Amazon felt free to leak that 5 million folks subscribe to HBO through their Channels program.

The difference between distributing on Fire TV devices and within Amazon Channels–and the fact that Amazon bundled those discussions together–basically shows how much AT&T stands to lose.

The Key Negotiating Deal Points

  1. User Experience – This issue more than any is what AT&T wants to control. Prime Video has been around for years, and it still gets the most “blah” reviews as a streaming platform. When AT&T sends its content to Prime Video–as it has to for the Channels program–it essentially gives up control for how it will be branded and leveraged. Try as you might to negotiate this, it’s really hard to manage as a third party. Especially a deal point like, “Make your service more user friendly.”

I would add, the other piece is building value in the eyes of customers. If a customer has to go to HBO Max’s application every day, they learn to value the content on that experience. In someone else’s streaming service that just doesn’t happen. It devalues the HBO brand overall. 

  1. Pricing – I haven’t negotiated these type of deals in a few years, but if terms are roughly similar to then, which I believe they are, there is a big monetary difference between a channels revenue split–which is a monthly recurring payment–and a device “bounty” where the device owner gets a one-time payment for signing up new customers. The latter is an enticement to have the device owner market your platform; the former is a deal tax primarily. But they work out to dramatically different financial outcomes for a streamer. A 30% fee in perpetuity can be awfully expensive.

But that’s not all the revenue Amazon wants…

  1. Advertising – This issue came up with Disney+’s negotiations as Amazon wants a cut of advertising revenue from the apps on its platform. On the one hand, this is bonkers as Amazon will have very little to do with creating value from those ads. On the other hand, in the old MVPD world, cable channels shared advertising time with MVPD operators. (That’s how local ads made it on old school cable networks.) Given that AT&T has dreams to launch an ad-supported version of HBO Max, this is likely a huge sticking point.
  2. Content – Andrew Rosen thinks a big hold up is that Amazon wants Warner Media content for IMDb TV’s FAST service. I’m not sure AT&T would ever consent to this, but not long after Disney+’s deal was closed the same group licensed Disney-owned shows to IMDb TV. Consider the market power that when AT&T is trying to negotiate for a device deal for its streamer, Amazon is essentially demanding that some of the content for that service wind up on a competing streamer. Such is Amazon’s market power, that a deal term could be forcing a studio to sell it content. (As I wrote on Twitter, the echoes to Standard Oil are remarkable.)

 

  1. Data – AT&T also wants the customer data. If you don’t control the user experience, you don’t control the data either. They basically go hand in hand. For as much as I love data–look, it was the first theme of this website–I do think “data” has been a bit overhyped in the business sphere. Data is an asset, but it isn’t actually cash. It is something that can generate more cash, but only if you use it properly. Still since it goes hand-in-hand with user experience, they’re tied together.

The Major Streamers Don’t Allow Bundling

That’s really the issue for AT&T. Netflix, Hulu/Disney+ and now HBO Max see themselves as bigger than just content in someone else’s streaming application. Heck, even Prime Video content isn’t available in Apple Channels!

And when you think about it, the ask by Amazon is kind of crazy. It’s not just asking to sell rights to HBO’s content, it’s asking for that content to essentially be bundled with the rest of its content. Which seems a lot more like a retransmission issue than simply allowing an application on your operating system. The best tweet which summarized this for me came from The Verge’s Julia Alexander:

Screen Shot 2020-05-29 at 12.18.15 PM

Exactly. Thus, the whole debate is fairly simple: AT&T considers itself a major player. And won’t allow itself to be bundled. 

Who is right?

First off, no one is right or wrong. The worst thing in the world is to pretend like negotiations between two businesses are about fairness or justice. Or that the needs/wants of customers matter. (If you want the needs of customers taken into account, government regulation is your only hope. And entertainment should be heavily regulated!)

Still, who is more right in holding to their position in this negotiation? AT&T.

When in doubt, ask who is creating value. AT&T has decades of valuable content, is spending billions making more and will have to spend hundreds of millions more to market that content. In other words, they’re doing all the work to launch a streamer. Amazon is a gatekeeper asking for a fee/toll/rent to allow it’s application on its platform. 

Not to mention AT&T bears most of the risk, unlike Amazon. To maximize that investment, they need to distribute and own that customer relationship. So they’re right to hold, and it will be fascinating to see who blinks first. 

