Good morning,
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."
I had the opportunity to contribute to a smart and thorough breakdown by Deadline’s Katie Campione on the issue of transparency in the Hollywood strikes. I highly recommend reading both the article and the comments from strikers beneath it.
Former CEO Bob Iger wrote in his autobiography “The Ride of A Lifetime” that he believed Disney would not have been able to pivot to streaming and survive the acceleration of cord-cutting trends without a realignment of managerial incentives. Because that pivot to Disney+ required them to focus on the “new thing” instead of the businesses at which they had been successful, to date. The pivot also required “the purposeful erosion and disruption of their businesses”, and the incentives offered needed to match the assumption of that risk.
To get the sign-off of Disney’s Board of Directors on these incentives, he challenged the Board with Clayton Christensen’s innovator’s dilemma, framing Disney as an incumbent that would “spend capital to generate long-term growth or adapt to change”:
“It’s your choice," I said. "Do you want to fall prey to the innovator's dilemma or do you want to fight it?”
The fairy tale Disney-esque ending to his first tenure as CEO was the board and his management team were heroes, having successfully applied the lessons of Christensen’s research under Iger’s leadership. Six years later — and $4 billion in streaming losses in 2022, alone — the story no longer holds up. Having watched the departure and re-hiring of Iger as CEO over the past three years, and a multiple re-organizations, it is even harder to believe that the interests of managers across the divisions of Disney’s ecosystem were successfully re-aligned.
Disney is one key player in the ongoing “game of chicken” between the Alliance of Motion Picture and Television Producers (AMPTP) and its striking counterparts — The Screen Actors Guild - American Federation of Television and Radio Artists (SAG-AFTRA) and the Writers Guild of America (WGA). That means, if the stakeholders in Disney’s ecosystem are misaligned, and the strikes reflect a misalignment between Disney and creative talent, how badly misaligned are the incentives of stakeholders across the entire media ecosystem?
Key Takeaway
I wonder whether what I perceive as "quitting" is more a reflection of media ecosystems — both within companies and more broadly — being too complex for management to navigate disruption.
Total words: 1,300
Total time reading: 5 minutes
Misalignment
I wrote about a problem of misaligned incentives in last month’s “Why Acquire A Legacy Media Company?”, where I quoted an essay — “What Clay Christensen Missed” — from independent Consultant/Advisor Doug Shapiro:
Often, firms get disrupted not because they don’t understand the disruption process, see it coming or know what’s at stake. They don’t even get disrupted because of the difficulty of changing internal processes. They get disrupted because companies operate in complex ecosystems of stakeholders with misaligned interests: employees (including well-paid, powerful executives), unions, vendors, distributors, “complementors,” board members, shareholders, etc. This is why disruption can be virtually impossible to head off even when you see it coming from far away.
It is an important and helpful alternative lens on Iger’s telling of Disney’s pivot. Even if Iger had applied the lessons of Clayton Christensen correctly to management incentives, he also missed what Christensen arguably missed: sometimes, the complexity of the ecosystem can overwhelm and undermine even the best-executed corporate objectives.
I wrote about one version of this problem in May’s “The ARPU of Storytelling”, in which I highlighted how Iger’s successor and predecessor Bob Chapek failed to convince investors that his “Disney Prime” vision was viable:
“In the case of ticket sales to Disney theme parks exclusive to Disney+ subscribers, what is the ARPU? Is it significant enough to matter? How is that different from the ARPU of Disney+ subscribers who purchase merchandise?
The short answer is that it is a complex story, and the easiest solution when dealing with investors displaying growing skittishness about the future of Disney is not to tell that story. And that is effectively what played out for Chapek last November.”
The complexity of Disney's ecosystem has overwhelmed both Chapek’s and Iger’s pivot-to-retail ambitions.
More misalignment
Another quote I have cited multiple times this year is from AMC Networks CEO James Dolan. 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.”
His use of “culture change” also points to a need to rectify a misalignment of stakeholders: AMC Networks mistakenly bet on leaders with wholesale management skills to evolve the business into a retail-first focus. His recent hiring as CEO of his spouse, Kristin Dolan — who has a long and accomplished background in the retail model of the cable industry — is a concession to the market that AMC Networks needs new management to successfully make the pivot to streaming.
But are they making the right changes? Or does the AMC Networks ecosystem suffer from similar complex misalignments between internal stakeholders that Disney suffers from? So that it doesn't matter who runs the business?
These questions don’t end here, as they can be equally applied to all other members of the AMPTP. Does Paramount understand that its ecosystem suffers from a Disney-like misalignment of stakeholders as it transitions from wholesale to retail models? Do Comcast and NBCUniversal? Does Warner Bros. Discovery?
