Julia Alexander is a senior strategy analyst at Parrot Analytics, a company that helps streaming companies do better at… streaming. She also hosts the downstream podcast, which is about the business of streaming. Since we are a couple years into a huge shift to streaming entertainment in Hollywood. It’s clear the streamers are here to stay, while the legacy media companies are in the middle of huge transformations.
On the one side, Apple just won the Oscar for Best Picture for a film it bought out of Sundance called CODA. Amazon now owns MGM. Netflix is investing in games and hinting at advertising for the first time.
On the other side is Disney: a company with a new CEO in Bob Chapek, who is reorganizing the company around streaming — in the process, irritating big stars like Scarlett Johansson and its own major studios like Pixar by sending movies directly to Disney Plus instead of the theaters. But on the flip side, Encanto became a sensation only after it left theaters and hit the app. So I wanted to ask Julia how that shift was going and how Chapek’s restructure was playing out after the storied tenure of his predecessor Bob Iger. Decoder is a podcast about org charts, after all.
Quick disclosures: NBCUniversal is an investor in Vox Media, Vox Media has shows on some of these streaming platforms, and The Verge itself is working on a show for Netflix. That said, I don’t have any inside information as to what is going on at the streaming companies at large.
This transcript has been lightly edited for clarity.
Julia Alexander has covered streaming here at The Verge in the past and is now the senior strategy analyst at Parrot Analytics and a co-host for Downstream, which is a podcast about the business of streaming. Welcome to Decoder.
Thank you for having me.
You are the perfect person to talk about the whole streaming TV industry, which is seeing a lot of change right now. I kind of understood your job when you worked at The Verge and I had a feel for what it was you did all day. What do you do as a senior strategy analyst at Parrot Analytics?
The majority of my day is split between two things. In the mornings I tend to do a lot of research projects — pouring over different data that we are pulling via SQL and looking at trends to figure out what is happening in the industry and what our clients can use from a strategic standpoint to better their companies and their divisions, which tend to focus on streaming. The latter part of my day is spent with a lot of clients across the entertainment and media landscape trying to help them make sense of all of this.
Are you allowed to reveal your clients? Can you give us a general sense of what kind of companies come out to hire you or a firm like Parrot?
Sure. I can’t talk about my clients, but across the board we have certain clients we work with like Disney, WarnerMedia, Amazon, and a bunch of different companies, mostly focusing on their direct consumer efforts. Some try to focus on the linear while some look at other questions like what programs to license or acquire, or what type of series they should be making for underserved audiences; we pull a lot of that data and then help them in that spectrum.
One of the things that I think is really interesting about streaming, in both a positive and negative way, is that there is more data about what people are watching, who those people are, and what granular elements of a show appeal to them. On the flip side, it doesn’t seem like anybody knows how to measure anything and all of the measurements are incompatible and not directly comparable. How do you make sense of that?
I think we have to examine what has shifted with the measurement system. If we look back at what worked under the Nielsen method 20 to 30 years ago, it was this idea of what worked for advertisers, so it was entirely based on consumption patterns. You could look at a very fixed schedule, for example 8:00 p.m. to 9:00 p.m., on a Tuesday or Wednesday, and Nielsen can say, “12 million people tuned in to watch Law & Order.”
This is great for advertisers, and it’s great for NBC because they get to charge higher rates. That relationship between customers changes once it is direct-to-consumer. Now what you are trying to figure out is the affinity — the adoration that certain customers have for certain shows, certain characters, and certain franchises — so you can convince them to pay you $10 to $15 a month, if not more in the next coming years.
What we are trying to figure out is how to take the subject of demand in an attention economy — which is a term everyone uses — and monetize it. It is more than just consumption, it is a lot of asking questions like, “Who is making TikTok edits? Who is on Twitter rallying people? Who is figuring out ways to upload episodes of shows for people who do not want to subscribe, but want to be able to engage in this type of series?”
So we use that and go to the companies to basically say, “If you have their adoration — this concept of love which is hard to quantify but is extremely important to the conversation in direct-to-consumer relationships — then you are going to be okay. You are going to pull out with continued customer acquisition and you are going to see lower churn rates and higher retention.”
So let’s say I have a new service, called thevergestreamingcompany.com, and I have one huge exclusive series to launch with, but I know it is going to go away after two seasons. My huge worry is that everyone is going to churn off and stop paying me once that second season is over. Are you saying to launch new series, you have to make sure people love them so they stay?
Yes. It’s the Apple equation to a certain extent, where Apple TV Plus is batting above its average with originals. Even with how few shows they actually have compared to everyone else, the demand for it is pretty high and they are successful; they have Ted Lasso winning a bunch of Emmys, and CODA, which just won best picture. Apple TV Plus has what we call high-acquisition titles, which is where customers will sign up for them. What they do not have, which is just as important, is the catalog demand. They do not have any market share when it comes to actual catalog. When people are done with CODA and they want to watch Seinfeld or New Girl, whatever it might be, they do not have that.
I think that brings the question with Apple — and to an extent with Disney Plus, which also has a really small catalog market-share-wise compared to its competitors — of, “How much do you want to be in this game?” If you want to be in this game, you have to have the ten-thousand to twenty-thousand title back catalog that Warner, NBC, or Paramount has. On the flip side, Paramount Plus and Peacock — which are from Paramount and NBCUniversal — do not have the big titles that bring in people that are saying, “Oh, well, I’ll sign up for this.” Half of Peacock’s stuff is available on Hulu and people say, “Well, Hulu has titles I actually want to watch, so I’m going to sign up for it and watch my NBC shows there.” This is the moment we are in, trying to find that balance. New services really need something exciting to bring in those first customers in the first place.
That’s where you are focused; it seems that what you all measure is social media activity as a proxy for affection. It sounds like the equation here is that you need some new stuff which generates a lot of hype to bring people in that you can convert into subscribers, and then you need a huge catalog to retain them so they don’t stop paying you.
Yes. A big portion of my job is looking at usage in household and demographics. If I look at a certain audience for a certain platform, like HBO Max, my recommendation is going to say, “You have no shows for teenage girls.” Teenage girls love consuming content, and they love making content about the content they are watching. It is a huge market and is a relatively cheap market, because it has a lot of reality, a lot of romance, and to an extent action adventure.
When we look at the data points, there is this huge crossover with underserved audiences which tend to be young females and young women of color, who are not served as well as men tend to be. Whenever I talk to certain companies, a lot of the recommendations I bring up are, “You want to make another Star Wars because you think that is the way to make a billion dollars, but Star Wars already exists; people who want Star Wars are going to go to Disney Plus and they are going to get it. There is a huge market with a hole in it where you could just pivot towards focusing on them for a little bit. You are then going to bring in your subscribers and reduce your churn. Then by that metric, you are going to be able to increase your subscription fee because you have low churn and can take that opportunity.”
I realize this is your job, so you are going to tell me that message is resonating, but I think this is the challenge of the whole industry. The numbers are telling people where the money is and yet the market doesn’t seem to be moving in that direction as fast as you would expect.
