Video Streaming Coverage Race: May 2019 Results

May was a relatively quiet month for media coverage in the video streaming race. The March/April hoopla surrounding Apple TV+ and Disney+ announcements dissipated, and the pace of press coverage slowed to a trot. Media mentions for Hulu was an exception.

We analyzed the press coverage that seven horses in this race (Amazon Prime, Apple TV+, Disney+, Hulu, Netflix, WarnerMedia, and YouTube) received during the month of May. To do so, we considered the 712 articles on Dow Jones/Factiva during May in which the words video and streaming appeared adjacent to each other. (Factiva is a global news resource with over 32,000 publications.)

Here's what we found:

Total mentions of these seven "horses" slowed to 1930 in May from 3533 in April. Netflix continued to lead the field in May with 724 mentions (considerably less than the 1614 it received in April). Hulu followed closely behind with 672, driven by Disney's May 14 announcement that it would assume full operational control of Hulu as a result of a deal with Comcast.

Here's what mention market shares looked like in April and in May:

We expect to see the pace of media coverage pick up as new services prepare to launch later this year.

(Apple+) + (Disney+) = Synergy++

Professor J. Fred Weston was a giant in the field of M&A. He arrived at UCLA from Chicago in 1949 and over his career wrote 32 books and 147 journal articles, many of which dealt with corporate development. He mentored outstanding graduate students, including Nobel laureate Bill Sharpe.

I recall Fred telling the story about how the word synergy came to be used in corporate deal making. The year was 1950, and Fred was at lunch in Westwood with executives from a nascent industry that would later become aerospace. Fred saw a drink menu on the table that promoted Irish Coffee, The Perfect Synergy. (Irish Coffee blends coffee and Irish whiskey, topped with whipped cream.)

Not knowing what synergy meant, Fred looked up the term after he returned to his office and saw synergy = the interaction of two or more agents so that their combined effect is greater than the sum of their individual effects. "Now that's what M&A activities are supposed to do," thought Fred. He started using synergy in his writings to characterize successful deals, and the term became a cornerstone of professional thinking.

Enter Apple and Disney. Video streaming is vital to Disney’s future, highlighted by the announcement of Disney+ on April 11. Video streaming is escalating in importance to Apple, given the introduction of a new Apple TV app and the commitment to develop an original program streaming service known as Apple TV+.

Will these two companies alchemically blend resources in this area? Is an Irish Coffee in the making?

We used Word2Vec to process the 854 articles that appeared on Dow Jones/Factiva between April 11 and May 18, in which the word Disney+ appeared. (Word2vec processes raw text and positions words in a high dimensional vector space where semantically similar words are placed at nearby points. Factiva is a global news resource with over 32,000 premium publications.)

Here are some of the words/bigrams appearing closest to Disney+ (a score nearer 1 indicates a word is closer to Disney+):

('launch_november', 0.946),

('apple_tv+', 0.801),

('netflix', 0.774),

('india', 0.719),

('amazon_prime', 0.642),

(‘warnermedia’, 0.615

('mandalorian', 0.589)

Note that:

• India is prominent, given the planned launch of Disney+ on Hotstar, an OTT service acquired in the 21^st Century Fox deal. Disney+ could have a huge impact on the Indian streaming market.
• The Mandalorian (set after the Return of the Jedi) is also prominent, given that this will be a prestige series developed for Disney+. The Mandalarian will parallel the Game of Thrones in budget (some $10 million per episode) and hopes to rival its success.

 But here’s a key observation to consider:

• Apple TV+ appears very close to Disney+, closer than other services such as Netflix or WarnerMedia.

Although some of the “closeness” between Disney+ and Apple TV+ may result from major announcements from each company around this period of time, there’s more to this proximity to consider.

