Thesis

The “pull-forward impact” of the pandemic is a dynamic is playing out at different services across the streaming marketplace. Signs of a “content drought” - a shortage of content due to productions impacted by the pandemic - are also playing out at different services. These two dynamics played out in Netflix’s deals with Sony and for the sequels to Knives Out, and are playing out in interesting ways at Peacock and Paramount+.

Research

Last week was an unusual week in the streaming marketplace. If you have been paying attention to the “pull-forward impact” of the pandemic on the streaming marketplace, there were plenty of stories that reflected how that dynamic is playing out at different services.

And, if you have been keeping an eye on the signs of a “content drought” - a shortage of content due to productions impacted by the pandemic - there were plenty of stories that reflected how that dynamic is playing out at different services.

In Friday’s Mic Drop I wrote about how Netflix’s deal with Sony reflects the “pull-forward impact” of the pandemic on both Netflix (slowdown in subscribers growth and STARZ (“forcing it to have an unusually heightened focus on marketing its original series”).

But, it could also be argued both deals are a reflection of Netflix facing a post-pandemic “content drought”, as What’s On Netflix’s Kasey Moore tweeted last week:

Netflix Originals:

'21: 159

'20: 180

'19: 143

It'd be very fair to say the content drought is here ;)

Through this lens, big moves like its Sony deal and its Knives Out deal look like solutions for pain points created by a content drought.

So which one is it? Do the deals reflect the “pull-forward impact” of the pandemic, or the signs of a “content drought”?

Any attempt to answer this question makes these two dynamics so interesting. In the case of Netflix, it’s probably a bit of both: they simultaneously face a content drought and slowing subscriber numbers for a “pull forward impact”.

Looking at a service like Paramount+, whose namesake Paramount Studios has sold seven films to multiple streaming services not-named-Paramount+ since the start of the pandemic, answering that question becomes especially interesting. This development means Paramount+ has a library that is both smaller and with fewer blockbusters because its sister company could find better revenue deals elsewhere via an “arms dealer model”.

Paramount also announced last week that Top Gun: Maverick has been moved to the date previously occupied by the seventh Mission: Impossible film, now set for a May 2022 release. That means both movies will take a longer time to make it to Paramount+ because of the studio’s new windowing deal with exhibitors that allows titles to leave theaters after 30 or 45 days, depending on performance.

Paramount+ is left vulnerable by deals that would not have happened but for the “content drought” caused by the pandemic. It also must navigate the “pull forward” impact that as the pandemic wanes: hobbled and/or underperforming services like Peacock and Paramount+ “can no longer count on a rising tide to lift all boats.” This problem was best summed up by Bloomberg’s Tara LaChappelle:

Other less-essential apps, including late arrivers Paramount+ (owned by ViacomCBS Inc.) and Discovery+ (Discovery Inc.)… may struggle to grab or hold the attention of distracted consumers unless they step up their game (this week’s equity offering by ViacomCBS suggests it is getting ready to do so). 1

To rephrase LaChappelle’s point: as summer rapidly approaches, the real problem with the “pull forward impact” is that the window to convert stuck-at-home streaming audiences into subscribers will wane.2 Once those audiences leave the home and head to the beaches this summer, streaming behavior will inevitably decline to a finite number of services.

LaChappelle predicts AVOD tiers help to make up for the lost margins from the subscriber services, and both Peacock and Paramount+ offer those tiers. But all available data from the pandemic is library still matters: blockbuster movies like Wonder Woman 1984, and Hollywood star vehicles like Wandavision, Borat and Coming 2 America have dominated streaming ratings during the pandemic. Bigger, if not blockbuster, content in libraries are proving out to be the best bets to win over streaming audiences.3

The “content drought” dynamic leaves legacy media services like Paramount+ or Peacock with fewer assets to win these audiences over for their paid tiers. With ViacomCBS simultaneously pursuing an arms dealer model alongside its rollout of Paramount+, the service may always face a deficit of blockbusters. That leaves fewer enticing offers for target Paramount+ subscribers.

For Peacock, its sister company Universal gets paid licensing fees by HBO Max for the rights to show new Universal Pictures movies about nine months after they leave theaters. That deal is up in 2022, meaning Peacock could get those assets back. But, if that happens, it will happen after the pandemic window will have closed and at the expense of that licensing revenue. It is not a binary deal or no-deal choice.

The “pull forward impact” raises the question of how much more time management at both companies is willing to devote to these services to win over new audiences, especially given the closing window of opportunity. NBCU management seems to be ok with openly reconsidering their plans for Peacock, but ViacomCBS appears to be ok with aggressively pushing Paramount+ despite growing obstacles, both from the market and from “arms dealer” business decisions it is making.

Where these two dynamics get especially interesting is when we look at legacy media’s competition in the streaming space from platforms, like Roku. Because for Roku both dynamics are win-win, as this line in an engadget piece from two weeks ago reveals:

Rosenberg believes, ultimately, that Roku is positioning itself as the best alternative to the big streaming networks, rather than as their rival. “Consumers will have a finite appetite for the number of services they’re going to subscribe to,” he said, “but it’s certainly not going to sate the consumer’s TV appetite.” “So where’s the consumer going to get all of the rest of the content that they’re going to view?” he added. It’s in that space, filling in the gaps people won’t be getting from the rest of their streaming diet, that Roku hopes is gold. And certainly, it’s going to be an interesting year watching if consumers respond positively.

Roku dominates the U.S. CTV marketplace. Reading Rosenberg’s quote, one has to wonder whether the companies most likely to both survive and win from the “pull-forward impact” of the pandemic and the “content drought” are the platforms like Roku and Fire TV.

Because they seem to be the only platforms with immunity to these two market trends while still in the early days of investing in original content for their AVOD services (The Roku Channel, IMDb TV). Their only need is more ambitious legacy media apps willing to share some percentage of ad and subscriber revenue, and spend more marketing dollars, to simply brave the marketplace.