THB #287: Years End 1 - The 10 Revenue Streams

As I conceived of today’s newsletter, I thought it would be about everything we don’t know about 2023 and beyond in this industry. The prediction pieces are the same garbage as they often are, endlessly obsessed with mergers that will never happen because they make no sense. (And have to be seriously considered, because making no sense hasn’t stopped others in the past.) That piece may still come.

But other ideas kept popping into my head…

While so many writers, from business side people to the business-challenged aesthete Richard Brody, keep moaning about shows being removed from HBO Max as the end of the known artistic universe - even though there are entire websites devoted to what is coming off of Netflix and Hulu and Amazon - I wondered if they ever considered… How many scripts are optioned every year and have money spent against them and are dropped and will never be made as a result of that money against them that makes them all that more expensive from Step One?

The answer is, literally, hundreds a year. Some of those scripts are great. There was a moment in time when I was part of trying to resurrect a few of those scripts. I learned. (Note to Margot Robbie: Have your peeps look up a 1988 Stan Zimmerman & James Berg script called The Ruthie Ruddick Story that once had Lily Tomlin attached… it’s kind of a female comedic Forrest Gump set in the 60s and 70s. You would kill in it. I believe is has $300k or so against it. Needs a draft or two… but it can work.)

I’m not saying I’m not sad for Batgirl, especially as a believer in Bilall and Adil… but that is one of the only cases of an unfinished work not being finished to save money. But you know what? If James Gunn thinks it is worth spending the money and finishing it and putting it out, guess what? It will happen. And if not, not.

The fantasy of forever distribution was just that until Netflix Original contracts, starting less than 10 years ago, variations of which have been adapted by everyone else… and which we may be having a strike over soon.

The problem for the content owners is, if something has audience value after a few years of exploitation, the people who made it want to be part of the continuing payday. It’s the gamble of the industry. Invest your time and effort and get paid modestly and then, if it hits big, you make real money. I am not remotely the first person to point this out.

Forever Distribution does not want to keep paying. It wants to pay extra (not too much extra) to get things going and then not pay if the show/movie hits it big and remains of great value for decades.

And it did exist before now. It exists for Gunsmoke and Leave It To Beaver and all the black & white television you see all over the place. But it also exists, on a different level, for all the “great” TV of the 70s that would mostly be sitting in a library if the studios didn’t license it out for a minimal amount and if the residuals to all the talent who are due them were not tiny.

We are not at a moment when The Industry is trying to turn the corner on making the shows of the 90s and 2000s and 2010s and even today into tomorrow’s fodder… understanding that the on-demand concept is not going to be very profitable, but offering up this content with ads to anyone who might want it. The ratings might be low, but a million views a month is worth X dollars, whether it’s from ads on 10 shows or 200.

The culture (and its advocates who write about it all) is bringing a knife to a gunfight.

There is no organization with oversight over how content is going to be distributed. There is no one who can control how content owners choose to distribute or not distribute their content. And there is little, if any, sense in arguing that there should be any controls.

Over decades, we have added ways of monetizing content.

1910s - 1940s
Theatrical Movies

1950s
Legacy Television, First Window

1960s
Legacy Television, Syndication

1970s
Cable/Satellite
Premium Cable/Satellite
A La Carte - Physical

2000s
A La Carte - Downloaded

2010s
SVOD - Streaming Video on Demand (Netflix, etc)

2020s
AVOD (Ad-Based Subscription Streaming TV)
FAST (Free Ad-supported Streaming TV)

All 10 revenue streams are still revenue positive. What has changed, repeatedly, is the balance of revenues. (I’m not getting into international revenues right now… for the sake of sanity.)

The business of all these companies is, every year, constantly shifting, what the best possible balance of these revenue streams is.

Each new business has replaced the other as the top dog… some for a while… some for longer.

As Netflix became the Wall St darling for bundling content to stream, first from other companies and then with originals, the Legacy companies took notice. Netflix grew from 100 million subs to 220 million subs in about 5 years, growing revenues from $11 billion to $32 billion.

But they spent a fortune to do it by any standard previously seen in the television business. In the fog of war, this became the template for ALL streaming models… which made no sense at all.

