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The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
Each fiscal quarter, The Medium identifies three or four new trends that have momentum and seem poised to play out at a larger scale in 2023. These key trends pinpoint dynamic and constantly evolving developments in the media marketplace that are emerging from incremental shifts or fundamental changes. The bi-weekly mailings analyze these trends as developments emerge in real-time.
Read the three key trends The Medium will be focused on in Q4 2023. This essay focuses on "In the shift from wholesale to retail models, there are many business models that delight consumers but no single, dominant one."
Author's note: I added a correction to last Thursday's "Is Hulu Worth $40 Billion To Disney? To Anyone?" A valuation of $40 billion would create $12 billion in additional value to Hulu. But, because Comcast owns 33%, the additional cost to Disney would be only $4 billion, making the total sum paid to Comcast around $13 billion. The essay originally estimated an additional $12 billion owed to Hulu. The essay has been updated to clarify that.
The argument remains true that any valuation of Hulu above $27.5 billion increases the burden upon and risks to Disney to find ways to grow the business beyond its 48 million subscribers. My original version had lumped those two points together. I apologize for the error.
It would be a stretch to say this was the week when legacy media began its move away from streaming. But, if a historian were to look back on the past week of headlines, this is what they would see:
“Paramount Streaming Reorg: Chief Product Officer Rob Gelick Out As Streamer Merges Units” (Deadline)
“Amazon will now let you access Crunchyroll’s anime library right from Prime Video” (The Verge)
“Streaming cancellations hit new high” (Bloomberg)
There is an obvious theme: The business model of streaming is getting more difficult for everyone in the marketplace, including Crunchyroll for whom streaming is one amongst a portfolio of services for hardcore fans of anime and manga. But, as Netflix’s strong Q3 earnings report reflected, it is not complicated for everyone.
The question now is whether these bearish trends will continue. There are good reasons they will, in large part because of the production delays that have resulted from the SAG-AFTRA actors’ strike and the Writer’s Guild of America strike. Streaming requires a constant supply of new productions and promotion of those productions. The strikes have limited the former and shut off the latter.
Legacy media streamers seem to be limping into January 2024, and not growing. Something has got to give. This may have been the week when some legacy media companies began their pivot away from streaming and towards licensing models.
Key Takeaway
If media companies can neither scale their streaming offerings nor contribute their entire libraries to another service, then what other choices do they have for generating cash flow? Crunchyroll has one answer.
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Total time reading: 4 minutes
The other headline
Former WarnerMedia head Jason Kilar argued in Variety that “While streaming is not broken, a number of entertainment and sports companies’ streaming strategies may be.” His basic argument was that “most companies” not named Netflix are not positioned to generate attractive cash flow from streaming. Their better bet would be “contributing a branded, continuously updated programming lineup” to “someone else’s scaled, heavily used streaming service”. In return, they would receive a share of the ongoing revenues from a scaled streaming service.
At the root of his proposal is a company’s need for both scale and engagement (“enough compelling series, movies and other programming such that members of the household consume hours each day, every day of the year.”). Legacy media companies have neither been able to achieve enough scale nor sufficient engagement. That was the basic message of Warner Bros. Discovery CFO Gunnar Wiedenfels at the Bank of America Conference last month when he shared that too many viewers sign up for a streaming service for a low monthly fee, binge content for two or three weeks and then cancel.
This is the moment that, if they want to continue to invest in streaming, they will need to choose a path. Kilar argues the best path is something like the “better bet” above of contributing to “someone else’s scaled, heavily used streaming service”. His rationale is simple: Large fixed cost businesses where marginal costs are low need scale, otherwise they do not achieve positive cash flow.
In terms of my most recent Medium Shift column, “Why So Many Streaming Services Are Struggling”, the “Storytelling Moat” has both high fixed costs and high marginal costs. But a business with a “Distribution Moat” has high fixed costs and low marginal costs. Legacy media streamers tried the former, and now the only available solution is find a third-party solution like Hulu to be the foundation of the latter.
What’s up with Crunchyroll?
There is also an uncomfortable uncertainty lurking in both Kilar’s piece and the Crunchyroll above. In the former, it is a logical question: If media companies can neither scale their streaming offerings nor contribute their entire libraries to another service, then what other choices do they have for generating cash flow?
The Crunchyroll story highlights a related but different problem: Crunchyroll is a niche media business within Sony Pictures Entertainment that monetizes 10 million fans of anime via theatrical releases of new anime content, sales of home entertainment products (e.g., DVD box sets), merchandise licensing and secondary distribution. Streaming is only one arm of that business model, but core to the business model is a centralized database of passionate fans of Japanese anime and manga.
