THB #277: Streaming, Legacy & MONEY

There is a certain weird satisfaction with The Media suddenly jumping on the position on streaming that I have been writing about for almost a decade. But “I told you so” gets boring in a hurry and most writers prefer to pretend they came up with a new idea, no matter how long its been bandied about, so I expect no roses thrown at my feet. (Always Wrong Rich Greenfield will throw feces… his own, no doubt.)

Like everything else, there is a history. In this case, it’s not that complicated.

When Netflix started licensing for streaming, studios felt it was found money. The streaming quality was poor. The windows structure of that time was still solid, although DVD had already shown a steep descent from the early 2000s, when everyone was getting high on their own cash supply for those few years when you almost could not lose money on any movie.

On the day that House of Cards premiered - February 1, 2013 - Netflix stock was at $23.54. Five years later, it was $267. The worldwide subscriber count over that time went from 35 million to 124 million. The stock market was thrilled with the idea that Netflix was spending extravagantly, over $10 billion a year and up on content. No network had ever spent as much as $5 billion a year on content at that time. The market convinced itself that the number of worldwide households who were likely to become Netflix customers were well north of 500 million, even without China. And that - can’t believe I am even writing this silly claim - the more they spent on content, the more money the company could make.

By that 2018 date, five years into originals, the legacy companies in content creation and delivery were seeing the writing on the wall. Cable, which had become over-priced and non-responsive to consumers after decades of overwhelming domination of home entertainment, was going to die if nothing changed. And these companies were making so much money based on the system that existed, that blowing it up was not a real option to them.

Each of the legacy companies came at their streaming services from a different angle. But the obsession has been the subscriber count. Netflix had been, for all its success, either earning tiny profits, no profits, or generating annual losses, making up for this by borrowing more and more cash at what was 0% interest for years.

Every story you read from major outlets were committed to the idea that huge content spends - over $12 billion a year - were required to compete in the streaming market. The idea was supported by Wall Street. Because that is what Netflix did.

But here is the thing… none of these companies were in the same position as Netflix, trying to build a library and their own owned-IP because they started with none. Also, they were given the room to run by Wall St, which saw them as a tech play, in a way that no entertainment-based company was ever indulged.

No movie or television company had ever seen a major impact on their stock price based on the success or failure of their content. Not Disney, at their hottest. And not any of the less successful companies in their worst years. Other things sometimes moved stock price. But not a billion dollar grosser or a series of flops.

“But, Netflix!!!!”

Look… Netflix, which took a massive stock price hit a year ago, to $175 a share, is already back to $324 a share… based on nothing but the promise of an ad tier that has just launched at a very small scale and the idea that they are going to cut off people who abuse password sharing. Are you fecking kidding? That is why the value of the company has almost doubled in FOUR months? No judgement of Netflix itself… but this is nonsensical.

Forget it, Bob… it’s Netflix Street.

Bob Chapek got caught up in the idea of Disney outNetflixing Netflix with Wall Street. Disney hit a lull in March 2020, but then the stock price rose relentlessly during COVID, from $96 to $197 just a year later, in March 2021. But then Netflix crashed and so did Disney and everyone else who was in streaming (that actually had room to crash). And now, Disney is back where it was from just before its first operational Disney+ quarterly… $93.75 as I write this.

In fact, Netflix did nothing more to suggest future success than Disney in the last 6 months… but they presented it better and Wall Street LOVES Netflix like their favorite ex-romantic interest showing up and offering themselves up for a wild sexual escapade even though Wall St now has a spouse and 4 kids.

Netflix grossed about $31.6 billion in 2022.
Paramount Global grossed about $30 billion in 2022.

Netflix’s earnings in 2022 were about $6.5 billion.
Paramount Global’s earnings in 2022 were about $4.7 billion.

Netflix’s operating income for 2022 was about $6 billion.
Paramount Global’s operating income for 2022 was about $2.7 billion

Netflix’s market cap today is $143 billion.
Paramount Global’s market cap today is $12.9 billion.

So here we are… Netflix is a Junior going to prom, about to become a Senior, everyone still wants to be their date even after the car crash where it ran over that fisherman… the rest of the streaming world is barely out of their Freshman year, just starting their Sophomore year and trying to hide all their acne caused by puberty and stress.