I think a lot of issues in the industry are communication issues, and I don’t just mean between a boss and someone else via email. There is this idea of “what can work” and “what will work,” versus “what may work.” They are promising two to three times the growth on these streaming services that are not profitable, but they are telling the street, “This is our future, so we have to be profitable. We have to go big, so we are going to do the big adaptation of the big IP and we are going to be in this place for $100 million to $120 million, and we are going to own that.”
Instead, you can do what Netflix did really well in 2014 to 2015, which was taking a lot of chances on content no one else wanted to make and building its audience there, because there were huge audiences who were vastly underserved.
The way that I tell clients to think of their platforms is not necessarily as an entertainment service, but as a vertical of discovery. It is a place for people to come and be introduced to something that they do not even necessarily know that they want to watch, but that they might be interested in. Once they do, now you can open them up to a whole new world of content that is cheaper to make — animation and anime is a big one — and really build up space there, where no one else wants to. To your point, that message is lost when everybody is trying to make the next Marvel or the next DC, and it’s such a limited number of companies who can do that from a rights perspective. The interest in that is going to target the same group of people over and over again. You have to expand beyond them.
That is a good pivot to Disney and Marvel. Obviously the Disney acquisition of Marvel under former CEO Bob Iger was a huge success story. Are we now in Phase 45 in the Marvel Cinematic Universe? I am going to put out there that I actually think it would be better for Disney if this phase was a failure. The previous three phases that ended with Avengers: Endgame were huge successes, but I think it would be good for that company if they didn’t just have this thing to milk, if they had to pivot. I think that brings us into the current state of Disney. There was Bob Iger, now there is the new CEO, Bob Chapek. You and I have discussed the many “Bobs” of the industry when you were at The Verge on The Vergecast many times. Chapek was Bob Iger’s handpicked successor; he is the guy now that Iger is out of the picture, and it doesn’t seem like they like each other anymore.
The flash point was this bill in Florida that has been nicknamed the “Don’t Say Gay” bill. It limits how educators are allowed to discuss sexuality and family structures in schools, in ways that probably overstep because of the extreme ambiguity of the language in the bill. It seems pretty obvious that Iger would have spoken up against the bill, since Disney is a huge force in Florida. Chapek did not speak up loudly, which caused his employees to walk out. He has since apologized to employees, and now Disney is going to lobby against this bill, but the Republican government of Florida says they are going to punish Disney. It seems frankly unconstitutional to use the power of the state to take away Disney’s protections under Florida law, or — as some Republican politicians are now arguing— that we should amend the copyright terms of the United States. All of that seems crazy, but at the heart of it is how Iger would have done it and how Chapek is doing it; that seems to have led to a rift between the two.
Right. There are a multitude of issues within the succession that has happened between Bob Iger and Bob Chapek, and I think a really good way to think of it is through Jack Welch and Jeff Immelt at GE. When Jack stepped down, he stayed around for an extra year and then Immelt, as he might say, messed up around the early earnings; I believe he projected a $5 billion revenue, and it came around $3.2 billion. Jack went on publicly to say, “Look, I would not have done it this way,” and he is very invested in this company he led for 20 years. That puts Jeff Immelt in a really interesting position where he says, “I do not want to go up against the guy who led this company, who is beloved, but also it is my turn. I want to do what I’m going to do with this company.”
That is very much where Iger and Chapek are. Iger is still Disney’s largest single shareholder with 500,000 shares — about $71 million these days — which is a huge deal, so he is still in the company regardless, and in a very big way. Now you have Chapek who fundamentally is so different from Bob Iger. Bob Iger had this amazing emotional intelligence and he was able to really connect with talent. He believed in having debates with a lot of his executives and people in his C-suite; he wanted to have this constant conversation about how to do things.
Bob Chapek surrounds himself with handpicked people — which is not uncommon — who are relatively new to working with talent, are new to representing Disney at a very public level, and most importantly, are new to understanding how to view Disney. They are new on how to carry Disney not just as a company, but as a brand that really resonates with consumers in a way that very few companies do. You can compare it to Apple, where there is this genuine adoration for not just the product, but for the company itself.
When we think about that, there are three big issues. The first one is how Bob Chapek seemingly communicates with his staff and the greater public. With the “Don’t Say Gay” bill, Bob Chapek from the get-go does not really communicate with people at Disney, many of whom belong to the LGBTQ community and are allies of the community who support it. He does not communicate that neither he nor Disney are going to take a public stance, whereas in previous years, Iger and Disney would have. Instead he says, “Our content is good enough to show that we support the LGBTQ community.” But it is not because in China and in other countries, they get rid of any scenes that have LGBTQ moments. This is an ongoing issue within the studios at Disney, who are trying to fight this change.
Two, you have Bob Chapek arguing to some extent with the leaders of the different studios and the different divisions at his company, because he takes away something very boring called P & L, which basically means they are no longer in control of their budgets. The person now in control of their budgets is a guy named Kareem Daniel, who has been Chapek’s right-hand man since Daniel interned for him as an MBA student many years ago. He said, “You are in charge of all of these creative fields, and you are going to be in charge of the budget,” which does not jive well for Disney, a company where each division was given control of their budget.
Three, which all leads to this point, is that Bob Chapek is in a difficult position of trying to take Disney, a legacy company of yesterday, and make it into a legacy company of tomorrow. That means becoming more like a tech company rather than a traditional media and entertainment company. He arguably runs it the way that some tech companies might, where he breaks up the content production and the distribution. He goes in and says, “This is how it is going to work; we are focusing on streaming, on the Metaverse, and on how to get into these different positions.”
All of these issues happen at the same time. So it seems like Bob Chapek is losing control of the kingdom, versus Bob Iger had control over it. But what I think gets lost in that is that Bob Chapek is just over two years into his tenure as CEO, and his first job was pulling the company out of the pandemic and focusing on how to just survive it. Now he’s being tasked with carrying the company very publicly in a way that generates support from the shareholders, from the consumers, and from his employees. That’s easier said than done, especially for someone who’s so new to the role.
I feel like the pattern of the visionary CEO who leaves and then hands it over to the best operator of his crew instead of another visionary is fairly common. I would actually make the direct comparison to Apple. Steve Jobs is the visionary. He hands over the company to Tim Cook, who’s an operator. Tim Cook is massively successful as a CEO if you measure the business performance of Apple, obviously, but no one’s running around saying Tim Cook is a product visionary. I think he’s been good at carrying the cultural legacy and the moral position of Apple as well. I don’t think there’s any question there. But no one thinks that Tim Cook invented the AirPods. It’s just not the role we ascribe to him. Do you think Chapek is a creative visionary the way that Bob Iger was? Because Iger had credibility because all the creatives believed in him.
Exactly, and no. I also think Chapek would argue that he’s not a creative visionary in the way Bob Iger was — which is fine in a tech world where your major concern is the product and this kind of consumer experience in a very intimate way, if we think of how devices in our lives exist — which I know you do, you think about quite often. Chapek is this guy who is tasked with moving Disney as a creative company into a tech-oriented role while remaining very, very in line with creatives. It’s the creative power that makes Disney what it is.
