Price Point 031: TV Questions Asked of TV Companies

Q2 2023 Edition

Before we get started by the way — I highly recommend Rick Rubin’s new book, The Creative Act. 

And I take great inspiration from Blink 182’s comeback at Coachella. Great set. 

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Benedict Evans has pointed out that Netflix is not a tech company in the sense that “all of the questions that matter are TV questions.” 

This is true (though I wonder if it is true forever). Let’s take a look at those TV questions today for all the streamers in a way that most entertainment journalists I find tend to avoid — how’s the TV? And what do each company’s TV choices suggest about their direction? 

All other things being equal, the content strategy and success rate of the original programming teams are the best predictors of the future trajectory of each network. 

Content has two elements. Part of it is what you hope to accomplish. The other part is whether you are good at accomplishing it. We will look at both. 

For context, here is all television viewership in December according to Nielsen. Streaming is the top category! Amazing. 

Amongst all streamers, YouTube leads. Of the subscription streamers, Netflix leads:

Trends across streamers:

It is helpful to know what churn is. Churn is the percent of your customers who cancel your service every month. Sad. 

To keep your number of subscribers even, you have to spend marketing money to attract a new customer to replace every churned customer. Let’s say you have 50MM subs with an average revenue per user (ARPU) of $12. So your revenue is $600MM per month. 5% of your customers churn out. That’s 2.5MM. Let’s say it costs you $80 to get a new customer. So you have to spend 2.5 * 80 = $200MM — 33% of your revenue — just to keep your sub level even! For Netflix, in recent months over 40% of its gross additions are “resubscribers” who had canceled within the prior year. For Disney+, HBO Max and Hulu, about 30% of gross adds each month are resubscribers. Churn is incredibly depressing. Here is a good discussion by Doug Shapiro of churn. If we look at Netflix, they have 74MM subs. Let’s say they have 3% monthly churn. That would mean that over twelve months, they would lose 31% (.97^12=.69) or 23MM customers that they have to recover before they can grow. At $80 each, that costs $1.8B! 

Levers you might pull to make this a little better include (a) reducing the churn rate itself by always giving customers something to look forward to such as football season or a tent pole title, (b) bundling your service with other less seasonal subscriptions (like Prime, or — what if Netflix and Spotify were one?), (c) bundle your subscription service with a valued service such as a social network and chat (BiliBili), (d) create brand loyalty through identity (New Yorker totes, A24 bumper stickers), (e) making the subscription annual, and (f) reducing the cost per new customer by attracting customers “for free” because they’ve been hearing good things (“word of mouth”) or saw some publicity (“earned media”). If you can cut your cost per new customer down from $80 to $50, it’s a lifesaver. 

Ok. Now we all understand that in the background. Churn is a thing and it is a bad thing. It is why we can’t have nice things. 

If we group the US subscription video players, it’s:

• Leader: Netflix

• Tier 2: Prime, Hulu, Disney+

• Tier3: Max, Peacock, Paramount 

• Tier4: Apple

Outside the US, these services compete with  an array of local competitors. 

As competition intensifies, I think that streamers will increasingly move toward a branded competition where you have to pick a specific target audience and consistently deliver a tone or a type of content for them. The target audience will have to be big but it cannot be everyone. Customers get to know a service based on not just one show but the type of thing they tend to deliver. Its personality. Different people like different things and it is hard to be all things to all people (maybe only Netflix can even aspire to that). Streamers will increasingly have to pick targets and tones (and will increasingly cross license material to each other when they own things that are off brand for their service). Disney of course already does this — they are in the Disney business (which includes Marvel). 

So how is everyone doing and where is everyone going? I will tell you now that in my analysis, the up and comers have the most momentum and have strong prospects. 

Who is Netflix’s competitor? They say it’s “sleep.” I say it’s all entertainment or if you want to be specific within video, perhaps it is basic cable. 66MM US homes have traditional pay TV, down 33% in 7 years. Except for news and sports, on demand can give you most of what you used to get from cable, and 74MM people in the US and Canada believe that, at $15.49 per month, Netflix is a good deal. 

