Julia Alexander, Director of Strategy at Parrot Analytics, joins Cross Screen Media CEO Michael Beach to share her thoughts on the upside of ad-supported streaming and the economics of content production and unscripted programming. Watch our latest Screen Wars Thought Leader Interview here and read the full transcript below!
MB: Julia, welcome to Screen Wars.
JA: Thank you so much for having me.
MB: Excellent. You are one of my absolute follows on Twitter. Someday you got to tell me how to be such a prolific poster. I have to ask, how much time do you spend watching streaming?
JA: It’s a lot. It’s funny because when I used to work as a reporter, I spent much more for work purposes. I would try to keep up with what they were putting out, not just what was happening on the business side, so I could give an informed opinion when writing. Now I watch a bit less, but it’s still a couple of hours a night.
Throughout the day, I have CNN or CNBC or something else on, streaming from YouTube TV or fuboTV, depending on which one I need at any moment. So the TV is on constantly in my house.
MB: Last year, we had Randy Katz on Screen Wars. I went through his feed to get ready for all things Star Wars and Marvel and was amazed. And then, going through your feed, it’s like all those things plus Westworld and Succession. You’re up on everything.
JA: I think doing cardio and running at the gym for 45 minutes helps. Instead of watching CNN or something, I’ll throw on an episode of something I want to watch that I didn’t have time to. Carving out those 45 minutes throughout the day helps me stay on top. And then, my friends are all huge entertainment media nerds who tend to work in entertainment and media. So it’s constantly talked about.
”The value of a show is no longer how many viewers it gets within the prime time spot so that the advertisers are happy.
MB: I’d love to get some backstory on Parrot Analytics’ current day job today and how you ended up there. I know you’ve had several stops along the way.
JA: I’m currently the director of strategy at Parrot Analytics. I will have been here for a year in a week and a half. I help our clients figure out their strategic roadmap, as they think about everything. From content acquisition and licenses and seeing, to distribution and partnering with other potential brands and third-party partners. I help them think about how they want to grow and retain their user base, in the US and especially globally, within EMEA, APAC, and LatAm.
Parrot Analytics takes this theory, which I love, the idea that we used to think of entertainment and media in silos. We used to think of it in terms of, this was television, and this was film, and this was gaming, and this was user-generated content, and this was books, or publishing, whatever it might be. Now, those are all little gateways into a larger supernova of online content. It’s great. We’re recording this on the 15-year anniversary of the iPhone. I’ve thought a lot about the iPhone, what it did for content and entertainment, why and how we consume content the way we do, and our relationship to it.
That is a long way of saying we exist within an attention economy. The value of a show is no longer how many viewers it gets within the prime time spot so that the advertisers are happy. The question is, what is the significance of someone’s relationship to one or two shows on your platform? That is going to be the main reason that they spend $15 a month to have access to those shows or films. Or, how do they view specific talent? That’s why they want to sign up for something.
We help our clients figure out the economics of the attention economy and the economics of an inflated supply level with a much more focused commandeering sense of demand within the audiences globally. The question we help our clients with is, how do you break through all this noise? And it’s only getting noisier. Not just within traditional linear entertainment, film, and television, but within games.
How do you both compete with games but work with games? How do you compete with TikTok but also work with TikTok and user-generated content? Where are these opportunities in an entertainment and content world that is much more intimate, massive, and interconnected than ever before? That’s what Parrot does and what I do.
To answer your question about how I came here, I spent a decade working in media as a writer and content strategist for Vox Media, Vice Media, Ziff Davis, and more. I started with the Toronto Sun back in Toronto, Canada, and I loved it. At some point, I became obsessed with Disney. Not in the sense that other people would, with the content or the parks. I became obsessed with the idea that they were an underreported monolithic giant. I felt that this company was strategically doing a lot across every foundational base to reach consumer attention on all these different mediums worldwide.
I started writing about it at a Disney-focused business newsletter called Musings on Mouse. I wrote weekly about questions I had about Disney, that I would get from talking to sources who worked in strategy, research, biz dev, or content programming. About a year into that, I started getting emails from different people at different companies who are now working with companies that are our clients at Parrot. They would say, “Companies will pay you to do this. These are the questions you’re asking, the data you’re looking into. The answers you’re trying to figure out are what we pay people to do.”
As much as I loved media, a big part of my life and identity, I wanted to get into the other side and move towards the biz dev and the strategy side. I wanted to figure out the answer to those questions without reporting on them and get access to data I would not get as a reporter. At least at the level of reporting, I was doing. I’m sure a great reporter like Lucas Shaw might be able to get that data. But I was not getting that data. So, I’ve been here for a year trying to figure out the answers to those same questions.
