THB #156: There Are No Streaming Wars (again)

I didn’t expect to be writing this today, but I listened to Michael Nathanson trying to get past Matt Belloni’s myopia about the industry and I wanted to reassert some points.

Nathanson talked about Disney resetting the subscriber count expectations openly in order to reposition in a better way moving forward. Huzzah!

This was, as I have written in the past, one of the biggest problems with Netflix’s remarkable stock market success… golden handcuffs. Things changed, but Netflix wasn’t really free to adjust as it might because they were feeding that crazy stock price. Of course, that problem has been flipped on its back now and anything they do that makes sense looks like an act of desperation. Sucks.

This remains true for Netflix… an ad-based offering will expand the number of domestic subs, lower Average Revenue Per Unit, and perhaps, lower the entire revenue number for US/Canada. Good or bad?

And ad-based offering overseas will be a boon for subs across the globe, but how will it effect the overall revenue numbers in places where they just can and cannot afford current Netflix pricing?

Netflix will have to figure this out for themselves… surfing some new waves at which they are not expert. This is scary for any mature business.

All these big companies and all this money - more than has ever been spent on content in the history of the world - and they are all afraid to do what they need to do… to pivot as needed in a growing business, with each company having a different set of assets and needs. They have all allowed for this “Streaming Wars” bullshit and Wall Street’s unknowable reactions to keep them from leading.

a streaming war

There are no streaming wars. There are a bunch of companies with varied assets and strengths and weaknesses. No one can be first again after Netflix. No one can be Disney, with their unique IP power and family branding. Less distinctly branded, Warner Bros Discovery and Comcast and Paramount Global and Sony and Lionsgate each has a different set of assets/tools. If you are playing the other guy’s hand when you don’t have the same cards, you are an idiot.

Streaming is not a good business for legacy companies just re-monitizing America. It cannot replace the revenue creation complex that has existed for decades… which the media mocks out of sheet ignorance. That is why we are seeing the wave of interest - and some preference - in AVOD. The problem remains that every set of eyeballs that moves from legacy to streaming is discounted by advertisers. Fair, not fair… it’s reality.

The significantly increased money in streaming can only come from owning subscription and advertising pipes for your content (original or licensed) into the rest of the world. That is the only reason for legacy companies to make this transition. That’s 200, 300 or 400 million addressable households out there, ready to be accessed/made-into-revenue in a new way. Even if your ARPU over there is half of what it is in America, that is a huge $ leap over licensing selective swaths of your content overseas, country by country. (See: Movie Exhibtion Expansion After 2000)

The issue of cricket rights in India came up in Nathanson’s appearance. Estimates in India are that there are “only” 210 million television households in India, even with a population of 1.38 billion people. Disney+ Hotstar has 50.1 million subs in India, about 24% penetration. But with an ARPU of $.76, they are generating just over $450m a year in India.

Cricket seems to be a critical piece of content for Hotstar or whomever else might land them… but the IPL has set the base for bidding on rights that would start in 2023 at $4.26 billion for 5 years or about $850 million a year. That’s the smallest bid they will take.

The math is simple. The broadcast segment seems to generate around $350m a year. So even at the minimum price to buy the complete package again, the expense of this would assure that the entire Disney television involvement in India loses money, even with incremental growth.

IPL, like the NFL, has created an array of available packages. There is India domestic broadcast, India domestic streaming, a “non-exclusive bundle of 18 select IPL matches,” and a 4th bundle, “rest of the world.”

So depending on what they think can work for them, bidders can try for any or all of the 4 packages. Would Disney be better off, financially, with just India streaming, which involve the Disney+ and Hotstar packages? Or are the Disney & Hotstar brands strong enough to be sub-healthy with just, say, India broadcast rights?

I don’t know. It looks like every package will be a loss leader this time, as they look to triple IPL rights revenues, at least. Bidders will be making a choice between subs and profits at this price point.

Nathanson (and me, coincidentally) think that Disney taking a firm public position that puts profitability in the next decade for any upcoming content spend would be respected by Wall Street.

Obviously, almost all content comes with risk. Risk is part of this industry. But just like the Sunday Ticket package now being sold by the NFL, whoever buys it knows they will lose money on it. The value is other than financial. And that may be the case in India with cricket. The question is, how high does the price go before it is no longer worth paying to play?

The bigger point is, not every country is India… but every country is a unique set of strengths and weaknesses to navigate, not just on content, not just on pricing, but also on advertising, for those countries where it will be offered as an option. (As noted in yesterday’s column, there are 6 ways to get Disney+ Hotstar in India… and only one of them is ad-free.)

