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The Medium

by Andrew A. Rosen
The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
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Paramount & Warner Bros. Discovery, Top Essays of 2023, 2023 Predictions Revisited

The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.

Each fiscal quarter, The Medium identifies three or four new trends that have momentum and seem poised to play out at a larger scale in 2023. These key trends pinpoint dynamic and constantly evolving developments in the media marketplace that are emerging from incremental shifts or fundamental changes. The bi-weekly mailings analyze these trends as developments emerge in real-time. 

Read the three key trends The Medium was focused on in Q4 2023. To read any and/or all of the essays below, you must have a monthly or annual subscription.

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Happy Holidays!

This is the 92nd and final mailing of The Medium for 2023.

Briefly, it is worth discussing the news of Warner Bros. Discovery exploring merger talks with Paramount. To what extent is Paramount’s annual NFL deal—$2 billion per year through 2033—motivating these discussions?

The NFL must be asking whether it misread Paramount as a partner because the company is now cash flow negative. Paramount is facing “very serious distress” because it “didn’t leverage prudently”, according to Liberty Media Chairman John Malone.  It has $1.8 billion of cash on its balance sheet as of Q3 2023 and $15 billion in net debt. Also, a single payment of $2 billion is 20% of its current market capitalization of $10.3 billion. 

Hypothetically, a merger with Warner Bros. Discovery could deliver that needed cash flow to the NFL. The company reported in Q3 that it is on track “​​to meaningfully exceed $5 billion” in free cash flow for 2023. Warner Bros. Discovery would obtain NFL rights when viewership is at an 8-year high and the most-watched sport. It reads like a win-win. But, the reality is that debt is an existential obstacle for both companies: Warner Bros. Discovery would be increasing its existing $45 billion in net debt by one-third. A straight-up merger is not an option.

Interim moves could reduce Paramount’s debt substantially: Media mogul Byron Allen has been reported to have bid $3.5 billion for BET and VH1, or nearly 25% of Paramount’s net debt. But, those opportunities ultimately depend on what Shari Redstone, the Chair of controlling shareholder National Amusements, wants to do with these businesses.

The NFL is famously risk-averse. It needs to feel secure that both its $2 billion fee and Sunday (and Thanksgiving) broadcasts will continue uninterrupted through 2033. It is easy to imagine the NFL as a key player behind the scenes, urging both Paramount and Warner Bros. Discovery executives to find a resolution before the 2024-25 season begins.

2023 Predictions Revisited

Last December, I wrote my predictions for last in my Medium Shift column for The Information (“2023 Will Be Another Difficult Year for Traditional Media”). I got four out of five predictions right:

  1. ✅ “Investors will remain disappointed in corporate leadership. Disney’s Bob Iger and Warner Bros. Discovery’s David Zaslav will bear the brunt.”—A truly brutal year for both executives. Their stock prices are up from their 2022 lows. But, Iger now faces an activist campaign from Nelson Peltz’s Trian Fund and Zaslav confronted doubts from analysts about his strategy on the Q3 earnings call. Both CEOs now must navigate revenue shortfalls and  long-term uncertainty in the TV advertising marketplace.
  2. ✅ “P&G will sound the death knell for TV upfronts”—Ad spending on linear TV inventory is falling and never coming back, while digital has gone up by X%
  3. ✅ “It’s going to be a great year for some YouTube creators”—There are growing questions about why there is no middle class in the creator economy, but those who are succeeding are doing incredibly well: Prime, a two-year-old hydration beverage from influencers KSI and Logan Paul, is on track to generate $1.2 billion in sales in 2023.
  4. ❌ “Starz matters”—The Starz streaming service has one of the highest monthly churn rates (11%+) according to research firm Antenna. Its spinoff from Lionsgate has been delayed to Q1 2024 despite multiple promises to investors. It is not clear who would buy Starz or why.
  5. ✅ “Ad-supported tiers are black boxes within black boxes within black boxes”—Every expert I respect and read has yet to offer a compellingly conclusive take on what is happening in the ad-supported streaming marketplace.

[Author's Note: The plan is for my predictions for 2024 to be my next Medium Shift column for The Information.]

Top Five Topics of 2023 (total # of essays)

1. Flywheels (9)

Disney struggled with its flywheel model, while smaller, Sony-owned Crunchyroll and YouTube creators found success with their versions of flywheels. 2023 earnings for Candle Media—the Blackstone-backed media and entertainment acquisition vehicle betting on celebrity flywheels—are projected to fall almost 50% short of forecasts in 2023. Netflix used Formula One's Las Vegas Grand Prix to prove that it can deliver a global, digital platform-exclusive flywheel for F1 fans that Disney simply cannot deliver via ESPN.

2. Sports Rights & Distribution (9)

In 2023, sports rights were front and center as a topic: Google entered the fray with a "seismic deal" for NFL's Sunday Ticket, and Amazon found success with Thursday Night Football broadcasts. Existential questions now loom for future rights deals for the NBA and Regional Sports Networks (RSNs).

3. Media's Shift to Retail Distribution Models (8)

A rich subject in large part because of new models emerging like the "daisy" business model at The New York Times, and Yahoo's resurgent success with subscriptions. Legacy media companies like Disney and Warner Bros. sold investors on pivots to gaming, and Netflix partnered with Rockstar Games to exclusively distribute older "Grand Theft Auto" games on mobile.

