Happy Monday War & Peaceniks. Ready for Report Cards?
In April, I released a 1Q Scorecard for major media companies. As we enter the crucial fourth quarter of 2022, I’ve revised the scorecard and added a slew of media mates to the class.
Above on my new Flywheel Scorecard, I grade 27 Big Media Warriors on their preparedness for the new Streaming Wars. But IMHO, the five key criteria in my rubric are applicable not just across Audio, Video, Social and Gaming, but also to ANY company competing in the next era of Media Wars:
Utility: Is your service, brand or platform something your users use DAILY or several times per week? If not, keeping subs and maintaining traffic will be a constant, and expensive, uphill battle. The era of Hit-Driven media is over. Utility is the New Black.
Value: Do your consumers feel they get more from your service than you ask them to give? This is not just about money. It’s about time, data, privacy… AND money. Traditional Pay TV has lost this battle forever. Meta still retains consumer value - on IG and WhatsApp, but on Facebook? Not so much. Thus far, 21st century media has been about mining market value from consumers. Moving forward, to thrive and survive, platforms will need to constantly satisfy wants AND needs of consumers, and do so in holistic, flexible ways that fit the lives and lifestyles of their audiences. If you wanna get paid, Loyalty must be won.
Superfans: A small, fervent cult is better than a large, loosely engaged audience. See Thursday Night Football on Amazon vs Kevin Hart’s last Netflix Movie: Amazon reported a record number of Prime sign-ups during the game, while the massive audience for Me Time combined with awful reviews and epically bad word of mouth may have actually done more harm to Netflix’s sub numbers than good. Or, see AppStore vs GooglePlay: Apple’s cult enables it to take 70% of the world’s App revenues despite controlling less than 30% of the world’s smart phones. Disney’s cult is why their Parks department made as much as all of Netflix in 2Q; Superfans are why TikTok is crushing everyone else on social; why Sony had such a killer 2Q in music; why Reliance paid $3 billion for Indian Premier League Cricket; and why sports, Gaming and Audio ARE ALL MUST-HAVE content in the new Streaming Wars. Passion eats Scale for breakfast.
Y, Z, A: Does your business cater to the three youngest generations on earth - who will be the majority of media consumers, workers AND deciders for the rest of this decade and all of next? Sure, Microsoft distributes the world’s most-used office software. But they also own Minecraft: Used by 68% of people aged 9-12. They will soon own Activision, home of Call of Duty and Candy Crush. Selling stuff to “the youngs” is not enough though. Millennials are now 35% of the global workforce: more than any other generation. 28 million Gen Zers entered the US workforce in the last 3 years. Managing these two generations, especially in the afterglow of a global post-pandemic workforce awakening, will require far more than money. Working FOR them (either literally or figuratively, you will, if you don’t already) will require total work-brain rewiring. These are the most connected AND diverse generations in human history, grappling with the unraveling of everything anyone has ever told them about “the way things are.” If you have a business that cannot speak the languages of Generations Y, Z and A (three different languages, all three required classes) you won’t be able to sell them stuff; manage them; or remain at all relevant.
Diversity (I) of Thought. Does your company suffer from top-down groupthink, or do you welcome new POVs from new sources with open arms? Are your key deciders all from the same eight Ivy League schools, or do they come from a spectrum of backgrounds? Ages? Points of View? Diversity, Equity & Inclusion are getting a lot of attention in media now - basically due to our epic and historic lack of them. But Diversity Initiatives are meaninglessly if they are not cemented and systematized as ingrained processes and standard practices - just as tangible an accountable as every other KPI in your business. The greatest risk media companies face right now is irrelevancy. THE FASTEST WAY to become irrelevant? Lose touch with what really drives real people. Diversity does not mean hiring a few new people who don’t look like you. True Diversity gives new voices real space for new ideas from new angles with new truths. By the end of this decade, The Media Universe will be strewn with companies big and small who fail to incorporate diverse thought deep inside their core businesses. That said, Diversity does not live on people alone.
Diversity (II) of Model. Is your business model a monolith, relying mostly on slight variations of a single offering? Or is it a diversified flywheel that balances downturns for some products with upsides in others? Does risk of failure limit your company’s investments; or do you embrace risk and invest your profits into new products? Was a time that “balance sheet simplicity” was a basic tenet of Wall Street success. That time is over. The new Streaming Wars are not hit-driven; they will not be won with subscriptions and ads alone. Media is now a battle for lifetime loyalty: Offering suites of household needs to communities, AND keeping them satisfied in your ecosystem for as long as possible. The weaponry needed for this battle won’t be TV or Audio or Gaming or Social Media or Other… it will be all of them. And, Diversity of Thought inspires Diversity in Model. Together they are a competitive advantage. Without both, be prepared to be conquered.
The Flywheel Scorecard above shows my grading for 27 leading media players. But it does not show HOW those scores were decided. Some data that shows my work:
Last week I put out a new study with Publishers Clearing House, using exclusive data from 15,000 consumers about what content they will pay for. Above is the data for 18-34 adults. Below is 35-44.
NOTE: MOST CONSUMERS (52%) SAY THEY WOULD PREFER TO NOT PAY FOR CONTENT. SO, WHEN PEOPLE SAY THEY WILL BE WILLING TO PAY FOR SOMETHING, IN MEANS SOMETHING.
As you can see, audiences in the new Streaming Wars, like the old, still want streaming TV (scripted series, film, documentary, reality). But many will also pay for music, podcasting, gaming, news, sports and the illusive, intangible Other...