Other Contenders for Most Important Story

A few other stories filtered in over the last week that competed for the top spot. A few were generally interesting, but just couldn’t compete with the HBO Max drama.

DAZN Shops Itself

A report from the Financial Times says that sports streamer DAZN is looking to raise money, which could mean anything from selling itself to finding a strategic partner to simply selling equity. Of all the newly launched streamers, DAZN has the toughest road to travel. Sports rights are extremely expensive, meaning they cost almost as much as the value they bring in. As much as I’d like an “indie” sports streamer to survive, DAZN needs cash to compete with the tech giants of the world.

Quibi Programming Strategy Reset

Less than two months in and Quibi is already revamping its programming line up. The plan is to focus more on what is working, which is apparently content that appeals to older, female viewers

Is this too aggressive of a pivot? Maybe. This is the perennial problem with data driving content decisions. Quibi is looking at what is working on their platform, and using that to make future content decisions.

But does that make sense? If your two best shows happened to appeal to that demographic, then it will make it look like that’s your best customer demographic. If you use that data to make more decisions, then you’ll no doubt appeal more and more to older, female viewers.

Do you see how this is a self-reinforcing algorithm? And how that can limit your potential audience.

Want to see how this applies to Netflix? Well, they too made originals, but they also put originals on the top of their home screen. This drove usage, because anything on the top screen gets clicks. But then Netflix made more originals using that data, in a self-reinforcing loop. Hence, why some of Netflix’s content feels so similar or appealing to the same demographics.

Disney World and Universal Studios Plan Summer Openings

July 15th is the planned date for Disney World to reopen at half capacity with tons of restrictions. Universal presented plans as well. This is both expected and seemingly on track for the next stage. My tentative prediction is that as thinks open up, folks will return to old habits and behaviors quicker than currently anticipated. If testing continues to ramp up, we could find this surprisingly normal looking.

Peacock Originals Slate on July 15th

When NBC released their plans for Peacock, my initial reaction was Peacock wants to be the most broadcast network of the streamers. This review of Peacock on Bloomberg essentially describes that as the mission statement. And this made me happy because, in full disclosure, I think broadly popular content has mostly been missing from the streaming wold.

As Peacock prepares its first set of originals for July 15th launch, are we getting a broadly appealing set of shows, or are we getting another rebound of peak-TV/prestige content? Looking at the list of shows–a Brave New World remake, a David Schwimmer comedy and an international thriller–I’m worried it’s more of the latter. However, they do have Psych 2 special. So we’ll see.

Data of the Week – Nielsen Top 100 Broadcast TV Shows

Twice a year, Michael Schneider uses Nielsen data to look at the top shows and then networks for the previous TV season or year. Here’s the 2019 season edition, which feels so bizarre in today’s coronavirus times. I’m mainly looking at it for the next set of shows to come to streaming channels. Look for 9-1-1 to one day get a pay day on streaming.

Entertainment Strategy Guy Update – Apple Content Moves

Apple Snags the New Scorsese Film from Paramount…

This could have been my story of the week, but for HBO Max launching. Dollar wise, it’s relatively small. Just $200 million or so among friends. 

But not with Netflix? What went wrong!!!

Likely the price tag and performance of The Irishman scared off Netflix. As I wrote in multiple outlets last December, Netflix doesn’t have the monetization methods to get a return on $300 million budget films. (That’s what I expect Netflix ended up paying for The Irishman.) Toss in all the controversy about theaters, maybe some DiCaprio nervousness about back end, and I think Apple TV+ with Paramount theatrical was the logical choice.

Is this good for Apple TV+? Sure. It will get a ton of new subscribers to check them out. Without a library, though, how long will they stay? Speaking of…

…and Fraggle Rock from Henson Company

Bloomberg reported last week that Apple was looking at licensing library content. Well, their first “big” purchase is Fraggle Rock’s library to complement an upcoming reboot. Then there was controversy in the entertainment journalism press about whether Apple had changed strategies or not. (Which would directly contradict my column from last week.) Apple PR went to multiple outlets to leak that “No, no, nothing has changed.”

My guess is both scenarios are true. If Apple can’t find a library to buy, they’ll say their strategy hasn’t changed. If they do? Then they’ll happily announce it.

