Key Takeaways
Transparency from Netflix and YouTube has set the market standards against which everyone else measured and evaluated.
YouTube's transparency and growing creator economy suggests that it is an emerging roadblock for all streaming services
MrBeast's success with Squid Game implies 2MM emerging YouTube creators to compete with growing streaming services.
Neither investors nor streaming services, including Netflix, seem to be noticing or appreciating that, yet.
Given we are likely to see more MrBeast-type successes on YouTube in 2022, my guess is that will change.
Two weeks ago, I highlighted two themes around transparency:
Whether Netflix's sharing an hours viewed standard in Top 10 lists sets a new precedent for creator transparency in the market; and,
Whether the market understands the significance of MrBeast getting 100MM+ views over 72 hours for a recreation of Squid Game
Netflix continues to set and then redefine the market standard for transparency, and YouTube's more granular metrics continue to offer a stark contrast to the minimal disclosure from legacy media SVOD and AVOD streaming services.
Why do these matter?
In many ways they are not significant: investors want a growth story, and subscriber counts can either tell a growth story or they do not. Anything more may not matter, yet: the objective is free cash flow when the business matures.
Transparency can hurt a story for investors more than it can help it, as I told Observer’s Brandon Katz back in July in an excellent article on transparency in streaming:
“For every streaming service not named Netflix, streaming is neither the only line item nor a significant line item contributing to Operating Income or EBITDA,” Rosen told Observer. “The risk of disclosing metrics is that it may create additional storylines which confuse investors about the business. Better to have them clear on where the business is headed than to raise more questions.”
But, transparency from Netflix and YouTube sets the market standards against which everyone else measured and evaluated, consistently. That was true in 2021, and seems positioned to remain true in 2022 and beyond.
The question is how their standards are shaping the marketplace in ways that we saw were significant, and in other ways we may not have noticed.
ScarJo & CAA v. Disney
That certainly played out in Disney's surprise dispute with Scarlett Johansson earlier in the summer, which I wrote about in A Short Essay on Scarlett Johansson v. Disney, Transparency & Incentives. Disney's lack of transparency around Black Widow and its decision to distribute Black Widow over PVOD without a contract in place with Johansson seemed unusual for Disney and Marvel relations with talent.
But, it was not unusual in the broader streaming marketplace, where Netflix tends not to share data with creative talent. As I wrote in February:
The question of how much streaming data is shared with creatives varies from service to service. Because as Producer Jason Blum said above, typically creative talent gets paid upfront and gets no data. Netflix has set the market standard because it produces the most content (2,700 hours of original programming in 2020, alone). Also, most Netflix contracts do not have contractual conditions for higher payment based on performance, though the major ones (Murphy, Barris, Rhimes) do. The same is true at ViacomCBS (Tyler Perry at BET+, and recently Taylor Sheridan, co-creator/Executive Producer of Yellowstone).
This has all changed its new hours viewed standard in Top 10 lists. Now actors, production, and talent management have an objective set of data to negotiate with Netflix.
Notably, Disney became quickly savvy to the challenges with transparency and creative talent, signing new deals with Emma Stone in August and also a $40MM deal with Johansson in September.
But, we saw little observable change, if any, in how Disney shares data with the broader market and talent.
YouTube & Social Data
YouTube's more granular standards of transparency (views, likes, comments, subscribers to a channel) have played out differently in the streaming marketplace.
Bloomberg's Tara LaChappelle wrote yesterday:
Some stars have the leverage to negotiate even more creatively. As streaming takes over, they could demand to be paid for their ability to drive social-media interest in a movie or series, which in turn drives subscriptions. That’s allowing tech-related companies to play a bigger role in Hollywood than they ever had before, tracking streaming data and developing measurements that could inform such compensation discussions.
The operative words here are "could demand": it's not clear that studios and/or distributors yet value more granular, social, YouTube-like metrics. But, with enormous creator economy hits like MrBeast's version of Squid Game, YouTube is continuously building out a story about the value of more granular metrics to advertisers.
There is a caveat, however: YouTube's granular transparency may simply have two customers – its creators and its advertisers – and no broader application outside of the YouTube ecosystem.
I wrote in September that Blackstone's Hollywood-Meets-Creator-Economy bet on Hello Sunshine seems to be testing that market dynamic, and will be worth keeping an eye on.
Alternative Standards of Data
WarnerMedia CEO Jason Kilar recently offered The Hollywood Reporter some valuable insights into the lack of transparency in streaming in Why Streamers Are Stalling on Sharing Data:
“The advantages of being direct-to-consumer is we get an immense amount of data,” Kilar tells THR. “You don’t just see the viewing numbers, you see how they view it. What order do they view things in? How much do they watch? How much do they finish? How do they respond to various prompts to help us get better at helping them find something they love? I wouldn’t expect us or other players to put numbers out just because it’s really hard for people to understand apples-to-apples comparisons. So we labor over it. We know exactly how well these shows are doing.”
That reads like WarnerMedia conceding to Netflix's standards. However, he adds two additional insights:
Ultimately, Kilar predicts that two conditions will lead to greater transparency. First, third-party measurers like Nielsen will become more accurate with their streaming numbers. And second, he expects that burgeoning streaming giants will catch up to Netflix. With similar subscriber bases, comparisons with competitors would be more relevant.
