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An essay from The Streamable recently argued “Paramount-owned franchises could be a dream for Sony” with interesting caveats:
“SpongeBob SquarePants” would be the perfect intellectual property (IP) to mine for new PlayStation games, as would the “Ninja Turtles” franchise. But it would make sense for Sony to consider selling some of its newfound IP to other interested outlets. How much would Disney pay to acquire rights to old “Indiana Jones” movies to keep alongside “The Dial of Destiny” on Disney+ permanently?
Before 2024, the answer would have been Disney paying a substantial sum: It acquired the film and TV assets of 21st Century Fox for $71.3 billion. Now, after Disney’s announced streaming bundle partnership with Warner Bros. Discovery, the implication is that 21st Century Fox and/or old “Indiana Jones” movies may not be worth much to Disney+. The blockbuster days of “Indiana Jones” are over: The most recent movie in the series—“Indiana Jones and the Dial of Destiny”—grossed $383 million on a budget estimated to be somewhere between $295 million and $387 million, and that excludes marketing (typically equivalent to twice the budget).
That leads to an uncomfortable question, and not just for Paramount but for the rest of Hollywood, too: Is all this IP—“SpongeBob SquarePants” or “Teenage Mutant Ninja Turtles” included—as valuable as they once were?
As I argued in “Investors & The Unsentimental Media Consumer”: “Consumers seem increasingly more sentimental for the intellectual property of media companies more than they are the formats.” Sony should be able to monetize this library of IP across multiple platforms, including its PlayStation ecosystem.
But what if it cannot?
Key Takeaway
IP like "Indiana Jones", “SpongeBob SquarePants” or “Teenage Mutant Ninja Turtles” is not as broadly valuable as they once were. They are not worth $0, but they also are not worth billions.
Total words: 1,200
Total time reading: 5 minutes
The First Warning Signal
According to Shawn Layden, former head of Sony Interactive Entertainment’s Worldwide Studios, the Playstation ecosystem has hit a wall in its Total Addressable Market:
“When your costs for a game exceed $200 million, exclusivity is your Achilles’ heel. It reduces your addressable market… The global installed base for consoles–if you go back to the PS1 and everything else stacked up there, wherever in time you look at it, the cumulative consoles out there never gets over 250 million. It just doesn’t. The dollars have gone up over time. But I look at that and see that we’re just taking more money from the same people.”
It is much harder to monetize the fans of hit IP like “SpongeBob SquarePants” or “Teenage Mutant Ninja Turtles”. “ For example, Netflix turned “Teenage Mutant Ninja Turtles: Shredder’s Revenge”— a game released for PC and consoles in 2022 and “a modern take on the classic TMNT arcade games”—and made it accessible on mobile for the first time via its Mobile Games offering. That game is offered for free. But, as I noted earlier this month, “Without offerings for community within and around those games” Netflix’s mobile games within its walled garden are not a competitive offering beyond its walled garden.
Warner Bros. Discovery just learned a painful lesson about monetizing fans of its most popular IP, reporting it lost $200 million on its recent release of the third-person action shooter console game “Suicide Squad: Kill The Justice League”. The implication is if Sony is going to bet on Paramount IP for more console-exclusive games, it may be misreading the market. The IP may have less value than observers believe.
The Warning Signal from AI
Another version of this question confronting Sony is the one confronting all of Silicon Valley, as Andreessen Horowitz Partner Andrew Chen recently discussed: "Why are big cos in entertainment + gaming not aggressively embracing AI?”
He offered five answers, but the most notable one for our purposes is the Innovator’s Dilemma:
“when you have a series of franchises and delivery channels that work, why take the risk with new tech that reaches a smaller audience, requires a lot of rethinking, and maybe not even work? Within gaming, this is why it's taken over a decade for bigco developers to embrace mobile and free-to-play.”
AI offers a many-headed problem, as I outlined in “How Generative AI Threatens Hollywood’s Walled Gardens”: OpenAI and others have trained their models on publicly available data, including YouTube, raising questions about how and/or whether to compensate the creators of that content. Chen adds, “The legal departments within many of these companies have held their product teams back because sometimes the models seem to spit out copyrighted content when prompted with the right set of prompt text.”
The implication is that the more disruptive generative AI becomes, the fewer the opportunities there will be to monetize valuable IP in any current distribution channel. In turn, the IP will become less valuable, and perhaps all the way to $0 in the instances where copyrighted content can be easily replicated by generative AI.
Layden makes a similar argument that also argues that gaming is reaching “its cathedral moment” because—like the moment hundreds of years ago when Christian communities in Europe stopped building cathedrals— console games increasingly have become “prohibitively time-consuming and expensive”. He is skeptical that the big budget economics for Triple-A games—typically developed by major studios—can be sustained with the emerging market dynamics. He’s “all for” a return to lower-budget games from indie studios, aka double-A gaming.
$26 billion? Really?
Assuming gaming is a smaller opportunity, and streaming is a smaller opportunity—every legacy media streamer is reporting slow growth and are “working more for less” growth in streaming, according to research firm Antenna—then Sony may not find much value in Paramount's library of IP.
With Crunchyroll—a niche service for fans of anime—Sony has learned it cannot rely only on either streaming, the arms-dealer model or gaming—which it recently added to the service last November. Meaning, the IP still has value but there is now a game theory component to delivering that IP: It must offer map content and advertising to consumer intent. It needs to identify Paramount library titles with ’communities of interest’ that “can thrive within the Sony traditional and digital media ecosystems.”
The Crunchyroll precedent suggests that the IP has less and less broad market value but increasing value to the fans who love it. There is less value in trying to scale IP across distribution channels and more value in hyper-serving the fans.
Generative AI will soon offer the most passionate fans new ways to engage with their favorite IP, if it does not already. The uncomfortable question for Sony posed by last week's “Goodbye Media Conglomerates, Hello Spotify for IP (?)” is—as generative AI evolves—whether it will be better to invest alongside other studios for a Spotify-like solution enabling creators, gamers and generative AI platforms to license IP. As I wrote in that column, "great ideas will increasingly come from outside the walled gardens of Disney and other legacy media companies.”
IP like "Indiana Jones", “SpongeBob SquarePants” or “Teenage Mutant Ninja Turtles” is not as broadly valuable as they once were. They are not worth $0, but they also are not worth billions. In this light, Sony and Apollo's $26 billion bid for Paramount seems steep.