Meanwhile, is Fraggle Rock a game changer? I doubt it. Kids need lots of content to go through. Almost more so than adults. Frankly, Apple TV+ doesn’t have it.

My Unasked for Recommendations for Disney Streaming (2020 Edition)

Do you remember last year before Disney+ launched and I had this series of recommendations for how they could catch up to Netflix? They were…

1. Go dirt cheap on the prices. [Check]
2. Schedule weekly releases for adults [Check]
3. Bundle with other streamers [Check]
4. Get all your key library content on board. [Check]
5. Give it for free to all theme park attendees [No]
6. Release weekly ratings. [Hell no.]

You might have trouble finding that article. Why? Because I never actually finished it and published it. If I had, I could keep pointing back to it for how right I was. 

(Instead, I published an article worrying that Disney+ wouldn’t have the Marvel films or half the princess movies. Oops.)

Given that last week was a bit of big news for Disney+, I think it’s worth providing Disney another round of unasked for recommendations. Rebecca Campbell—the new head of streaming—definitely doesn’t need my advice, but everyone else might find it interesting to know what I would do if I were offering my strategic advice.

I’ll focus on streaming here, with the knowledge tha the entire Disney enterprise has a had a bad few months. It’s almost the perfectly designed disaster to hurt Disney’s business. But given that forecasting the course of a pandemic is pretty uncertain, I’ll wait to opine on Disney’s business model for a pinch.

Recommendation 1: Add a local streamer to your “bundle” overseas.

This was the “a ha” that got me to finally write this article. Two weeks ago, I called my biggest story of the week Disney’s decision to pause international growth plans for Hulu. In these cash strapped times, Disney is worried about the costs of Hulu internationally. Some of this is marketing, some is product, but most of it is likely licensing claw backs. Or foregone licensing revenue. 

As I wrote two weeks ago, I’m not sure a streamer built around the FX stable of content will be a huge winner internationally. American TV shows don’t travel as well as folks think, and really “prestige-y” type shows travel even worse. (This isn’t a uniform pronouncement. Some of the Fox TV studios shows will travel. Like How I Met Your Mother. Just not all.) The Fox movies will have some appeal too, though a lot of the best have been pulled for Disney+ already.

The challenge is that if Disney doesn’t launch Hulu internationally, it will lag Netflix for potentially ever.

What to do? 

Well, keep bundling. The bundle with ESPN+, Hulu and Disney+ has already been successful in America. Likely internationally it will have some appeal. That’s a no brainer.

Even better, though, is to add a local streamer to each bundle. If that’s Hulu’s biggest drawback—lack of local content for adults—don’t opt for the expensive proposition of licensing it all, just partner with a local streamer. Essentially make them the fourth pillar in a country-by-country bundle. Especially if ESPN+ isn’t launched globally for sports. 

Even though we in America don’t realize it, nearly every country has a local streamer trying to fight the streaming giants like Amazon and Netflix. Disney could look like a hero by bundling that content with its other shows. Hulu then gets to come along for the ride. And overall, my gut is this strategy would be cheaper than trying to license local content territory-by-territory. 

Consider this too, an extension of what’s already working. Disney+ was tied closely to Hotstar in India. (Which Disney got in the Fox deal.) They’ve also partnered with local companies for distribution deals like with Canal Plus in France. My pitch is to just take that strategy even further with more bundles in more territories. Even if it means giving local partners most of the benefit in the short term, in the long term this will help with adoption.

Recommendation 2: Seriously, give away Disney+ to anyone going to a theme park.

Let’s re-up my biggest recommendation from last year. It’s super expensive to go to the Disneyland or Disney World. Disney+ is very cheap. So just combine the two and if you buy two tickets to a theme park you get 3 months of Disney+ for free. Those free trials are worth it.

(Yes, parks are closed. They won’t be forever.)

Recommendation 3: Add another “F-BOSSS” Level TV Series. My pitch? Modern Family

Back in January, I coined the acronym “F-BOSS” for the big TV series that were being clawed back from Netflix or secured for multi-hundred million dollar licensing deals. (Friends, The The Big Bang Theory, The Office, Seinfeld, Simpsons, South Park) Now that the biggies are off the table, the smaller series are coming off the board too.