MB: That’s great. Our day job is on the advertising front, where we try to help marketers figure out the same question of how do all these sources play together. I’m always amazed by the quality of insight and visualization of Parrot’s data. So, where is all this coming from?
JA: We constantly take in about 2 billion data points from various sources. Then, we rank the weighting of those sources to ensure that the most integral metric to a specific question is weighted higher so that you get the most accurate answer. That’s everything, including piracy services like Popcorn Time, which have millions and millions of users.
We look at that specifically because it’s easy to be US-focused and think, “Whatever’s happening here is the main answer.” And although American companies need to think about that, and the US is a large market, many of these shows are not available internationally. A lot of produced movies are not available internationally. Or if they are, they get rolled out slowly.
So we work with many clients who are in Europe, who are in Asia, or New Zealand. We have a very global focus on this. When we look at some piracy stuff, or user-shared film and television, we get interesting data points about consumption patterns outside these streaming services. Because we don’t get direct data from the streaming services, and neither does Nielsen, but they have access to something.
Everyone in the race to figure out the streaming metrics has different data points. So we start there. The next thing is user-generated content about specific shows and movies. The demand for a show is higher than a like on a Facebook page, or a tweet where you might be saying something about the show, but you’re not necessarily engaging with it.
We’ve ranked the data points up from, “Are you showing brief interest in it?” to, “How heavily are you engaging?” I like to explain it this way: Let’s say someone sends you a link for a new TV show, and they’re like, “You got to check this out.” The first thing you’re going to do, probably, is watch the trailer. You’re going to click on the link, you watch the trailer. That’s a data point, because we collect from YouTube API. Then you may go into IMDB to see who’s in it. You recognize someone you want to see in that cast. That’s a data point that we look into. You might look at the Wikipedia page, or you might go to the Facebook page. That’s a data point.
Those are all on the lower side, because although you’re engaging, you’re not necessarily consuming, nor are you actively showing interest in consumption. You’re showing active interest in potential.
You go higher from there. Then you get into, “Okay, are you writing a series of tweets about why the show is really great?” We judge sentiment based on social media posts as well. Are you creating content on TikTok that is edits of these things? Are you doing all these other really interactive, engaging proof of consumption activities that help people understand and promote the show?
Finally, the heaviest weighted thing is consumption. From piracy or whatever sources it may be, people actively watching, people actively saying, “I want to spend three hours doing this.” So we just judge by those, but it’s 2 billion data points globally.
”The biggest challenge the major streaming players face is figuring out how to turn streaming from something additive and supplementary into something formative.
MB: Amazing. We’re heading into earning season. What’s your overall thesis for the streaming industry right now, and what do you see as the biggest challenges? I know that’s a broad question.
JA: The biggest challenge the major streaming players face is figuring out how to turn streaming from something additive and supplementary into something formative. If you look at companies like Amazon, Netflix, and Apple, Netflix is at a higher level than Amazon and Apple. In terms of video content, there’s nothing you’re supplementing. That is the formative product that you’re offering.
You can argue that Apple TV+ is supplementing a larger Apple hardware business and a larger Apple services ecosystem, and Amazon Prime Video is supplementing Amazon Prime. They are supplementary products. But on the video side, they’re not. If we look at Hulu, Disney+, HBO Max, Peacock, and Paramount+, they still feel additive and supplementary to the overarching, larger business. Which is broadcast, cable, theatrical, or whatever it might be.
Where they’re really going to struggle is on the content allocation side, the marketing side, and the budgeting side. Those questions about, we still have to support this very, very lucrative linear television business. For all that we talk about the death of pay-TV (And pay-TV is certainly declining quarter after quarter, at a very steady level), it is still a very lucrative business. Look at Discovery. They come in, and buy Warner Media. Cable is huge to Discovery, its whole business, and it’s a very lucrative business for Discovery.
There are these questions, “How do you support that system while also investing heavily in streaming?” and “How do you not take from that system to pour strictly into streaming?” Because you still have to pay, and you still have to reward, and you still have to support that system.
If you look over at a huge conglomerate, like Warner Bros. Discovery, there’s a misunderstanding that they can make all their money in linear and then just invest it into streaming and go like, “Cool. We’ve made money off these deals on TNT. The revenue on TNT, the revenue on TBS, the revenue that we made on all the Discovery side of things, let’s just pour that into HBO Max, Discovery+” And you can’t, because you still have to support that. You still have to make deals in that space. You’re still fighting for sports rights. You’re still doing all the other things. Advertisers still want to be there. And as much as advertisers also want to be on HBO Max, there’s a healthy audience on cable that they still want to reach.
