Original Standalones and Consequences for Streaming Services’ Library
Matthew Ball has spoken at length about the value of IP to a company’s streaming service library and the company overall (IP is able to drive more attention and customer stickiness not just to a company’s streaming or media service, but also their ecosystem – i.e., Disney’s movies not only serves as a platform for TV shows, but also drive consumers towards theme parks, merchandise, food & beverages, etc.), something I agree with, but I also believe that IP that is an original standalone (OS), such as original screenplays, whether in TV and Film, in the U.S. add less value to a streaming service’s library over time and there are none of these that can maintain their peak demand (or grow it) for 50 years. (Please note that I do not have an advance analytics program that can quantitatively track this claim, so I may be wrong, so feel free to correct me).
First off, why the 50 years cut-off? Looking at the 30 top rated linear broadcast shows in the past six decades in Wikipedia, there is not one OS in at least 35 years from today that is more in demand or as in demand as back then (Reboots, spin-offs, specials do not count as I am talking about that one show and not an expanded universe). Few shows stay as in demand or more in demand for even 25+ years (Seinfeld and Friends are the only ones that come to mind). Friends (the reunion spin-off notwithstanding – as it has not even been made yet) is the highest revenue generating OS in the U.S. that is now more in demand than it ever was – even 14 years after its initial finale broadcast, as Netflix paid $100MM to keep the show for year 2019, with a reunion given the green light, and HBO Max paying a cool $425MM for 5 years for the streaming rights to Friends.
Reports of Friends earning Warner Bros. $1B a year, via syndication, may seem exaggerated, and mathematically contradict my theory of how much in-demand Friends is, Friends is still on Neftlix internationally, and the streaming services do not have full exclusive rights to the Friends, just streaming rights, and not linear broadcast rights (I would do the math to add up all the pure profit Warner Bros is raking, but there is not enough publicly available information).
Let’s delve into the past revenue of Friends’ to see if it was in less demand. Assuming $400,000 for a 30 second commercial (Breaking Bad’s commercial fee should be comparable to Friends’ fee, notwithstanding the $2M 30 second spot ad for the Friends finale) in year 2004 (year of Friends’ last season, 30 minutes of blocked off screening time for an episode) inflation adjusted to year 2020 is $546,564.32, and 7 minutes and 7 seconds of commercial per episode with 18 episodes in the final season means a revenue of $140,029,778.784, or 140MM in the U.S. Even with product integration, syndication revenue, DVDs, and international revenue it’s hard to imagine making up the 860MM. So the idea of Friends being more in-demand in 2020 vs 2004 makes mathematical sense.
The 2004 commercial advertising 140M revenue can be said to be more comparable to just the $100M streaming rights Netflix paid. It does seem like Netflix is paying a bargain (especially with access to all 10 seasons and 236 episodes), but a media company’s 2004’s business model is drastically different to a technology company’s 2020’s business model. Most people were not even able to imagine a streaming service in 2004, and the a greater portion of the U.S. population was watching entertainment via linear broadcast, hence a large source of income for media companies. Nowadays, advertisers are paying less for commercials. Empire commands the most 30 second commercial revenue at $437,100 in 2019 dollars for a non-sport program (Yes, Empire is a prime time scripted drama only in its 4th season in 2019, and Friends, a sitcom, made it to its 10th season, but that does not change the fact that they are less eyeballs and attention on linear broadcast TV overall, and no other show in 2019 has made as much as Friends did – most linear broadcast shows do not even make it to the 10th season nowadays).
Furthermore, there is cost when producing a TV program. Friends costs $10MM an episode (which means a cost of $180MM for the last season). If using the $140MM commercial ad revenue, Friends would be net negative. This is not taking to account the $2MM ad fee for a 30 second commercial for the 2 hour finale, and other ancillary revenue mentioned above. The producers likely knew the profit margin per episode on the last season of Friends was not bound to be very high on the initial run, but knew syndication would prove pivotal in producing positive profit.
This means that any episode of Friends sold for syndication brings in pure profit at no cost (on marginal cost amortization). The initial run on TV came at a high cost, and the high production budget was likely used to leverage greater viewer affinity for future pure profit through syndication, at the expense of profit in the short-term.
Since Friends and other beloved shows like The Office ($500MM over 5 years), Seinfeld ($160MM over 5 years set to expire in 2021), and soon up for grabs The Big Bang Theory, and Two and a Half Men are likely to fetch a comparable sum, according to analysts, why I am making a claim they will be less valuable and less in-demand 50 years from now even after the economic calculation above ? First, I believe that although there will still be fans of these shows many decades from now, the number of viewers for a particular show, and time spent for the show will decrease with time because there will be more shows that take consumers’ time, attention, and memory space. The same viewers from today will watch less of it, and there will be a decrease in the same viewers from today watching ONSOS. Will there be new fans of these ONSOS of yesteryear, yes, but probably not enough to make up the decline. I also posit that viewers are likely to pivot to other media such as gaming, which is growing, and taking up more time and attention from a viewer.
I also believe international fans will not be as attracted to these OS from the 1980s and back (language barrier, improvement in storytelling, better technology, etc.) or even popular OS today like Friends decades from now. International companies can easily “copy” an OS popular in the U.S. today and create their own version of it: the hit Chinese ONSOS Love Apartment is considered an amalgamation of various American sitcoms (Friends, How I Met Your Mother, etc.). The democratization effect of technology and subtitles does increase the feasibility of viewing OS, but they serve less and less use decades down the road.
This means creating new content from OS IP (either through reboots, specials, spin-offs, etc.) is important in driving more revenue. In-person or maybe even digital pop-up events, like the Friends one, may drive renewed interest in the OS. Pop-up events alone are probably not enough to keep the OS popular decades later.
A OS can serve its purpose on its initial run, and subsequent syndications without making new content. The creators may want to do right by the story and feel that any new content would ruin the OS (i.e., Friends). Some OS may serve as “low quality,” relax entertainment that helps a streaming service keep its consumer’s attention to prevent churn, where any new content of that IP is strategically unnecessary (“One and Done”). This leads to streaming services needing to create more “One and Done” to serve its purpose (like Netflix) during its own time. It is unlikely someone will watch a stand police procedural created 10 or 20 years ago, with one that was created recently. The “water cooler” effect would usually revolve around something new or current, so the idea of an long ago aired OS is not likely to be popular and persistent.
TV shows and films with IP that span a universe (i.e., Marvel) and continuously produce new material (even through other media: books, comics, and games) are more in-demand today than they ever were. Marginal affinity to an IP leads to an additive investment into different mediums of the IP, which will cause a cyclic cycle of increasing interest in the IP. The search into the IP library will no doubt lead some to re-watch old movies, and others to watch old movies, therefore old media of shows with expansive IP, is likely to persist.
It’s surprising, maybe even vibranium defying, that shows of yesteryear like Friends and Seinfeld, are making headlines today, but there will be a time that all things that go up, will eventually drown down into the dark, deep library.
Ky Lee Man TMT 