Member Mailing #275: Key Themes from 2021
And, Predictions for The Last Four Months of 2021
This week’s Member Mailing is being sent to all PARQOR subscribers.
Below is a short essay on my predictions for the rest of 2021.
There are also one sentence summaries and links to of all Member Mailings from 2021, to date, organized by key themes:
Emerging "Metaverse"-type convergence strategies
“Aggregator 2.0” bundles
Sports & Streaming
Creative Talent & Transparency in Streaming
Original Content & “Genre Wars” (NOTE: the most articles)
Comcast’s & ViacomCBS’s Struggles in Streaming
AVOD & Connected TV Marketplace
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That is eight months worth of evergreen research and analysis connecting the dots between incentives and execution across the streaming marketplace for less than the price of a taxi to JFK Airport.
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NOTE: I am going to take the next week off to start resting up and preparing for the Fall. So there will be no Mic Drop tomorrow nor mailings next week.
If anything newsworthy happens, I will send out a version of the Monday AM Briefing next week.
Predictions for The Last Four Months of 2021
I think there is a reasonable argument to be made that Netflix has already won the “streaming wars”.
IAC Chairman Barry Diller has made this point repeatedly over the past few years. A senior executive at a major production studio made the same point to me in a meeting two weeks ago.
I think they’re both right.
Yes, Disney had another great quarter and is continuing to get closer to Netflix’s scale. But, outside of Asia and especially in North America its growth seemed underwhelming. Moreover, I think it’s notable that Disney’s ARPU is declining while Netflix’s ARPU (or, now Average Revenue per Member) is increasing.
So, Netflix is still winning, and three trends reflect how the marketplace is adapting accordingly. All three are worth keeping a close eye on over the next four months:
Talent & Transparency: The economics of Netflix’s upfront payments to talent have become the new standard for streaming deals in Hollywood. But that model lacks transparency because Netflix has no back-end. Disney, WarnerMedia, ViacomCBS, and NBCUniversal all have adopted this model - in part because of the pandemic - creating a growing risk of commoditizing talent contracts. This growing risk has motivated the the creative community with enough fear, honor and interest that we will see more standoffs between talent and legacy media streaming services.
Bundles & Convergence: The key question facing all other streamers (excluding Amazon and Apple) is whether they need to offer more first-party services in a bundle (Disney, Netflix), bundle with other services (“Aggregator 2.0” bundle convergence), or pursue PARQOR Hypothesis-type convergence models. On the creative side, look for more versions of Reese Witherspoon’s Hello Sunshine model to emerge, in which talent builds out an ecosystem of non-streaming, direct-to-consumer businesses to supplement streaming revenues.
Original Content & AVOD vs. SVOD: Every SVOD streaming service needs more scale, domestically and globally. Every AVOD service needs more scale, domestically and globally. The emerging question is whether the Total Addressable Market (TAM) for SVOD services becomes smaller when AVOD services scaling internationally - like IMDb TV, The Roku Channel, Tubi TV, and Pluto TV - invest in and distribute more original content for free.
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Key themes of Member Mailings from 2021, to date
1. Emerging "Metaverse"-type convergence strategies
A lack of transparency in OTT streaming may be a reason why the concept of the “Metaverse” is capturing the marketplace’s imagination about the future of media. But, the “Metaverse” is a concept that has yet to substantively answer, “what will online/offline convergence look like operationally and strategically?”
The Disconnect: “Metaverse”-type outcomes tend to be by-products of other, more concrete business objectives - like growth (Apple, Spotify) or reducing churn (Netflix, Verizon) - or narrower objectives like Omni-Channel (MGM Resorts).
Answers about Average Revenue per User (ARPU) on recent Q2 2021 earnings calls shed light on emerging "Metaverse"-type convergence strategies. (Read more)
MGM Resorts and its Omni-Channel approach offers valuable precedent for understanding "Metaverse"-type online/offline convergence in media (Read more).
“Aggregator 2.0” bundles like Netflix’s new mobile gaming offering and Apple's bundle of TV+ with Arcade have emerged, but no one yet seems to have a vision for how streaming + gaming + music will succeed. (Read more)
Three of PARQOR’s Five Frameworks highlight how Warner Bros. Discovery risks maximizing the decline of the linear business more than scaling towards more streaming consumers globally. (Read more)
Without a Disney-like PARQOR Hypothesis-type ecosystem in Amazon and MGM, it is not clear how one plus one will equal three for MGM content within Amazon’s streaming ecosystem or HBO Max and discovery+ within Warner Bros. Discovery. (Read more)
2. “Aggregator 2.0” bundles
“Aggregator 2.0” bundles are a form of third-party bundle that offer “the ability to personalize offerings like never before, mixing and matching television, news, e-commerce, gaming, health, and any other service that charges a monthly or annual subscription rate.”