Disney was doing over $20 billion a year in television pre-streaming and the net was more than $6 billion, with better than 4-to-1 being from cable… $16.5 billion in revenue and a spend of about $10.5 billion.

Netflix is currently doing almost double the gross of the 2017 Disney TV with less profit. And the current Disney TV business, without streaming, is grossing a little less annually than Netflix ($28 billion) and grossing a little more ($8.5 billion).

But still, smart, veteran companies climbed over one another to talk about spending more and more and more on their new D-T-C streaming businesses.

Disney, in particular, got caught up in the chase, spending $23.5 billion on their streaming efforts last year, losing $4 billion… meaning that they grossed about $20 billion on streaming just 3 years into the effort, but spent so wildly in the Netflix chase, they were setting new records for streaming losses.

To be fair, Warner Bros Discovery, Comcast, Paramount, Amazon and Apple have not allowed themselves to be driven down this path to anything close to the same degree.

But the question still remains for all… what is the right balance of spending as things continue forward?

Some of these companies will still spend in all 10 areas. Some in 8 or 9. Some will do with just 3 or 4.

Netflix has taken its stand by sticking to just 1 of the 10 revenue streams, now toe-dipping in a 2nd, AVOD.

Somehow, the media sees this as the cutting edge. Less is more. (eyeroll)

But coming back around to the issue of Forever Distribution.

The range of distribution options can be broken down by cost for content. The highest costs are in producing original content for theatrical distribution (because of marketing costs), then originals for SVOD, then originals for Premium Cable/Satellite and for first run Legacy TV.

The other 6 revenue streams are downhill, meaning that with few exceptions, they get their content from the flow downhill from the 4 most expensive windows.

It used to be that there was a consistent set of windows that content would work through. That’s been upset by both Netflix and COVID, which studios that wanted to break the window system for years used to do just that.

So now, everyone is scrambling to figure out how to maximize revenues.

The assumption that you needed an endless waterfall of new streaming content to make your SVOD work has been proven false. This, of course, has let to platitudes about being more careful to only do the best shows… but anyone who has been in this for a while knows this is silly. No one knows until it happens.

The current popular assumption about Theatrical is that all the money is in mega-movies and that they are the only thing that will survive theatrical release. This is, of course, demonstrably idiotic. It is certainly true that there is the most risk attached to theatrical… and the greatest rewards. But the real secret of Theatrical is the power of the marketing push - an expense that distributors want to avoid - and how that awareness benefits all the other windows.

Premium Cable/Satellite is still popular and profitable. But as they are trying to figure out at Warner Bros Discovery, how much of the audience wants HBO-style product and how many want other things? The HBO model has not been broken… but how much weight do they have to carry and how much is asking too much?

Legacy First Run Television, whether on Broadcast or Cable/Streaming (a variation without a real difference), seems to be the most endangered species… except that advertisers still will pay more and budget more overall for this segment than any of the others currently available. Oops! Someone got caught trying to throw out the baby with the bathwater. The thinning of the value in certain areas - like ESPN - has led to many starting to play, “Taps.” But not only are there years left in the old model… the future models will be directly reflective of Legacy, whatever they call it now.

So then the question is, how much is everything outside of these segments - most of every library - worth, in what quantities and to whom?

At some point, if every TV show or movie with a value less than X (I don’t know what that number is or how to calculate it) ends up on AVOD or FAST, is that good or bad? And will the industry have recreated a little thing called YouTube, essentially?

Every content owner faces these choices. And the entire industry will be involved because there will expectations from partners, producers, talent and residual-seeking unions. In the world of advertising-based content delivery, there is a simple hierarchy. But how long before agents start negotiating for the series of windows that they see as most advantageous for their clients?

Obviously, the new and the most popular are the most valuable. But you can’t maintain a healthy industry on winners alone… because no one actually knows. There are many reasonable arguments to be had over the detail work. And it’s terribly important. But there is no right answer. What is new is risky. If the industry stops risking, the layer of risk-free(ish) content will eventually flame out. And then, everything will be risky.

That is when the blood really starts flowing. That is when we lose inspired work. That is when it all becomes pablum.

Until tomorrow…