Disney, for its part, has mostly moved 21st Century Fox TV series to Hulu. Like How I Met Your Mother. However, 21st Century Fox has a big one coming up that isn’t as big as those others, but could be. That’s Modern Family. Which just ended its last season.  Back in 2013, Fox licensed it to USA network for a big sum. I looked but can’t see when that deal comes off the board. But when it does, either Hulu or Disney+ is its all but guaranteed landing spot. 

Of the two, I’d say that Modern Family should go to Disney+. This isn’t a no brainer by any means, but that’s because of how hard it is to fit content onto the Disney+ brand. The challenge is Disney+ content needs to be both family-friendly, but also adult-appealing. That’s a hard balance to strike.

I considered some of the older “TGIF” series like Home Improvement (distributed by Disney back in the day, and made by Touchstone, which is owned by Disney). Disney should get that series to Disney+, but it probably isn’t a game changer. It is too old to move the needle. (So they shouldn’t’ buy out whatever rights is keeping it off streaming early.) (The other series on TGIF like Full House or Family Matters aren’t worth it even to license from Warner Bros.) I considered some of the Fox animation series, but they feel too edgy. (It’s still funny The Simpsons made the cut when you think about it.)

This makes Modern Family the key choice. It’s got lots of episodes (250) for folks to binge—the main requirement—and both customer/critical acclaim. (High viewership for a long period of time and multiple Emmy wins.) It does touch on some politics, but overall isn’t controversial enough to cause too much hot water with family groups. (It’s on syndication nationally and on USA Network right now.) So for me, this is a big content priority.

Side Note: About the “Big 5” Pillars

I’m not sure they have a name, but the “Five Big Pillars” is what I’m calling these:

Screen Shot 2020-05-26 at 5.06.44 PM

These pillars are both a blessing and a curse for Disney+. Blessing because these pillars have shown that they can launch a streamer. Hence, Disney getting to 50 million subscribers and beyond. It’s an incredibly strong brand defined by these five pieces.

The curse is that they limit what Disney can do going forward. Already, The Simpsons is above the pillars in most applications because they don’t fit one of the four categories. Same for some of the Fox films like Ice Age. Is it Disney? No, but it’s somewhere on Disney+. 

But really the limitation crystallized for me in Disney passing on the Studio Ghibli content, that will appear on HBO Max tomorrow. Studio Ghibli movies are great, but where would Disney put them? I’m not sure they know either, and not saying it’s the only reason but they passed on it for licensing.

If Disney does add a big piece of additional content, like a Modern Family, they may need to rethink these five pillars. 

Recommendation 4: Provide a major product improvement

I probably use the Disney+ app more than other streaming app. My daughter isn’t allowed to use the iPad unsupervised, and we watch one short film before the bath. So I’ve scrolled the app a fair bit. Meaning I know it’s limitations and positives better than any other (iPad) application. (I caveat “iPad” because I don’t know if they are problems on other operating systems.)

So it’s time for Disney+ to roll out a new feature that doesn’t upend the entire user experience—folks hate that—but provides more functionality. My pitches?

– Make the Disney animated shorts their own section. And make it easier to scroll and search for new shorts to watch.
– Add a “Sing-a-long” version. And make it easy to find the songs to watch as their own thing.
– Fix the “additional content” to be more like a DVD-bonus features. 

Side Note: Disney Needs to “Proof Read” Its Content

If you’re a heavy user of Disney+, you notice little things. My guess is they are mistakes that are the result of automating the entire process. Which is key for a streamer to get launched, but sometimes a human touch can fix the errors. Meaning someone would need to manipulate the metadata to make sure the service is as accurate as possible. For example…

– The timing for the length of short films includes foreign language credits. Which means a Pixar short appears to be 9 minutes long, but four minutes are credits. That needs to be updated.
– A shocking amount of ratings claim that a given Disney short features tobacco use. (The only authentic one is Steamboat Willy.) I have no idea why this is the case.
– Some content still only has one version. For example, Mickey and the Beanstalk is only included in Fun and Fancy Free, when that version features a nigh unwatchable ventriloquism scene. So on one hand, they have this content. On the other, it isn’t the best version of it.

Recommendation 5: Get NFL Sunday Ticket on ESPN+ somehow.

