Tag Archives: the White Stone

December 12, 2018 · 12:34

A screen made with real silver

Forbes gave us the news on Monday. Many expected it; many saw it coming and no one is really surprised. It’s ‘Netflix’s Worst Nightmare Is Coming True‘. Stephen McBride gives us: “If you’ve been reading RiskHedge, you know I’ve been warning to keep money out of stock market darling Netflix (NFLX)“, he was of course correct, yet I would not go there for different reasons, reasons he actually mentions in part. As we are treated to: “It comes down to the lifecycle of disruptive businesses. Netflix pioneered “streaming” video where you watch shows through the Internet rather than on cable TV. For years, it was the only streaming service in town. Early investors rode this first-mover advantage to 10,000% gains from 2008 to July of this year.” Many, for the most the investors rejoiced. I saw the loaded cannon in another direction. As Forbes gives us, we are treated to: “Netflix had planned to spend $8 billion on shows and series this year… now it’ll spend roughly $12 billion. It now invests more in content than any other American TV network” that is where the danger is. You see, the cold hearted calculation is: 137 million users worldwide. This gets us on average $24 billion a year, it looks good, but it is not great. You see, this only works if this goes on in the long run, whilst it requires growth, it also requires people to stay with Netflix for a long time. Now, both are an option, but they have muddied the waters in another way. First there are the loans and the interest is due, as well as the principle of the matter (aka, the loan). It is optionally not a big thing if things were great moving forward, yet they are not. I had an idea earlier this year and I thought that handing it to Netflix is a great way to gain momentum. You see, I have written 1100 articles within the last 6 years alone and as such I do have a few ideas running around in my head.

Yet Netflix has a no-unsolicited submissions policy, so until you have an agent and such, there is no option. They only accept submissions through a licensed literary agent or from a producer, attorney, manager or entertainment executive with the players that Netflix has a pre-existing relationship. This makes total sense, yet it also gives rise to a much more expensive track, and $12 billion shows part of that. From my point of view new ideas and optionally the most profitable ones are found in what some would call ‘the geek corner’, these people can often not relate, cannot present but they tell great stories, they are most often really cheap and original. It is a much harder sell, yet the entire expense track could be down by at least 10%, saving Netflix $1.2 billion on the spot. Then there is the international concept. Some TV series became great in their own way. Sweden had Pipi Longstocking and that become a much loved character on a very global stage. Another Swedish treasure was a 70’s series called the White Stone, based on the book by Gunnel Linde, Sweden had its own share of successes down the track and we realise that some might seem less interesting nowadays. The Netherlands had the legendary series ‘Kunt U mij de weg naar Hamelen vertellen meneer?‘ It was a song story by children based on the Grimm story of the ratcatcher of Hameln. The series apart from some a few episodes is lost forever, which is a shame as this was a cultural highlight for the Dutch. The French had Thierry la Fronde, La demoiselle d’Avignon and several more, all unseen by a global audience. It is an option, but is that the case?

No it is not.

Netflix has shown that their money is well spent; series like Sabrina, The Haunting of Hill House and Altered Carbon are amazing achievements. We can clearly see that billions were well spend, yet in this donuts for dollars world, the overall stage (non-advertising space mind you), the annual setting for their audience is set to a requirement of close to 365 to 700 hours of TV entertainment a year to keep them, which that adds up to Sabrina, Star Trek Discovery, Haunting of Hill house, the Good Witch, Marvel’s The Punisher, Lost In Space, The OA, Seven Seconds, The Rain, Requiem, 3%, The Innocents, Sense 8, Grace and Frankie, Godless, The Mechanism, Dark, The Crown, Marvel’s Daredevil, A Series of Unfortunate Events, Stranger Things, Lady Dynamite, Glow, Sabrina, Altered Carbon, Mindhunter and at least 20 movies. They need to pull this off each year, and that pressure with Disney+ also increases, as the chance of switching to someone else is more and more likely.

