Monday AM Briefing #53
The stories and trends in OTT streaming you *need* to know for this morning & the week ahead
First, a reminder: a redesigned PARQOR.com went live last Wednesday.
Second, I think last Friday’s Mic Drop on Netflix.Shop is one of the best short essays I have written to date, in my humble opinion.
Tomorrow’s Member Mailing will be about how the box office for the first weekend of In The Heights - $11MM versus a projected $20-$30MM - looks differently depending on how we think about WarnerMedia’s objectives.
A Short Essay on Sinclair Broadcasting Group’s $250MM Streaming Service
The New York Post reported last week that the Sinclair Broadcasting Group is working with investment bank LionTree to raise more than $250 million for a new service that would stream games by the St. Louis Cardinals, the Dallas Mavericks and scores of other popular sports teams to fans over the Internet.
But there is a catch:
Sinclair has been telling hedge funds and other potential investors that it aims to charge $23 a month to fans who want to stream games in markets where it owns sports broadcasting rights, sources said.
Fans who live outside of Sinclair’s 21 territories, where it owns broadcasting rights tied to 42 teams, would likely be out of luck.
Sinclair is fascinating for a very simple reason, as I wrote about last November: in 2019 it bet $9.6B on Fox’s RSNs, which include exclusive local rights to 42 professional teams consisting of 14 Major League Baseball (MLB) teams, 16 National Basketball Association (NBA) teams, and 12 National Hockey League (NHL) teams.
Investors’ concern for the $9.6B bet, which closed in 2019, is that it seemed risky giving cord-cutting trends. Once the pandemic hit, those risks - and the aftermath of the unforeseen risk of the pandemic itself - were realized, and worsened by the cessation of sports and the interruptions to the ad marketplace. In Q3 Sinclair reported an impairment loss on the RSNs of approximately $4.2 billion, and rebates to distributors of $420MM in 2020.
It has made two big moves to cushion the downside of its bet on RSNs:
It struck a deal to rename its RSNs with Bally Sports and launch a sports betting app (Bally Sports App), and
Promised investors a direct-to-consumer app.
The $250MM fundraise, above, is for the direct-to-consumer app. The objective for the app, according to Sinclair President CEO Christopher S. Ripley in the Q1 earnings call, is “making the viewing experience more personalized and engaging”:
We believe that ultimately, the incremental revenues from direct-to-consumer will likely more than offset the loss of revenue from churn of subscribers of traditional distributor platforms. And much like the authenticated viewers who currently subscribe to the RSNs, the direct-to-consumer viewer will benefit from the upgrades that we are making to the digital viewing experience including increased functionality of playback and recording capabilities, enhanced news and statistics, new programming developed in conjunction with Bally's and elements of gamification, including watch and Bet via Bally Bet.
It sounds promising… except for the planned $23 a month fee for fans who want to stream games in markets where it owns sports broadcasting rights.
This tweet from an executive at Octagon Sports succinctly sums up the problem with the proposed $23 in the context of cord-cutting and the $4.2B write-down:
There is an important nuance in this tweet: Sinclair is attempting to replace a guaranteed $3/month across 52MM RSN subscribers, or just under $2B per year, with a $23/month fee across a bucket of different, seasonal consumption patterns over the year, and different target consumers within those buckets. To gross the same amount of revenue annually, it would need to average just under 7MM subscribers per month at $23, or 13.5% of those 52MM subscribers.
Although, Sinclair has defined that marketplace opportunity a little bit larger: 70MM “total subscribers possible in the RSN team's geographic territories”. So it needs just under 10% of the TAM to recapture lost subscribers. Which does not read unreasonable.
But, the tweet is pointing out how the app needs to average just under 7MM subscribers per month while also facing increased churn between different sports season. For six months of the year they are betting on two different audiences: the NBA and NHL are typically between October and April. For the other six months they are depending on a single, third audience: MLB viewers. Unlike the cable bundle, once the viewer is done with the season, they can churn out.
So Sinclair’s bet is:
the majority of its subscribers will need to come between October and April;
subscribers will be willing to pay $23 per month or $140 per year to watch their favorite teams, and
Sinclair will understand the sophisticated marketing in place to drive those subscribers.
