Apple v. Netflix (Or, Maybe Apple Should Just Buy Netflix)

Well, the grand-daddy of all digital media rumors is back again.  Yesterday, Variety reported that Apple's quest to build its long-anticipated "Netflix Killer" is hot again in Cupertino.  More specifically, that Apple too -- like Netflix, Hulu, Amazon Prime, and virtually all OTTs and MCNs these days -- plans to "do an HBO" to accomplish its mission (i.e., have a significant focus on creating its own exclusive original programming to woo customers away from the other established streaming video services).

Variety's article is new, but certainly the inevitability of Apple entering the premium streaming video game -- as well as the article's focus on Apple's quest to create compelling and differentiating original content -- is not (I have written about it several times).  And, much like Apple finally choosing to focus on buying/building its own "Spotify Killer" on the subscription streaming side for music (and finally recognizing that the times had moved away from a "pay per download" model), Apple at long last will go the same route for video (initially focusing on longer-form premium video content like movies and series).

With this most recent story now breaking before Apple's upcoming announcements, it is worth revisiting my earlier analysis where I pit Apple v. Netflix.  In that direct battle royale -- which absolutely will happen -- who wins?  Let's analyze 5 individual battles that define that war.

(1) Content/Programming -- Let's take Apple first.  Apple will offer (i) both VOD and live/linear TV (Netflix only offers VOD), and (ii) both ESPN and HBO, the two premium channels that matter most (Netflix doesn't).  How does Netflix counter this attack?  In two ways (i) exclusive original "must have" programming like House of Cards and Orange Is the New Black (although -- as I wrote months ago -- you can bet Apple absolutely will get into that "originals" game as well (and smartly fast-track those efforts by buying a high-end and highly-respected production house with deep relationships -- or perhaps even buy a major Hollywood studio), and (ii) a significant depth of content that Apple will not have ... at least for a long time.  Advantage Apple.

(2) Distribution -- Apple's ecosystem is closed.  Netflix's is open.  That means that Apple's OTT video service will be bundled only into Apple products, whereas Netflix comes with virtually everyone else (including Apple TV -- although you can bet that Apple's Netflix-Killer will be front and center and free (at least for a while) on Apple TV's when it launches).  So, Netflix's sheer reach significantly outdistances Apple.  Oh yes, and Netflix already has built a massive customer base -- and is growing fast internationally.  Advantage Netflix.

(3) User Experience -- Virtually everyone on the planet has Netflix.  It's part of our Zeitgeist and its UI is practically burned into our brains.  So, it is easy to use.  But, Apple's hallmark is user experience -- a UI/UX that is both "pretty" (yes, that matters) and intuitive/easy.  And -- and this is a critical "and" -- Apple can do (and does) what Netflix and others can't.  It seamlessly integrates software/services with its hardware (including Apple TV).  That means that Apple's new OTT video service will be front and center and easier to use.  Advantage Apple.

(4) Price -- Netflix charges $8.99 monthly for new users, whereas Apple's "killer" service likely will cost significantly more.  ESPN alone costs cable/satellite operators about $6 monthly per sub.  Advantage Netflix.

So, we have a draw here, right?

(5) Business Model -- Well, here's the ultimate rub.  The companies' fundamentally divergent business models.

Neflix is a pure-play video service.  The company monetizes its service only.  That is its business model -- and that means that it must be profitable based on subscription revenues alone (unless and until it finds a way to effectively mine its treasure trove of customer data).

Apple's business model is fundamentally different.  For Apple, its "coming soon" OTT video service can be (and likely will be) a loss leader -- a losing proposition that ultimately wins.  You see, Apple's core DNA is unlike Netflix's.  It is hardware pure and simple.  Apple makes money (boatloads of it) by selling "cool" metal -- iPhones, iPads, Apple Watches, Apple TVs (and ultimately the iTV?).  That means that Apple's new video service is essentially a "marketing" expense that drives incremental hardware sales.  That also means that Apple can (and will) subsidize its content licensing costs -- and original programming efforts -- in order to keep its subscription pricing down.  Apple's massive cash hoard offers a lot of highly coveted freedom that others simply don't have.

How does Netflix match that?  Maybe, Apple simply buys Netflix with all that cash -- after all, as massive as Netflix is, its market cap is a downright paltry $49 billion compared to Apple's $643 billion, which includes about $200 billion in cash).  Now THAT would change the media landscape ....

Disney/Maker, 1 Year Later -- Your "Must Read" for SXSW (or, "Studios, Do Not Go Gentle Into That Good Night ...")