NFL Sunday Ticket is the killer app that gets ESPN+ mandatory adoption. Will this be pricey? Yes. Will Comcast and AT&T still want pieces of the NFL? Yes. Is the least likely recommendation? Yes.

The NFL is the sports straw that stirs the content drink. As it is, ESPN+ doesn’t have enough reasons for folks to subscribe. Plus, Sunday Ticket keeps from cannibalizing linear views as Disney can pitch to MVPDs that it is just adding Sunday Ticket as DirecTV did before. 

Most Important Story of the Week – 22 May 20: Apple Caves and Buys a Library

Some weeks, you barely have any news to cover. Then, other weeks the deluge comes. Buzzy stories. Executive movement stories. Sneaky scoops. And then Barstool drama.

To help settle the issue, I polled the audience. Everyone wants to talk about Joe Rogan at Spotify. But that’s a $100 million dollar deal. When I look for big moves, I mean big. For new followers, that often means adding up the potential dollar figures involved (and if they’re long term/speculative, discounting them for the cost of entertainment capital, about 8%). So a big streamer potentially dropping billions fits that bill.

If this week’s column has a theme, it’s that many of the biggest moves in entertainment are NOT about adding value for customers. I see that with two big tech titans in particular. That contrasts with a third, Netflix, who is doing right by customers. 

This is good for me, since I’m going to praise Netflix repeatedly. I’m a Netflix bear because the stock price makes no sense. Strategically, though, they do a TON right, with a few key mistakes. The world isn’t black and white and neither should be my Netflix coverage. On to the analysis.

Most Important Story of the Week – Apple (Almost) Caves and Buys a Library

I should bust out my Nikki Finke “Toldja” air horn. (Are there new folks to entertainment who don’t get this reference anymore? Showing my age.)

Anyways, my consistent strategic complaint with Apple has been the lack of library content. To just quote myself:

My theory of the case is pretty simple:

It is BANANAS to launch a streaming platform–and charge $10 a month for it–without library content.

It might be unprecedented. We’ve had subscription services launch without original content. (Netflix, Hulu and Prime Video in the early days; some movie platforms too.) But we’ve never had a service launch the opposite way. All originals–and not even that many–but no library? Truly, Apple is zagging while others zig.

Besides the rumored $10 price point, that was dropped to $5/free with purchase, the rest of that column from last August is spot on. Here’s right after they announced the price and most journalists went nuts on the hype:

The counter is that customers value a discount, so a stated price gives it a stated value. Maybe. But the content offering is so sparse—and could be such a dud at launch—that a discount of nothing is still nothing. If you really have no plans to add a library to make this a business that can stand on its own, and it truly is a loss-leading business, just make all the losses explicit and don’t charge for it.

Want another one? Here’s my take in Decider just that last month after Tim Cook told us that for sure they wouldn’t get licensed content:

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The news this week out of the Bloomberg leak machine is that Apple is in serious conversations to acquire a licensed content. And maybe a library. (How could Tim Cook lie to us like that back in February? Remember, executives lie ALL THE TIME!) 

Apple is finally on the licensed content train. What do we make of this?

M&A May Not Solve This Problem

At least not this year. Most libraries worth owning are locked up in multi-year deals. The time to buy MGM/Sony was in 2016. Then, when they launched Apple TV+, all the licensed content would be ready. Now, if they buy one of those two studios, they either have to buy out all the current licensing deals–which is what Disney+ did–which could skyrocket the costs or they have to wait a few years. Hence, the licensing deals to get whatever is there onto the service quickly.

There is Always a Lot of Content Available, but…

We’re not going to run out of content. That said, the top content is still the top content and more and more of it is locked up into multi-year deals at the soon to launch streamers of Peacock and HBO Max, or Hulu. For a good look, this article by Mike Raab uses a few categories to determine a pretty good list of the top shows of the last few decades.

Apple basically has to pick from the last column on the “Potential Libraries”. And already South Park and Seinfeld are off the list. (For a look at quick value, here’s my article talking about FBOSS top series here.)

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Source: Mike Raab on Medium

Does Apple stay prestige and get Mad Men? Broad with That 70s Show? I don’t know, but I doubt it stands up to the potential Hulu, Peacock or HBO Max licensed juggernauts. 

Does Licensed Content Matter Compared to Originals?

Yes. This comes up on Twitter. It absolutely matters. I don’t have time to prove it, but trust me.