We get that there are series that will always take the cake (Game of Thrones), and in this we see that there is some space to manoeuvre, but it is not a lot. You see, if someone loses the interest for 3 days, they will wonder what Netflix is for and optionally cancel, especially in this economy. That is the clear math I saw at the very beginning. It is not the price; $15 (the medium option) is more often than not a really acceptable price to most people. Netflix got that right, they merely need to find another additional venue for materials, because the well of creation will soon dry up, not merely because there are other players on the field, it is that Free to air TV, and other medium are vying for that same pool of viewers. Netflix as the first one has an advantage, but for how long?

Stephen McBride, a professional fund manager and the chief analyst at RiskHedge makes his financial case and that adds up to the findings I have. I am not sure on what the share price needs to be, yet his financial case and my mere view of the low average viewer gives light to a Netflix in trouble, how much is a clear unknown. Netflix has shown that with Sabrina and The Haunting of Hill House a new level of creepiness can be reached. Sabrina is a new take on what was fluffy, whilst The Haunting of Hill House had most of my friends scared beyond belief, so that series hit the mark. I saw the interesting catch on Lost in Space that after the original series and a movie can capture hearts all over the place, so Netflix is bringing the good stuff, no doubt about it. However, the entire setting is still low on hours. Even if year one for the audience is great, they will want more, or at least no less in the stage of year two and that is where I see trouble for Netflix. This business model will not work pumping billion after billion in a stage that grows ever more, and the path gets worse as more and more is borrowed.

That is the business case that is lost from the very start. This is all before we all realise that the need for Internet and 4K grows, so their infrastructure will shift within the next two years as well and their cloud will need a serious amount of cash to deal with that. I speculatively reckon that by 2021 (if Netflix makes it that long) will equal the NSA data server site at Camp Williams (Utah), so please take a moment to reflect on this. Netflix will in three years require the systems to facilitate to an audience and its hardware will be bigger than the Comprehensive National Cybersecurity Initiative (CNCI), with the ability to serve optionally a little over half a billion people. That is the path that Netflix is on and people wonder why I am overly negative. Well, overly negative is a stretch. It is the old fashioned sales pitch. A man sells his soul to the devil, the devil agrees and the deal is that he needs to grow his customer base by 20%. Those who know of the value of a chess set might know that one too. That man required as payment one grain the first tile, and double one the next one and so on, until all 64 tiles were paid for. 1,2,4,8,16,32,64,128 (totaling 255 grains) and that is merely the first row, after that it goes fast and by the last row it the tile payment equalled the total grain production of Russia. In customer base you require a customer base that surpasses the total population, or in this specific case the hardware of a former super power. Also consider that over time Netflix needs to open a similar base in Europe and Asia to maximise the streaming within the time zones. How much will that cost? Oh and before you think that this is it, how much power will it take to keep that running? It is set to be $50 million a year in energy cost and 1 million gallons of water a day (per base). That is if there are no power surges and other calamities giving hardship to all this. Now we see more and more providers handing out one year of free Netflix, they will have a deal with Netflix, yet year one is not the problem, year two is the bigger issue, content makes that a challenge and as is stated in Forbes: “Netflix has three bad choices: continue borrowing billions and bury itself deeper in debt… dramatically raise its subscription prices… or cut back on making new content“, if we see the three, we wonder what impact monthly increases does, I reckon that they could go for the option of one price (HD, 4K) at the same price of $16. Basically get rid of Normal and merely have basic and premium (for $5 more), it will give a boost and most people might not worry about the $5, knowing that they could always upgrade their hardware and get better viewing. Borrowing billions is a non-starter as I see it, it merely lowers the lifespan, yet the final option ‘cut back on making new content‘, is not set in stone. What if we go by ‘making different new content‘, are they exploring that? This is where the golden oldies might bring life to the amount of materials they get at a much lesser expense. Disney is all about the family and the younger viewers. Disney rules that land, yet in the 70’s we saw that Scandinavia had its share of series appreciated by kids all over Europe and that might lower the edge that Disney has (to a small extent).

