Content Insider #890 – Numbers Game
By Andy Marken – andy@markencom.com
“I’ll need to see all those books for the past ten years. Bank statements, complete list of clients and vendors. Hard copies printed out, my eyes only. All the information’s right here.” — Christian Wolff, “The Accountant,” Warner Bros, 2016
We’re coming to the realization that the worst part of the entertainment industry is … Wall Street.
Wall Streeters don’t make money when the industry players make money, they make money when they buy/sell something. They prefer to see studios diversify—own more of the total industry rather than just master and grow one segment. Diversity is good, which is why they specialize.
We know, we don’t understand it either!
All of that despite the fact that time and again industries across the board have proven that vertical integration is tough to manage because each part of the industry is unique with its own set of problems/opportunities and each market segment is in a different stage of growth.
Besides, there’s more money to be made in chaos.
Theatrical business is down (actually since 2002) and local business has become the new local.
Cable’s pay TV is past its prime, but it still makes money … just not enough for all the players.
Streaming is the hot bed of growth so … everyone in the pool regardless.
Wall Streeters were disappointed when Disney acquired Pixar, Marvel, Lucasfilm, 21st Century Fox because they were all just studios … samo, samo.
How many sequels/prequels/spinoffs do you do before the plot is lost?
But hey, it’s mass-market content and that is still in strong demand!
They look askance at Lionsgate because they’re just a studio … a profitable studio but just a studio.
Universal is another just a studio that’s profitable.
Sony (forget the electronics stuff) is just a content company – films/games.
None of the three independent studios ”understood” that you don’t just do what you do very well, you’re supposed to go big(ger) and grab for the all industry gold ring.
Nope, dial up the heat, stir the pot, add more ingredients and watch the stuff boil over.
The Wall Streeters recommended/pushed for little Discovery to go into debt for about $40B and take over Warner Bros because they had their fingers in all corners of entertainment.
And the idea of the WBD having to go into debt for about $40B was a good thing … what could possibly go wrong?
Tomorrow – No one, not even Wall Street, can predict which segment of the entertainment industry or which project is going to be a resounding success; unless, of course, you pay attention to viewer data.
The WBD studio business is doing okay, linear networks are so yesterday, streaming component is marginal, but the debt load is breathtaking.
Zas attacked that problem head-on, writing off more debt by filing away half-finished/finished projects, improving his headcount (sounds better than firings), adding more Discovery unscripted reality stuff to the HBO Max/Max mix or do something startling and roll out a FAST service.
At the same time, cut costs, tell creatives what you think of them and shave quality.
So, what if viewers don’t see the value in it all, The Street likes it.
Yard Sale – Studios that sell off their odds and ends have a hard time determining what’s good, what’s really good and what’s fantastic when they’re in a rush to clear up and clean out.
Obviously, it’s time to carve it up so The Street makes more money.
Paramount is simultaneously imploding/exploding all at the same time, so Sheri Redstone tapped three bosses to make a bunch of cuts while she negotiated a way to get out of it all.
Then she can let someone who knows something about content and distribution try to put the pieces back together.
Despite the triumvirate’s slash and burn approach (people and divisions), the studio did a lot of business outside what is left and still shows a glimmer of hope that streamlined vertical integrated can/should/might be more profitable.
Peacock is a youngster in the streaming arena owned by a very profitable/steady set of parents (Comcast/NBC) that know how to cautiously/continually – and profitably – grow.
Gawd, that’s so dull for The Street.
Actually, what those folks really want is for the entertainment folks to catch and ride the consumer entertainment wave.
How hard can it be?
Netflix is just a distribution (streaming) company that initially just licensed content from the other folks and found a way to monetize it better than the other guys.
It didn’t bother Sarandos, Peters much when WBD took another accounting write-down for $9B for aging TV assets, Netflix knew there was stuff in the list that people wanted to watch … again.
All they really did was focus on the user data and paid more attention to the folks paying the bills than what The Street suits “knew” and went shopping.
The more “old stuff” they loaded up on that the studios had “retired,” the better they did.
Money Talks – Studios/networks may have difficulty drawing paying viewers to their sites, but Netflix has proven to be very astute as to the projects it picks up from the competition and building audience following for them.
Then they added their content creation when the other folks thought they could do that with two bosses (Ted Sandaros, Greg Peters) with their focus in the two industry segments.
When hoarding the content didn’t seem to be working, the studios changed their mind and opened their licensing library about the same time Netflix uncovered another source – great local content in 190 countries that would profitably meet the entertainment interests of people everywhere.
And then they again went against the grain.
Instead of raising fees like folks who thought their content was so special people would pay more to watch it, Netflix lowered prices in 100+ countries giving them more for less.
Why make a big profit off a few folks when you can make a little profit from everyone?
The Street didn’t understand that Netflix isn’t just competing with the studio streamers in the Americas, they’re focused on the crowded (200+ streaming services), cost-sensitive global DTC entertainment market.
To do it, they offer an even less expensive ad-supported tier – okay reluctantly – with far fewer ads than the pay TV days with an ever-changing library of new/old shows/movies.
The Street “suggested” that the studio/streamers needed to focus on the GenZ/Millennial early adopters because that’s what Netflix did to rise to the top.