Apple TV+ Still Doesn’t Solve Any Problems for Customers

I said this was the theme of the week, and I’ll start with Apple. It’s still tough for me to figure out what Apple is really doing that adds value for customers. Especially with Apple TV+. They’ve just launched another streamer that does mostly what every other streamer does. And they’re losing mountains of money simply to seize market share.

Some of you, will offer this I’m sure: But EntStrategyGuy, it’s free!

Remember, offering something free isn’t the same thing as creating value. Instead, it’s capturing value via predatory marketing pricing. It’s the sign of a non-functioning market. (My primer on value creation is here.)

Contrast this to Netflix. When Netflix started streaming, it really was creating value. Library TV was undervalued, so it streamed it on-demand whenever customers wanted. That is a huge value add. Then in 2012, they started losing money to grab market share. But at the start, Netflix clearly solved problems for customers.

Other Contender for Most Important Story – Joe Rogan Moves to Spotify

To understand the importance of Joe Rogan moving to Spotify, I have two analogies, each with a current story. And I’d call it the “malevolent” versus “benevolent” views.

The “Benevolent View” Talent Gets Paid: Joe Rogan to Spotify; “Call Her Daddy” Deal Terms

The analogy for this is Howard Stern in 2005. In that year, he moved to Sirius XM for a whopping $500 million deal that he subsequently renewed.

In a lot of ways, this current story is no different. Spotify is launching a new product, and is signing up top, top talent for it. Rogan is the 2010s Howard Stern. And note the difference: Stern got $100 million per year whereas Joe Rogan got $100 for 3 to 5 years. (It’s unclear the length.) Earlier this year, Spotify paid $250 million for all of Bill Simmons’ company in perpetuity.

That’s what I also see in the other big podcast story of the week, which is the “Call Her Daddy” drama. For those not familiar, the two hosts of a podcast on Barstool called “Call Her Daddy”–Sofia Franklyn and Alexandra Cooper–started negotiating a renewal. It didn’t go well. The shocking part is that the head of Barstool went public with the dispute, revealing deal terms in the process. Some of them are eye popping for podcasts, in the millions of dollars for two podcast hosts. So Barstool is doing well.

All these cases have something in common, which is they show just how much power talent has in entertainment. What Andrew Rosen has been calling the “curse of the mogul” from the book by the same name. In other words, when cash flow is mostly due to specific talent, the benefits flow to that talent who can help you capture them. (It’s worse when the financials are more apparent, like advertising driven content.)

This is the “benevolent” view. Spotify wants to make money from podcasting, so it’s hiring people to get it there. I don’t complain about studios or networks paying for top talent. That happens all the time in the TV industry. HBO wouldn’t pay John Oliver his millions if he show also went up simultaneously on every other channel. Some exclusivity is needed to justify owning channels and producing content in the first place.

But…

The “Malevolent” View

Let’s stick with the radio example, and compare it to the current situation. In the case of top talent for FM/AM radio, all the providers are competing with each other in the same distribution format. So if one radio channel pays it’s top talent more to woo them to its station, they’re simply taking market share from someone else, who can pay likewise.

That’s the Barstool/Call Her Daddy kerfluffle too. In this case, the talent just wants to get paid more. The option, though, is to go to another podcasting service. But they’d still be distributed in all the same places, just taking more of the revenue.

Not so for the Stern example. Sirius XM’s goal wasn’t just to get ear balls on its service, it was to take over radio. (Indeed, it merged with XM in part because they couldn’t replace all terrestrial radio.) They didn’t succeed, but if they had, the goal would have been to use that newfound power to crush suppliers.

Spotify isn’t just trying to get podcasters to help it make money. It wants exclusive podcasts. Why? So that it can take over the podcasting market. And then when it does, it can use that power to crush suppliers. How do you beat the “curse of the mogul”? Be a monopoly. Then talent has no other choice.

Some of you don’t believe me, so I encourage you to read Matt Stoller’s latest newsletter on this. (He’d written about Spotify before.) The example he uses brilliantly is what Google and Facebook did to local news. Before, if you wanted to advertise on The New York Times, you had to pay the Times. Now, you can advertise to NY Times readers when they leave the site. For cheaper.

