To remind you, The Medium identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the media marketplace. The key trends help you answer a simple question: "What's next for media, and where's it all going? How are the pieces lining up for business models to evolve, succeed, or fail?"
Read the three key trends The Medium will be focused on in Q3 2023. This essay focuses on "Legacy media companies are throwing in the towel on their bets to own the consumer relationship in streaming and beyond."
There’s a quote from AMC Networks James Dolan that I have been using repeatedly since February. To summarize it, in February he told investors that the direct-to-consumer business model requires a “culture change” away from the longstanding wholesale model—which isolates the producer from the consumer—and toward “understanding the customer and serving them well.”
Until recently, I had believed he was explaining AMC’s struggles to scale in streaming — its suite of apps has struggled to grow in recent fiscal quarters — and how AMC would go about solving that specific problem. But now I believe he was making a broader point that in the retail model, the customer may want or need more than just streaming from AMC Networks. In other words, if in the wholesale model the consumer wanted TV, in the retail model the consumer's needs are far more multivariable and complicated than launching a streaming service.
Notably, he didn’t use Disney CEO Robert Iger’s phrase "core brands and franchises", or former WarnerMedia CEO Jason Kilar’s “beloved characters and worlds”. But he was making a related point: marketing to the modern media consumer in the retail model has more in common with Cablevision’s cable-TV distribution business than AMC’s linear networks business (the former is focused on the consumer, the latter licenses distribution of its networks to reach those consumers).
It is an important comparison: 65% of its 3.1 million cable customers at the time of its 2015 sale to Altice were subscribed to triple-play services (cable + broadband + landline telephone). That is bundling, but a bundle model that has more in common with The New York Times (NYT) bundles of digital products than it does with Disney’s bundle of streaming apps Disney+, ESPN+ and Hulu.
Key Takeaway
The New York Times bundling strategy was recently explained by the Publisher of The Athletic with a diagram of a daisy. New AMC Networks management are promising investors a similar "daisy" bundling strategy, and that is a surprising signal in the noise of the media marketplace.
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A Familiar Skillset & Blueprint
A few days before the earnings call, AMC Networks announced Kristin Dolan, the spouse of James Dolan, as the new CEO. Lost in investors’ complaints of nepotism in her appointment was the fact that she held “an array of positions in marketing and product management” at Cablevision, ultimately becoming its Chief Operating Officer. She told investors on the earnings call in May:
“Building a more valuable customer base is something I'm very familiar with from my Cablevision days, where we drove higher revenue per subscriber results quarter-over-quarter and year-after-year. This growth came from a deep understanding of what it takes to acquire, serve and retain customers in a competitive environment. Although the specifics of that distribution-focused sales strategy are distinct from what we are doing here, the objectives are the same.”
She added later that reorienting “the company around data” was something “we did successfully at Cablevision, which at the time was a mature and fully built-out service-based business.” Now, “it's essential” that AMC Networks evolve into “a more customer-centric organization.”
It is a sales pitch in broad brushstrokes and few details, and investors have reacted negatively: AMC’s stock is down over 50% since February’s earnings call. But, directionally, the sales pitch seems to be that management’s skillset maps to solving AMC Networks’ pain points in the retail media business model. In other words, former owners of a cable-TV business are suggesting that they already have the blueprint for a highly competitive, consumer-first and retail-first media business.
What does the consumer need?
Despite the clarity of their sales pitch, the open question is what the data is telling AMC management that their consumers need. To put in terms of past mailings, is the data telling them that AMC Networks needs to take a page from The New York Times playbook and offer a wider variety of digital products to generate higher ARPU?
Or is the data telling them that they need to be more like Crunchyroll, which Sony has evolved beyond its streaming DNA into a “flywheel” model: theatrical releases of new anime content, sales of home entertainment products (e.g., DVD box sets), merchandise licensing and secondary distribution?
I highlighted on Monday that there is no single platform or channel whose supply of content is capturing consumer demand. AMC’s portfolio of specialized streaming services that “super serve their core audiences” reflects that problem: AMC+ is the company’s primary service, but it also owns the British-focused Acorn TV; Allblk, which was formerly known as the Urban Movie Channel; the anime service HIDIVE; the independent film streamer IFC Films; the horror-focused Shudder; the independent film and TV app Sundance Now; and the reality-focused WE tv+. AMC is also a minority shareholder of the British streaming service BritBox. An AMC+ subscription includes library content from Shudder and Sundance Now.
