Tag: TV

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

In November, a war started. 

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

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

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

The Plan

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

2. One imaginary war per section. 

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

Easily Discarded

The Civil War (and most other civil wars)

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

The Persian Gulf War or Franco-Prussian War

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

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

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

Independence Day War

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

Closer, but Key Flaws

Punic Wars

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

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

The French Revolution

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

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

The Cold War

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

War of the Ring (Lord of the Rings)

Human-Covenant War (Halo)

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

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

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

Pretty Darn Close

Peloponnesian and Corinthian Wars

Now we’re getting there. While the wars between Sparta and Athens had two sides, each city state had its own power and made its own decisions. Each city state picked a side and either allied with the Spartans (Peloponnesian league) or Athenians (The Delian League). These city-states also struggled with civil wars and popular up risings, depending if they were winning or losing. That’s a lot like the streamers disrupting traditional movie studios, but each city-state still working for its own end and switching sides as needed.

These wars also were bloody, inspiring later theorists to develop the concept of “total war”, when war isn’t just a show of force, but a fight for survival. Like the streaming wars: instead of shedding blood, though, the plan is to shed cash flow.

One Hundred Years War and/or War of the Roses

These two wars were the inspiration for countless fantasy novels, especially one of our “co-winners” of the streaming wars analogue crown. Like the Peloponnesian Wars, two sides squared off for power (first, in France, then in England), with the nobles switching sides and betraying each other whenever needed to stay in power. Still, as much as these previous wars resemble the streaming wars, neither quite captures the scope of conflict. We need a really big war, when the War of the Roses is really squabbling over England’s crown. Not like our next contender.

World War II

Most Americans when they think of wars, they think of World War II.

World War II is America’s favorite war, and Hollywood’s too. Just look at their regular output of Greatest Generation films. The problem for this analogy is that, well, I can’t make either side the Axis. Otherwise they’ll be horrifically offended. 

Not to mention, if this analogy were really true, it would be as if the British turned their guns on the Americans midway through the fighting. Because Disney is squaring off as much against fellow conglomerates AT&T (HBO Max) and Comcast (NBCU/Peacock) as it is Netflix and Amazon. (And those two started the price war in the first place for content.)

Finally, at the end, the Allies won partly because they developed one tremendously destructive weapon. There are no nuclear weapons in the streaming wars. Speaking of which…

Star Wars

This galactic battle was allegedly a “civil war” between two sides—Rebels versus the Empire—that each squared off in decisive battles like a traditional war. Like World War II, though, there isn’t some giant super weapon of streaming which one side or the other can destroy to win the war. I tried to imagine this as “data”, but every streamer has that. 

The best case for Star Wars is that The Force is a mysterious force that rules our lives that no one individual can master, sort of like “creative excellence” is the force that rules Hollywood that no one individual can master.

Runners Up – The Iraq War or Vietnam War

I could make a better case for these insurgencies than the civil wars of old. Where civil wars pit uniformed soldiers against each other, in Iraq, militias faced off against the traditional military against insurgent groups versus terrorists all mixed in with organized crime and genuine political parties. It’s as confusing a web of relationships as my “value web” for entertainment.

What I particularly like, too, is the role of persuasion in this type of war. Insurgencies aren’t just about defeating the enemy in the field, but persuading the population at large to support your side via propaganda, ideology, bribery or threats. Which is how AT&T plans to woe it’s customer base too. I really wanted to make one of these multi-sided insurgencies the winner but…

Again no uniforms! Or even enough cohesion to form coherent battle plans. So we need two other wars to take our crown.

The Winners – The 30 Years War and Game of Thrones

The 30 Years War

Whoa! Went off the “American only” board. Most of my readers don’t know what this war was really about, so let’s just slam off a summary from my AP Euro textbook, A History of the Modern World by R.R. Palmer:

The Thirty Years War…was therefore exceedingly complex. It was a German civil war fought over the Catholic Protestant issue. It was a German civil war fought over constitutional issues, between the [Holy Roman] Emperor striving to build up the central power of the Empire and the member states struggling to maintain independence…It was also an international war, between France and the Habsburgs, between Spain and the Dutch, with the Kings of Denmark and Sweden and the prince of Transylvania becoming involved, and with all these outsiders finding allies within Germany, on whose soil most of the battles were fought. The wars were further complicated by the fact that many of the generals were soldiers of fortune, who aspired to create principalities of their own or refused to to fight to suit their own convenience.

Here’s that paragraph on the streaming wars:

The Streaming Wars were therefore exceedingly complex. It was an entertainment civil war fought over new content distribution models, from streaming to theatrical to cable. It was also an entertainment civil war fought over technology, between new sticks, devices and UX. It was also an industry wide war, between giant tech companies striving to enter entertainment and traditional studios struggling to keep them out. It was also an international war stretching from Sweden to Japan, to Australia to Brazil. It was further complicated by the fact that many of the new entrants were deficit financing their streaming efforts to support other businesses, while all the while clinging to “data” as the raison d’être.