Disney may be the only company whose internal workings we know of, but its flat stock price (down 20% over the past six months) suggests that Wall Street considers it to be no different than any other media company facing flat or declining stock prices.
The flip side of those questions
Similar questions about misaligned incentives are now emerging on the actor’s and writer’s sides, as a recent viral TikTok video from actress and comedian Sarah Silverman highlighted:
“There are, like, 40 movies being made right now. Movie stars are making movies because they're independent movies, and SAG is allowing it because if they do sell it to streaming, it has to be because streaming is abiding by all the things we're asking for. That's just working. The strike ends when they come to the table and we make a deal in agreement. So, you're just letting people make movies, and movie stars are making movies that you know the goal is to sell them to streaming."
Silverman is referring to 39 independent productions that were given exemptions to proceed during the strike by SAG-AFTRA because “the productions had no ties to the Alliance of Motion Picture and Television Producers, which represents big studios.”
The picture that emerges from the above, even if incomplete, is that the parties within the AMPTP are basically a collection of own misaligned stakeholders who are playing chicken with unions who are also a collection of misaligned stakeholders. And, the big studios are stuck within larger ecosystems where management seems to be neither aligned with internal stakeholders or investors.
That’s the underlying gist of Silverman’s rant: Are there actually "sides" here?
Throwing in the towel?
I argued earlier this month that one of the key trends over the next quarter is the impact of legacy media companies throwing in the towel on their bets to own the consumer relationship in streaming and beyond. But, now I wonder whether what I perceive as quitting is more a reflection of media ecosystems — both within companies and more broadly — being too complex to navigate disruption.
Legacy media management teams have made good faith, reasonable efforts on the behalf of shareholders in their pivots to streaming. They have invested billions as Wall Street has demanded they should. And, now, they are failing for reasons that popular business management theories no longer capture.
We are in new territory, and the misalignment of stakeholders is not an obvious problem to solve if incentives, alone, cannot realign their interests. So, maybe no one has thrown in the towel on owning the consumer relationships, but rather what we are seeing is that everyone is powerless.
And that may be what the actors' and writers' strikes misunderstood: no one has set out to take their money. Rather, no one understands the media business they manage anymore.
Must-Read Monday AM Articles
* The actors union let itself be pushed into a walkout by radical posturing when its leverage was low.
* As Hollywood enters earnings season amid a double walkout, it’s becoming clear that, in the short term, the work stoppage is adding to struck companies’ bottom line. What will CEOs do with the windfall?
* Major Hollywood studios and streaming platforms are considering terminating some of their first look and overall deals with writers as soon as Aug. 1, more than half-a-dozen sources with knowledge of various term agreements and talks inside these companies told Variety.
The demand for “premium content” is being redefined by creators, tech companies and 10 million emerging advertisers.
* One month after the publication of a hotly contested report on the transparency of media buys on YouTube, advertisers are probing the industry’s largest seller of online ad space for better answers.
* An Adalytics report indicating that the tech giant misled the advertising industry to the tune of billions could stem from an all-too-willing lack of oversight.
* Does it matter if Netflix still can’t say what a Netflix show is? The streamer is currently in a position, thanks to its massive and engaged subscriber base, to turn almost anything into a viewership success.
AI & cloud computing applications and services are increasingly dictating content consumption
* Head of Amazon Web Services Adam Selipsky spoke to the FT’s west coast editor, Richard Waters, about customer choice in Artificial Intelligence amid the most important technological advance since the internet.
* Amazon Web Services announced Entity Resolution, which consolidates all identity-based records a business might have across the sprawling AWS landscape, from point-of-sale systems and CRMs to call centers, martech vendors and other data sources piped in from different places.
* The Intercept has a good deeper dive into the specific threats Artificial Intelligence poses to Hollywood
* Actors and writers worry that Hollywood studios will use AI to replace them. But in a shocking twist, AI may be coming for the studios, too.
* Limits on data would challenge how easily AI companies can build future versions of their language models. But the sheer size of these models also is a challenge for those seeking copyright protection, lawyers say.
Legacy media companies are throwing in the towel on their bets to own the consumer relationship in streaming and beyond.
* A closer examination of the Tour de France property, its fan base, and viewing trends suggests NBCUniversal’s decision to move the race's broadcast home to Peacock was both logical and opportunistic.
* Several of the country's biggest entertainment and streaming companies are teaming up to fight hundreds of local broadcasters over a years-old provision that would determine whether they are forced to negotiate directly with those local stations for distribution deals
Other
* The Smart TV screen is becoming a billboard where the ads are difficult to spot and sometimes impossible to avoid.
* It’s a great time to be in the sports media business; on average, the cost of reaching 1,000 sports viewers next season will work out to around $75, while the average broadcast CPM is expected to dip to $42.