If we look at Scarlett Johansson and her lawsuit when she sued Disney for how she felt she was treated with Black Widow moving to Disney Plus during the pandemic, that is, at its core, the first moment people realized this Bob Chapek is not like Iger. And that’s going to become an issue when Disney is fighting for top talent for its franchises, for its new franchises, for what it’s trying to do, especially with the theatrical landscape having a revolution — in a positive, also in a negative way — and within the studio landscape.
The idea of where do movies exist and how do we compensate talent? How do we think about the power of a movie in a theater versus what it looks like if we send it directly to Disney Plus? That is something that’s happening with Pixar. Their movies are being sent to Disney Plus, and that leads to jokes about Pixar being the next direct-to-video brand for Disney, which is a studio that cost them $7 billion and really pulled Disney animation out of the red in many ways.
So when we see the “Don’t Say Gay” bill, there’s a disconnect between how Chapek views his fiduciary duty, which is promising Wall Street and his shareholders things like “we’re going to get to 230 to 260 million subscribers by 2024” — which is a daunting promise, a daunting projection. At the same time, Chapek has to carry the brand that is Disney, that stands up for the right reasons, that stands up in political and social issues and humanitarian issues, that engages with artists and creatives, and really understands how to talk to artists and creatives. Because talking to distributors and your executive team [is] very different from talking to someone who’s poured their heart into a role or into directing or into writing a film.
That is something he didn’t have too much experience with; he did not come up through the studio on the creative side, he came up on the distribution side. I think to your point about Tim Cook, it may make Chapek a good CEO in five years when Disney is really in the middle of this move to becoming a big tech platform, or the idea of tech being more integrated with its actual core identity. Until then, he is still the head of a creative company known for some of the best creative teams in the world. Unless you can connect those together the way Iger did towards the end of his career — where he really started to get into the streaming space and figure out what the next move was — it is always going to be a tough battle internally and externally. That is when you have questions from shareholders and the board that come into play, such as, “Is this the right move? Is this the right guy?” I think he needs time to prove himself and needs time to get out of all of these situations that he has found himself in. It is a concern for people who really support Disney because they are so used to Iger, a tough CEO to best no matter who took over.
I don’t know that time solves the Republican party going to war with your company in an election year. To me, the politics in America is now about the culture war entirely. There is no solving it for any CEO and he just has to deal with it. That might limit his market, but it probably won’t because they are Disney and they are going to keep making MCU movies. I think it’s safe to bracket that.
Let’s talk about what you described as “becoming a tech company.” I hear that — and I think it is great for these companies to describe themselves as tech companies — but what they are really describing is distribution via apps on smart TV platforms. They are not talking about tech in any other sense, like putting out mobile phones; they are talking about having an app that is going to become their distribution platform and change the business. Is there something I’m missing there or is that really it?
No, that’s it. When we look at the way Disney wants to bring itself into this tech equation and the way that Netflix started off as a tech company — and now feels very much like a media entertainment company — this is a debate that every CEO hates. You ask, “What are you? Are you a tech company or are you a media company?” They will just say, “Hopefully we are a profitable company.”
It is much more difficult for Disney to make that move because it has been operating very similarly for decades. There is this issue of control of the budget and green-lighting being funneled up to one person who was never in any of these processes, but is Bob Chapek’s right-hand man.
This is a lesson that was actually going to be implemented under Bob Iger. When Iger spoke to Robert Kyncl — who I believe is still a chief business officer over at YouTube and used to be at Netflix for many years — he basically told them, “You can’t have your content team and your distribution team on the same team. It just does not work. You are going to run into too many issues and too many delays. Instead, you have to funnel it up and split it off.”
There is some reporting that came out of CNBC that Iger was thinking about doing Disney Plus, so he went and talked to Kyncl, who as you said, is the chief business officer at YouTube and previously Netflix. Kyncl’s advice to Bob Iger was, “You have a team that makes the movies, the content, and then you have a team that runs your app, and they cannot be the same team.” The way you just said it seems to now be received wisdom in the industry; you said it as though it is obvious. It is not obvious to me. Why do those have to be different teams?
I also don’t understand why. If you have one person in charge of making a decision for the platform, you don’t have to run into all this red tape about who is going to greenlight what for each different network. There was a big issue that came out when Kevin Mayer, who oversaw a bunch of the acquisitions at Disney — who went to TikTok for a little bit, and now has his own company under Blackstone — was overseeing Disney Plus. He could take a show and say “I’m greenlighting this and it is going to Disney Plus, so I am in control of it.” But then you would have different executives like Peter Rice, who is a very senior executive at Disney overseeing their TV division, who would say, “Well, I am going to greenlight it, and I want it for ABC.”
By saying, “This person is going to decide where the show goes, and you just have to make the show,” that takes away a lot of control from a lot of executives. Specifically in the Disney company, Peter Rice and John Landgraf — who oversees FX — really like that control; they like being able to say, “I am going to greenlight this, and it is specifically going to go to FX,” or, “It is going to go to ABC and I am going to be in control of everything from the budget to the production.” Instead Disney is now saying, “You get to create the show and you can greenlight it, but Kareem Daniel is going to decide where it goes.”
He is going to decide if this is a Hulu show, an FX show, or a Disney Plus show. I think what this gets you within the entertainment industry is a lot of bruised egos, and a lot of trying to figure out what your role is within your own team, within your own vertical, and within the greater company itself. This was something that did not exist at Disney before; every person who oversaw their own division had complete P&L control, which was everything from creative to budget. That is now basically stripped from them because Bob Chapek, and Bob Iger as well, said, “We want to be able to focus on streaming. We want to be able to focus on Disney Plus, and we want to be able to have people in charge who can say, no, I’m taking this. It’s going here. This is our future.”
..At the end of the day, every Decoder episode is about org charts. This is a real theme of our show. We are now into the org chart of Disney and the trade-offs it contains, so let’s apply that to Pixar. The idea that Pixar is going to become a direct-to-video animation business is a meme. I don’t know if it is a totally fair meme because Pixar movies are still all very good, but the last three movies have skipped theatrical release. They go straight to Disney Plus, which causes some tension because the theater is still seen as the most auspicious place to release a movie. The problem is that people are not going to movie theaters. How does that play out?
The long question was always, “are theaters necessary for franchise making,” which is a very big deal to Disney. Arguably the biggest deal to the biggest company is, “Can we make a franchise out of it? We operate a flywheel effect, so if we can sell a bunch of Encanto merch or get a kid to go to an Encanto food stand in Disney World, then they will watch Encanto 2. We are now thriving because we have a whole self-fulfilling prophecy.” To understand the Pixar equation, I think we really need to break down some very quick Disney Plus facts. Disney Plus currently has 130 million subscribers globally, but 43 million in the US. RPU is about $6.68 in the US, which is pretty good.
RPU is average revenue per user.