It’s hard to argue with success. On the other hand, it should be noted that subscriber growth over the past year in the US and Canada has been negative despite annual global marketing spend of $2.5B. Is that just market maturity, is it increasing competition, is it COVID aftermath, or is something getting worse about the product? It’s reasonable to believe that churn has gone up. More people have been less attached to the shows than in the past, or more tempted to pull away due to competition. 

Netflix has so much content that they probably have something for you. That’s what people say. But I have to say that the recent hit rate for original recurring television series seems not amazing, which is worrisome. And is it me or does it seem like a lot of the successes are coming from the foreign teams (Squid Game) or third party studios (Wednesday) or are older now (The Crown)? If you look at rating sites, most of the best regarded Netflix shows are the older shows (The Crown and Stranger Things were both 2016). I just don’t quite understand what’s going on in US internal series development. Ah, yes, Dahmer (2022). Well, that’s one! (Not recurring though.) 

Part of this is that Netflix is programmed like a broadcast network, in three respects. They are light on comedy (except standup). They avoid “prestige.” The demo skew is heavily toward 40s female + kids, teens, and tweens, a departure from their earlier “balanced / prestige” strategy under Cindy Holland. It has a few shows that have male appeal — standup, Arcane, Vikings — but basically with the focus on Bridgerton, The Crown, Queen Cleopatra, Ginny & Georgia, a ton of true crime, Meghan Markle, and a profusion of teen/tween titles like Wednesday and Stranger Things, it has clearly planted a brand flag with mom and the kids. That’s fine. Having a brand means picking who you’re talking to and who you’re not talking to. 

But don’t expect the next Breaking Bad or The Wire from Netflix. 

Except for a lack of crime procedural, this is the broadcast playbook. Traditionally, the premium TV strategy has been to counter broadcast but Netflix may have grown beyond that — to become a substitute for broadcast. The reality is — Netflix has chosen the biggest TV audience and they have decided to super serve it. I would only say that at Netflix’s size, you don’t want to skew too much. It might help to skew back to the middle a bit. 

With respect to prestige, this is a funny SNL skit that captures how Netflix has fallen off the “tastemaker” radar with its newer shows: 

Net net. The best Netflix shows are older and the brand is becoming non-premium. It is drifting toward say … a People Magazine meets TeenNick brand vibe. You might be okay with that and say that People has more customers than Mercedes-Benz (which may be a closer match for the HBO brand). The worry would be whether this will increase churn and create pricing pressure. 

Netflix is still a pay TV product and customers’ propensity to pay for programming is imperfectly correlated with their tendency to view programming. For example, what would happen if we added 500 hours of (original, live, new to air) game shows and talk shows to Netflix next year? Give me Steve Harvey, give me The View, Jeopardy, Wheel and Kelly and Mark. Netflix viewership would go up. How would it affect people’s willingness to pay? Would they pay more? My expectation is that they would not be willing to pay more. In fact, audiences might over time start to think that they should be paying less (they might move to the ad supported tier, cannibalizing the subscription). Why? Because audiences tend to see talk and game shows as “free TV” and House of Dragons as “premium.” That’s the brand association. I think Netflix is drifting into a more price elastic zone. 

With Netflix’s budget, I’m not sure why Netflix can’t maintain a prestige element within its brand. Netflix is the one entity that perhaps could make an appeal to all audiences. I feel like Netflix should, given the size of their efforts, have about five shows that they do not have that should:

• Be < 3 seasons old 

• Have an 8.3+ on IMDb with men and women 

• Get nominated every season 

• Give them slightly broader demo exposure, and 

• Make the product feel a bit more upmarket and get more brand love 

These should be tentpole shows that cut churn. Where are these missing shows? As we have seen over the past few years, they really took their foot off the gas with respect to premiering very highly rated new shows:

I’m not sure how they’re organized but it feels like it would not be crazy to spin up a “U.S. - Prestige” development pod. Maybe Cindy Holland could run it! 

My expectation though is that they will do nothing of the sort. That if they have chosen this path it is because they believe in it. My expectation is also that US subscribers will continue flat and their revenue mix will increasingly move toward ad-supported as they further lean into their current brand profile. I wouldn’t be surprised to see experiments with daily, all year, talk, game or soap formats which might cut churn. 