Over the next few years, Apple and Disney will likely be marching side-by-side in the upcoming streaming wars, especially for family-friendly content. And there’s a wide range of possible synergy deals that might emerge between these two companies. Here are some options:

1.  Disney distributes Disney+ on Apple TV’s app (probability = .9).  Disney has stated consumers will be able to subscribe to Disney+ on Roku and PlayStation. In a Bloomberg interview, CEO Bob Iger has stated that the Disney+ app will: “in all likelihood be available through traditional app distributors, Apple being one of them.” Apple wants its TV app to be your central hub for video content. It’s already supported by services such as Hulu, Starz, and HBO. In agreeing to allow subscription to Disney+ via Apple TV, Disney will deem access to subscriber data as a critical term in the deal. Such data is central to Disney’s future in content creation algorithms, merchandise marketing, theme park promotion, and many other DTC initiatives.
2.  Disney develops and licenses exclusive content for Apple TV+ (probability = .6). If price is right, why not consider this option – assuming Disney+ has established its audience and Apple+ is not viewed as a direct competitor. Apple wants to build a hardware/video streaming virtuous cycle, where hardware drives video streaming services and video streaming, in turn, motivates hardware sales. It’s unlikely that Apple will want to compete with Netflix (or Disney) as a video streaming behemoth. There’s no inherent reason why Disney should not join Prince Harry and Oprah as an Apple+ content development partner.
3. Apple TV+ bundled into Disney+ (probability = .5). Under this scenario, Apple’s appetite for content development subsides and wants to feature Disney+ as distinguishing video streaming content for its platform. If so, Apple may risk alienating other content providers such as HBO/WarnerMedia.
4.  Disney+ is bundled into Apple TV+ (probability = .3). Less likely, as Disney is bent on making DTC video as a core element of its future. Adding Disney+ content would give Apple TV+ an incredible streaming offering. But Apple would have to be willing to pay dearly for this opportunity.
5.  Joint venture between Disney and Apple – call it DisApp+ (probability = .25). A JV can be an exquisite form of corporate torture. Witness Hulu, where Disney’s partners included thorny competitors until Disney obtained full operational control after completing deals with AT&T and Comcast. But a DisApp+ JV with Apple could be different, pooling Apple’s massive financial resources and huge hardware base with Disney’s unparalleled family-friendly content library. Each company’s  contribution to the JV would be distinctive.
6.  Apple buys Disney (probability = .1). Apple and Disney have strong cultural and historical ties including: 1) Steve Jobs sold Pixar to Disney for $7.4 billion and sat on Disney’s board after becoming Apple’s largest individual shareholder; 2) Bob Iger has sat on Disney’s board since 2011. Yet, this would be the largest M&A deal in history, surpassing the massive Vodafone/Mannesmann deal valued at $202 billion in 1999 (inflation adjusted value = $304 billion). Disney’s current market capitalization is about $240 billion, and Apple would have to pay a significant premium to complete an acquisition. Furthermore, buying Disney would involve acquiring theme parks, ESPN, consumer products, traditional movie and TV studios, and much more. There would be a huge regulatory hurdle to overcome.

After the Disney/Pixar deal, one analyst reflected: “If an alien from Mars observed these two companies from afar, he would ask why are they separate entities.” Although it’s unlikely that Apple and Disney will be merged/married into one company, the future for these two companies will almost certainly involve living together as significant others in a video streaming relationship.

Whose Winning the Video Streaming Coverage Race?

It's a crowded field in the video streaming horse race. Netflix is clearly the first mover, but many other entrants are jockeying for position and challenging the leader.

We compared the recent press coverage that seven horses in this race (Amazon Prime, Apple TV+, Disney+, Hulu, Netflix, WarnerMedia, and YouTube) received. To do so, we analyzed 1731 articles that appeared on Dow Jones/Factiva during March and April in which the words video and streaming appeared adjacent to each other. (Factiva is a global news resource with over 32,000 publications.)

Here's what we found:

Total mentions of these seven "horses" rose to 3533 in April from 2382 in March. As expected Netflix led the field in April with 1614 mentions. Hulu and Disney+ made a strong move in April with 728 and 446 mentions respectively. (Not surprising, given Disney's big investor day announcements in April.) Apple TV+ faded after its March debut.

Here's what mention market shares looked like in March and in April:

Positioning in this race is highly sensitive to special events/announcements. Quarterly or even annual mention market share analysis will be more telling. Look for our first quarterly analysis in early July.

Disney+ v. Apple TV+

Both Apple and Disney had video streaming showcases in the last 60 days. Apple's March 25th announcement of its TV+ service yielded yawns. Disney's unveiling of Disney+ elicited enthusiasm. Steve Jobs grunted in his grave as Disney outperformed Apple.

Disney provided specifics on content, pricing and release date. Apple paraded out star power, but provided scant detail about its  TV+ offering.

A Word2Vec analysis highlights the difference.