It’s easy - and stupid - to be sitting in Los Angeles, looking at the future of streaming like a game of Stratego. The rules… there are no rules. Media and Wall St need to allow for these companies to build themselves and not to have to play this game every quarter of “What do they want this time?”

For anyone who pushed the idea of Disney buying Netflix yesterday, including Always Wrong Rich Greenfield, please explain how this makes ANY SENSE AT ALL!!!!!

Seriously!

Of all the stupid ideas in all the world… why?!?!

Greenfield: “The market is not rewarding companies for streaming subs anymore and disposing of Hulu would enable a far cleaner, understandable Disney+ streaming strategy.”

Yes… patso… the idea is to be smarter than “the market,” not driven by a bunch of people who were sucker enough to be rewarding companies for stream subs for almost 2 years after the primary revenue market - US/Canada - went stagnant!

More AWRich: “Disney and Netflix are truly complementary pieces in the streaming puzzle that would dominate the global war for time spent with video.”

No they are not! They are parallel competitors in streaming. What percentage of Disney+ subs do you think don’t also have Netflix? Let’s say just 75 million Netflix subs also have Disney+. A merger murders over $7 billion in revenue instantly. Or do you expect people to start paying $22 a month for the merged streamer?

There is no global war for time spent with video!!!

This is a fantasy… again, created by our good friends at Netflix to serve their needs, combined with a retro mindset that is near insane.

Time spent matters when you are selling ads.

Time spent in ad-free streaming means only that people are using your service, which keeps them from churning, which is the only metric that matters to a subscription streaming service.

I have not done a study. But I believe that if a consumer opens your streaming app 3 times a week and finds something they want to watch on half of those 12 visits a month - including ongoing series - they are keeping the service on for another month. You don’t need to own half of their TV time every week. (obviously, there are always exceptions) If they use it more (kids watch Disney musicals 3 times a week every week), great… even more secure.

When you have a free streamer with advertising, you want them to show up because you are selling ads, but they won’t cancel you because it’s free.

The issue of “how can people afford 4 - 7 paid streaming services every month” is also simple… they can’t… not while they are also paying for cable or satellite or any cable-replacement at the price of $80 - $120 a month for the basic package. Cable/Satellite has to go… but it’s going to take a while because internet service is not strong enough in enough of America to cut all those cords. It will take time. So look forward to another wave of competition in streaming when we go from 75 million ”cord” households to 35 million.

But I digress (again)…

The irony of Netflix being the #1 content producer when more than anyone else, they just need to enforce the relationship, not own the most hours is hysterical.

What one keeps hearing from people getting hot for Warner Bros Discovery or Paramount+ or AppleTV+ is that they like a few shows. A handful. 3 or 4 or 5 or 6.

Everyone was sold on this insane idea that more is everything. Why? Because Netflix was spending like a mad despot on original content and they needed an excuse, so as the #1 producer of content, mass numbers because the best argument.

But there is only so much we can all consume. There are only so many hours in the day. What makes an impression? A little bit of love.

All of a sudden, Paramount, making many of the same mistakes they have made for the last decade or two, is super-hot… because of Yellowstone and a remake of the British series, Ghosts! A few modest movie hits and what… Halo? A few successful titles not only turn a zero into a hero, but make the most uncool foundation - legacy - into the hot new (50 year old) thing in town.

We are back to the future. You know what is the most dangerous thing HBO Max (please, change the name!) can do now? Make Julia and Minx fans wait a year for the next season. Loved Raised by Wolves in 2020. 16 months to the second season? Lost me! You don’t need to force them to do 26 episodes year. But 18? 20? They waited until the shows were done with their runs until they renewed? Are they nuts?

But that’s an entirely different conversation… I started writing this to be a footnote and I have rambled on for way too long.

Let me end where I started. Companies need to stop letting the media and Wall St bully them. If you want respect from a bully, look them in the eye and stand firm behind your own strength… in this case, a solid plan for your company’s future, even if it means changing directions somewhat every single year. Streaming is a new business. The worst thing you to do is demand The Answer exist at all times.

This is what, by the way, brought David Zazlav to superpower in Hollywood. And he hasn’t really even done anything yet. But AT&T, amongst others, see a guy who will do what he needs to do and then be clear about why he did it. People want to tear him down because he ingratiated himself to the industry, talking to everyone he could. But they all know, in the end, he will be making the calls for his business. And the only way he is sure to fail is if he doesn’t listen and doesn’t project strength.

Feel free to have your own opinion about what he is and what he will do. But the reality remains he same. If he doesn’t show his strength, he will be killed. And I won’t think it was unfair.

Don’t die playing someone else’s Squid Game unless you have no choice.

Until tomorrow…