It's SXSW time.  Are you ready?

Well, I'm here to help.  Here's some easy prep for the endless conversations you will face while clutching your drink.  Here's my SXSW digital media ice-breaker.

TOPIC?  Disney/Maker Studios.

CONTEXT?  It's been almost exactly one year since Disney snapped up mega-MCN Maker Studios for a mega-price-tag ranging from $500 Million to $950 Million.

THOUGHT-PROVOKING 2-PART QUESTION?  Too high, too low?  Smart deal, dumb deal?

I know, I know, the vast majority of you will immediately dismiss the question itself -- undermining its essence by refusing to give it any semblance of merit.  In other words, most of you will now excuse yourselves, find the nearest bartender, and ask for your next drink.

But, hold on there Cowboy.  Not so fast.  Lots of reasons for Disney to do that Maker deal.  Lots of good reasons.  In fact, lots of excellent reasons (I wrote these down in my year-ending Variety piece titled "3 Digital Media Mega-Deals That Defined the Year").

So, here we are, one year later.  SXSW-ing.  How are things different now in the video world from where we were one year ago when we last partied in Austin?

Alas, how do I count the ways?

Just think about the last 12 months.  Just think about the pure exhaustion you felt (and continue to feel) every time you checked your favorite digital media publication -- only to find yet another mega-deal or mega-investment in the MCN/YouTube economy.  Since Disney/Maker, we have heard a steady -- and accelerating -- drumbeat of hundreds of millions of dollars of investment and hundreds of millions of dollars of M&A in connection with new digital-first video companies (my company, Manatt Digital Media, laid these out in this year-ending Infographic -- and also in this MCN "Score Card").  I recently discussed related themes in this recent post where I laid out some of the most recent deals in this space.  Consider these you relevant "cheat sheets" for plane reading as you fly to Austin.

But, here's the main point of all of this -- IT IS HAPPENING!  MCNs are "happening."  MCNs are real.  Very real and very now.  They are not a fad.  Why?  Because an MCN represents so much more than its frequently dismissed and limiting acronym suggests.  An MCN symbolizes the fundamental transformation of the media and entertainment business in which we find ourselves today -- a transformation fueled by mobile-first, millennial-focused video content that is significantly more advanced today than it was when we found ourselves in Austin one year ago.  The pace of this transformation, in fact, is incredible.  And this breakneck pace demands bold actions that may make or break companies.  Companies big and small.  Including major media and entertainment companies.  It is "go" time.  Time to take action.  There is little time to study.  Get smart, fast!  It's time for all-nighters -- and grab your favorite study-buddy.

We are seeing (nay, feeling!) this sense of urgency at real scale for the very first time in the "traditional" media and entertainment business.  I hear it in virtually all of my conversations with industry insiders.  Only one year ago, the vast majority of senior level studio execs (I'd peg the number at 90% or more) had one of 4 reactions to news of the Disney/Maker deal: (1) "who is Maker and what is an MCN?"; (2) "why do I care about Maker and MCNs when I have a real media business to run?"; (3) "why would anyone pay anything for an MCN (let alone what Disney paid)? - they aren't profitable, after all, are they?", or -- at best -- (4) "interesting, let's see how things play out and learn from the other guys' mistakes."

Well, my friends, that ain't the case today.  Now, FOMO is in the air.  It is pervasive.  Disney/Maker and its endless MCN progeny of mega-M&A and mega-strategic investment have flipped the media and entertainment reality (or at least perception of it) on its head.  Now, the MCN alphabet is required learning in the studio classroom.  And now, it's not so much a question of "if" we should get into the mobile-focused, digital-first, millennial-fueled MCN/video game (after all, the majority of thoughtful studio execs now truly believe they are living in transformative times).  Rather, the questions are "how" and "when."  And, many of them now correctly fear that others will take the remaining MCN crown jewels sooner rather than later.  A smell of scarcity is very much in the air (as it should be).

So, my fundamental advice to all who listen -- advice which I pontificate passionately in virtually every conversation -- is this.  TAKE ACTION!  And take it now!  Make your moves -- or at least, a move (perhaps a significant strategic investment at a minimum).  Don't have the business model figured out?  Understand this -- NO ONE DOES!  Business models are evolving as fast as the media landscape is.  But, that doesn't change the fact that you just gotta be there (in the digital-first, mobile-driven millennial world -- where the kids are).  This is no time to waltz delicately and methodically into this feverish dance.  It's time to partner up.  If you hesitate -- if you turn around to grab some punch -- you just may find that your erstwhile dance partner has found another suitor. There are many to be found.  And many who are anxious.

