As Disney’s good, but wildly overhyped, quarterly fades from conversation, I keep hearing the repetition of a series of myths that just won’t die. And really, for better or worse, at this moment in the industry, these are at the core of my daily thoughts and conversations.
When people come to believe something is true - when they feel it - releasing the idea is really, really hard. I get enraged by it. It’s not a good look for me. I guess that telling those who buy into these false notions that they aren’t evil, they are just suckers, isn’t really a warm embrace that they will respond to well.
One of my signatures is support for theatrical. But the truth is, ultimately, that destroying theatrical will not kill the film/tv industry. It’s a small part of the overall business and has been that for decades already, long before streaming.
But I will tell you this - and have - a million times. When every one of the streamers is stuck at $40 billion - $50 billion a year in worldwide revenues each, that $40 billion in theatrical split 5 ways which it now seems clear “They” are intent on pissing away is going to look really, really attractive.
But let’s get to the myths.
You Need To Ramp Up Spending Wildly To Attract An Audience
Where did this one start? What was the foundation?
Like so many things that Wall St and The Media have wrong about this unstoppable evolution to television from “linear” to streaming, the example of Netflix led them down the primrose path.
Analysts like “Always Wrong” Rich Greenfield, still giggling like a child with a crush over Netflix and its success (and his building of a profile based on being the #1 Netflix fanboy), saw Netflix growing its annual spend and then came up with a magical and unsupportable projection of how many households Netflix could expand into worldwide, and leapt to the argument that as growth continued, spending would continue apace and this would be good business.
But Rich forgot that gravity exists.
However, like the Pied Piper, he led most people in media and a lot of people on Wall Street into believing this was an unavoidable fact of the streaming future.
It is absolutely true that you can malnourished your streamer and its growth with it. Yes. Clearly.
But the mindset that keeps getting repeated like a mantra of blind acquiescence is more reminiscent of an NFT salesman than a successful businessperson. The idea of being first in the market and finding suckers who will buy into your hype is not new and it is a legitimate business model to get rich quick.
But there is no serious business argument - aside from it distracting Wall St - for the floor on original content spending being $15 billion a year for a streamer in an eco-system where the maturing, long-standing leader in the industry has yet to hit $30 billion in revenue in a year. It’s stupid.
And of course, there is this… Netflix is cutting back, not pushing forward on content spending. The increased focus on content production in/for other countries than the U.S. is actually a way of saving money, not spending more. Everywhere in the world is a cheaper place to product content than America. Everywhere.
Netflix apparently spent under $3 million an hour for Squid Game. There is not a “Hollywood”-made series on the channel that they have pay as little for, going all the way back to House of Cards.
And it makes perfect sense. Netflix can produce/buy 3 or 4 series from other countries at the cost of 1 show made in the “Hollywood” system. That gives them 3 or 4 shots at a surprise hit like Squid Game as opposed to an all-American homegrown show.
But let’s push away from Netflix for a moment. I will address this all in other Myth segments here, but each of the other major streaming players is bringing their own unique combination of legacy content and originals to the table. Whether its sport rights or a popular IP library or documentary content or whatever, each is bundling (that word!) their own combination of content and taking it to market with a different pitch.
As we learned decade after decade after decade in ol’ school TV, entire networks that are failing can be turned around almost overnight by 2 or 3 hit shows. Those shows don’t have to be the most expensive. Sometimes they are. Friends and Seinfeld were not… but ER was… but it still wasn’t a show that cost a billion dollars.
You can’t buy your way out of failure. And you can’t cheap your way out either. You can spend fortunes expanding your number of times at bat, which does improve your odds of a hit. Or you can buy the best talent to try to improve your odds. (ShondaLand, yes. Ryan Murphy, not so much.) But a half dozen real hits a year will be able to drive any streamer. How you spend to get there is not a set reality.
Acquisitions Will Fix What Ails Your Platform
There have been 2 major acquisitions in this space.
1. Disney buying Fox assets. 2. Amazon buying MGM.
Disney had mighty IP, but a small library. Also, buying Fox gave them control of Hulu and Star and Hotstar, as well as the Fox TV production arm.
Amazon is also library light, but their primary value play with MGM seems to be acquiring IP and solid television production business.
The third event is Warner Media being spun off into a new business with Discovery. The purposes of this one seem to be a bet by AT&T that the new company can do better for the AT&T stockholders than continuing to operate Warner Media themselves.
The idea of a major studio with a library and IP aquiring a studio with a similar amount of the same, but no separate specific strategic purpose simply makes no sense. More of something that’s not quite working is not an advantage.
The constant focus of acquisition talk is on Viacom, Sony, and Lionsgate. Viacom is the only one with a broadcast network… but the general concensus is that broadcast networks will be reduced to brands in short order. None of the three have significant international assets. None of them have fungible sports assets (though CBS has rights to the NFL in its narrow context).
Netflix is a decade into their “build our own library” effort. And now, they are going to abandon that primary focus and spend 9 figures on a studio that has its own quirks and issues and culture and content that it hasn’t yet been able to maximize itself?
Who is selling this idea?
More importantly, why are so many buying it?
The World All Looks The Same
It doesn’t get discussed a lot, but the rest of the world is still as complicated as it has been for decades. Yesterday’s Disney quarterly pointed this out quite clearly, showing that Disney+ Hotstar, in India, has a $1.03 Average Revenue Per User, a point that went overlooked as the lede of most stories was about the overall subscriber count… 45.9 million of which came from India at that $1.03 ARPU.
