Tag Archives: distribution

Apple’s Rumored Hardware & Content Bundle – Maybe Content is Just for Retention?

I’ve been thinking a lot about the rumor of Apple’s hardware and content subscription bundle. The idea — whether it actually happens or not — is that they’d create a very expensive subscription of $80/month or so that bundles Apple Music, the new Apple original content, Apple Care, iCloud and a new iPhone every year. This is very much a rumor but very viable avenue posited here and by Matthew Ball at Redef.

This immediately reminds me that for years, Americans paid $100+ per month for another expensive hardware and content bundle: cable TV. I remember the salesman coming to my home and explaining to my parents what cable TV included. It was much more than TV, because before the internet, that box was your only gateway to many things. It was movies, music channels, educational programming for your kids, breaking news, live concerts and the hardware to make it all look beautiful on your only screen.

One way to frame Apple’s rumored hardware/content bundle is that they attract you with their device ecosystem (hardware) and then keep you hooked with their shows and music (content). The phone and its TV and cloud components are already a huge draw for audiences so their content can play the role of keeping users engaged there by making that ecosystem useful on a daily basis.

This got me thinking… maybe content isn’t really an effective audience awareness or acquisition tool AT ALL. Maybe, when all the cards fall, content is just the retention piece of a recurring payment business model and other elements of the bundle are what bring you in the door. This is somewhat reflected by the calculus Amazon did around their original video: it turned out that prestige TV shows like Mozart in the Jungle and Man in the High Castle weren’t such an efficient acquisition tool for Prime.

Amazon shows don't easily drive Prime memberships

Check out how this thinking might apply to other businesses. I’ll use this analogy: come for X (acquisition); stay for content (retention).

  • Apple hardware/content bundle – Come for the hardware ecosystem; stay for Oprah.
  • Amazon Prime – Come for free shipping; stay for Nicole Kidman.
  • HQ — Come for a cash prize; stay for the trivia.
  • Facebook — Come for your friends; stay for Facebook Watch.
  • And the corollary seems to also be true with failed SVODs and streaming services — there’s no acquisition component, just a bunch of originals and licensed content to retain the audience that never came.

There are probably a bunch of examples that prove this thesis wrong, chief of which are Netflix and HBO. (But you could argue that they OVER spend on content, trying to force content into becoming an acquisition tool.)

Even if it’s only a little true, it’s a helpful thought experiment: what if you had to launch a streaming service WITHOUT using content to acquire an audience? You’d have to offer real utility to your users — some other valuable product or service that would attract them to your subscription. Apple already has that part figured out: the phone, the ecosystem. And on the content side of your business, brands like Marvel, leagues like the NFL and celebrities like Oprah wouldn’t be as valuable because you already have a giant draw for new users. If your content is only playing the role of retention, it doesn’t need to hit an attention-grabbing must-see fever-pitch. It can be much less ambitious. You can spend way less than Netflix.

Why Netflix Needs a Mobile Content Strategy

Netflix is killin it and I continue to be bullish on their future. There’s one corner of the business I’m afraid they’re being just a little too pensive about: mobile.

This year, they’ve launched some of their first short-form programming and some new native portrait features in their mobile apps. But I’m afraid this won’t stop other mobile competitors — Google and Facebook — from locking them out of this critical piece of the entertainment pie. Now is the time for them to begin spending in the mobile content space and here’s how they should begin.

Why mobile is critical to Netflix

Let’s start with why Netflix should care.

There’s an obvious massive market of short form video consumption, well-proven by YouTube and Facebook. 34% of global internet video traffic is shortform. So, when Netflix says they’re competing with all forms of entertainment, this seems like an obvious adjacent area to pick up some additional engagement — whereas interactive, live and sports are much more of a moonshot.

But I think all of that frames this as a business expansion opportunity when I actually think this is a threat to Netflix’s stranglehold on the streaming market. Have a look at this graph, which explains the userflow of new subscribers to the service.

When this slide first broke, a lot of emphasis was put on the fact that after 6 months, 70% of Netflix subscribers were watching on a big TV. What stands out to me is that 10% are STILL watching on a mobile phone. Just 1 month in, more than 15% are still struggling to watch long form TV shows and movies on a tiny mobile screen. And right from the getgo, a full THIRD of Netflix’s new users start on a mobile device.