I’ve always had a soft spot for this war in my heart because when it finished, Europe was never the same. Arguably, the Peace of Westphalia established the modern conception of the nation-state. When the streaming wars finish, we’ll have new entertainment nation states ruling our lives. That connection was enough to make this our winner, but there are even better reasons.

This war had it all,. Like a traditional war, there were two sides, the Catholics versus the Protestants, which connects to our “entertainment” versus “tech” narrative. Like the Peloponnesian or Hundred Years war, there were also tons of city-states in the German heartland, like our various streamers, FASTs, vMVPDS and more. Plus there were giant empires funding the fighting on each side, the way Apple, Google and Amazon are funding their streamers. Plus, each side was trying to convince local populations to support their side, so you have influence campaigns like the Iraq or Vietnam insurgencies. The Thirty Years War lasted so long and covered so much territory, it fits almost any analogy.

Finally, if you factor in the size of the population at the time, this may have been the most destructive war in European history in terms of casualties. (Over 8 million by some estimates.) Bet you didn’t know that. 

If we could take a lesson, the bloodshed only ended via diplomacy. In entertainment, this means a tacit agreement to collude on price setting, as has happened in entertainment since the golden age of studios, the golden age of broadcasting, the golden age of cable and someday the golden age of streaming. Just wait.

Game of Thrones

This analogy was written perfectly by Dylan Byers in his must read piece here. Game of Thrones captures the nuances and destructiveness of the Thirty Years War in fictional form. (Even though George RR Martins says he based his epic series on the War of the Roses, the Thirty Years War fits better.)

 

The Great Irishman Challenge – The Specific Assumptions for The Irishman Part III

(For the last few weeks, I’ve been debuting a series of articles answering a question posed to me by The Ankler’s Richard Rushfield: Will The Irishman Make Any Money? It’s a great question because it gets as so many of the challenges of the business of streaming video. Read the rest here, here, here and here.)

Tomorrow, we start to get data for the Great Irishman Challenge. Well, we don’t, but it will hit screens everywhere as Netflix releases it and presumably places it front and center on everyone’s Netflix homepage. One of our goals with this project is to set our criteria ahead of time, this way we aren’t back-fitting the results to our preconceived notions about Netflix. 

Now that we have our models for valuing film explained and re-explained, it’s time to fill in the specifics. Today, I’m going to lay out what we know about The Irishman before it launches. I’ll update some assumptions on the model and revenue streams from some feedback. Then I’ll describe two key inputs for the streaming model—Customer Lifetime Value and Attribution of Subscribers. Plus, I’ll touch on how I plan to triangulate popularity after The Irishman launches, which may evolve as we get more data or potential partners. Finally, I’ll talk about the benefits for this model and how I plan to draw insights from it in December.

Assumption 1: Production Budget

Discussing with Richard, we think this is high. Super high. A pretty good summary of this is Jeff Sneider’s take on his Collider podcast a few months back (episode 11 specifically at minute 54):

“I’ve seen [The Irishman budget] figures from $125, $140, $150, $160, $175, $200 million for The Irishman. If you go on Deadline you can read an article that says the budget is $140 and then two hours later another writer is under a completely different impression and says it’s $200 million. No one is on the same page on the budget for this film. And let me tell you what that means. It means the budget is way f***ing higher than any of you are imagining.”

Gosh, that type of cynicism about PR efforts exactly matches my own. If you hear tons of different numbers that can’t seem to decide how much something cost, well the likeliest option is that it was WAY WAY WAY more. At a minimum, this is a $200 million dollar film. And I’m going to do some scenario modeling up to even $300 million. Which means I’ll split the difference and call it a $250 million dollar movie.

Is this ridiculous? Not so much when you think about it. Consider, what does it cost to get Martin Scorsese, Robert De Niro, Al Pacino and Joe Pesci (out of retirement) on a film set? Especially if you’re buying out all the backend, which Netflix had to do since there aren’t any second window revenue opportunities here. (Which is cool too because it simplifies my model.) If I told you between those four it cost $100 million in talent costs, would you blink an eye? Is $150 million too high? I’m assuming $125 million in talent costs.

Then we can add in the extra production costs. This was a very long shoot. (I saw 300 days somewhere.) And then it was as VFX-intensive as some Marvel movies due to the de-aging process, which also required extra work because initial versions didn’t work. (Sneider lays out this situation with great details in his podcast.) This film required a VFX push to get finished in time for launch at the New York film festival, meaning it ran up tons of overtime. Does that sound like $125 million in costs? Absolutely. If not more.