Most of those folks have been with Netflix for years and already know who they want in their four service “bundle.”
In addition, Netflix is a global/local streaming service.
Netflix is focused on the more of the 1.7+B global (175M in Americas) TV households and 7B + smartphone users so they built out their content delivery network so people could enjoy exciting movies and shows whenever, wherever they wanted, on any screen.
WBD’s Zaslav rearranges the lounge chairs on the deck and has been testing the financial market’s reaction to ideas like: a) breaking up the everything for everyone company, b) take on more debt to buy more stuff, or c) sell things off a piece at a time.
Meanwhile, Disney sails along focusing on creative content people want to see/watch.
At the same time, The Street keeps guessing what “the new Paramount” will look like as well as why Comcast’s Peacock/NBC continues to be quietly focused on doing their thing without a lot of drama and modest profit.
But what about the studios that didn’t dive into the deep end of the streaming pool – Universal, Lionsgate, Sony and the smaller studios?
Studio Focus – When you’re 100 percent focused on creating and distributing good/great content, you tend to take your one job very seriously and deliver quality and quantity.
The three focus on one thing – making great content, making as much money as possible from their theatrical releases, then license projects to streamers and then hold them until a new generation of viewers comes of age.
Universal ranked #1 in film receipts in the Americas last year, Sony came in #4, Lionsgate #6 and even indie studios A24, Tyler Perry Studios and Focus Features showed films can do well in movie houses.
Then they followed up by renting them to streamers for audiences who haven’t seen the inside of a theater for years … yeah most of us.
They proved that windows still work even though they aren’t big money makers like the old days.
More importantly, they’re proving theatrical windows are effective marketing tools to add value to what streamers are willing to pay to license the content.
All three studios also have their share of valuable IP like John Wick, Saw, Hunger Games, Exorcist, Fast & Furious, Despicable Me, Ghost, SpiderMan, Venom, Uncharted, Mario, and more to leverage into tomorrow’s movie/show profit resources.
They’re really not interested in joining the consolidation crowd.
In addition, they fill their spare studio time by renting their production expertise/facilities to streamers for their movies/shows.
It’s not fraternizing with the enemy … it’s business.
Sumner Redstone (Sheri’s father) may have been right when he said content is king, but Wall Street has a different view of the business.
To them, cash is king and when studios/streamers report millions in free cash, they think that’s theirs now, not for to be “squandered” on new content to interest/attract the viewing public.
That’s what debt and write-downs are for.
That position has made studios’ work product bland and safe, relying heavily on SFBIP (sequels, franchises, blockbusters, IP).
Be honest, it is a rarity that you see something on any screen today that is really original, exciting and that introduces people to the future or something new, different, exciting.
Analyzing its global activity, Netflix noticed a few years ago when local folks were changing their viewing habits.
Even though they have been unable to provide their service in China, the world’s second largest entertainment market, they saw people were bypassing Hollywood projects for local content like The Battle of Lake Changjin, Wandering Earth, Detective Chinatown and others.
Shows/film that not only attracted audiences in China but also across SEA.
The same was true of content interest and audiences in Japan, South Korea, India, Nigeria, France and Latin America.
People in those countries connected more with the content as well as people in neighboring countries.
So, they acquired distribution rights, localized the content and introduced new, interesting content to their global audiences.
“AI-enabled localization has made it easy and economical for people in virtually every country to view, understand and enjoy shows and movies no matter where they have been made,” said Allan McLennan, CEO of PADEM Media Group.
“More than 80 percent of the world’s population uses/understands one or more of 12 languages,” he continued, “And increasingly, people are becoming accustomed to both localization techniques.”
He added that thanks to the economics of AI-enabled localization, it has given a boost to content distribution around the globe.
And if you’re curious 60 percent of Netflix content watched in France, Germany, Italy and Spain is foreign.
Holy c***, creativity doesn’t stop at the LA city limits!
We admit we are really enjoying the expanded offering of local and international projects, and it has become more affordable with AVOD and FAST home entertainment options.
Studio executives who are financially counting on their SFBIP to carry them forward take a harder look at the content mix the successful streamers have today – adult drama, action, rom-com, comedy, westerns, anime, and original/experimental projects – and understand that the viewing public isn’t homogenized in their entertainment interests.
And as long as they focus on the financial interests of Wall Street as opposed to the viewing habits of main street, they’ll continue to be reactive rather than proactive.
The studios and streamers can’t simply cut back and make fewer bets. They have to use the viewer data they have to predict which shows and films will perform best, budget them intelligently and market them appropriately.
We’ve broken down the barriers between global video storytellers and their audiences.
Now the studio executives have to pay more attention to the two rather than Wall Street that really only cares about controlled chaos and buying/selling.
Just remember what Christian Wolff said in The Accountant, “I have a high-functioning form of autism, which means I have an extremely narrow focus and a hard time abandoning tasks once I’ve taken them up. I have difficulty socializing with other people, even though I want to.”
Andy Marken – andy@markencom.com – is an author of more than 800 articles on management, marketing, communications, industry trends in media & entertainment, consumer electronics, software and applications. Internationally recognized marketing/communications consultant with a broad range of technical and industry expertise, especially in storage, storage management and film/video production fields. Extended range of relationships with business, industry trade press, online media and industry analysts/consultants.