Yes, average revenue per user is about $6.68 in the US. It is up about 15% year over year, and churn — which is how many customers they are losing — is relatively low at about 3.7%. The industry average is about 5%; the only company with lower churn than Disney Plus is Netflix. With that said, when we look at Pixar and the question of if families are still going to theaters and if family entertainment underperforming — which it was as of a few months ago — Disney says, “We have these movies that we know will engage kids. We are pretty sure families will sign up for the service if they have not already, and we could possibly get some new fans out of it. If we move it to Disney Plus, we can track the engagement and we can see if we can build franchises out of this.” Bob Chapek has said this many times on earnings calls, where he refers to a lot of it as experimentation. They are trying to figure out what makes sense in the market. Do you go to theaters for 30 to 45 days, then go to Disney Plus? Or do you go directly to Disney Plus?
So the thing that he points to over and over again is Encanto, where he says, “Encanto did just under $100 million in theaters, and then it went to Disney Plus and it skyrocketed. It was the most watched movie and it hit number one on the iTunes charts. There is an audience for kids and for adults on Disney Plus if we move our movies here.”
So with Pixar, and especially the three Pixar films that this happened to — which was Soul in December 2020, Luca in June of 2021, and then most recently, Turning Red last month — none of those movies are based on preexisting IP. I do not necessarily have to go to a theater to see those movies. All of them are more likely to find a bigger audience on Disney Plus during the pandemic.
When we look at what is happening with Pixar, it is the most understandable, justifiable business move for the company. The issue, which speaks to this overall miscommunication issue that I think Bob Chapek is currently figuring out, is what this communicates to people inside and outside the company. Pixar, an Academy Award-winning division that Bob Iger spent many, many months rebuilding a relationship with Steve Jobs to acquire in 2006, is now being seen as the direct-to-video, bargain-bin studio. That is upsetting to people at Pixar and to fans of Pixar. That is very questionable to people who study the industry who are saying, “If Pixar movies can’t go to theaters, what does that say for any other type of movie that people are trying to make in the kids’ entertainment space?”
The move that Disney is making is the exact same move that Netflix is experimenting with. Netflix decided two to three years ago that they were going to produce six animated kids’ films a year, which was more than Disney Animation at the time. They said, “We think there is room for franchise growth and franchise building in the kids’ space on streaming.” Netflix decided to take that opportunity and try it, but has not seen too much success with it. Their biggest kids’ movie came from Sony, and that is The Mitchells vs. the Machines, which they acquired from Sony and their partnership with the company.
But Disney is now saying, “We have empirical data showing that we can actually build franchises and it is going to save us a ton of money on marketing and on printing. It can go directly here and we can collect credit card data and watch how our users are doing this, and it actually provides us more information about how we can market theme park passes, cruise tickets, and so on.”
I think the bigger issue with all of that is that he forgets the creatives. At Disney, even if you are moving into this moment of, “We are a streaming company,” you should tell the street over and over again, “It is fine that we are losing money in theaters because we are a streaming company, and that is where our focus is.” You have to communicate better with the actual team members and the creatives who are building this product that you are going to build an entire franchise around. That is where Bob Iger had a lot of emotional intelligence to work with creatives and to have these conversations. Something like moving Turning Red to Disney Plus under Iger would have taken months and it would have had discussions with almost everyone, which makes them feel included. It’s another benefit.
Under Chapek — who is much more operational — streamlining it takes three weeks. He talks to the Pixar team and says, “This makes sense for us. We are going to move it, and we are going to figure it out.” That disconnect is really the core issue of what is happening with Disney.
I get that the theater is still fancy and people want to go to the theater, but if you just look at Encanto — this is now an absolute sensation, every song on the soundtrack is going to number one. I literally hear the words, “Time for dinner,” just ringing through my head from “We Don’t Talk About Bruno” because my kid is constantly watching this movie. Every parent I know is just surrounded and inundated by this movie that would not have been the hit it was if it had languished in the theaters. This is because of streaming. You said at the beginning that you can measure affinity in different ways at Parrot. Do you see that bump? Do you see that because this went to streaming, the social media phenomenon behind Encanto has made it a different kind of hit?
Absolutely. We saw exponential growth in demand the second it hit Disney Plus, but the demand for it was pretty average when it came out in theaters. It was what you would expect to see from a Disney Animation movie, but you expect to see a little bit more from Pixar. The minute it hit Disney Plus, it sat at number two globally, behind only Spider-Man: No Way Home for eight or nine days. Then the song “We Don’t Talk About Bruno” became more of a meme, and more of a fascination with people; it became an absolute seller and continued to take off. Disney’s argument is that this can happen for every movie. Theatrical defenders will say, “It’s only one example, and there is not enough data to really show if this is the move in consumer behavior, or if this is just a one-time deal.”
We get a lot of debates happening because analysts point to theatrical attendance per capita declining over the last 20 years, which is true. Attendance for certain films, which tend to be superheroes, sequels, and scaries — I call them the three S’s — tend to increase. What that means is people are going to theaters less, but they are going to see more of a certain type of movie.
The argument from the other side is that if studios remove 30% of their theatrical releases to move to streaming — which is what a lot of these companies are doing — how can you take the opportunity to see if people will actually return to those movies if “superhero fatigue,” which isn’t really proven, kicks in? This is an ongoing debate for companies like Disney, Paramount, or Universal, who have these streaming services. It makes sense from their company’s bottom line business perspective to move to streaming services and to have their best films available there as quickly as possible to bring more customers in and keep them there.
The argument from the creative side is that they still believe the only way to make franchises is in theaters. You need to have the 45 days to give people a chance to see it, then go to the secondary window with DVD, Blu-ray, iTunes, and then you go to streaming from there. We do see, from a data perspective, that there is longer-term demand if it goes the more traditional route, but certain movies are just naturally going to perform better on streaming. They are going to be more valuable to a company via streaming than they are in a crowded theatrical marketplace, which is what we are getting back to.
I think with the Encanto argument, it was proof that if the movie is good, people will find it. If it is available online, it becomes much easier to create earned media around it, and that was a big part of the Encanto success story. The question for Pixar, Disney Animation, and everyone else is, “If we lose that theatrical placement — if the theaters just become Morbius and Spider-Man — what does that mean for the future of our entertainment? How does that affect our value?”
Again, that comes back to the miscommunication sector where this is something a CEO with really strong emotional intelligence, like Iger, would have many conversations about to try to figure out how to make everyone happy — shareholders, consumers, and employees. I think Bob Chapek is much more focused on shareholders and consumers.
I have a million more questions I could ask about Disney, but we are running out of time. Let’s talk about the other giant that is undergoing massive change: WarnerMedia. I feel like if we have any crossover listeners from The Vergecast to Decoder, you will know that Julia and I spent hours of our lives talking about WarnerMedia with each other. The quick summary is that AT&T bought WarnerMedia, then called Time Warner, for $85 billion. There was sort of an immediate culture clash because the phone company had bought the Hollywood studio. A bunch of people left, and there were many layoffs.
Eventually, they did launch HBO Max. They brought in Jason Kilar, who is the CEO of WarnerMedia, and very much a tech person. He got in the same kind of talent fights during the pandemic because he moved all of Warner’s theatrical releases to HBO Max. There was just nonstop chaos. AT&T gets a new CEO — who is actually the guy who bought WarnerMedia, John Stankey — and his first decision as CEO is to spin off all the stuff he was in charge of buying, including DirecTV, and now he is selling WarnerMedia for $43 billion. So AT&T bought this thing for $85 million, and now they are selling it for $43 million. What happened there?