This partnership with Amazon disintermediates Sony and Crunchyroll from owning the customer relationship because Amazon handles all billing, and all Crunchyroll content is consumed within the Amazon Prime Video app. The Verge argues this is “a good thing” because “its app available for smart TV and set-top platforms can be buggy and annoying to navigate.”
It also creates two new subscription tiers, Fan and Mega Fan. Both offer consumers the ability to stream the entire Crunchyroll library ad free, and watch new episodes shortly after release in Japan. Mega Fan includes further perks like offline downloads “with additional non-video benefits to be added shortly.” The Fan Tier on Amazon Prime will be priced the same as a standalone Crunchyroll subscription.
Crunchyroll is now simultaneously pursuing each of the two models Kilar laid out in his opinion piece. It is pursuing a streaming service at a limited scale, but one analyst estimate has Crunchyroll accounting for 36% of all profit at Sony Pictures Entertainment in five years, up from just 1% in the year ended in March. It is an exception. Crunchyroll is also “contributing a branded, continuously updated programming lineup” to Amazon’s “scaled, heavily used streaming service”. Amazon Prime Video reached 175 million total members who streamed TV and movies in 2021.
The sense is that Crunchyroll did not need to make this move strategically, as Kilar wrote about, but more so tactically. If Crunchyroll is under-monetizing subscribers on Smart TVs, then its best solution is to partner with Amazon to solve for that. Reading Kilar and recent headlines, its narrower problems and profitability seem like a luxury in this streaming marketplace.
Must-Read Monday AM Articles
The demand for “premium content” is being redefined by creators, tech companies and 10 million emerging advertisers.
* TikTok is testing the ability for users to upload 15-minute videos
* The Ankler revealed the expensive deal terms behind Apple’s and Paramount's "big swing" on Martin Scorsese’s "Killers of the Flower Moon" will ultimately pay off remains an open question. ($ - paywalled)
* Disney+ viewers are watching more Pixar films like Turning Red and Luca than popular Marvel Cinematic Universe series like Loki and Secret Invasion
* AMC Networks launched programmatic buying across AMC, WE tv and BBC America in partnership with FreeWheel, The Trade Desk and Canoe Ventures. It allows advertisers to purchase linear and digital ad inventory in one unified campaign using existing programmatic buying platforms.
* Whatever SAG-AFTRA achieves in these negotiations, the issue of a streaming reuse residual for licensed shows will still hang over the next round of guild bargaining come 2026. Because for all the uproar about the success of “Suits” on Netflix this summer, the Writers Guild of America’s newly ratified deal does nothing to compensate the show’s scribes for that success.
* The Entertainment Strategy Guy estimates 14% of shows would have qualified for the WGA’s success-based residual
* Over the weekend, Twitch reversed its long-term streaming policy—which has always prohibited simulcasting on rival platforms like YouTube—by announcing that all creators can now simulcast on any platform they choose... as long as their attention is still focused on Twitch.
* Creator Hank Green says he may have found a way to hack the system in producing 1:01 video clips to qualify for TikTok’s Creativity Program which pays higher CPMs for content longer than a minute — and then editing those clips down to 0:59 seconds to upload to YouTube Shorts.
In the shift from wholesale to retail models, there are many business models that delight consumers but no single, dominant one.
* Charter saw 327,000 customers cut the cord in Q3, but attributed only 100,000 of those to the
* Morgan Stanley estimates that Google has sold around 1.5 million NFL Sunday Ticket subscriptions so far through YouTube and its YouTube TV virtual pay TV platform, generating revenue of $569 million
* YouTube and Snap results suggest consumers cooling to short-form video
* Speaking on the company’s third-quarter earnings call Thursday, Comcast president Michael Cavanagh said that peak broadband network traffic has shifted from Sunday nights to Thursdays now that Thursday Night Football streams exclusively on Amazon Prime Video.
* Data from Antenna shows that an increasing portion of subscriber acquisition for premium SVODs driven by what the firm dubs “serial churners.” Antenna defines serial churners as users who have canceled any premium SVOD service three or more times in the previous two years.
AI-meets-the-creator-economy business models are emerging.
* We don’t know if metrics that represent attention really are bots, fake traffic, or people who have absolutely no interest in your product or service.This is what makes the fruitless endeavor of earning or paying for attention so much like a dirty mirror; it’s the dimmest possible reflection of real-world people thinking and acting in favor of your brand.