Assumption 2: Marketing Budget

The Irishman will have two marketing budgets. First, the initial roll out. I looked for estimates online and didn’t find a ton. That said, I’ve seen billboards, online ads and even commercial spots. Which screams definitely something, but less than a franchise tentpole roll out. I’d say it’s probably between $50-$100 million, and since I went high with the production budget, I’ll go low here.

(Also, to echo Richard Rushfield’s “see something; say something” if you know a better number for the marketing budget, shoot me a line.)

Then we have the Oscar budget, which is a little bit harder to disentangle. Already, Netflix has started their awards campaigning, but has specifically tied many of their films together, from A Marriage Story to The Irishman. We know from Richard’s reporting that Netflix likely spent over $50 million on Roma’s Oscar campaign last year. They look likely to beat that again. The question is, will they spend $50 million just on The Irishman, or split it with A Marriage Story? Both are getting rave reviews, and I think Netflix is desperate for a Best Picture win. I’m going to end up calling it about $40 million for The Irishman alone.

Assumption 3: Profit Sharing and other revenue streams

We have a few categories here, so let’s run through them.

Library Value? Yep. 

I added library value, assuming the retention model is the equivalent of the theatrical window. Meaning it sets the “price” of the film. Then, we can our theatrical financial model to value library windows. Meaning, the “value” to Netflix for the film after the initial release. To provide an example, Bird Box got most its viewership in the first month, but folks will keep watching it out on Netflix for years. That has a value, which is the “library” value. Using my theatrical model, I’m assuming library value of 25% of first window value. (Specifically, the 10% “digital” revenue for theatrical films is about 25% of the the free, cable, syndicated TV, pay TV and digital second window buckets.)

Box Office Bump? Yep.

If a Netflix film wins a Best Picture, or even gets nominated, that will result in boost in viewership. I’ve seen that for past film and TV series for major awards series. For most Netflix films, this isn’t worth a line in the model, but for this one it is. In this case, I’ll use a 25% threshold of the initial window for the Best Picture bump. This will have a “halo” effect on the library window as well.

Second Windows? None.

Since Netflix films are exclusive to the streamer, every other potential window from home entertainment to licensing to cable channels is a zero in my model. This simplifies our model.

Merchandise? None.

Mobster films don’t really sell a lot of merchandise. Especially brand new films without fan bases or cultural cachet. 

Distribution Fees? None.

Since there aren’t second window or merchandise revenue to shield from profit participation, I don’t need to model any Netflix distribution or marketing fees.

Talent participation? Some.

Initially, I didn’t have any profit sharing, but then I got a note that Netflix for super-duper-huge stars did put a bonus system in place for feature films. Basically, if you hit a certain viewership level, you get a 20% bonus in your paycheck. So I’ve updated the model with that assumption in place, assuming that 80 million views (or “one Bird Box”) is the threshold.

Assumption 4: Calculate CLV

It’s crucial have to a good estimate for customer lifetime value. These are calculated fairly often by other people (see estimates here, here, or here). My difference is I don’t factor in content costs because I’m trying to value the content itself. If I did factor them in, I’d be double counting content costs, and that’s a huge “no-no” in accounting.

So here are my inputs for CLV. First, blended average price per month comes from Netflix’s 10Ks. Customer retention estimates come from various sources, including Second Measure. Crucially, though, I have a much lower rate for international because I’ve heard the churn machine is very high overseas. Finally, I use other estimates of Netflix’s marketing spend for customer acquisition costs. All this leads us to:

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The Great Irishman Challenge – How to Calculate the Straight-to-Streaming Film Profitability? Part II

(For the last few weeks, I’ve been debuting a series of articles answering a question posed to me by The Ankler’s Richard Rushfield: Will The Irishman Make Any Money? It’s a great question because it gets as so many of the challenges of the business of streaming video. Read the rest here, here, here and here.)

On Monday, I explained the grand plan of Richard Rushfield and I plan to estimate the value of future Netflix films, starting with The Irishman, out earlier this month in limited theatrical release, but coming to the world’s biggest streamer next Wednesday. For traditionally released theatrical films with normal second windows, we have a robust model we can employ. 

What about streaming only? Well, that’s where it gets tricky.

A lot of folks do some back of the envelope math for this, and this can be a useful way to look at the problem of valuing streaming. Take Richard’s approach from a few weeks, back looking at Disney films that had been in theaters after 3 weeks (when Netflix pulls them from streaming). Of all the films, Disney earned roughly $310 million after 3 weeks of theatrical distribution. That’s the equivalent, Richard noted, of 4.3 million customers subscribing for 12 months on Disney+. If that number seems big, it should be, which shows the value of theatrical releases for studios.