And if you take a company like Disney, the promise to the street is, we are going to grow our Disney+ subscribers multiple times by fiscal year 2024, which is a wild growth to project to the street. And it’s a way to say, “We want you to know we’re invested heavily into this ‘streaming war,’ and we are in it to win it.” But at the same time, if we look at where the vast majority of Disney’s revenue comes from, and if we look at where the vast majority of Disney spend is on the content side, it’s not Disney+. Disney+ is a part of it. It is a supplementary part of it.
What is really going to be affecting the earnings, which is just a conversation about the streets’ reaction to financials, is this question “How long until that flips?” And that answer could be as simple as seven or eight years. That answer could be 15 years. We don’t know yet, because we don’t know when all these companies internally will say, “We no longer count this many pay-TV subscribers. They’re not there anymore. So now we can switch our full priority to this service.”
You won’t necessarily see that on the Amazon or Apple side. They can operate as they are because those products are the main products for the video content side. For Netflix, it’s their only product.
The other ones are the larger question, as they cut into the share of demand each quarter. So that is where you’re going to see many questions. If I was an analyst on those calls, that’s where I would focus my questions. How do you envision this product becoming not just a priority in terms of what you want to grow but a primary source of continued revenue and profitability at the level that you’re seeing with linear?
Why would they stop supporting linear until we know when that change happens? Disney just paid 75 million for their rights to F1, about 15 times what they spent in 2019. The majority of those races are going live on ESPN Linear. That’s not on ESPN+ and it’s not an ESPN standalone package for streaming. It’s on ESPN Linear. We have a strong cable affiliate fee that we can charge. F1 wants to be there, so we’re focused on that. That would be my main question heading to earnings.
”As more advertisers move over to the major streaming services, we'll see changes in how companies approach their streaming and how they become a primary source of continued investment, revenue, and profitability.
MB: We wrote about this last week. When you look at the delta on streaming between ad minutes per hour, there are 75% fewer ad minutes per hour. But then, you look at the CPM, and they’re getting 10 or 20% higher CPMs. That math doesn’t work. Because you’ve got to get, at least, the same revenue per hour on streaming as you do in linear for that kind of trade to work.
When we look at it, we see a ton of buyer behavior, of media planning, and things like that. They’re still undervaluing streaming video inventory. It’s targetable and measurable. This is interesting because you’re thinking, “This model won’t work unless they are willing to pay three or four times per unit of what they pay for this mass-reach product that they get on linear.” It’s pretty fascinating to see.
JA: It’s almost ironic, right? Because what you’re saying with the linear advertising is that you will get a wider reach. You’re just going to have a wider reach, naturally. So theoretically, more people are watching across the board, on broadcast and cable, than on individual streaming services within the US. That’s if we look at the 77 million versus 80 million.
But those aren’t targetable ads. What you get with streaming is very, very, very specific audience demographic profiles. You get a very specific innate understanding of what audiences are consuming, how long they’re consuming it, when they consume it, where they consume it, which you don’t get with a current system on linear.
There are also all these questions about the advertising play on Netflix and what it means. People forget that the ARPU for Hulu is one of the highest in the industry, $12.77, as of Q2 for Disney 2022. That’s a wild ARPU, and that’s largely advertising. That’s coming on a product with half the subscriber base of Netflix, but about the same ARPU.
So Netflix brings advertising, and they see a bunch of advertisers flock to them, which I assume will happen, because it’s a great platform to be on. Even with all of its troubles, I’m a Netflix bull.
Even with all their troubles, they’ll come out of it. That’s a great place for advertisers to be in, just in terms of all that information, plus the size of that audience. That size of the audience is 75 million subscribers in UCAN alone. And there are about 80 million pay-TV households. That’s a great place to be if you are an advertiser and think about that one-to-one relationship of the reach, of the growth potential. But you’re not going to get the direct targetability that you are going to get on streaming.
We see advertisers move over to this space, it’s happening with platforms like Pluto TV, Freevee, and Xumo. As more advertisers move over to the major streaming services, we’ll see changes in how companies approach their streaming and how they become a primary source of continued investment, revenue, and profitability.
And that’s going to be sooner than we were just talking about because it’s already happening. That will open up a lot of really interesting conversations about what the future of streaming looks like. Because if you asked people two or three years ago what the future of streaming looked like based on what we knew, it was necessarily advertising. Many people in this industry said, “It’s going to be ads.” I know I did. Alex Sherman at CNBC did. And I know Lucas Shaw mentioned it. I could be wrong about that.
