Dear Member,
Thank you for being a member.
Your support was essential to helping PARQOR to reach a significant milestone in 2021: launching as the first member of The Information’s Newsletter Network.
Over the past six weeks, we have been working on laying the groundwork for building out more of those benefits on top of The Information’s more powerful technology and platform.
More to come in January 2022.
I am excited for what's in store for you all.
Happy Holidays!
Andrew
Predictions for 2022
As I wrote on Monday, the biggest – and least discussed – lesson was the pull-forward impact of the pandemic, or "a large and unsustainable boost of new users".
In terms of predictions for 2022, the pull-forward impact has effectively shattered and fragmented the streaming growth narrative.
Meaning, what happens next in the post-”streaming wars” convergence of legacy media, streaming, gaming, audio, e-commerce, and the creator economy will no longer have the convenient macro lens of the "streaming wars".
In turn, this means the drivers of growth – arguably the most valuable lenses/variables to investors and executives – are harder to define because they have evolved from a focus on content spend to a focus on alternative business models (e.g, creator economy, bundling with gaming and/or music).
So, realistically speaking, 2022 seems like a crapshoot to predict because there are so many moving pieces. This mailing may be, at best, a monkey throwing darts trying to beat the market in 2022.
That said, I fared quite well with my predictions in 2020 and 2021, and so here are my predictions for 2022...
PARQOR's Five Frameworks
The PARQOR Hypothesis
The PARQOR Hypothesis argues that the streaming services most likely to succeed must meet a specific set of conditions (BEADS acronym).
The core premise of the hypothesis is the best business model in media is a Disney-like offering of:
an Aspirational Brand
Existing user base at scale
Multiple Avenues to monetizing the same IP,
Daily value proposition (something new for fans to consume daily)
Sales Channels: Online (digital) and offline (physical) commerce
It is, in essence, a framework for capturing how various business models converge with a single entity.
As I wrote in MGM Resorts M life "Convergence" vs. "Metaverse" Convergence, a new challenge to the PARQOR Hypothesis emerged in 2021:
the concept of the Metaverse is capturing more of the collective imagination about the future of media than streaming is.
The other point of that essay was how MGM Resorts – which has a Disney-like BEADS model in casinos and sports betting – has instead:
taken a highly technical, AI-driven solution and re-imagined its online and offline consumer relationships. It did not go big picture or abstract in the pursuit of conceptual objectives.
In short, rather than the metaverse, MGM Resorts has focused on the comparatively boring outcome of building out omnichannel (online and offline) via a Customer Data Platform (CDP).
Prediction: I think in 2022 the most successful companies in post-”streaming wars” media convergence will be focused on centralizing omnichannel customer relationships around CDPs. They will be focused less on the metaverse. [1]
Fiduciary vs. Visionary Executives
The Fiduciary vs. Visionary framework highlights both the incentives and constraints around executive decisions. Visionaries are more agile decision-makers than Fiduciaries, who may be constrained by corporate strategy, operations, or finances.
In Is Growth in Streaming Driven More By Content or Software? I wrote about how a16z's Marc Andreessen believes:
A good test for how seriously an incumbent is taking software is the percent of the top 100 executives and managers with computer science degrees.
I added:
Andreessen's point is that the extent to which executives responsible for a streaming service understand the math of a sales conversion funnel, "user intent" and the science of the software is crucial to both growth and competing.
In this light, it is worth noting WarnerMedia recently leveraged its $100MM December 2020 acquisition of You.i TV to upgrade its HBO Max app for global expansion, or 1.1% of its projected $9B annual spend on content in 2022 and beyond.
It is also worth noting how YouTube (which allowed Cobra Kai to sell to Netflix in 2020) and Spotify – both software platforms – are investing less in producing and owning original content, and investing more in software that empowers creator economy models.
I wrote about this in Why Growth in Streaming May Be Too Expensive for Shareholders.
Netflix and Spotify are disrupting the legacy media business model in real-time with better economics for content creation, exponentially larger armies of creators than legacy media, better monetization tools for those creators, and increasingly better ad sales pitches to advertisers.
Both Netflix's and Spotify's platform models have always offered better economics for exponential growth than legacy media, but now both offer a large stable of creators who deliver quality and can scale.
Prediction
Investors will cool to the streaming growth stories from ViacomCBS, Warner Bros. Discovery and even Disney.
The Curse of the Mogul
This framework highlights instances where media company CEOs may be rewarding content creators at the expense of shareholder value.
In one sense, there were only two services in 2021 that remained obtuse in their sharing of data with the marketplace: NBCU's Peacock and Discovery's discovery+.
NBCU CEO Jeff Shell actively avoided sharing any details on Peacock subscribers on Comcast's Q3 2020 earnings call after disappointing users with a poor Summer Olympics viewing experience. Discovery lumps its discovery+ subscriber numbers with "Food Network Kitchen, GolfTV, MotorTrend on Demand, and Eurosport Player among others".
Neither seems to be ready to break out their streaming stories, if ever (also, Discovery will be lumping its streaming story with WarnerMedia's fantastic growth story for HBO Max post-merger in 2022).