Every single streamer - including Netflix - knows now that they need to spend LESS on streaming… new content, old content, all content.

One of the fantasies created in the early days of Netflix, when they were mostly buying content, was that if you were the home base/owner of a show, you could run it on a streamer, paying the minimal residuals that the unions poorly negotiated over the years, and load up your hours of streaming content.

Netflix has over 35,000 hours of content available at any time. HBO Max is somewhere around 10,000 hours. Disney+ is somewhere around 4500 hours of content with sister streamer Hulu at over 40,000 hours. Amazon says they have over 50,000 hours of content sitting there for you.

Initially, it was all about Friends and Seinfeld and The Office (oh my!) and the massive paydays for those shows and the stars that had a financial interest. But quickly, as the numbers bounced around and the spending levels on new productions exploded beyond any kind of production spends in the history of the industry, every show (and more and more movies) became the basis of negotiations, as streaming details are in no contracts for anything from before 2010 and even, in many cases, up into the last few years.

Without defending every choice Warner Bros Discovery is making on what is still called HBO Max, it is a bit absurd not to acknowledge that what they are doing, cutting wheat from chaff, is what EVERY streamer is now doing… just as every cable channel did… just as Broadcast networks did when they were the only game in town and to this day.

Media and content lovers have convinced themselves that content, for instance, taken off HBO Max this year, will disappear forever, never to be seen again. This is, of course, absurd.

BUT… one can not help but notice that with Glass Onion launching on Netflix next week, you can’t watch Knives Out on Netflix… or Starz… or Showtime… or any premium streamer. You can pay for a rental or a purchase. Or physical media. That is it. And that is not a random event. It is a choice. Whoever controls those rights thinks they can generate more money than they have been offered from any premium streaming service, including Netflix, by keeping the film on VOD.

We are in the Wild West of Streaming right now. There are 100s of 1000s of shows and films that are valued by paid streamers and every one of them has a mind of its own, even when they are owned by the same company.

I am not happy that HBO Max is dumping Minx from its line-up of new shows. But I am more amazed that if you wanted to watch Thirtysomething tomorrow, you can buy a DVD or you are shit out of luck. You know that people would be binging that one! With a couple years of streaming, there would be Thirtysomething conventions and fan fiction about Hope and Elliot getting it on while Michael watches. The Wolff Bros would be known as “Polly Draper’s kids” instead of her being known as their mom. People would be subscribing to Criterion Channel to see Melanie Mayron in Girlfriends and giving her awards for being a breakthrough female director in the 90s (and still working!).

Who owns Thirtysomething? MGM… which now means Amazon. They can send Jeff Bezos to space, but they can’t…

There are all kinds of possibilities in the streaming universe. We are still only at the beginning. The idea of the current cutting edge is exciting to a lot of people… but no one really knows exactly where the boundaries are.

It can be really simple… some shows may play great on FAST or AVOD and some just may not. How do hour-longs with a story arc (unlike self-contained something like Law & Order) play? Is there a kind of sitcom that plays better when there are commercials than others? How many commercials is ideal? What is the best mixture of ads and no ads on a streamer like D+, where there is a level of commitment to not advertising much, if at all, on kids shows? Will a company like Paramount make a deal where every person who watches, say, Yellowstone, on any platform in the first 2 weeks or month, gets valued by advertisers the same way… legacy or Paramount Network or Paramount+, etc?

This is only a toe-dip into the number of questions floating around town these days and moving forward.

Or it can be really complex… as in, how many hours of library content aimed at how many demographics and how many languages do we need to offer in addition to new programming that gets fresh attention when it is released in order to keep people from churning away?

You may feel the urge to rage all day about Warner Bros Discovery, but they are trying to answer the same question that everyone else is. Moreover, when these institutions start to figure it out, they will all act almost exactly like WBD is right now… hopefully with more smoothness. In reality, most already are… you’re just not paying attention when they do it. I mean, there are entire websites dedicated to the content churn on Netflix… but somehow, that’s fun!

Revenues are flat. Sub growth is flat. Ad revenue is a big question mark.

