THB #206: Calm The F*** Down, Please
We are in a moment of stasis in the television/film business.
The domestic business is land-locked at the moment… in streaming via pushing the cap for subscribers and in film, via a product drought.
The international subscription business is at a plateau for Netflix while others are being reduced (at the moment) to tricks being used to pretend there is growth. Specifically, Disney using an ARPU under 20% of the overall norm for the company to keep Indian subs growing while also pushing domestic single-streamer subscribers to join The Bundle, where they report Bundle subs as 3 subscribers.
Warner Bros Discovery is doing pretty much exactly what was anticipated when the deal was done. No one really saw trashing Batgirl coming/going, but the thinking behind it… not a surprise.
Peacock is floating, as Comcast is still finding the most money in selling cable and milking their broadcast and cable networks for advertiser cash.
Paramount hit a magic event with Top Gun Maverick, but hasn’t really accelerated as a company as a result. They have a 2023 full of IP. Waiting.
Apple and Amazon continue to be the great white sharks, under the surface, making people very nervous… but not really showing their teeth. They don’t seem to be all that hungry. Everyone is waiting for the massacre… but… swimming… pretty quietly.
Back in May, a couple quarterlies back now, I wrote "Leave Netflix ALONE!!!!", as it seemed everyone was lining up to explain how Netflix had to fix itself and fix itself RIGHT NOW! I was also pretty tough on Netflix and the inertia that had taken over for a while.
The day I wrote that, Netflix was selling at $186. It was after Reed Hastings has blurted out, “Ads!!!” on the previous quarterly video. At their next quarterly, the stock price had crept up to $201. They hadn’t really done anything. The “good news” was that they lost fewer subs than expected… but those were at a significantly lower CPM. The next day, the stock jumped to $215 and has continued rising to $249 today. That’s a 34% growth spurt on nothing more than, “we’re working on it and we will start rolling this out somewhere aside from the U.S. in 5 months or so.”
Warner Bros came to their first quarterly since launch, having told everyone their general plan of attack with this new company, and basically said, “we’re working on it and we will start rolling this out worldwide in 9 months or so.”
And the world fell in on them.
The already deteriorated stock price of $17.48 fell to $14.59… 17% overnight. Since then, it’s dropped tp $13.12.
I’m not arguing that we need to be bullish on Zaslav. Or that Netflix’s history should be discounted to that of Zaslav’s not-directly-comparable measurables.
I’m saying… if you are trying to make major changes in a company or with the launch of a new company, things take time, real evidence takes even longer, and the nownownow of things is a deeply destructive force.
This brings me to the story of the day, Daniel Loeb showing up to tell Disney what they must do now.
If you read me, you know I am not the world’s biggest Chapek fan. But once again… the guy survived the angry mob (for better or worse) and last Wednesday, he rode a quite middling quarterly into a lot of positive energy for Disney, in great part by sheer force of will and positivity. He also laid out, in a new way, the ongoing plans for the streaming/television/film segments of the company… not unlike Reed Hastings in the last quarter for Netflix. In fact, Chapek was even more aggressive than the Netflix posture and made promises that will come up for roll-out and assessment sooner than Netflix’s current public plans. (Things change.)
Stock went from $112 to $122 overnight. 4 days later, it’s at $124.
But now, Chapek has Daniel Loeb buying a million shares of Disney so he can scream sweet aggressions in his ear. (The full letter to Disney is at the bottom of this story.)
And even I, a Bob II blaster for much of his tenure, find myself screaming, “Just let the guy take a quarter or two to work on the plan he seems to have!!!”
None of the streamers are going to make any real changes in advertising before Thanksgiving and we shouldn’t expect major moves before Martin Luther King, Jr. Day… if that soon.
The Disney plan and the Netflix plan will not be the same. Their overall long-range approach to streaming is Not The Same. Can’t be. Shouldn’t be.
But here’s Dan Loeb… yammering about the idea that Disney (Iger and Chapek) has made the wrong call on turning ESPN into a gambling-driven network. This can’t stand!!!
But ESPN is a part of the great worldwide streaming strategy. And no, contractual agreement will not do the job because it is not 100% clear what the specific mutual needs are going to be in 3 years, 5 years, 10 years, and onward.
Loeb wants Disney - as many of us have suggested for over a year - to accelerate the purchase of the last 1/3 of Hulu. His letter states, “integrating Hulu directly into the Disney+ DTC platform will provide significant cost and revenue synergies, ultimately reigniting growth in the domestic market.”
Yes. To some degree. I don’t think it will “reignite growth,” but I do think Hulu is still pulling its punches to some degree and I know that the ARPU of The Bundle is absolutely what Disney needs to move forward most effectively, not just D+ or Hulu as separate entities.
On the other hand, Disney has now taken strong steps to push The Bundle, by overcharging to have any one Disney product and not all three. It worked to create misleading sub growth this last quarter and should continue to help in that and other ways. This is strategy. Even though I don’t think it’s been handled smoothly over the last 18 months, I believe that quarter or two letting this play out is now appropriate. The deal doesn’t have to be made overnight.
The Cost Cutting line… “Disney’s costs are among the highest in the industry, and we believe Disney significantly underearns relative to its potential.” F off. What do you know about running a media company of this complexity… how what seems like overspending can be a part of building another segment that you don’t think of as connected?
I don’t see Disney as a profligate spender… though they turn out to have overpaid for the Fox assets, given the return so far. (This could turn too.)
Penny pinching Disney does not make sense. Is he really saying they should spend less on content overall? Maybe that is what he means. But it’s not what he said. He doesn’t actually know enough to offer a detailed assessment.
Dividend Policy? I’m agnostic. I don’t know enough detail to argue.
Board Refresh? Meh.
Again… I am not a huge Bob Chapek as Disney CEO fan. But the board decided to keep him in place and he has offered up a revision of his vision.
Why must it always be the gallows or the parade? Let Chapek run with the ball for a second. Nothing dramatic is going to happen to damage or significantly improve Disney in the next 6 months. Let's see what he has.
Same with Netflix. I don’t know why people are bidding the price up for Netflix stock… but let them do what they want. Let’s see what The Boys come up with on the ad thing. There is no point at screaming in their faces before they can turn that ad machine on. Yes, they should tighten the belts a bit. But let’s not be idiots. The argument starts in 2023.
Same - sorry, haters! - with Warner Bros Discovery. It is a good company with some great assets. They are carrying a ton of debt. This is not new intel. Zaslav has been in charge for 4 months and is doing almost exactly what he said he would and what do all the screamers want? Another change of leadership? Pull down the company to force a bargain basement sale? Do people really believe that the content of both sides is incompatible… that if you watch Discovery and its many connect networks, you don’t have the mental capacity to watch something more sophisticated… or more to the point, that you don’t already? Try watching The Sandman, 365 Days, and Icarus on the same night on Netflix and feel your brain turn to liquid and our out of your ear… they can’t co-exist!
There is absolutely no reason why WBD should not be at $20 a share and pretty much sit there for 6 - 8 months, at which point, there will be a great answer or a clear failure or a flat line of the same old. Dogging the company for not doing the impossible will not speed anything up. There is no upside.
Every once in a while a movie that starts shooting without a solid screenplay works. But it is very, very rare. Endless, pointless, hysterical change is almost always the fastest path to failure.
Until tomorrow… or later…