The Update Issue: Entertainment Round Up – The Fast-Burning, The Global, The Bizarre, and The Underexploited

Ratings and viewing statistics on streaming are notoriously hard to come by... This is a problem for industry participants. If you don't really know how many people watched a show or movie, it's hard to determine just how bankable a star is, or the true track record of a key director or showrunner. Plus, it […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Update Issue: Entertainment Round Up – The Fast-Burning, The Global, The Bizarre, and The Underexploited By Berna Barshay Ratings and viewing statistics on streaming are notoriously hard to come by... This is a problem for industry participants. If you don't really know how many people watched a show or movie, it's hard to determine just how bankable a star is, or the true track record of a key director or showrunner. Plus, it diminishes the potential for quantifiable bragging rights in a town not known for small egos. As an investor, the lack of data also poses an issue... Gargantuan and growing content budgets have been a hallmark of the streaming wars. How are investors supposed to evaluate a management team's capital allocation prowess when they can't tell whether all the spending has good return on investment ("ROI") on anything but an aggregate level? Maybe the subscriber additions would be just as high and the churn would be just as low at 80% – or even 70% – of the current spending level? For now, this all remains very opaque. But striving to understand better how the money is spent and what's working and not working is still of interest, as more than a dozen U.S. streaming services jockey for a spot in your wallet. Recent polling by JD Power indicates that consumers that stream on average have 4.5 services. Given most consumers get Amazon's (AMZN) Prime Video for free with their Prime subscription, which is primarily bought for the two-day shipping, there's on average budget for 3.5 services. Yet all these services want a piece of your wallet... Source: Empire Financial Research, Google Images The streaming wars are fought with content... but are the companies arming up wisely or is it just an overspending blitzkrieg? Streaming leader Netflix (NFLX) started giving us more information several months ago in the form of top 10 viewing lists... The data is available for regions and countries, as well as overall, and includes aggregate viewing hours. It's not exactly transparent... but it's something. Bloomberg entertainment and media columnist Lucas Shaw recently took a crack at pulling apart the data and identifying some trends. The first one he notes is obvious – TV dominates viewing on the platform... Source: Bloomberg One reason for this is also obvious – it takes a couple of hours to watch a movie and somewhere between four and 12 hours to watch a season of most shows. But it's not just about the hours... I would argue that part of that has to do with the availability of exclusive and new films, which isn't great on Netflix. If you look at the global top 10 movies this week, only the top three are 2022 releases, and those are all Netflix exclusives... Source: Netflix By the time you get to No. 4 on the list, you are looking at a 21-year-old movie, Shrek. The movie is almost as old as Netflix itself (founded in 1997). Movies also stay in the top 10 for less time. As Shaw explains... A show like Sex/Life, No. 1 on Netflix's first top 10 list, stayed in the rankings for seven weeks. Fatherhood, the top movie in Netflix's first list, disappeared after just three weeks. My takeaway here is that Netflix TV content is much more compelling and differentiating that its movie content, which should be a revelation to no one. From this, I would infer that the ROI is better on shows than films. Also, given the interest in watching old movies, it does give a leg up to the streamers who are associated with a major studio and are in prime position to get the studio output after (or sometimes concurrent) with the theatrical window... streamers like Disney's (DIS) Disney+ and Hulu, WarnerMedia's HBO Max, Paramount's (PARA) Paramount+, and Comcast's (CMCSA) Peacock. Netflix and other streamers that are light on movies should probably be on the lookout for good ROI ways to enhance their film offerings, especially since the big studios continue to pull back from supplying them with newer movies. This is something I wrote about extensively in the February Empire Market Insider, which you can learn about more [right here](. But it's not just movies that burn fast and bright at Netflix... TV shows don't have a very long shelf life at Netflix either. As Shaw writes... The average Netflix top 10 show only stays there for a week or two. Less than one-quarter of all shows stay in the top 10 for more than four weeks. Source: Bloomberg A big reason most shows burn out fast is Netflix's practice of dropping all the episodes at once, which encourages binging. Whole season drops are a very customer-friendly business practice... Customers love binging. But it's probably not the most ROI-friendly way to do things, as doling out the episodes slower is better for keeping churn at bay and reduces the amount of killer content required for success. More from Shaw... While this model was innovative, it has not inspired most of its competitors to follow suit. HBO Max, Hulu, Amazon, Disney+, Apple TV+ and Paramount+ all still employ weekly releases for most of their shows because they believe it is the best way to sustain interest over a longer period of time. (You also spend less money if you don't need to release something new every two weeks.) --------------------------------------------------------------- Recommended Links: [Get out of falling stocks says Pentagon Consultant]( Man who briefed U.S. Pentagon officials five times in past year says digital tech stocks will get steamrolled by something you've never heard of before. [Click here to learn more](. --------------------------------------------------------------- [World's richest man orders 100k units of radical new technology]( CNBC reports that the world's richest man has ordered 100,000 units of a technology that could soon change his business and your life. Legendary investor Whitney Tilson [explains full story and his No. 1 stock to profit (including ticker symbol) here](. --------------------------------------------------------------- Shaw's other big takeaway is that foreign language content has