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THB #64: New Year's Resolutions 2
Today, by way of the alphabet, there is only one currently Major studio, though the other three entrants are certainly of great interest.
Disney: To a great extent, even though Netflix is in a daily battle for supremacy on market cap, Disney is still the Alpha of the film/television industry. It has twice the annual revenue of Netflix and that won’t be changing unless the world gets Adam McKay-ed (there is a 2021 reference for ya!). But no matter how solid the $65 billion a year revenue base for Disney is, we currently live in a HysteriaWorld (a sub-division of Wall Street), and the gaping maw of unreality needs to be filled.
Filling that maw is the Disney CEO, aka The New Bob, aka Bob Chapek. So far, he is the guy that Disney traditionalists have feared from way back to the start of Eisner and since. When Iger came in, in many ways, he was The Cooler. Eisner was seen as having the heated energy of someone who was defending his hard-won turf, whereas Iger had a similar commitment to the place, but without the nasty edge. People may have forgotten that the Pixar deal (which was the flame that led the way to Marvel and eventually, LucasFilm) was on the table for years under Eisner and never completed. The new tone from Iger allowed Pixar to make the deal with a dignity they felt Eisner wasn’t allowing them and, boom, it got done. (h/t to oversimplification… but this story is a book or 3 when told properly)
So what has the New Bob brought to the party? So far, a bit of ruthlessness. Of course, this is an emotional exaggeration. The issue of whether Scarlett Johansson will get $15 million or $40 million more for her work based on the details of a contract made blurry in a paradigm shift isn’t really a “bring the cannoli” moment. But the words “charm offensive” may appear in a piece about New Bob, just not likely in that order.
Still, Iger never really became the Uncle Walt 3.0 of Disney. Eisner’s effort to be Uncle Walt 2.0 brought some success and some mockery. It doesn’t seem that Chapek will even try that set of ears on. And that doesn’t make him a villain. He seems to be the Spock to everyone’s desired Kirk running Disney. The question is, does a Spock make the best captain? No one thinks him unintelligent or dishonest or uninsightful. Quite the opposite. Charm from Musk and Bezos does not seem like its on the table either, but they are doing okay.
So… where does this leave things?
Here is the Magic laundry list for 2022:
1. Get The Parks Past COVID
2. Settle on a 6-year action plan for the transition away from broadcast and cable
3. Integrate Hulu/Star with Disney+ indelibly
4. Expanding international for streaming is the #1 action priority
5. Keep churning for the best financial combination of theatrical and post-theatrical streaming
6. Decide on whether Hulu wants to be the leader in “virtual cable” moving forward and if so, adjust accordingly.
7. Decide what they want the future of gambling to be and how much they want it to be a part of the Disney brand… adjust accordingly.
What you don’t see on my list is “MORE CONTENT!!!” and “ACQUIRE MORE COMPANIES!”
I’m not worried about content at Disney. The idea that streaming subscriptions are going to be an ongoing quarterly issue for this company or any other is infuriating. It may be true on Wall Street in any given quarter, but it will work out long term. There isn’t a problem here. 118 million Disney+ subs is a lot, even with Hotstar included in the stat. In many ways, Hotstar is a proof of concept.
Disney+ is the best brand in the world… but it is also limited by being Disney+, aka no R rated material, generally family oriented… aka no Squid Game… not soft core porn shows, reality or fictional… etc, etc, etc.
To be everything to everyone, Disney needs to be everything (which it kind of is already, in reality) and not just the thing the brand itself promises.
Meanwhile, the fallacy that “movies” being shoved into streaming is an answer to anything other than how to lose more money continues for many. But it’s been dented… and not just by Spider-Man.
I reflect back to Disney in 2019… before we all went to the island and started talking to Wilson…
What do you see? I see that movies (aka Studio Entertainment), in the biggest year in the history of any studio in the history of the movies, is less than 20% of the revenue and/or operating income for Disney. Same in 2018, before Disney+ existed.
COVID closed theaters. Then it made reopening them really hard. And now, for the first time, we have a single movie that is coming close to “normal” worldwide mega-box-office. So you’re telling me it’s possible.
That joke is usually about hoping for something impossible. But not here. Theatrical is a business that adapts, whether civilians understand that this has happened or not. Maybe theatrical will be smaller when COVID is in 95% in the rear view. But in a year that was 40% completely devastated and another 30% mostly broken, domestic box office will be in the mid-40% range against the last normal year. International, too.
When we meet here next year at this time, if the box office is at 75% or better vs 2019, that will be a sign of power, not weakness. If it goes the other direction, you can jump on my grave.
