THB #78: Make Your Own Kind of Streamer
I was going to write about the clear move that is happening in popular thinking on streaming towards understanding that subscription streaming cannot work as an everything answer for television, much less all entertainment. Often, it feels like a timid version reading my own writing from the last few years, which at the time I was told was wrong-headed.
The idea that it makes no sense financially to put all your eggs in one basket is so basic that it isn’t a question. But every time a basket gets attention or a new basket shows up, the mob wants all their eggs in there and only there. And then, the hysteria dies off a little and we reconfigure into a variation of the same old, same old. And so it goes…
The content subscription model didn’t really start with Netflix. It started with cable. It started with what we have known as the content bundle.
I find that I get into a lot of semantic arguments about this, but I would argue that all channels are, in and of themselves, content bundles. The difference between the cable bundle and the Netflix or Amazon bundle is mostly history/habit. The streamers don’t have the walls set up between channels. But in terms of content, the streamers gather content from everywhere it is available and desirable (in their view) and sell the package to consumers. Your cable/satellite bundle sells you 30 brands that you and your family care about (amongst hundreds in the bundle). Streamers sell you “content.”
Netflix may make a deal for 5 years of all Sony Animation content… but they aren’t selling it on the service as Sony Animation content. It is subsumed into being Netflix Originals or some variation of that branding.
Disney and Comcast/NBC/Universal/Peacock and Paramount+ and HBO Max are coming at it from a different direction. They value their long-established brands and expect consumers to do so also.
There is some advantage in that branding, but mostly, it’s a hindrance. Netflix and Amazon are free to add any content they want and will sell to them, from any content provider. Consumers expect this. The legacy companies are thrashing around, seeking to make what is seen on their channels truly theirs.
There is a ton of crossover, as deals that are now turning up as shows on streaming were in many cases negotiated years ago. The most extreme example of this is the Yellowstone situation, where Paramount finds itself split between 3 different outlets for the hit series.
Warners has never had a major Broadcast network, though it has fed content to the CW and HBO/Cinemax. But much of their business has been making television that they sell to everyone else. Converting to the idea that they are now not just the producers of content, but the outlet for the content itself is a huge shift in concept.
Paramount and the TV side - cable, broadcast, and pay-tv - were operating as separate entities for a long time before they were re-merged. And Paramount, like Warners, has had a long history of producing for other networks.
Sony has never had a broadcast tv network or major cable holdings.
Disney and Comcast have have the combination of broadcast, cable, and production for a long time.
And don’t forget… it was only a short while ago when there were strict limits on how much in-house-owned content a broadcast network could air on the network, to keep a network from airing their own content, on which they had more control and profit coming from both sides. Now, this is the goal. Well, kinda… because profitability and streaming still have a confusing relationship.
In many ways, the current trends in streaming are a regression to the more siloed era of decades past. I’m old enough - as many of you are - to remember when studios had identities. There was a Warner Bros kind of movie and a Paramount kind of movie, etc. And when Disney was relaunched by Eisner & Katzenberg, there was a Disney kind of movie, starting with live-action and then building animation again. Disney’s signature has evolved as they have become so heavily IP driven. The others, less so.
In fact, Disney is really the only one that has a clear identity, aside from one or two dominant franchises. Aside from Harry Potter and spin-offs, there is not much Harry Potter about Warners content, film or television, for instance.
Dwayne “The Rock” Johnson doesn’t really have a studio home. He is everywhere. The same is true of every movie star and studio. Quentin Tarantino was a Harvey guy… but isn’t anymore. Even Bond has been released by distributors other than UA in recent decades and was meant to do so domestically last year until COVID changed the game.
Bond is the crown jewel of Amazon’s purchase of MGM/UA. But when they have the first Bond film release under their auspices, how will they do it? Will it be streaming-first? Will they company distribute in theaters themselves (suggesting that they have built out a wide-release distribution operation by then)? Will they be driven by profitability or… or… or… what?
And in that Amazon/MGM/UA marriage… television is also a significant thing. Mark Burnett is already doing a show for Amazon, but will there be pressure to move long-time hits like Survivor to Amazon Prime if there are opportunities or will there be pressure on all the new shows from Burnett and MGM TV to Amazon Prime?
