Last week, CNBC offered “clues to what may be in store for Paramount” under incoming President Jeff Shell.
The article opened windows into what Shell plans to do with Paramount’s digital assets, including a vague game plan of “bold changes to declining businesses while investing in technology”. Much of Paramount’s digital future already has been impacted by the past six months of layoffs, targeting 15% of its U.S. workforce.
Paramount+ took the “brunt of cuts” in last month’s cuts as the company hunts for profitability. These were not Paramount’s first cuts to streaming: It also shut down Nickelodeon's subscription service Noggin in February, which last reported over 2.5 million subscribers in 2019.
The app targeted two- to seven-year-olds with “more than 1,000 educational games, videos and books in its library.” It had hosted Nick Jr. programming that included Blue’s Clues”, “Dora the Explorer” and acquisitions like “JoJo and Gran Gran” (from BBC Studios Kids & Family, A Productions).
Paramount moved those titles to Paramount+ under the “Nick Jr.” banner because “Nickelodeon’s content for these audiences is consistently among the most watched and re-watched programming on Paramount+”, according to Kidscreen.
A conversation I had last week raised two questions about this decision:
Did Paramount need to shut Noggin down? Could they not have sold it given their need for cash to service debt (almost $16 billion as of June 2024?
If it had sold, could it have survived with licensing deals with Paramount?
I realized after this conversation that my recent essay on “the new business of living room content” raises a third question: Could Noggin have existed with content it could "produce" via creator platforms instead?
Noggin's end offers clues for what may be in store for Paramount's broader "walled garden" model under Shell and incoming Skydance CEO David Ellison.
Key Takeaway
Do Paramount's new owners believe new technologies enable its valuable IP to be monetized outside its walled gardens? They answer may reveal which Paramount assets will be kept or sold.
Total words: 1,400
Total time reading: 5 minutes
1. Why Shut Noggin Down?
We already have one answer to this question, above: Paramount+ is better off with Noggin’s library.
But, the second and third questions assume Noggin could exist outside Paramount if:
Third parties would be able to run the services better than Paramount with the licensing deals intact; and,
There is a total addressable market for Noggin that well exceeds 2.5 million previous subscribers both with and without Paramount’s library of content.
The first assumption makes sense. I argued last week that media conglomerates now face a “growing financial and strategic need to do something before generative AI further erodes the value of their IP.” Conglomerates should partner or invest directly with smaller, more fandom-focused models—like the generative AI platform Showrunner—which present” a safer choice” for licensing intellectual property (IP) at a smaller scale.
Noggin was a small business within a $7.4 billion conglomerate like Paramount. Outside of Paramount, it would still be a small business. But, in the hands of more forward-looking, tech-savvy or even “back to the people”-savvy buyers and with emerging technologies, it could have been a growth business.
The second assumption seems reasonable. The CoComelon channel reaches 18 million subscribers worldwide and its content has been some of the most popular for nearly 300 million Netflix subscribers for the past three years. There is enormous global demand for content targeting targeting two- to seven-year-olds.
2. Surviving With Paramount Licensing Deals
Noggin may not have survived outside of Paramount because the service relied heavily on efficiencies of scale only found within a global media conglomerate. Paramount distributed Noggin IP to 70 million pay TV households in the U.S. and 71 million global streaming subscribers. Overall, the company has an international reach of “4.3 billion subscribers across 180 countries”.
Paramount's linear businesses also delivered near-guaranteed recurring revenues which made it easier to build complex licensing deals internally and externally. A conglomerate with $20 billion in TV revenues—which have made up 70% to 80% of total revenues over the past three years—may take on more complex and riskier licensing deals than a smaller, independent business with a fraction of those revenues.
Games, videos and books have zero marginal costs within a conglomerate—excluding third-party titles, it is effectively licensing its library to itself—but more variable licensing costs outside the walls of a conglomerate.
The implication is that Noggin would have needed to stay within Paramount to survive. Therefore, the most viable alternative outcome probably would look something more like Crunchyroll—the “sub-scale, dynamic and product-oriented” subscription business owned by Sony—which monetizes over 15 million fans of anime across “a portfolio of distribution options like theatrical releases of new anime content, sales of home entertainment products (e.g., DVD box sets), licensing and secondary distribution.”
As I have written before, Crunchyroll has succeeded within Sony in large part because its management saw more opportunity in "scaling a service for a passionate fan base across multiple distribution channels that it controlled than in attempting to build a Netflix competitor."
3. Surviving Without Paramount Licensing Deals
Noggin might have survived outside Paramount with a library of cheaper, non-exclusive content that also targeted two- to seven-year-olds under the same brand.
For example, Tubefilter recently reported “Netflix has picked up streaming rights to Glitch Studios‘ megaviral animation series The Amazing Digital Circus [“TADC”]—but, unlike with most deals it signs, it’s giving up exclusivity and isn’t going to pull TADC off original home YouTube.” Moving forward, all episodes of TADC will premiere for free on YouTube and for subscription on Netflix on the very same day.
The deal mirrors the one Netflix reached with “Cocomelon” and according to Tubefilter reflects a broader, more recent trend of creators "looking less at TV for their next steps, and more at streaming and Hollywood studios." The outcome reflects “the new business of living content" where consumers "no longer perceive Hollywood’s content ‘quality’ as an impetus for spending money on media or devoting time.”
It also reflects my recent argument that the more YouTube competes with Netflix "on television screens worldwide, the more YouTube is proving that consumers' ‘choice and control’ over the medium of the internet means fans are the producers of the content they want to watch.” Noggin could have succeeded by curating and licensing educational content for two- to seven-year-olds that parents are already “producing” on creator platforms like YouTube, Patreon and Instagram.
That outcome would have required a new management team savvy to this content, creator platforms and non-exclusive Netflix-type licensing deals with successful YouTube creators. It is not clear how many individuals or teams currently possess those skillsets and whether there is enough creator content available to support that platform.
Whither Paramount's Walled Garden
Overall, Noggin’s future seemed to have been undermined by two asynchronous trends resulting from digital, more retail-first technologies.
First, these technologies enable business models that allow IP to thrive outside walled gardens. But, Crunchyroll has proven that the best business models for those still exist within a media conglomerate because of the complexity of legacy licensing deals, the need for recurring revenues and, above all else, the need for economics of scale. Those models also require an experienced and digitally savvy legacy management team.
Paramount has not had that, to date. Shell and Ellison bring that mix of skillsets. But, we have little insight into how they imagine technology could enable Paramount IP to live beyond walled gardens. That insight could reveal which Paramount assets will be kept or sold.
Second, YouTube and Netflix are proving the media conglomerate "walled garden" model may be the worst for connecting valuable IP with valuable target audiences online. Netflix and YouTube “feed each other pretty nicely"—as Netflix co-CEO Ted Sarandos told investors in July's earnings call—so IP like CoComelon and TADC can simultaneously thrive on both platforms. There are limits to exclusivity in retail-first, consumer-first models, but "walled garden" models do not assume these limits.
Hollywood's next decade may lie "in the hands of the Ellisons", but they face the unenviable task of reconciling the aysynchronous trends around the value of exclusivity with thousands of proprietary movies and TV shows.
So, it is apparent why Paramount chose to shut down Noggin. But, it is also not yet obvious whether Paramount's next management team may deliver more market-savvy decisions and outcomes with their promise of "investing in new technology".