Since Monday’s mailing, Walmart+ and Paramount+ announced an exclusive streaming deal. “Exclusive” means Paramount+ “wanted to launch exclusively to get full marketing attention” according to CNBC’s Alex Sherman, and there will likely be more partnership announcements to follow.
The Paramount+ Essential subscription (the ad-supported tier) will be available to Walmart+ members at no extra cost. So, Paramount+ will immediately benefit from the deal in two ways:
First-to-market with an estimated 11MM to 16MM members of Walmart+, and
Minimal friction in sign-ups given the service will be free.
I wonder whether Walmart is taking a share of ad inventory à la Roku or Amazon Prime Channels. Roku and Amazon typically take 30% of inventory in those distribution deals.
Because if they are, the deal will be extraordinarily valuable to Walmart, allowing it to capture first-party shopper data on streaming behavior - which it it is unable to do now. This will enable it Amazon-like abilities to close the “attribution gap” between (1) where Walmart customers learn about products, services and brands, and (2) the mediums where they buy those products, services and brands from Walmart.
Both services have direct-to-consumer (DTC) business models that increasingly rely on first-party data, and this partnership will generate valuable first-party data for both. But Walmart is positioned to ultimately benefit more than Paramount, and that benefit depends on taking a share of Paramount+ ad inventory.
“It's Early Days for CDPs in Media” (June 2021)
A Customer Data Platform (CDP) is software that combines data from multiple tools to create a single centralized customer database containing data on all touch points and interactions with a product or service. As a November 2020 press release announcing MGM Resorts was partnering with Amperity for its CDP solution highlighted, a CDP may solve for multiple problems:
A single universal Customer 360 database replacing multiple separate team databases
Significant deduplication of records for greater accuracy in reaching customers
The ability to create flexible predictive modeling accounting for customer experiences beyond the core value proposition
In an essay back in June I argued:
…as media companies move into a more Consumer Data Platform (CDP)-driven world, those businesses that already rely on those models - like Disney, Apple, Amazon and Netflix - will need more and better first-party data on their consumers. E-commerce businesses or even software APIs that capture particularly valuable consumer behaviors can deliver that data.
The advantage of a CDP is both the ingestion and also the application of first-party data, or the data owned by a publisher or vendor with the consumer's permission to use. Meaning, data is ingested to tell the CDP owner important details about its customers, and the data is then applied throughout the ecosystem to deliver services and goods to the customers. It also may be used improve how the ecosystem runs.
This is valuable for both Walmart and Paramount ad sales in an ad marketplace increasingly being shaped by Apple's Anti-Tracking Transparency initiative, which has killed the value of third-party cookies and boosted the value of first-party data.
CDPs are notable because the business logic of leveraging a database of first-party data to monetize the consumer in multiple ways has driven the business models of the likes of Amazon, Apple, and Disney. Netflix has launched its gaming services and will soon launch an ad-supported tier with relative ease given that a sophisticated, identity-driven database of user behaviors has been core to its business model since day one.
Example: Disney & CDPs
Disney CEO Bob Chapek has been openly discussing CDP business logic for connecting streaming data with Theme Parks data. He outlined it last year to the JP Morgan Global Technology, Media and Communications Conference:
…for the very first time, we've got the opportunity to take our original direct-to-consumer business, which is our park business, and use it for our newest direct-to-consumer business. And we've got [a] tremendous amount of information on our consumers from our parks business and what would happen if we married that and actually mine that data to help people subscribe to Disney+ knowing what we know.
He mentioned it again in the recent Q3 2022 earnings call, adding a little more color to the business logic of how the episodic format of Disney+ originals may drive cross-platform engagement:
As you know, Disney+ is still a young business and we are learning more every day about the service's ability to attract new fans to our powerhouse franchises. For example, in addition to driving engagement among tens of millions of existing Marvel fans, we have seen each new Disney+ original Marvel series attract incremental viewership and new subscribers that hadn't previously engaged with Marvel content on the service, thanks to the episodic format that enables us to explore new characters and genres. The value of expanding the fan base is tremendous, and this new audience can then experience Marvel across our other offerings from consumer products to games to theme parks.