We used Word2Vec to process the 1731 articles that appeared on Dow Jones/Factiva during March and April in which the words streaming and video appeared adjacent to each other. (Factiva is a global news resource with over 32,000 premium publications.)

Here are some of the top words closest to Apple TV+ according to our results. (Word2Vec processes raw text and positions words in a high dimensional vector space where semantically similar words are placed at nearby points.):

('jennifer_aniston', 0.739),

('steven_spielberg', 0.719),

('oprah_winfrey', 0.700),

('reese_witherspoon', 0.697),

('hollywood', 0.660),

('celebrity', 0.656)

And here are some of the top words appearing closest to Disney+:

('disney', 0.860),

('pixar', 0.655),

('star_war', 0.619),

('marvel', 0.609),

('pricing', 0.551),

('national_geographic', 0.546)

The Word2Vec/Factiva analysis demonstrates how evident it was to the news media that while Apple pulled out star power, few specifics on programming and pricing were given. On the other hand, Disney+'s neighbors in this vector space were brands, as the company detailed content on the service as well as pricing.

We are in the opening moves of a video streaming chess match. Apple is a wannabe player, driven by a shift to services in the face of stalling iPhone sales. Major assets include:

1. 1+ billion devices in customer hands and pockets
2. creative talent wanting to work with the company
3. $250B of cash powder on its balance sheet

But the company's original programming budget for Apple TV+ is modest -- a mere $1-2B drop in its cash bucket.

Apple is tiptoeing into original content. The program emphasis looks to be family-friendly, even  Disneyesque. Too bad for Apple that Pixar is not an asset in the estate of Steve Jobs.

Over the next few years, Apple+ and Disney+ will likely be marching side-by-side in the upcoming streaming wars. For now, Disney has a clearer vision of the direction of the march.

Netflix: Burn Concern?

While marginally profitable under accounting standards, Netflix burns through piles of cash. Time to be concerned?

We used Word2Vec to process 1259 articles that appeared on Dow Jones/Factiva between Netflix's two most reporting periods -- January 17, 2019 and April 16, 2019. Each article selected mentioned Netflix at least five times and was classified by Factiva as a "Corporate/Industrial News" piece. (Factiva is a global news resource with over 32,000 premium publications.)

We were interested in the extent to which these articles reflected concern about Netflix cash burn as its builds out its massive content offering. After all, Netflix reported a negative $2.7B cash flow from operations in the year ending 2018, even larger than the burn of -$1.8B from the previous year. And the company is in no hurry to start generating positive cash flow.

While some worry about this cash hole digging a grave, others assert such spending was building a competitive moat. The latter argue that only an investor rookie worries about free cash flow at this stage of the game. Netflix's burn, the argument goes, is strategically sound as it garners and cements market share -- just like Amazon did.

So how how much "burn concern" was reflected in the 1259 Factiva articles appearing during the quarter leading up to its most recent results?

Here are the top ten words closest to the "Netflix" and "cash" couple according to our Word2Vec results. (Recall that Word2Vec processes raw text and positions words in a high dimensional vector space where semantically similar words are placed at nearby points.)

('spending', 0.777),

('increasing', 0.742),

('worth', 0.713),

('investing', 0.691),

('beat', 0.670),

('double', 0.667),

('add', 0.666),

('grow', 0.654),

('boost', 0.653),

('billion', 0.648)

Some observations:

• Contrary to our initial expectations, words such as "burn", "negative", or "trouble" are not at all prominent. Instead neutral words such as "spending" or even more positive words such as "investing", "grow", and "boost" occupy the space closest to Netflix and cash.
• For now, business publications appear to have largely bought into the Netflix strategy of spending/investing to build brand and attain global market share.
• Not surprisingly, Netflix's stock price has held its lofty valuation during this three month period of time, despite galloping hoofs of competition approaching from multiple directions.

When we repeat a similar Word2Vec analysis for the current quarter, should we expect to find a different set of words/phrases that reflect concerns such as:

• Will loss of pricing power (given aggressive pricing of competitive services) place a damper on Netflix's reach for positive free cash flow?
• Can Netflix continue to offer sweet deals to top talent, given the stress this puts on cash outflows?
• Given its huge customer base, will Netflix begin to explore a new business model to generate high margin revenue? In other words, can Netflix find what Amazon achieved with AWS or Disney discovered with merchandise licensing?

Or maybe Netflix will continue to operate for another quarter as is, burning cash yet still being protected under the sunscreen of first-mover disruption?