This is a time to be aggressive.  This is a time to be bold.  This is a time to experiment and damn the torpedoes.  It's innovation time.  It's transformation time.

And, it's opportunity time ... for those who have the courage to seize it!

Media executives, "Do not go gentle into that good night ...."

My 2015 Predictions - Consolidated Guest Articles from TechCrunch, Variety, Billboard & VideoInk

CES 2015 is in the books -- and we are now firmly simply ensconced in 2015.  Time to rock and roll in all things that are digital media.  To that end -- consolidated here for your reading pleasure -- here are my predictions for media/music/digital media for 2015 (via my separate year-end guest articles in TechCrunch, Variety, Billboard, and VideoInk):

"The Future of Digital Media in 2015" -- from TechCrunch -- where I identify 8 specific predictions for the year (a longer "director's cut" version with 10 predictions can be found here via my separate post in LinkedIn)

"The 3 Digital Media Mega-Deals that Defined the Year" -- from Variety -- where I discuss the rationale for those 3 deals and discuss how they impact what we will see in 2015

"Five Predictions for Digital Video in 2015" -- from VideoInk -- this one is exclusively focused on video

And, finally, here is my single major music industry-focused prediction/theme for 2015 (and which is featured in the print edition of Billboard Magazine that is on your newsstands now ... will post it here as well if it goes online):

2015 is the year that the music business begins to understand and embrace the power and potential of deeply integrating technology and online fan engagement with offline live events.  For most artists, streaming services expand their “communities” of thirsty fans and will offer ever-more tools to engage directly with -- and monetize -- them (via both live event tickets and unique new live “experiences”).  Live events (especially major festivals) will fuel these direct interactions further (both online and offline) – and more effectively line their own pockets – by leveraging innovative new technology to capture invaluable attendee data that they will share with savvy artists.  And, rabid fans will happily hand over more dollars for closer artist connections and better live music experiences (including more efficient food, drink and merchandising sales at shows). 

My Latest Guest Article for Variety -- The 3 Digital Media Mega-Deals That Defined the Year

Here is an excerpt from my latest guest article for Variety titled, “The 3 Digital Media Mega-Deals That Defined the Year” -- click this link to read the full article in Variety.

2014 proved to be a transformational year for content-driven digital media and tech investment. What started as a year in which SoCal investors longed for credibility and redemption for their long-held faith in the age-old adage “content is king” (in an increasingly tech-driven world), ended as a year of affirmation via a parade of multi-billion dollar exits.  Disney unlocked this door first on the video side of the house with its $500-$950 million purchase of leading multi-channel network (MCN) Maker Studios.  But, then others rushed the stage.  Facebook bought virtual-reality (V/R) company Oculus Rift – and its initial gaming applications -- for $2 billion; and Apple Beat(s) the drum of music for $3 billion.  These three deals alone totaled nearly $6 billion and defined a millennial-driven year in digital media.  Read the rest by clicking here.

Pay TV Packages, Re-Imagined -- “The Great Unbundling” of Fall 2014

2014 is a transformative year for the media and entertainment business.  We will look back several years from now and fully realize this.

And, it’s not just about MCNs and the continuing litany of massive M&A and strategic investment.  Its about fundamental changes in the underlying forces (including the ascension of millennial mobile video consumption and engagement) that drive consumer behavior. 

Case in point Pay TV bundles.  These remarkable past 6-8 weeks mark THE moment in time at which previously sacred traditional cable/satellite pay TV programming bundles -- and the decades old business models behind them -- came under serious fire by concrete strategic actions by central players amidst this accelerating mobile and OTT video reality (and the consumers -- especially millennials -- behind it).  Yes, there has long been talk of such moves.  But, now major players in the overall ecosystem are taking real transformative action.  (For a great discussion about potential “winners” and “losers” in this great unbundling of pay TV packages, read Todd Spangler’s piece in Variety linked here.)

In October, HBOand CBSeach announced in rapid succession that they would offer their own stand-alone over-the-top (OTT) services.  No cable or satellite subscription required.  Competing Starz network later confirmed its own major international-focused strategic initiative to that same end.  And, AT&T – which just recently was integral in the acquisition of leading MCN Fullscreen via its $500 million Otter Media joint venture with The Chernin Group – also just recently entered the unbundling fray.  A few weeks back, AT&T announced a new $39/month U-Verse programming bundle that includes HBO and Amazon Prime video, together with basic cable programming PLUS broadband.  Via this new stripped down efficient package, AT&T smartly targets cord cutters -- and, importantly, the increasing number of “cord nevers” (those, especially young adults, who never subscribed to programming packages in the first place). 

