What a Decade of Netflix Did to Hollywood By Tara Lachapelle The rise of the streaming-video leader and looming presence of Big Tech spurred a rash of mergers that are transforming the industry
It was the decade that altered the very definition of “TV” — Noun: Netflix. Verb: to stream. The industry’s struggle to adapt to the new terminology sparked a merger mania that has rapidly condensed the market for entertainment content and pay-TV services into the hands of a powerful few. Here’s a look at what the rise of Netflix Inc., the intrusiveness of Big Tech and a decade of dealmaking did to the media and entertainment landscape:
As viewers decided they didn’t need so many channels, the industry decided it didn’t need so many companies. Once-powerful corporations such as 21st Century Fox and Time Warner Cable were acquired by rivals better equipped to navigate the new age of streaming. Fox’s studios joining the Walt Disney Co. family probably came as the biggest shock, but Disney’s more meaningful acquisitions were of the Marvel and “Star Wars” franchises, giving it near-total domination of the big screen. Of course, the big screen isn’t quite so big anymore: Netflix alone generates more revenue than the entire North American box office.
Originally a DVD-by-mail service whose biggest competitor was the Blockbuster store, Netflix is now nearly as valuable as Comcast Corp. (For a time, it was even worth more than the cable behemoth.) It has also lured some of Hollywood’s most sought-after directors and actors, while others have taken their movie-making talents to Apple Inc. and Amazon.com Inc. That’s as Lions Gate Entertainment Corp., the studio that produced “The Hunger Games,” is barely able to hang on to its independence. CBS and Viacom recently became ViacomCBS Inc., but they, too, may be industry prey. Discovery Inc. was able to corner the market for unscripted domestic and culinary programming by taking ownership of HGTV and the Food Network. But the mega-deal of the decade was AT&T Inc., a once prosaic phone company, swallowing Time Warner, the parent of HBO.
The so-called streaming wars didn’t begin on any particular date, but an important one was April 2, 2010. That was the day the Netflix app appeared on the Apple iPad. Within a few months it was in the iPhone app store and suddenly streaming could fit right in our pockets, traveling wherever we went. Not long before, Netflix had struck a fateful distribution agreement with the Starz premium cable channel, which held the rights to major movies months after they left theaters. Starz would later regret the arrangement, but for Netflix, it meant gaining backdoor access to thousands of films, including hits made by Disney (which would later ink its own deal with the service). And just like that, a $9-a-month app became a viable and satisfying alternative to cable TV.
Then came the mergers. Few industries were maimed by technology these last 10 years more than media — print media absolutely, but also the entertainment giants, where the figures at stake were even larger. By 2015, the industry’s center of power was shifting as cracks formed in the traditional pay-TV model. A now-infamous earnings report that summer from Disney showed that cable subscribers were dropping the company’s ESPN channel, the most valuable network on the air — what was supposed to be the Teflon of TV. The typical $100-a-month-or-so cable bundle that force-fed consumers far more channels than they ever needed was going the way of antennas. AT&T, which had just bet big on satellite dishes by acquiring DirecTV, turned its focus to content assets and spent 857 days straining to close its deal for Time Warner.
It was a seminal moment for the industry when a usually tenacious Rupert Murdoch sold most of his company to Disney, a deal which also included valuable franchises such as “The Simpsons” and “X-Men.” The recent reunion of Viacom and CBS was the Redstone family’s attempt to shore up the walls of its own vulnerable empire, bringing back together the broadcaster that owns Showtime and the parent of MTV and Paramount Pictures. Sprouting from all these mergers are new Netflix-copycat services, such as the Disney+ app that launched in November and AT&T’s HBO Max, which is set to launch in May. Apple TV+ subscriptions also went on sale last month, while Comcast’s Peacock service — named for the logo of its NBCUniversal division — arrives in April.
Cord-cutting and consolidation redefined the media landscape in the 2010s. The next decade will usher in a new roster of leaders tasked with trying to make financial sense of the industry shape-shifting. Longtime media moguls such as Disney CEO Bob Iger and John Malone, the influential owner of Charter and Discovery, are on their way toward retirement; Iger, 68, has a scheduled date of December 2021, while the 78-year-old Malone has started to lighten his load. A bedridden Sumner Redstone is 96 and his daughter Shari Redstone is 65; AT&T CEO Randall Stephenson is 59; and Charter CEO Tom Rutledge is 66. Comcast Chairman and CEO Brian Roberts is 60, though the company’s unusual articles of incorporation say he can hold onto his job for the rest of his life. However, Comcast did recently announce that Steve Burke will retire as NBCUniversal’s CEO at the start of the new year. For investors and consumers alike, it’s an uncertain road ahead. My cynical prediction: An already shrinking industry will get even smaller.