In the past, I have described this strategy as a “genre wars” strategy: “By focusing on specific genres, and aggregating them together in a service that both has a clear value proposition and is cheaper than cable, AMC+ can find wins year-round in the genres that Netflix, Disney+, and Amazon Prime Video simply are not focused on year-round.” In other words, it meets consumer needs by focusing on very specific needs.
The two key challenges with that model have been scale and monetization: AMC Networks has seen its subscriber count flatline at around 11 millions subscribers across those apps, or less than 20% of Netflix’s U.S. market penetration and a quarter of the market penetration of Disney’s Hulu. As for monetization, CFO Patrick O’Connell recently told the Gabelli Funds 15th Annual Media and Entertainment Symposium “streaming for us is just one tool in the toolkit”, implying the challenge now is to figure out what the other tools should be.
“Other products as the petals”
This point echoes the business rationale that David Perpich, a NYT executive who is currently Publisher of The Athletic, offered The Wall Street Journal earlier this week:
“I started to get really interested in this idea that the Times was a newspaper, and newspapers were more than about news. They were a bundle of information,” he said. To map his idea, Perpich drew a daisy on a whiteboard, with news in the middle, and other products as the petals.
Sports was a missing petal. “Even though we have great sports coverage at the Times, it’s really targeted more towards the general interest audience,” he said. “Fandom is so huge—how could we actually participate in that?” The Athletic offered the Times an audience of nearly one million subscribers addicted to coverage of their own local and favorite sports teams.
The same morning the interview was released, the NYT announced it would disband its sports department and rely on coverage of teams and games from its website The Athletic, both online and in print. Sports was no longer a newspaper section, but now a product for sports fans within a larger bundle of NYT product offerings.
In its 10-K, the NYT offers three windows into how digital subscribers have signed up:
Subscribers with a digital bundle or paid digital-only subscriptions that includes access to two or more of the Company’s products, including through separate standalone subscriptions.
Subscribers with a paid digital-only subscription that includes the ability to access the Company’s digital news product.
Subscribers with a paid digital-only subscription that includes the ability to access The Athletic.
The implication from the interview with Perpich is that the business rationale for making sports a separate product offering is to boost demand for the third bucket of subscriptions.
The Daisy or The Flywheel?
Perpich’s daisy diagram has more in common with AMC Networks and the Cablevision bundle than the Crunchyroll flywheel, above. Effectively, the diagram starts with a core value proposition — news for the NYT and cable for Cablevision — and then builds complementary services for which subscribers will pay a marginal subscription fee, or may subscribe to only one of those services. The NYT has invested in Cooking, Games and Wirecutter products to complement news, and Cablevision invested in telephone and broadband to complement cable.
This diagram presents two difficult questions for AMC Networks — and really, any media company considering heading in the direction of a retail model similar to the NYT or Cablevision. First, what does AMC Networks offer digitally that can be at the center of that model that is (1) already generating recurring revenues ($500 million from domestic streaming in 2022) and (2) has a built-in, loyal base of subscribers (11.5 million as of Q2 2023)? Because AMC historically and purposefully has not invested in building its own content library, and it purposefully offers multiple apps for multiple consumer behaviors.
Second, assuming there is an answer to the first question, what are complementary products to that? They have told investors that they have set out to leverage consumer data to identify those complementary products. But, the WSJ article on Perpich highlights a Gen X executive who is comfortable allocating shareholder capital to products like games (Wordle), product reviews (Wirecutter) and sports fandom. According to its 2022 annual report, the NYT disposed of $516 million in marketable securities to help fund the transaction.
But, AMC Networks CEO Kristin Dolan is generationally a baby boomer, and understands products more as a function of fiber optic cable penetration. It is less clear whether she may adopt or can adapt to a Gen X worldview, seeing games and other tangentially-related digital products as complementary to AMC's consumer offering. In short, what's the 2023 equivalent of a bundled telephone line at a discount?
As my Medium Shift column highlighted last month, it is less clear what the future holds for AMC Networks after a recent poaching of talent by Netflix. AMC Networks may be too small for most people to pay more attention to, and it has not been Wall Street’s archetype of a successful portfolio of cable channels or streaming services.
The New York Times is unique in telling a story that, as circulation declines, consumers are still spending money within its ecosystem and for more services than news. So, if AMC Networks has bought into the “daisy diagram” as *the* model that helps to solve market uncertainty, that is both significant and unusual.