Where transparency is more interesting as a challenge is in YouTube's and Spotify's respective bets on the creator economy. Because each has been on a PR push about the strength of their respective bets, but have shared very little data beyond promotional data.
Of the two, Spotify offers investors more insight into the success of its creator economy model than YouTube. This is because Spotify relies on 100% of its ad revenues from podcasts, but YouTube is a subdivision of Google.
Prediction
YouTube and Spotify will continue to build out compelling PR stories around growth, and Comcast/NBCU and Discovery will continue to reveal very little [3].
Product Channel Fit & Co-opetition
“Products are built to fit with channels. Channels do not mold to products.” – Brian Balfour
“Co-opetition” is a word that combines “competition” and “cooperation”. It is defined as “collaboration between business competitors, in the hope of mutually beneficial results”.
I am lumping these two because they are related in a few fascinating ways:
Smart TVs are becoming the new battleground in streaming, and a study from Magid and sponsored by Vizio found that consumers already prefer smart TVs to connected devices or dongles;
Smart TVs and OEMs are beginning to offer their own ad-supported streaming services; and,
Amazon, Google, and Roku offer the best ad delivery platforms for Smart TVs in the marketplace.
For all streamers without Smart TVs, co-opetition is a necessary condition of product channel fit. Meaning, they must mold their products to compete with other streamers and the likes of The Roku Channel, IMDb TV, and YouTube.
On this point, something I wrote in February still holds up well:
Where Coopetition gets dicier is around AVODs producing original content, and needing distribution for that content. The relative ease by which Roku and Amazon reached distribution deals with each other contrasts notably to HBO Max’s complicated deal with Amazon, and Comcast/NBCU’s continued standoff with Amazon.
The implicit takeaway seems to be that Coopetition outcomes offer inherent disadvantages to emerging legacy media AVODs which need additional reach and additional audiences. That does not augur well for Peacock’s ambitions to scale, or HBO Max’s soon-to-be-announced AVOD service⁹.
Predictions
Roku and Amazon will remain leaders in the Smart TV and FAST space despite emerging Smart TV competition.
We will hear more stories of emerging Smart TV competitors aggressively pushing their own free streaming services within User Experiences/User Interfaces, and at the expense of competitors.
Additional Themes
A few key themes emerged in Member Mailings this year, which I wrote about in Key Themes from 2021.
Emerging "Metaverse"-type convergence strategies
How will gaming, music, streaming, Virtual Reality, Augmented Reality, and e-commerce drive the convergence of digital and physical worlds, private and public networks/experiences, and open and closed platforms?
A recent, year-end interview with departing WarnerMedia CEO Jason Kilar on the Recode podcast highlighted how important Kilar believes gaming has become to WarnerMedia's, and therefore Warner Bros. Discovery's, future.
Similar themes were evident in a Variety Strictly Business podcast interview with Sony chairman and CEO Tony Vinciquerra (summarized on Variety here, and who talked up the promise of building out IP universes with Sony-owned gaming IP). Back in September, Vinciquerra also predicted more consolidation in gaming in 2022.
Irrational investor enthusiasm for gaming and the metaverse is only accelerating, and focusing on user intent in emerging metaverse business logic helps us to better understand how:
understanding user intent has been the difference between success and extraordinary success in legacy media and streaming (Mic Drop #41: Disney+ Needs Bundles (& Perhaps Personalization) to Scale), and
Metaverse business logic offers more mechanisms to reward, further incentivize and monetize user intent than legacy digital media offerings.
The implication, then, is that the market will look to more gaming-oriented growth stories.
Prediction
The optics of the Warner Bros. Discovery merger stumble when CEO David Zaslav and management reveal an obvious discounting of/discomfort with WarnerMedia's gaming division and growth opportunities in the metaverse.
However, given the revenues of that division– $403MM in revenue in Q3 2021 or 12% of Theatrical Content, TV Content and Games Licensing Total Revenues – that approach may be justified.
Aggregator 2.0 Bundles
“Aggregator 2.0” bundles offer “the ability to personalize offerings like never before, mixing and matching television, news, e-commerce, gaming, health, and any other service that charges a monthly or annual subscription rate.”
There was growing chatter about “aggregator 2.0” bundles, which bundle streaming with gaming, music, shopping, etc. There are two types of “aggregator 2.0” bundles: those that offer first-party services (Apple) and those that offer third-party services (Verizon)
Verizon is increasingly selling investors on the "stickiness" and retention of the third-party strategy.
Apple (One Bundle), YouTube (Premium and Music) and Netflix (mobile gaming) all evolved their value propositions towards first-party bundling of services.
Predictions
As in 2021, Verizon will end 2022 with the best story about growth and reduced churn from its "aggregator 2.0" model. It may become the go-to third-party partner for most streaming services (with T-Mobile a close second)
Freed of the constraints of needing to promote HBO Max, AT&T will rapidly expand its aggregator 2.0 bundles to become a competitor to Verizon and T-Mobile.
Sports & Streaming
Q3 2022 may end up as the most significant three months for sports streaming in 2022, and for the road ahead.
