October 13, 2020

Disney Refocuses and Allocates Content Where It’ll Make the Most Money

No matter how large your business is, there might come a point where it makes sense to fundamentally alter the business strategy. Disney announced exactly that on Monday with a major reorganization of its media business.

According to the Financial Times:

Disney said it would separate content production from distribution, with an eye towards making television shows and movies to feed into its streaming services.

The company said its content groups for film franchises, general entertainment and sports would be led by the same executives who oversaw them in the old structure. 

A single distribution arm, to be led by Kareem Daniel, would decide where to put these shows and movies, “with the primary focus being [Disney’s] streaming services”.

On a call, Disney’s CEO Bob Chapek told CNBC:

“What we want to do is separate out the folks who make our wonderful content based on tremendous franchises from the decision making in terms of where the prioritization in terms of how it gets commercialized in the marketplace. We want to leave it to a group of folks who can see objectivity across all the constituents that we have and the various different considerations that we’ve got and make the optimal decision for the company…”

It’s easy to look at this move as both a reaction to Covid and Disney admitting that it’s going all in on streaming. And perhaps both of those are true statements; however, I see this as a move to gain flexibility more than anything else.

Consider the past year… Major movie companies have all struggled to make any return on their productions because movie theaters are closed. The experiment to distribute Mulan over Disney+ for a premium has obviously given Disney the confidence it needs to make a move like this.

However, look at other movie companies. Tenet was one of Warner Bros’ biggest releases of 2020 and it has only brought in $323.5 million, according to Box Office Mojo. The Observer noted that it would likely need to bring in $400-$500 million to break even. MGM has postponed the release of the next James Bond until next year. Wonder Woman 2 is still delayed.

All of these companies lack flexibility to do anything other than sit on this IP and wait. At some point, Covid will be over and they can then start releasing the backlog of movies.

But not Disney. Because of investments made a few years ago and a recognition that giving Netflix all of its content—even for very expensive licensing fees—was a terrible business move, Disney is in a much stronger position. It has flexibility.

Disney has decided that the most important thing for it to do is maximize its revenue potential on each individual piece of content rather than allow the various content silos to dictate what content goes where. Why does a major motion picture have to go into theaters when millions of households will pay $30 a pop to watch Mulan from home?

In some respects, this feels a bit like Disney creating a revenue server. In that piece I wrote, I described a revenue server as:

However, what’s best for the business is what drives the most revenue. Sometimes that’s going to be advertising and other times that’s going to be subscriptions. But how do you decide? And, more importantly, how do you unify your marketing efforts to ensure that you’re chasing the most dollars versus specific silo dollars?

You’re basically talking about being able to holistically understand what a user is worth to you and unifying your various department’s marketing exercises against a single user, right? Rather than the sub team thinking about subs whereas ad ops is thinking about how to increase ad impressions versus the third team focused on getting people to register for an event? A single view of a user so you’re maximizing how you monetize to them?

In other words, it’s a user monetization system versus a tactical monetization system. It’s trying to identify what types of users you have and the right ways to monetize them.

Disney now has the job of looking at all the content coming from the various studios and deciding where users will most engage with it. And, in turn, that should extend to where it’ll generate the most revenue.

During the pandemic, it’s a no-brainer to push more content into Disney+ with the goal of getting more people to sign up for the service. It’s better to continue building that content library and making Disney+ indispensable.

But let’s play devil’s advocate for a second. Let’s say that one of the outcomes of Covid is a rapid shift toward doing things outside the home because we’ve all been stuck at home for so long. Disney could see this trend and decide that, instead of releasing a movie on Disney+ first, it’ll release it in the theaters. Why? It believes it’ll make more money that way. Perhaps it shortens the time in theater or reduces the time between theater and Disney+.

That’s obviously a hypothetical, but the point stands. Distribution doesn’t care which tool you use so long as you are maximizing revenue. If that means going through the traditional television and movie theater pipes, so be it. And if that means everything winds up on Disney+, then that’s fine too.

It’s too easy for siloes to dictate the distribution of content depending on their own, individual KPIs. Subscriber dollars vs. advertising dollars; which are more important? The answer is really simple: which one will make you more? Disney has figured that out. I wager others will follow.

Amazon Onsite Associates burns publishers

No matter how many times you say, “don’t build on rented land,” publishers are always blinded by the immediate dollar and find themselves in the same position time and time again.