That is a good question. The initial thought from John Stankey and the AT&T team was that if they could vertically integrate WarnerMedia into their division, they could use WarnerMedia to sell better phone plans. The idea was always to supplement the core product. This is a conversation I have with many of my clients, which is, “What is your core product that you were trying to build around with the introduction of a direct-to-consumer platform? What is this thing you’re trying to do?”
AT&T thought, “If we have WarnerMedia, this will help us in the same way that Comcast and NBCUniversal worked as a company in 2011, when they merged and are still together.” It did not go as great as expected. It turns out that if you offer HBO Max on an assortment of platforms, people will not necessarily watch it on their phone via AT&T Wireless.
So now WarnerMedia is merging with Discovery, which has split people on whether it is a good or bad idea. I think it makes the most sense for those two companies as they are perfectly complementary to each other; HBO Max tends to skew a little bit older and much more male, while Discovery is a little bit older, but much more female. The reality programming of Discovery can become younger if they focus on those creative pursuits, and HBO Max can figure out a way to go a little bit younger with the animation side that they are trying to get into. If you combine those things, what you effectively have is cable light.
It’s basically like saying, “Here is where you can get all of your favorite entertainment, and we are going to maybe do a little bit of sports here.” This is a conversation that David Zaslav, the CEO of Discovery, will have with his team. Jason Kilar, CEO of WarnerMedia, famously said he did not want sports on the platform. Sports on TNT, which they also own, is a very big deal to him and the company at large, but Zaslav seems much more inclined to say, “We’re going to bring sports onto the platform.”
So you have got a little bit of sports, you have a little bit of news, via CNN Plus, which just launched. I am sure that will roll into whatever platform that they launch, which will be Discovery plus HBO Max and CNN Plus. So you have news, sports, and a lot of different entertainment. The question that comes out of this is, “What do you price it at? At what point are you just recreating cable, but in a much more fragmented and almost annoying way?”
I realized I never asked you about CNN Plus, which WarnerMedia just launched. There is obviously a lot of drama at CNN. Jeff Zucker was forced out of the company and there was lots of scandal, but they went ahead and launched a streaming service anyway. It is a weird one, because it is not its own app. It is like a tab in the existing CNN app; it seems a little confused. What do you think is going on there?
It is the type of app that gets launched for what we would refer to as super fans. ESPN Plus would be comparable. It is for a specific type of person who is interested in what I refer to as infotainment. It is Anthony Bourdain, it is documentaries, it is daily shows from the CNN hosts that are not about CNN. When we use the term plus for CNN, you would assume you get CNN and then some, but it is CNN minus.
You do not get CNN, and you do not really have live programming. You do not have access to the type of journalism that people turn to CNN for when there is a war or when there is a pandemic, when they want to get first up-to-the-minute news. What we will see happen with CNN Plus, I am positive, is it will exist for maybe about a year or so, and then it will be thrown into the inevitable HBO Max, Discovery Plus, CNN bundle. It will not be a net loss for WarnerMedia, but they will just invest in it as part of additional content to the overarching bundle. It is not going to be its own standalone product and it is not going to be a big thing that they are talking about. I mentioned on Twitter at one point that it seemed like a way to retain talent as the talent wars are heating up — when all of the different anchors are being talked to by all the different big companies to take on different roles and be the face of all these streaming services.
Someone at CNN told me that they felt it was the exact same thing, and that is how many of the talent felt. They were being given the opportunity to do new shows on CNN Plus that they could not do on CNN because there is a fixed schedule and a fixed type of audience. That’s great. That works better as part of supplementary news. News is additive. It is a heartbeat, but it is not what CNN Plus is. It is a very confusing product that does not make a lot of sense, but will within a bigger bundle.
So what would make it make sense is CNN?
Right. The reason that CNN Plus cannot carry CNN coverage is because of the affiliate revenue that they make from CNN and all the rights agreements that they have with advertisers. They cannot bring it to CNN Plus because it would be a whole headache for them. Until they figure out that situation, CNN Plus is basically just documentaries and reality programming. They can give it the CNN logo, and that is what they did at HBO Max. They just had CNN programming and added a CNN block to it, and that is what it should be within a larger bundle. The idea of CNN Plus without news does not make any sense to me.
I actually still do not know the difference between an HBO show and an HBO Max show. They are labeled differently in the app, and I’m like, “I don’t know. Does that mean one is worse?” I think CNN Plus has the same problem.
I always think of my mom in these situations. Would she care about the difference between HBO and HBO Max show? She wouldn’t. A lot of people don’t. A lot of people watched Station Eleven and think it was an HBO show, and then they figure it’s an HBO Max show. People watched Euphoria and thought it was an HBO Max series, and it was an HBO show.
This is only important to the executives who oversee them, and they are like, “That is an HBO show, which is very different from HBO Max,” but I think for the general consumer, the inherent value of just having all of that programming is better than trying to figure out who it belongs to. Eventually it becomes, “FX shows are on Hulu, and so I assume HBO shows are on HBO Max.” As long as customers are paying, the top CEOs and COOs don’t really care whether it’s HBO or HBO Max. It is all being streamed.
It is super annoying, especially because they won’t allow the Apples, the Rokus, and the Amazons of the world to build an interface on top of all these apps. Some of them will, some of them will not, and you’re still jumping between apps.
I think we are getting back to things feeling really bloated. When streaming was first coming out, the promise of it was this idea of à la carte that you could not get via cable. It has been so long since I had cable that I don’t know how much it costs these days, but you would pay for the whole suite and it would be easy. There were a lot of things in one specific setting, but it is bloated; you have 500 channels and you are using maybe 40 of them. It just didn’t feel good, and you could not get out of it. Trying to call a cable company to do anything with your plan was a tedious affair as well. So with streaming, and especially with Netflix, it was this idea of, “Hey, you can just pay ten bucks a month and you are going to get a bunch of different things, but you really control what you want. You are choosing to buy into it and it is your choice.”
Now with the consolidation happening and the conglomerates coming back in, they are basically saying, “Well, we have all these different products that generate revenue and we want to bundle them in some way,” whether that is by creating one platform that is an internal bundle, or the Disney streaming services bundle aspect, where they are saying, “You pay $14 or $15 and you get all three services, which is Hulu, ESPN Plus, Disney Plus.”
That creates a really annoying, frustrating, and disingenuous experience for consumers that almost makes you say, “I’m going to go to fuboTV, YouTube TV, or Hulu with live TV and just pick up one of those packages.” The only problem with that is that these companies are no longer making good television for TV. They are saying, “If you want the really good series that everyone is talking about, you have to subscribe to our streaming services.”