Could we just take that approach and just apply it to The Irishman? Unfortunately, it has some flaws, mainly double counting subscribers. We need a different method to employ in “The Great Irishman Challenge”. Unlike traditionally released films, in steaming there are a few ways to value a given title’s performance, and each method has its own pros and cons, ranging from crippling to merely difficult to over come. 

Which I’ll (re)explain today, along with describing which ones are fine, which ones are incorrect, and which ones I prefer. At the end, I’ll explain which one we’re using.

Four Ways to Value Streaming Video and One Way NOT To

I’ve previously valued streaming video in two articles. First, back in January, I looked at Disney’s decision to keep theatrical windows for Star Wars films. Second, back in May, I explained streaming video models in order to put a value to HBO’s Game of Thrones. Today’s article will explain all the models from those two articles and add a new method I figured out how to calculate last month. (I had employed this method at a previous employer, but needed a key piece of data, as you’ll see.)

For each of these methods, I’m going to assume that Netflix had a feature film that was seen by 40 million subscribers in the first 28 days, divided evenly between the US and international. The film cost $115 to make and Netflix spent $50 million to market it. As for box office? Let’s say it had $120 million in the US and $80 million globally.

Sub-Optimal Method #1: Multiply Customers by Month by Price

This is the most common method of “back of the envelope” valuations I’ve seen for Netflix films. Usually, you hear folks do a version of this on podcasts, and I’ve seen it for Lord of The Rings on Amazon a few different times. Also, you could do “customer years” the way Richard did above. Here’s how the model for this approach would look:

IMAGE 7 By Viewers per Month

The problems? First, this is one-quarter of Netflix’s subscriber base attributed to a film in one month, which would probably be one-third of their active users. In other words, if Netflix had two other properties getting similar ratings, then every other film released that month would “financially” be a net loser. Second, this approach doesn’t account for “customer lifetime value”, which is really the better approach to valuing customers, versus the one month or 12 month view. Third, this approach doesn’t distinguish between films and TV series total hours of viewing (because it is just subscribers) so it’s tilted towards films, which are shorter and easier to finish.

Still, you can use this to ballpark how long a film would need to make its money back. It’s just sub-optimal because of double counting.

Sub-Optimal Method #2: Attribute Customers by Usage

One of the interesting ways to look at content is to think about what percentage of viewership a title makes up of all the viewership on your platform. If 10% of all hours watched are your platform are Friends, that has to mean something. The challenge is knowing how much people actually watch on Netflix. Netflix has helpfully told us twice (twice!) that they stream about 100 million hours daily in the United States. That means I can calculate potential usage of a TV series or film! That would look like this:

IMAGE 8 by Usage

The problems? First, getting the usage data is really tough. For films, we’d have a pretty easy time, but for TV series, we really don’t know how many people watch how many episodes. And getting usage numbers for Amazon or Hulu may be nearly impossible. Second, it also doesn’t factor in “customer lifetime value”. Third, it over-weights TV library content because there is just a lot more to watch, hence it’s “usage” is much higher, if you can get that viewership data. 

Still, you can use this to compare the usage of various shows and movies. It’s just sub-optimal because it’s tilted to shows with much longer runs.

The Bad Method: Multiplying Subscribers by Customer Lifetime Value

I’ve seen this mentioned in places, though running them down is tough on Twitter. So this may be a strawman, but it’s worth pointing out in case it hits anyone to do. Twice, I’ve criticized valuation methods because they don’t use customer lifetime value. You may be tempted, then to just take the number of subscribers and multiply by CLV instead. Like this:

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Most Important Story of the Week – 15 November 19: Disney+ “Sparks Joy” in Customers. What Are the Business Ramifications?

Is content is king?

After this week, how could anyone doubt it? Disney+ showed what having the biggest movies of the last few decades can do for a streaming launch.

But that’s not all! Apple landed one of the biggest free agent producers in former HBO chief Richard Plepler, for a deal whose terms aren’t disclosed. Nor even his role. But we can’t look past Disney can we? Nope. In fact, we’re giving a triple shot of Disney: first, the strategic implications; second, the competitive ramificaitons; third, the numbers.

[Programming note: Starting next week, I’ll be on paternity leave for the birth of my child. I have some articles mostly finished to keep posting, but the weekly column will be on hold until December.]

Most Important Story of the Week – Disney+ and Its Customer Value Proposition

When in doubt, we should default back to the “value creation” model for every business. Is a company capturing value or creating it? 

Disney+ Value Creation Model

I’m going to use my personal example to get at where I see the customer value proposition here. Specifically why me—and apparently 10 million other folks—rushed to sign-up or log-in on day one. Marie Kondo—the famed personal organizer—has a simple test for whether or not you keep something in your house. When you look at it, “Does it spark joy?”

That’s how I personally felt about Disney+.