That’s essentially the Spotify playbook here. (Once I read Stoller’s take, I couldn’t get it out of my head.) Now if you want to advertise to Bill Simmons or Joe Rogan’s audience, you had to do that on their podcast. In the future, Spotify can serve those ads to anyone else when they are listening to something else. Is that good for podcasts individually? Obviously not. You lose your “exclusivity” value when Spotify can sell your customers elsewhere. Ask local newspapers and their massive extinction event how much dynamic advertising via Google/Facebook has helped their businesses.

By the way the New York Times example is very telling. This week they stopped allowing third party data because they know how bad it is for them overall. Owning the data is the key to monetization. Spotify knows that and that’s their goal. Except…

The Reality: Spotify’s Quest to Take Over Podcasting Is Not Guaranteed

If your goal is to become the monopolist of podcasting, getting Simmons and Rogan is a great start. 

That said, the theme of the week is customers. What is Spotify doing that helps customers? I keep hearing about “dynamic ad targeting”, but I skip ads all the time. If I can’t skip ads on Spotify, and I can on iTunes, I’ll use iTunes. Especially if only a handful of podcasts are exclusive to Spotify. Meanwhile, will Spotify police ad reads for podcasts that premiere on its platform? How could it even do that?

So the problem is that Spotify isn’t solving for any customer pain points. Maybe their UX is better than iTunes, but it’s worse than many other podcast applications. 

Worse, they’ll likely cause pain for their suppliers. Meanwhile, there are enough big media companies that will never go exclusive to Spotify. It just won’t be worth it at one third or less of the audience. So if ESPN, NPR, WNYC, Wondery, etc are all on every other platform, the edge just isn’t there for Spotify. That’s my gut thinking.

(Last point, Luminary is also continuing to prove that subscriptions won’t work for podcasts. It also proves that having a parent in private equity/finance is great at funding news business ventures.)

Other Contenders for Most Important Story

We have more stories. Let’s go quick to wrap things up.

Kevin Mayer Moves to Tik Tok; Rebecca Campbell Takes over Disney Streaming

Say it with me, “We can’t judge executive hires in the moment.”

That doesn’t mean we don’t try. We do all the time. But we’re pretty rough at forecasting executive hit rates.

Still, I want to give a moment of credit to Kevin Mayer and what he can do. His skill set is dealmaking. And that’s what Disney+ needed to launch. Yes, the Mandalorian was a huge hit, and credit to the creative team for that. But Disney+ needed to launch on every potential device. And it did. And Disney needed to claw back rights for all of Star Wars and Marvel and Disney and Pixar movies, which it did! Mayer was the driving force behind these deals. 

Will that skill set help at Tik Tok? Maybe. We’ll see what they acquire. It’s an interesting hire for sure.

As for his replacement? I won’t pretend like the coverage in the trades gives me a clue. Campbell has lots of TV and international experience, but not a lot of development experience. I can’t guess either way.

Netflix Is Helping to Cancel Inactive Accounts

Which really is the right thing to do by customers. It can definitely engender good will. And I’ve long praised Netflix for making it very, very easy to cancel.

That said, some credit goes to Wall Street. Every so often, Wall Street decides they like free cash flow negative business propositions with huge growth. Like Netflix. If Comcast could lose $3 billion a year in pursuit of growth, can you imagine what it could build? Same for Disney. 

If Wall Street collectively changes its mind that losing money is a bad thing–say when subscriber growth stalls–we may see different behavior at Netflix if it isn’t reward.

M&A – STX mergers with Eros

Since STX launched, their goal has always been global. (This New Yorker read is a case study in a confused business model, which even then talks about getting China money.) In total dollars, this is small, but it reflects who in a global buying market even US studios need global power.

Fake Data of The Week – Datecdotes Spread!

Thanks to Andrew Wallenstein for flagging our latest datecdotes. On Hulu, Solar Opposites is huge! On Apple TV+, Defending Jacob is huge! How big?

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Some quick takes on that:

– Damn, Outer Banks is crushing this quarantine in America.
– Sorry, Mythic Quest fans. That show is not. Still.
– Rick and Morty is doing worse than I thought.
– Sure, Solar Opposites is probably doing well. For Hulu. And when I’ve looked at THe Handmaid’s Tale before, it does worse than you’d guess.
– Defending Jacob is probably Apple’s best launch since their premiere, but they have a long road to haul still.