Personally, I worry that one might find that free TV is a more formidable competitor than you think. But we will see. Sarandos and team have made a long sequence of excellent decisions so I am never that skeptical. But I have concerns. 

If I were Netflix, I would consider merging with something like Spotify that may be less seasonal, making the subscription more like Prime. I think the move to games may appear to offer this benefit, but music could deliver the benefit more quickly. I would also consider launching social features that tie people into their friends on the network and reduce churn (this might also discourage account sharing). 

There was a huge gap in new shows that feels like a missed opportunity from 2017-2022 at Prime Video, which thereby lost momentum. 

That’s unfortunate. I don’t understand it. 

Every single thing the team and I did there with respect to original content was done in four years starting from nothing with small budgets including spinning up a movie studio, a TV animation studio, and successful international originals programs in Japan, India and Germany. We became #1 in all of those markets. We were the first streamer to win an Oscar. We were the first streamer to win a best series Emmy or Globe, of which we went on to win 6. We won another 6 Best Series Emmys for animated children’s shows. Not to mention BAFTAs, Annie’s, Oscars and other awards. Our average IMDb rating across 71 seasons of adult TV was 8.1. 

Amazon’s leadership principles are very helpful. Two in particular: Bias for action, Insist on the highest standards. 

Despite the lull, Prime has hung in there as a meaningful contender, relying on its legacy shows like Maisel, Fleabag, The Boys, Bosch and Jack Ryan and adding football. It also benefits from selling other services on its platform (“Amazon Channels”) and is also the leader in transactional video on demand (rentals). 

As time has gone by, Rings of Power season one has in my opinion settled in as inarguably a missed opportunity. Famously, only 37% of US viewers finished watching the show. I will say in their defense that shows that get a ton of promotion attract an above average number of lookie-loo’s who don’t hang around, which can drive down view-through data. Still, the number sounds low because it is low. Moreover, it’s a 6.9 on IMDb. That’s obviously short of goal. On IMDb ideally you want to be in the 8’s. At minimum, the 7’s. 

The error in my view was twofold. Tonally, the series felt safe and Ewok-y. Following the movies, it would have been best — in fact it was essential — to try to break some new ground and do something different, cool or unsettling. Instead the show felt safer, smaller, more contained, very warm and fuzzily PG. It was in every way more boring than the films. I’ve said it before but — always do the daring thing. If you green light a show and you have no fear that you may be pushing it too far or taking some chances, that is when you should have the most fear. The world doesn’t want the average thing.

Secondly, Galadriel was about the worst lead character for a major new show in a long time. Just not an interesting person in any way. It can be hard to perceive the missing piece of the show but let me put it this way. You could have done a version of The Matrix without Neo. You could have done a version of Star Wars without Luke. Sometimes you have a bunch of characters who want something. They want to defeat the villain. They are in the rebel alliance. They know all about the villain and they want to prevail.  They’re highly capable. They have goals and stakes. They have antagonists. You might feel that you have everything, a complete story — it’s called The Rebel Alliance versus the Empire or Trinity and the Matrix. There is a story without Neo and without Luke. But what’s missing? 

Should the head of the Red Squadron have been the star of Star Wars?

What would be missing in the case of The Matrix would be Neo’s discovery of the horror of the situation and the growth of the lead character and the decision to commit. The decision to commit versus the protagonist who is, as Derrida would say, “always already” committed, by nature committed — committed before the movie begins — is critical. The eyes of the newcomer — Pinocchio coming to Pleasure Island, Bilbo going out into the world in The Hobbit, Lucy going into the wardrobe in The Lion, The Witch and The Wardrobe, give us a beginning, give us an arc of discovery — including self-discovery — that delivers a great story instead of an average story. 

Galadriel doesn’t give us that arc or any real opportunity for the audience to get on board with her. 

And that’s the difference between a chef and a cook. 

After years, there are finally some “solid” new shows. Terminal List was solid. Jack Reacher. Daisy Jones. The Peripheral (I’m being generous on that one). Daisy Jones is more than solid. I also would have done it. 

