THB #283: Is There An Answer To This Mess? (Pt 1)

Hmmmm…

The mess that the filmed entertainment industry is currently mired in is a transition - which became a bunch of transitions - that simply went the wrong way on the macro level. Of course, media and others are endlessly obsessed with micro issues… they are what is immediately in front of us and they can be positioned as having a beginning a middle and an end.

But that is not the most effective way to run a railroad. You have to execute the micro side, but without the big picture macro plan, you’re very likely to fail or at least, linger unpleasantly… which is pretty much where I think we are right now.

I don’t want to do what I am accusing the industry of doing. Every company has not followed the yellow brick road to hell. But the pressures on - and attempts at solutions from - all of them have come from one major landmark… the success of Netflix.

Netflix led to the way to a non-exclusive, but clearly future-leaning dominant delivery system for home entertainment.

In a way, it was like The Jazz Singer and the movie business. But… what is the giant difference between how the movie industry reacted to The Jazz Singer and the way the industry reacted to Netflix?

This is a rhetorical question for some of you, but I will answer anyway… the entire American film industry switched to sound within a couple of years.

For example, the first Academy Awards, in 1929, honoring 1928 films, had 3 Best Picture nominees, all silent. The second Academy Awards, in 1930, had 5 Best Picture nominees, all sound. (One of them, Lubitsch’s The Patriot, was probably converted late in the game to add some sound.)

By 1930, only 1 American feature film in Mubi’s Top 20 films of the year is a silent. 5 are sound.

Netflix introduced streaming - bad streaming - in 2007. In 2008, Netflix added streaming - still pretty meh - as part of very subscription. In 2010, Netflx starting doing content deals at $100 million a year and up. In 2011, streaming was strong enough to split memberships between streaming and DVD or a combination. In 2013, Netflix started making Netflix Originals exclusively for streaming.

To be fair, Sony launched Crackle in 2007… though they were still licensing their best stuff to Netflix. By 2020, Crackle would be sold off.

But the rest of the industry? Crickets.

HBO started offering streaming for its own line-up in 2010 (HBO Go), but it was not an added revenue stream. HBO started offering a streaming product for people who were not HBO subscribers, HBO Now, in 2015. HBO Max would not launch until May 2020… 13 years after Netflix started streaming content.

Disney+ launched November 2019. Hulu, now controlled by Disney, launched in 2007… but it’s primary focus for most of its pre-Disney life was television repeats, not their own originals and certainly not theatrical-style films.

Peacock launched April 2020 and Paramount+ launched, putting CBS All Access in the rear view, in March 2021.

Non-Legacy content company Amazon’s first incarnation of Prime started offering video content in 2008. They started originals in 2013. Apple TV+ launched in November 2019.

In other words… while the delivery system that clearly would have every kind of advantage over cable/satellite not only launched, but got really good, the Legazy companies sat on their hands for at least 5 long years.

By the time they all leapt, it felt like they were pushed. And they pretty much were.

Sound was a complicated transition, but what the transition was and what it meant was simple.

Leaping into Streaming, no matter how long feet had been dragged, was and is layer after layer of complications that in many ways, were and are too dense for anyone to really have it all in their head at one time.

Whether their businesses were going great or not, the Legacy network television companies (Disney, Paramount Global, Comcast, and Fox) and Warners (which is deeply steeped in broadcast and cable series sales… to Netflix too) had/have ongoing businesses that while in some decline, were/are not insignificant.

So you don’t want to damage your mature segments, even if they are in decline… but you also need to launch your new streaming business, some of which converts directly and some of which does not.

In 2017, HBO reported it had 54 million subscribers in the U.S. With the launch of HBO Max, following the pricing of HBO Now, the price point for HBO was $15, its lowest ever, and for many cable subs, as much as half the price that was being charged in various circumstances. Yet, in April 2022, HBO Max reported 48.6 million subscribers in the U.S.

I’m not interested in wrestling with all the wins and losses at Warners in the 5 years between these two moments right now… but being in the business of streaming as a huge growth opportunity, these numbers, which may have improved from some lows along the way, are hardly the explosion everyone was expecting.

Netflix’s first quarter with over $500 million net was Q3 2019. It’s first quarter over $1 billion was Q1 2021, driven at that point by production shutdowns forced by COVID. They have stayed over that $1 billion a quarter mark in 5 of 6 quarters since.

It took them a long time to get where they are and they don’t have any non-streaming Swords of Damocles hanging over their heads. How would anyone expect that these other companies, loaded down with many complications, would get there equally soon?

So the first Rule of Filmed Entertainment Future is…

Pay NO attention to Netflix.

Not easy, I know. And no insult to Netflix in any way. I have some insults to hurl, but they are irrelevant here… I need to clear my head of It too!

What defines Netflix defines No One Else.

Not only are they at a very different place in their life cycle, they are a very different kind of company than any of these other big-scale streamers are. They aren’t even like Amazon or Apple.

