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. |