According to a Digiday story, publishers that participated in Amazon’s Onsite Associates are seeing their revenue cut.

Following a number of tests that participants say Amazon has not adequately explained, Onsite Associates revenue for many participants has fallen precipitously, in some cases by more than 90%, according to sources at nine different publishers that participate in the program.

Some of those sources, who said they were generating well over $100,000 per month through the program earlier this year, have been forced to cut back on producing or formatting content for it. Many publishers that hired staff specifically to manage and grow Onsite Associates revenue have had to find different roles for those people, and sources at two participating publishers said they are now weighing whether to lay those people off.

One source told Digiday that “it’s been super frustrating. Amazon has not provided any real visibility into why it’s happened, or what we can do to fix it.”

I can tell you why it’s happened…

Publishers saw an opportunity to earn a nice chunk of cash, but in exchange, they had to create unique content on another company’s website. What publishers didn’t quite realize is that they had been hired as a content production company. In no way whatsoever should this have been construed as anything but that.

Anyone that has ever had clients knows that, at some point, you’re going to get fired because budgets change. And that’s what happened here. Amazon decided that it didn’t value the content as much and cut rates.

When will we learn?

At the end of the day, these sorts of things are going to continue happening until publishers understand a very basic thing. Platforms have one primary utility: to drive audience back to our websites so we can try and convert them into an owned audience. Anything other than that is short-term thinking and is dangerous.

To try and help publishers, I’m going to offer a service… For any premium member of A Media Operator, I’ll be your sanity. Anytime you see one of these flashy opportunities, email me. I’ll tell you exactly how you’ll lose. Perhaps that’ll save some heartache.

Let’s move on…

The Juggernaut raises $2 million

Many of you might remember The Juggernaut from my recent podcast with CEO Snigdha Sur. According to TechCrunch, The Juggernaut is expanding:

Sur says that The Juggernaut has garnered “thousands of subscribers.” During COVID-19, The Juggernaut’s net subscribers have grown 20% to 30% month over month, she said.

On the heels of this growth, The Juggernaut announced today that it has raised a $2 million seed round led by Precursor Ventures to hire editors and a full-time growth engineer, and expand new editorial projects. Other investors in the round include Unpopular Ventures, Backstage Capital, New Media Ventures and Old Town Media. Angels include former Andreessen Horowitz general partner Balaji Srinivasan; co-founder of Kabam, Holly Liu; and co-founder of sports-focused publication The Athletic, Adam Hansmann.

While The Juggernaut is raising, it’s still very much aware of its expenses. Sur explains to TechCrunch, “Sometimes at media companies people over-hire and over-promise, and then don’t deliver on the profitability or return.”

I love when media companies recognize the importance of being profitable as early as possible.

The logic behind a company like The Juggernaut is straight forward and something I hope to see other entrepreneurs tackle. Most media here in the United States is created with a white person in mind. That shouldn’t surprise anyone.

However, there are hundreds of other communities that are just as American, but want to read and consume different types of content. The Juggernaut is an example of a company doing this.

What’s important to understand is that these aren’t small opportunities. Rather, these communities can result in very large media companies. As I wrote in the episode notes of the podcast:

One of the things she said that resonates with me is that niche can actually scale. We think of niche as small, but these verticalized media companies have the potential to really grow into something robust. Content can appear in multiple places, including on the website, newsletter, podcasts, video & TV deals and various other opportunities.

A classic example that she used is BET, which serves a specific community. Viacom bought BET in 2001 for $2.3 billion. It was a niche play, but that didn’t hold it back from reaching incredible scale.

Over the summer, I asked if there was an opportunity to build a digital-first Latinx media company:

Let’s break this down:

1. There are few digital-only publications that serve the English speaking Latinx community

2. The English-speaking Latinx community is very large (close to 40 million perhaps) and incredibly young (mostly millennial)

3. The GDP of the community is rapidly rising and personal consumption is also increasing

4. The vast majority of new businesses in America are from this community.

Those four points lead me to believe that there is a tremendous opportunity to launch digital media publications serving these communities. Whether it’s style and culture like Emperifollá or a publication targeting business owners, having that Latinx lens would provide something to an under-served audience.

As I said in that piece, I think The Juggernaut is a good example of how to build media companies for these communities. Clearly something’s working!