Memo: The Coming Streaming Content Shortage

The news of the recent cancellation of HBO’s sports drama “Winning Time” was met with palpable disappointment, and rightfully so. For me, it was jarring. A little bit of history, drama, and sports? That’s my happy place but even as a fan, I took it for granted. The series, which portrayed the rise and shine of the LA Lakers in their Showtime era of the 1980s, was a brilliant encapsulation of a period that reshaped professional basketball. Yet, just after two seasons, HBO decided to pull the plug. The questions that arise are why, and what if it had been on a different platform, say, Netflix?

A new Luminate x Variety report suggests that broadcast TV experiences the highest overall cancellation rate (26.6%) in comparison to streaming (12.2%) and cable (7.2%). But streaming’s worst culprit is worse than broadcast. Max cancels 26.9% of original programming, followed by Disney+ (21.1%), Paramount+ (16.9%), and Hulu (15.2%). However, Netflix stands at a modest 10.2%, while Apple TV claims the lowest cancellation rate for original programming at 4.9%. Given this scenario, where does the blame for content cancellation lie?

It’s a misconception that Netflix, with its massive library, has a trigger-happy approach to cancelling shows. On the contrary, the platform’s cancellation rate has consistently dropped between 2020 and 2023. Despite its enormous volume of content, it remains in line with most major streaming services in terms of cancellations. A vast portion of its 2020 cancellations were attributed to pandemic-related factors. If “Winning Time” had found a home on Netflix, it may very well have been met with a different fate. With HBO’s decline in traditional viewership and the ongoing writer and actor strikes causing hitches in promotions and content creation, the series was caught in an unfavorable storm. Netflix’s expansive reach and varied demographics could have offered “Winning Time” the viewership it deserved.

Netflix’s method of releasing content worldwide simultaneously allows for a larger, diverse audience to access shows at the same time, creating a global conversation. HBO’s limited promotional capabilities due to the strikes would not have been an issue for Netflix, which has mastered the art of promoting its originals even amidst external challenges. Moreover, HBO’s business model largely depends on traditional metrics of success. In contrast, Netflix, due to its subscription-based model, can afford to prioritize viewer retention over sheer numbers. For them, a show that cultivates a dedicated, albeit smaller, audience can still be deemed a success. Netflix values viewer engagement, ensuring content gets the breath of air it genuinely deserves.

Warner Bros. Discovery’s Max has been termed a “content butcher”, with its massive content purge last year drastically elevating its cancellation rate. Such an approach contrasts with Netflix’s strategy, which is more about curating content that resonates with different demographics rather than indiscriminate culling. Considering the relatively low cancellation rates for streaming platforms, especially Netflix and Apple, it’s evident that the narrative of streaming giants ruthlessly cancelling shows is misguided. Their focus on global audiences, engagement metrics, and viewer retention ensures that good content doesn’t go unnoticed.

The premature ending of “Winning Time” is emblematic of the broader shifts and misconceptions in the entertainment industry. While traditional networks grapple with content volume and promotion challenges, streaming platforms, especially Netflix, are emerging as sanctuaries where content can genuinely thrive. It’s high time we adjust our perceptions about content cancellations and recognize where the future of quality content truly lies.

The cancellation trends we are witnessing, particularly on streaming platforms like Max, foreshadow an impending content shortage across all streaming platforms. As these platforms, driven by immediate metrics of success (net subscription figures), continue to truncate promising series prematurely, they risk not only alienating dedicated viewers but also stymieing the growth of diverse content. When networks like Max give up on shows such as “Winning Time”, they’re not just ending a series, they’re halting creativity.

Such a content deficit will inevitably lead to a vicious cycle. As platforms fail to retain viewers with a lack of engaging and varied content, subscription numbers will dwindle for some platforms and/or shift towards a greater allegiance to Netflix. Declining viewership and subscription numbers, in turn, can result in reduced funds for content creation, leading to even fewer new series or movies. It’s this very spiral that threatens the survival of under-performing networks.

