Monday AM Briefing #72
*Need* to know stories and trends for this morning & the week ahead; A Short Essay on Disney Cruise Line’s Avengers: Quantum Encounter & The Future of Streaming
A Short Essay on Disney Cruise Line’s Avengers: Quantum Encounter & The Future of Streaming
Back in July, Disney announced Avengers: Quantum Encounter, “Disney Cruise Line’s most ambitious dining experience ever” that will premier on its newest cruise shop, the Disney Wish:
This exclusive Avengers adventure will assemble some of Earth’s Mightiest — and tiniest — Super Heroes in a larger-than-life showcase of revolutionary quantum technology and world-class cuisine. It’s more than a meal and more than a show: It’s something that’s never been done before in a restaurant on land or at sea!
Last week Disney shared more details:
The show will follow Ant-Man and The Wasp as they host a presentation of the most powerful Super Hero technologies in the world, including a hands-on demonstration of the latest and greatest Pym Tech. But when Ultron turns up with an army of robot sentries eager to take control of this world-changing technology, Ant-Man and The Wasp will need all the help they can get to save the day – calling on Captain America, Captain Marvel and even the brave diners of the Disney Wish for back-up. Oh, and there’s one more Super Hero who will make a surprise appearance during the show. I can’t wait to share more about that at a later date.
What makes the announcement particularly notable is the custom-built viewing experience:
To bring this action-packed spectacle to life, we have specially designed the restaurant with immersive cinematic technology, including hundreds of screens and special effects embedded throughout. Filming with the actors has already wrapped and we are now working on the post-production editing and effects. (Here’s another secret for you: Because most of the battle takes place on the upper decks of the ship, we are actually re-creating it in photo-realistic CGI while the real Disney Wish is still under construction. Pretty cool, right?)
The whole thing reads like the Venn diagram overlap of where streaming meets Theme Parks: original Marvel content — produced while filming other Marvel content for streaming and movies — distributed on “immersive cinematic technology” within a cruise ship.
Revisiting Chapek’s Comments at JP Morgan
This description of Avengers: Quantum Encounter has strong echoes of something CEO Bob Chapek said at the JP Morgan Global Technology, Media and Communications Conference (transcript here) back in May:
And then just again, the shifts in consumer behavior where people, if they want to stay home and watch a movie, they want to stay home and watch a movie and they don't want to be coerced into doing something that they don't want. I think you've got all those things. Plus our - sort of our secret weapon, which is we've not had Disney+ operating in any sense in a full robust way while our parks have been operating, right? Because as soon as Disney+ kind of got really going, our parks shut down because of the pandemic. And so for the very first time, we've got the opportunity to take our original direct-to-consumer business, which is our park business, and use it for our newest direct-to-consumer business. And we've got tremendous amount of information on our consumers from our parks business and what would happen if we married that and actually mine that data to help people subscribe to Disney+ knowing what we know.
And I think it really gives us a big opportunity to take a leap forward on our direct-to-consumer business. But I think it's also important to note that we're not really managing our platforms for quarter-to-quarter growth. We're really managing it for the long-term. We're still essentially in a launch phase. We've been ramping up in content and it's really content-dependent.
The two key takeaways here are that:
Chapek sees a logical overlap between Parks, “our original direct-to-consumer business” and streaming, “our newest direct-to-consumer business”; and
The overlap is “really content-dependent”, and they’re in “a launch phase”, managing that overlap “for the long-term”.
It may be a stretch to argue Chapek was hinting at Avengers: Quantum Encounter, which was announced about six weeks later in July.
Rather, the Avengers: Quantum Encounter seems to reflect Disney finding and leveraging operational efficiencies in Marvel streaming productions to produce original content exclusively for the Theme Parks division.
This makes Chapek’s point about using Parks data for streaming particularly notable because the logic works in the opposite direction: streaming data can help Parks identify Disney consumers worldwide who can afford the cruise (~$1,000 per person) and are probable to sign up.
But that business logic would still need to be operationalized. Chapek appointing Kareem Daniel into the role of Chairman of Media and Entertainment Distribution faced initial questions because Daniel had no background in streaming.
But, Avengers: Quantum Encounter makes a promotion like Daniel’s seem perfectly reasonable, if not savvy: a key Chapek lieutenant from the Parks, Experiences & Products division now manages all overlaps between both business segments.
Even if Disney’s future is being sold to investors as being streaming-dependent, 40%+ of pre-pandemic Disney’s operating income came from Parks. When the business returns to normal, the interdependency of Media and Entertainment Distribution and Parks divisions will be key to helping post-pandemic operating income recover.
One more thing: an alternative narrative
One more thing to consider is the news of Avengers: Quantum Encounter emerges after Chapek’s appearance at The Goldman Sachs Communacopia Conference last month (transcript here), where he poured some cold water on expectations for streaming:
In Q4, I think what you can expect to see is that our global paid subs will increase by low single-digit millions of subscribers versus Q3. But importantly, our core market sub growth will continue both domestically and internationally in Q4, but we hit some headwinds.
The Avengers: Quantum Encounter story offers a valuable alternative narrative: “kinks in the supply chain” still offer opportunities to produce Marvel content for other Disney businesses, and those opportunities generate more operating income for Disney than streaming, for now and the foreseeable future.
As I wrote two weeks ago in A Short Essay on CEO Bob Chapek’s Choices for ESPN's Future at Disney that Chapek is “a fiduciary executive ruthlessly focused on moving Disney’s stock price”.