Spotify Signs Joe Rogan, Becomes More Like Netflix Landing the podcasting TV host came at a price. But the move lessens the music streamer’s reliance on labels and opens ad opportunities. By Alex Webb
Spotify Technology SA has long purported to be the next Netflix Inc. Signing Joe Rogan in a deal that could earn the podcaster more than $100 million helps the music streamer start to deliver on that promise. The Stockholm-based tech firm has a stubborn problem: For every dollar in revenue the music streaming giant earns, it sends 65 cents straight to the record industry. The royalties that Spotify pays the labels, publishers and artists cap its earnings potential. That’s only fair: Without the musicians, the company wouldn’t exist. But it also means that, for all the superficial similarities between Spotify and Netflix as subscription services offering an endless supply of content, Spotify’s business model is less robust.
If Netflix pays, say, $30 million to make a new season of a drama like Ozark, that cost doesn’t increase if it attracts more eyeballs. Media Rights Capital, which produces the show, makes the same money from Netflix irrespective of whether the audience is 5,000 or 50 million. That is not the same for Spotify. Costs rise with subscribers. Every stream of, for instance, Billy Eilish’s Grammy Award-winning hit Bad Guy will see another slice of the listener’s monthly subscription fee directed towards Universal Music Group, the Vivendi SA unit that owns her recording and publishing rights. Spotify’s gross margin will likely hit just 25% of revenue this year — a low figure for what is supposed to be a software and services business. Netflix, for all of the billions it spends on content, is expected to enjoy gross profit representing 39% of sales.
With just three major record labels controlling most of the music industry, Spotify’s relatively high costbase is unlikely to change any time soon. And it’s hard for Spotify to cultivate its own artists. That would rile the labels, and musicians usually want to be on the greatest number of possible platforms as that helps sell concert tickets. Podcasts provide Spotify with a revenue stream over which it has more control. The firm has recently spent more than $600 million acquiring four podcasting firms — the Ringer, Gimlet Media, Anchor and Parcast. Tuesday’s signing of Rogan brings one of the world’s most popular podcasts.
For a fixed — or capped — cost, Spotify attracts new listeners and potentially subscribers — especially if it’s making the podcasts itself. The more time listeners spend on podcasts, the less money Spotify gives to the record labels. Then there’s the advertising opportunity. Spotify made just 4.42 euros ($4.84) per user from its subscription business in the first quarter, and an additional 91 cents per user in advertising revenue. Facebook Inc.’s thriving ads business helped it make $34.18 for each of its North American users in the same period. Advertising could account for 12% of Spotify revenue by 2022, up from the current 8%, according to Bloomberg Intelligence. True, Spotify still has to grow into its $33 billion market capitalization, a multiple of 3.7 times expected revenue (it’s not expected to be profitable this year). But Chief Executive Officer Daniel Ek is starting to play the tunes that investors need to hear.
Bill Simmons scores massive sale as Spotify buys his publication, The Ringer, for nearly $200 million Sports media founder Bill Simmons scored a massive payout from Spotify, who purchased Simmons' publication The Ringer for nearly $200 million.
According to a filing with the Securities and Exchange Commission on Wednesday, Spotify could pay out nearly $200 million in cash over the next few years to acquire The Ringer, an online publication for sports and pop culture. Spotify disclosed it will between €130 million and €180 million: Part of that payment is deferred and based on some contingencies, one of which requires Simmons to stay at the company for an unknown period of time. This is Spotify's latest move into the podcasting space in the past year, following nearly $400 millionin recent acquisitions of podcast networks Gimlet Media, Parcast, and Anchor. The Ringer has nearly 40 podcast titles under its belt, including a number of popular sports shows featuring Simmons that Spotify will now own.
Spotify confirmed the acquisition last week after The Wall Street Journal reported on purchase rumors in January, but the deal price was not known at the time. Citing a source with knowledge of the deal, Bloomberg reported Tuesday that Spotify would pay an initial $200 million to acquire the company, with another $50 million to be paid later. Spotify has not responded to Business Insider's request for comment. The $200 million acquisition likely represents a huge payday for Simmons, specifically, who is the company's largest shareholder, though his exact stake isn't known. The entertainment company HBO also owns a 10% stake in The Ringer. Simmons, a former ESPN journalist, founded The Ringer in 2016.
