In Q1 2023, PARQOR will be focusing on four trends. This essay focuses on "The definition of scarcity is continuously evolving away from linear. What happens next?”
The PARQOR Private Slack now live!
The plan is to test out a few different use cases over the next few months. The primary objectives are to figure out better ways to:
Share articles that are must-read and related to PARQOR's Key Trends (#parqor-essays channel)
Create an environment for real-time discussion around "seismic shifts", major market headlines and earnings calls in the media marketplace ; and
Build the foundations of a community for quarterly in-person events and education.
So, we are starting simple and small. If you are on the free tier and are interested in testing it with me, please respond to this email.
The day after Disney CEO Robert Iger expressed his concern about owning and distributing “general entertainment”, The Watch podcast (from The Ringer) had a terrific discussion on the topic between host Andy Greenwald and journalist and author Chuck Klosterman. The question they dove into was, what is “general entertainment” in 2023?
The term refers to something Iger told investors:
“general entertainment is generally undifferentiated as opposed to our core franchises and our brands which because of their differentiation and their quality have delivered higher returns for us over the years. So we think we have an opportunity to, through more aggressive curation, to reduce some of our costs in the general entertainment side and in general, in volume.”
Some of this was in response to moves under his successor/predecessor Bob Chapek to expand general entertainment content production. But it also reflected how both Disney’s Hulu and Star services rely heavily on a content library acquired via the 21st Century Fox merger. Hulu, in particular, also has relied on NBCUniversal and Discovery content, to date (and both have recently pulled content in favor of their own service).
Key Takeaway
Disney CEO Robert Iger’s rethink of “general entertainment” effectively asks: “Why are we spending billions to compete with and lose share to free services with a similar value proposition?”
Total words: 1,000
Total time reading: 4 minutes
Klosterman and Greenwald discussed how Paramount-owned-FAST Pluto TV had become “general entertainment” with channels of content that had been traditionally more niche general entertainment, like its Slow TV channel. Pluto describes that channel as “the marathon watching experience about ordinary events in their natural slow pace.” The two shared their respective experiences of watching a show called “All Aboard” on Slow TV, which is basically hours and hours of recorded footage from the front of a train traveling through various countrysides.
Klosterman sounded flabbergasted that he finds Slow TV to be what he makes time for more than anything else. He feels all new, buzzworthy “general entertainment” TV shows that are “good or alleged to be good” require him “to make a completely different investment into” them, like the way he invests into watching movies. Pluto’s electronic programming guide (EPG) and content offerings are more interesting to him as a viewer than any new original programming in streaming.
He and Greenwald may be a sample size of two, but they're making an important point: decision fatigue in "general entertainment" is growing given the number of services that offer that value proposition. Disney's Hulu and Star are not unusual.
Pluto as competition
Nielsen’s The Gauge recorded Pluto TV capturing 0.8% of total streaming consumption on TVs in December, or almost 50% of Disney+ (1.9%). Pluto also captured 24% of Hulu’s 3.4% share. Paramount Global also reported that Pluto earned over $1B in 2021, and will surpass that in 2022. It last reported 72MM subscribers globally. Assuming YouTube has nearly 100% reach (135MM Connected TV device users per month) and Nielsen reported an 8.7% share, then Pluto TV may reach 10% of that or 13.5MM U.S. users per month. That seems low, but Pluto is consumed across devices (Greenwald described watching it on his laptop) and is available in 30 countries.
At this scale in the U.S., Pluto presents three problems for Disney’s strategy for distributing “general entertainment”, and for its competitors, too. (NOTE: I wrote about Pluto last October).
First, putting economics aside for a second, Pluto’s offering has a wider swath of content that falls into the “general entertainment” category than any competitors on Nielsen except for YouTube. It distributes content from Paramount’s library and licenses content from over 170 content partners. Among its over 250 channels, it also has entire channels devoted to third-party content, like AMC Networks’ “The Walking Dead”.
Second, Pluto is capturing share at the worst possible time for Disney, Netflix and other Paramount competitors. Netflix Executive Chairman Reed Hastings recently admitted to The Dealbook Conference that, because he assumed “Google and Facebook were going to mop up the world in advertising”, he had to realize that advertisers are “desperate for connected TV or Internet TV solutions” to reach 18-49 year-olds. Demand for CTV inventory is spiking, everyone is pivoting towards capturing that demand, and Pluto is capturing an increasingly valuable real share of impressions. This is not to say that Pluto will be a clear winner — advertisers are seeking more sophisticated advertising technologies to solve for improved frequency and targeting. Smart TV manufacturers seem to have a leg up as preferred partners for advertisers, to date.
Last, Pluto is doing all this at zero cost to the consumer and zero fixed costs to Paramount. It only pays licensors a share of revenues monetized with the licensed content, in addition to being free to the consumer. Whereas, like Netflix, Disney must pay a fixed licensing fee for the content because Hulu also monetizes that content with subscription revenues.
It’s all the same
Iger’s point about “general entertainment” is ultimately a challenge to Disney management: “Why are we spending billions to compete with and lose share to free services with a similar value proposition?”
The point is not that Pluto is existential competition for Disney+ and Hulu or really any other “general entertainment” play. Replace “Pluto” with Fox's Tubi, Amazon’s FreeVee, The Roku Channel, Samsung or LG and the point still stands: Hulu and Star have enormous and growing competition with similar, sometimes indistinguishable "general entertainment" libraries. This competition has better economic models for their businesses and consumers.
Instead, Pluto has captured valuable market share on a valuable screen at a time when Disney needs to hit growth and profitability goals by September 2024 (its FY Q4 2024).
Disney now seems to be on the fence about Hulu — Iger told CNBC’s David Faber “everything is on the table” for the future of the company. It owes Comcast $9B, at least, because Hulu is guaranteed a total equity value at $27.5B or market value as of 2024 based on the terms of its acquisition of 21st Century Fox, and Disney has contractually agreed to buy Comcast’s 33% share then.
If Hulu's future competition on Connected TVs begins to look all the same, while finding wins with content like Slow TV, I think Disney's decision to cut bait on Hulu may come sooner than later. The best solution is free and scaled, and Hulu’s model is both running smoothly and growing on subscriptions plus ads.
Must-Read Monday AM Articles
[AUTHOR’S NOTE: The Slack channel #must-read-articles on the PARQOR Private Slackis live. I posted a few must-read articles last week. I will post more there this week, and use this section for any articles that stand out.]