Furthermore, a content drought can have cascading effects on the larger entertainment industry. Production houses may become wary of investing in new and unique ideas, fearing premature cancellations. Talented writers, actors, and directors might find themselves entangled in projects that never see the light of day or are cut short prematurely, thereby stunting creative growth. In an era where content is king, any shortage or consistent termination of high-potentials series can severely undermine a platform’s value proposition. If unchecked, this trend might just turn streaming platforms into barren wastelands, characterized more by what they could have offered than what they do. In this high-stakes environment, it’s imperative for networks to reevaluate their content strategies, ensuring they nurture and not negate their most valuable asset: compelling narratives and the passionate followings that they collect.

Content, undoubtedly, is king in the realm of entertainment. However, even a king requires territories to establish dominion, and for content, visibility serves as these expansive lands. Without adequate visibility, even the most compelling narratives remain confined, their potential unrealized. Like a king without land, content without a proper platform and audience is devoid of its true worth and influence. For a tale to truly reign, it must be seen, heard, and celebrated. Without its rightful land of visibility, even the mightiest content cannot claim its deserved throne.

Long live Winning Time.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams 

Brands: The Next Concern (Microplastics)

An entire segment of the retail industry is on a ticking clock. In the near future, due to changing public sentiment and increasing challenges, athleisure companies that fail to adapt will be at a disadvantage. Home Textiles Today explains:

A quantitative online survey of 527 U.S. adults found that 49% are familiar with the term “microplastics,” and those adults are most likely to identify plastic bags (76%) and microbeads (61%) from health and beauty products as contributors. Just over half (52%) were aware that clothing made from synthetic materials, like polyester, impacts the problem of microplastic pollution. (Read More)

By 2028, retail brands heavily reliant on microplastics will face pushback and declining approval. The apparel industry is notorious for its use of plastic-derived fibers from petroleum. Approximately 70% of materials found in most garments – including yoga pants, jackets and others – contain nylon, polyester, and similar non-biodegradable textiles. Currently, the US Environmental Protection Agency states that only about 15% of these textiles are recycled.

With growing environmental awareness and legislative pressures, brands will likely encounter challenges in maintaining their business models based on cheap, non-biodegradable materials. As highlighted by George Harding-Rolls from the Changing Markets Foundation, ultra-fast fashion brands, which heavily rely on synthetic fibers, will bear the brunt of this shift, potentially rendering their business models obsolete if legislation were to be passed limiting this type of material use. An interesting article from the Journal of Hazardous Materials (February 2021) states:

Subsequently, we estimated that globally on average, humans may ingest 0.1–5 g of microplastics weekly through various exposure pathways.

Companies like Reformation are already paving the way by setting bold targets to minimize synthetic use. Partnering with startups like Kintra Fibers, they’re exploring alternatives such as biodegradable polyester derived from corn. However, scaling up these innovations to match the current demand for synthetics will be a significant challenge.

When Lululemon made a minority investment in Australian startup Samsara Eco in mid-May, the move was a significant nod to the industry’s changing approach to sustainable apparel. The multi-year commitment marked Lululemon’s first step into the recycling domain, showcasing a shift towards using enzymes to recycle old textiles into new ones. Through this enzymatic process, Lululemon aims to transform used nylon and polyester from damaged or discarded clothes into materials for new collections.

I believe that this is a band-aid on a much more significant wound. Traditional recycling methods for fashion brands include mechanical recycling and chemical approaches. However, these methods have their drawbacks, from relying on virgin plastics to maintain quality to the high energy requirements for breaking down polymers. In contrast, the enzymatic approach, as adopted by Samsara Eco, efficiently breaks down plastics in a carbon-neutral, low-heat environment. This innovative method could potentially reduce the need for new plastic production, given its ability to recycle existing plastic effectively.

The significance of this approach is evident as the fashion industry grapples with its dependence on microplastics. According to a recent article by Vogue, about two-thirds of our garments are made from synthetics such as polyester, nylon, acrylic, and elastane. These materials, derived from fossil fuels, not only release microplastics into the environment but also take centuries to degrade.

This is where the rise of organic-based textiles with technologically advanced properties will dominate, setting a new trend for the future.

The industry’s transition from virgin polyester to recycled polyester is a step in the right direction, with major brands pledging to adopt recycled polyester by 2025. However, sourcing this polyester primarily from plastic bottles shifts the recycling process from a closed-loop system to a linear one, essentially directing these materials to landfills after their use in fashion. The fashion industry, particularly the athleisure sector, is at a crossroads. As consumers become increasingly aware of the environmental implications of their clothing choices, they are demanding more sustainable and environmentally-friendly options.

