In Q2 2023, PARQOR will be focusing on three trends. This essay focuses on "Media companies have millions of consumer credit cards on file. What are they building for their customers?"
To remind you, PARQOR identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the media marketplace. Must-read stories or market developments are not always obvious from press reports or research analysis, and often require a deeper dive. PARQOR’s analysis questions established ideas and common wisdom, reassesses the moving pieces, and reveals the potential in the media marketplace in 2023.
I wondered aloud in an exchange on Twitter last week, does HBO matter more than “The Last of Us” as a brand in 2023? Meaning, is the show’s brand bigger than the distributor’s brand to the point where it doesn’t matter where the show is distributed?
It was not a rhetorical question. I really don’t know.
I asked the question because Warner Bros. Discovery’s Max announcement of the Max brand and service could be taken to a logical extreme: It may not matter what the name of a streaming service is, all that matters is whether it can deliver exciting new content. And if it does not, the question becomes why it should exist.
This sounds a lot like “The Netflix Paradox”, “'The Office' Paradox” or “The YouTube Paradox”, which I wrote about last August. That paradox attempted to explain why the TV series “The Office” succeeds better on YouTube instead of Peacock:
Streaming services have invested billions into exclusive IP libraries at a time when the value of IP is fragmenting across platforms;
The best business models for monetizing this IP should be PARQOR Hypothesis businesses because they centralize the value of IP and monetize it in multiple ways; but,
Without a centralized model for the IP, the YouTube ecosystem and algorithm may be more valuable to building fan bases for IP than the exclusivity of a “walled garden”.
The paradox pointed to an important question: “Why is any media company with a streaming service — including Netflix — trying to extract value from IP from streaming, alone?”
Applying the question to Warner Bros. Discovery and the Max rebranding, it is clear that Max is focused on a centralized distribution model for its IP, but nothing more. So what will Max accomplish in a marketplace where Netflix and YouTube do a better job of serving fans of IP?
Key Takeaway
Max is in an odd position with consumers as a value proposition: it has done everything to remove consumer friction for its streaming service, except for building a service that fans increasingly have come to expect in 2023.
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Not Crunchyroll(s)
This question was already looming after Warner Bros. Discovery recently decided to keep the Discovery+ app as a stand-alone streaming service, “part of an effort to avoid risking losing a significant chunk of the app’s 20 million subscribers who might not want to pay the higher price to access that content”. That means Warner Bros. Discovery is solving for growth and churn across multiple apps and multiple target customers, and that seems complicated.
That story implied it has not been focused on solving for its most passionate consumers. It only did so when forced to by its discovery+ consumers resisting change. But even then it is not pursuing a flywheel model for these subscribers, a business dynamic I highlighted back in January in “Why Don’t We See More Crunchyrolls?”
Warner Bros. Discovery’s vision for Max is purely a distribution play, as is its vision for Discovery+. “The Netflix Paradox”, “'The Office' Paradox” or “The YouTube Paradox” raises the question, if that’s all there is, then why should fans subscribe?
There was no answer at last week’s event. Instead, Warner Bros. Discovery executives performed some verbal gymnastics about dropping the HBO brand, like this explanation from JB Perrette, Warner Bros. Discovery’s global streaming and games head, as to why they removed “HBO” from the brand:
“HBO is not TV. HBO is HBO. It needs to stay that way. We will not push it to the breaking point by forcing it to take on the full breadth of this new content proposition had we kept the name in the service brand. By doing so, we’ll better elevate and showcase our unparalleled array of other content and brands that will be key to broadening the appeal to this enhanced product.”
Alex Sherman of CNBC explained one rationale Warner Bros. Discovery had for removing the HBO branding: “HBO fans won’t unsubscribe from the service in response to the name Max, but some people who were scared off by HBO may now sign up once the adult brand has been obscured by the deluge of distinctly un-HBO content coming to the service.” The “distinctly un-HBO content” is Discovery’s library of content (more than 55,000 episodes at the launch of Discovery+ in 2020).