That is where this moment of friction is going to happen, where you have your live TV for sports fans mostly, who are basically saying, “I’m going to subscribe because I want sports and news.” It is why Rupert Murdoch kept Fox Sports Network and Fox News when he sold Disney. On the other side of it, you have all these people who are saying, “I want to watch this show. There are too many streaming services and I can’t get any of them through a bundle if I get cable.” So it is not great right now for consumers; there are parts of the landscape right now that are phenomenal, but it is getting really complicated, bloated, and tedious again.
I am definitely paying more for television than I was when I paid for every channel from Verizon Fios. Everybody thought I was nuts, but I was like, “Well, I am just paying this one company for this bundle but now I have every channel.” Now I’m paying for YouTube TV, HBO Max, Netflix, and for a minute I had to pay for Discovery Plus because there was one documentary that my wife wanted to watch. Then I had to set a reminder on my phone to cancel it. That is where we are at; I am just actively turning on and off these services.
A combined WarnerMedia-Discovery might be cable light. When we talk about tech companies and these apps, HBO Max is not well-known for being a great app. When they talk about being a tech company, they are still just talking about being an app. Owning your user journey — if you want to call it that — when you load the app, you are going to load it because you want to watch one thing. Then they are going to recommend another thing, then another thing, and then they are going to market to you a third thing that you’ll watch tomorrow.
They control your experience the way that a cable company used to control your experience on a cable box, but they do not seem that invested in making those experiences great. Even Disney Plus is a fine app, but I would not call it a great app. It just seems like Netflix — for all of its various troubles, since the market is totally saturated and they are still looking for growth through ads or games — still has the best app that does the best job of showing you things you might want to watch.
You hit the nail on the head. You know from my time at The Verge — where I would complain to you many times about UI and UX on streaming services — that it is an issue, and it is not necessarily getting better. What happened is a lot of these companies came in after Netflix and they realized, “Netflix is making money on our content; we would like to own our content on our own platform. We would like to own that customer relationship, especially if we have other products.”
Companies like Comcast and Disney have other things going on, so it makes sense. The issue is that they were content suppliers. They said, “We will supply the content. We will make it, and the carriers will carry it to people.” Now they have to own both routes; not only are they the content suppliers, but they are carrying it to people. If they do not carry it well, if the distribution does not work well, people will notice, they will tweet, and they will say things. It becomes a whole issue for the companies.
I will tweet any time a streaming app is bad.
I literally started a hashtag for people to use to express their frustrations with UI and UX on streaming platforms because it is such an ongoing issue that is so noticeable. My prediction is that the tech will not necessarily get better; it will be usable and people will pay for it because they want the content and they will just deal with it. Going forward, that is going to become much more of an issue when these companies look at the potential loss revenue that they are getting from password sharing, from monthly churn. Eventually you just start seeing things slowly creep up towards cable.
Content budgets get more expensive so they have to increase prices yearly in order to continue paying for the content, make revenue, and appease the street. They go into annual lock-ins because they do not want people churning every month. They prevent you from sharing passwords in a way that has not been seen up to this point in the streaming space. Then eventually — once the households with cable drop below 50 million — it becomes a moment where a lot of these companies can say, “Okay, do we shift our sports focus and our news focus directly to streaming?” At that point, when we look at the incremental cost that creates, you get to cable. You just recreate cable, but in a much more fragmented space where they get to control the customer relationship.
I think that is the moment everyone is waiting for. It is a fun balance game of, “Do I go back to cable where things are, but there is no good television anymore? Or do I just wait for this next evolution, where eventually I will pay for up to three different streaming services — basically three cable packages that have everything I need — but I’m not happy?”
The unspoken player at this moment is Amazon, who says, “Hey, part of the reason we work as a company is because a lot of these industries became much more fragmented and terrible to navigate, and we can offer things as one package. We will come in and underprice certain things; we have good TV, and we are going to have a bunch of sports like baseball and football. You are also going to be able to shop, stream Twitch, listen to music, or whatever else you want to do with it.” That is the package that I think more people will gravitate towards. If I am going to pay you for a bunch of this stuff, what else do I get with it?
I like that the theory for Amazon is that they are really good at predatory pricing. We will see how long that lasts. Although their merger with MGM did get approved by the various regulatory authorities. My favorite line was when the European Union approved it and said, “Well, MGM is not must-have programming, so you can have it,” which is a harsh burn from the Europeans.
Let’s talk about sports. It is the piece of the bundle that you cannot really disrupt into on-demand. A lot of sports are live, and people are going to pay for it. The gambling industry that is now legal across the country is exploding. There is a lot of money and attention on live sports. If you have live sports and the stuff people want, they are going to subscribe to your service.
Amazon has Thursday night football for the next 11 years, and they’ve got some baseball. Apple TV Plus is going to have Friday night baseball. There are constant rumors that Disney will spin off ESPN, but why would they? They have had to reinvent ESPN 9,000 times. Julie and I are both football fans. We text each other about football a lot. All the football announcers just got huge new deals to go to different services and platforms because the money is insane.
What is going on with sports? Are people just buying and selling the rights so they can add subscribers? Is this a real business that is going to make sense? Where do you see it landing?
Sports was important to linears because it was the easiest way to bring in new customers; people will seek out their favorite teams. Fanatics will seek out every version of a game that they can, so sports became the foundation for a lot of these cable networks and broadcasts. It still works.
We are looking at the leagues saying, “We don’t know where we are going to generate the most revenue and we are open to new discussions.” When the NFL is saying, “We have different games and different packages that we can sell.” Amazon — which is worth more money than God three times over — says they are going to bid as much as they need on something and the other companies just can’t, but it is just a dime in the bucket for them. It is the same for Apple.
It becomes a really great place, especially for leagues like the MLB, which has viewership issues but still an audience. If you are the league, you know you can get more money out of Amazon and Apple than you can out of the broadcasters, for the most part. You still want to be in most homes and bars because that is still important to you. You still do not trust their tech delivery and should still be concerned about lag. You do not want to alienate viewers. But you’re at a point where you say, “We want to experiment so we are going to give you some of these deals.”
If you’re Apple and Amazon, you’re saying, “We would like to experiment and see if this is a business opportunity for us. We are going to buy into a low-stakes league, like baseball. We are going to see if there is an audience for sports and if this is something that we want in our package.” What Apple TV Plus does for the services sector — from Apple to the Apple One Bundle, and then to a larger extent Apple’s core product of hardware keeping people within that ecosystem — is still relatively unclear.
Can I tell you my theory? Apple services revenue is almost entirely in-app purchases and video games. That isn’t fancy. They make TV shows so that when they talk about services they can show pictures of celebrities like Jennifer Aniston and Reese Witherspoon. I don’t know what that business is, it is not broken out so we can’t tell, but we do know that most of the revenue is in-app purchases and video games.
That is exactly it though. When we look at Apple and Amazon, we talk about them as major competitors in the ad-spot space, because they are major competitors no matter what space they want to be in. They are huge companies, but they have never broken out what Amazon Prime Video or Apple TV Plus actually do for their companies.