Other cases in point.  Viacom recently licensed 22 of its live and VOD premium networks to Sony for its new OTT service for PlayStation, Sony TVs and other Sony connected devices.  Verizon joined these others and announced an early 2015 launch for its long-anticipated “virtual” MSO that is so virtual, it is wireless -- specifically designed for mobile.  And, critically, core to its new service, Verizon announced a down-sized “bite-sized” cable-lite programming package that features mobile-friendly MCN AwesomenessTV short form video, in addition to big 4 broadcaster content and NFL games (via its existing exclusive smartphone deal).  When announcing its new service, Verizon Chairman and CEO Lowell McAdam expressly pronounced what was almost unthinkable not long ago – i.e., that “among cable programmers, there’s been an attitude shift among cable programmers toward accepting a new over-the-top model for delivering pay TV.”

Welcome to “The Great Unbundling” of 2014. Transformative times in the media and entertainment business – particularly in the past few weeks.  

Bundle together these disruptive deals of just the past month or so and you have yourselves a digital media revolution ....

My Article In Variety - Why Studios Are Suddenly Hot for MCNs

Big news in the world of multi-channel networks this past week -- first, Warner Bros. closed its long-anticipated $18 million investment in gamer-focused MCN Machinima; and now rumors are abounding that Disney is in discussions to buy more horizontally-focused leading MCN Maker Studios for $500 million or much more.  With all this activity, Variety asked me to write an article that lays out why here, why now, and why at the rumored lofty price-tag.

Here is my Variety article -- hot off the presses!

YouTube’s New Offline Video Mode -- Not A Game-Changer, But Still Matters

YouTube yesterday announced a new feature that enables all of us to view videos offline -- when no wifi or network access is available.  They didn’t announce how they do it -- just that they can do it.

Todd Spangler of Variety wrote a piece about this news, in which I am quoted as being bullish on the development.  Bullish from a user’s and content creator’s perspective.

Why?

While we generally have “connected” access virtually everywhere these days, that simply doesn’t apply when -- for example -- you are 30,000 feet up in the air on an airplane.  And, that is one place where it is perhaps most important to be connected, because you are stuck in a seat for hours -- you are a captive audience -- and you (and your kids!) frequently want something to do.  Watching videos is an obvious “want to do” activity when no other activities are available.

Another example?  Road-trips.  Frequently there is no connectivity on long road-trips -- and that ain’t easy on kids these days (and the parents of them who are driving!).  I know, I know -- not much of a tragedy in the scheme of things.  Yet, connectivity -- and videos -- are a nice-to-have in such circumstances.  And, that’s where YouTube’s new offline feature may come to the rescue.

So, I agree with others quoted in Spangler’s piece that this new offline feature is not a game-changer.

But, it absolutely matters ....

Manatt Digital Media, My New CEO Gig -- TechCrunch, Variety, Billboard, Bloomberg, Others

On Wednesday, the cat was out of the bag -- I formally announced that I accepted the position of CEO at new Manatt Digital Media Ventures, which is part of new Manatt Digital Media (MDM) which is chaired by Hale Boggs.  Hale developed the vision for MDM, and we are partners driving it -- he on the legal side, and me on the business side/investment side (Hale oversees all Manatt investments).

And, that vision has resonated -- which is extremely heartening, exciting.  The news coverage by major publications was significant -- all the big names, and virtually all with major feature stories.  Here is just a slice, together with direct links to the stories:

TechCrunch -- "Sorenson Media CEO Peter Csathy Tapped to Lead Manatt's Digital Media Group"

Variety -- "Law Firm Manatt Taps Csathy to Head Digital Media Venture Arm"

Billboard -- "Manatt Launches Digital Media Investment Fund"

Bloomberg -- "Manatt ... Business of Law"

Dow Jones VentureWire -- "Law Firm Manatt Phelps Launches VC Arm for Digital Media Investments"

Los Angeles Business Journal -- "Manatt Launches Digital Media Investment Arm"

Daily Journal -- "Manatt Launches Consulting, Venture Arm for Digitally Minded" (front page story)

SocalTECH -- "Sorenson Media's Csathy Departs to New Digital Media Effort from Manatt"

Xconomy -- "Sorenson CEO Peter Csathy Goes Hollywood to Lead Manatt Venture Fund"

StreamingMediaBlog -- "Sorenson Media's CEO Steps Down, Takes On CEO Role of New VC Startup"