Listening to Warner Bros. Discovery (WBD) management talk *down* previous WarnerMedia management’s approach of “for the fans” to streaming distribution, and talk *up* an “overall reach” strategy akin to growing broadcasting inventory in the 1990s under then-GE CEO Jack Welch at NBC, one had to wonder whether they see any value in a direct-to-consumer (DTC) relationship in 2022.
Zaslav rejected the strategy of “for the fans” and “Project Popcorn” - which uploaded “expensive movies” directly to HBO Max for day-and-date release - as not making “economic sense”. That was no surprise.
But they talked up reach (effectively, more scale and more inventory) as a strategy at a time when Connected TV (CTV) advertising promises to solve for the “attribution gap” between (1) where people learn about products, services and brands, and (2) the mediums where they do the shopping and the buying. That solution certainly needs reach, but it also *needs* the type of valuable consumer data that “Project Popcorn” sought to acquire.
In trying to “correct” the “mistakes” of previous WarnerMedia management, WBD management seems to be throwing out the baby with the bathwater.
“Project Popcorn”
Back in April I wrote about former WarnerMedia CEO Jason Kilar’s farewell press tour. One of the best interviews he gave was to Puck’s Matt Belloni, where he offered some unusual transparency into WarnerMedia’s controversial “Project Popcorn”.
To remind you, “Project Popcorn” was the pandemic-era strategy for “Wonder Woman 1984” and the entire 17-film 2021 Warner Bros. motion picture slate to be released in theaters and on HBO Max the same day (“day-and-date” release). It had a “for the fans” mentality behind it, as Kilar explained to Belloni:
In a situation where we have 7 million people dying there are going to be people that make the decision to watch a movie from the comfort and security of their home in the height of a pandemic versus going to a theater. And then, what we wanted to do as a team was to give them a choice to do so.
Kilar’s “for the fans” Medium post - which talked up “fan preferences” and his explanation to Belloni both paint a picture of inelastic demand for Warner Bros. movies. It also paints a picture of increased friction for accessing that content, whether explicitly the pandemic preventing access to theaters or implicitly the “choice” of location (home or theater) or device where to consume a movie.
Fast forward one-and-a-half years later, the pandemic is waning but cross-device consumption of movies is still a market reality (Netflix recently shared that half of all of its users watch video on their smartphones during any given month). WBD management believes delivering movies day-and-date to these audiences don’t make “economic sense”.
But on this point it is important to remember what Kilar revealed to Belloni about the economics of “Project Popcorn”:
The second thing that we look at is consumption which is, “How many people - whether or not they were a first time subscriber - watched this movie?” And the reason why that’s so important matters because that’s an indication that you’re delighting customers each month. Because if someone doesn’t watch anything on HBO Max in the course of a month there’s a chance they’re not going to retain it for the next month.
I think this Kilar effectively saying, “We saw inelastic demand from consumers for our content, but elasticity of demand for how, when and where they want to consume it. We saw it as our responsibility to figure out a consumer-centric business model that adapted to these new paradigms of consumer demand for legacy media.”
Kilar told Belloni it had positive metrics: “when you join a service like HBO Max you tend to keep it for a long period of time paying $14.99 a month in the US market and we retain most of the revenue and so you can kind of know economically “here’s what a new subscriber is worth”. So it’s not all attributed to that one movie that brought you in the door, but part of it is.”
In other words, the “Project Popcorn” strategy defined inelastic demand ("fans") as *the* most valuable customers in order to understand as much about them for long-term business models.
“The Attribution Gap”
Last January 2021, The Information reported that what helped to resolve a six-month standoff between WarnerMedia and Amazon over distribution on Amazon devices was an agreement to extend an existing deal WarnerMedia had with Amazon’s cloud service, Amazon Web Services (AWS).
WarnerMedia had a similar standoff with Roku which last eight months. In that standoff, The Wall Street Journal reported:
“WarnerMedia and Roku differed over how to split ad space in an upcoming ad-supported version of HBO Max, people familiar with the talks said. WarnerMedia took a hard line in the talks against supplying content to the Roku Channel, an ad-supported video app owned by Roku, one of the people said.”