Perrette’s and Sherman’s explanations read like management reached the conclusion that it does not matter what the brand of the service is, as long as the brand is not HBO and does not turn off audiences who want to find their favorite brands (HBO, The Magnolia Network) or their favorite content. That a brand that got in the way of the content would mean fans would not subscribe to watch the content.
But the value proposition?
But, the lesson of “The Netflix Paradox”, “'The Office' Paradox” or “The YouTube Paradox” is that streaming distribution as a value proposition, alone, is not enough, and the data for Warner Bros. Discovery in its first year seems to reflect that. It has 96.1 million subscribers as of Q4 2022, up from 86.2 million subscribers in Q4 2021. But it also had a 6.9% churn in the U.S. for the first three months of 2022 (ranking fifth among 10 services) and the highest percentage of serial churners — individuals who have at least three Cancels in the past two years among the ten Premium SVOD Services included in the category — who are nearly 35% of sign-ups, according to research firm Antenna.
That leaves Max in an odd position with consumers as a value proposition: it has done everything to remove friction for its streaming service, except for building a service that fans increasingly have come to expect in 2023.
The easiest explanation for this is that Warner Bros. Discovery is lining itself up for its next sale: A 10-year series for the Harry Potter books is longer than any of the contracts existing management has with Warner Bros. Discovery, so that is a dead giveaway.
But the question the paradox raises is, how long will fans stick around when YouTube has been proven to make them happy with shorter clips of the same content?
Must-Read Monday AM Articles
* “HBO’s Run as a Mass-Market Streaming Brand Comes to a Merciful End”
* Four Democrats in Congress have asked the U.S. Department of Justice to review the Warner Bros. Discovery merger, alleging the deal is responsible for “hollowing out an iconic American studio.”
* Those who wish to duplicate Netflix’s model must have the will to swim through heavy losses, build scale and get to the other side.
* Disney Star decided against extending its longstanding content deal with Warner Bros. Discovery, resulting in the removal of 144 HBO Originals, including popular series like Game of Thrones, House of the Dragons, The Last of Us, and Succession, from Disney+Hotstar last month.
* Streaming subscribers should “prepare for a new reality—one in which new content isn’t simply fire-hosed onto platforms for artificially low prices.”
* YouTube released five new features for Premium subscribers
* “The Walking Dead” (AMC Networks) and “Invincible” (Amazon Prime Video) creator Robert Kirkman gave an in-depth interview on the growing overlap between games and Hollywood
* A Microsoft and Roku research partnership found that TV streaming ads are typically thought to drive awareness, but can also can drive the purchase. Search ads typically drive engagement and lower-funnel activities, but they also can be used to increase awareness. (free - registration required)
* Netflix VP of global advertising sales spoke to AdAge about Netflix’s strategy ahead of negotiations, and Netflix’s advantage over legacy TV
* Google TV introduced “a new live TV experience that lets you browse more than 800 free TV channels across multiple providers, organized in one easy-to-use guide right in the Live tab.”
* Researchers at Moffett Nathanson are baffled by the “shocking… underperformance” of Disney shares (DIS), which are down 30 percent since the start of 2021
* The NFL won’t bring flex scheduling to “Thursday Night Football” just yet, a proposal which would have allowed late-season Sunday afternoon games to be moved to Thursdays with 15 days’ notice. NY Giants co-owner John Mara is “aghast” that owners were “considering an idea that would be so disruptive for fans and so unpopular with players and coaches.”
* Billionaire Mukesh Ambani’s JioCinema will add more than 100 films and TV series to its platform, building on the popularity of its cricket broadcasts in its push to take on global giants like Walt Disney Co. and Netflix Inc. in the fast-growing Indian market.
* Much has been written about NBA ratings the past few years, but where does the league truly stand?
* A good summary of the FAST marketplace in Q2 2023 from nScreenMedia's Colin Dixon