For once, every Disney film my daughter loves was in one location. Every Marvel and Star Wars film I love was there too. Along with hidden joys like the Swiss Family Robinson or The Journey of Natty Gann. Or the X-Men Animated Series! And Gargoyles! Seeing those films brought visions of how I will binge TV for the next few weeks. 

As I was scrolling through the interface—I didn’t have any troubles—Kondo’s phrase hit me, “Spark joy”. 

It’s fairly incredible a streaming video service can evoke that level of emotion. But that’s the best way to describe the initial experience. Caveat galore that this is just my anecdote. But to judge by my texts and social feeds, the majority of the Disney conversation was celebrating all these films that were previously divvied up between FX, USA, TNT, Starz, Netflix and DVDs into one easy location. By a few reports, some folks even stayed home from work for the launch. That’s the type of devotion only major sporting events or, um, Marvel/Star Wars movies can evoke. 

(Yes, plenty of people gave it an “eh” online too.) 

To put this into the “value creation model”, if my price is $4 a month, the difference between the amount I would pay and $4 is the “consumer surplus”. Right now, I have to imagine that for hardcore fans like me, even an HBO level price would probably make sense, if the shows stay at the quality of The Mandalorian. 

Critically for this analysis, just because the price is so low now doesn’t mean it will stay that way. Disney—like Netflix, Hulu and likely every streamer—is definitely underwater from a pricing perspective. Lots of folks locked in at $4 a month, and to produce even the new content will likely be more expensive than that. The key for Disney is figuring out how quickly they can make the price exceed costs. (Yes, as my big series of the year goes on, “An IPB of the Streaming Wars”, I’ll try to quantify this more exactly.)

Then the question is: at profitability, is Disney capturing value (just pricing below costs) or truly creating it? Given that Disney boosted my WTP for a streaming service, I’m leaning towards the latter. Moreover, Disney+ as a platform may drive some value beyond the access to its incredibly popular films. In other words, the whole of Disney+ may be greater than the sum of its parts. And these are valuable parts. (The biggest driver of entertainment WTP is simply having hit shows and movies.) 

So let’s explore the upside theories for Disney+’s value-added future. Since I’m never satisfied, I have some concerns too about some of their strategy.

Upside Theory: The Simpler User Interface – Decluttered

Let’s stay on Marie Kondo idea for a moment. Mary McNamara wrote an article in the LA Times not too long ago making the case that Netflix needs a Marie Kondo-style clean up. She’s not wrong. The reason—as emphasized by AT&T in their recent inventor presentation—is that it takes customers 7 minutes to find a show to watch. (Using a DVR, conversely, takes about 30 seconds…) Netflix is filled with lots and lots of shows and films, many of them “sub-optimal” from a customer perspective. Which makes finding shows difficult.

Well, the Disney+ app is made for McNamara (assuming she likes Disney movies!). Disney+ has a fairly limited interface—reminiscent of the HBO Go application—organized by the various content families. Within each section are the cream of the crop movies at the top, with the rest down below. In other words, the service doesn’t overwhelm you, and what is left will will “spark joy”. This is the best case for Disney+.

Downside Theory: The Nostalgia Factor Wears Off

Credit for this one goes to a Twitter conversation about how quickly “nostalgia” will wear off from the devoted fans. My answer is that in some cases, it never will. Those are the hardcore fans who go to D23. They aren’t enough, though, to build a media business.

For the rest, this is the biggest risk. Sure, I’ve had joy sparked at launch. How long does that last? How much does my daughter actually use the application? (We actually don’t let her watch alone on the iPad.) Especially for the older TV shows. Do they need more TV series to drive adult viewership, as I speculated here? I may find it cool to watch Duck Tales (1980s version), but do I actually binge the entire thing? Nostalgia may get folks in the door but a compelling offering will need new content to keep folks engaged.

Upside Theory: I Was Wrong about The Vault (It’s All Here)

Disney proved my August theory about missing films completely wrong. In the 11th hour they went out and got them all. Which is probably pricey, but helped the value proposition. Since they have all these movies, Disney+ would has something like 20% of the box office demand of the last decade on its service. That’s incredible compared to rival services. I was wrong and they have the entire vault for the most part. Here’s the box office films from the last four years:

image-5-disney-last-five-years.png

But this isn’t all good news. They likely had to pay huge amounts to other distributors to facilitate bringing all these films over. Will this immediate launch help pay that off? Absolutely, but they are deficit spending to make it happen.

Downside Theory: Why Did Disney+ Launch with Avengers Endgame?