And some big things might be on the horizon. Fallout? Warhammer? Tomb Raider? Spider-Man? It seems that the concept is to build a superhero fantasy sci-fi brand with a bit of a male skew that goes well with the NFL. Makes sense. These titles could build a formidable brand — if they are well handled. 

But it seems strange that even now the realistic awards candidates are still my shows and I haven’t been there for more than five years! How is that possible? 

Net net. I could go either way on Prime. Sounds like there are some big properties in development. But how are they going to come out of the kitchen? 

It will dispel doubts if Citadel is fantastic. 

CUT TO:

Ok. This whole thing took me longer to write than I thought and in the meantime Citadel came out. So I watched Citadel. 

Now I’m concerned again. It’s getting a 6.5 on IMDb, which is awful … and how did this cost $300MM? How is that even possible? It looks like it costs about $7MM an episode and I’m watching the USA Network in 2005. It literally is about a secret agent who has amnesia but who retained all his old skills? I’m sorry … does that sound familiar? Is that the exact same premise as Bourne? And they’re searching for the nuclear codes exactly like season 4 of 24? It’s just … so routine. And clearly this could have been identified at the script stage. 

Ok. I’m very concerned. 

“concerned face”

6 suggestions. 

1. I like the basic tentpole strategy + football. It is theoretically correct. Give people something to look forward to. 

2. The idea that expensive shows are some guarantee of success has been a painful illusion that must be cast aside. 

3. Clarify — or revise — the brand goal. The brand should not be “fantasy” it should be “quality.” Let Netflix go broadcast. A price is being paid for moving away from the highest bar and there just aren’t enough good fantasy and sci-fi shows per year to put together 52 weeks of TV. The schedule must be leavened with Maisels and Daisys and risk should not be so concentrated. Yellowstone, Fleabag, Transparent, Daisy, Maisel — sometimes shows are just great because they’re great. Follow that North Star. 

4. Where did the comedy go? People still like to laugh. Comedy does travel. Big Bang Theory was the number one show in Germany for years. 

5. Restore the prestige/indie element of the brand. It isn’t tentpole but the awards do attract earned media and customers and differentiate the service. “Quality.” 

6. There absolutely must be an answer for why everything important is blowing up on the launch pad. 5 whys. There needs to be an answer and it can’t be “you win some, you lose some.” 

Oh. One last thing. Is it really so impossible to leverage Amazon’s position in publishing and with comixology to create a sort of farm team of superheroes, like the next Marvel? How has there not been synergy between Prime Video and publishing? 

Hulu has 48MM subscribers and its US consumption is ~21% higher than Prime Video as of February 2023.

In a comedy-parched era, Hulu is comedy friendly, benefits from its FX partnership, and they have a lot of very strong shows including Only Murders in the Building, The Bear, What We do in the Shadows, Reservation Dogs and Letterkenny. And it’s the logical home for more offbeat or specialized material like Fleischmann is in Trouble. Then they add a dose of topical specials like Pam and Tommy or Chippendales and put it all on top of network next day air TV. Not bad. 

So it’s quirky, young, and fun and is one of the few islands in Hollywood not allergic to comedy. Love it. What they don’t have to lift them beyond Tier 2 is a genuine, red-blooded, mass market hit. I think the optimal path forward is to just keep doing what they are doing but be open to (a) a mass multicam hit and (b) making things a bit less polite. I would keep the “prestige” effort going and then make a bigger push on more multicam and animation — Family Guy, South Park — even more on the edge, lowbrow pushing-the-line broad comedy. There is a pocket there that no one is serving and it could be yuge. 

It seems likely that the fate of Hulu will be decided in the boardroom between Comcast and Disney. I think it would be a natural combination with Peacock. I presume they will wind up in some combination with Comcast since they seem like less of a fit with the Disney brand. 

A few years ago, everything Disney was crushing it. Recently, there has been a lot of inconsistency. 

In 2022, Strange World got a B cinemascore and a US box office gross of $38MM. Awful.  Lightyear got a 6.1 on IMDb. and grossed $118MM in theaters. Meh. 

Mandalorian Season 3 is attracting a lot of complaints from previously enthusiastic fans.  