We are in a mobile world and who cares that people watch more content on their mobile phones — people TRANSACT more on their mobile phones. Enough people subscribe to Netflix straight through iOS that they’re trying to bypass Apple altogether — another sign of just how many folks sign up on mobile. Given that Netflix’s model is dependent on one giant transaction at the top of the funnel (their subscription), many more of their new customers are entering their ecosystem through mobile phones. And this user flows shows just how long it takes that mobile customer to begin finding big-screen-TV-type-value in their subscription. Were Netflix to actually provide valuable mobile content during that couple-month transition, they’d reduce churn among new users. (Still another strategy would be a freemium model of mobile-only content to lure users through the paywall when they realize the app’s value on another screen.)

What Netflix is already trying in mobile

Netflix is not completely blind to this. They’ve launched a few new short-form originals and mobile products this year. For those trying to reverse-engineer their mobile content strategy, here’s a recap of their short form content:

  • The Comedy Lineup (15 minutes) – Mini stand-up comedy specials
  • Explained (14-18 minutes) – Newsmagazine (Vox)
  • Follow This (16-18 minutes) – Newsmagazine (Buzzfeed)
  • Comedians in Cars Getting Coffee (12-25 minute) – Celebrity interviews with Jerry Seinfeld
  • Marching Orders (12 minutes) – Docuseries
  • Cooking on High (14 minutes) – Competition reality

In the scheme of Netflix’s $6 billion content spend, I’d call this an extremely modest beginning — it’s really just a test. It’s heavy on news and unscripted, there are no filmmakers, high-value talents or standout IPs. I estimate their 2018 spend on short form around $20MM at most. To make a meaningful move into mobile, they’ll need to spend 5-10x that.

How Netflix could form a mobile content strategy

It’s clear that Netflix needs to get into the mobile content game ASAP. But how? So many short form content platforms from go90 to Watchable have flamed out because of a lack of distribution.

Broadly, I’d approach this similarly to the rest of Netflix’s business:

  1. START FAST with a mountain of inexpensive mobile content that’s easy and fast to launch.
  2. PIVOT TO PREMIUM – Use the analytics gathered from starting fast to inform a mobile Originals strategy and finance exclusive new series.

Why this two-part strategy always works is the subject of a whole other blog post. But Netflix is in a unique position to build a war chest of start-fast mobile content at a low cost-per minute without sacrificing their premium values. Step one of fast/easy/quick mobile content — pretty obvious — is licensing. Now is a fantastic time to cheaply license premium mobile content. Every mobile content studio is clamoring to work with Netflix which earns them outrageous leverage. Plus, many of them were gifted back go90 or other mobile series that they have no place to distribute. The second source of start-fast content is probably less obvious: the content they already have. Netflix outright owns a lot of their shows and by getting creative, they’ll find a new life if they’re re-cut for a shorter runtime or carefully cropped for a vertical screen.

When audiences coalesce around their start-fast mobile content, they can decide where it makes sense to pivot to premium, maintain licenses or trim back.

In sum, I think mobile is a crucial growth area for Netflix and a place they have some natural competitive advantages. They could quickly turn a source of churn into a new source of revenue and expansion. I predict they’ll make some dedicated moves in this space but it’s going to take a larger commitment to realize the potential mobile content has in Netflix’s future.

Could Disney Be the First to Stream Day-and-Date?

I love how ballsy this would be. Disney is out of Netflix and has announced their plans to make a similar service. And in a guest post on THR, Ben Weiss posits this crazy new move: that Disney could quickly amass a big subscriber base by launching their movies on the service “day-and-date” — that’s the much-feared-by-theaters idea that a movie could be streamed the same day it releases in theaters. 

It’s brilliant because it endruns the entire traditional entertainment distribution-windowing business model in favor of the consumer preference of when-I-want-where-I-want. It would definitely grow them a huge base of subscribers. But they’ll never do it. 

