The Bulletin Edition 3
From The Desk of
When last week’s edition of The Bulletin rolled out and then we tipped over into another week, I wondered if the next 5 days would bring the same or more amount of news, developments and worthy stories to include in this week's edition. The Bulletin has never been about just reporting the news as is. If anything, it has served me as a tool to review the week and make sense of all the announcements, developments and thought leadership to then make better personal and business decisions and foresight.
This week, due to time constraints and many other commitments, I had to tone down my usual daily review of the news and pack it all into a full days review yesterday (some of it conducted from my couch I might add) It was interesting to review the week in full, seeing the quarterly predictions come out in the first half of the week and then compare them to the actual results in the second half.
I also managed to squeeze in one or two online seminars and industry networking events, creating yet another perspective on the trends and opportunities in the streaming industry. It is certainly clear that the pandemic lockdowns, working from home for many, and the lack of live sports on television has broken users viewing habits (more than half (54%) of 2019 football viewing households on linear TV did not tune in to linear TV to watch any games during 2020’s opening week) to the point where the entire interaction and the schedule of engagement with the television has altered. With sports viewing a distant memory for many and live events going virtual, brands are also looking at other outlets and new streaming options are plentiful and with better built-in audience targeting technologies.
With winter now closer than ever and with countries around the world instigating a second wave of hard lockdowns, its looks like many of us could be having a “Zoom Holiday” season as opposed to welcoming friends and family over.
One thing for sure is that the changes and effects of the pandemic on the entertainment industry and the shift in viewer consumption (including skyrocketing engagement and subscription service sign-ups) are an anomaly. The trends we see are not relevant to a real-world industry growth pattern and this plays out across every single industry around the world. The result of the pandemic will change industries and companies for the foreseeable future however, will TV viewers go back to lockdown levels of streaming engagement post-pandemic? Most certainly not. There is still a limit to streaming consumption on the individual level.
As Reed Hastings said this week:
“Now we’re back in a world with partial [TV] sports and that’s fine and we’re [still] growing. So really, the limiter for us is what’s the quality of our service, how often, how many nights can you say, ‘oh my God, I want to go to Netflix and watch the next show.'”
As ever, thank you all for your support and words of encouragement and I wish you all the success for your coming week [C]
The Weekly Dispatch
Spotify
Spotify announced their Q3 numbers this week, missing revenue projections but adding 6 million new paying subscribers (total paying subscribers now 144 million and total MAU of 320 million, up 29% YOY) Ad-supported revenue came in at 185 million euros and operating expenses increased 37% YOY in Q3, totalling 529 million euros.
Spotify’s advertising revenue also rebounded from a dip in Q2, and additional growth came from the service launch in Russia and 12 surrounding new territories. CEO and co-founder, Daniel Ek, also hinted at subscription price hikes in markets where they feel the subscriber would support the additional cost.
Podcast engagement on the service also increased 20% over the prior quarter, particularly after Michelle Obama and Joe Rogan’s podcasts were released during the quarter. Spotify original and exclusive podcasts now account for 19% of all podcast listening on the Spotify platform.
Our take:
Relying on international expansion to the point of territory dominance comes at a price. As listening hours increase, the costs of rights increase (hence their shift to podcasts to dilute the streams) however unless Spotify increases its subscription price to counteract the demand for financial growth on the investor side, they won’t be able to squeeze any more juice out of the lemon.
To assume that subscribers in some territories will keep accepting price increases could come at a cost, especially as users are finding their household digital spend creeping up with other services such as SVOD, gaming etc. Some markets will not take to price increases as much as others and 80% of the consumption on Spotify still is from third party owned content (music) leaving Spotify with not a lot of owned IP.
With Spotify still operating as a single product offering, where they cannot control the scale of rights payable to labels and then relying on price increases for their growth, all while having to spend more and more on content, this could be a recipe for a difficult year ahead.
Comcast
After seeing cable subscribers fleeing over many of the past quarters, Comcast announced their Q3 earnings this week wrapped up with the news that the number of their streaming subscribers now surpasses that of their cable subscribers. Peacock now has nearly 22 million subscriber sign-ups to date whereas Comcast lost 273k Pay-TV subscribers leaving its cable base with 19 million subscribers. The growth for Comcast was seen in its broadband business, adding 663k new subscribers and bringing the total broadband base up to 29 million subscribers.
Comcast reported overall revenue of $25.5 billion and profit of $2 billion, beating expectations.
Our take:
The Peacock subscriber numbers make for impressive headlines, however, it should be noted that this is a free ad-supported service with wide distribution and is unlikely to bring in any hard revenue to the Comcast group for some time. Launching Peacock was certainly a good strategic or “saving for a rainy day” move however, a pay-tv subscriber cannot be compared to a free streaming platform subscriber in terms of ARPU and margins. Consumers are dropping cable subscriptions in favour of cheaper or free OTT offerings. Luckily for Comcast, the growth in cord-cutting had favourable effects on its broadband business.