I’m stealing the following from Matthew Ball’s twitter: MCU now has 5 total B/B+, 4 from last 6 films. From 2014-21, had 21 straight A- or better (only Pixar has a longer run) 

Marvel CinemaScores 2008- 

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A

A-

A

B+ (Thor 1)

A-

A+ (Avengers 1)

A

A-

A

A

A

A

A

A

A

A

A

A+ (Panther 1)

A

A-

A

A+ (Endgame)

A

A-

A

2021 ——-

B (Eternals)

A+ (Spider 3)

B+ (Strange 2)

B+ (Thor 4)

A (Panther 2)

B (Ant 3)

Looks like your kids’ report cards if he started smoking weed. That was the best hot streak of all time. What happened??  

OK. Andor was great.

Disney has the best brand in the business. But does it seem like something bad suddenly happened? Kevin Feige, a deity, is still there. I presume Jon Favreau is still available? Being in the business of entertaining children around the world, they seem to often get caught up in culture war controversies. Is there a way out of that or is that the new normal? 

Will Little Mermaid, Guardians, Elementals and Indy turn things around this year? 

Maybe the recent inconsistencies have just been a random blip. But when you suddenly get a drop in performance across all departments — Marvel, Feature Animation, Pixar, Lucasfilm — something feels non-random about that. 

It feels like an occasion for serious introspection. I think this is Bob Iger’s primary task.

Finally, I would note that Disney’s pricing seems completely out of whack to me. $9.99 for a bundle of Disney + Hulu? In my view, Disney is in a price inelastic zone. You could double prices. 

You have to give credit to Richard Plepler and the early HBO team for not only creating the most distinctive network in the history of American television but creating a culture that would sustain after their departure. If you build a business that falls apart after you leave, did you build a good business? People in general don’t get enough credit for the success of their successors. (Disney’s ongoing success should in my view settle any arguments about Michael Eisner’s leadership very much in his favor.) 

Casey Bloys is just a home run hitter. Never met him but Succession. White Lotus. House of Dragons. They are bringing it, big time. Warner Bros. has some big titles on the way with DC, Harry Potter, new Lord of the Rings movies and a renewed emphasis on kids. Zaslav and Perrette are smart and will allocate the Max budget against high value opportunities. The Batgirl decision was bold, shows conviction and shows a willingness to protect the brand. After the team disassembly brought about under AT&T, Zaslav has done some important rebuilding and now has a strong team including Mike DeLuca, Pam Abdy, Alan Horne, James Gunn, Peter Safran, Channing Dungey and others. Formidable. 

Now HBO has become “Max,” of course. The goal with Max is obviously to broaden HBO, which I am sure they felt was a strong brand with a ceiling. It seems likely that they will wind up with a gender balanced mix of prestige and tent-poles with reality and family and kids. A pretty powerful combination, and hopefully the HBO of it all doesn’t get too diluted in the mix. I doubt it will. 

Obviously I’m bullish here. If you told me that in four years Max will be the #1 brand in US SVOD, I would believe it. They probably have to up the volume of output a bit on the HBO original series side and hopefully they can do that within budget and while maintaining their high bar. 

One thing that WBD should consider, if its finances would allow, is some international acquisitions. I think they’re essentially leaving international for another day after they have the US situation cleaned up. But by the time they get around to it, they’ll be so far behind, it will be painful. They’ll thank themselves in 2028 if they send someone to Mumbai, Jakarta and Tokyo and do some mergers now. 

I have to say. Billions was a chef’s kiss show. And there is one final season on its way. David Nevins has left Showtime (great run) and Showtime will basically be folded into Paramount+. But then we wait for the Billions universe as there are three Billions follow up shows in development. 

Altogether, Paramount has 77 million subscribers. They had Top Gun. They’ve got Yellowstone, Tulsa King, 1923, Beavis and (sort of) South Park. But it doesn’t become the home of South Park until 2025. Now they have Star Trek: Picard, which has been well-received.

