PARQOR Monday AM Briefing #46
The stories and trends in OTT streaming you *need* to know for this morning & the week ahead
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A Short Essay: Churn and the Netflix and AT&T Q1 earnings calls
The Netflix Q1 earnings and AT&T Q1 earnings last week told two very different stories about domestic U.S. growth:
Netflix domestic US & Canada growth was flat, growing 0.6% to 74.38MM from 74.84MM subscribers; and,
HBO Max’s Retail (Direct-to-Consumer) grew 41% to 9.7MM subscribers,
Some have been arguing that the difference in growth reflects HBO Max taking domestic subscribers away from Netflix. But I think the numbers suggest some other “food for thought” about how demand is evolving in the streaming marketplace in early 2021.
Netflix spent some of its Q1 earnings call deflecting the argument that it was losing audience to competitors by noting “our largest competitor for TV viewing time is linear TV, our second largest is YouTube”. Co-CEO Reed Hastings concluded from Netflix’s own analyses “there's no real change that we can detect in the competitive environment”. In other words, according to Netflix. Netflix did not lose subscribers to HBO Max.
In Q1 HBO Max was meeting demand for its theatrical tentpoles with day-and-date releases of Godzilla vs. Kong and other films that could not be distributed broadly in domestic U.S. theaters. So, it is important to remember the 2.7MM Retail subscribers at the end of the quarter were subscribers who indeed had signed up during the quarter, and were driven by day-and-date tentpole releases.
On this point, it is worth looking at Domestic HBO Max and HBO Subscribers after we subtract Retail subscribers. For the past three quarters this number has been steady:
34,408 (Q3 2020)
34,648 (Q4 2020)
34,490 (Q1 2021)
This tells us HBO Max’s day-and-date drove 100% of growth via Retail, or DTC, subscriptions in Q1.
The ~158,000 drop in Domestic HBO Max and HBO Subscribers less Retail subscribers between Q4 2020 and Q1 2021 is an interesting number. It mostly reflects the drop in HBO Commercial (~166,000), which reflects “domestic accounts that do not have access to HBO Max and are billed on a bulk basis (e.g., hotels, etc.)”. That line likely reflects the impact of post-COVID hotel closures in the travel industry on HBO.
The HBO Subscribers line, or “domestic accounts that do not have access to HBO Max”, dropped by 142,000. But in past quarters those have reflected customers still under the Amazon and Roku deals that were delayed by stalled negotiations. So, when those lines have decreased after those deals were signed in Q3 and Q4 2020, we also saw proportionate increases in the Wholesale subscribers. This quarter, Wholesale subscribers went up by ~150,000, and presumably 142,000 of those came from similar accounting for the Roku and Amazon deals, or other unannounced deals.
That leaves net 8,000 subscribers WarnerMedia added organically as Wholesale subscribers to HBO in Q1. Meaning, outside Retail, the net growth of HBO inside and outside the AT&T ecosystem was a fraction of Retail’s growth, or 0.3% of the 2.7MM Retail subscribers. This was half of Netflix’s net growth of 0.61% in domestic U.S. and Canada subs.
The data suggests Netflix and HBO both navigated similarly flat demand for streaming services, and the only difference between Netflix and HBO Max data in Q1 2021 was audience demand for HBO Max tentpoles.
Therefore, there are a few things worth keeping an eye on in the weeks to come:
It is reasonable to believe Reed Hastings and the data he is citing that Netflix did not lose customers to other services in the domestic U.S., at least;
Netflix’s “pull forward impact” prediction appears to be indeed playing out, which I wrote about two weeks ago, and we may see flat domestic U.S, numbers for other streaming services this quarter;
HBO Max’s day-and-date strategy has unearthed streaming demand that is willing to pay $14.99 per month in addition to whatever streaming services they are paying for already; and, it raises the question of whether this demand is for additional streaming services or for or is more similar to the demand for Disney’s PVOD window';
The absence of an “HBO Max - Activations (Cumulative)” metric in Q1 2021 earnings- of which there had been 17.2MM in Q4 2020, split between 6.88MM Retail activations and 10.32MM Wholesale activations - implies there was an activations story among the remaining 24.17MM Wholesale accounts in Q1 20201 that was not worth sharing.
The drop in HBO’s Commercial business is inevitably going to be hitting other legacy media companies with domestic U.S. hotel distribution deals for their linear networks (here’s a helpful summary of hotel closures from The Points Guy), and the open question is how they will report that drop.
We have an interesting few weeks of earnings calls shaping up ahead of us.
Must-Read Monday AM Articles
If you missed it last Friday, I was interviewed for this piece by Brandon Katz for his Media Math column in Observer: “Netflix Not-So-Secretly Wants to Be Disney, But Is It Placing the Right Bets?” Also, I wrote about Sony’s deals with Netflix and Disney in last week’s Mic Drop.