Analysts and industry people are thinking, “This is only another way to do ads. We’re just recreating cable in a much more fractured landscape. We’re just taking the power away from one company, and giving it to another.” But the promise of streaming, for us, was the à la carte option. It was this way to get away from the cable bundle.
Now, we’re being pushed back into the cable bundle via consolidation that is out of our control, via brand partnerships and third party partnerships. But also, that was the goal of the companies.
It wasn’t just, “We don’t want to be on Netflix because we’re losing money there.” It was, “We don’t have to give a portion of our money and our customer information to Comcast, or AT&T. We want to own that information.”
If you are Disney, when you run a parks business, and you run a theatrical business, and you are about to run a metaverse business, owning the information on all of those viewers is so, so important. Especially when you bring in advertisers, and you have a relationship with those advertisers. There’s going to be an interesting dialogue that comes up, as advertising really pushes streaming into the next moment of the “streaming wars.”
MB: A few Disney questions to return to your Musings on Mouse days. What is your quick take on the Bob Chapek extension?
JA: I feel like that’s The question. Chapek’s a long-term, parks guy, which is not necessarily the wrong person to have in the seat right now. He’s a big data guy, like Zaslav, over at Warner Bros. He’s a big believer in using data to make better decisions. And on the one hand, he’s probably right.
On the other hand, I always like to say that data is a lighthouse. It can show you the treacherous path to not go down, and it can also show you a bunch of really great, opportune pathways that you didn’t even know existed. You can go down and find the best way out. But the lighthouse only works if the ship and the captain guide that boat safely into the harbor so that people trust them and want to get on the boat again. In this analogy, that ship captain is your Kevin Feige, your Casey Bloys, your John Landgraf. It is your creative executives who have the creative ability to say, “I know what a good show is. I know what a good film is. And that’s how we build our brand. We’re content people first and foremost.”
I think Chapek has issues on that end. Chapek does not have the talent relationships that many other CEOs, like Zaslav, might have. Hollywood is entirely built on relationships, almost more than any other industry. Especially when you were dealing with creatives. Creatives are brilliant, stunning people who can also be a little neurotic. And I say that as a creative.
I was a writer for nearly a decade. And I think those talents, managing those relationships, and knowing how to be a people-person with different groups at a high level is something that he should learn how to do.
On the other side, since there’s been so much negative PR with him, the thing that doesn’t get brought up with Chapek is that he’s been great for the company’s business. Disney is doing extremely well. You would not know this by looking at the Disney stock price. But if we look at what the company has done quarter after quarter, since the pandemic hit, when he came in as a CEO, he’s managed to navigate them through the pandemic.
In terms of overseeing streaming, Disney+ is the second-largest streaming service in the world on a mainstream level. It’s growing at an exponential rate. If we look at what he’s doing at the parks, business is back to booming. If we look at what’s happening with DMED (Disney Media and Distribution) across the board, which Kareem Daniel is overseas, and we look at the linear and broadcast side, it’s going great.
How Chapek figures out theatrical is another iffy question. And that’s where he really needs to listen to his deputies. But this is a long way of saying that, in terms of what a CEO should be doing for Disney, which is providing the best value to shareholders and to investors, he’s great. He’s doing his job. And he’s doing it two years into it. He’s still fresh to it, and with two large clouds hanging over his head. One, the pandemic, the macroeconomic reality that we’re in right now, the negative PR, like all the constant, bad luck, headlines that keep coming in.
And on the other hand, the other cloud that hangs over him is Bob Iger. No matter who followed Bob Iger, it would’ve been extremely tough. Whether it had been Bob Chapek, or Kevin Mayer, who oversaw Disney and was rumored to take over for Bob Iger, that’s a tough act to follow. That’s one of the most beloved CEOs in modern history. We don’t really like CEOs as a group of humans. We tend to not trust them, with few exceptions: Steve Jobs, Bob Iger. There are some, where you’re like, “That’s a tough act to follow.” It was a tough act for Tim Cook to follow when he came into it.
I bring those two up because they’re very similar. What you had with Iger and Jobs are these creative, extremely charming, extremely innovative, extremely intelligent visionaries, who came into a company, (or in Job’s case, created a company) that really landed with this universal love from customers. A love for a company, and a love for its products, and a love for its content that goes beyond what so many other companies can do. Then, who came in and replaced them were operational wizards.
They brought in operational people. They brought in Tim Cook, who is a genius in his own way, and will go down as one of the best CEOs at Apple. If only, because of what he’s managed to do for them in terms of profitability, and his understanding that he needed to pivot away from hardware at a point where he needed to pivot away.