The last time we heard about Amazon Prime Video, Jeff Bezos was still CEO and he said, “Out of 175 million subscribers, everyone has watched at least one movie.” I was like, “I hope that they are watching at least one movie!” If the theory is that Amazon Prime Video is a way to sell additional retail products, sure, but also reduces churn for Amazon Prime? That has never actually been proven by the company in any meaningful public way, so it is hard to really state that. The continued bet on sports from Amazon without that information is interesting because clearly there is something that Amazon is seeing from the sports package, whether it is advertising, additional retail purchases when people come to watch it, or lower churn. The fact that they are continuously invested in different leagues seems to signify that there is some success there.
I do think that sports, as I have been saying, are going to be more fragmented, more difficult to navigate, and much more annoying for fans. With the most recent Amazon deal, they are going to host 21 Yankee games exclusively, which means that if you use Yes Network in the tri-state area, you cannot watch it. You have to go to Amazon to watch these games. That gets really annoying for people who essentially are going to have to use a service like JustWatch to find out where their game is.
It just sounds like sports is going to get more fragmented.
By a large amount. It is getting more fragmented at the major level, the national level, and then it is also getting more fragmented within the actual RSN space, in the regional sports network space. Bally, who owns a bunch of different regional sports networks, was going to launch its own app. You would pay basically $20 to $30 to them to get some access to some regional sports, and you would still need ESPN, NBC, or CVS for something like Monday Night Football. If you are trying to cut the cord entirely, you could go to Peacock or Paramount Plus.
You end up paying more for arguably less of what you were actually getting within cable. The theory is that these companies are just waiting for pay TV households to drop below 45 to 50 million — which is eventually going to happen — so they can start saying, “Let’s migrate everything to streaming and the leagues will get behind them.”
My biggest frustration with sports streaming right now is that over-the-air antennas look better for sports than any app that I can currently subscribe to. Sports look bad on YouTube TV, they look bad on the Fox Sports app, and they look bad on Amazon. Then if you’re in a major city, you can just put up an antenna and get the broadcast, and they look great.
I understand that there is a huge business dynamic happening where you can say, “Okay, we have bled this stone dry, and now we are going to migrate everyone over to streaming.” It seems like the lack of emphasis on the product itself is the actual biggest problem. If you told me, “Okay, you can get NFL Sunday Ticket, and all the games will look the best they can in 4K,” then I would pay almost any amount of money for that product, but no one will sell that to me right now.
No, it is a diminishing product. My own household was working with the Google Chromecast with TV and the 4K was not great, so I upgraded to the new Apple TV. The 4K looks great on television in terms of with TV shows and movies, but it is still not doing great with the sports when you run YouTube TV through the Apple set box. The situation with that is you end up going to a bar and you’re like, “I’m just going to go watch this here, or I’m going to go to a friend’s house who has cable,” and you’re still spending more money on it.
The idea seems to be, “We do not necessarily need to worry about how this looks because we have the content exclusively, so people will have to come to us regardless.” Almost like you are taking people hostage in this situation where I’m going to pay because I want to watch the game.
The lack of focus on the actual tech side of things — on the visuals of having a nice quality game — leaves room in there for competitors to come in and say, “We are going to focus really strongly on this; we are going to figure out the right situations and build our way up that way.”
Disney could invest into the tech side of ESPN to try to make it more of a better experience, but we do not see any actual investment being made here. This is a conversation I have with friends in the industry who work at these companies, and it’s always, “Well, we have the money for it and we could invest more, but we are investing everything into content rights and acquisition.” All the rest of it gets left on the side because they just assume people will show up.
Is that because all the deals are exclusive? I could compare that to music, for example. The music industry moved to streaming, and there was a huge rush of exclusives where everyone realized, “Oh, this is horrible.” If you are in Apple Music and you get the exclusives then that’s great, but if the exclusives are on Spotify then that’s horrible. The artists hated it because their audiences were getting diminished; they did not like being used as marketing for services in that way. Everything is everywhere now, like Apple competes with spatial audio, or Tidal has the highest quality, or Amazon has its own version of both of those things. At least there is market differentiation in quality because there are no exclusives. It sounds like the opposite in streaming, where there are all kinds of exclusives, so there is really no emphasis on how sports look.
Well, sports fundamentally gets into the situation where if you are going to try to pirate a game — if you are going to try and look for a live feed of the game — it is by no means impossible. Google has taken measures to make it more difficult, but it is still relatively easy; it shows up on the fourth page of Google. There’s just a link that’s like, “Watch this game live.” The quality is not great, but if someone really just wants to watch that game, it takes an effort, but they can do it. With music, it is relatively simple to download an album from somewhere or to have someone send you the links; it is not necessarily a big hurdle. With the games, it still feels like a challenge. Even if you can still find it on Google, there is still this challenge to get really good quality live streaming with the game. They know that you are only going to get one Packers versus Vikings game and that is going to be on a Monday.
I use those teams for a reason. They know that the fans are going to come out and find a way to watch this game, and they are going to pay for a way to do it. They know that they can own that relationship, that there is only one route to go through. With music, they have to find different ways to differentiate themselves, so it becomes all about the quality of what you are streaming, but it is much easier to go around the hurdles to get that album.
To your point about diminishing the audience for artists, that is a bigger deal when artists are like, “Hey, we want you to listen to our music so we can get the most people who come out to our concerts and buy our T-shirts.” With the NFL, they want the most people to watch their games as well, but they are pretty guaranteed that if Rodgers signs for the Packers for another four years, they will sell more jerseys. People are still going to go to those games and they are still going to be able to sell Monday Night Football or Thursday Night Football at the highest price to the highest bidder. They sell exclusivity because there is still real value in that.
Julia’s just trolling me with Packers references; that’s all that’s happening here. That brings me to my last big overall question. Here is the shape of the industry. You have got the big legacy players like Disney and WarnerMedia trying to shift their businesses — reorg them into being streaming-first platforms — expressed as an app. You have got newer players like Apple and Amazon — who are buying movies and winning Oscars — expressed as an app. You have got the future of live sports expressed as God-knows-how-many apps.
Why aren’t the apps better? I know we talked about it a little bit earlier, but it just seems like this is the first point of differentiation. You are saying the entire future of your business is in this screen. Why is there so little emphasis on this screen being easier to use? The tech aspect of how this works should be top-of-the-line. Do they feel the competitive pressure or is it just, “Hey, we can get you in with a buzzy new show and then keep you with a catalog, that is the business and the app is just table stakes?”
There is a very specific reason Netflix has two headquarters, and one is in Silicon valley and one is in LA. There is an idea at Netflix that is the basis of their company: You cannot have the creativity without the tech distribution and the powerful tech arm to help provide a great experience, to make people want to stay within that app, and to make people want to use it. That is what gives Netflix a major advantage over its competitors. There is a reason why a lot of these Hollywood companies are not in Silicon Valley; they are working out of Burbank or New York and are hyperfocusing their streaming. The oversight team and the executive team are working with creative development and creative executives. Their creative focus is inherently on the product, and their investment focus is inherently on, “Let’s have the best rights; let’s spend $100 million on getting the J. J. Abrams show, because if we don’t, it will go to someone else.”