One of the weaknesses, in the opinion of some, of Peacock is that the original series are too NBC circa now. Does Universal/NBC want to produce versions of A.P. Bio and Rutherford Falls with 4-leytter swords and topless scenes? Do they know how to?
Would I Know What You Did Last Summer have been a hit on Amazon if it was more of a horror piece? Or did they need stars? Or was it salvageable IP?
Meanwhile, back at the ever-expanding Netflix ranch, they are chasing IP like hungry animals, even though they have done quite nicely without it, thanks. They are trying to get the benefits of having strong IP, which they have no been able to create on the channel. But is it a trap?
All of the questions swirling around the future of streaming into homes are wide open at the moment. The maturing Netflix is in tizzy, pushing hard to avoid a sophomore slump. Bob Chapek is in a tizzy, trying to find the right buttons to push to empower his stock price. And everyone else is in a tizzy because they are so early in the process that they are getting their first pimples and have no idea how to clean or cover or prevent them from scarring their streamers permanently.
So what could the future look like where every streamer is not one giant pot of content with consumers doing all the heavy lifting of valuing and revaluing constantly?
NETFLIX (A Class of One)
Netflix is just about at the $30 billion a year mark with 220 million households worldwide. Let’s say they keep doing pretty much what they are doing. Projecting into the future, which means significant pricing upside, here is the potential. The price point for 125 million subs hits $20. Another 100 million at $15. And another 125 million households at $10 ARPU. That’s 350 million households worldwide generating $63 billion a year with an average ARPU of $15, up from the current $11.58.
Wall Street has long believed that the potential is much bigger than this. But I think this would be a very solid win.
ALL THINGS TO ALL PEOPLE
Disney is on track to offer the most complex worldwide product, which is ironic, given that they have been dragging their Hulu feet here in America since the Fox purchase closed.
The worldwide audience for The Disney Bundle w/virtual cable (that would vary by market) might be as high 50 million after cable cracks and is down to, say 25% domestically. This would include a significant international audience for the virtual cable product. $85 a month with all Disney products. $51 billion.
The Disney Bundle without virtual cable could be at 100 million worldwide subs. $20 a month. $24 billion.
Disney+ or Hulu-Star-HotStar as standalone. 50 million households worldwide at $10 a month. $5 billion.
That’s a $114 billion a year business.
And there is also the very legitimate potential to put up some very substantial advertising numbers on the live-tv side of things, primarily via ESPN and ABC Sports, but also in news.
For both Disney and Netflix, the key question will be how much they spend to maintain these numbers.
Disney’s virtual cable offering is the most challenging and highest-revenue product. They don’t control the content and carriage deals are constantly subject to negotiation. The question of what the financial relationship with channels is as cable shrinks is something one can only guess at. Will the few companies deep pocketed enough to operate virtual cable operations be the beneficiaries of a set of channels that are desperate for distribution or will they all seek to maximize value by hooking up exclusively with this streamer or that? Is there a tipping point where these channels just evaporate?
The next group of streamers are likely to be AVODed up… which makes for a very different set of math equations.
First… even if cable is reduced to 25% of domestic households soon, that is still at least $25 billion a year in revenues, spread amongst providers.
Second, the spending on television ads is still well over $160 billion a year
As is often noted, ad buyers value digital buys less than broadcast/cable buys. How this shifts - or doesn’t - as the digital advertising becomes more dominant, we shall see.
So what does the streaming future of Comcast and Paramount look like?
They don’t have to chase Netflix or Disney to be successful. And if they continue to operate in a different space, they should not be judged against Netflix and Disney.
Here is a very broad read on how these companies currently generate revenues:
VIACOM - $26 billion overall
CBS $3.8b in ads
Viacom Cable Nets $3.7b in ads
Streaming $4.3 billion, split almost evenly between subs and ads
Content Licensing $6 billion
Affiliate revenue $8 billion
COMCAST - $120 billion overall
$64 billion Comcast cable
You can see why these companies are dragging their feet about making a full transition to streaming and the idea of subscription apps. In Comcast’s case, more than half of their revenue comes from their cable business. Breaking that down, “only” about $23 million a year of the $64 billion a year is from cable TV. But still, that alone is more than 2/3 of what NBC/U generates.
So… even if cable is under severe threat moving forward, they know that Netflix, with every advantage as a first mover in streaming and 220 million paying subscribers, is still a $30 billion revenue producer. In the best case scenario, participating in further eroding cable and cutting into the ad revenue of NBC and cable outlets, is a loser for the company… at least for the next 5 years and probably longer.