Paramount has 77MM total subs. They are almost four times as large as Peacock. However, in December 2022, Peacock got 1% of TV consumption as measured by Nielsen and Paramount didn’t chart. There is something strange about the data around Paramount. Their usage numbers seem  lower than their sub numbers would suggest. Sometimes the numbers in SVOD are dodgy.

Things are going well here in a very concentrated way — basically concentrated 90% around Taylor Sheridan. The Sheridan-verse has a lot of momentum though and Taylor Sheridan is hugely talented. They have been smart to triple down on their success. And the other things they have done, like Star Trek, have also been good. 

I’m bullish on Paramount 90% because of Taylor Sheridan and 1010. I would suggest that Paramount not lean into the NY/LA HBO/Showtime “prestige” audience but instead lean into South Park, Yellowstone, CBS and just big time regular middle America. If they’re going to go from Tier3 to Tier2 or a Leader, that’s how that could happen. 

That said, it would be no surprise if Paramount were part of Sun Valley merger discussions with Comcast or WBD or Google. 

But if I were them, I’d go it alone. 

The one question is, with David Nevins having left, is — who here is great at developing television? We have Brian Robbins at Paramount movies but when we want to develop things that aren’t Taylor Sheridan, who is doing that? 

Peacock has 20 million subscribers and is growing, mainly it seems, due to sports. But, really, this feels like a half-hearted place-holder waiting for some strategic decision to take place in Philadelphia — presumably a combination with Hulu or Paramount or WBD. On the originals front, there isn’t much to speak of. 

Comcast is not thriving in cable or broadband and it has this stable but subscale business in entertainment. Growth businesses: 0. You might imagine they’d be open to a transaction that improves their strategic position. 

Mergers are complicated and the FTC is in an aggressive mode. I would think that as an alternative to merging companies, Peacock should at minimum be taking a hard look at bundling itself with other offers. From the point of view of a smaller player like a Peacock or even Paramount, if a new Samsung TV or Amazon Fire came with a one year bundle of Peacock and Paramount with universal search and an integrated UI, that would not be a bad thing. 

Apple has a small, high quality programming business. They have produced some strong shows such as Ted Lasso. They have a strong team. Richard Peppler and team have create a sort of mini HBO. And a small number of people watch it. 

I suspect that Apple will decide either that (a) this is irrelevant, why are we bothering with this?, or (b) we should probably go bigger. B is more likely than A. 

If they decide to go bigger, it would take a long time to grow organically. The logical path would be an acquisition. There may be bars to an acquisition for such a large company but certainly I don’t think it would be crazy for Apple to buy WBD, for example, putting Plepler … back at HBO! 

Why am I discussing YouTube at all? They don’t produce original content. 

YouTube is huge, they have all the money in the world, and they want to grow in video. Subscription premium video is a contiguous space for them. I don’t think they’ll ignore this space. They could easily buy Paramount or WBD. 

The reason Google has failed in the past in entertainment is that the Google team fundamentally does not understand Hollywood. Presumably, this can change. It changed at Amazon.

I expect Google to buy a Hollywood entity, most likely Paramount or WBD. Possibly Lionsgate. I wonder what they’re waiting for? 

Oh. One more thing. 

I just want to put a marker down that with everyone going so broad, the indie/prestige market feels very obscured and neglected. And the A24 brand has a lot of love. There is an opportunity for a subscription network here. 

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Net net. You know. Anyone can talk like they’re in the NHL and sound like they are a starting NHL forward, but at the end of the day only one question matters: do you get the puck in the net or do you not? Some are doing that better than others. These are companies but they’re like restaurants — a lot depends on the head chef. Which is part of what makes it fun and interesting. 

I’m bullish on Max and Paramount. 

Pretty bullish on Hulu, though they don’t control their own fate.

I expect Disney will at least improve their economics considerably. Hopefully creative gets back on track.

I am expecting YouTube and Apple to acquire. 

I expect Peacock to be involved in a transaction and maybe Paramount. 

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Roy Price was an executive at Amazon.com for 13 years, where he founded Amazon Video and Studios. He developed 16 patented technologies. His shows have won 14 Best Series Emmys and Globes. He was formerly at McKinsey & Co. and The Walt Disney Co. He graduated from Harvard College in 1989.