PARQOR Monday AM Briefing #13

What you need to know for this morning & the week ahead

https://mailchi.mp/d8bedb549f8f/parqor-weekly-newsletter-4410454

Ben Smith’s NYT column last week, “The Week Old Hollywood Finally, Actually Died”, generated a lot buzz for describing how streaming services are ushering in “the brutal final scenes of Hollywood as people here knew it, as streaming investment and infrastructure take precedence” (the quote is from former Hollywood Reporter co-president Janice Min, who subsequently left Quibi in a clear, prescient, and ruthless vote of no-confidence).

But it was a monster quote from Barry Diller at the end of the piece that stuck with me most: “Disney will remain relevant into the future. All of the rest of them are caddies on a golf course they’ll never play.” 

Ouch. 

Diller’s take builds on an older one of his I have written about before. It is effectively, “The game is over, Netflix has won, Disney has survived, and everyone else in legacy media will never figure it out.” 

Is Diller right this early in legacy media’s pivot to streaming? 

Or is he wrong?

Is Diller right?

It is worth listening to Diller given that he has found more success in digital media with DTC models than with legacy media models: with Vimeo as a B2B service than as a YouTube competitor, with Match.com’s portfolio of dating apps, and with DotDash (formerly About.com) as an intent-based media company that is unapologetically a Google parasite (and profitable). Diller also just invested $1B in MGM for sports betting: 

IAC/InterActiveCorp., flush with cash from the recent spinoff of online dating site Match.com, on Monday said it has spent just over $1 billion to build a 12% stake in MGM Resorts International and that it plans to work with the casino operator to expand its online-gambling business.

Diller has been more focused on business models with defined conversion funnels than on trying to reconfigure legacy media business models into new conversion funnels. So, as a former legacy media executive, Diller arguably understands the pitfalls of trying to find wins with the latter strategy (remember College Humor?) and instead actually finding wins by betting on businesses with narrow value propositions that can scale. 

Is he right? 

There are many ways to answer that question. Here is one using this week’s Apple’s and ViacomCBS’s announcement of an Apple TV+ “bundle” for $14.98 ($4.99+$9.99). 

If Diller is right, this deal is window dressing on the Titanic for both Apple’s and ViacomCBS’s pivots to streaming. Apple TV+ has been underperforming, only recently finding its first true hit in the Tom Hanks-led movie Greyhound. And, ViacomCBS is starting to get some clarity with COVID-driven growth resulting in 16.2MM subscribers across its seven apps, but as we learned from Decider's Scott Porch interview with CBS Interactive CEO Marc Debevoise, there is still some strategic confusion. 

If Diller is right, price sensitivity is a factor, but not the factor, as Disney has proven. A service still needs powerful, relevant brands, and neither Apple TV nor ViacomCBS has strong enough brands to stay relevant with consumers. In short, bundles do not matter. 

If Diller is right, success in streaming for legacy media companies requires $1B+, BAMTech-type investemnt to build out a DTC streaming and e-commerce infrastructure, in addition to more billions in investment in new, original content like The Mandalorian. Or, more specifically, it means betting heavily to mirror Netflix's or Amazon Prime Video's distribution infrastructure but then also betting heavily on what they do not have: powerful IP. 

If Diller is right, neither Apple nor ViacomCBS can build out a streaming service, together or separately, to be considered a competitor to Netflix and Disney. 

There’s a lot more to this answer which I will be diving into this week’s mailing exclusive for Members. I will also be addressing the logical, and fair, question of "Is Diller wrong?", too. Sign up to get these exclusive insights, analyses, frameworks, and more in the Monthly Membership plan .

Must-Read Monday AM Articles

Here is a list of articles worth your time to read this morning, before your start your week:

• Two completely conflicting trends are emerging in the AVOD space. First, Nielsen is bullish on AVOD streaming, seeing AVOD consumption growing (estimates are AVOD will grow to nearly $14 billion by 2024 from around $3 billion in 2019). But, as Brian Steinberg of Varietywrites, "No one seems able to get along" in the Madison Avenue ad-buying marketplace. Ad inventory being offered to advertisers has become, "a hodgepodge of solutions that leave some advertisers scratching their heads or, in other cases, cobbling together deals with individual media outlets that are hard to compare with one another." Which leads to the logical question, "if advertisers are confused, will the AVOD marketplace reach $14B by 2024?"
• Netflix Inc. and Hulu are in a "fierce fight" to become global leaders in anime streaming, and Bloomberg BusinessWeek's Joshua Hunt wrote a wonderful, must-read piece last month about how a Japanese digital manga publisher is trying to survive as streamers hunt for the next blockbuster manga title. FWIW, I have read it two or three times now.
• In addition to the news of the Apple TV deal, last week two more wins for ViacomCBS in streaming emerged: (1) Pluto TV has added a dozen new channels and reconfigured its streaming lineup to make it easier for viewers to find what they want to watch; and, (2) Deadline reported BET+ crossed the 1 million subscriber mark less than one year after launch. On the latter, I am of two minds: BET now has a business generating $100MM of gross revenues per month (which is exponentially better than ad-supported digital media models generated); but, how much demand is there in the market for niche streaming services like BET+? Assuming 20MM African-American households in the U.S., is BET+'s upside that high? Or is it closer to an opening weekend of a Tyler Perry movie (most of his movies open at around $20MM, or 2MM ticket buyers), suggesting there is limited upside for a BET+ streaming service?
• Netflix cancelled Hasan Minhaj's talk show Patriot Actlast week, and The Verge's Julia Alexander has a good piece diving into why the format has found limited success on Netflix's platform.
• Regarding TikTok, Tim Wu argued in The New York Times, "The privilege of full internet access — the open internet — should be extended only to companies from countries that respect that openness themselves." This means, for Tik Tok, "the threatened bans on TikTok and WeChat, whatever their motivations, can also be seen as an overdue response, a tit for tat, in a long battle for the soul of the internet."
• Last September, Google announced on its blog that it had built for streaming service subscribers "an easy way for you to find recommendations on Google when you search for things like 'what to watch.'" This week, it was revealed that Google is building a streaming video service aggregation feature – dubbed Kaleidoscope – within its Chrome web browser.
• Last week, Netflix announced the launch of a unique Stranger Things immersive theater production it’s calling a “drive-into experience,” in which it’s transforming a series of buildings in downtown Los Angeles into what is effectively a cross between a theme park and a live theater show. Tickets will go on sale starting Wednesday, August 26th, with pricing starting at $59 per car. There will be a "variety of packages available,” although "it’s unclear what other price tiers may be available or what else Netflix may bundle alongside the cost of admission."
• Chalk up another win for Microsoft Azure in the entertainment space (I previously wrote about their partnership with the NBA on the PARQOR blog): Universal has launched a major multiyear strategy to move its studios’ film and TV production from in-house servers to the Microsoft Azure cloud computing platform. The strategy's objective is to let creatives collaborate more easily and efficiently across geographic regions and with outside vendors.
• Last but definitely not least, two separate takes on the emergence of bundling in streaming: TVREV's Alan Wolk predicts a "Great Re-bundling is very much on the near horizon", and The Entertainment Strategy Guy breaks down his take on how and why the Apple TV+-ViacomCBS "bundle" likely came to market. Meanwhile Mediapost's Wayne Friedman thinks the Verizon bundle with Disney is more likely to be market precedent, as Verizon is a key access point but not assuming any risk for the content.

You can find stories I am reading on new OTT Streaming news aggregation site OTT Video News.

Netflix's International Model for Streaming Growth vs. Disney's & ViacomCBS's 

But, Is This Bullish Signal Actually a Bearish Signal From All Three?

Summary of Newsletter #226

In this week's PARQOR mailing, I wrote about the surprisingly bearish signals to emerge about Netflix’s international growth plans from its Q2 earnings call. I also wrote about similar bearish signals in Disney’s and ViacomCBS’s plans for growing their streaming services internationally.

This Week's Macro Trend: Bearish Signals in International Growth

In its Q2 earnings call, continued international growth was the story Netflix wanted to tell, but COO Greg Peters told investors there was also a story about finding operational efficiencies. This suggests that buried in the bullish story of Netflix's international growth there is also a bearish story of implied inefficiencies in operating income and a need for higher margins. 

That story of operational efficiencies contrasts with the evident operational inefficiencies of the international growth plays of Disney and ViacomCBS. The earnings calls of all three companies highlighted a common theme across all three streaming businesses: as they look overseas to further scale their services, questions of the necessity of operational efficiencies emerge. 

As a postscript, I ask a logical counter-question to the points above: if the objective is Netflix's international scale, (150MM+ subscribers) what is the alternative to complexity for these legacy media streaming services? The answer may lie in how WarnerMedia has gone about restructuring HBO Max, and also mirrors a story Netflix COO Greg Peters told about his experiences in Japan.

Click here for a deeper dive into how bearish trends have been emerging in the bullish stories for international growth being spun by Netflix, Disney, and ViacomCBS. 

Verizon & Disney Plus, Apple & ViacomCBS Bank on Tactical Bundles

Was Starz CEO Jeffrey Hirsch's Bundle Prediction Right?

It has been a big week for bundles in streaming: a Disney-Verizon deal announced a new Disney+/Hulu/ESPN+ Bundle free for Verizon Unlimited subscribers, and Apple and ViacomCBS confirmed a discounted Apple TV+/CBS All-Access/Showtime bundle subscription. 

Click here to learn why I concluded 

Neither Verizon nor Apple need MVPD-type bundles as fundamental value propositions. Instead, partnerships with streaming channels like Disney+ or CBS AllAccess become tactical tools for converting and/or retaining particularly valuable target audiences. For Verizon, those are Unlimited customers are worth anywhere between $70 and $80 a month, and for Apple, those are 100M+ Apple device owners in the U.S. who could spend an additional $4.99 per month.