As part of the acquisition, Simmons — as well as The Ringer's estimated 90 employees — will have jobs at Spotify. According to Bloomberg, the deal includes protections for Ringer employees to ensure much of the staff isn't cut. Spotify has only started investing in podcasting recently, although the streaming service was founded in 2006. In a recent blog post, Spotify founder and CEO Daniel Ek said he had no idea at the beginning that "audio — not just music — would be the future of Spotify."
Spotify is buying Bill Simmons’s The Ringer to boost its podcast business It’s the fourth podcast deal Spotify has done in a year.
Spotify is making yet another big-budget purchase aimed at getting a lead in the growing podcast industry: The streaming music company has agreed to a deal to purchase The Ringer, the podcast-centric media company run and owned by Bill Simmons. Spotify intends to hire Simmons and all of his approximately 90 employees. Most of those employees work on The Ringer’s website, which covers sports and culture, and Spotify intends to keep the site up and running. But what Spotify really wants out of the deal is Simmons’s ability to create podcasts, including his Bill Simmons Podcast, and some 30 other titles, which range from an NBA chat show to one devoted to rewatching old movies.
The companies didn’t disclose a sale price; the deal is supposed to close in the first quarter of 2020. “With the Ringer, we’re basically getting the new ESPN,” Spotify CEO Daniel Ek told Recode in an interview after the deal was announced. “What [Simmons] has accomplished in just a few short years, it’s nothing short of extraordinary. ... It’s not just his own podcast, but his whole network that’s doing really well. He’s a talent magnet.” Spotify hasn’t spelled out what it intends to do with The Ringer’s catalog of existing podcasts and content, but it would be surprising if it made them exclusive to the streaming platform. When it purchased Gimlet Media last year, it kept that podcast company’s stuff available on all platforms.
This is the fourth podcast company acquisition Spotify has made in the last 12 months; last year it spent about $400 million to buy Gimlet Media, Anchor FM, and Parcast. Spotify executives have argued that adding a podcast business to its core music service will help them bring in new users, and keep existing users around longer. The company is also building up a podcast advertising business, which promises to target listeners based on their demographics and online behavior. In its fourth quarter earnings statement released Wednesday morning, Spotify said it was seeing “exponential growth” in podcast consumption on its platform.
Ek said adding The Ringer would help boost his company’s appeal to sports fans, which he described as “super engaged and super loyal. It’s a strong currency to have.” And he said Spotify would continue to buy podcasting companies if it thinks they can grow faster inside of Spotify. “When you get a chance for a property like The Ringer, and you see the fits, and what Bill wants to do, it just made a ton of sense. If there are other deals of that caliber we would consider it.” Spotify wouldn’t say how long Simmons intended to work for his new employer, but Ek said he believed Simmons would stick around so he could continue to build the company he founded five years ago. “I wouldn’t have done the deal if I didn’t feel that Bill was in it for the right reasons, and didn’t want to build something much bigger.” “Our incentives are really aligned,” added Paul Vogel, Spotify’s chief financial officer.
While Apple has expressed interest in funding some exclusive podcasts that would serve as marketing for its Apple TV+ service, Apple executives say the company is unlikely to compete in today’s version of the podcast industry. That’s because most podcasts are free and dependent on advertising, and Apple has staked out a pro-privacy position that makes it difficult to compete in ad-supported industries. Simmons made his name as an online columnist at Disney-owned ESPN, which eventually gave him the resources to launch Grantland, a Ringer-like site that also provided a home for his podcasts. But ESPN bounced him out of his job in 2015 — a move Simmons has said stems from his criticism of Roger Goodell, the head of the National Football League and an important Disney partner.
Simmons then started The Ringer with backing from WarnerMedia’s HBO, which also hired him to create a short-lived TV show he hosted, along with other programming. Simmons has never disclosed if he has other investors; a person familiar with HBO’s initial investment says the company put in less than $10 million. Last year, Simmons talked to WarnerMedia’s Turner unit about selling his company to that business, according to people familiar with the discussions. By buying The Ringer, Spotify is now in the web publishing business for the first time. (Vox Media, which owns Recode, has a commercial relationship with The Ringer.)
While podcasts have driven The Ringer’s business, Ek said the site’s writers and videomakers were an important part of the company. “What’s really interesting with the website and the audio is that he’s really tried to play them off of each other.” The Spotify/Ringer deal comes a week after Barstool Sports, another sports and pop culture publisher, was acquired by casino operator Penn National Gaming in a deal that values Barstool at $450 million. Like The Ringer, Barstool also has a significant podcast business, which it says generates around $30 million a year; Penn National intends to use Barstool’s name and appeal to rebrand several of its casinos and to launch an online sports betting business.