PARQOR Monday AM Briefing #51

The stories and trends in OTT streaming you *need* to know for this morning & the week ahead

A Short Essay on STARZ, the “Genre Wars” & Potential M&A

Lionsgate had its fiscal Q4 earnings call last Thursday, and it had another strong quarter.

Its strategy is to produce and distribute original TV series and movies with a focus on women and underserved audiences. It has 16.7MM OTT subscribers globally with that strategy, with 8.6MM coming from its international SVOD service, STARZPLAY, and the remaining 8.1MM coming from its domestic U.S. base.

International has been growing faster than domestic (STARZ domestic up 5% sequentially, and STARZPLAY international up 104% in fiscal Q4), which implies STARZ’s domestic business is a high churn business. STARZ CEO Jeffrey Hirsch implies this churn rate is in the double-digits:

And so when we look at how we kind of forecast the business which is really a data-driven approach, each piece of content is given a subscriber acquisition target and goal. And so when you start to layer in multiple shows on every week, week-to-week, all the 52 weeks, you start to see those [adds] kind of accelerate. And again, I'll remind everybody, as we talked about on a few of these calls, we're really playing more of a retention game by bringing subscribers on the two core demos that we have in filling those gaps. So when Power comes on the air or Ghost comes on the air, then we bring raising canon on then we bring P-Valley back, then we bring the Hightown back, we're moving subscribers from one shows to the next, this quarter, we saw churn at all-time low. And we think as we get into this robust slate, it will come down to single digits.

In other words, STARZ schedules original content to drive specific cohorts of users for specific shows, and they are boosting that schedule from seven to 12 original series, “stacked more in the second, third and fourth quarter” to reduce churn to “single digits”.

STARZ projects will have around 60MM OTT subscribers globally by 2025, and they run their Media Networks business at a profit (10% profit margins). So they, and parent company Lionsgate, sound like a reasonable acquisition target.

The question is, with which company does that data-driven model “fit” best?

There is speculation Lionsgate fits best with NBCUniversal. But, Peacock’s model has not narrowly defined its target audiences, and all available evidence suggests its model is less data-driven or target audience-driven than STARZ.

ViacomCBS is interesting because Paramount’s business model is closest to Lionsgate’s, and STARZ has a similar streaming business model to Showtime’s. But the key question is why ViacomCBS would need access to STARZ’s underserved audiences when it already reaches those audiences via VH1 and BET. STARZ seems to be a “nice to have” for ViacomCBS.

This same rationale applies to why WarnerMedia-Discovery is not a likely destination. Also, STARZ’s focus on underserved audiences seems almost the mirror opposite of HBO’s continued focus on prestige TV.

Disney is interesting because both Hulu and Star/Star+ need larger libraries to continue to grow. The DNA of Hulu’s business model is data-driven, and STARZ’s focus on under-served audiences could offer a “plug-and-play” solution for increasing Hulu’s U.S. audience by 20% (8MM on top of its 41MM+) and helping Disney’s bets on Star and Star+ expand internationally.

Perhaps the most interesting fit is with AMC Networks, a fellow “genre wars” competitor with which Lionsgate already has a complex distribution deal for the series Mad Men.1 It would be fair to argue the outcome is unlikely given that both would achieve incremental scale in OTT from the deal - 14MM+ would be the combined domestic reach across STARZ (8.1MM) and AMC Networks’ six apps (6MM+). But in the interim, the deal would solve for an AMC Networks pain point, reflected in its Mad Men licensing deal: other than The Walking Dead it owns no content library, at all.

As a reader pointed out to me after my April Monday AM Briefing, AMC Networks “have a distribution mindset not a creative/content mindset due to their Charles Dolan/Cablevision DNA”. In other words, AMC has told the market it has little to no interest in owning a library. But, Lionsgate needs more distribution for its library, and AMC Networks shares a similar DNA both in terms of its linear business model and OTT distribution strategy focused more around genre, data, product and user perspective. AMC offers the win-win of additional distribution in exchange for ownership of a library.

Like Discovery-WarnerMedia, a merger may be the incremental step both companies need to scale and reap immediate and future returns for shareholders. That said - as the investors and investment bankers receiving this mailing know better than I do - there are very good financial, technical, and political reasons why a deal like this may not take place (i.e., it does not help that the Chairman of the AMC Networks board is James Dolan).

Purely from the perspective of STARZ’s data-driven, “genre wars” strategy, Lionsgate’s streaming business is not a natural fit in most legacy media destinations. But it has enough in common with AMC Network’s own data-driven, “genre wars” strategy to be a logical fit among its portfolio of applications.


