Entertainment: The Big Picture

Growth Outlooks and Market Strategy

• Jeff Schell (Universal) argues filmed entertainment is a growth business driven by two factors:
  • International markets now account for 70% of revenue, with theatrical growth exploding in China and Latin America despite flat domestic numbers.
  • Digital distribution allows consumers to access content across all devices (Netflix, iTunes, etc.), expanding reach beyond traditional theatrical and linear windows.
• Les Moonves (CBS) and Nancy Dubuque (A&E) agree content is a "bright" growth area, disputing Jeffrey Katzenberg's previous assertion that movies are not a growth business.
  • Moonves notes CBS Films is a small operation (2-3 movies/year) that does not move the needle but believes the overall content future is robust.
  • Dubuque states that while competition has intensified, it is healthy and drives better storytelling; she rejects the idea that content is easy or that storytelling is dead.
• Bobby Kotick (Activision Blizzard) predicts that developing economies and rapid mobile internet adoption will create unprecedented opportunities for monetization and distribution of interactive and narrative content.

Content Models, IP Ownership, and Production

• Nancy Dubuque highlights a "content bubble" concern where exuberant transactions occur for companies lacking IP ownership, distracting from creative innovation and leading to derivative shows (e.g., "17 versions of Pawn Stars").
• Dubuque emphasizes that owning content is now a necessity rather than an opportunity to participate in streaming, OTT, and international markets.
  • A&E Studios was launched to produce and own scripted content, moving beyond their traditional 95% ownership of nonfiction.
  • The network is pivoting to spend resources on original programming for smaller tier networks (LMN, FYI, H2) to diversify their portfolio.
• Les Moonves observes that "back-end" revenue (streaming, international sales, SVOD) is becoming more critical than "front-end" linear ratings, enabling new business models like summer programming (e.g., Under the Dome).
• Schell defends the theatrical window against day-and-date releases, citing 50 Shades of Grey as a film best experienced in theaters with high-end sound and picture, despite potential home viewing later.
  • Universal will not do a day-and-date release for 50 Shades of Grey, prioritizing the filmmaker's intended theatrical experience.
• Bobby Kotick explains Activision's preference for original IP over licensed content due to control over vision and higher operating margins (35%).
  • The studio is hesitant to expand into film/TV for existing IPs like Call of Duty because the interactive goal (unleashing player agency) differs from emotional narrative connection.
  • Kotick notes that current game dialogue and facial animation technology is not yet sufficient for successful film adaptation.
  • The upcoming title Destiny represents a $500 million investment in original IP, the largest the company has made.

Industry Events and Strategic Acquisitions

• CBS announced Stephen Colbert will replace David Letterman in late-night, a decision viewed as a generational move rather than a short-term ratings gamble.
  • Colbert is expected to hold the 12:30 AM slot for 20 years; the network is also seeking a replacement for the 12:35 AM slot, currently open.
  • Moonves addressed concerns about Colbert's political views, describing him as a moderate social commentator similar to Letterman.
• The A&E Networks family (History, Lifetime, A&E) successfully executed a simulcast event (Bonnie and Clyde) across three networks, achieving similar ratings and proving the viability of cross-platform programming.
• Disney acquired Maker Studios for $500 million, signaling the continued importance of content for distribution platforms like YouTube.
• Nancy Dubuque identified Roots as the next major "event television" project, requiring significant marketing investment and organizational focus.
• CBS is pursuing big miniseries events like The Dovekeeper with Mark Burnett, betting on the resurgence of the miniseries format.

Distribution, Cable Wars, and Regulatory Issues

• Les Moonves stated that the conflict with Time Warner Cable was resolved quickly regarding pricing but stalled over digital rights; a Comcast merger would likely have avoided the dispute due to Comcast's more modern digital rights approach.
  • CBS believes a larger Comcast/TWC combination would be "rational" and resolve digital rights issues amicably compared to Time Warner's antiquated stance.
• The panelists expressed unified support for CBS's legal position against Aereo, characterizing Aereo's service as content theft rather than technological innovation.
  • CBS stands ready to leave cable systems if the Supreme Court rules against them, citing no financial consequence and alternative OTT strategies.
  • Aereo's defense that halting them would stop technological progress is dismissed as "silly" given existing deals with Netflix, Amazon, and Hulu.
• Jeff Schell disagrees with the notion that distributors treat content as a commodity, arguing that content drives the value of the distribution pipes (X1/X2 platforms).
  • He believes expanding and differentiating platforms benefits all content producers, including studios launching new titles frequently.

Financials and Future Outlook

• Les Moonves reported CBS stock is near an all-time high, attributing success to a phenomenal management team and a clear growth profile.
  • Upfront negotiations are characterized as a "normal dance" between advertisers and networks, with CBS optimistic about rates despite advertiser concerns.
• Bobby Kotick noted that while linear TV ratings remain a metric, the 18-49 demographic is no longer the "be-all and end-all" as viewing habits shift.
  • 98.7% of viewing remains linear, and by day seven, most consumption is still linear, validating the continued value of premium video advertising.
• The panelists expressed optimism about Netflix potentially entering the feature film business, viewing it as an additional distribution partner that could help place lower-budget films.
  • House of Cards is noted as the most popular show in China, demonstrating the global implications of streaming partnerships.
• Schell observed that the industry is moving away from the "$200 million movie" gamble, thriving instead at both extremes: low-budget hits ($5M) and high-budget spectacles, requiring diverse portfolios.
• The panel concluded with personal insights on entertainment consumption:
  • Schell and Moonves watch sports; Moonves is a Lakers/Clippers fan; Schell watches Dodgers and Lakers.
  • Dubuque watches The Good Wife to re-energize as a writer.
  • Kotick plays Skylanders with his 11-year-old and creates characters for the game.