And you look at someone like Chapek, and he’s pushing Disney into this forefront of whatever metaverse future it is, the streaming future, the online internet future, all of that. It’s a really difficult job to do. On the business side, he’s handling it well. I think he needs a team around him to help him figure out how to do the public aspects of being a CEO, which are also equally important. Talent relationships, deputy relationships, those are all also extremely important. And how to navigate controversies as they come up, because they will. Over and over and over again. My thought on it is, Chapek hasn’t done anything that severe that should warrant him not being in the position from a business perspective.
The last thing I’ll say on this is that they renewed his contract for three years. I doubt that they’re going to fire him a year into it. But Peter Rice, who was the head of TV programming for Disney, signed a contract, and eight months later was fired. People in Hollywood signed contracts all the time only to be ousted like a year later. Don’t be too surprised if a year and a half later, Chapek is out the door. But again, people need to separate the very public aspect of stuff that is happening with Chapek, which is absolutely a concern, and Disney. And I hope the board is talking to about it. And I hope he’s trying to figure that out. His main job as a CEO is the business side, which is to provide shareholder value. And he’s continued to do that quarter after quarter.
MB: I love to get your take, but there’s so much low-hanging fruit. In the last year, my family watched a ton of Disney+. We went to the Hawaii Resort. I went to Disneyland a couple of times. And all three were totally disconnected experiences. You had the central brand that tied them together, but from a data and bundle perspective, they weren’t really connected. And they’re just in such an amazing position to tie these pieces together.
Yes. There’s no question that that is what’s going to happen. When they launched Disney+, this was still Iger. But the whole idea of it was that you’d get a Disney+ thing, and that bundle would help you get a discount on Disney parks. Or you’d use your Disney parks thing, and then you could go into Disney Wish, their new cruise liner. Or you could use your Theatrical to get a discount on Disney+, if you bought on an early ticket to Thor or something. All of that is going to happen.
Especially as we get into the future, where gaming becomes even more important to Disney than it already is. That’s the biggest question with Disney under Chapek, who’s much more operational than Iger was, and who has much more tech focus. Although I think Iger was focusing towards that at the end of his tenure, and if he was in now, he would also be extremely tech focused.
His investments outside of Disney are very tech-focused, I don’t doubt that he would be at the forefront of it as well. But, do you go back to try to own and make games?
Video games were the biggest failure under Iger. It was like they couldn’t figure out how to successfully make, publish, and distribute video games. So they stopped. They licensed. They partnered with EA. They partnered with Epic. They partnered with all these other great game-makers, with Lego, who can say, “We’re going to make the game, and we will publish it. And that’s our end. We’ll pay for the rights to Kylo Ren, or will pay for the rights to Captain America.”
But the end goal for Disney is to always have everything user connected. It is this idea of, you will live in this world, where there’s a Disney currency, and that Disney currency becomes part of your weekly currency, or your daily currency, or monthly currency. And that data gets shared more interconnectedly, which helps them make even better business development decisions. Not necessarily programming decisions, but distribution decisions, and all of what helps Disney scale again in the company’s next iteration.
But there are a lot of things that have to happen first. The term I use a lot when we talk about why don’t these companies do certain things yet, is that I think a lot of them are still very much in triage mode. They’re still very much like, “Does the streaming service work if you’re HBO Max? Is it actually functional? Cool. Once we figure that out, we can get to the next question.”
I think if you’re Disney, there’s a triage mode across Theatrical. There’s a triage mode across the personnel. There’s a triage mode with streaming. How do we ensure that this is product is the best quality that we can make, and it makes people want to watch? What’s our counter-programming strategy? What’s our distribution strategy?
All of those things are just as important as the interconnectivity of all the different Disney products.
They will get there, and it will happen. You’ll see things roll out, and then they’ll start interconnecting it. Owning the relationship with customers has always been the goal of Disney+. It was to own and make revenue off their own content, rather than making revenue off of selling their content, or licensing their content to others.
Their goal is to connect all of their different verticals in a way that is centered on user information. We’ll see that happen in the next year, if not sooner, but I still think that the company is in triage mode, like every other company is right now.
MB: All right. Last Disney question. I think I got my nine-year-old daughter obsessed with Star Wars. We haven’t watched the finale yet, but is Obi-Wan a win for Disney?
JA: That’s a good question. Is Obi-Wan a win for Disney? In terms of engagement, yes. Straight up, yes. There’s a lot of people who tuned into Obi-Wan. It was a mostly positive sentiment across the board. It brought back beloved characters. It gave fans of the original prequels the ability to reconnect with characters that they didn’t think they would ever see again in live-action. And they were able to do it from the comfort of their home, week after week. In terms of that, it’s a win.