Must-Read Monday AM Articles

  • In light of the above, it is worth re-reading this Deadline exclusive interview from April with Lionsgate TV’s Kevin Beggs.

  • Business Insider has a good overview of the five studios that could be acquisition targets ($ - paywalled). Sony’s chief executive Kenichiro Yoshida told the Financial Times that Sony Pictures is not for sale and is “crucial to the group’s strategy to become a global provider of content across music, films, games and animation.’

  • In the aftermath of Amazon’s acquisition of MGM, Shira Ovide of the New York Times asks, “Why Is Amazon in Entertainment?” She is not sold that “that video is an alluring add-on to Prime”, and therefore it is not clear why MGM makes Prime Video any more alluring to her and other customers. Catie Keck of The Verge reached a similar conclusion via a different path: “on its own, it’s hard to believe that the MGM acquisition will make Prime Video a serious Netflix competitor in earnest.”

  • I strongly believe that the purpose of the MGM deal is to supercharge IMDb TV, especially given a recent spin-off of Bosch from Prime Video into IMDb TV. Others, like The Entertainment Strategy Guy, don’t. Dade Hayes of Deadline laid out how the potential for the MGM deal within Prime Video and IMDb TV is “vast”. It’s a fun debate topic.

  • This New York Times article argues that MGM and its management (Michael De Luca, MGM’s movie chairman) could help Amazon Studios finally figure out how to produce a steady supply of hits that appeal to wide audiences. A Variety piece on De Luca casts doubts on the future of Amazon’s theatrical marketing team.

  • Business Insider breaks down the politics of who will be “jostling for power” between MGM and Amazon executives ($ -paywalled).

  • Paramount+ Head of Originals Julie McNamara departed less than three months after the launch of Paramount+. I had a good exchange about the news on Twitter with Evolution Media Capital’s Tavish Zausner-Mannes.

  • ViacomCBS told shareholders that by the end of 2024, it aims to reach “65-75 million global streaming subscribers across our services, 100-120 million global Pluto TV monthly average users and more than $7 billion in global streaming revenue”.

  • Disney Streaming has a Netflix-like technology blog called The Art of the Possible where it shares updates. This past week it shared “How We Scaled Experimentation At Hulu”.

  • NBCU’s President of advertising and client partnerships, Mark Marshall, shared with AdWeek its Upfront priorities and why it aggressively priced Peacock inventory (a source of marketplace tension covered by Variety’s Brian Steinberg).

  • Caspar Salmon of The Guardian pans Netflix’s new Halston, and writes about “How Netflix defanged Ryan Murphy”.

  • The New York Times’ Kara Swisher rightly pans one aspect of AT&T’s WarnerMedia spin-off - CEO John Stankey’s exit from the digital media space was smart, but his original entry into it, and subsequent execution, were far from laudable. Rewatch his Town Hall with HBO’s Richard Plepler from 2018": it is a time capsule of bad assumptions and worse execution.

  • HBO Max announced the first step of its international expansion, offering a $3/month mobile plan in Latin America. Brad Wilson, WarnerMedia’s executive vice president of growth and revenue, chatted with IGN’s Julia Alexander about HBO Max’s first year and the road ahead.

  • Roku signed a pay-one window streaming rights deal with Saban Films for less than a dozen movies, making The Roku Channel the exclusive North American streaming home for some Saban movies about three months after they premiere in theaters. Roku has a 24-month exclusive streaming window on the films.

  • Gavin Bridge of Variety VIP+ has a good breakdown of the market impact of Comcast, Discovery and WarnerMedia going slower in the free AVOD space (or FAST) ($ - paywalled).

  • Nielsen released its most recent weekly results and Disney alum Emily Horgan published her second in a series of monthly round-ups for kid’s content performance per U. S. Nielsen SVOD Top 10 Results. She focused on the full weeks commencing March 1st/8th/15th/22nd/29th.  

  • Netflix’s Money Heist/Casa de Papel, its most popular non-English language Original Series, will be broken into two parts: Money Heist Part Five, Volume 1 will launch worldwide on Sept. 3, and Volume 2 will land three months later on Dec. 3. Each part will include five episodes, filling out a ten-hour arc to end the series’ story.

  • Bloomberg has an interesting survey in how different generations are bundling streaming services.

  • Last, LA Times Culture Columnist Mary McNamara writes “My eyeballs are tired of being fought over, thanks.

1

I have been re-watching Mad Men on IMDb TV. The ad load seems to be around 5 to 6 minutes per episode.