In addition, making different new content might also increase the amount of content that can be made with $12 billion. I hope Netflix pulls through, when we are confronted with The Haunting of Hill House we see that they have amazing diamonds to offer any crown viewer and I am curious what else they can come up with, especially after Sabrina.

When we consider this, how many have taken a look for the best TV series from the 70’s? I did and I reckon that this is not where we find the answers, there will be too many people remembering those, yet the international field where a local TV series makes it into the global population will be for the most real new stuff to many, there will be a risk, you see, for every remake like Three man and a baby there is the risk of having at least two mediocre versions like ‘the Birdcage’, and with an audience of 135 million moving towards 200 million diversity will be key. I am not sure how it is to be solved and the makers will have their challenge cut out for them, but the takings for them will be huge if they pull it off. In the end, the search for originality goes on and as we go for books, movies and optional video games (Alicia Vikander or Michael Fassbender anyone?) we see options. Yet how does it go when we go dark, really dark and we take a night at the museum into a very different direction? What if we push the nightwatchman into the Night watch and he has to survive the events of The Shooting Company of Frans Banning Cocq and Willem van Ruytenburch in 1640, where he has to survive the night, not get shot for optional accusation of theft of the 100 florins that each of the 16 members had brought as payment to Rembrandt van Rijn and get back out without leaving a mark. We might think it is fun to walk in on Hortense Mancini by Jacob Fredinand Voet, yet what happens when you end up in The Wayfarer by Hieronymus Bosch (1503) and you have to get back then?

We can add twists on nearly any TV series, but will it work? It is not for us to solve, it is for Netflix to find a solution and that is where the problem starts, I might phrase it wrong, the problem did not start there. We were informed last year that Netflix cancelled 21 series, it does not really matter why, number of viewers tends to be the most likely reason, it merely adds the pressure for new content to be created, remember that they need between 365 and 700 hours per viewer for them to remain decently content. And in that picture, creating new content is a lot harder than merely creating a new season, the ante is up for the creators and so is the pressure for Netflix.

At least that is how I see it, and in this, the cinema has a silver screen, Netflix will need gold to score and they have to do it 20 times over each year making the effort unfathomable and each year that they do pull it off will add to the legend that started as Netflix.

Circling the wagons

I had not expected a follow through on yesterday’s thoughts, but here we are. It seems that there is a business dispute between UKTV and Virgin Media. The Guardian (at https://www.theguardian.com/media/2018/jul/22/four-million-virgin-media-customers-lose-uktv-channels-dave) gives us: “after Virgin sought what UKTV called a multimillion pound cut in fees, leaves fans of shows including Judge Romesh, Harrow and Red Dwarf unable to watch some of their favourite programmes“. Let’s be clear, this is a business decision, so when Virgin wants a 7 figure fee cut, there must be something behind it, should there not? In addition, we need to offer in opposition, that reporting on (as quoted) “According to UKTV, “around 4 million households” were no longer able to access the channels after the midnight deadline passed” should also have an impact on advertising, as you are broadcasting to 4 million less viewers, so there is that in the mix too. Is it merely pricing?