Amazon
Amazon, as expected, surged past market estimates with $96.1 billion in quarterly revenue and an increase in growth of 37%. AWS saw a 29% YOY increase with sales of $11.6 billion.
For the entertainment division, Amazon Prime Video will now have live international rugby available to UK Prime customers this winter (thus furthering Amazons move into sports rights)
On top of announcing Prime Gaming, a new service that allows users to play free, exclusive content on their own console (complete with new games added each month) Amazon also announced the new Fire TV Stick and Fire TV Stick Lite, which will boost their current 100 million+ sales of Fire TV devices globally. The new devices are 50% more powerful while using 50% less power than the previous models. Alexa voice integration and new discovery and personalization features will also be included.
Amazon Music also has new have features and services including a Twitch live streaming partnership within the Amazon Music app and the launch of podcasts for customers in certain parts of Europe and in the U.S.
Our take:
There doesn’t seem to be any other company out there that is benefiting more from 2020’s events than Amazon. The surge of online shopping, stay at home viewing and gaming, even their AWS division has seen tremendous growth. Their portfolio of products, services and revenue streams allows increased margins from one division to be spread across others that are still requiring investment and growth (such content for video, music and gaming)
Continued international expansion combined with the launch of new products and services in existing territories will be the key to increasing their revenues and market share. However there has been and will be further international push back as Amazon seeks to expand into emerging markets, particularly in India where e-commerce is ripe for growth and existing local players are already battling tooth and nail against the Bezos empire.
Netflix
After posting a dip in expected subscriber acquisitions in their Q3 earnings report (covered in last weeks edition of The Bulletin) Netflix announced price increases in the U.S. this week after previous week increases in Canada. New U.S. pricing will be a $1 monthly increase for the standard plan (to $14 a month) and a $2 monthly increase for the premium plan (to $18 a month)
Our take:
Similar to our view on Spotify and their price increases, taking established markets such as the U.S and Canada where subscriber acquisition growth is slowing and then resorting to continued price increases to support growth (and ongoing investment in content) in those territories, doesn’t seem like a mathematical or business solution. Both Spotify and Netflix firmly believe that the subscriber will accept these price increases in these territories. However, some territories will be spared price hikes but it will be interesting to compare individual country growth vs the point at which Netflix then increases the price (or not at all)
Content costs money and if subscribers want to keep seeing more content then they have to pay more for it, however when will this reach the point where Netflix subscribers will simply look elsewhere for a cheaper alternative? Or start “service hopping” choosing Hulu for one month, then Peacock for another and then back to Netflix, when a new season is out of their favourite show? Many streaming services such as Spotify and Netflix believed that they could be an “annuity service” where consumers would sign up and would happily continue paying forever however, previously there was never any alternative.
Now with large amounts of initial growth debt to recoup, and needing to continually spend money on new content, for these single product offering services, it will be interesting to see how they manage their dreams of growth.
Focus
Apple and Apple One
Apple also released its results this week, exceeding Wall Street estimates for its fiscal 4th quarter, with international sales accounting for 59% of revenue. Apple’s stock slid in after-hours trading as iPhone sales suffered a hit after the iPhone 12 model delays took a bite out the usual upgrade cycle of Apple consumers.
Quarter revenue topped out at $64.7 billion with iPhone revenue bringing in $26.4 billion, services revenue $26.4 billion and wearables, $7.8 billion.
However, on the back of financial news, came new product news. Apple officially announced “Apple One” on Friday, a bundle of Apple products including music, TV, gaming, news, storage and the coming soon fitness service. All 6 services are spread across 3 tiers, with the top tier or “family plan” including the soon to launch Fitness service which will require the iWatch..
Our take:
It seems as though the bundle concept is coming back full circle as a product offering and Apple is well positioned to offer a portfolio of its own services to suit the user base across a wide range of Apple’s physical products (Apple has a 1.5 billion active product base in the marketplace)
The bundling approach of “more for less” can work however, the tiered pricing may not attract all. Adding the soon to launch Fitness service only into the Premier plan, is a confusing move when both the Premier and the Family plan are clearly targeted towards multi-person households. The same note should be said for Apple News. There will be a large segment of single household Apple users who would want all options but not at the expense of paying for the luxury of sharing with 5 other non-existent family members. The savings compared to signing up individually are extensive ($26 on the top tier) however it will be interesting to see how Apple users react to the re-bundling of products.
Bundling third part content owned apps have been a tricky situation for companies like Apple. Both the music labels and the news publishers don’t want their revenues diluted by the other services in the bundle. We expect that the economics behind Apple One’s pricing is because both news and music have considerably more licensing costs than Apple’s owned services such as TV+, Arcade and iCloud. That said, if you already subscribe to Spotify’s family plan, and use Apple News+ as standalone, you could make considerable savings switching from Spotify to Apple Premier plus will benefit from the other Apple add-ons.
The search for streaming profit continues
If you are unable to read the below-recommended article today, we strongly advise you to add it to your “to read” list for this week. It is rare that such good editorial, with accurate assumptions and the reality check for the industry, are laid out in such detail and accuracy.