The use of synthetic fibers are continuing to rise. But by 2028, the industry’s heavy dependence on synthetic textiles, laden with microplastics, will have to be substantially reduced if not eliminated to ensure survival in its current form. This is where the rise of organic-based textiles with technologically advanced properties will dominate, setting a new trend for the future.

The Microplastic Dilemma

As outlined in the LA Times, the term “microfiber”, once synonymous with versatile cleaning products, has become an environmental nightmare. When these microfibers, predominantly composed of synthetic materials like polyester and acrylic, are shed during laundering, they find their way into our oceans, rivers, and lakes. The omnipresence of microplastics, which have even been detected in our food chain and water supplies, raises alarming health concerns. Chronic inflammation, cancer, and infertility are just some of the potential risks as these minuscule particles invade human systems.

The enormity of the problem is further compounded when considering that once microfibers enter the environment, they are virtually irretrievable.

Emergence of a Solution: Enzymatic Technology

As the problem with microplastics gained momentum, leading fashion brands and startups began exploring innovative solutions to address this crisis. The partnership between Lululemon and Samsara Eco marks a pivotal moment in this journey. Here, the combination of organic textiles and technology promises a transformative solution.

Lululemon’s commitment to using Samsara Eco’s enzyme-driven technology not only embodies a shift towards circular fashion but also emphasizes the growing need for sustainable solutions within the industry. This technology can efficiently break down used nylon and polyester blends into a form that’s compatible with new fashion collections. With an astounding 70% of the materials in apparel containing synthetic, petroleum-derived fibers, such initiatives are not just commendable but imperative.

Why Enzymatic Solutions? Traditional methods like mechanical recycling have limitations in terms of longevity and efficiency. They also demand the addition of virgin plastics, further exacerbating the microplastic issue. Chemical approaches, on the other hand, are energy-intensive. Enzymatic solutions, however, emerge as game-changers. According to Paul Riley of Samsara Eco, this technology requires less heat and efficiently breaks down plastics, rendering them as good as virgin-quality materials. The subsequent reduced carbon footprint is an added advantage.

Such advancements don’t exist in isolation. The collaboration of global giants like Amazon, KraftHeinz, and Patagonia with research institutions is fast-tracking the development of these enzyme-based solutions. Notably, the discovery of the bacteria Ideonella sakaiensis 201-F6 by the Kyoto Institute of Technology is a testament to the significant strides being made.

The Road Ahead

Startups like Carbios and Protein Evolution, in conjunction with esteemed fashion brands, are set to redefine the future of fashion. By championing enzymatic recycling, they are proving that the fashion industry can indeed exist symbiotically with the environment.

However, as promising as the future looks, the transition won’t be instantaneous. It will require time, investment, and collaborative efforts from all stakeholders, including consumers. The proposed changes in washing machine design to incorporate filters for capturing microfibers, as indicated in the cited LA Times report, showcase the holistic approach needed.

As consumers champion a more eco-friendly, health-conscious, and sustainable approach to fashion, the industry’s pivot to organic-based textiles supplemented with cutting-edge technology will not just be a trend but a necessity. The ongoing collaborations, technological advancements, and investments underscore a hopeful and sustainable future for fashion. While enzymatic recycling offers promise in reducing textile waste, the broader fashion industry must confront its dependency on microplastics. With a sea change looming by 2028, the emphasis should be on innovation, sustainable alternatives, and addressing the root issue of overproduction.

Retail brands that fail to adapt may find themselves marginalized in a rapidly evolving market landscape.

By Web Smith | Editor: Hilary Milnes with art by Alex Remy and Christina Williams 

Memo: DTC’s Good News

The list of pending consumer IPOs is extensive. They include: Fabletics, Fanatics, Flipkart, Hungryroot, Impossible Foods, Liquid Death, Lovevery, Rokt, Saks.com, Shein, Skims, Klaviyo, and Instacart. Birkenstock, a longstanding retailer that has seen DTC success, is said to be pursuing an initial public offering as soon as September thanks to a reported 340% increase in demand, according to 3DLook.ai‘s analysts.