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Aggreggedon: The Key Terrain of the Streaming Wars is Bundling

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

An Introduction
Part I – Define the Battlefield
Defining the Area of Operations, Interest and Influence in the Streaming Wars
Unrolling the Map – The Video Value Web…Explained)

In war, what really matters on a map is the “key terrain”. The place on the map that if you control it, you have a much better chance at winning the upcoming battle or war. In Army lingo, terrain that control “affords a marked advantage”. Usually this is the high ground, but can be anything from a bridge to a national capitol, or airfield or even castle, in olden times.

So take a gander at our “map” of the video landscape from last week.

Image 7 Video Value WEb

As a commander, where do we want to control? What gives us a “marked advantage”? Well, I highlighted it in yellow. 

Last week, I “defined” the map and area of operations. Now we move onto the challenging tasking of describing that map. While I won’t use all of the Army’s frameworks, the concept of “key terrain” really does resonate with business. (Don’t worry, we’ll use other business analysis frameworks as well.)

Today, I’m going to highlight the key terrain the streaming wars will be fought over, and it’s not what most streaming observers and customers think it is. (If I had to guess, they’d call it subscribers.) I’ll start with the “BLUF”, then describe the situation in broad strokes, the reasons why digital bundlers are in a powerful position, the stark choice facing streamers, and finally the ramifications for all players in digital video. 

Bottom Line, Up Front – Digital Streaming Bundlers Are Best Positioned to Capture Value

While streamers started as the aggregators—Netflix inspired cord cutting by offering it’s own bundle—in the next five to ten years, the new digital video bundlers (who I call DVBs) will be in the best position to capture value (meaning profit and cash flow) in the video landscape. This means the winners will be folks like Amazon, Apple or Roku, and not Netflix, Disney, Comcast or AT&T.

The Situation: Netflix breaks the user experience monopoly of cable TV

In the past—meaning just ten years ago—the landscape was relatively simple for TV: you turned on a cable or satellite box, and scrolled. Netflix changed that all. Using its installed base of DVD subscribers, it started offering streaming video to its customers. Thus, when you sat down at your TV, you could decide, “Netflix or cable?” Netflix provided a second user experience to watch TV. Some people—though less than usually hyped—cancelled cable just to use Netflix and were dubbed “cord cutters”. 

Netflix was so successful, it inspired copycats from Amazon Prime to Apple TV+ to Disney+, who launched this week. Of course, the best place to watch TV isn’t from a computer screen, but from a living room TV. Devices were released to manage all these different streaming platforms, like smart TVs, Google Chromecast, Roku, Amazon Fire TV and Apple TV.

Which leads to my biggest theory of the landscape: customers will want to return to one operating system to manage all their television watching. Crucially, this may include bundling content. The cable companies didn’t just provide one user experience, they provided a bundle of cable channel at one fixed price. That bundle is dying.

But it’s returning. Instead of just channels, though, it will be a combination of virtual MVPDs (like Hulu Live TV, Youtube Live TV or AT&T TV), FASTs (like Pluto, STIRR, Xumi, and Tubo) and SVODs (like Netflix, Disney+, Hulu and Amazon Prime). The question is who mediates that experience. Someone will. And potentially to manage all their payments. And if you’re managing all the payments, you can bundle all the streamers/FASTs/vMVPDs into one monthly or annual price. A bundle.

The question is what do we call them? I’ve taken to the acronym DVB:

Digital Video Bundlers. 

I’ve colored this in yellow on my map because of how important I think it is. If an Amazon or Apple can own the customer relationship, they’ll own all the data and be best positioned to capture value from suppliers or competitors. Before I get into the ramifications, let me explain why I think this will happen.

Reasons Why The Bundle Will Return

The return of the bundle doesn’t just seem likely, but almost inevitable.

First, a clear customer value proposition – One user interface for all content.

Both Amazon and Apple have touted a clear proposition to users, which is the idea that you have one place to go to watch all your content. Meaning: if you log in, every subscription video service is in one location to easily search and browse without having to switch between apps. 

(In some cases, this vision is still aspirational, as opposed to realized. But it’s both companies’ dream user scenario.)

This makes sense from the cable example. The big revolution wrought by Netflix stemmed from the idea that suddenly customers now had to choose between two different ways to interact with the TV screen. Once that was severed, the cable bundle no longer offers it all. But neither did the “Netflix only” option, since you missed all traditional cable channels. Or other streamers like Hulu. This makes deciding what to watch just that much harder (and was to Netflix’s advantage).

Most smart TVs don’t offer a simple way to scan between streaming services. Instead, you decide what app to use and go to its platform to browse. Amazon and Apple want to incorporate everything into one user interface, so HBO content would sit next to Disney+ content which is next to CBS All-Access, for example. Meaning you can organize all your video in one place. Here’s Amazon Channels right now to show this vision:

Screen Shot 2019-11-14 at 10.38.31 AM.png

(By the way, Amazon and Apple both ruin this customer experience with a clear user experience fail. When customers surf TV and streaming, the expect everything to be watchable for free. Pay Per View, historically, was always limited to clearly defined section of the cable interface. In their efforts to have an accurate search, Amazon and Apple both surface results for their TVOD businesses, which customers despise. Loathe. Hate. Keep your “pay for it” shows and movies clearly separated from your TV experience.)