The larger, overarching, question about Obi-Wan belongs to this umbrella of question. What is Star Wars at this point? My criticism of Star Wars has always been, it is the largest sandbox in the entertainment sphere, there’s so much you can do with Star Wars. And for some reason, under the current guidance of Lucas’ owns creative teams, they’re tethered to the Skywalkers, and they’re tethered to Tatooine. They’re tethered to this conservative approach to the franchise.
What Star Wars really needs is what they are doing on the film side. Take a few years and figure out what the next generation of Star Wars is. Beyond these characters, and these specific planets that they are trying to reiterate, generation after generation, as still having the same hold that they once did. Unfortunately, on Disney+, they won’t have a chance to do this, because it’s such a foundational source of why people subscribe to that streaming service.
Growing up, I remember being four or five in the ’90s, and my dad showed me Episode 4. We watched New Hope. And then we watched Empire Strikes Back, and then we watched Episode 6, Return of the Jedi. I remember watching those and being like, “These are cool.” I liked them as a kid but wasn’t in love with them.
Then Episode 1, 2, 3 came out. I was the right age for it. And I was like, “This is my Star Wars. This is the Star Wars that I love.” Then The Clone Wars, the animated series, was really what made me fall in love with Star Wars. Then, you have the new generation, who come in and they’re like, “Rey is my character. Finn is my character, Poe and Kylo.”
And that’s great. But all that continuously ties back to the Skywalkers. So, you’re like, “Okay, I’m going to watch these older movies.” But for a lot of kids today, those older movies do not hold up the way the new ones do. They’re just used to a very high caliber level of visual effects and what’s happening. And it’s hard for younger kids to sit through those movies. Not all the time, but sometimes.
I have a list of criteria for a successful franchise development that I came up with for a few of our clients. The thing about Star Wars is, how do you move it into the next generation without having to tie it back constantly to the first generation? And how do you do this within different mediums and different genres so that you create different entry points for people to come into and then explore within it themselves?
I enjoyed Obi-Wan. But my question was, what is the goal of this show? Is the goal of the show to expand the Star Wars user base? It’s not necessarily going to do that. You’re going to attract fans who are very much into the prequels.
Is this going to lead to a massive jump in subscribers? Probably not, because people who are coming in to watch Disney+ for Star Wars already have Disney+. Is this show going to retain customers? Probably. It’s probably a great retention play like, “I was going to cancel, but I want to watch Obi-Wan and Anakin fight again.”
Strategically, the question about Star Wars is, what is its primary goal on Disney+ at this point? Creatively, what is its primary goal for this new generation? The generation that came up after Episode 7, 8, 9. This generation, now. How do you make Star Wars appeal to them in a way that doesn’t tie back to Luke, Leia, and Han, in a way that takes advantage of all the different types of mediums, genres, and technological capabilities?
That’s where Obi-Wan failed for me. That is the ultimate question I have about Star Wars. And for Disney, it’s a win in terms of engagement with people. I’m sure it retained subscribers. I’m sure they saw a little bump in subscribers for it. But was it a win for their strategy for the next decade?
I don’t know what else it did for Lucasfilm and for Disney+, other than give them something to put on Disney+ for four or five weeks to compete with Netflix and HBO Max. For me, it won for the moment, but it did not win the race.
MB: All right. Shifting gears. I got one more content question. I saw that Parrot put out a ranking of reality and unscripted shows. We were talking earlier about Discovery. Something I’ve been thinking a lot about is that the intersection of unscripted reality shows really punch above their weight, when you factor in the share of viewership versus the overall cost to produce. Is that the right way to look at it?
JA: Yes. Here’s a great example for unscripted, and what the power of unscripted can do for a lot of these services. Unscripted is very cheap to produce, compared to live-action drama, or live-action comedy that are scripted. It is much, much cheaper. The total addressable market for unscripted tends to be much larger, because you can do 10,000 different things with it.
You can have a fishing show, or a house building show, or a cooking competition show, or a singing show, or dating reality shows. It is just a huge market with what you can do in that space. What’s even better about unscripted, in my opinion, is what Netflix is doing with Squid Game. It is easy to capitalize on a potential franchise and expand it past its original audience, without necessarily harming the first part, because it’s so different.
So, Netflix puts out Squid Game, one of their biggest, if not biggest, show of all time. It is a huge success for them critically. It has opened up the doors for people to watch South Korean content. It’s a massive win. Netflix now has this opportunity to create a franchise. In order to create a franchise, you cannot have that much time in between solvents. You got to keep people’s attention, and the attention is very short.
Demand is even smaller when we think about the over saturation of supply, so you have to keep on them. We know that they’ve renewed Squid Game for Season 2, but that’s not going to land until next year earliest, if not 2024. That’s a long time for people to go and find something else to get obsessed over. About the time Squid Game comes back, they’ll be like, “Yes, I’m going to watch it, but I don’t know if I’m necessarily going to be into it.”