The landmarks of success in streaming cannot be based on Netflix… at least not until the 2030s, when whatever companies are still on top of the hill or close have matured to the point where the issues are similar within their companies as well as Netflix… if it even happens then.

The next big thing is to…

Create Your Own Language & Standards For Success & Failure

You don’t need 10 projects a year that draw 100 million+ subscribers to be a success. And more to the point, you could have 10 projects a year that are massively successful and still become a low priority for many households, depending on where you are finding your success.

Of course, it couldn’t hurt.

Consumer habits are hard to break. This is a huge advantage for Netflix as first mover.

Thing is, what makes a streamer a necessity in any given household will vary. And then, you have to deal with the perception of value.

You may find the content on HBO and HBO Max to be more what you don’t want to go without than, say, Netflix. But there seems little question that Netflix offers a lot more content in any given month. If both are the same price, how do you choose one as the more valuable offering?

As I am writing this, I looked on Peacock to make sure that MSNBC isn’t there. It isn’t. But I ran into a FAST channel - or some variation of one - that has SNL Christmas sketches running, 3 or 4 or 5 and then an ad. And I left it on. It’s not that good… but it’s a little nostalgic and pleasant. Peacock would have more value to me if I was able to find this without going to look for something else and just running into it. My wife watches shows on Peacock she would otherwise watch on NBC because she doesn’t have to skim through the ads. So the “channel” has a value to us. The next question is, how valuable and how can it be more valuable?

Where is the value proposition, for Comcast, between drawing me into Peacock by, say, making MSNBC part of the offering so that I am that much less in need to YouTubeTV or some other vMVPD?

Is there more money in causing me to watch MSNBC as bundled into an vMPVD than trying to get me to sign on for a premium tier of Peacock? I don’t know. I don’t have the detailed information in front of me to even make that guess in a serious way. But Comcast does… at least some of the information before they experiment. What kind of delivery system is Content X and the consumer relationship with that content the most valuable to their bottom line?

Or… look at ESPN and the Manning Brothers live show connected to Monday Night Football. And then, Amazon’s alternative channels to go with their Thursday NFL game.

As a consumer, I want as many options as possible. Why not? I don’t pay to produce them. This idea, of side programming that creates clever hosting opportunities during popular shows, is cool.

As the network, the questions are whether you are expanding the audience, making the viewing experience stickier, making money on the expenditure, etc. Amazon has done one of these side channels during an NFL game with female commentators. On the one with LeBron James, The Shop, they barely watch the game. But what I like may not be what others like. In theory, you could do 10 side channel shows… but at some point, there is diminishing returns. Or maybe there is a real impact on the bottom line of viewership numbers.

Would there be any upside for Netflix to do a side show where middle aged women can get their groove back watching Bridgerton or some gamer from YouTube comments along during Stranger Things? (shrug) I don’t know.

The success of Disney+ has been that it is absolutely clear on what it is. It is also a reality that restricts upside. Not everyone wants family programming with a lean, in new programming, towards superheros and sci-fi.

And so the discussion goes… is Disney better off with everything under a single brand, like Netflix, mixing Hulu and D+ and ESPN+. Or are they better will multiple brands?

And should they spin off ESPN+?

The question of spinning off ESPN is significant in that Disney must decide what they want to sell the world via streaming in the next years. The argument that they should spin it off because it will help the stock price is, to me, idiotic. Very Never Right Rich Greenfield.

But it is possible to make the argument that sports should not be part of the future package from Disney… that it cannot add enough revenue as part of the bundle to make up for the cost of live sports. Is $15 a month enough for Disney to make streaming work if you have all three platforms included? Can Disney get the price point to $20 a month without creating more churn if ESPN+ is made more valuable? What would make it more valuable? And how dramatically does everything change as more cords are cut?

I’m not taking a side (right now)… I’m just noting that the choice that so many writers suggest is obvious, is not. There are dozens of variations when it comes to every company, every channel, every piece of programming.

Will FAST work financially as the catch-all for 2nd tier content? No one knows. How many FAST channels can there be before ad prices start dropping significantly? Or advertising on some FAST channels stop altogether?

As an industry, we have barely scratched the surface of the many broad conversations about how acceleration in one area means slowdowns in another.

What is success in 2022 and onward? Let’s leap past the rationalizations. How is everything measured? It seems like every company and every analytics company that wants to be the Nielsen of the future has a different set of rules for what they believe to be the way to value content that has no direct response to its siren song.

The seduction that has been Netflix - and still is, for many on Wall St - is that it created the untenable notion that the opportunity growth was endless. But it wasn’t. It isn’t. Not for Netflix… not for anyone else.

Every one of these companies needs to decide where their boundaries are. They can’t follow Wall St, because Wall St doesn’t have a consistent opinion. They can’t play scared because flexibility is reduced - in context of the transition away from legacy - every single day. And they can’t follow Netflix… because Netflix is struggling to figure out how to maximize their situation themselves, even if Wall St keeps buying the stock.

It is a lot to chew on. More than a mouthful. More than one newsletter.

Until tomorrow…