There are two types of “aggregator 2.0” bundles: those that offer first-party services (Apple) and those that offer third-party services (Verizon)
The Disconnect: For every streaming service not named Apple or Amazon or Disney, Verizon seems to offer the best win-win business model (quarterly growth, profitable) for bundling services.
The interesting question in AVOD is whether other versions of first-party and third-party “aggregator 2.0” bundles built around first-party data are feasible, especially in a post-Apple App Tracking Transparency (ATT) world. (Read more)
With Roku and Amazon offering ad-supported streaming services - and Amazon’s recent moving into sports streaming with the NFL deal - traditional media streamers face growing competition in Connected TV (CTV) ad sales as linear dollars shift over to digital. (Read more)
There are two types of “aggregator 2.0” bundles: those that offer first-party services (Apple) and those that offer third-party services (Verizon). Third-party bundles (Verizon) may be better positioned than first-party bundles to help streaming services scale. (Read more)
I think Warner Bros. Discovery’s business model compromises both Discovery’s and WarnerMedia’s streaming ambitions globally. Both discovery+ and HBO Max need scale, but it is not clear how traditional B2B bundling deals in a DTC world help to achieve scale (e.g., Amazon Channels). (Read more)
3. Sports & Streaming
The demand for sports rights is inelastic despite declining linear audiences, and the purses for those rights are getting bigger. But, sports rights are “becoming a scarce commodity” and leagues may be leveraging streaming rights deals as a “trial balloon for the league [eventually] going to direct-to-consumer”.
The Disconnect: The future value of sports rights is no longer subject to traditional strategic, financial or management appraisals (Curse of the Mogul).
“Live sports will change to reflect consumer preferences", and ESPN+ seems to be the only sports streaming service that understands the consumer. (Read more)
Sports streaming faces a marketing problem: viewership will be difficult to scale in DTC. For this reason, ad buyers are confronted with a difficult choice between buying (1) OTT/CTV ad targeting with contextual linear inventory and (2) CTV/OTT ad targeting that may be more valuable than linear TV. (Read more)
Bundling is a limited solution for sports streaming in two ways. First, personalized user experiences create a higher probability of viewing audiences at scale than bundling; and, second, bundles may aggregate subscriber audiences at scale, but that relationship is ephemeral. (Read more)
Looking at the NHL rights deals through the lens of product channel fit, a question emerges: how will legacy media companies find audiences at scale for these games in the face of cord-cutting, without proven solutions for streaming sports, and with new sports consumption habits emerging? (Read more)
The NFL rights deals reflect how advertisers are navigating whether their growing demand for ad targeting is met better by NBCU’s portfolio approach of Linear plus OTT/CTV plus Digital Video, or by Amazon’s narrower, OTT/CTV-focused approach. (Read more)
4. Creative Talent & Transparency in Streaming
A lack of transparency in streaming can be explained as much by cultural and business differences between creatives and technologists as it can be by the self-interest of streaming services.
The Disconnect: How do we calculate what Scarlett Johansson and other talent should be compensated from streaming distribution versus both the capital requirements to grow and the uncertainty of future cash flows for a streaming service?
We are at a crossroads for transparency in the streaming marketplace: whereas before media companies shared little with investors, now they are sharing more. But creators are finding themselves receiving less data - the services are not sharing it, and third parties offer a limited lens. (Read more)
When studios and networks feel less of a need to be transparent, the quantitative and qualitative aspects of “what is a hit?” become more difficult to answer, and have surprising consequences. (Read more)
When Meadowlark Media’s Dan Le Batard left ESPN, he took his RSS feed with him, which meant that Le Batard is taking his distribution network with him. This reflected how Creator economy creators have more power in owning their audiences than creators for SVOD services have over their streaming audiences. (Read more)
5. Original Content & “Genre Wars”
Some legacy media services have found wins by tactically focusing on genres (1) into which Netflix invests fewer resources and (2) they can win with their existing user bases and target customers. AMC Networks and Starz are the market leaders in this approach, while Paramount+ is finding wins in news, sports, and kids entertainment. All services are betting on original content.
The Disconnect: The Total Addressable Market (TAM) for SVOD services will get smaller as AVOD services like IMDb TV, The Roku Channel, Tubi TV, and Pluto TV invest in and distribute original content.
