In Q1 2023, PARQOR will be focusing on four trends. This essay focuses on "The definition of scarcity is continuously evolving away from linear. What happens next?"
Two weeks ago I wrote about how Apple’s $6 billion spend on original TV series and films seems like a protective subsidy for Hollywood. Last week an old story about Apple TV+ received new attention from Bloomberg. It has promised $1 billion to produce movies that have at least a month theatrical run before they go to TV+ exclusively for streaming.
Now, it’s not clear yet whether that is $1 billion on top of its annual content spend of $6 billion or simply an allocated share of the existing $6 billion. Either way, it seems to be a direct subsidy that shares DNA with the subsidy that cable networks have given regional sports networks (RSN). That subsidy comes in the form of requiring all cable network subscribers to be billed the fee for distributing the RSN, and not only the people who actually watch the network (typically 5% to 10% of the cable network subscriber base).
But the one-to-one comparison of Apple TV+ to cable networks falls short given that Apple TV+ is estimated to have 16.3 million subscribers in the U.S. (as of last June), and around 40 million subscribers globally. By comparison, cable networks reached 105 million U.S. households at its peak in 2010. Apple TV+ also has one of the highest churn rates in the U.S. market, at least, at 6.6%. A subsidy for Hollywood movies might help both metrics for Apple, but it’s speculative.
And that leaves a big question: What are the win-win outcomes that Apple’s subsidy actually accomplishes?
Key Takeaway
$1 billion from Apple could go a long way to getting more “singles, doubles and triples” in theaters to help both market its platform and drive more theatergoers. Or it won't.
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The obvious answer
Bloomberg’s Lucas Shaw reported last night that Apple had to promise a theatrical release in order to win certain projects (Amazon is in a similar position, having promised $1 billion annually last November to produce movies with theatrical distribution, too). Apple found itself in this position recently with a Formula One movie being shopped by Creative Artists Agency. The movie stars Brad Pitt, is directed by Joseph Kosinski (Top Gun: Maverick) and produced by Jerry Bruckheimer. Apple won the distribution rights after it would release the project in theaters.
There is also the “Top Gun: Maverick” precedent from Paramount. Paramount+ reported it added 9.9 million subscribers in Q4 2022. It was not that movie, alone, that accounted for those additions — the Taylor Sheridan “Yellowstone” universe has been a big part of Paramount+’s recent success, and Paramount does not break out hours consumed as Netflix does. But, Paramount+ grew by 21% in Q4 2022 and Apple TV+ would love to have a similar story.
A pipeline of $1 billion in movies annually that can move the needle like this could be the shot in the arm that Apple TV+ needs as a business. Meanwhile, it also wins over Hollywood producers scared for the future of both the theatrical business (Shaw did a good job breaking this aspect down in his newsletter last night).
The less obvious answer
But if Apple wants a pipeline of $1 billion in movies annually, isn’t it better off trying to replicate independent production company A24’s success with recent Oscar winner and hit “Everything Everywhere All At Once”?
A24’s model focuses on funding movies with budgets between $5 million and $15 million. Meaning, that’s 200 movies with a $5 million budget, 70 movies with a $14.3 million budget (the low end of budget estimates and 40 movies at $25 million (the high end of estimates for recent Oscar winner and hit “Everything Everywhere All At Once”).
Apple and A24 have already partnered around original movies “The Tragedy of Macbeth”, “Causeway” and “Sharper”. You have probably heard of the first because it was directed by Joel Coen and co-starred Denzel Washington and Frances McDormand. But the other two you probably haven’t heard of, and that’s the problem that Apple needs to solve with its Hollywood production partners.
That points to another less obvious answer: Apple has a solution for the independent film box office. There was a $7.35 billion drop in ticket sales from the U.S. and Canada, according to analysts and studio estimates, down 35% from the pre-pandemic year of 2019. A big part of that was the thin slate of movies resulting from the pandemic. As The Los Angeles Times’ Ryan Faughnder wrote last December, “With such a thin slate, the box office became increasingly reliant on the home runs, and there weren’t enough of what studio executives call singles, doubles and triples — the kinds of mid-budget films that sustained theaters year-round.” The blockbusters are driving ticket sales, and independent films are struggling to sell tickets: for example. Oscar-nominated “Tàr” opened to $158.620 and grossed $6.77 million on a budget of $35 million.
$2 billion between Amazon and Apple could go a long way to getting more “singles, doubles and triples” in theaters to help both market their platforms and drive more theatergoers.
The win-win
That win-win logic points to a deeper subtext of Apple’s and Amazon’s deals: streaming has killed the independent film movement subsidy that began with Blockbuster in the 1980s. Or, as author Alan Payne writes in “Built to Fail”, his history of Blockbuster as one of its last franchise owners, “Films that previously would have never been made found an enthusiastic audience in the video store.” Netflix took up that burden once Blockbuster began its financial decline in 2007.
The moment Netflix began funding original content in 2013 — when it produced “House of Cards” — began a precipitous decline in third-party funding for independent movies. Ten years later, independent movies no longer have a lifeline from rentals. In 2012, Netflix had $1.1 billion in revenue from DVD-by-mail. Last year, Netflix’s by-mail DVD rental service fell to $100 million in 2022, a 50% decline from the $200 million earned in 2020 and 2021. Licensing has compensated for the loss of revenues, but Netflix's model increasingly favors owned and original content for which it typically does not pay any back-end.
Excluding production companies that have figured out a business model for independent film — Blumhouse Productions and A24 as the companies with the best business models in 2023 — everyone other independent film production company needs the subsidy.
Is Apple replacing this subsidy? It could be, but it seems unusually focused on Hollywood blockbusters.
Must-Read Monday AM Articles
[AUTHOR’S NOTE: This continues to be a weird news cycle in which to launch a Slack. I have not been posting, but readers have been responding to essays.]
* With Hollywood living in a time of franchise excess, the “movies are dead” chorus is growing louder and louder.
* Six ways to improve the CTV experience—for advertisers and viewers
* Paramount+ will launch price tiers exclusively available for use on smartphones and mobile devices in both Brazil and Mexico. Might these tiers come to the U.S.?
* Netflix has been able to more than double the audience of its mobile games last year, according to new data mobile intelligence company Sensor Tower shared with me this week.
* Netflix is still working on its cloud gaming service, which could make its burgeoning games lineup easier to play and available across more devices
* Simulmedia CEO Dave Morgan argues “Being a walled garden isn’t a bad thing” and the future of media will be about walled gardens.
* Paramount launched a direct-to-consumer outlet for all Paramount+ titles and the company’s various franchises
* Frequent TV show cancellations are starting to change how U.S. viewers decide what to watch
* The NBA and NHL are working with Diamond Sports Networks on a plan that they expect would keep the Bally Sports RSNs up-and-running for the next several years. But, MLB is trying to get its rights back.
* If RSNs like Bally Sports go dark, what happens to the non-major sports they broadcast?
* Susan Rovner, NBCUniversal Chairman of entertainment content, told SXSW that in the chase for subscribers, streaming services may be forgoing long-term value for short-term customers in ordering new series vs. building libraries.
* NBCUniversal’s streamer Peacock tallied the best results for monetizing per hour of streaming viewing in terms of advertising and subscription revenue
* Netflix is hoping “The Electric State” —featuring A-list talent including Chris Pratt of the “Guardians of the Galaxy” franchise and “Stranger Things” star Millie Bobby Brown—will be enough of a hit with viewers to warrant franchise opportunities such as a TV show spinoff, merchandise or videogames ($ - paywalled)