The only sure and meaningful way to adjust the spread sheet is going to be spending less. On everything. It will matter how shows, old and new, are valued. Treating your streaming platform as a warehouse is not going to be profitable.

Just because you own a library doesn’t mean that you can afford for it to be on your streaming platform. Owning content doesn’t mean that your company’s platforms are the most revenue-positive platforms to exploit that content… and if they are not, the financial partners in the content are as likely as not to demand to be made whole moving forward.

Thing is, there is so much content out there that it is hard for the consumer to keep track of it in order to complain about its unavailability.

You want to see The Sound of Music Live or Annie Live or Hairspray Live again? Only if you pay for it a la carte. Disney+ has The Little Mermaid Live and Paramount+ has Grease Live… but for those others, you and your 10 bucks are on your own.

Into Transformers? As of this writing, the 1st film is buy/rent only. The 2nd and 4th are on Prime. The 3rd and 5th are on Bravo, with commercials. What is that all about?

Taxi, the series made by Paramount, is on Paramount+. Cheers and Frasier, series made by Paramount, are both on Peacock. Murphy Brown is pay-to-watch only. Many classic shows have been relegated to Tubi, free ad-based streaming. Gunsmoke is all over the place! Don’t even get me started on trying to find a Mel Brooks movie. Happy Days is on Paramount+, but spin-offs Laverne & Shirley and Mork & Mindy have been relegated to Pluto, and Joanie Loves Chachi doesn’t exist anywhere on streaming, which is also true of the series from which Happy Days was spawned, Love American Style. (I won’t even get into Spawn, the underrated New Line movie… VOD only.)

The point is… these were all just random pulls and there is very little consistency as of today. People are getting all upset about relatively recent titles that are being shoved and thrown around, like Westworld or Minx in recent days. But in reality, they are being manipulated in the way that all of the content is being manipulated… we just aren’t noticing all the other shows that are not sitting in our short-term memory.

HBO, however, has been virgin territory, even before streaming became Streaming. Well, kinda. Don’t look for Dream On or Tales From The Crypt or the classic Robin Williams: Live at the Roxy on HBO Max. The Robin Williams special is his first ever and, for me, still his best. It’s an important piece of comedy history. It’s on YouTube, but the quality is crap. You can’t even buy a DVD.

The illusion of all of this is that it’s just the way it is… like there are not choices being made, on quality, on price, on what is worth having on from the 4:3 frame days, etc.

I would love to have a content universe where everything ever made was available in high quality at all times as either part of a subscription or for a modest price. But that is not reality. Never has been. Netflix is amazing… but it’s never been as all-encompassing as when it was a DVD mail service… and even then, it had more limitations than many remember. (Remember the wait lists?)

Even as more FASTs (Free Ad-Supported Streaming TV) launch, there won’t be enough room at the inn for all the content. AVODs (Ad-based Video On Demand) can potentially be a bottomless pit of content. But in the pit, there will surely be more issues with format and the quality of aging formats that need work done to make them palatable, but for which no one wants to spend the money.

We are at the beginning of a journey… not in a streaming war… not in a mature medium, in content or finance.

If $32 billion a year is the top gross revenue number in streaming in 2023 and the net on that gross is $6 billion, that’s pretty great. Where we go from there is, now that Netflix has been a little stuck for a couple of years, is a new frontier. Everyone else is just trying to catch up with when Netflix is. And Netflix is now the one trying not to get stuck in the tar, as dinosaurs do.

It’s not about some heathen trying to molest your love of television history. I understand why it feels like that. I have spent the last hour of writing this with the Robin Williams set from HBO, now on YouTube, playing in the background. Don’t have to look at how bad it looks. I remember it all, I watched it so many times. Hearing it brings me great joy. It really does enrage me that it isn’t a central piece of the HBO Max offering.

That said, I can wait a year to see Westworld again. And I look forward to Minx Season Two on Netflix (or wherever it lands, as long as its not Roku). It’s gonna be a bumpy road. And we won’t be able to see much further into the future than the next sticky, frustrating moment… at which point, we will get too far out over our skis again and get hopeful and think it’s all for the love of entertainment. And then, the waiter will drop the bill off at the table and we will talk about the good ol’ days like they were ever really that good.

Until tomorrow…