A Business Upended: Streaming and the Future of The Entertainment Business

[@daveschmarder-US1950]

I'm a senior boomer. A week ago I called Spectrum and cancelled all my TV. Not because of the Disney feud but I haven't watched much TV over the years. If someone who is most of the way through retirement quits cable, what chance do they have for the future? Your analysis is spot on.

[@kevenwang9285]

Curous to understand what do you watch, on which streaming platform? Assuing you don't watch a lot of sports?

[@daveschmarder-US1950]

@@kevenwang9285 I watch no sports. I stopped watching network tv years ago. I watched CNBC until I cut the cord. I now watch Bloomberg TV. I mostly watch KZbin videos. I understand a second language, which I can see on YT.

[@pauljones9150]

36:00 Canadian Cineplex market cap got busted when the UK firm aquiring them backed out due to COVID. They're still in court right now. Market cap got halfway when word came out of them trying to backout. Professor do you think the KZbin model will triumph? You mentioned how with platforms purchasing mass content, it's difficult to know the ROI, if someone will churn or not churn based on that one show. With KZbin, the ROI is self-evident. Is that enough to tip the scales?

[@chrisb481]

Brilliant and so timely! Thanks for adding more depth to this conversation.

[@pauljones9150]

Thank you professor!!!! ❤🎉

[@adarshshukla2988]

Exactly what I was looking for - thank you!

[@surani1948]

Great presentation & analysis. Thank you proffesor

[@dejavu5085]

As a Netflix employee I found this very educating !!

[@Pawankpandey]

Thank you professor!

[@DennyTroncoso]

Enjoyed the video. One point to discuss further is if you expect cord cutting will continue at the same rate in the next 3-5 years. Streamers have been keeping their prices artificially low for some time, but they have all have recently been including ads, increasing prices or plan to. Will these price increases force people to reconsider cancelling their cable tv and thus cause a stabilization of the market? Based on what I've read as of late this is related to the increasing cost of capital and the markets demand for profitability. No more promises of profits 5 or 10 years from now. Markets want a company generating profits now or they will put the money in a bond or money market fund earning a competitive return. BTW I'm in your Advanced Valuation class Fall 2023!

[@squid84202]

Your point that the incentive for making content on streaming services is increasing subscriber counts and not viewership metrics is interesting because it also leads to strange outcomes like Netflix (or others) cancelling a successful show after 1 or 2 seasons because they already brought in a good chunk of subscribers so they allocate capital to new content because viewership isn't the end goal. I guess they feel like they don't lose a substantial amount of subscribers with that method, so the trade off is worth it for them. Given how hard it is to sustain streaming services and general shareholder discontent, I actually do slightly believe the rumors that Iger's end goal is to try to sell Disney to Apple (whether that's even realistic to get regulatory approval is another thing). It's so hard to predict where this goes given how many factors are at play, especially regarding activist shareholders and actor strikes. I'm not even sure what side I would bet on, because disruption seems like the logical choice, but it can easily be blocked by government oversight. Interesting times ahead.

[@suveerarora5593]

Great analysis Aswath - thank you for all the hard work - apple and disney should get together loads of synergies there and Netflix should keep developing global content

[@seancollett7813]

Great analysis, professor. I think the broadcasters will continue to consolidate and eventually they will consume some of the content media companies. I think $DIS is more prime to eventually see an M&A than take hold of the streaming and content creation. Even HBO has resorted to licensing some of their content back out due to the high costs of streaming. Interesting times for sure and not as cut and dry as you highlight!

[@kumarapillay3122]

prof, can u do a rough valuation of disney?

[@RakanXYZ]

seems like the consumers are the winners Prof!

[@shiehaur]

Excellent analysis. But, just to point out that there are some important differences between music and movies. Firstly the average cost to make a movie like you pointed out is $50m, while a high quality song can be made at a small fraction of that cost. Secondly I suspect that as a % of cost, the music industry spent far greater in marketing and distribution. Streaming changed the entire calculus. Given these two points, I think the evolution in music and the movie industry are not going to be the same. The relevance of big movie producers (whether Netflix, Disney, or Apple) will remain given each bet cost $50m on average and pooling these bets make them less "risky" as flops and blockbusters get diversified away. However, if AI can really bring down the cost of making movies significantly, we may see the same game changing forces sweeping across the movie sector. The insiders have probably caught a glimpse of how this can look like and are rightly fearful about how they may become less valuable overtime. But, historically technological advancement is unstoppable. It would be interesting to see how far this AI disruption could go

[@tomo9224]

Very insightful Professor. I think we'll start seeing consolidation across the platforms. Paramount+ probably being the first to go. I think we will just see Netflix, Amazon and Apple while the legacy studios leasing their content to those tech companies. It's also why I am bullish on Alphabet. KZbin is without a doubt the elephant in the room here. I know more younger people watching KZbin and TikTok than anything else. Being able to choose to watch things that interest you is a big deal. That's why I'm watching this and not zoning out on Netflix

[@FireEverLiving]

I think that KZbin will be the biggest winner. YT Premium is certainly the one I'd cancel last. The old companies just seem to be pouring money into their online content without any real plan.

