VideoNuze Posts

In concert with its Made on YouTube event, YouTube unveiled a slew of innovations aimed at enhancing creators’, viewers’ and advertisers’ experiences. Potentially the most high impact is a revamp of its CTV app which will offer “immersive previews” of creator content, modeled on best practices of SVOD apps like Netflix. Creators will also be able to customize how they categorize and organize their episodes in the app. With CTV accounting for at least 40% of YouTube’s views, optimizing the CTV app is critical.

YouTube also updated a number of relatively new AI-powered tools, including “Dream Screen,” which generates backgrounds in YouTube Shorts and a 6-second clip generator, both using Veo, which is DeepMind’s video AI technology, plus a refreshed Inspiration Tab to help brainstorm new video ideas.

Also new is the launch of Communities which allows engagment within the creator’s channel, pulling into YouTube discussions already happening in other social platforms. The feature builds on commenting, which has long been available in YouTube.

YouTube also confirmed broad availability of Pause ads, long in use by others like Hulu, which are likely to get a strong reception.

Many of the features are described in this post.   

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Four topics for this week’s podcast:

Last week IAB released its new 2024 advertising outlook report based on a survey of media professionals. CTV advertising was at the top of expected gains, revised upward from a 14.5% lift vs. 2023 in IAB’s prior report to 18.4% now. It’s another positive sign for CTV ads and we discuss how big a role political ad spending is playing.

Next up, Comcast’s president shared insights about NBCU’s position in movies and PVOD which were relatively upbeat. While NBCU has had a strong year, as we review, movies still face stiff headwinds.

Third, Charter and AMC signed a new distribution deal that gives many Charter TV subscribers access to the ad-supported version of AMC+. While the deal averts a blackout like the one happening with DIRECTV and Disney currently, Colin and I question whether the deal is sufficiently forward-looking for AMC.

Finally, Colin explains the significance of Amazon introducing TVs that support the NextGen TV standard.

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Last weekend Disney blacked out all of its networks on DIRECTV as the carriage agreement between the two companies expired without a new one being reached. These types of disputes are common in the pay-TV industry, and there’s always a lot of jawboning and finger-pointing, making it difficult to understand the exact proposals and counter-proposals.

What seems indisputable is that Disney is pushing for a continuation of its longstanding approach to bundling all of its networks together, perhaps with some additional flexibility for DIRECTV. With ESPN’s high cost, that means the bundle price to DIRECTV is elevated, even as cord-cutting accelerates. It also means DIRECTV would keep paying for a bunch of smaller channels most of its subscribers don’t watch. None of this is especially friendly to viewers.

The irony of course is that even as Disney is pushing for bundling with traditional distributors like DIRECTV, Disney is separately part of the Venu Sports JV which unbundles its (and Fox’s and Warner Bros. Discovery’s) sports networks and packages them into a new streaming offering. Venu’s launch is now up in the air due to Fubo TV winning a preliminary injunction against it.

Stepping back, as we observe, Disney is also pursuing a variety of other moves that also suggest reduced customer focus. The primary example of this is the latest round of Disney+ price increases that this time are coupled with a crackdown on password sharing - an approach completely counter to how Netflix wisely executed its password limit. Even though Disney eked out a profit in its DTC segment in the latest quarter, Colin and I believe these moves will put a lot of pressure on Disney+ subscriber numbers in the coming quarters.

(Outside of the streaming space, Disney also recently and embarrassingly insisted, and then reversed, its position in the case of a woman who died from an allergic reaction to food at Disney World, with Disney initially insisting her husband lost his rights to sue the company because he signed up for Disney+.)

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On today’s podcast, Colin and I discuss last Friday’s decision by U.S. District Court Judge Margaret Garnett, ruling in favor of Fubo by issuing a preliminary injunction preventing the launch of Venu Sports. Venu is a joint venture of Disney, Fox and Warner Bros. Discovery that includes 14 of the companies’ linear TV sports networks, plus on-demand content, for $43 per month. The companies filed an appeal on Monday.

As is evident from the ruling (thanks to the LightShed team for posting), Disney, Fox and Warner Bros. Discovery have created a “gilded cage” for themselves by - up until Venu - only including their sports networks in pay-TV’s multichannel bundle. Disaggregating these networks exclusively for Venu would create a torrent of cord-cutting, as live sports have become a mainstay for those still committed to pay-TV subscriptions. Judge Garnett agreed Venu would cause an immediate negative impact on Fubo (it would for other pay-TV operators too).

It’s not clear to either of us how specifically the JV partners will address the detailed points Judge Garnett articulated in her ruling, nor how persuasive they’ll be in lifting the injunction, especially given that the criteria for a judge to issue an injunction like this is in the first place is the presumption that an eventual trial would arrive at the same conclusion. All of this leaves Venu’s future highly uncertain.

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Viewers’ shifting consumption from linear TV to streaming is well-documented, but multibillion-dollar write downs in Q2 ’24 at Warner Bros. Discovery and Paramount helped quantify just how costly the shift has been to big media companies.