The main question will be whether Sinclair can launch a viable DTC service then, which it has promised investors it will do. Only 4 MLB teams have signed on, to date, and 12 NHL teams recently joined them.
Because if they do not, that will be a catalytic event for DTC rollouts from the NBA and the MLB, and possibly the NHL, too.
Prediction #1
Because Sinclair has the long-term support of bondholders, odds are they will launch a DTC service that is functional. It is more likely they will continue to have distribution on Comcast and will renew distribution on Charter Spectrum.
The PGA is launching its own Drive to Survive-type series on Netflix in 2022, and the Premier League seemed eager in its rights negotiations to replicate Formula One's successes.
But Formula One's approach – summed up in this excellent Twitter thread – benefitted from timing: it has had five years to lay the groundwork for its recent success.
The market assumptions that were true five years ago are no longer true. Even Netflix churn, which was at a market low then, is higher.
Prediction #2
The PGA and Premier League will market their seasons with Formula One's playbook from five years ago. They will fall short, both due to the playbook being outdated and Gen Z audiences more likely to be found on TikTok.
Creative Talent & Transparency in Streaming
Until last month, much of the discussion was about Scarlett Johansson's dispute with Disney over Black Widow revenues, and what streaming meant for the future of transparency with Hollywood talent.
One outcome was the emergence of Hollywood-meets-Creator-Economy models like Blackstone's bet on Hello Sunshine, which seemed to be partially in reaction to emerging challenges around the decreasing economics of streaming for Hollywood talent. Those economics come hand-in-hand with declining transparency.
Another outcome was how transparency from Netflix and YouTube has set the market standards against which everyone else measured and evaluated. These standards offer stark contrasts to the limited metrics shared by streaming services.
Predictions
After betting on the "Hollywood" aspect of "Hollywood-meets-Creator-Economy", Kevin Mayer and Tom Staggs will find growth by investing in a portfolio of YouTube and/or Spotify creators.
After Disney's generous streaming compensation deals with both Scarlett Johansson and Emma Stone back in September, we will hear more about these types of "keep the Hollywood talent happy" deals in streaming, and fewer deals like Hollywood stars seeking Hello Sunshine-type outcomes.
Original Content & “Genre Wars”
With AMC Networks doubling down on "genre wars" and investing in more content, the three big questions under this theme are whether:
Staying small is the right strategy for AMC Networks;
Acquirors value Starz for its success with a "genre wars" strategy, and
Netflix starts capturing more verticals
There is also a fourth tension reflected in the success of Squid Game and other foreign-produced titles on Netflix: where Hollywood production budgets are increasingly inefficient given the growing success of Netflix's cheaper, foreign-produced shows globally.
Predictions
AMC Networks stumbles in its pivot to streaming because libraries are hard to build and competition is emerging from other platforms. But, the Dolan family still won't sell.
ViacomCBS will not sell, and more likely will be a buyer of Starz (which it previously tried to buy for $5.5B in 2019) because Starz boosts its success stories with valuable target audiences sooner than additional content spend. [2]
Disney will raise investor sentiment with an international success on a new, European-produced series on its Star platform, which it will also succeed on Hulu when Disney brings it to the U.S. for additional distribution.
Comcast’s & ViacomCBS’s Struggles in Streaming
After starting 2021 with similarly problematic stories about streaming, ViacomCBS had a better year than Comcast's NBCUniversal with a successful rebrand and relaunch of Paramount+ (47MM worldwide, up YoY from 18MM), and the continued growth story of Pluto TV (54MM Monthly Active Users).
The differences, though, may lie most in User Experience and User Interface: ViacomCBS is increasingly focused on integrating and upgrading its software for Paramount+, having recently integrated Pluto TV-type live channels.
Prediction
ViacomCBS will be fine (see above), but Comcast management will remain slow-moving, if not paralyzed, around solving for Peacock's challenges given the unnecessary complexity of its consumer-facing user experience.
AVOD & Connected TV Marketplace
See, Product Channel Fit & Co-opetition, above
Last, We Need to Pay More Attention to YouTube
The growing threat of YouTube to everyone raises an important question: what does it actually mean for creator economy to outperform streaming marketplace?
I took one stab at this answer in Why Growth in Streaming May Be Too Expensive for Shareholders, and a follow-up critique of that Member Mailing, A Self-Critique of Growth in Streaming.
The emergence of creator economy models being embraced by Spotify and even streaming service CuriosityStream (which invested in a creator platform called Nebula) suggests that engines of growth lie outside of traditional legacy media business models.
Prediction
We will see more YouTube creators reach audiences closer to the scale of MrBeast, and a growing percentage of Connected TV viewing of Gen Z audiences will drive YouTube's continued dominance of Smart TV consumption in the U.S.
[1] As one of my planned offerings for Members in 2022, it will be building a database to help keep track of this prediction.
[2] An interesting question here of what happens to BET+ in this scenario given Starz has over 12x the scale of BET with similar content targeted to similar audiences.
[3] The big risk in Q1 is when Verizon's one-year deal of discovery+, free, expires. I just cancelled my subscription.