Second, a vague customer value proposition – One source for payments.

The second reason cited by folks selling subscriptions is it offers simplicity in payments. I’m less sold on this value proposition because people will likely still search for the best deals. But it’s a potential for some customers and has some value.

Third, a potential value proposition: the new bundle. (Which everyone is predicting)

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Most Important Story of the Week – 8 November 19: Franchise Lessons from all the Game of Thrones and Star Wars News

What happens when one week has so much news and the next has very little? Well, you roll one topic over. So the “most important story” this week is last week’s runner-up. 

The Most Important Story of the Week – Game of Thrones and Star Wars Franchise Lessons

Last week began and ended with dueling Star Wars and Game of Thrones news….

– First, HBO cancelled it’s “Age of Heroes” prequel series for Game of Thrones.
– Second, HBO announced another prequel series for Game of Thrones, based on the book Fire & Blood about the Targaryens.
– Third, David Benioff & DB Weiss—the Game of Thrones showrunners—had left the Star Wars prequel they planned to make

Since HBO Max sucked up the oxygen out of the entertainment biz room last week, I didn’t really have time to examine what the big franchise moves meant for entertainment. Which is a shame; monetarily, these announcements would have been the most important story in most weeks.

Here’s why: both of these franchises are worth billions. As I’ve written extensively on here and here. And it’s not too bold to say that how HBO manages Game of Thrones and how Disney manages Star Wars will play a key role in either launching successful streaming services or failing (and losing billions).

Today, let’s look beyond how fans will feel about these announcements, to what we can learn from a business strategy perspective. Meanwhile, Marvel will keep coming up, because it’s the most well-run franchise in the game right now.

Business Issue 1: Pilots Are Great Investments

You’ve probably heard the old story that Seinfeld tested very poorly as a pilot. Development executives bring this up all the time when a pilot inevitably gets bad reviews. “Well, Seinfeld tested poorly too!” It ignores obvious counters that most pilots that test poorly ended up being poor TV series. Conversely, quality pilots are highly correlated with successful series. Take Game of Thrones. Sure, the initial pilot tested poorly, but the reshot pilot is one of the greatest in TV. The Breaking Bad pilot was similarly fantastic. 

This is why, I praised HBO for making a pilot for their “Age of Heroes” GoT prequel. You’re about to invest maybe a hundred million dollars in a TV series. Make a pilot and see if it’s good. Except then HBO went straight-to-series on their House of the Dragon prequel series. Sigh. Essentially, HBO Max made a good decision (make a pilot, it tested poorly, don’t go forward) and then made a bad decision (go straight to series). 

When it comes down to it, overall going straight-to-series is just another example of how prices are increasing for distributors without actually increasing the top line. It increases the upfront costs (full season commitments to talent) while decreasing the hit rate (no pilot data to kill duds early). HBO feels like it has no choice, though; since Netflix and Amazon are pushing everything straight-to-series, to stay competitive, everyone has to make everything straight-to-series.

Creative Issue 2: The Source of Game of Thrones Greatness

Still, there may be business logic for why HBO chose one pilot over the other here to go straight-to-series. Looking at what made Game of Thrones great, a lot of things contributed from the showrunners crafting a great story to Peter Dinklage just owning it. But if I had to pick the single biggest driver, it would be George R.R. Martin. Yes, Benioff & Weiss successfully managed a monster TV show, but at its core they wrote in an extremely fleshed out world of George R.R. Martin’s creation.

As a Game of Thrones fanatic, I’ve read everything GRRM has written on the series. Including a history book and the Targaryens Fire & Blood book (the one that is the basis for the straight-to-series order). If you asked me, what has a more fleshed out world, the Targaryen reign or the “Age of Heroes”, it’s the former by a landslide. (The Dunk & Egg books seem like a no brainer for a limited series as well.)

If that’s where you think the source of GoT’s success comes from, that makes the decision for which prequel series to order much easier. Go with the “Targaryens” every time. It has literally hundreds of pages of source material that will require much less from its showrunners than the “Age of Heroes”, which has about a dozen pages of material to draw from. 

Even in Disney’s own house, as the latest departure shows, they can’t  learn any of the lessons about leveraging your source material. Star Wars decided to toss out all it’s source material after the Lucasfilm acquisition. Specifically, the dozens of books in its “Legends” universe. (I’ve, uh, read all these too.) Instead, Kathleen Kennedy and team burned it all to the ground, and as a result had to come up with new stories from scratch. (Sometimes these stories had a vague connection to the Legends universe, but emphasis on vague.) Which makes the hit rate much lower than what Marvel is doing. It also requires A-List directors–or at least Kathleen Kennedy wants to work with A-List talent–which makes business point four below much harder.