#3 is the head-scratcher here. HBO Max marketed a service for $14.99 for a year and hit a wall after one year with sophisticated DTC marketing and with the pull forward effect of the pandemic. It forced their owners to seek a merger with Discovery. They reached 10MM DTC subscribers and then threw in the towel on going it alone in the U.S. market.
At $23/month, Sinclair seems to be betting on either slowing cord-cutting by convincing consumers to stick with the cable bundle with reverse psychology of higher prices. Or it truly believes it can capture 7MM subscribers with DTC marketing.
My bet is Sinclair is aiming for the former, because it is not built to do the latter.
Must-Read Monday AM Articles
E.W. Scripps is responding to cord-cutting with a contrarian move: launching two new TV networks next month.
HBO Max had a big news week. Kim Masters of The Hollywood Reporter went deep on WarnerMedia CEO Jason Kilar’s “Unsettled Future at WarnerMedia”, and Alex Weprin of The Hollywood Reporter reported on the details of Kilar’s contract. It also dealt with some unhappy Apple TV users after HBO Max tried to move the app’s video player off of the native tvOS operating system.
Variety had a good summary of the rationale for HBO Max’s ad-supported plan. Brian Steinberg of Variety reports advertisers appear willing to capitulate to significant pricing increases from everyone but Discovery and ViacomCBS, suggesting both may have miscalculated post-pandemic demand for advertising.
HBO Max’s rollout plans in Latin America and Europe face complications from distribution rights contracts, and highly competitive markets. HBO Max EVP and GM Andy Forssell told the Barclays Future of Media Conference that retention has become harder than distribution.
The LA Times reported Warner Bros. finding itself in a bit of planning limbo while waiting for the merger to be approved.
Amazon landed the bulk of French soccer rights for the league’s two top divisions for 2021-24. French pay TV group Canal Plus backed out of its deal for a smaller package of League 1 matches in protest.
There were some fun Disney headlines: the first episode of Loki came out to positive buzz and clever promotions. My Roku home screen has a Loki takeover, and Hyundai has a clever ad with Disney+
Disney was also hit with three lawsuits from STARZ before the rollout of Star+ in Latin America, arguing that the name of Disney’s upcoming streaming service is too similar with STARZPLAY.
The Financial Times dove into how the Disney is ramping up production in Europe with 50 original shows expected by 2024. It also had a deeper dive into how American streaming giants are “learning to love Euro programming”. ($ - paywalled)
NBCU cancelled Zoe’s Extraordinary Playlist after two seasons, and notably opted not to shift it to Peacock. It also detailed some 7,000 hours of programming between two broadcast networks (NBC and Telemundo), six cable channels (USA, CNBC, NBCSN, Olympic Channel, Golf Channel, and Universo) and multiple digital platforms.
Deadline reports “there is no viable path for Clarice to continue on CBS as the broadcast network already committed to a full slate of series for next season.” That is a surprising outcome for the big name IP.
Netflix had a big news week, too. Borys Kit offered an exposé of what happened behind-the-scenes at Jupiter’s Legacy. Jennifer Lopez’s Nuyorican Productions signed a multi-year first-look deal with Netflix spanning feature films, TV series and unscripted content. The LA Times reported on how intimacy coordinators worked with actors on Bridgerton sex scenes.
We also saw Netflix rethink the production of Melissa McCarthy vehicle God’s Favorite Idiot, and brought an early halt eight episodes into the production of 16 episodes in Australia.
Kasey Moore of What’s On Netflix wrote about why Netflix Original titles leave the service, and which ones we can expect to leave soon.
Variety VIP offered helpful content spend projections for 2021, with a breakout for sports. It also offered a helpful lens on User Churn
Last, two must-read data pieces. I liked the Entertainment Strategy Guy’s piece on the “Binge Release Shape” of streaming consumption: there is a chart about a handful of TV series which had similar Week one total viewership to Shadow and Bone, and it might be my favorite chart he’s produced yet.
Also, GroupM released projections that total media company ad revenue will amount to $279 billion in 2021 and rise to $388 billion by 2026.