The quotes: “Virgin Media has accused the broadcaster of seeking “inflated sums” to provide its paid channels and linking those to provision of free channels such as Dave and Home“, as well as “Steve North, the head of comedy and entertainment for UKTV, said the company provided thousands of hours of on-demand content to Virgin, with viewings of its programmes, such as Taskmaster, via the service up by a third over the year“, finally we need to add the part mentioned much earlier in the story. With: “The BBC holds back the video-on-demand rights to its programming, instead selling them to players such as Netflix. Virgin Media said this strategy was no longer acceptable as viewers expect to be able to watch shows on demand” we see a linked part in all this, and perhaps also the part where Virgin Media dropped the ball. You see when we see ‘viewers expect to be able to watch shows on demand‘, which I thought was a silly thing to mention, because of the mere fact that Virgin Media was unable to manage the expectations of their customers is a much larger fail. It is a first duty in support and customer care to manage expectations, some use SLA’s, some use other methods (like pricing), but managing expectations was never on the plate of UKTV. We can argue in addition that as viewing was up by 34%, fees would go up, but in addition, so would advertisement revenue. When you report that programmes are watched be an additional 34%, you have an advertising selling point. The question becomes was this merely about fees?

The BBC mentions the Netflix challenge, as well as a picture of a relaxed Greg Davies sitting in a chair (who is apparently no longer trying to destroy the city of Tokyo). Yet the article gives us two points, the first is: “On Twitter, Darren Woodward said he was “gutted” not to be able to see Taskmaster, while Tom Langdon was one of a number of subscribers to wonder whether his monthly bill would be reduced because they could no longer watch the show“, and the second is: “Richard Blunt from Birmingham told the BBC: “Practically all the stations we watch on Virgin have now been withdrawn. I think we will give it a couple of weeks, hoping that the decision is reversed, before deciding whether to stay or to go.”” The entire setting could now escalate in very different manners, not all good for Virgin, actually none of them good for virgin. Even as the Guardian article ends with: “The 10 channels are still available on other TV platforms including Sky, BT, Talk Talk, as well as Freeview and Freesat. Viewers can also watch them online via UKTV Play“, we need to see that this is merely a first step. I personally believe that UKTV has figured out a few things and in this, it has options that go further than merely a fee. The fact that 4 million users are in a setting where there is 34% growth, that is a section that Netflix (and others need), so this is not merely about money, I believe that there is a shift happening. I knew that this would happen, that part is clearly seen in the Netflix pressures. That we would see it shown the very next day was not on my calendar.

So when I decided to dig a little deeper, I found an article (at http://www.gizmodo.co.uk/2018/07/uk-tv-networks-are-looking-at-creating-a-british-netflix-to-combat-falling-viewing-figures/), which gave us 5 days ago: ‘UK TV Networks Are Looking at Creating a ‘British Netflix’ to Combat Falling Viewing Figures‘, so was that a self-fulfilling prophecy or not? So as the article ends with “BBC News reports that the BBC, ITV and Channel 4 have already had early conversations about the possibility of working together to create a combined streaming service with the potential to compete with the likes of Netflix and Amazon Prime TV. Whether such a thing will come to fruition currently remains a mystery, but considering the shifting trend to online media, it seems a likely step that broadcasters will eventually have to take to remain relevant“, we see exactly the play that seems to be unfolding now, and from the pressures shown, there is every chance that through pressures applied, this new venture starts with a rather delicious slice of 4 million viewers leaving Virgin. Even as some stated that they will see in a couple of weeks, the sooner this shift happens, the more power Virgin loses, implying that Netflix will not merely grow business, it has the option to grow an advertisement branch much larger overnight as well giving them more options.

Even as we agree that some changes are about to happen, we need to realise that the UK will have a new venture in ‘package deals‘. The quicker that Sky TV and other shops include the UKFlix side of things, the quicker momentum can be gained. It is in this setting that it can grow in the UK as well as gain momentum in Western Europe, where UKTV has always found happy recipients of the series that UKTV fathered and promoted.