Point is, unless you really need to throw away that $1.5 billion or $2 billion or $3 billion a year from the movie side to built still-unprofitable direct-to-consumer streamers, why would you? And there is ZERO proof to date that dumping movies to streaming changes the consumer choice about streaming… no matter how many times the media makes the assumption like it’s the sun rising. Every time someone says that Squid Game is worth $900 million as though this is bankable money, a brain cell commits suicide for fear of how soon the words “metaverse” or “VR” are coming.
My #1 issue for Disney is that Hulu is at less than half the number of Disney+ and that is a real and serious problem. They need balance to make it all go as it must.
Parks is fine. Can’t control COVID. The engines seem to be ready to rev as fast as the disease will allow.
And what will become of ABC, ESPN, and the cable nets? Well, this is the $100 billion question. Whatever happens, it isn’t going to happen overnight. The withdraw from the cable/satellite paradigm is going to take at least 5 more years to wind down. But wind down it must.
To my eye, the best way for Disney to make the transition to the streaming future, which I believe will combine 4 -6 streamers in the average household, plus some kind of virtual cable that replaces what currently comes to our homes via the cable wire or the satellite. $40 - $75 for the streamers, $35 - $75 a month for the “virtual cable.” That’s a lot of content for as little as $75 a month and a massive wave of content for $150 a month. Both ends of that spectrum are a lot cheaper than the current cable/satellite paradigm.
The fantasy that the overstuffed revenue streams that content companies have earned in the cable era will be replicated by streaming must die. Can’t happen. The consumer has been spoiled and the average household is not moving to the $250 a month level anytime in the next decade. Not just a Disney issue, though it the ESPN cash machine will be one of the most clearly affected businesses.
Disney’s 2022 resolution should be to do whatever is needed to settle out Comcast from the Hulu platform, then start selling the full package of Disney content and others to the entire world (aside from China). Full Disney access is, say, $20… Netflix, Amazon, and Warners is another $45… a cable replacement for $50 a month. That’s $115 a month for a huge range of content. And Paramount+ and Peacock for another $10. AppleTV+ is another $5. So $130 a month and you have almost everything there is of any size. Scale each element for each worldwide market. Offer a domestic cable replacement for as little as $30.
Someone is eventually going to bring this bundle back together. Should Disney let it be Roku? Why would anyone want it to be Roku?
Resolve to refocus some effort on putting a slate of non-blockbusters into theaters for at least six months. If it doesn’t work, it doesn’t work. If it does work, it is a better revenue profile for the studio.
Resolve not to chase the stock market. Just when you think you’ve caught up, it will slam you in the face. Build your business. The market will come… eventually.
Exhibition: There are no comps.
What has happened in the last 21 months has never happened before. Nothing like it. Not in the 100+ years of cinema. Stop trying to find an answer in the past.
I don’t believe that theaters are in trouble because the floors are sticky or the projection too dim, etc, etc, etc. But I do believe that future needs to include a higher percentage of demonstrably premium screens, whether IMAX or Dolby or some creation of the specific chain or others. It’s not just a way of raising the bar on the theatrical experience, it is a way of increasing the price per ticket without an overall series of price raises for the “normal” rooms in the theater.
I am also a great believer in the subscription concept, best defined in the United States by AMC Stubs A-List program, which is currently $23.95 a month for up to 3 movies a week, about 12 movies a month, without limitation to the quality of screening room. Now, almost no one is going to use this service 12 times a month. But if you use it twice a month, you are getting a definite bargain and the nature of subscription encourages consistent participation.
Thing is, distribution has to cooperate with exhibition for this to be viable. If there are only 5 wide-release titles a month, on average, then exhibition may never really recover and spending money to improve theaters is pointless. 8 to 10 releases is really what will be needed. So the unknown about how distributors will behave with content may keep exhibitors from doing their part.
There has never, in my memory, been a moment when the very long partnership between distribution and exhibition more needs to be solid. And right now, all exhibition can really count on is for distribution to be self-serving and moody. To be fair, everyone is suffering and the illusion of building streaming by using $100m movies as kindling is somehow appealing to a surprisingly large number of smart people.
Exhibition’s 2022 resolution should be to embrace what they cannot change and to fight to get distribution to make more serious commitments moving forward.
The major chains should make a deal/commitment to Netflix to get 3 weeks of exhibition exclusivity with 3 Netflix movies in the next year, allowing Netflix its rules for doing it. Let them get a few titles onto 3000 screens and see what happens. They still won’t advertise aggressively enough. They still won’t report grosses. But give them a bite of the apple so they can get a serious look at the potential moving forward.