In today’s podcast we discuss the write downs and the broader industry context. When Discovery acquired WarnerMedia, it made a bet-the-company wager on the resiliency of linear TV that has gone completely wrong. Wall Street has ruthlessly punished WBD, knocking its stock down from a high of $77 in March, 2021 to just $7 recently, valuing the company at approximately $17 billion. To put that in context, Netflix’s market cap is now over $290 billion, over 42x WBD’s.

It’s hard to see any near-term positive catalysts for WBD, and if anything, TNT’s loss of NBA rights following this season will create even more pressure. As we detail, Internet economics have come to the TV industry, wiping out the artificial economics of the pay-TV world, and exposing the true current value of legacy cable TV networks. It’s a very unsettling picture.

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Disney reported a $47 million operating profit in its direct-to-consumer (DTC) segment in its fiscal third quarter 2024. The profit comes one quarter earlier than Disney had forecast. The $47 million profit reverses a $517 million loss in the year ago quarter.

While the optics of the profit are indeed positive, in this week’s podcast Colin and I do a deep dive into the profit’s true quality and sustainability. Doing so reveals a fragile picture. First, there are issues about how much of Disney+’s recent subscriber gains are in fact due to the Charter deal, which by some accounts hasn’t been terribly successful in driving active subscribers. Meanwhile, Hulu’s been moving sideways for a while, and there’s no longer transparency about ESPN+’s subscriber count.

Another issue is Disney+’s falling average monthly revenue per paid subscriber which declined further in Q3. It’s noteworthy because Disney’s CFO ascribed it partially to Disney+’s lower-priced ad tier. Yet Hulu actually reported higher average monthly revenue per paid subscriber due to higher ad revenue. So there are some contradictory signals.

Meanwhile, Disney’s aggressive bundling, at deep discounts, may bode well as a longer-term churn-buster, but will almost certainly pressure near-term DTC profitability. Then there’s Disney+’s price increase, which will kick in soon, concurrent with a broad rollout on limiting password sharing. This double whammy is likely to lead to some subscriber losses.

From analyzing the the Q3 financial statement, it’s clear Disney+ and Hulu were still unprofitable in the quarter. It was actually ESPN+ that turned the DTC segment green. But as I detail, further analysis reveals an unusual jump in ESPN+’s quarterly profit level and profit margin vs. a year ago, suggesting Disney may have done a one-time reallocation of expenses from ESPN+ to ESPN that cannot be replicated in future quarters. Speaking of one-time events, Disney may still owe Comcast another $5 billion for the Hulu buyout (it’s not clear if that would hit the DTC line or another).

Finally, and at the risk of piling on, just over the horizon in fiscal ’25 loom big payments for Disney to the NBA for its new rights deal and an earnings drag as the new Venu Sports JV (potentially) ramps up. Note, an early Venu write-off is equally likely.

Add it all up and it’s clear to us that the quality and sustainability of Disney’s first quarterly DTC profit are quite fragile.

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Early returns show Olympics viewership is up strongly so far. But while many devoted fans watch the full-length events, many other more casual fans consume just the highlight clips - often after they search for them subsequent to hearing about a particularly exciting moment (e.g. the clutch pommel horse performance, the long match-ending runback in rugby sevens, etc.). Watching highlights can also help drive casual fans to watch full length. 

All this means that for a long duration event like the Olympics, solid strategy/execution highlight clips distribution is imperative. In today’s podcast Colin and I discuss how we’ve been impressed so far with NBC’s Olympics highlight clips distribution across Peacock and YouTube. We’re able to compare and contrast experiences because Colin’s only been watching on the former and I’ve only been watching on the latter.

We discuss NBC’s balancing act of seeking to build value in Peacock, its owned and operated property, while also recognizing and respecting the reality that YouTube is the number one video search destination for hundreds of millions of users, so it simply can’t be ignored. Finally we discuss the business model benefits of distributing on Peacock and YouTube. 

Overall NBC’s Paris Olympics clips execution is far superior to the last games, and provides lessons for others. Still, we see still further room to optimize, which we review toward the end. 

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Comcast reported Q2 ’24 results this week, including an update on Peacock, which cut its loss to $348 million in the quarter from $639 million a year ago. Peacock’s subscriber count increased from 24 million in Q2 ’23 to 33 million at the end of Q2 ’24, but that was actually down a million from the end of Q1 ’24. 

In this week’s podcast we discuss whether and when Peacock will turn the corner and become a scaled, profitable streaming service. Peacock is betting big on expensive sports to deliver, with the Olympics kicking off tonight, and a new multi-billion dollar NBA deal to be announced soon, validating our call for Peacock to "Go Big or Go Home" back in November, 2021.

Peacock was a very late entry to the streaming game, and according to MoffettNathanson, has lost at least $8 billion over the past 14 quarters. Colin and I explain why we aren’t convinced sports can carry the weight of Peacock’s turnaround, and agree that only time will tell. 

We then switch gears to discuss Netflix’s Q2 earnings and the company’s lagging ad-tier performance, which surprises both of us a bit. Veteran podcast listeners will recall that back in October, 2022 Colin and I expressed our optimism about the pending impact of paid sharing and the ad-tier. The former has been a monster success for Netflix, based at least partly on the expert execution of its rollout. The ad tier remains a work in progress but we remain confident Netflix will figure it out. 

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