Business Insider reported data from the analytics firm SimilarWeb which tracked unique visitors to Netflix's cancellation-confirmation web page - the page that displays when a user successfully cancels a subscription - were at the lowest levels recorded in the two years of data.
Netflix is projected to lose ground to competitors in Europe, particularly Disney+, but will remain the largest SVOD player. Alex Sherman writes why Netflix has been the biggest winner since Disney entered the streaming marketplace.
Netflix film chief Scott Stuber was interviewed by Joe Flint of The Wall Street Journal, and shared his and Netflix’s perspectives on how the moviemaking landscape is changing ($ - paywall)
Some fun background data on Netflix hit show Lupin and movie Thunder Force emerged. Rolling Stone had a fun behind-the-scenes on the production of Lupin, and Netflix released a blog post on “Why We Made: Thunder Force” , where they shared the movie got 52MM households in its first 28 days.
Former Disney executive Emily Horgan offered some helpful notes from Netflix’s Q1 2021 Earnings as they relate to the kid’s content space.
Deloitte reports streaming services are seeing significant churn, meaning cancellation rates are up. The overall dropout rate was relatively low, around 20%, before the pandemic, but from October 2020 to February 2021 it jumped to 37%.
New Nielsen data shows that adults aged 18-34 are averaging just 452 minutes of live TV per week (about an hour and five minutes per day.) This is a 23 % drop compared to last year, and even larger when compared to data from 3-5 years ago.
A new report from S&P Global said legacy MVPDs--cable, satellite and telco--will lose 8.2% of their subscribers in 2020 after losing 7.9% in 2019. In 2022, another 10.3% of subscribers are expected to cut the cord.
Former 21st Century Fox CEO James Murdoch told the APOS summit in Asia, "The substantial if not complete collapse of the theatrical window in the U.S. and a lot of other markets is here to stay now”. Netflix head of global TV Bela Bajaria told the same summit, “For all of this local content, to be honest, the focus is always massive local impact, that’s the most important thing”, and “if it travels, that’s great, but we really want to make sure we are super serving the local audience.”
Lionsgate Television Chairman Kevin Beggs discussed with Deadline the company’s broadcast and overall deal strategy, and how streaming is pushing broadcasters to be “more open to third-party suppliers in a very meaningful way”.
Shudder’s general manager Craig Engler, program director Samuel Zimmerman, and global acquisitions/co-productions director Emily Gotto shed light on Shudder’s strengths in the “genre wars” (my term, not theirs) with Vulture’s Joe Adalian. By investing in original productions and international series, regional and specialty platforms focused on niche genres and audiences are opening up new markets for international producers.
Kelly Day, President of streaming and COO at ViacomCBS Networks International, gave an interview to WorldScreen about Paramount+’s international rollout strategy (she gave a similar one to The Hollywood Reporter previously in February).
More questions about the future of Showtime are emerging ($ - paywalled), and the “chronic” problem is “a lack of investment”.
Dylan Byers of NBC News wrote about how recent shake-ups of network news divisions reflect how streaming is creating an unsettled future for network news in general. Alex Sherman of CNBC wrote about how network affiliates will rely on the digital antenna to remain a necessary component of people's viewing habits.
Disney+’s The Falcon and The Winter Soldier ended this past week as "Captain America and The Winter Soldier”, and Slate’s Allegra Frank argues “The entire show landed with a thud, rudderless and overly long and ultimately, disappointingly, forgettable.” I think it has good food for thought, whether or not you agree with it. A Captain America 4 is in the works with The Falcon and The Winter Soldier’s showrunner.
Oscar-winner Soul will have a new short from Pixar Animation Studios for Disney+, which will revisit the skeptical new soul 22 long before she ever met Joe Gardner.
I liked All Your Screens Rick Ellis’ take on the Super League drama of last week: It's expensive to be a fan. As the Wall Street Journal reports, European Soccer also faces long-term financial challenges ($ - paywalled). The New York Times has a terrific play-by-play on “How the Super League Fell Apart” ($ - paywalled).
NBCUniversal poached a top Nielsen executive to head up measurement for NBCU One (Free- registration required). Nielsen announced a new tool to capture how much streaming activity is happening on TV screens, and to measure how the various streaming providers compare, what devices are being used to stream and how different audience groups stream.
Why are Connected TV Rates so high? Dave Morgan, CEO of Simulmedia, writes “we have a classic situation of lots of money chasing a relatively small amount of CTV ad inventory”. But he writes fraud is a big issue, too, and The Wall Street Journal reported nearly one million mobile devices have been infected with software that mimicked streaming-TV apps and collect revenue from unsuspecting advertisers ($-paywalled).