Encourage IMAX and other efforts to create special events. There will need to be more specialized screens for this to work while there is a steady flow (1.2 a month) of mega-movies coming. No one wants to give up the IMAX screen on Friday night while Spider-Man’s a swingin’. But let’s get the Batman crew together on a Tuesday night in Week 5 and you will fill some auditoriums. Let’s get Lady Gaga to sing a few songs before House of Gucci on a Monday. Would “the kids” have liked to see Billie Eilish sing the theme from Bond before Bond some night on the first week of December?
There are a lot of gimmick ideas that are just too gimmicky. But exhibitors need to pave the way for non-tentpoles to fill a lot of screens again. If Disney wants crazy deals for Marvel, they need to deliver the rest of the product line.
Exhibition needs to figure out a way to sell the industry on the idea that a theatrical window builds greater value for a streaming debut than opening a film on a streamer does. I believe this to be absolutely true… until there is a single example in which it is not.
The idea of theatrical is undeniable. But the trends of any given moment are not. Resolve to fight.
Fox: Yeah, they aren’t in the movie business anymore.
But they are one of the 4 major broadcast networks and they have a huge footprint in sports.
The question for Fox is, how can they leverage all of this to get out of broadcasting like they got out of theatrical and make some serious money on the sports rights they hold.
The news side is where, on tv and in print, 90-year-old Rupert Murdoch lives. But he’s not going to live forever, believe it or not. Does Lachlan care about The Times of London and The Wall Street Journal? Does Lachlan see Fox’s television holdings, aside from Fox News, as a declining business? And what of Tubi?
Fox owns almost half the NFL rights, for broadcast, through the 2033 season. According to their new agreement, “FOX Bet will receive authorized sportsbook operator status if, and when, the NFL approves official sportsbook operators for its officially licensed intellectual property.”
This is likely where Fox is hoping to head into the future. The money isn’t in being in television… it’s controlling enough of the turf to grab up a large portion of the betting industry.
There’s no real reason why this all needs to keep happening under the Fox banner. If there is a major merger or acquisition in this segment in 2022, there is a good chance that Fox will be involved. It would be necessary to find a partner who can benefit from the broadcast muscle of Fox that still exists for as long as it exists. And who wants to openly be in the gambling business.
The most natural fit is Viacom… but it is also impossible. 2 broadcast networks. Both of the majority NFL deals. Thing is, both broadcast networks are going to increasingly lose value and will need a reboot. So in 20 years, having not merged them will seem like a mistake. But in this moment, impossible.
So then we are going through the old list. Lionsgate, Amazon, Apple. Why would Fox want to scale up with a TV and movie library company like Lionsgate after dumping their own? And why would Amazon or Apple want to have to deal with owning a broadcast network?
Does it really make sense for Roku to invest in content? Lots of people seem to want to believe it does.
Fox’s 2022 resolution should be to focus all efforts on becoming the premiere bookmaker on the planet moving forward. Water finds its level.
Lionsgate: When I started this piece, I wasn’t including Lionsgate. But since there are still so many journalists who continue to posit the idea that Lionsgate is going to be bought soon, here we go.
I tend to believe that Lionsgate will do in 2022 what it did in 2021… not much at all.
The question, as it has been for many years now, is, “What is the asset?” There is the library, there is Starz, there is Starz International, there is the licensing of the library to AVOD and SVOD services.
The market cap is about $3.5 billion, but Lionsgate leadership feels that number is low.
So who actually needs what Lionsgate offers? It’s not that there isn’t some value there. It’s that it’s neither fish nor fowl. Not big enough to change much. Not small enough to be a shrug.
Lionsgate’s 2022 resolution should be to keep building the international side of Starz and to try to build an exclusive relationship for their content with Tubi and/or Pluto, the AVOD side of the business.
My most extreme suggestion would be for Lionsgate to get out of the theatrical business altogether and to focus their film side on becoming a supplier to streamers and release segments for other studios. It’s not that they can’t do good business with some of their movies. But the focus of their film division tends to be hard genre and niche. This is what others are having a hard time focusing on for both theatrical and streaming. The price point is low, which makes the upside of sales for streaming high. And if they are in love with a film or two each year, push them out through another distributor.
There is a place for Lionsgate… aside from being Lionsgate. But the company must resolve to pick a segment to sharpen and narrow to make one segment irresistible to some hungry fish.