Alternatively, Kevin Feige leaned into Marvel’s history. This source material is part of the reason Marvel has been so successful. It’s not like Kevin Feige is writing all these Marvel stories from scratch. He’s just adapting the best Marvel stories of all time, like Civil War or The Infinity Saga. 

Business and Creative Issue 3: Avoid Bad Villains

Multiple friends—all Game of Thrones fans; all unsatisfied with the finale season—complained to me about the prequel series being about the rise of the White Walkers. The logic goes, “They were dispatched so quickly and easily, I don’t want to see them in another series.” Yes, this is an unrepresentative sample size, but it speaks to very real creative issues.

If that sentiment showed up in the testing—and I believe HBO tested the latest pilot with focus groups—then that alone could explain why the prequel didn’t move forward. Doubly so if combined with the lack of source material on the “Age of Heroes”. 

There is a business lesson here too, one about coordination and intertwining storylines. If the ending of the White Walker story was more satisfying for viewers, then maybe my friends message saying, “Man, I can’t wait to see the beginning to that.” Instead, the abrupt/rushed downfall of the White Walkers in a dark episode of television fundamentally ended the ability to create another revenue stream for HBO/AT&T. 

Star Wars faces this too. The last trilogy create a brand new bad guy (Snoke), then [spoiler alert] killed him off, and is currently debating if the big bad guy–Kylo Ren–will become a good guy. Notably, in Avengers Thanos stayed bad the whole time. And now Star Wars may bring back Emperor Palpatine. In other words, after one of the best bad guys of all time–Darth Vader–Star Wars doesn’t know what to do.

Business Issue 4: Franchise Management is Hard. Really Hard.

The challenge for a network like HBO or a studio like Disney is managing not just the creative for one series, but thinking how the movements/plots in one TV series impact the larger business. Or one film impact the larger brand perception.

My current working theory is that Warner-Media doesn’t have as ingrained “franchise management” as a skill as someone like Disney. Disney has TV series and movies for Star Wars, Marvel, Disney animation and Pixar. Every character worth their salt has teams dedicated to manage that brand, building value over time. They really are experts at it and integrating it everywhere.

Compare that to GoT. Game of Thrones acts like an HBO property first and foremost. So HBO gets first crack at all the TV shows, but then nothing else happens. (Part of this is due to the fact that George R.R. Martin still owns the rights, but obviously AT&T should try to buy those.) We see the same thing with Harry Potter going the other way: lots of movies, no TV shows. (And slipping viewership.) DC probably has the most things being made, but with little connection between the movies and TV shows, just volume. (And a comic strategy of rebooting the whole thing every five or so years.)

This is likely the key issue with Lucasfilm too, in that top tier talent doesn’t want to sacrifice their creative vision for the larger universe’s needs. Which begs the question, “Why doesn’t Kennedy bring in creatives who will fulfill her vision?” That would mean not flashy names–like Benioff & Weiss–but directors who get the job done.

Really, only one person has figured out how to reliably do this right now.

The Reality: Marvel/Kevin Feige is the Best at Franchise Management Right Now

If you take all the lessons from Game of Thrones and Star Wars above, Marvel does each one well. Pilots? Feige does test shoots for controversial films to make sure they’ll work. (He did with Ant-Man, for example.) Source material? Yep, he picks the best stories and adapts them well. Good bad guys? Yep, Feige finds fresh bad guys each film. (Though arguably kills them off too quickly.) Coordination? Um, yeah we just saw that with Avengers: Endgame. (He found a set of directors who shared his vision, by the way, in the Russo brothers and gave them four huge films.)

Finally, he keeps the quality high. That’s a unique skill he has. (Unique as in one of maybe 5 folks in Hollywood.) Which is a credit to him. Marvel was barely anything when this century started. But by giving Kevin Feige the reins, his successful stewardship has created tons of value. And now he’s taking over TV whereas HBO/HBOMax is trying to figure it out and Lucasfilm fumbles for the next creative vision.

Other Contenders for Most Important Story – Apple TV+ Launched

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Unrolling the Map – The Video Value Web…Explained

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

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

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

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

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

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

IMAGE 1 - WSJ Map

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

IMAGE 2 - Recode Map

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

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

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

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

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

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

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

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

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

Screen Shot 2019-04-10 at 3.11.46 PM

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

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

Screen Shot 2019-04-10 at 3.12.03 PM

Now we can make one for digital video.

The “Jobs” Done at Each Step of Digital Video

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

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

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

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

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

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

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

The Video Value Web

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