1. Warner Says Linear Is A Millstone, Disney Says It’s Not
Warner announced what was at some level a rosy earnings report this week: ad revenue from streaming was up 20% and streaming EBITDA jumped from $339 million to $438 million. The company attributed the jumps to a combination of HBO Max’s existing-market growth, international expansion and a global influx of ad-supported subscribers.
The problem is that they feel their linear networks are still a millstone around their profit margins’ neck. WBD’s Global Linear Networks revenue fell 8%. Distribution revenue fell 7%. Advertising fell 11%. Adjusted EBITDA fell 9%.
The “why” is what is interesting here: WBD said the distribution decline was driven primarily by a 10% drop in domestic linear pay TV subscribers, which was only partly offset by a 2% increase in domestic affiliate rates. Advertising revenue, they claimed, was hurt by 8% domestic audience declines compounded by the absence of the NBA (a self-own on their part, but a factor nonetheless.)
Meanwhile, over at Disney, the linear story was quite different, with rainbows and roses and extremely cute woodland creatures.
Disney Entertainment advertising revenue grew nearly 5% year-over-year, with streaming revenue more than offsetting declining linear revenue. They also now generate more subscription, affiliate and advertising revenue from SVOD than from linear TV and expect that shift to continue, given the expected decline of linear TV.
But mostly Disney was taking the long view on their linear properties and their value to the overall brand.
Meaning they have no intention of spinning off their linear assets the way Comcast has and Warner plans to.
Why It Matters
Disney’s math is that their linear brands, everything from ABC to FX, Disney Channel and Nat Geo, are not revenue-draining millstones, but, rather, distribution points that are part of the broader IP dispersal that Annie Krukowska talked about in a recent TVREV Marconi column.
The bottom line being that Disney believes these linear channels are valuable in that they create a path that drives viewers to ultimately subscribe to their streaming properties, visit their theme parks and take their cruises.
And that they thus have value far beyond their diminishing subscriber and revenue base.
It is a take I strongly agree with.
My rationale is similar: as content, or, more accurately, the IP associated with that content, spreads across the broader Feudal Media landscape, it hits different people in different ways.
And the more chances it has of hitting more people, the better.
The trick is to make sure that it is all driving to the same goal (SVOD sign-ups, theme park visits, etc.) and to identify this goal and make sure that the path is obvious to consumers.
Then linear has value.
It becomes a pipeline. A place to park older seasons of current shows. To test out new concepts and to cater to audiences who are not on streaming. Or who want an alternative.
The key thing to remember is that while linear is fading, it will not collapse suddenly the way the music and print media businesses did.
This is the mistake so many in Silicon Valley make.
The reality is that linear is more like a slow leaking balloon. It’s going to stick around for at least 10 more years, likely twice that.
Look at AOL. It “died” about 20 years ago, and yet tens of millions of people still use it daily, and it’s a profitable business. Not nearly as profitable as it once was but far from dying.
Meaning that if Disney uses its linear networks as a pipeline, they remain a valuable asset.
Quick note though that there is a counterargument that says Disney’s brands are much stronger than Comcast’s or Warner’s, that TNT does nothing to drive HBO signups, but I would flip that and say it does not have to be that way, that a few smart programming choices and marketing campaigns could, indeed, help create stronger synergies and that giving up on the possibility is a missed opportunity.
What You Need To Do About It
If you are Disney, take a bow. It’s a smart move to recognize that your content and your IP, like your brand, now live on a range of platforms and that there’s no longer any sort of chronological order to the way viewers see them. So that your linear channels can indeed serve to reinforce brand loyalty and drive subscriptions.
If you are Paramount, or more accurately, if you are David Ellison, you will be faced with a similar decision: do you sell off your cable networks and focus on your streaming service, or do you use them as a pipeline?
I’d suggest pipeline, especially given the popularity of all of your many Viacom networks. Granted much of that popularity is nostalgic, but there is no reason you can’t make that work for you by creating greater synergy between the two.
It makes more sense than just tossing all that brand equity into the dustbin.
2. Vertical Short Form’s Next Play
The second story today is also all about media displacement and how IP can now be repurposed to more places than ever.
Ever since Quibi became the new Ishtar, Hollywood has been trying to figure out “that thing the kids do with the swiping and the vertical.”
ReelShort, a Chinese purveyor of ultra-low-budget, ultra-prurient short videos aimed at middle-aged women became something of a phenomenon last year when Hollywood realized just how much money they were making from viewers willing to pay as much as $80/month for what was essentially video game/OnlyFans logic applied to video.
But now there’s a sign that the vertical video market is maturing as mainstream content owners realize that there are worse fates for their content than being chopped up and redistributed as short form video.
All those abridged versions of great novels being something of a trailblazer in that regard.
A new company called RoseBerry was unveiled this week, whose business model is to take long-form horizontal content from a range of publishers including All3Media, Banijay, Fremantle, A+E and Cineflix and turn it into short-format videos.
Original content is coming soon too.
Why It Matters
The ReelShort format works and is quite lucrative, but you’d be hard-pressed to find anyone in Hollywood who was excited to be a part of that ecosystem or saw it as anything other than a race to the bottom.
What RoseBerry is proposing—taking existing content and repurposing it for a new generation of swipers—is far more comforting to the industry.
Not to mention more lucrative.
It gives extended life to older content beyond FAST, while creating a whole new category that content owners can monetize.
Now you may be thinking that while turning 4:3 movies into 16:9 was not that hard—just add some letterboxing and you’re good—turning video shot for a horizontal format into 9:16 is not that simple.
And you would be correct.
RoseBerry has a proprietary AI-powered technology for that sort of “library verticalization” though, it’s their secret sauce, and I’m thinking that the aforementioned major content companies did not blindly agree to deals without checking it out first, so it should work as advertised.
Though likely better for certain types of content than others.
What You Need To Do About It
If you are a content owner, one with a sizable library, it would be worth your while to get in on the ground floor here. RoseBerry will not be the only company doing this, but they’re live now, and with offices in NYC, London and Tel Aviv, they are international.
Getting your content on every platform possible is a must in this age of Feudal Media and as Zoomers age up, they are going to take their vertical habits with them.
Meaning we’re not going backwards.
I mean people are already talking about vertical TV sets.
If you still need more proof that vertical is a thing, remember that Netflix just launched a vertical section on their mobile app where users can watch previews of their shows. Which, I might add, is also proof that Netflix-style content can easily be cut down to work in a vertical format.
At least for previews.
If you are RoseBerry, you will be leading the charge here, so kudos on First Mover Advantage on content verticalization. We are all now curious to see what your originals look like.
The good news is that given the low bar set by the current vertical short purveyors, it won’t take much to impress us.
But competitors are numerous and not too far behind.
Yalla!
Alan Wolk is co-founder and lead analyst at the consulting firm TV[R]EV. He is the author of the best-selling industry primer, Over The Top: How The Internet Is (Slowly But Surely) Changing The Television Industry. Wolk frequently speaks about changes in the television industry, both at conferences and to anyone who’ll listen.
Week in Review is an opinion column. It does not necessarily represent the opinions of StreamTV Insider.