Original Content
WarnerMedia's distribution strategy focuses on word-of-mouth with Latino audiences, and looks well past opening weekend box office to HBO Max success. (Read more)
Netflix’s and Disney’s streaming models help to explain how many other services (Peacock, Paramount+, Showtime) do not have the financial flexibility to reorient their capital structure to deliver “consistently good” content. (Read more)
Through one lens (PARQOR Hypothesis), the Televisa-Univision merger does not seem to have the necessary pieces in place to succeed in streaming, and seems vulnerable to the growing dominance of tech platforms in advertising and original content production. (Read more)
Perhaps the best way to think of Netflix’s $450MM bet on the Knives Out franchise is not as Netflix flexing its muscle, but rather as a necessary step in its reimagining of how Netflix will deliver “cultural impact” in a world where DTC marketing has fewer returns. (Read more)
If we take the PARQOR Hypothesis at its most basic, it frames the streaming marketplace into two groups:
Companies that meet all five BEADS attributes, and
Companies that do not (yet) meet all five BEADS attributes (Read more)
The long-term value of original content on free AVOD services (also known as FASTs) is effectively $0 because those services are free, and therefore there are no guaranteed revenues for ad-supported original content on those services in the future. (Read more)
Co-opetition as a strategy helps to add color to the stalemates that WarnerMedia had with Amazon and Roku, to Peacock’s past stalemate with Roku, and the ongoing stalemate between Peacock and Amazon. But, it is most valuable for what it reveals about the growing value of original content to streamers, especially at this moment in time. (Read more)
Can AT&T or Disney accomplish their business objectives in streaming with content like Justice League and adult content on Disney+ (via Star) that falls outside the comfort zone of their core business models? (Read more)
Netflix’s success with Lupin marks the beginning of an unprecedented new content distribution model pioneered by Netflix: foreign-language shows, produced in Hollywood quality but cost-effectively, finding product channel fit those shows otherwise may not have ever reached easily. (Read more)
Genre Wars
AMC Networks has emerged from the pandemic with a compelling business case for the “genre wars” strategy. But, when compared with similar strategies like Starz, AMC Networks’ unusual operational complexity betrays some important weaknesses in its “genre wars” strategy. (Read more)
CuriosityStream has defined the opportunity in unscripted much more narrowly than Discovery has, and has seen greater success with the strategy, to date. (Read more)
6. Comcast’s & ViacomCBS’s Struggles in Streaming
With content production returning to pre-pandemic levels, streaming services will have a more predictable, steady supply of content. But, streaming services ultimately need to produce “consistently good” content to manage churn.
The Disconnect: Peacock, Paramount+ and Showtime are unable to deliver a consistent cadence of good quality content, and also have the highest churn rates (6%+)
For ViacomCBS in particular, “Sports plus breaking news plus kids plus Pluto is a business. Everything else they’re better off selling to Netflix.”
When distributing on Connected TV platforms, the best choice traditional media CEOs face is to spend more on marketing than on product development (Read more).
Peacock has pivoted its strategy from three tiers to:
an emphasis on scaling its free tier, and
an emphasis on achieving scale for its Premium tier through bundling.
That pivot has fundamentally changed Comcast's bet on Peacock in ways that are more negative than positive for the business. (Read more)
WarnerMedia is aiming to build out a long-term strategy around Harry Potter IP and the Wizarding World brand. But, Peacock is leveraging Harry Potter movies to help Peacock find tactical wins with audiences. The PARQOR Hypothesis helps us to understand the best outcome for WarnerMedia and NBCUniversal around the Harry Potter IP. (Read more)
7. AVOD & Connected TV Marketplace
Legacy media companies are building out AVOD services with the belief that they can meet advertiser demand for both contextual ads (ads sold against specific evenings and/or specific content) and addressable advertising technology (optimizing delivery for reach and frequency and performance).
The Disconnect: Legacy media bets on AVOD face a complicated challenge of walking a fine line between long-standing relationships built upon linear, contextual ads, and selling advertisers less sophisticated ad targeting solutions than emerging competitors Roku and Amazon.
Applying the lens of Dotdash’s business model on the HBO Max AVOD helps us to tease out both the surprising reasons why WarnerMedia may be imitating key elements of Dotdash’s strategy, and the risks in pursuing that strategy. (Read more)
Legacy media AVODs must sell less sophisticated ad targeting solutions than emerging competitors Roku and Amazon, by partially relying on “ad-tech spinning”. (Read more)
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