That's Entertainment: Looking for the Next Stage

Strategic Shifts: Scale, Vertical Integration, and Distribution

• Netflix is scaling its content output from 12 movies a year to approximately 50 movies and 78 series annually.

  • The strategy relies on releasing original content simultaneously in multiple languages across 190 countries to create global events.
  • Netflix prioritizes "content to die for" over owning distribution platforms, maintaining that being vital to third-party platforms (like Apple or Amazon) is sufficient for competition.
  • The company is not pursuing mergers with major distributors (e.g., Comcast, Apple) or acquiring theatrical chains (e.g., Regal) to solve distribution windows.
  • Netflix is experimenting with local-language content (e.g., Brazilian Portuguese The 3%, Israeli Fauda) that achieves global success through subtitling and dubbing rather than Americanization.
  • Netflix's current release model often involves "day-and-date" theatrical launches in select New York/Los Angeles theaters primarily for awards qualification, followed immediately by global streaming availability.

• Fox (Peter Rice) is pursuing aggressive scale through acquisitions and vertical integration to compete with growing counterparties like AT&T and Comcast.

  • Fox is acquiring the remainder of Sky, moving from a 39% stake to full ownership to consolidate a "wholesale and retailer" model and expand direct consumer expertise in Europe.
  • Fox is actively seeking to control distribution by purchasing Tribune channels and acquiring a stake in Hulu to gain direct consumer data and addressable advertising opportunities.
  • The company aims to generate 40% of its revenue from European operations following the Sky acquisition, shifting its center of gravity while maintaining a focus on local productions (e.g., Italian series).
  • Fox views the "wholesaler" model (selling content to others) as transitioning toward a direct-to-consumer approach to capture detailed viewer data.

• CBS (Les Moonves) is refining its strategy by shedding non-core assets (outdoor, radio) to focus on content production and direct-to-consumer platforms.

  • CBS launched its own standalone OTT service, CBS All Access, at $5.99/month to avoid sharing its "family jewels" (e.g., Star Trek, The Good Wife spinoff) with competitors on Hulu.
  • CBS reports that its All Access service is growing phenomenally, though it explicitly declined to provide specific subscriber numbers, noting it is a "one-network" entity rather than a full platform like Netflix.
  • The company expects international revenue (currently ~12% of total) to grow significantly, with American content remaining the dominant global seller.
  • CBS maintains a "big tent" programming strategy, claiming its content appeals to all Americans regardless of the political climate, though political contention drives advertising revenue.

• Reese Witherspoon (Hello Sunshine) and Jeremy Zimmer (CAA) represent the creator and talent agency perspectives on market fragmentation.

  • Witherspoon is launching Hello Sunshine, a direct-to-consumer platform targeting underrepresented female demographics, partnering with AT&T to expand beyond traditional licensing.
  • She notes a "white space" in the market for premium content specifically curated for women, utilizing social media analytics to identify audience gaps.
  • Jeremy Zimmer observes that while digital services (Netflix) have overtaken HBO as the "penultimate" destination for talent, the market is cycling, with creators weighing the "binge" experience against traditional weekly "water cooler" conversations.
  • Talent agencies are increasingly navigating global financing deals (e.g., The Young Pope) to help clients market and monetize content in emerging markets like China and Africa.

Content Economics and Global Trends

• Global Content Consumption is shifting away from a purely U.S.-centric model.

  • Netflix reports that roughly 50% of its viewing now occurs outside the United States.
  • Non-English language shows are finding massive global audiences; Fauda (Israel) and The 3% (Brazil) achieved viewing numbers in the U.S. that would typically classify them as major cable hits.
  • Fox and CBS emphasize that American English-language content remains the most commercially viable product globally, though local production is becoming a critical revenue driver in regions like Europe and Latin America.
  • China remains a complex frontier; Netflix operates via a licensing deal with a local partner (Aichi), while Fox and CBS rely on content sales rather than owned distribution due to regulatory restrictions.

• Theatrical vs. Streaming Windows are undergoing a fundamental restructuring.

  • Netflix advocates for "day-and-date" releases to maximize subscriber access, arguing that the traditional 90-day theatrical window is outdated and limits revenue potential for films like Get Out.
  • However, a generational divide persists among filmmakers; those raised on the theatrical experience often resist direct-to-streaming premieres, while newer creators embrace the immediacy and global reach of digital distribution.
  • Peter Rice notes that the "Super Bowl" of television (e.g., Big Bang Theory, NFL) still offers a unique, high-impact viewing experience that streaming cannot fully replicate, validating the continued coexistence of broadcast and digital.

Advertising, Labor, and Regulatory Dynamics

• Digital vs. Traditional Advertising is defined by data transparency and brand safety.

  • Network executives (Fox, CBS) argue that traditional TV offers superior "adjacency" safety and measurement compared to digital platforms, citing the 16 billion minutes of ad impressions during the Super Bowl versus years of digital impressions required to match that volume.
  • The controversy over digital brand safety (e.g., ads appearing next to extremist content on Google/Facebook) is driving some advertiser spend back toward the curated environments of linear television.
  • Fox anticipates addressable advertising via its direct-to-consumer products (Hulu) to generate hundreds of millions in new revenue by allowing precise targeting based on viewing data.

• Labor Disputes and Industry Conflict highlight the friction between legacy and new media.

  • Fox/News Corp and Netflix are engaged in a legal battle over personal services contracts, with Fox alleging Netflix induced talent to breach existing agreements.
  • Netflix defends its "non-contract" culture, asserting it competes for talent by offering top-of-market salaries and a superior work environment rather than binding legal contracts.
  • The WGA strike was resolved quickly with a united industry front, and executives anticipate the SAG-AFTRA negotiations will follow a similar pattern, driven by the shared interest in maintaining a stable production schedule.

• Regulatory Environment remains a key variable for market expansion.

  • The pending AT&T/Time Warner merger and Fox/Sky acquisition are central to the industry's consolidation strategy, with executives arguing that scale is necessary to compete against tech giants.
  • CBS CEO Les Moonves explicitly stated that while they look at deals, they do not feel "substandard" due to size, emphasizing the agility of their content-first approach compared to larger, slower conglomerates.