I appeared into two must-read articles from Chris Stokel Walker last week:
Kylie Jenner, Kim Kardashian and the great Instagram backlash ($ - paywalled)
Last Friday I wrote about how it seems as if the “half-life” of older library titles like “The Office” and “Seinfeld” has been accelerated by changing market dynamics.
As coincidence would have it, last Thursday Recode’s Peter Kafka interviewed B.J. Novak - who starred as Ryan Howard in “The Office - on the Recode Media podcast. I had a moment to listen to the podcast this weekend. At about 32 minutes in, Kafka asks him if he could feel the difference after “The Office” left Netflix, if the show now feels “less popular?”
Novak responded:
“I thought it would feel less popular but the weird thing is, when I ask teenagers who say “We love The Office!”, I say “Do you watch it on Peacock?” and more often I hear “No we watch it on YouTube.” And people will watch highlight reels of it and consider that the show.”
Novak also tells the story of a teenager at a children’s hospital he was visiting who was excited to meet him, and when he asked her what her favorite episode of “The Office” was, he recalls she responded: ”’Well I really know you from the memes… ‘ and she meant it. I was from ‘The you writing in the notepad meme, and ‘The you rolling your eyes meme’… she knows it from memes”.
In other words, without YouTube, teenagers would have never found “The Office”. This reflects an emerging problem for media companies who have assigned extraordinary value to the ownership of IP libraries for streaming: The value of IP is fragmenting across platforms, new generations “consume their art by algorithm”, and YouTube’s algorithm seems to drive the most impactful engagement with audiences, new and old.
That would imply NBCUniversal’s five-year, $500MM investment in “The Office” in 2020 was an extraordinary, Curse of the Mogul-type misread of the marketplace that has rewarded more value to the show’s profit participants than to Comcast shareholders. At a time when Netflix is struggling to build a library of Disney-like intellectual property (IP), one has to wonder: does the success of "The Office" post-Netflix suggest that, in order to extract the maximum value from owned IP, streaming companies *need* a PARQOR Hypothesis-type ecosystem?
“The Office” IP
Peacock shares its data with Nielsen, but “The Office” has gone from Nielsen’s most streamed show in the U.S. in 2020 (57.1MM minutes stream) to no appearances on that list in the year-and-a-half since moving to Peacock in 2021.
Comcast reported in its earnings call that Peacock growth stayed flat at 27 million MAAs and 13 million paid subscribers in the U.S. I wrote on Friday:
13MM paid users is less than 20% of Netflix’s market reach. Another part of the problem may be the value proposition of Peacock, which offers “super fan” episodes of The Office in its free tier but does not target “The Office” algorithmically to users like Netflix’s homepage recommendation engine does.
In turn, Peacock’s software simply may not be good enough to drive scale for any content on the app.
On the other hand, cast members of “The Office” have since found success on Cameo (actor Brian Baumgartner earned more than $1MM in 2020) and on podcasts (“Office Ladies” with “The Office” stars (and real-life BFF) Jenna Fischer and Angela Kinsey). Throw in B.J. Novak’s anecdotes, above, and the picture we get is that the IP of “The Office” thrives well beyond the “walled garden” of Peacock, but less so within it.
The Algorithm
Novak’s point seems to be that an entire new generation of viewers consume “The Office” by the algorithm, and clips and memes generate more word of mouth and engagement for the show outside of Peacock than the full episodes or the “super fan” episodes of The Office on Peacock. In other words, the “half-life” decay of “The Office” IP would have accelerated because of its move from Netflix to Peacock (NOTE: a “half-life” is a period of time where the value of content decays as audience behaviors shift across generations, demographics, devices, and platforms).
Why? Because Netflix's algorithm kept it alive to the tune of 57.1MM minutes streamed per year in the U.S., alone. It has since disappeared from Nielsen's ratings, implying the YouTube algorithm has saved it with younger audiences.
Also saving it are Brian Baumgartner, Jenna Fischer and Angela Kinsey. If B.J. Novak’s anecdotes reflect the rule and not the exception, Peacock’s importance to supporting “The Office” is marginal, but not existential.
The PARQOR Hypothesis
The PARQOR Hypothesis argues that the media businesses most likely to succeed in streaming and beyond must meet five attributes, and highlights any missing pieces they (arguably) may need to solve to optimally succeed.
Those attributes are summed up in the BEADS acronym:
an Aspirational Brand
Existing user base at scale
Multiple Avenues to monetizing the same IP, and
Daily value proposition (something new for fans to consume daily)
Sales Channels: Online (digital) and offline (physical) commerce
In sum, the media businesses that are able to centralize their IP, centralize their consumer relationships with an existing user base at scale, and monetize the IP and those relationships across multiple channels are best positioned to succeed in 2022 and beyond.