So Netflix goes, “What if we do a reality show? That is, yes, quintessentially ironic, because of the whole concept of the original show’s message, but we’re doing a reality show where they can win 4.3 million.” One of the largest prize pools in reality show history. And they’re going to reenact the games. They had to do the challenges they had to do on the show. It’s an easy win.
People will want to tune into it. And people who weren’t into Squid Game, but like the idea of this type of competition reality show, are going to tune into it, and then they might go out to the original Squid Game. That’s one aspect where unscripted acts as a core way to build upon the audiences you have in your other genres, and keep them engaged as you build out the franchise. And they take less time to film, less time to edit, less time to produce, and they’re cheaper. It’s a really great revenue play.
On the other side of it, though, when we think about the top three or four companies trying to build four quadrant services, where you’ve got male/female above 25/below 25, unscripted appeals to almost all four of those demographics. It’s different, unscripted programming. But in order to ensure that you have enough supplementary content, on top of the prestige dramas, and the big comedies that you’re going to do, and the sci-fi and the fantasy stuff that’s costing you $120 million a season, the unscripted stuff is what’s going to get them to stay.
They’re going to come in, they’re going to watch House of the Dragon. Or The Dropout. Or Obi-Wan. Those things are finished within the span of four weeks, or the span of eight weeks, or within the span of a weekend, if you’re on Netflix, or Amazon. It’s a binge drop. What’s keeping them there, then? What is the incentive to get them to open the app every single day otherwise?
It’s not necessarily going to be another big premium show. It might be, but what is going to get them to open up are two things. One is library programming, which is Friends, Seinfeld, The Office. That’s why they have extremely low decay rate. Decay rate refers to the shortening or the lessening of demand in between a show’s season. You end up losing viewers, or losing demand, as a show is off season. That just makes sense.
Sitcoms tend to have a much lower decay rate, because people come back to it all the time. The other thing is, unscripted programming. It is reality, it is competition. And people will come back to that, and they watch it over and over and over again, start it, or get involved. There are worlds like The Real Housewives. And they’re going to do all eight or nine different series. They’re going to do all the seasons. It’s a great way to retain your customer’s interest and engage with them for a fraction of the cost you will do on the premium drama and scripted comedy side.
That’s why we’re seeing a lot more of it. If it didn’t work, companies wouldn’t do it. But it continuously works, and it will continue to work going forward. Because the total addressable market for unscripted is much larger globally than the total addressable market for scripted series, genre by genre.
MB: I remember the first time I saw Survivor, and it was so different. And then, I looked up a year later, and it seemed like every show on broadcast TV was reality, because they figured out the low cost. And I feel it’s happening now on streaming, to a certain extent. Do you see a limit to that? Or is everyone going to go for the shortest hit, for the least amount of content spend, and we’re going to see an over correction that way?
JA: That’s a great question. Had you asked me this question a year and a half ago, I would’ve had a different answer. Advertising changes everything. I had someone ask me this question, “Why haven’t we got a Law & Order on Netflix? Why isn’t there a show that’s running for 14 seasons, that creates three other Law & Order spinoffs that runs for 14 seasons?” I said, “If you think about the economics of linear television, what did a show have to do?”
A show had to bring in viewers. They had to bring in enough viewers that they had a decent rating that the advertisers liked, and then the advertisers went, “We’ll be in the eight o’clock spot. We’ll be in the nine o’clock spot. We want to be on this show specifically. We really like it.”
So you get shows that run 5, 6, 7 seasons. Then they get syndicated, and there’s additional revenue. At that point, it is paying for itself. So you have these shows that run forever, because the advertising and the syndication model allowed the economics of those shows to flourish.
Not all of them of course. We all remember Pilot Season. If people are too young to remember, Pilot Season was a thing where networks ordered 40 shows, and they axed 35 of them. This idea of, “We’re going to put out an episode.” That was an insanely bad system. It never made any sense.
But the shows that could thrive, when they came out, could run for quite a few seasons. And think about what the CW did. The CW could have shows that ran for eight seasons, even if the viewership was not necessarily that high, because they had some advertising and could sell to international markets. That paid for it. They were happy to keep it going because there was demand for it, so they just kept doing it.
Those economic models never made sense for Netflix. Because for Netflix, the question is efficiency, not advertising, not necessarily just viewership. The question is, “Okay, this show brought in a million viewers. How many of those customers, canceled their Netflix account 30 days later? How many of those customers instead watched another Netflix original (This is called a referral value)? What about those customers who watched a licensed original that Netflix has? How many of those customers watched 50% of a show, 40% of a show, 80% of a show? And then how many of those customers are within a certain demographic that Netflix considers high-risk or high-reward?”