  • Disney is already giving up $300 million in revenue by opting out of Netflix. 
  • Theatrical is the majority of their studio entertainment revenue, about 60%… and a move like this wil piss of theaters and threaten that nut. Theaters may refuse to carry the movies or put them in fewer cities. It may even piss off some consumers who still like the theater experience– if their local chain decides not to carry the movies over this move. 
  • If Disney does day-and-date they’re not just threatening the theatrical revenue. They’re endrunning all of their studio ent distribution: pay TV, home entertainment, etc. Why would another provider value their content the same way if it’s already debuted in a streaming window? 
  • And finally, the REAL business of Disney is parks and products — maybe twice the revenue of all of the studio business. What if this slow, gradual windowing model actually helps propel their brands in those venues? It might be a stretch but my instinct is that being in every theater in America is the best billboard ever for a parks attraction or action figure. Better not mess with that. 

But, boyyyy, would I love to live in a world where studios made distruptive moves like this. I dare you, Bob! 

My Favorite Slide Explaining Apple, Google and Amazon’s Domination of Entertainment Companies like Disney

Market Caps of Content Companies vs Distributors via BTIG

I LOVE LOVE LOVE this slide from Rich Greenfield at BTIG. His whole presentation is definitely worth the watch but this one graph truly says it all. (And I’m always trying to pull it up online to share in meetings… so I’m also posting it here to make that much easier.)

In the presentation, Rich first shows market caps of the companies below the line — all of our beloved entertainment creators. We see them in print and on every screen and think of them as massive, powerful companies. Then, he layers on the market caps of the “platforms” and distribution companies that sit between those companies and their audiences… and it’s easy to see how those content co’s are dwarfed.

Rich is looking at this through almost exclusively through a lens of financial analysis and market value… which might not tell the WHOLE story, but it paints a pretty dim picture for content creators and brand owners: Content is not king.

Some things worth noticing (many of these points are made by Rich):

  • None of the entertainment companies below the line — even the juggernaut, Disney — has a meaningful direct-to-consumer platform… they all depend on the companies above the line to reach their audiences
  • Apple could buy Disney in cash
  • Google or Apple could buy the entire entertainment industry in cash, except Disney
  • Every one of the distribution companies above the line have meaningful plans to make their own content that they own completely and perpetually (in other words, they could start to make their own content without depending on the content companies and their brands)
  • Netflix isn’t even on here but its market cap around $70B, making it bigger than everyone but Disney
  • Neither is Snap… it’s much smaller than Netflix at $20B (as of this writing), but it still stacks up above Viacom, Discovery and others
  • The digital-oriented distributors like Facebook, Apple, Google and Amazon have incredible volumes of data and knowledge describing their audiences, which is a huge advantage in content creation
  • While some of the content companies have partnered with and invested in the FANGS companies, they’ve missed their chance to buy one of them or build their own; Hulu is the only example and they half-heartedly participate in it
  • Nobody has been able to successfully create a large “direct to consumer” platform with content or brands alone… Netflix had to use DVD rentals, Amazon is using ecommerce, Spotify is using music and UI. In other words, we haven’t seen someone earn lots of subscriptions and ad revenue by only saying “we have ESPN.” It’s always content paired with some other strategy.

What Rich calls the “punchline” is this great thesis: content companies — especially Disney — have to make an acquisition in order to complete their business. What should they buy? Well, all of their options SUCK. Netflix is too expensive. Snap and Twitter don’t come with subscriptions. Pandora or Spotify aren’t video platforms.

That punchline explains many of the plays we see being made around the industry: Twitter continuing to pursue video in an attempt to demonstrate its value as a video platform. Time Warner selling itself to AT&T. Netflix spending billions on original content. NBC investing heavily in Snap. The list goes on…

My Thesis prez

I’m finished with college. Next semester, I’ll be taking yoga and independent studies. It ought to be a hoot.

But my capstone presentation was about web video distribution. Appropriately, I streamed it online. About 50 people were in and out during the live stream and hopefully they were all thinking, “I can’t wait to hire this kid in May!” Maybe not.

I’m especially proud of a concept I’ve engineered called “segment parsing.” I introduce it in the video — but there’s more to come soon.

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