Peacock scores four out of five BEADS because it lacks an aspirational brand. At a higher level, the PARQOR Hypothesis implies an additional weakness: the $500MM investment only centralized “The Office” content within Peacock, but it did not centralize “The Office” IP within the NBCUniversal ecosystem.
Meaning, Brian Baumgartner, Jenna Fischer and Angela Kinsey are all empowered to create, produce, distribute and monetize “The Office”-related content outside Peacock and without NBCUniversal. This is entirely unlike Disney and Marvel, or Warner Bros. Discovery and DC, which monetize their IP within their respective ecosystems (NOTE: Warner Bros. monetizes DC with Six Flags via licensing agreements).
The Paradox
I think this all reflects a fascinating paradox:
Streaming services have invested billions into exclusive IP libraries at a time where 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”.
I don’t know whether to call it “The Netflix Paradox”, “'The Office' Paradox” or “The YouTube Paradox”. But it raises an important question: why is any media company with a streaming service- including Netflix - trying to extract value from IP from streaming, alone?
Because in trying to do so without PARQOR Hypothesis ecosystems in place, they end up being unusually vulnerable to the power of third-party platforms like YouTube to find more audiences with the same content.
Must-Read Monday AM Articles
[Author's Note: I have hyperlinked certain themes to specific past mailings where I first defined and discussed them]
* Interacting online today means being besieged by system-generated recommendations. Do we want what the machines tell us we want?
The Vibe Shift
* Mark Zuckerberg says Meta and Apple are in “very deep, philosophical competition” to build the metaverse. A good dive into how Zuckerberg is weathering the pivot to the Metaverse.
* Why the hype for the NFT project NBA Top Shot is wearing off
* Warner Bros. launched MultiVersus, a new free-to-play platform fighter game (like Nintendo’s Super Smash Bros.) from developer Player First Games, and it’s in the Americas, Europe, Australia, and New Zealand for PlayStation, Xbox, and PC.
The 200 vs. The 10 Million
* MobileDevMemo’s Eric Seufert unpacks “Snap’s grim Q2 results and the difficult road ahead”. Seufert also wrote about Meta’s Q2 earnings and a good conversation on Twitter ensued.“
Aggregator 2.0 & Bundles
* N/A
Sports & Streaming
* Major leagues are increasingly planning to balance direct-to-consumer fan relationships (like NFL+) with billion-dollar rights deals from Disney, Comcast or tech giants like Apple and Amazon.
* LIV vs. the PGA Tour is becoming the most dramatic rivalry in business. The side with the best ideas will be the winner. ($ - paywalled)
Creator Economy, Platforms & Transparency
* The YouTube Shorts Drive-Thru at VidCon was a hit
* Taylor Lorenz writes “Instagram knows you don’t like its changes. It doesn’t care.”, and writes her in Substack “You don't want the old Instagram”
Original Content & “Genre Wars”
* The Gray Man is designed “to get audiences to come back, stick around, and get Netflix headed in the right direction again.” Sam Adams of Slate wrote about “Why Netflix’s most expensive movies keep getting worse.”
* Forbes’ Paul Tassi asks, “Is there any, actual way to figure out what the best show on Netflix actually is?”
* A company called Immersive Gamebox will launch an adults-only “Squid Game” experience in September at a new Lower East Side venue.
* The future of HBO Max’s unscripted division at Warner Bros. Discovery
* MGM has lost the film rights to “Tomb Raider,” based on the popular video game, sparking a bidding war for the IP, and the bidding war has Hollywood “in a feeding frenzy”
AVOD & Connected TV Marketplace
* Despite being under pressure from lawmakers to diversify its staff, Warner Bros. Discovery has a notable amount of homogeneity at the top
* Disney confirmed to Axios that it would allow political issue ads — in addition to candidate ads — on Hulu's streaming service, effective immediately, bringing Hulu's ad policies to parity with Disney's cable networks.
* A good breakdown of Roku’s no-good, very bad quarterly earnings from Digiday’s Tim Petersen
* A study by the Association of National Advertisers (ANA) found that while 75% of procurement respondents deem their role in media as successful, only 26% of marketing executives responded that way ($ - paywalled).
* An IAB survey found that U.S. ad executives project their second-half ad spending will be up an average of 7% vs. what they originally planned, but the same sample of ad execs reported their full-year ad spending will be down 31% from what was projected in a similar survey conducted by the IAB in the fall of 2021. (free - registration required)
* Mike Shields writes, “Google and Facebook seem vulnerable. What does that mean for The Trade Desk?”, and interviews The Trade Desk Chief Client Officer Jed Dederick
Other
* A good summary of the Market Capitalizations of media companies at this moment in time, and why they are where they are