Monday AM Briefing #63

*Need* to know stories and trends for this morning & the week ahead; A Short Essay on The Dolan Family & AMC Networks CEO Josh Sapan's Resignation

A Short Essay on The Dolan Family & AMC Networks CEO Josh Sapan's Resignation

There has been little commentary on the surprise news that Josh Sapan is stepping down as AMC Networks president and CEO and transitioning to an executive vice chairman role.

Is this is a significant development in streaming? Yes, and no.

No, it is not significant because - AMC Networks’ streaming subscriber base - on track for 9MM by the end of 2021 - is still on the low-end of the U.S. streaming marketplace, if not niche.

But, I think it’s worth writing about this news given my past bullishness on AMC’s “genre wars” strategy.

These two lines from the Q2 2021 earnings call, which discuss the impact of the $200MM settlement with former The Walking Dead showrunner Frank Darabont, are a good starting point:

For the full year 2021, we expect free cash flow to be approximately breakeven as a result of the one-time cash payment associated with the July settlement. Absent this one-time payment, our prior free cash flow outlook would have remained unchanged. As we continue to advance our streaming growth strategy and with our strong programming offerings still to come in the back half of 2021, we are extremely well-positioned to achieve our 2021 goals, and more importantly, to set a strong base going into 2022 and beyond for future long-term growth and for stakeholder value creation.

The Darabont settlement is an expensive loss during a quarter when revenue posted a bigger-than-expected 6% downturn. It is significant enough of a hit to the business that AMC management is revisiting and revising long-term plans. I think these two points are as good an explanation as any of Sapan’s reasons to step down as CEO.

But none of these points reflect why Sapan’s resignation is a significant development for the streaming marketplace.

Rather, what makes the story significant for the broader streaming marketplace is its timing: merger rumors continue for smaller legacy media businesses like AMC Networks and Lionsgate, as Fox Business News’ Charlie Gasparino reported:

But that leads to two logical questions:

  1. Why would Sapan step down before a sale and after 26 years as President and CEO of AMC Networks?

  2. Why would the Dolan family — the majority and controlling shareholders of AMC Networks — sell now?

For #1, if AMC Networks needs to be sold, Sapan is the guy to sell it after 26 years. There is no reasonable rationale for Sapan leaving before a sale.

Also, the AMC Networks press release narrowly circumscribes new interim CEO Matthew Blank’s role:

“As interim chief executive officer, Mr. Blank will utilize his expertise and work with AMC Networks’ leadership, including Mr. Sapan, to maximize the company’s streaming business, while building on its core assets.

That doesn’t read explicitly or implicitly like Blank’s role is to lead AMC Networks to a sale.

So, a sale seems unlikely (but still possible).

The answer to #2 is more interesting in light of this prediction from reader and former NBCU SVP Salil Dalvi (made in a longer debate about the future of ViacomCBS):

These two tweets help us to frame how the Dolan family — who were integral to the scaling and evolution of linear media with Cablevision (out of which AMC Networks originally was spun out as Rainbow Media) — may be thinking about the business.

Even if AMC Networks accomplishes its goal of 20MM to 25MM paid streaming subscribers by 2025, that still may be half the size of the linear cable market in 2025.

Why would the Dolan family give up that larger market opportunity for higher subscriber fees because a more niche, “genre wars” strategy is working at lower ARPU (~$4/streaming subscriber, and without advertising) too?

It makes me wonder whether Sapan’s resignation was the result of the Dolan family doing the math and realizing that there will be more upside in pivoting back towards what they know best (linear) than in doubling down on what they know least (streaming) at a smaller scale.

It would be a pivot at an interesting moment: when investors are increasingly awarding successful streaming business models with Netflix-like P/E multiples, but when Disney, Netflix and other streamers are seeing slowing U.S. growth. In other words, the promised 20MM to 25MM in streaming subscribers may seem more out of reach now than in previous quarters.

It would also be a pivot with a fundamentally different business plan for AMC Networks, growth-oriented but in ways that investors might punish management for discounting streaming. At 70, Sapan may no longer have the energy for that fight.

So, Josh Sapan’s departure from AMC Networks may seem surprising. But, it may reflect turning points for both a slowing U.S. streaming marketplace and a linear marketplace with exciting possibilities while flattening out at around 40MM-50MM subscribers.

Must-Read Monday AM Articles

Aggregator 2.0

  • A new bear signal emerged with Apple TV announcing a partnership with T-Mobile that offers one year of Apple TV+ — for free — as an additional perk to new and existing subscribers on Magenta and Magenta Max plan (and T-Mobile for Business, Sprint Unlimited Plus and Sprint Premium customers).

  • Netflix announced that subscribers with an Android device in Poland, only, can now try out its gaming service.

  • HBO Max will release its upcoming Batman podcast exclusively on the streaming platform with Rosario Dawson starring as Catwoman and John Leguizamo will portray the Riddler.

  • Amazon acquired the rights to the 57th Academy of Country Music Awards. Amazon’s music service has long relied on country fans to fuel growth.

  • HBO Max AVOD is now a part of Cricket’s $60-a-month unlimited plans, for both new and existing subscribers.

Sports & Streaming

  • Walt Disney Co. ’s ESPN is seeking to license its brand to major sports-betting companies for at least $3 billion over several years, and has held talks with players that own major sportsbooks, including casino operator Caesars Entertainment Inc. and online gambling company DraftKings Inc. ($ - paywalled)

  • Tubi will feature 10 live streaming channels for different sports, including professional football, baseball, soccer, collegiate sports from the ACC and Pac-12 Conferences. The channels will include nearly 700 hours of VOD content from some of sports’ biggest brands, such as NFL, MLB, NASCAR, Big Ten, Concacaf soccer, PBC boxing, PBA bowling, and more.

  • Research analysts are warming up to Fubo TV’s vision for integrating sports betting into broadcast TV.

  • Brooklyn Nets owner Joe Tsai envisions a Twitch stream with sports betting and where users play interactive games within that engagement experience and earn cryptocurrency.

Creative Talent & Transparency in Streaming

  • OnlyFans founder and CEO Tim Stokely named Bank of New York Mellon, Metro Bank, and JPMorgan Chase as banks that refused service because of “reputational risk” associated with the UK-based OnlyFans’ sexual material.

  • Disney's reaction to Scarlett Johansson has lawyers less willing to leave things between the lines.

  • Ian Leslie dove into how Kevin Feige runs Marvel within Disney for The New Statesman

  • Copies of several of the year’s most popular films, from “The Suicide Squad” and “Godzilla vs. Kong” to “Jungle Cruise” and “Black Widow,” shot up almost immediately after their premieres to the top of the most-downloaded charts on piracy websites such as the Pirate Bay and LimeTorrents ($ - paywalled).

  • YouTube announced it has paid out more than $30 billion to creators in the past three years from ads, merchandising and other service features.

Original Content & “Genre Wars”

AVOD & Connected TV Marketplace

  • Mollie Cahillane of AdWeek wrote about how Connected TV platforms are turning to data, content and consumer experience to expand their user bases.

  • Juniper Research forecasts nearly 2 billion active subscriptions globally to on-demand video services by 2025. That’s an increase of 65% compared to the end of 2020. Domestically, USB analysts believe that Americans will add 50 million net new video subscriptions this year, up from a 47 million increase in 2020.

  • NBCUniversal announced it is taking steps to drop Nielsen as a single video measurement currency and replace it with multiple sources, and called on the rest of the media industry to join it.

  • A new report from nScreenMedia predicts that the free ad-supported streaming TV (FAST industry) will reach $4.1 billion in 2023 and have 216 million monthly active users.