Netflix, on the other hand, doesn’t break India out. They have been struggling there. But the region - how Netflix breaks things out - that contains India is one of their growth areas, especially in the last quarter. APAC (Asia Pacific) has “only” 33 million total subscribers - this includes Japan and South Korea - but they have the ARPU at $9.26. They have clearly made the choice that dragging down that ARPU isn’t worth the million of new members they could get in India. (There is a discussion about how much of Disney’s success and Netflix’s failure - chosen and not - is based on cricket rights. Different conversation.)
But one of the clouds hanging over everyone but Netflix and Disney+ (just that one Disney streaming channel) is pushing out ad-based streaming (AVOD) to the world. Obviously, there are ads everywhere in the world. But how universal can a Hulu-like package or a Pluto-like package or virtual cable like YouTubeTV be? Not very.
My ignorance in the arena of television advertising in other countries is profound. There are many experts. They will all be employed. Still, I soldier on…
Imagine a worldwide Netflix hit like Lupin playing on AVOD, with not only all the translations and subtitles, but with 14 minutes worth of ads every hour from 150 different countries. This is a feat that has yet to occur.
American content bundlers (studios/networks/producers) have sold off their content to other countries and let them deal with their individual markets. There are international bundlers who seek to buy up chunks of content, pay one price to the Americans, then sell it off country by country (kinda like drug dealers… buying pure and cutting the product to make a profit… hmmm…)
But it’s not just the ads that will be different in pretty much every single country. If these companies want to become core channels in other countries, they need to program locally as well as worldwide.
We are in the fantasy period in which other countries are being mined by Netflix and the rest with some success. And I am thrilled by this. I want the whole of world content to be available to the whole of the world But at some point, there is going to be a lot spent on regional content that doesn’t translate well or at all to other regions, just as there have been American shows that have played well in some countries and not at all in others.
At the point in which that reality smashes into the whole of streaming, streamers will have to start to make choices and not service certain countries fully. This is where Netflix has an advantage by not being as ambitious as, say, Disney. They are growing and maintaining a library of “movies” and tv shows with a bit of concession to regional programming. But as in the UCAN (United States/Canada) market, they are not trying to be all things to all people in any of the regions.
As with all things streaming, Netflix is out ahead on this area too. They have certainly surveyed each country in great depth, even though they are not selling advertising. Pretty much all their sub growth in the last year has been in Europe, the Middle East and Africa (EMEA) and APAC. That’s a lot of territory. And without accusing Netflix of playing with the numbers (as some have), the reporting from the company is not very instructive of where the strength and weakness in these terrirories is.
This is somewhat like the expansion of movie theaters across the globe in the last 20 years. We went from a 50/50 split with international box office in 2001. By 2004, International had the 62/38 edge. In 2010, it was 67/33, international doubling doemstic for the first time. 2012, 70/30. And the peak, so far, was 73/27, almost 3 to 1, in 2017 and 2018. This is where television is heading. (And by “television,” I ultimately mean streaming.)
It was less complicated for theatrical. Fewer partners. Less governmental interference. Less competition within each country. Building 10,000 new screens in a country was seen as heroic, adding to the tax revenues and the culture. American streaming companies are paving over existing roads, creating more resistance. And they come in with expectations of how they can build financially, with not every local market a sure bet to be supportive.
It took many years for cable television to become available by 80%+ of America. City by city. Negotiation by negotiation. This is what faces the streamers, but whereas cable was forced to be considerate of local considerations, including content choices like all local channels, content rules, and cable access, streaming is the wild, wild west at this point. Anything goes. But that works both ways.
Successful/Surviving Streamers Will Play On The Same Ground
Big Con or Small Con.
That isn’t an insult. It’s a choice. Disney wants to build a bigger footprint worldwide than the one to which Netflix aspires. Sports. News. Leading Family Content Proivider. The Rest. Bigger risk. Maybe bigger reward. We don’t really know because Disney is really still in its streaming toddler years.
To do what Disney wants to do, they need all the other revenue streams - at least Parks and Merchandising - and structures (ESPN and ABC News) to make the risk (potentially) worth it.
I don’t think Netflix is going to be dragged into the Big Con. They are a great Small Con company… not unlike HBO has been for the last 30 years. $40 billion a year is nothing to sneeze at and that is where I think they will max out (until time revalues money). They would likely argue that $50 billion is within striking distance.
Disney is aiming at more like $100 billion a year, up from the current $60 billion or so.
Where will Comcast and Viacom land as they expand across the globe? Both seem more likely to lean heavily into the AVOD play over the SVOD (Subscription Video on Demand) model. But what will that mean?
Viacom could, in theory, push Pluto in other countries almost as is. Pick up streaming rights to old sitcoms and hourlongs from each country. Add them to the mix of classic Americana with subtitles (which likely already exist) and you have an interesting small-ish business. How much Paramount+ is involved? Which brand do they use? Could be different in different countries.
And what of Warner Bros Discovery? We all have a million questions about how they will operate, but the biggest question is what their level of ambition will be. We realy don’t know yet.
I have written before about how all of these companies can succeed by their own standards. The thing is, they MUST succeed by their own standards or they will die choking on the standards of others.