The logic is that funneling Disney+ audiences into Disney’s CDP can create revenue opportunities downstream at theme parks, games and consumer products.
Paramount, Walmart & CDPs
This deal may have more advantages to Walmart's CDP than to Paramount+.
Walmart Luminate is “a new suite of data products that gives U.S.-based merchants and suppliers unprecedented access to rich, aggregated, customer insights that enable smarter, faster decision-making.” The system allows “suppliers to analyze aggregate shopper behavior and channel performance, gather input directly from customers, test new growth strategies and measure impact.”
Its Q2 2022 earnings call shed a little bit of light on its CDP as a “flywheel strategy”:
For example, the global advertising business grew nearly 30% in Q2, led by Walmart Connect and Flipkart, as new advertisers turn to Walmart to deepen relationships with customers. We now have over 240 million items in our U.S. e-commerce assortment, and our marketplace seller count has increased about 60% year over year. We continue to sign on more customers to our data ventures offering and the number of Walmart Plus memberships continues to grow.
The implication is that more customers will in turn generate more data for more advertisers and sellers to participate in the Walmart ecosystem. Walmart President and CEO John Furner told investors on the earnings call that entertainment was “the No. 1 feature outside of delivery of product from both stores and e-commerce” that Walmart+ members were seeking.
Paramount Global does not rely as heavily on consumer data, as its business model relies more on affiliate, advertising and theatrical revenues than it does retail or DTC revenues (gross revenues from DTC were $1.2B on total gross revenues of $5.3B, or 22% of total revenues, and generating negative operating income of -$445MM).
It may benefit simply from getting data on Walmart customers that other streamers will not have access to, and selling that as an advantage to advertisers. That is an advantage that only works if Paramount has a robust CDP, and there are few signals that it has built that (and it arguably may have sold off its best CDP back in October 2020, when it sold off the referral-driven business model of CNET).
Two buckets of CDP businesses
A recent Digiday article reported on how the “vast majority of marketers are unhappy" with their CDPs. Ronan Shields writes, “Only 10% of marketers to have bought into the first-generation of customer data platforms believe their purchases are fit for purpose with even less (1%) certain such technology will stand up to the requirements of tomorrow.”
A consultant interviewed in the piece noted “with a CDP, if you haven’t got anybody signed up [with their registration data], then you can’t do much.”
The implication is that through the lens of a CDP, there are effectively two types of businesses:
Those businesses that have been building a customer-first, CDP logic from day one; and,
Those businesses that are now building out a CDP to adapt and survive.
Generally speaking, Apple (Services business), Amazon, Disney (Parks and Resorts business), and Netflix fall into bucket #1.
The Digiday article suggests that businesses in bucket #2 face real operational and cultural challenges in integrating a CDP into their business. Notably, Walmart and Paramount seem to be in bucket #2, as both are late to the game of building a CDP. Given that a CDP matters more to Walmart+ because it has an e-commerce business model and Paramount+ does not, I wonder whether the deal terms ultimately reflect this imbalance, too.
If Walmart was able to take a share of Paramount+ ad inventory for its Walmart Connect business, that will push Walmart Luminate and Walmart Connect ahead in crucial, Amazon-like directions. Otherwise, the partnership will make Walmart+ users happier with entertainment as an option, but will miss out on a unique opportunity for Walmart to close the attribution gap.
Conclusion
These two types of businesses in media highlight the challenge of writing about media from a CDP perspective: the CDP business logic is starting to become common parlance in media, but a CDP is not an operational default in media. That is certainly the case at Paramount. As Walmart has revealed, a CDP is not yet an operational default for its e-commerce and retail.
I think that is why the announcement is so interesting: the optics suggest that Paramount+ gets more scale and that Walmart+ offers its subscribers an entertainment perk and that both will be better off for partnering. But when looking at this deal through the lens of a CDP and the growing value of first-party data in media, neither seems to be competitively better off in their respective marketplaces… unless Walmart has a share of Paramount+ inventory.