As I wrote recently, I always understood this and NBCUniversal’s standoffs with both Roku and Amazon as being about user data:
A key problem in those negotiations was that both Roku and Amazon wanted to control roughly 30% of a streaming app’s ad inventory in exchange for distribution on their platforms. That would give Roku and Amazon insight into how ads on NBCU’s Peacock and WarnerMedia’s HBO Max perform, but NBCU and WarnerMedia would not have the same competitive insight into ads on Roku’s and Amazon’s apps.
We can rephrase this in terms of the “attribution gap”: the ad-supported HBO Max competes with Amazon (and Roku) for capturing valuable user data to solve the “attribution gap” for advertisers - which is the holy grail of TV advertising - and CTVs may be the most valuable sources of that data (though they don’t always know who’s watching).
This was another reason it was important to HBO Max management to “own the customer”, as former HBO Max head Andy Forssell told Bloomberg last August. In distribution deals with Roku and Amazon, both Roku and Amazon own the customer.
Why Reach Misses The Moment
Notably, WBD management is now reported to be in talks with Amazon to restart a distribution agreement. In other words, WBD management does not want to own the customer relationship for the long-term.
The WarnerMedia team's vision was more nuanced than "reach", as WarnerMedia CEO Jason Kilar told me a brief exchange on Twitter:
Andrew, I believe there are 4 powerful growth vectors - in terms of audience, revenues, and cash flow - for the best positioned modern storytelling companies: streaming (but only for those that can achieve scale…many won’t), FAST channels, gaming and digital collectibles.
I think Kilar was sharing with me some of his broader long-term vision for WarnerMedia (and I wrote about his vision for gaming in WarnerMedia & Netflix's Narrow but Fascinating Challenges in AVOD & Gaming). Notably, it had less to do with the old broadcasting definition of “reach” and more to do with deeper, data-driven engagement with audiences. Or, as he tweeted later, “Beloved characters and worlds matter. So too does community.”
It is premature to say whether he was right or wrong with his vision. Most Hollywood industry takes on “Project Popcorn” (almost universally negative and which WBD management seemed to be parroting in the earnings call) conveniently ignore his arguments that storytelling is evolving before our very eyes, and younger generations have a very different connection with the content than previous generations (something I wrote about in "The Office" Is Succeeding On YouTube, Less So on Peacock).
But, his argument implies that digital business models require various forms of consumer-centric (or Customer Relations Management (CRM)) driven engagement. Discounting that engagement is a self-defeating exercise in the long-term for media companies.
So why launch a FAST?
Given all this, why did WBD announce it is pursuing a FAST? Like an AVOD, a FAST requires audience data to help to target ads across devices: they are both optimal platforms for advertisers seeking to solve the "attribution gap". If WBD is not interested in understanding its consumers, why partner with Amazon? Why even bother with a FAST?
I think WBD's answer is that “reach” is the better objective than understanding the consumer. Legacy media’s strong Upfronts in an uncertain macro environment reflect that reach is still valued. The softness of demand in the CTV ad marketplace (which I wrote about on Wednesday in Five Clear & Imperfect Signals From Roku) suggests that “big media partners offer[ing] one stop shopping and simplicity” may be more valuable to advertisers than CTV targeting.
But, audience consumption behaviors *are* changing in real-time, and a wider base of advertisers beyond the 200 “media retail-cartel” advertisers - the 10MM e-commerce companies who advertised on Facebook over the past decade - are emerging in CTV who will pay a premium to reach passionate fans of Warner Bros. IP.
In trashing “Project Popcorn” while promoting a FAST, WBD management sounded like they didn’t quite understand that audience engagement with IP is evolving, and advertisers increasingly want to understand that engagement more deeply. As they are learning in real-time from the strong DC fan reaction to their cancellation of “Batgirl”, there may be a better future in serving inelastic demand than to discounting it in the name of an old school business model of "reach".