Rich Greenfield spends his days divining the future of media companies — then investing in them. “Media businesses are being fundamentally challenged by this collision between media and tech,” he said at Signal 2020.
That collision has picked up momentum since Greenfield last appeared at Signal (scroll down to watch his session and read the transcript). We put three questions to him recently to find out how he’s thinking about media right now.
It’s been a year-plus since your session at Signal. What’s different now from what you expected?
Rich Greenfield: Over the past year, it has become increasingly clear that ALL content will be streamed. A year ago, we were primarily focused on general entertainment content shifting to streaming from linear TV. But when you have Amazon coming in with $1 billion a year to take exclusive broadcast rights to the number two primetime program (Thursday Night Football), it is increasingly clear that all of TV is shifting to streaming, including sports.
Even linear networks such as CBS and NBC that renewed their NFL deals announced that all games will now be streamed, on Paramount+ and Peacock, respectively. We talked about sports being the only thing holding up the linear TV “bundle” and even that is now showing real cracks that should be a wake-up call to TV ad buyers.
In addition, while everyone is talking about the rebound in TV ad spending in Q2 2021, advertising is still below 2019 levels. And it’s only going to get worse. The level of spending on high-profile entertainment content across streaming platforms is incredible. AppleTV+, Disney+/Hulu, Amazon Prime, HBO Max, Paramount+, Peacock — they are all significantly ramping spend with all of legacy media’s “highest profile” content earmarked for streaming. Nobody is even talking about fall premiere week/month on broadcast TV anymore.
What’s the biggest thing in this space that advertisers don’t understand well?
Greenfield: It’s that consumers do not distinguish between premium content that appears on ABC or CBS versus the content that can be found on YouTube. In fact, YouTube and Netflix are neck-and-neck for total time spent on connected TVs, dwarfing time spent streaming content from any ad-supported premium content site. Overall, YouTube time spent including mobile and computers dwarfs everyone in video streaming time spent. There is so much chatter about Pluto and Hulu and Tubi, but YouTube “is TV” for an entire generation — dollars should be shifting even faster to YouTube and away from linear TV.
Who are the winners and losers going to be a year from now?
Greenfield: Consumers are the biggest winners. Lots of content, no need for cable installers or expensive, bloated bundles and equipment — not to mention, increasingly the ability to watch what you want, when you want it, where you want to and on whatever device you want. Technology is putting the consumer first versus legacy business models [that don’t].
Other changes a year from now:
- Amazon: The NFL starts a year from now combined with a huge entertainment content slate led by “Lord of the Rings” series.
- Apple TV+: Ted Lasso has changed the way consumers think about AppleTV+. It is now “on the map” and with Apple’s balance sheet strength, they are just getting started.
- Paramount+ & Peacock: Unclear how they compete with far more limited resources.
Catch more of Greenfield’s rich insights in his Signal 2020 session, and scroll down for the full transcript.
Transcript
John Battelle: There is no greater analyst than Rich Greenfield, a founding partner of Lightshed Partners, and one of the smartest minds on looking at what’s going on in the media business today and thinking about what’s around the corner and what’s ahead. Welcome to the stage, Rich Greenfield.
Rich Greenfield: Thanks for having me. I’m sorry we couldn’t be together in Cincinnati today, it would have been great to be with you in person. But, you know, my day job for the last 25 years has been trying to figure out whether media stocks, everything from Disney to Netflix to Comcast and Twitter and everything in between, whether they’re going to go up or go down. And that’s sort of the way we think about the world. Three of us created our own firm Lightshed back in September of 2019.
When you think about disruption, as we sit here today, even pre COVID, you know, 2020 and beyond, you really have to think about what’s transforming and how media businesses are being fundamentally challenged and kind of this collision, the way I think about it between media and tech.
Back when I started in 1995 at Goldman Sachs, sort of the only thing that was being talked about in terms of disruption was the creation of the DVD. I still remember being at the Warner Brothers studio showing us what a DVD was eventually going to be. And it wasn’t even really disruption. It was basically just the evolution from a VHS cassette to a DVD. And when you think about what’s happening today, and yes, COVID is certainly accelerating a lot of the underlying trends, but there is no doubt that the disruption of media is happening at a pace that we’ve never seen before.
You don’t have to look any further than just the market caps of these companies. Look at the way the tech companies dwarf the media companies. I mean, the fact that Netflix now is bigger than Verizon and market caps of Disney, AT&T, Comcast, and then you look at some of the names on this slide. I mean, look at things like Lions Gate, AMC Networks, they’re almost like pimples, where they don’t even show up on the slide at this point, because they’re so small versus, you know, nearing the $2 trillion market caps of Apple and Amazon. And what you really think about when you see these companies is that they have direct relationships. These platforms have direct relationships with the consumer, they know that they know who you are, they know everything about you, they will know what you’ve been doing. In fact, most of these companies probably know, John, that you and I are actually on this call right now having this conversation.