overtaken English language content for shows in the top 10... Take a look... Source: Bloomberg There's only eight months of data here, and it's skewed by the outlier of the phenomenally popular Squid Game, but there is no doubt that non-English programming is becoming increasingly important at Netflix. This shouldn't be a total shock though, with more than half of the company's customers now living outside English-speaking countries. Another interesting observation from the data is that while the top 10 lists overlap greatly in the West (the Americas and Europe), there is much more divergence in Asia. As Shaw notes... The shows that are popular in Japan and South Korea aren't popular elsewhere, with a few exceptions. While some South Korean shows do travel, most of them do not. The same goes for India. This indicates that it may not be as easy to achieve scale (and margin expansion) on content costs in Asia as it has been in the West. This will be a problem for all the streamers... and is another argument for industry consolidation needing to happen. Turning to the bizarre, movie theater chain AMC Entertainment (AMC) doubled down on its meme status with a headscratcher investment... This week, AMC bought a 22% stake in Hycroft Mining (HYMC) – a microcap worth less than $90 million– that owns a gold and silver mine in Nevada. AMC paid $28 million for its stake in this company, which obviously has nothing to do with its core business. Hycroft is an exploratory and speculative business at this stage... When I looked at its most recent reports, it didn't even include an income statement in them. A little further digging and I found that Hycroft did in fact have revenue in the third quarter, but it lost money on a gross profit basis... meaning, the cost to pull whatever it could out of the ground exceeded what it could charge for it. In the fourth quarter, Hycroft stopped producing gold and silver entirely, presumably while it figures stuff out – so revenues were zero. This is typical for an early-stage mining company – but it makes this a highly speculative investment. "Penny stock gold mine" is like a punchline to a joke about a boiler room investment scam. A week ago Monday, Hycroft was a penny stock, trading at $0.33 per share. Shares closed at $1.52 on the day of the AMC announcement. HYMC shares started to move up ahead of the deal and there was some irregular call buying... something that could draw the attention of regulators. AMC is investing alongside a well-known gold and silver investor, Eric Sprott, so maybe it will turn out OK... but it is such a strange thing to do. I can only guess AMC did it for the meme potential. CEO Adam Aron implied in a tweet that AMC brought money-raising skills to the table... Source: Twitter/@CEOAdam I suppose that's right... but so would any highly levered company that has had its back against the wall due to unexpected business downturns, which is a lot of companies! I don't see them all buying stakes in gold mines. There's no obvious logic to this... So with AMC shares down 44% year-to-date, I'm looking at this as a corporate cry for attention akin to a moody teen dying their hair a funky color. No, $28 million won't kill AMC... but it's got people talking about the company again. If box office gangbusters like Spider-Man: No Way Home and The Batman weren't enough to get the stock's retail meme investor base excited again, how about a weird deal that lends itself to memes? That part seems to already be working... Source: Twitter/@CEOAdam As Bloomberg's Matt Levine sums it up... "AMC buys a stake in a micro-cap gold miner" is an incredible, like, final exam for the meme stock era... AMC stock is in some sense an ownership share in a chain of movie theaters, but in another sense it is a financial instrument that reflects Adam Aron's ability to do funny stuff that attracts attention and delights people online. The stock goes up because people online get excited, not because AMC sells more movie tickets, and so it makes sense for AMC to expand into new and unrelated ways to do funny stuff online. Turning back to streaming, an observation from my February travels... Because I love my 9-year-old and I am easily manipulated, I visited Disneyland for the second time in six months. Marketing for Disney+ is all over the place in the mall area that connects the parks to the hotels, and there are also subtle mentions all over the park... as well as in all the shops. A few days later, we made a trip to Universal Studios Hollywood. It struck me that I saw no signage whatsoever for streamer Peacock anywhere in the park, nor in the adjacent CityWalk mall area. The only mention of Peacock was very briefly on the studio tour tram, with a throwaway line about being able to stream one of the movies from the tour on Peacock. This seems like a miss for captive marketing, right? Of course, Universal has to contend with the awkward truth that two of its highest profile areas in the park feature content that lives on services other than Peacock. Harry Potter lives on HBO Max and The Simpsons is on Disney+. But still... it's a headscratcher. Putting up some Peacock billboards in CityWalk seems like something a high school intern might dream up on their second day of work. Meanwhile, Peacock trails the streamer group in paid subs with just 9 million, versus Disney+ at 130 million, HBO Max at 74 million, and Paramount+ at 33 million. Even with its emphasis on ad-supported viewing, it's unclear how committed the folks at Comcast are to the streaming game, and the lack of signage at Universal Studios feels like a microcosm of that. I ran a little long this week, so I'll skip the mailbag... We'll be running some guest essays next week, so I will return – and so will the mailbag – on March 28. Until then, I'm curious if anyone has been to Universal Orlando lately and if there are more Peacock signs there? Do you find yourself watching more foreign language content on Netflix lately? And why do you think AMC bought a stake in this gold mine... Was it for attention or does AMC management really think it has an edge investing in metals mining? When a company makes a left field investment like this – even if it is small – does it make you reevaluate your position? Share your thoughts in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). Happy St. Patrick's Day! Berna Barshay March 17, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. 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