Subscription fatigue is real though, and consumers are increasingly looking for convenience, price flexibility and economies of scale; from all their media providers. As publishers leave the safety of the OG Bundle, for the wilds of D2C, the competitive table-stakes shift from simply having LOTS of content, to fulfilling your consumers hierarchy of cultural needs. Amazon Prime is the case study. AppleOne is rising. Paramount+Walmart goes right at the heart of it. These emerging Lifestyle Bundles (aka Maslow’s Bundles) are central to the new Streaming Wars, as are the diversity of models offering them.
Amazon, Apple, and Microsoft are all able to play hard in various media games, because they do not rely on any one product or service for the entirety of their future growth. In many cases, their new businesses are their fastest growing and most important. The same can be said for Tencent, Reliance, and Alibaba. All these companies have invested heavily diversifying revenue levers, and audiences. This allows them to enter new markets, and invest aggressively (at at a loss), in order to steal share from single-focus players. It’s more resources which gives these combatants power, it’s how they use those muscles.
When you drill down into the models, and lay these 27 media players out, side by side, the thesis becomes clearer:
True, Apple’s services earnings pale in comparison to its iPhone sales. But their services weren’t even a focus until five years ago. This was an expensive and laborious strategic plan: To protect against looming regulation and downturns in hardware, by going all-in on media and services despite losing billions on it, for years. Now they are streaming baseball games, sponsoring the Super Bowl Halftime Show and coming for the rest of media. Oh, btw, Apple Services (news, TV, music, gaming, cloud, fitness, podcasts, AppStore Sales and ads) reps only 24% of their total sales, YET earns more than Warner Brothers Discovery and Netflix, combined.
Yes, Meta is still generating hundreds of billions in revenues. But that revenue is almost 100% social (and mobile) ads: A business currently in free-fall due to Apple’s decision to change the rules for mobile ads (among other reasons). Meanwhile, ads are just Amazon’s newest side-hustle, accounting for only 7% of sales, while equal to 31% of Meta’s revenue; and 293% of Fox Corp’s total.
Spotify’s subscriptions are slowing. They represent 90% of Spotify’s revenue. Spotify’s ads are growing. Just not fast enough to compensate for slowing subs. They’ve never been profitable. Meanwhile, Sony saw a 21% increase in music sales in 2Q, with earnings nearly equal to Spotify’s total. Yet, music is just 13% of Sony’s total revenue.
On the other controller, Sony’s Gaming business reps 23% of their revenue, but is equal to 178% of Nintendo’s total business. Microsoft’s Gaming business is just 7% of their revenue, yet equal to 152% of Nintendo’s total sales. We don’t know how much Apple or Amazon make in Gaming or Audio. But both JUST started to take these areas seriously - packaging them into their Maslow’s Bundles, and willing to lose billions to steal share.
Tencent is the world’s biggest Gaming company, yet Gaming is just 30% of their total earnings. They own the #5 and #10 Social Media platforms on the planet, but Social is just 13% of their revenue. While Tencent may face stiff competition in Gaming from Microsoft and Sony, and in Social from Meta et al, the only challenge truly big enough to stop them, may be their own government. The same could be said for Alibaba, who’s media revenues are just 4% of their total, yet 169% of Roku in 2Q.
Roku is the dominant CTV player on earth. But that is limited to the US. Samsung sells more CTVs than anyone. But CTVs make up just 19% of Samsung’s revenues. Amazon and Google TV are also coming for Roku’s screens, stealing viewers and sales, willing to lose billions building CTV platforms with worldwide reach.
Disney’s Parks took in more than all of Netflix in 2Q. Their Hulu/ESPN/Disney+ bundle now has lower churn than Netflix. BUT, they had to back out of the bidding war for Indian Premier League Cricket to Reliance - a company with more resources and a higher appetite both for risk and for capturing the Indian Market. Reliance’s media biz is just 11% of their overall revenue, yet still 116% of Fox. While Disney too can use a dose of diversity in their model (Audio and Gaming especially) to compete with the Death Stars, it must be nice to have Parks on you side, when subs and ads hit a wall; something Paramount, WBD and Netflix all lack.
Google has the #2 Social platform (YouTube), which also functions as the world’s most watched video player (using 25% of all mobile data on the planet). Despite that, YouTube revenues are just 10.4% of Alphabet’s total. But they are equal to 93% of Paramount’s entire revenue, and more than Twitter, Snap, TikTok and Roku, combined.
These are just some examples of how the media landscape actually looks, close up, when you get your fingers into the mud of the models. Traditional lanes are not blurring. They’ve been erased. Old rules are not being rewritten. They’ve been retired.
Winning in The Media Universe is no longer about subs or impressions. It’s about lifetime value - not just for your company; but for your consumers as well. Many media players came into 2022 with straight-As, only to fail quarterly pop quizzes as the world reopened. As with school, graduating one grade is meaningless, if you don’t prep for the next.
So far in 2022, serial churning, subscription fatigue, migration to free, gaming back-slides and social media meltdowns have caused star students stumble. The skills that got media through the twenty-teens will not make the grade in a new, grown-up world. The Media Universe will present many new tests for success. Just like in real life, coasting on past wins is a great way to peak in high school. Only smart, well-rounded students, who get along with the new kids, and think outside the lunchbox will get to graduate to the next level.
On Monday October 10 (Indigenous People’s Day!), I’ll be holding a Webinar to go through all this in even more detail, and answer questions about what 4Q holds in store. The info for the Webinar is below. If you see it, thanks for being a premium subscriber! If you don’t see it, please consider about clicking the FREE TRIAL, poking around my pieces for a week, joining the webinar and then canceling your subscription so I don’t get too cocky. I hope to see you there!
Enjoy The Week!
ESHAP
Keep reading with a 7-day free trial
Subscribe to Media War & Peace to keep reading this post and get 7 days of free access to the full post archives.