Yet most of the media sector that’s grown up over the last several decades, knows nothing about you. They’ve been simply wholesalers of content. You know, you even had Ron Howard on earlier. He’s just a content creator. He talks about he’s a content purveyor to any and all platforms and those are changing, and he’s had to adapt to them. And the reality is, each of these media companies is now facing this reality that you need to have this direct relationship with your consumer. And so what I thought I would do is just start with a quick video that really highlights in the span of just a very short period of time for years, how this transformation has occurred in media. So let’s roll the video
(in video clip) Bob Iger, chairman and former CEO, Disney, in 2015: We view Netflix flicks as friend not foe. There’s no reason for us to beat Netflix, we actually are taking advantage of Netflix’s great growth. And I guess maybe you could argue we’ve helped Netflix’s great growth.
(in video clip) Iger in 2016: As fortunate as we are to have Disney and ABC and ESPN and Pixar and Marvel and Star Wars or Lucasfilm, fantastic. But in today’s world, it’s almost not enough to have all that stuff. Unless you have access to your consumer who because of technology is providing you with incredible data to provide the consumer with a more customized personalized experience.
(in video clip) Iger in 2017: We felt that we were no longer seeing a speed bump of disruption, which is basically something that occurs, changes things a bit, we react to it and basically figured out how to contend with it and move on. What we were seeing instead was real, profound and permanent change.
(in video clip) Iger in 2019
I don’t think in today’s world, the consumer really wants to buy 150, 200 channels of programming for a fairly significant price when they’re not interested in many of those channels. In some cases, they can’t even find them.
Rich Greenfield: So you think about just how fast that — I mean, four years. That is a dramatic turn from “Netflix is a friend” to “the bundle basically doesn’t work for the consumer anymore” and we have to take, you know, sort of evasive action. Go back to Disney in 2014. They gave a presentation up in Bristol, Connecticut. This was a Disney-led presentation on the state of the multichannel button. Go and look at the part that we’ve highlighted here. I mean, it’s right there on the chart: “cord cutting is fractional.” I mean, there were over 100 million subscribers to the multichannel bundle, this was a great business, everyone was paying essentially — the entire country 100 of 100 plus 115 plus million homes — were paying for multichannel television, whether they watched all those channels, or even could find them to use Iger’s own words, but everybody was paying in. And this was a great business with very high margins and high profitability and offered a great platform for advertisers.
Let’s fast forward to where we are today. And, you know, many of these trends, I mean, this was already bad pre COVID, we were losing 2 million subscribers in Q1 who cut the cord, we think it’ll be over 2.5 million in Q2. And it’s very possible that by the end of this year, you actually end this, you know, reasonably close to where subscribers to the multichannel bundle were back in 1997. I mean, just try to wrap your arms around the fact that, you know, you’re only gonna be able to reach 70+ million people out of 120 million or 125 million households in this country through advertising on linear TV.
I think it just shows you just how fast this is now accelerating and why is it accelerating is sort of obvious in a sense that there’s just too many options with great price value relationship., I mean, think about all the names that are on this slide, look at all of these services. One of the things that stands out most is how many of these services launched only in the course of the last year: Disney+, Apple TV, and Peacock just launched today. But you know, HBOMax just launched, ViacomCBS All Access is relaunching early next year. So, you know, you’ve got all these VOD services that are just being kind of acquired and being reinvested in — Fox buying Tubi, Viacom buying Pluto, I mean, the reality is, there’s this surge of content that doesn’t require the bundle. Many of these services don’t even have advertising where they allow you to opt out of advertising if you pay a little bit more, but the content is just getting started.
In terms of what you see today versus what you see in a few years, think back to Netflix in 2013, when they launched “House of Cards,” versus where they are now. Think about where each of these services is going to be. And the bundle is getting crushed, even before the services ramp up. One of the things I hear from media executives all the time is, oh, but if you aggregate all of these services that you saw on the last slide, you’re spending more than you were actually spending in the bundle. That whole argument is BS, because the reality is the content that the consumer wants to see actually isn’t in the bundle. “Star Wars Mandalorian” you won’t find on cable television, “The Crown” you won’t find on DirecTV, “Little Fires Everywhere,” nowhere on Comcast.
The problem is, with each of these services, you don’t any longer need the bundle. In many cases, you can’t even have the bundle to actually gain access to this content. And by far the most ambitious content that’s being created right now, across the board, all of it is going to these streaming services. Because each of these companies go back to that starting point. Each of them wants to build a direct relationship with the consumer, they want to cut out the middle person, they want to actually understand who you are, what you’re interested in, and be able to market directly to you. And that is that dramatic change in the legacy media business.
When you think about where does the bundle settle out, we get that question a lot. This is a slide from that same Disney ESPN presentation in 2014, where they themselves said that only 30% of fans were avid fans. And so if you believe the avid fans are going to be the ones who subscribe to the bundle. And let’s say some of the casual fans do too. You’re looking at a bundle that’s going to settle in somewhere between 40 and 50 million subscribers over the next several years. So you’re going to reach essentially one third of TV households and roughly half of where you did back in 2012.