[@manubhatt3]

I don't know how or why it's so difficult to calculate the residuals in the streaming business. Just calculate the monetary value of a show/movie by the time spent by a user watching it divided by the total time spent by this user on the streaming platform watching anything in the whole month, and the resulting value divided by the monthly subscription fees, and then adding this value for all the users. Obviously, you can improve this measure by asking the users for some rating on the content they watched on some scale(1-5 or 5-10), and then take that rating into account in calculations. You can then take a relevant/appropriate percentage/share of this monetary value to share it back with the artists.

[@lolu1136]

They say is difficult just to avoid paying those residuals. In France and other countries, Netflix pays the residuals based on viewership.

[@theintelligentcompounder]

Thank you for the very informative video, professor. It enhanced my understanding of the positions I have in DIS and PARA.

[@BigHenFor]

Marketing supplies that answer which is much easier nowadays if you know what you are doing. Digital marketing can help keep direct communication lines between customers and the business through email and sms communications, and advertising. Depends on your segment though. And I wouldn't open a restaurant now, as it is way more expensive to do so now than before. Even Pizza Hut is in trouble in my country.

[@sathisp3221]

I always felt this and stayed away for things to play out..especially when disney became too cheap..but this video gives a holistic view

[@CrazyHermitVizard]

I enjoy your videos very much.

[@Tential1]

21:10 this is why movies like strange world and elemental are actually HUGE successes. These movies are massive financial failures.* However, they do actually retain Disney plus members. My neighbors LOVE that Disney is doing more diverse casting (I'm in California). Even if they don't watch the movie, they are happy and keep their Disney subscription. Which is actually MORE profitable for Disney. Because now, Disney, can write the movie off as a failure, it doesn't have to pay any upside performance residuals. But it makes the money off the subscription still and the clout. It's actually brilliant.

[@larms1000]

This doesn't sound like a sustainable business model. Disney will have to pray a majority of their subscribers are like your neighbour. Also, subscription prices will have to continue to increase without churn in subscribers for Disney to maintain their stock price. The magic question is, what is the optimal point for a subscription cost (especially for someone like your neighbour who doesn't actually watch the shows). The most realistic option for Disney to meaningfully increase their margins is with the addition of advertising revenue, and advertisers like eyeballs on the screen, more than subcribers.

[@sathisp3221]

I think the real problem with streaming is they didn't find a way for stickiness. In India when Disney lost ipl to jio all he'll broke loose..I think streamers to who stickiness to country's niche will stay

[@neilmoran9988]

Content is important, it has to have mass appeal and quality. I know it is only one aspect of the business but without it there is nothing. I fear if AI can come up with really good content that the motion picture companies will just eliminate writers and perhaps actors and crew. What is next?

[@Tential1]

23:00 eh, as one of Netflix biggest haters, this WAS true. However, content spend is now slower than revenue growth. They can raise content stand by 2% a year now and prices by 3%. It doesn't sound like much, but it actually can be 10 to 20% net income growth when you go to the bottom line.

[@manubhatt3]

As far as India is concerned, Netflix atleast stands out in ease-of-use, ambience and performance of it's platform.

[@anujbhandari1441]

Please revisit valuation of zomato as it turns profitable

[@tevsepromwebmaster8541]

How more huge is the beta more great is the risk and be need a cost of oportunity equal of high.

[@calfan4life]

Younger people stream very short videos on platforms such as Tik Tok. They do not have the patience to sit through a movie, or even a 30 minute Television Program. I see a shrinking market in the coming years.

[@dolevmazker736]

Yeah you are almost right. I am 26 and currently see the younger generation only care about very short term content videos on tiktok/instagram but they do watch movies and tv shows as well

[@AyyMacPattyWak]

I understand this but don’t agree - a lot of people watching 3-4 hour podcasts. These companies aren’t losing money because no one has patience the content is just bad. It’s easy to connect these dots and say ‘oh the products are great these kids are just defected!’

[@dolevmazker736]

@@AyyMacPattyWak Not exactly right. The people in the younger generation that understand the implication of short term videos on the brain function do watch podcasts, but the average uneducated person does not even listen to podcast or even read a book. The vast majority of companies care about profit maximation and not quality, thats why the market share of viewers go to youtube

[@AyyMacPattyWak]

@@dolevmazker736 But for most of human history uneducated people didn’t read books so I don’t think this generation (of which i am not a part of) is any different. When video games started increasing in popularity people didn’t start playing them because they had a defect they were just more entertaining ya know? Sometimes new entertainment is just more entertaining

[@daneshj4013]

Seems like an over simplification. It's like saying younger people don't want to keep photos because Snapcchat was trending.

[@Feliz_BroDad]

Disney has proven over time they are able to adapt; Bob Igor has diversified Disneys revenue streams to the point where i believe they are in little danger of revenue loss. Next, the brand name Disney is so loud and known for quality experiences that when they find the right model, consumers will choose them over a competitor, similarly to apple who is known for quality and innovation(stale as of late) are often chosen over competitors. Disney will bounce back, its the cable companies who I have no faith in. Lastly, Disney and espn striking a deal with PENN ent. Is huge for the long term as this market share is huge and they have the most reach not to mention the biggest cost to those companies such as draft kings and fan duel is marketing and advertising. I would like to see Disney get into the podcast arena. Disney is a strong buy and hold .. my valuation bias may be talking but i believe the business is very strong despite short term hindrances.

[@hrsh3329]

❤

[@manubhatt3]

The ending of this video was as bad and underwhelming as the rest of the video was good.

[@PrathameshMone]

Please value PayTm again

[@altronauta]

Apple and Disney could create the future of entertainment...jmvuho 🤓