Avengers: Quantum Encounter is not the type of news that moves the stock price for investors: it’s marketing for a new cruise line at a time when cruise ship sailings and guided tours are slowly returning to action (according to its Q3 earnings).
But, it is a window into both Disney’s operations under Chapek post-pandemic and the financial implications of that operational set-up. Issues with streaming growth aside (which still invites skepticism), there are good reasons not to write off Chapek and team so soon.
On that same note, it is notable through the PARQOR Hypothesis lens that NBCUniversal is the only other legacy media company with similar capabilities, as it owns Universal Parks & Resorts. For all the negative press Chapek has been getting lately, no other business can figure out anything remotely similar to Avengers: Quantum Encounter.
Must-Read Monday AM Articles
Emerging "Metaverse"-type convergence strategies
I wrote about Robert Iger, Mark Zuckerberg & Vision on Friday. CNBC reported that the original vision for the Metaverse was written by a former employee in 2018. Former Oculus CTO John Carmack publicly expressed skepticism.
All Your Screens Rick Ellis considered the Metaverse against the past 30 years of tech advances, and comes out bearish. Mike Shields predicted, “if video games are any guide, advertising is going to be a slog [in the metaverse].”
Arcane, Riot’s upcoming League of Legends-adapted fantasy series debuting on Netflix next month, will become Netflix’s first show to premiere with co-streaming on Twitch.
YouTube offered a new blog post on “How we’re listening to gaming creators” and building for the future
The Washington Post’s Gene Park argues “Zuckerberg’s Meta promises a ‘future’ these video games delivered years ago”
Celebrity shoutout platform Cameo acquired the Los Angeles marketing and merch platform Represent, which builds DTC merch brands for the likes of Jennifer Lopez, Ed Sheeran, Arnold Schwarzenegger, and Kendall Jenner
After a decade at YouTube, Malik Ducard is moving to Pinterest as the image-sharing and social media company’s first chief content officer.
Vox Media CEO dove deeper into the company’s audio strategy with AdWeek
Spotify announced in its latest earnings release it now has 172 million paid subscribers and 381 million monthly active users, and reached $1B in ad revenues for the first time, boosted by podcasts.Ek just threw down €31mm for 800k more SPOT 3-year warrants. $281.63 exercise price. That's €38.75/warrant, which (with flat fx) means $327 by expiration to breakeven. At purchase, he needed +51% in 3 years or 14.7% annualized to breakeven. More to come for IE subs.Daniel Ek just threw down €15mm for 800k $SPOT warrants with a $190.09 exercise price that expire 7/1/22. That's €18.75/warrant, which (assuming flat fx) means he needs SPOT to trade at $211 by then to break even. +51% in 2.7 years or 16.7% annualized. Just to break even. https://t.co/tIpMeVrIi5Implied Expectations @LongHillRoadCap
Sports & Streaming
MSG Networks told its customers that Comcast owes them refunds from the ongoing standoff.
Ampere Analysis’ Jack Genovese revealed that 38.9% of UK consumers would be willing to pay for one or more sports in Q1 of 2020, which dropped sharply to 29.3% in Q2 of the same year and is yet to recover.
Creative Talent & Transparency in Streaming
.The Guardian’s Jim Waterson dove into the problems with Netflix’s changing metrics.
Variety reported Will Smith’s and Jada Pinkett’s Westbrook Productions has ended talks to sell to a new media venture backed by Blackstone Group and executives Kevin Mayer and Tom Staggs.
Original Content & “Genre Wars”
HBO and HBO Max Chief Content Officer Casey Bloys discussed content strategy with Bloomberg’s Gerry Smith.
GQ’s Zach Baron went behind-the-scenes on Amazon’s The Wheel of Time, its bet on a new Game of Thrones
Today IMDb TV will unveil “Judy Justice,” a court show starring the straight-talking Judge Judith Sheindlin (I last wrote about Judge Judy 18 months ago)
Genius Brands International has agreed to buy Canadian animation production house Wow! Unlimited Media. Content produced by Wow will run on Genius’ Kartoon Channel! and through its consumer products and global licensing chain.
Comcast’s & ViacomCBS’s Struggles in Streaming
Comcast CFO Michael Cavanagh told investors on its Q3 2021 earnings call that they like the deal they have with Disney around Hulu, and “it will be fine if we stay to the end because I expect value to keep increasing.” Comcast is expected to sell its 33% stake to Disney as early as January of 2024 at a minimum price of $27.5 billion, per the terms of the 2019 deal.
AVOD & Connected TV Marketplace
Roku and Nielsen announced that as of October 2021, Roku has enabled publishers to measure channel content on Roku devices within Nielsen Digital Content Ratings (DCR).
After six months of a stalemate, Roku and YouTube are once again going public about their impasse, which I last wrote about in May in Member Mailing #262: Roku, YouTube & Product Channel Fit ($ - paywalled)
Business Insider has an update on where Quibi’s executive team is now ($ - paywalled)
Two good pieces on Redbox’s streaming ambitions and competitive advantages from Ben Munson of FierceVideo and Scott Porch of Decider.
Vanity Fair has a terrific interview with The Verge Editor in Chief Nilay Patel
Roblox had a little-discussed 72 hour outage, resolved last night, and the CEO issued a statement promising to make the “creator community economically whole as a result of this outage.”
Consulting firm Activate released its annual Tech & Media Outlook
WarnerMedia senior vice president Duan Peng revealed HBO Max audience insights to Business Insider ($ - paywalled)
Vulture’s Chris Lee has an excellent piece on The Huge Hidden Cost of Holding a Blockbuster