What Disney Understands That Comcast Doesn't

Mistakes made by streaming media companies over the past year are forgivable. With the exception of Netflix (NASDAQ: NFLX), most of them are new to the business. Walt Disney's (NYSE: DIS) Disney+ has only been around since November of 2019. AT&T (NYSE: T) launched HBO Max in July of last year -- in the throes of the pandemic -- but had already sent its Warner-made film Scoob! straight to streaming in May. Comcast (NASDAQ: CMCSA) debuted Peacock in July, and its Universal film Trolls! World Tour released as a direct-to-consumer title in April. All three of theses studios also began their streaming journeys in a tricky environment where consumers were starved for entertainment but had time to weigh their options. Everything in the period was an experiment of sorts.

Seemingly, the dust is settling on the experiment, and consumers' preferences are becoming clear. Disney's and AT&T's takes on at-home-entertainment appear to be on target. Comcast, on the other hand, may be missing the mark with Peacock.

Image source: Getty Images.

First-run films fizzle in at-home market

We don't know how much revenue Disney's Mulan generated when it was offered at a premium to existing Disney+ subscribers in September; the company didn't disclose any figures. But analysts who've ventured a guess peg the figure at less than $300 million.

It could have been worse, but it's certainly not a Disney-like result. CEO Bob Chapek said during the company's fourth-quarter conference call that he was "very pleased" with Mulan's performance as an at-home title, but it's noteworthy that Walt Disney debuted Soul to all Disney+ subscribers in December for no extra charge.

The strategic decision reflects subtle changes in how consumers spent their entertainment dollars over the course of 2020. Digital Entertainment Group acknowledges transactional video-on-demand (TVOD) revenue -- outright purchases of digital TV and films -- was up 10.2% year over year in the United States during Q4. That's down from the second quarter's growth pace of 12.6%, however, and lags the full-year increase of 16%. Also consider the backdrop. Theaters were either closed or severely limited most of last year.

Granted, that report doesn't consider premium video-on-demand (PVOD) revenue generated by first-run films skipping theaters and being sold directly to consumers. In its 2020 wrap-up, Digital Entertainment Group estimates PVOD rentals soared 40% in 2020.

Nevertheless, the bar was set low, and PVOD's growth still slowed to 25% during Q4. As IMAX CEO Rich Gelfond put it last year: "PVOD is a failed experiment. The numbers haven't worked in a pandemic, so how would they work in a non-pandemic?"

Streamers just want to stick with their subscriptions

So what are consumers willing to spend their money on? Though not all that interested in one-off purchases, they're completely on board with subscription-based streaming. Digital Entertainment Group's fourth-quarter report points out that while premium on-demand revenue grew in 2020, subscription-based revenue grew considerably more. U.S. consumers shelled out $21.2 billion for streaming services in 2020, which is 37% more than they did in 2019. TVOD's and PVOD's combined revenue didn't even come close.

This isn't the only data suggesting streaming subscribers aren't overwhelmingly interested in paying one-time fees for first-run films, either. In its fourth-quarter market review, Tivo management says the country's broadband subscribers who don't pay for traditional cable TV spend nearly $31 per month on streaming subscriptions, yet only spend an average of $15 per month on premium or transactional video.

That's in contrast with broadband subscribers who also pay for cable. They spend about $5 less per month on streaming subscriptions, but spend an average of nearly $24 per month on rentals or purchases of digital video.

The counterintuitive insight buried in the data: Diehard streaming subscribers should seemingly be most interested in PVOD. But they're actually less interested in paying extra to watch a movie at home than cable TV customers are!

Divergences emerge

And we're starting to see differences in how these dynamics affect a company's results. Not only did Walt Disney see membership flourish in conjunction with December's free debut of Soul on Disney+, AT&T's HBO Max finally started to pull in bigger viewer numbers when it made Wonder Woman 1984 available for free (for 30 days) beginning on Dec. 25. Last quarter's HBO Max activations jumped from 8.6 million to nearly 17.2 million, roughly doubling the previous quarter's additions.

At the other end of the spectrum, Digital Entertainment Group believes Comcast's Universal Studios arm generated on the order of $500 million worth of revenue with the 18 films it released as streaming titles in 2020. That's a scant $28 million per movie. Comcast confirmed the struggle, reporting that last year's filmed entertainment revenue fell nearly 19%, while theatrical revenue itself tumbled 70%.

And Peacock users are far from the target audience marketers want. Not only is Peacock's crowd older and less likely to respond to a video ad, numbers from Ampere Analysis indicate Peacock's viewers typically earn less than HBO Max viewers do.

The takeaway

To date, Peacock has mostly limited its content library to existing television and films or new content that's being made anyway -- certainly no films initially intended for theatrical release have been made available. But that's not what consumers want. Streaming services with free first-run films are shaping up as the more marketable option. The reason is obvious -- they're ultimately a better value for consumers.

Disney and AT&T seem to understand something Comcast hasn't yet figured out, however. That is, making theatrical films available on streaming media platforms may actually be a better way to monetize them. The Motion Picture Association says the average person living in North America only saw 4.6 theatrical films in 2019. Comcast could conceivably collect more total revenue by adding some feature films to Peacock's lineup and drawing in millions more monthly subscribers.

Just some food for thought.

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