4. Media Conglomerates & The Innovator's Dilemma (7)

The ecosystems of media conglomerates may have become too complex for management to navigate disruption. Netflix faces similar questions after releasing consumption data in "What We Watched". Disney seemed to be destroying the simplicity, scale and profitability of its linear business in the name of Clayton Christensen's "The Innovator's Dilemma". That changed in its deal with Charter. The Hollywood strikes revealed how the economics of legacy media streaming efforts have left media "moguls" and shareholders stuck in “doom loops”.

5. Scarcity (6)

Scarcity was the linear distribution model’s historical moat—the linear model enabled multichannel video programming distributors (MVPDs) to aggregate millions of households locally, regionally and later nationally—that retail media models are disrupting. RSNs seemed most vulnerable, and their best future may lie in a Blockbuster Video-like business that may unintentionally subsidize RSNs. Disney CEO Robert Iger waffled on the existential question of whether to invest or divest to rebuild scarcity in the face of fragmentation.

Five Essays That Changed My Worldview in 2023

  1. The Medium Is a Firehose: What can media companies build to compete with a firehouse of content whose volume is expanding daily? Betting on streaming libraries alone has been a fool’s errand answer. They need to also solve for relevance.
  2. Why Don't We See More Crunchyrolls? Part Two: Crunchyroll's success highlights how the politics of owning a lot of IP in the streaming era may be a core strategic *disadvantage*  at a time when fans increasingly want to be served with flywheels.
  3. The Plumbing & The Poetry vs. Balance Sheets: There is an inevitable overlap between gaming and streaming on its way. The (mostly) necessary focus of both Disney and Warner Bros. Discovery management teams on their balance sheets has resulted in a weird dance between good business instincts, debt service, and bad execution towards this future. 
  4. The ARPU of Storytelling: 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.
  5. It's about the free money... and it's about the free money: The first “It's about the free money” reflects how DVDs and VHS have subsidized the media industry, to date. The second reflects the two newer versions of “free money” to subsidize media companies during the streaming era. We are now witnessing the slow death of the first and weaknesses emerging in the second.  

Most Read By Subscribers (Total Unique Opens)

  1. Chasing TikTok: To date, the more a short-form platform relies on creators, the more volatile both its supply and demand are. But, the more the platform relies on its proprietary technology and operational model to be the “creator”, the less advertisers seem to want to be on it. 
  2. The Plumbing & The Poetry vs. Balance Sheets: (See above)
  3. A Strategic Turning Point in Streaming... Perhaps: If media companies can neither scale their streaming offerings nor contribute their entire libraries to another service, then what other choices do they have for generating cash flow? Crunchyroll has one answer.
  4. AI Is YouTube's Frenemy: YouTube is well-positioned to harness the efficiencies of AI for content creation, but so are AI-savvy creators whom it relies upon to drive and grow engagement on its platform. 
  5. Why Disney Needs to Yahoo ESPN: ESPN management does not seem to be taking on the responsibility of taking care of the streaming customer, despite being over five years into the streaming marketplace. Both Yahoo and The New York Times offer valuable precedents for a better path forward for ESPN.

Most Shared By Subscribers (Total Opens)

  1. Why Charter's Game vs. Disney May Not Be So Wicked: A bold bet by Comcast on its Xfinity Flex platform seems to be at the heart of the Charter dispute with Disney. But the dirty secret is that the platform is not yet necessary for consumers or a necessary path for Disney to the consumer.
  2. Reconsidering Streaming's Subscription Models: Premium VOD and TV Everywhere models seem like better solutions to consumer churn in streaming than doubling down a monthly subscription model.
  3. AI Is YouTube's Frenemy: (See above)
  4. A More Wholesale Than Retail Outcome in Disney-Charter Deal: Disney's deal with Charter assumes that many Spectrum customers will opt into the free subscription from Disney+ and ESPN+. But, there is also a burden on Disney to convert these subscribers, and there is still something fundamentally weak about the Disney streaming value proposition that this deal does not bolster. 
  5. Amazon, Google & Netflix's Incremental Big Swings In Sports Media: Amazon's and Google's experiments in sports streaming create uncertainty around technology’s ability to not only redefine traditional TV broadcasting but match its creativity. That may be what makes Netflix’s push into gaming seem unsettling: It is now looking at Hollywood’s definition of creativity in its rearview mirror. 

Most Discussed With Readers & In Conversation

  1. Chasing TikTok (See above)
  2. A Strategic Turning Point in Streaming... Perhaps (See above)
  3. Is It Charter's or Comcast's Wicked Game Against Disney?: I have seen multiple takes that Charter is putting the “squeeze” to Disney in this dispute. But I think Comcast is playing a much more ruthless, four-dimensional game of chess with Disney. That is reflected in the offer of free distribution for ad-supported apps.
  4. Why Acquire A Legacy Media Company?: The lesson from CEO David Zaslav’s failed experiment with CNN is it may be too costly to acquire and then reorient an entire organization in a new direction. But CEO Robert Iger incentivized managers to pivot Disney to streaming in 2017, and now he faces the question of whether his streaming-centric strategic vision was right.
  5. The Max Paradox: Max is in an odd position with consumers as a value proposition: it has done everything to remove consumer friction for its streaming service, except for building a service that fans increasingly have come to expect in 2023.