None of that matters if people cannot access the app. What we saw with HBO Max when they first launched was that we literally cannot use the app, so all of a sudden they’re like, “We have to totally revamp this app.” There is a reason Disney bought BAMTech and it was, “We cannot build the tech arm for it, so we are going to buy this one that HBO Now was built on top of, and hopefully that works for us.”
There is going to be a hit show every week from a different platform, but that is not necessarily going to be a thing that keeps your customers coming back. It is not going to make sure that they are spending more time within an app. Netflix has hyper-built its algorithm to make sure that you are having the best time in the app, and then you are staying there and finding stuff that you didn’t even know you wanted, so it feels like a great experience.
Unless the other ones do it, it just becomes tedious to use. There will be so much competition and so many more things to do outside of streaming — like Fortnite, YouTube, and TikTok — that you just lose that engagement. If you lose the engagement and you lose your subscribers’ adoration for what you’re doing, it doesn’t matter. It is an app at the end of the day, and the hardest part is getting them to open the app. If you make it difficult, they are just not going to open it.
Let me flip that on you. I would say Netflix has the best technology; the app is the best designed because they have been at it longer. One of the theses of Decoder at large — one that you have come back to repeatedly here — is that distribution affects what you make, inherently. I would say Netflix’s distribution model has dramatically impacted the way Netflix shows work. They are all bloated, and they all have that one episode in the middle where you can definitely just check your phone. I should disclose that we are working on a Netflix series, so I am trying not to do that.
I would not say Netflix has the most talked-about series out there. They do not have the big prestige TV wins the rate they used to. All that stuff is happening in HBO Max, Hulu, or Apple TV with Severance, even if those apps are not as good. Is that because the distribution has not yet affected the creative? That would be my theory, because HBO Max is just fine. They are still just making great TV shows, but the second it becomes streaming, will it get that streaming TV bloat?
I think your theory is mostly right. Week after week, HBO is going to have good television. The people who are using HBO Max are going to use it regardless, because they were using HBO. Even if the app experience for them is bad, they are HBO die-hards. You have this new generation of kids who are coming up and they are used to having too much television, but it’s good, and they are used to having products that work; they have it through Netflix, through TikTok, and through YouTube. These algorithms really know them and recommend what they want, but what we really need to look at with these streaming services is how you engage your audience beyond the one or two episodes a week.
If you’re getting into an ad-supported version of these apps — which we didn’t have time to cover — Netflix is now saying, “never say never to ads,” and Disney Plus is going to include ad support. It’s here now. When the advertisers are like, “How often are people using your apps? Where do we want to be? What shows are they really watching? What shows are they turning off halfway through?” That is when the distribution arm is just as important as the content arm. If all of these networks make good television, which they’ve proven that they can, and they increase their content budget to all compete with each other, it becomes a dime a dozen. Netflix has a good show this week, Disney Plus has a good show next week, and so people cancel whenever they are not necessarily interested in it for a month at a time. They come back to it, but there is no love for a lot of these services; there is love for some of the content.
As that content increases, to your point about it becoming bloated, now you really have to figure out a way to diversify your products and to make it seem like it is a better experience, whether that is adding a shuffle button that actually works properly, adding cool bumpers, or adding a way to let friends recommend things within the app. All of those product details, on top of having an app that works and having a distribution platform that works as a discovery platform, gives you the edge that makes people say, “I want to spend more time in the app and find my new favorite show here, not necessarily there.”
As long as you have the content, yes, people will come. This is the argument for theatricality. If you put the movie in theaters and it is a good movie, people will go out to see it. However, in a space where it is online and you are competing with other apps to get people to open it and spend more time there, now it becomes the question, “How do I make this app feel really personal and really fun on top of having good content?”
Last question. I feel like we could do another full hour on this one, but let’s try. All the features you have described could also live at the operating system level. They could live on the Roku box, on the Apple TV, the Amazon Fire Stick, et cetera, but they don’t. These companies want to build those features. Apple, I think very famously, has an entire app called the TV App that just cannot make the interface of Apple TV, because Netflix and other services will not integrate with it.
They want you in their app, not in Apple’s app. Roku has some universal search features, but it cannot do friend recommendations or social stuff across services, because the app partners will get mad at Roku and threaten to leave. At some point, what you really want is to buy a license to content from all these different networks, and you want to have an interface that helps you look at all the stuff you have access to, even in the middle is all these companies saying, “Well, actually we want you in our app.” Do you see that flipping at any point? We have been talking about the cable bundle coming back so much that I’m like, “Why doesn’t Roku just make the cable bundle and I’ll pay them?”
The aggregators have a lot of power too. Think about how important it is for Netflix to have the Netflix button on the Roku remote, or for Google to have the YouTube button on its remote. The idea that you have it there automatically brings people to the streaming service; they do not have to think about it. It’s automatically opened, and that is huge real estate. It is something that’s very valuable to them.
The idea that this would occur within the software space and give Roku, Google, or Apple more control — on one hand, I can see it going that way. Where they might say, “This is the best way for us to continue growing. This is the best way for us to give consumers the best experience, and so we are going to work within these platforms and these operating systems to make this work in a specific way.”
On the other hand, this was the issue with Amazon, Roku, and NBC when they were trying to figure out their situation. It is proprietary data. They want to control all the data with their customers. They do not want to give up any form of ad inventory and that is going to be the big issue. If Roku says, “We will do this, but we want 10% of your ad inventory,” that’s a really hard sell for NBCUniversal and for Paramount, who specifically work with advertisers to deliver within their own app to control how that flow is happening.
Until that side of the equation is willing to say, “Okay, we are going to take a beat because we think for the betterment of our platform, our app, and our business, we need to work well with our other partners and within this bigger ecosystem,” you are just going to have a lot of silos. They want to operate within silos because they think that is better for their business and their customers, which is not necessarily inherently true. If anything, the data points to it not being true, but that is a big conversation with many teams, all of whom have a very specific stake in that fight.
That’s true. What do you think happens next? What should people be looking out for?
I don’t know if it’ll actually come true, but I would look at them getting rid of the month-to-month payment. The next thing that is going to happen over the next two years is we will go from this colloquial streaming race, the retention race, and they will hit saturation in the United States and Canada. It is a primary market for all of them as they expand outward and try to make sense of South America, India, and other very important countries and territories.
In order to figure that out, they have to introduce cheaper plans in those different territories because they are mobile-first territories. In order to do that, they will have to rely on the revenue coming from the United States and Canada, and they cannot do that if they are losing a lot of customers because it is oversaturated and easy to cancel. My suspicion is you will see some experimentation within the structure of month-to-month payments. And that would cause a lot of people to automatically cancel. I do think there is a lot of potentially lost revenue there that the companies are looking at and thinking of how to keep for longer than a month at a time.
Would you get a discount if you stay on for something like three months or a year?
Disney learned that people who subscribe to the bundle are more likely to stay on longer. Now that they have got three services and it is more complicated to disengage from all of them, why not do it for three months at a time? Same kind of theory.
Julia. This is great. It is always great to talk to you about streaming. We will have to have you back on the show. Thank you for joining us.
Update April 6th, 1:15PM ET: The full transcript of the interview has been added.