Weighing Disney v. Netflix

After over two years of "pregnancy" in the Disney womb, Disney+ will be born on November 12, 2019!

Pixar, Star Wars, Marvel, National Geographic, and Disney movies (from Snow White to Frozen) are some of the brands that will highlight the Disney+ launch. This streaming offering will compete with Netflix, Amazon and a host of other offerings as Disney makes a tectonic business model shift from out-licensing to direct-to-consumer streaming.

With this posting, we begin our analysis of how global business sources are weighing in on this ultra competitive space by examining the Disney/Netflix area of the battlefield. To do so, we evaluate the results from a Dow Jones/Factiva search selecting all articles mentioning both Disney and Netflix within ten words of each other. (Factiva is a global news resource with over 32,000 premium publications.) We did so for two time periods: 1) October 1 through December 31, 2018 (Q4 2018) and 2) January 1 through March 31, 2019 (Q1 2019).

Here are the number of articles over this period of time -- no surprise that the overall trend is upward:

Next we utilized the Word2vec model to process the raw text from these articles. Our use of this model places words in a high (64) dimensional vector space in which semantically similar words are positioned at points nearby each other. With Word2vec, one of the possible calculations generates the closest words in the space next to any given word (such as Disney). Another calculations generates the closest words next to any two given words (such as Disney and Netflix). For now, let's focus on the latter.

For Q4 2018, here is Python output (word, statistical measure of closeness) for the top dozen words in rank order that are closest to the Disney and Netflix couple.

1. ('disneyplus', 0.969),
2. ('streaming_service', 0.961),
3. ('announced', 0.955),
4. ('late', 0.936),
5. ('upcoming', 0.931),
6. ('launch', 0.923),
7. ('popular', 0.907),
8. ('show', 0.900),
9. ('library', 0.900),
10. ('competitor', 0.896),
11. ('warner_bros', 0.894),
12. ('exclusive', 0.892)

And here is the top dozen for Q1 2019. (Statistical measures overall are slightly lower, which is not unexpected given a larger number of articles):

1. ('disneyplus', 0.909),
2. ('rival', 0.898),
3. ('streaming_service', 0.878),
4. ('launch', 0.869),
5. ('upcoming', 0.863),
6. ('library', 0.852),
7. ('announced', 0.832),
8. ('hulu', 0.829),
9. ('debut', 0.784),
10. ('amazon', 0.782),
11. ('war', 0.778),
12. ('giant', 0.770)

A few observations:

• It's not surprising that disneyplus (Disney+) appears at the top of each of the lists. For both quarters, Disney+ was regarded as a chief contender to challenge Netflix's dominance of the steaming space.
• The Q1 2019 list suggests heightened intensity in the emerging Disney/Netflix conflict as indicated by the prominence of words such as rival, war and giant.
• Hulu's role in the saga achieved more attention during Q1 2019 in the global business press, given Disney's controlling interest in this property after completing the 21st Century Fox acquisition. How Disney will proceed with this complicated joint venture is of rising interest.
• Amazon's heightened prominence in Q1 2019 suggests it was increasingly being viewed as the third horse in the streaming race. Warner Bros (now part of AT&T) had been in the top 12 list for Q4 2018, but dropped to 20th position for Q1 2019.

We look forward to analyzing how the word vectors in this space evolve during Q2 2019. Here are some predictions:

• We'll see increased speculation on the outcome of the Disney/Netflix rivalry. In particular, concerns will be raised about the erosion of family-oriented Netflix subscribers. Many parents remain Netflix subscribers only because of the children's content offered. Netflix will be viewed as no match for Disney+ in this segment.
• Co-existence will be a theme. After all, at a $6.99 price point, Disney+ is not grabbing too much out of the consumer wallet. But speculation about bundling Disney+ and Hulu at an attractive price might begin, especially if Disney make overtures to buyout Comcast and AT&T, currently minority owners of the service.
• Expect to see more questioning as to why Netflix does not offer an annual subscription price. Subscribers of Disney+ will be able to purchase a $69.99 annual subscription. Netflix's monthly-only pricing only will increasingly be seen as a churn risk.

If you would like to use Google's captivating Embedding Projector to visualize our Disney/Netflix space for Q1 2019, you can do so here. (Note that Projector uses default distance metrics different from those utilized above.) Try typing in disney in the search bar, followed by netflix.