In Q2 2023, PARQOR will be focusing on three trends. This essay covers "'Media companies have millions of consumer credit cards on file. What are they building for their customers?”
To remind you, PARQOR identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the media marketplace. Must-read stories or market developments are not always obvious from press reports or research analysis, and often require a deeper dive. PARQOR’s analysis questions established ideas and common wisdom, reassesses the moving pieces, and reveals the potential in the media marketplace in 2023.
The news of a shareholder lawsuit against Disney was and was not surprising to me.
It was not surprising in the sense that press reports about the surprise firing of CEO Bob Chapek and the surprise return of CEO Robert Iger last year have raised reasonable questions about whether the board and management were acting in the best interests of shareholders when Chapek was CEO.
It was in the sense that the lawsuit does not allege these breaches of fiduciary duty, but rather that Chapek, former Chairman of Disney Media and Entertainment Distribution, and current Chief Financial Officer Christine McCarthy violated securities law with misleading statements about Disney+ and the health of the streaming business.
I doubt this case will go to trial — if Disney is guilty of fraud in its accounting of streaming subscribers, then there is a biblical-style legal reckoning coming for media companies with streaming businesses (and that’s not happening). But if it did, I think the defense teams of Chapek, Daniel and McCarthy would argue that the lawsuit misunderstands Chapek's ambitions for “Disney Prime”. That initiative would have leveraged Disney’s ecosystem and Disney+ membership to boost average revenue per user (ARPU) beyond streaming. But, neither investors nor Disney’s board nor Disney’s management seemed to understand what that meant in practice. Disney’s stock price then fell beneath $87, or 5% lower than where it is now, and shortly after he was ousted.
Putting that aside as a failure of Chapek’s, his initiative mirrored what AMC Networks Executive Chairman James Dolan told investors in Q1 2023: the direct-to-consumer business model requires a “culture change” in these businesses towards “understanding the customer and serving them well”.
Chapek may indeed be right in the long run, despite McCarthy’s rumored dismissal of his model as “cute” and Iger’s dismissal of the model as “marketing”. But in the short run, he encountered a difficult problem: how does a media business go about redefining ARPU in the streaming era? And once they have redefined it, how will they sell it to investors?
The growth of streaming and gaming invites a more complicated definition of average revenue per user (ARPU) than past subscription models. There are lessons in how The New York Times is redefining it, and in how Disney and Warner Bros. Discovery are backing away from past efforts to do so.
Total words: 2,600
Total time reading: 10 minutes
ARPU has long been understood by Wall Street through the lens of the wholesale linear model, where distributors paid licensing fees to broadcast networks. That ARPU is being redefined by the streaming era by the direct-to-consumer model, AMC Networks Chairman James ...