Doug Shapiro, Former CSO Turner (WarnerMedia), IR head Time Warner and self-confessed II-ranked Wall Street media analyst, covers the myriad of challenges the traditional pay-TV industry AND the new streaming marketplace face, when seeking subscriber growth and revenue, especially to replace one revenue stream over a declining other. “One clear casualty of the streaming wars: Profits,” is our must-read of the week.
On Point
(editors note: The Pitch section has been replaced this week with “On Point,” a quick and informative rundown of the key statistics and numbers of the week)
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1.5 million - Number of the USA and Canadian subscribers of the UK SVOD service Britbox, as it continues to target the boomer demographic with classic series and nostalgic television.
115 million - number of daily active users of Microsoft Teams (Microsoft)
$600 million - discussed licensing fee for Netflix, Apple and other streaming services to acquire the first window rights to the new Bond movie “No Time To Die” (Bloomberg)
65% - Apple’s global app revenue market share. Yet Apple only owns 35% of the mobile OS market, behind Android (Sensortower)
$12 billion - estimated annual payments that Apple receives from Google in exchange for adding Google’s search into its products (NYT)
700,000 - number of SVOD subscribers Sweden gained this year. Netflix lost 110,000 (MediaVision)
15.2 million - monthly users of the freemium Cinedigm network (Cinedigm)
40% - the percentage of total viewing hours using a mobile device for Gen Z (Parks Associates)
$5 billion - YouTube’s single quarter ad revenue for Q3 (YouTube)
Diversion
Here on the editorial floor, we have been looking towards 2021 with some hope and trepidation that soon our suitcases can re-appear, to be dusted off, and then packed to head off to somewhere other than this new idea of renting a hotel room a mile from your home (yes, this is a new trend)
With news that NATPE Miami in January will now be fully online, we wonder what the flying experience will look like when we can return to the skies again. We have received new promotional videos from airlines showing gleaming airports and touch-free boarding and organized and sanitized aircraft but what is the current reality? WSJ takes a look into the current flying experience from various angles. It doesn’t look like a new normal at all.
Productivity
Working from home for many of us has been an eight-month learning curve that has resulted in increased productivity but also longer working hours. It has taken many months to find a balance of managing work demands, children and family commitments, all while sometimes going through various stages of lockdown and then opening back up. No sooner than we had some summer freedom and the hopeful possibility of going back to the office (or at least the concept of “hybrid working”) the pandemic situation took a turn and for many of us, the foreseeable future is working from home again.
Gillian Friedman and Kellen Browning, writing for the New York Times, quote what most of us are probably feeling right now, with “it feels like you are waiting to board a plane that is constantly delayed.”
One To Read
This weeks recommended read has been on my desk for a while and is the perfect book to read quickly in one weekend. The author’s tone and approach to business, management and candour is humbling and certainly not self-congratulating. This does make the book a pleasure to read.
I must admit that halfway through reading, I did check the book reviews and was surprised about some of the comments saying that “not a business tips book,” or “more his history of working at Disney than a business strategy book.” True statements but if you work in the entertainment industry, this book is an essential read.
Robert Igers won’t give you insights into how Disney is successful and won’t lay out all his or the company’s secrets but what he will show you, is how Disney envisaged so much of what is happening in the industry today, but decades before anyone else.
As a sneak preview of the book, here are Robert Igers Top 3 priorities for Disney shortly after he was appointed CEO:
Devote all our time and capital to the creation of high-quality content
Embrace technology to the fullest extent, to enable the creation of higher quality products and to reach more consumers in more relevant ways
Become a truly global company by creating excellent branded content that appeals to all markets to give us the ability to scale.
These Top 3 priorities were written by Robert Iger in 2004…...
Visual Insight
We just couldn’t choose, so this week we have two key Visual Insights for you.
Live Events Reimagined
With most spectator venues closed, new developments and innovation to reopen were certainly due on the horizon. This week Ticketmaster unveiled “Smart Event,” a reimagined and redesigned initiative to welcome back fans safely to stadiums and concert halls.
And Finally
Lets all crowd around the Netflix radio?
Ah, the days when the entire family used to crowd around the radio to listen to their favourite talk show. But then television came along and ruined all that and then the band Queen came out with a song highlighting this very fact.
News rumbled about this week of Netflix potentially preparing to launch an audio-only mode of their service. According to code snoopers who delved around in an Android update, a mention of such a feature was found.
The appeal for a Netflix viewer to watch their favourite show in audio-only mode seems far fetched with any audio component more suited to Netflix having companion podcasts for its original content (which it is already doing) Maybe it could work for some content (such as standup comedy) but in general, it seems like a red herring.
This concludes this weeks edition of The Bulletin. If you would like further details on anything mentioned or have questions or suggestions that you would like to discuss on email or to schedule a call, please drop us a note.
You may also now download a handy (and shareable) printable PDF of this weeks edition here.
Cheers and thank you for your support and we wish you all the success for your coming week.