All of those equal efficiency points. The efficiency point is what generates Netflix’s idea of, “This is very valuable to us,” or, “This is something that we don’t want to continue investing in.” Because we don’t have advertisers saying, “I’m specifically trying to target young men, or older men over the age of 50 for Netflix,” there’s no reason to say, “Let’s do another season. This advertiser wants to be here, and they’re committed to putting their ads on it. We can see how it goes, and if we can generate it.”
Now, as advertising comes in, and Netflix increases its ARPU without price increases, as they start running ads before shows, which is what I assume will happen. They’ll do pre-roll, I can’t see them slicing their shows up, especially their originals. But as they start running these pre-rolls, there’s additional revenue opportunity to say, “Why don’t we let a show run for three or four seasons? Why don’t we just see? There’s somewhat of an audience here. We talked to advertisers, they’re into it. We think there’s really great sentiment. And although it’s not taking the same efficiency points as a new show might, we want to see if we can build up our library. Because we’re losing all of our long-running shows as Paramount, NBC Universal, Disney, and Warner Bros. Discovery pull them back off our platforms to put on their platforms.”
If you ever look at like Nielsen numbers sometimes for one of the most watched shows on Netflix, it does not actually translate to the value of these shows to the platform. But it’s always Grey’s Anatomy and CIS. These are shows that people come back to. I come back to Grey’s Anatomy once a year, and I’m just going to rewatch Grey’s Anatomy. Part of that reason is because it’s 15 seasons. I can put it on. It’s like my new sleep show. It’s going to take me a year and a half to complete. And then, I can move on to something else. But I really want to have one of those long-running shows. And Netflix doesn’t have any.
For the longest time, It never made sense for many of these shows to run eight or nine seasons, according to Netflix’s efficiency metric. Now, with advertising, series that couldn’t exist on a streaming service without ads, like Netflix, versus the type of series that can possibly thrive, means we’ll see how a lot of different shows that didn’t make sense on these streaming services before, potentially start to make sense. Of course, that theory could be wrong.
It could be that they try to do their own crime procedural in the Netflix way, and people aren’t interested because they’ve got Law & Order on Peacock and Hulu, and they’re happy with that. But there’s more room to experiment without this stagnant fear of, “our efficiency metric for this title is plummeting, and therefore economically does not make sense for us to keep it going.”
MB: Interesting. One quick question to wrap up. Looking ahead one year from now, what is something fairly obvious that, to you, will be different, and that most people are missing?
JA: That’s a good question. I don’t think it’s fairly obvious. But the consolidation will continue at a rapid pace. I know that feels funny to say now, because the economy is not great. But a bad economy makes a really great investment for smart buyers with cash. It’s actually a prime time to buy if you can do so. The thing that a lot of these entertainment companies need to scale is ownership of other libraries ownership of other IPs. They don’t think they can compete with the ownership of competitors. But otherwise, a merger of equals or acquisition can help them compete in global and US markets.
And so, a few companies are ripe to see potential mergers and acquisitions happen. And not in a bad way. There’s a negative connotation with M&A because it feels like a big whale eating small fish. I have of two minds, which is, on the one hand, consolidation, and creating power players in a market is not great. It’s inherently not great. It’s why we have antitrust laws. On the other hand, I think the streaming space has almost been monopolized by Netflix for so long that to create a stronger competitive market, it requires more consolidation amongst the larger players.
The niche players are playing out the way they will play out. But suppose we can have some stronger competition at the top. In that case, you really get into this idea of a competitive market with competitive products and pricing that will make the “streaming wars” much more interesting. When Netflix really started to falter and demand in subscribers, there was this analyst who said, The streaming wars are over.” And I said, “What an odd thing to say. This is just proof that the market is doing what the market does. The streaming wars have just begun if Netflix is getting bit. That’s exactly what is happening.”
We’ll continue to see more consolidation. Three or four companies are right for it in the next year and a half, especially as the economic turmoil continues. And especially as their earnings may not be as favorable. Therefore, their evaluation will drop a little more. That will be exciting and terrifying to see, all at once.
Consolidation is about the exciting and terrifying, all in one breath. That would be my thing. I would be shocked if we don’t see much bigger consolidation. Not Warner Bros. Discovery big, I don’t think many companies left to do it at that size. But notable consolidation that changes the power economics of the streaming space.
MB: Excellent. This has been a fantastic conversation. I am grateful for your time.
JA: Thank you so much for having me.
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