Media conglomerates do the reorg dance

Fighting COVID and Netflix forces their hands.

The two biggest changes the media conglomerates have had to face in recent years—Disney, Comcast, ATT, ViacomCBS—have been Netflix and the coronavirus. 

While the science world has been predicting a spillover pandemic for quite some time, media companies aren’t typically concerned about buttressing their businesses for a global catastrophe. But they should have seen Netflix coming. 

Yesterday, both NBC and Disney finally admitted that in a world crippled by a pandemic, forcing movies to shut down (both in filming and exhibiting) and theme parks to close, the companies needed to have a business reorg.  

NBC’s reorg focused on the sales side of the house, as the company added more responsibility to ad sales chief Linda Yaccarino, adding local stations and regional sports outlets to her long list of responsibilities of overseeing the company's $10 billion a year ad sales. 

Variety reports:

As part of her new duties, Yaccarino will lead a new effort to create a data strategy across NBCUniversal – one that follows the company’s recent moves to sell ad inventory across many different media venues in unified fashion, rather than cordoning off different pieces in individual transactions. A new team, placed under a chief data officer to be named at a later date, will “map out a strategic plan for information development across the organization, driving revenue generation and building deeper pathways into commerce,” NBCUniversal said Monday.

This can be seen as a continuation of the broader company’s ongoing reog as the company reported not insignificant losses last quarter. 

For example, Comcast reported in its Q2 earnings that NBC cable network revenue was down 14.7% to $2.5 billion in the second quarter of 2020, and broadcast television revenue dropped 1.6% to $2.4 billion. Theme parks and filmed entertainment also had big hits to its revenue. 

And as the WSJ reported last month, the effect has been swift.  

As new Chief Executive Jeff Shell reshapes the entertainment giant to cope with cable TV cord-cutting and the rise of streaming video, he is centralizing decision-making—from which shows get made to which networks those shows should run on—and dramatically slimming down the cable unit in the process.

Top executives are getting squeezed out. Most recently, Chris McCumber, who led the USA and Syfy networks, said last week he was leaving after a two-decade run at the company. Substantial job cuts are expected throughout the cable entertainment group in the coming months, and some open positions will go unfilled, people familiar with the situation say.

According to sources with knowledge, the company has asked divisions to make cuts across the board as it tries to wrestle with declining revenues across various parts of the business. 

One other thing that is worth paying attention to: the ongoing discussions surrounding carriage fees. NBC’s entertainment networks (E!, Bravo, Oxygen, etc) have each lost 10 million subscribers since 2014; between 2011 and 2017, ESPN lost 12 million subscribers

(Image via WSJ)

The WSJ, again:

And providers are starting to push back hard on paying for unpopular channels. NBCUniversal could have difficult negotiations in coming months, including with its own parent, Comcast, as well as Charter Communications Inc. and Altice USA Inc., people familiar with the company’s carriage agreements say. NBCUniversal’s challenge is to keep enough fresh programming on each network to justify the cost to providers.

On the Disney front, the company made quite the splash yesterday when it announced that its reorg was focusing on its direct-to-consumer strategy.

CNBC reports:

On Monday, the company revealed that in order to further accelerate its direct-to-consumer strategy, it would be centralizing its media businesses into a single organization that will be responsible for content distribution, ad sales and Disney+.

On the heels of activist investors saying the company should put more money into streaming, the company seems to have pivoted quickly, as it will now focus on developing and producing content for its streaming networks, Disney+, Hulu and ESPN+.

“I would not characterize it as a response to Covid,” CEO Bob Chapek told CNBC’s Julia Boorstin on “Closing Bell” on Monday. “I would say Covid accelerated the rate at which we made this transition, but this transition was going to happen anyway.”

“We are tilting the scale pretty dramatically [toward streaming],” Chapek said on “Closing Bell,” noting that the company is looking at all investments, including dividends, as it seeks to increase its spend on new content. Chapek said the board of directors will have the final say on Disney’s dividend payouts.

But the specter of Netflix casts a long shadow. And here’s why Disney’s move to its own streaming puts it on stronger footing: intellectual property.

Disney owns several multi-billion-dollar franchises—Marvel, Star Wars, X-Men, Pixar, etc—but the secret weapon is its kids library. Perhaps because I have a six-year-old and a three-year-old that run my house, I’m acutely attuned to Disney properties. But when you take all the IP for kids programs alone, you can see how Disney, but focusing on streaming, can come out ahead. 

As the company places big bets on streaming, we’ll see how much Disney actually invests. The activist investor Dan Loeb, the New York Times reports, proposed by cutting the company’s dividend, about $3 billion a year

the company could more than double its Disney+ content budget of about $1 billion a year. Combined with raising the service’s monthly fee, currently $6 a month, and reducing so-called churn, or subscriber defections, the hedge fund thinks that the “lifetime value” of a Disney+ customer could rise to $500, from $100 today. (Third Point says the market values Netflix customers at about $1,200 apiece.)

• Disney already suspended its dividend payout in June and is expected by many analysts to halt its next one as well.

Would that be enough to compete with Netflix? The streaming king’s content spending this year alone is expected to surpass $17 billion, according to BMO Capital, and could grow to more than $26 billion by 2028. For comparison, AT&T’s WarnerMedia plans to spend up to $2 billion on content for HBO Max, while Comcast’s NBCUniversal has allocated $2 billion over two years for Peacock.

There will come a time when the coronavirus ends and theme parks and movie theaters will be packed with people again. And as each company creates its own streaming network, it will create more competition on the content front. 

But if these companies continue to have reorgs, which by definition creates uncertainty while blowing up any semblance of consistency, how much better off will these companies be in the long run?

Thank you for allowing me in your inbox, today and every day. If you have tips, thoughts on the newsletter, or want The Media Nut to undergo a reorg, drop me a line. Or you can follow me on Twitter. If you appreciated this edition, please consider sharing across your social networks and get your colleagues to sign up. Thanks for reading!

Bruce Springsteen, “57 Channels (and nothin’ on)

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For research:

For platforms:

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For media obits:

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