By advertising or marketing on television, a huge problem for every brand in the world is that TV is not going to provide the platform to reach consumers. And on top of it, time spent with these devices is collapsing. Because now TV is just something you do part of the time. There’s so many other options that over the last 10 years, time spent per person has gone from five hours to three hours. And if we had the time, I could break it down and show you the demographics. But obviously as you get younger, the demographics fall off of a chart. There was actually the Samsung slide that was given at the NewFronts that I captured because I thought it was fascinating. And it sort of speaks to this, that 26% of the population are heavy linear TV viewers. And they’re watching 86% of linear TV. It’s essentially the older demographics because the younger demographics have shifted far more aggressively into the streaming category than the older demographics.
And so the problem is, even if you’re advertising on TV, and let’s just say you’re actually staring at the screen during ad breaks versus staring down at one of your devices, you’re reaching a small group of people over and over again, and you’re not reaching a large group of the population with your component. Because they’re no longer there, they’re no longer engaged on those platforms.
I think every conversation now in media has to focus on the gaming sector. You know, when you think about what’s happened over just the last few years, I mean, we’ll use Fortnite. There’s obviously, you have many other examples right now that are exploding in gaming. But I use Fortnite because this chart to me was fascinating — when people start to play Fortnite, it eats into other activities, whether it’s going to the movies, whether it’s listening to music, Fortnite is a time suck, and you get lost in these worlds. And I mean, I have three young daughters, and I see what happens as they start to embrace these platforms, and how much of their daily lives shifts from whether it be TV or music and shifts into gaming. And so the reality is, it’s not just these, you know, everyone likes to talk about the streaming wars and how, you know, Disney+ is hurting Netflix, but it’s Fortnite, and it’s all of these new uses of time. It’s this war for attention that everyone is fighting for, and it goes a lot broader than just video. And so it really causes marketers to have to rethink what that marketing approach is.
In terms of COVID, the big winner is actually not video. I mean, videos have gone up. You see on the slide, video streaming is up 37%, you saw that linear TV was even up although it’s still down year over year and was actually up relative to where it started the year. But the big winner, the huge winner has been gaming. And I think that all goes back to rethinking the marketing approach. And so whether it’s what P&G did with with Charmin to do you know, pause ads on Hulu, whether it’s you know, brands that are creating content, essentially branded content, obviously, what Ron Howard talked about in terms of what P&G is doing with them, but branded content, you know, you see what Shell did where they actually took a YouTube show and actually ended up making it into a series on Amazon Prime outside of the US. Obviously, influencers on YouTube, or even product placement. I mean, there was so much product placement in “Stranger Things,” it was almost absurd, over the last couple of seasons, but there really needs to be this focus of Okay, there are big screen ways, like we just showed to reach consumers, but how do you reach them where they’re spending the most time which is on their mobile devices?
You know, you had TikTok on before. You look at Fortnite, you look at how brands are inserting themselves into these experiences organically where it’s fun to use them. Coca-Cola on Snapchat is on the right, you see the ability to use hashtag challenges on TikTok. It seems like actually one of the most innovative things is creating experiences on TikTok where brands just like what Snapchat does with lenses, where you’re interacting with the brand in a very unique way, and it’s very organic, and it’s less interruptive than marketing has traditionally been on TV where it stops the experience you’re in.
I think about gaming and go, what are the opportunities beyond just, you know, product placement? Look at what P&G has done with Bounty, where Bounty is actually a reward inside of Call of Duty mobile. And I wonder to myself, like, why don’t we see more of this? The gaming companies know that in-game reward video works extremely well. That’s where consumers are spending more and more of their time. Make content or make ads that feel like content that add value to the gaming experience, versus the interruptive experience that we’ve seen in TV over the last few years or the last several decades. And I think that’s sort of what has to change.
When I think about this whole marketing equation, it’s all about making great content that doesn’t feel like ads that doesn’t waste somebody’s time that you actually want to share or talk about with consumers. There’s just this sort of equation of how the brands have to change to adapt to this universe. My last comment is just when you think about how fast this is moving, just realize what happened to Disney over the last four years. And every single other media company is having the same conclusion that the legacy model is no longer sustainable. And the faster they move to streaming, the faster it causes the consumer to shift away. That’s why everyone needs to not be relying on TV and to think differently about their approach to advertising and marketing. And, John, that is as fast as I can give this presentation and leave a couple minutes for questions.
John Battelle: And Rich, I wish we had it but we’re running late. That was so dense and information-packed that I know you’ll be either on Twitter, or on the chat on HopIn and I hope you can answer some questions directly from the audience there. But thank you so much for being part of this and as always brilliant and I look forward to talking with you more about it offline.