“There’s going to be a short list of folks that get to scale, and then I think you’ll probably see a bit more transparency because we all know what we’re dealing with, and you can build businesses and frameworks and other things on top of it,” Kilar says. “But, right now, things are changing so much. And whether you’re talking about Peacock or Paramount+ or Disney+ or Hulu, it’s not the same foundation. So that’s part of why you’re seeing kind of a ‘less than’ [when it comes to sharing data]. If I were in your shoes, I’d want it to distill down to one simple thing — and you get the email in the morning on Saturday and, boom, things are done.”
Kilar believes third-party standards are inevitable.
That has been true in the U.S.: Netflix has set a global standard with hours viewed, but Nielsen offers a domestic U.S. standard that WarnerMedia also believes in (though will not share its data with, yet).
But, internationally, the challenge for broader transparency in streaming is third parties need to improve their value propositions and the quality of their data.
If Kilar is right we will only see those alternative, third-party standards of transparency when other streaming giants begin to catch up to Netflix.
Can Anyone Catch Up to Netflix?
But, after the "pull forward" impact of the pandemic, can anyone catch up to Netflix?
Because, if we believe Jason Kilar, the answer to that question seems integral to understanding how transparency will evolve.
Disney+'s growth plateaued in the US at around or just under 40MM, according to various reports, and Hulu grew by a few hundred thousand in Q3 2021.
Both are Netflix's closest competitors in scale both in the domestic U.S. and internationally.
Catching up to Netflix involves both exponential growth in the domestic U.S. and internationally for everyone else. That includes WarnerMedia's HBO Max.
We can know domestic figures because Nielsen has established a domestic U.S. standard that even Netflix now cites in its quarterly letters to shareholders.
There is no broader, international standard for transparency that requires Netflix competitors to disclose their scale. So, barring first-party disclosure, the transparency Jason Kilar predicts does not seem likely... unless Netflix starts losing its audience to competitors.
That story is not clear, either, from the data shared by the more transparent (Disney, WarnerMedia, Starz) and the less transparent (ViacomCBS, Comcast, AMC Networks) amongst its competition.
The international story seems to have fallen on deaf ears with investors, too: as international growth has become the story to investors for streaming offerings from Disney, WarnerMedia (AT&T), Comcast (NBCU), and ViacomCBS, investors have punished those stocks with what seems to be a streaming multiple working in a negative direction.
Why MrBeast's Squid Game Matters
I argued last week in Goodbye Streaming Multiple, Hello MrBeast that the significance of MrBeast's success with his own version Squid Game is also likely weighing on investors.
Because, it reflects how:
the economics and distribution for both Netflix and YouTube creators to produce a global hit –even if completely different–are exponentially better than any legacy media company.
I think this is one key aspect of the significance of MrBeast's accomplishment with his Squid Game video.
Another key aspect is transparency. Meaning, we understand its impact better than the original Squid Game on Netflix because of the granularity and multi-variability of YouTube's data:
168MM+ views
84MM subscribers
11MM likes
MrBeast is also transparent with his production costs, sharing during the Squid Game video, itself, that the production costs were $3.5MM, or 16% of Netflix's $21.7MM.
In other words, MrBeast was able to achieve similar viewership at an extraordinary scale, with the same IP, and within a fraction of the production time and a fraction of the production budget.
Netflix's transparency around the performance of Squid Game seems conservative by comparison, and it is the most transparent service in streaming.
So, counterintuitively, MrBeast's success on YouTube reflects, if not sets, the limits of transparency in streaming, however it may emerge over the next decade.
It also raises an important question: what does it mean for YouTube to be a dominant force in connected TV in the U.S. reaching 120MM homes– and its creators reaching 168MM viewers of 2B users worldwide – at a time when streamers are seeking those same audiences and asking them to pay?
Focusing on transparency as a theme in streaming inevitably ends up proving YouTube's emerging dominance, making YouTube an increasingly problematic counterweight to data narratives in streaming because it is a free competitor, at scale, and with better data.
One has to wonder whether the theme of transparency actually reflects YouTube's emerging dominance. Notably, YouTube has moved away from original programming over the past few years.
However, MrBeast reflects the emergence of creators who can deliver Hollywood quality and scale in viewership with production budgets that reflect per episode budgets of Hollywood studios and streaming services.
With over 2MM creators in the YouTube Partner Program, MrBeast will not be the first creator to figure this out, or the last. With YouTube's scale, that means 2MM emerging competitors for streaming services still building out scale for the road ahead.
Conclusion
The question of transparency, now, needs one additional backdrop against which it should be considered: market timing.
On this point, I like a Twitter thread from former NBCU executive Salil Dalvi on Monday about how, based on his experience, media companies should navigate imminent change. He concludes:
The fact is, we are in a new cycle, after being in “scale up” mode in mobile, OTT, creator economy, for the last 5+ years.
A key part of this argument is about streaming being "no longer experimental…. It is core."
WarnerMedia's Jason Kilar argued something similar, above, that streaming will become "core" as "a short list of folks... get to scale", but with an important caveat: "whether you’re talking about Peacock or Paramount+ or Disney+ or Hulu, it’s not the same foundation."
The implication is that for now and the foreseeable future, Netflix and YouTube will continue to be the standard-bearers for transparency.
My gut is Kilar is wrong, Netflix has already won, and no one will catch up to them.
But, I also think that Kilar is missing how YouTube's transparency and growing creator economy suggests that it is also an emerging roadblock for the success of all streaming services, including Netflix. Meaning, the problem of transparency is that YouTube's creator economy stories are already better than most streaming services, and seem poised to improve in 2022 and beyond.
I think investors and the broader streaming marketplace have yet to comprehend this, too.
Given we are likely to see more MrBeast-type successes on YouTube in 2022, my guess is that will change.