There is no particular reason for Comcast to lose $40 billion a year in non-cable business. So they have a lot of stability in riding things out and building Peacock at a glacial pace… unless they are feeling peer pressure and/or sweating the stock market. Obvuously, they should move forward at a good pace, making this unstoppable transition.
Viacom is not in quite that situation. They are primarily a content company and their revenue is small in comparison to Comcast. However… by leaning fully into streaming, they are threatening most of their revenues as well.
The difference is, if hugely successful, they could replace their revenue base with streaming. Comcast cannot. If they put everything they have into streaming and could match Netflix’s current 220 million sub number at $10 ARPU, they have more than replaced their entire base of revenues. Now, most people seem to doubt that is possible. I don’t disagree. That is why they need to be in AVOD with Pluto… to try to match or surpass the subscription revenue they would get, bringing a huge number of people in for free or a significant reduced rate and selling ads.
I don’t think it makes any sense at all for Comcast to eat Viacom, as some have suggested/insisted. But I can easily imagine a plan for international territories, where they team up to create an AVOD channel for the rest of the world that doesn’t have the same pre-existing relationship with their content as we have at in the U.S. and Canada. And it would make sense for them to also team on this with the Side Players, referenced below.
It is one of the odd frustrations in all of this that the two companies who have chosen to get involved in this space that also have the super-deep pockets to top anyone in the game, just don’t seem that into it.
Apple and Amazon and Apple (alphabetical) are not teases. I don’t think they are commitment phobic. I think they are just willing to date, on a high level, without ever really sealing the deal.
It makes sense to me that Amazon picked up MGM/UA… providing they keep the leadership in place. Why? Because after starting with a very strong indie presence via Ted Hope and his team, the evolution of the business leans heavily to television. And if they can have MGM/US operate with discipline, but the intent to make noise, it gives them what the talented, but indie-minded group, didn’t… higher profile. Witness MGM/UA with 5 movies seriously in the Oscar race this season. Hope & Co made nice movies and there was Oscar buzz… but this is just at a higher (more monied) level. Having Bond means there will be a big commercial hit every few years. It just makes sense.
But is Amazon coming after Netflix or Disney? I don’t see that.
Apple is even less invested. They are making some really high-level content, spending a lot of money, and pushing for awards. But nah. They can drop a few billion a year on content like nothing happened. And they have. And they will.
As a friend loves to say, Apple is servicing their hardware owners with some software to keep them amused and to keep them feeling like they have the American Express of hardware.
I stipulate that the people who work on the content for both of these companies work their asses off. But…
Buying a bigger studio or looking for a big library… leave that to the people who have to try for a living. Apple and Amazon have already arrived.
I think Sony and Lionsgate are pretty much in the right place now. Either could be sold. We have all been waiting for this to happen for a couple decades now. No reason to think this is really the year.
Maybe they fill a specific need for a specific player at a specific moment. But why buy the cow when you can license the milk? And why sell the cow when you can charge a little too much for the milk forever and you’re not going to get that great a deal to sell.
As I have noted before, Sony has insulated itself from being a target by making 5-year content deals that would make buying the studio a frustrating proposition.
Warner Bros Discovery sounds like a studio tour. But David Zaslav is going to have a lot of rope to bring his vision for this company to fruition. Doesn’t mean it will work. But it does mean that he will be able to do what he wants to do for at least a couple years.
Mr. Kilar has already moved onto the idea of offering HBO Max as AVOD as well as SVOD. They say it’s going great. But they won’t say what that really means.
I can easily imagine Zaslav building the new model out with both AVOD and SVOD. But I would expect the two offerings to be more differentiated than the ones currently being offered, which seem more like a promotional effort than a long-view business.
So there you have it… 8 different ways to approach streaming, every one of which can be a win. In fact, if all these companies did what I suggest - or what they do - effectively, the only way to name losers will be to compare one against another for sport… lazy sport.
This doesn’t mean I don’t think that some of these companies will foolishly chase paths that don’t speak to their strong suits. Some will. But the idea that every streamer needs to match the model of the leader of the moment is nothing less than self-destructive.
Make your own kind of music. Make your own special song. Make your own kind of music. Even if nobody else sings along.