It does set a new tone on where places like Virgin Media are going. The UK always had a little saturated niche in all this, the fact that the Netflix equation unsettled the walls in place making it a dog-eat-dog battle field, is both good and bad, the good is that overall the pricing will become interesting to households, the bad is that those with the larger budgets can overturn whatever independence remains. It will be a fight where those with the biggest wallets will be able to out buy whatever is in play and that is not always the positive outcome for households on a budget. The issues that follow soon after that is as one is diminished, how far can it go abroad? The direct setting for the Netherlands, Belgium, France and Scandinavia is also added to the board, because a shift like that tends to move outside of the borders. for example in Sweden where 50% is set by SVT1, SVT2 and TV4 gives options for growth, especially when you consider that Disney and Fox each have less than 1%. The same we see in Norway where 50% is with NRK1 and TV2. They are all markets with options for growth; from an advertising view Norway is more of a nightmare. The two large cities merely represent 14%, whilst the villages 11^th in size and smaller are less than 50,000. This is different in Sweden where the four largest cities are 25% of the population and a chunk of the smaller places are still a lot larger than most places in Norway, Sweden has twice the population, but they also have that population in larger communities. These are all elements that have an impact on growth, so that is one side and merely one side. You see Netflix and their methods are rubbing off on the other players and that is where Scandinavia becomes a much more interesting market. The land that gave us Maj Sjöwall and Per Wahlöö and their fiction in the 60’s and 70’s; the land that had Pippi Longstocking and the White Stone for the kids, whilst giving the adults Beck and Swedish Dicks is a treasure trove of IP and that is very much on the mind of the decision makers behind the screens. You see, getting the right IP is half the distance towards profitable series, and there is plenty to find in places like Scandinavia and Australia. They have built quite the score list. That setting needs to be on the forefront of all the board member minds. Getting decent writers for new series is one thing, resettling an existing gem comes at 40% less cost, whilst upgrading a series to today can score places like Netflix millions of viewers with minimum expenditure, when we consider the 8 billion that they are setting in now, delaying one series and replacing that with 10 retrenches that are unknown in the bulk of their places is a way to quickly fill needs, to up the amount of IP and the value it represents as well as open up new doors to other ventures. You merely have to see the impact of the TV series Humans, which got the makers the British Academy Television Craft Award for Best Digital Creativity, as well as a 94% rating is what matters to those in the boardrooms and even as they missed out on Humans, there is plenty to find in some of these places. The relaunch in Sweden of Beck is one part, getting that to the Netflix audience is potentially an additional market to tap in to. In the end, merely buying IP is an option and I personally see is again as short sighted, it is the interaction and engagement of these markets where new innovative IP becomes an option. You merely have to look at the past on the history of the 70’s series Kung Fu to see that the creation of IP that shines for decades is seen. And they are not alone, especially when it comes to TV series for the younger viewers. Sweden had several series like the ones mentioned earlier, the Dutch had the still immortal ‘Kunt U mij de weg naar Hamelen vertellen meneer?’ loosely based upon the ‘Pied Piper of Hamelin’, even as the materials were lost over time, that TV Series is still remembered 48 years later, that’s IP that sets a provider apart from all the other players! As such growing interactive markets, not merely acquiring IP, whilst at the same time investigating what IP is close to readily available is what pushes the Netflix investment invoice of $8 billion a year down, whilst creating content that will be around for a long time. As I mentioned in yesterday’s blog ‘Chivalry vs Rivalry‘ (at https://lawlordtobe.com/2018/07/22/chivalry-vs-rivalry/), we need to consider “The value of those rights has now spiralled, which has pushed up Netflix’s content budgets and fuelled its drive to produce its own content“, that is still going on, so the one moving fast into areas and setting the stage to acquire the IP, that is where it will be at in 3-4 years, so whomever moves now ends up having the home field advantage, giving additional rise to production settings that are currently a steal at twice the price, yet as the impact of digital content and growth becomes more and more visible, the other players will circle their wagons faster and more determined to get either much better prices, or become players in this field themselves. the moment that all this IP hits 5G and goes global, at that point the entire game changes for all the players involved, so getting there sooner is what it will be about and from what I personally expect that visible push will be all over the news with some frequency no later than 2019.

Tag Archives: the White Stone

A screen made with real silver

Circling the wagons

Recent Posts

Archives