The impending 2023 IPOs of the above retailers as well as technology companies including Klaviyo and Instacart, plus with the continued growth of retail media, signal increasing odds of liquidity events for direct-to-consumer brands, who may take part in a potentially exciting fourth quarter wave of IPO filings. According to Will Braeutigam, US capital markets transactions leader at Deloitte:

Expectations for active Q4 public listings are on the rise and companies have started to re-engage around the IPO process.

Klaviyo, the leading independent eCommerce marketing software provider, has recently turned profitable, a crucial milestone ahead of its IPO. However, it faces challenges such as intensifying competition, slowing revenue growth, and a high dependence on eCommerce clients. Similarly, Instacart, the online grocery delivery service, has had a decent bottom line ahead of its IPO, with advertising accounting for more than a quarter of its annual revenue. However, it faces challenges such as slowing gross transaction volume growth and increasing competition. The Information explained it this way:

Klaviyo’s backers also face the reality that valuations have fallen sharply since 2021, when the company was valued privately at more than $9 billion. One publicly traded comparison is HubSpot, which is trading at around 12.8 times its last year’s sales, though it offers a broader range of tools than Klaviyo. Another marketing software firm that could be more in line with Klaviyo’s business is Braze, which is trading at around 9.4  times last year’s sales. An average of those two, applied to Klaviyo’s $472.7 million in 2022 revenue, implies an enterprise value for Klaviyo of only $5.3 billion.

Instacart tells a similar tale, according to Insider:

Given Fidelity currently values its Instacart Series I shares at $45.10 each — the same value as its Series H shares — the startup’s share value has been slashed by nearly 64% in the last 30 months, largely during the first part of last year, and remains near record lows.

These IPOs are significant barometers for several reasons beyond the typical: employee liquidity, corporate influx of capital, and a valuation benchmark. The online retail industry is in dire need of more successful exits. The shadow of 2021’s boom and IPO bust looms over the industry, but recent successes like Oddity’s IPO and current $2.5 billion market capitalization are positive signals. In 2022, Oddity, who owns makeup brand Il Makiage, climbed from a 2021 tally of $110.6 million in net revenue to $324 million the following year. LVMH’s private equity arm, L Catterton, earned a substantial return.

There is a surprising parallel between Oddity’s success and the potential of Instacart and Klaviyo to find post-exit success: each of the three companies is highly dependent on its own platform’s retail data. Instacart and Klaviyo have used millions of consumer data points to its collective advantage, Instacart more directly with its burgeoning retail media operation.

Despite the slashed share prices of Instacart and Klaviyo, it has not become the prevailing narrative for either company. And there are positive indicators in addition to Klaviyo and Instacart’s potential promise. The continued general growth of retail media is a key signal for DTC brands; we’ve extensively covered retail media’s promise here:

The advertising category, which includes advertising on eCommerce platforms, social media, and other online channels, has been growing rapidly as consumers increasingly shop online. This provides an opportunity for DTC brands to reach their target audience more efficiently and effectively. The WSJ notes (ironically) that Instacart “might be too reliant on ads.” I disagree; as long as sales volume continues to grow, retail media’s growth will be a multiplier for Instacart. And if retail media continues to become a reliable revenue generator for DTC brands, it may become the rising tide needed by DTCs proverbial fleet of ships.

After a soft June where revenues were flat compared to last year (despite rising prices), the Belardi Wong survey of DTC sales, cited in the header image, the retail category showed a surprising +4 percent YOY. The breakdown by category looked like this:

  • Apparel: 10% YOY
  • Shoes and Accessories: 8% YOY
  • Home decor: -5% YOY

The Big Takeaways

The upcoming 2023 IPOs of Klaviyo and Instacart, along with the continued growth of retail media, indicate increasing odds of liquidity events for DTC brands. Here’s why:

  • Profitability of Klaviyo: Klaviyo turning profitable in the first half of 2023 signals a strong financial position likely to attract investors during its IPO. This is a positive sign for the DTC brands using Klaviyo’s services as it indicates the company’s ability to provide sustainable and potentially more innovative services in the future.
  • Increased value of customer data: The surge in eCommerce growth and Apple’s privacy changes have made customer data more valuable to merchants. This has led to increased funding for marketing startups like Klaviyo and Attentive, indicating a strong demand for their services. DTC brands, which rely heavily on online sales and marketing, stand to benefit from enhanced tools and services provided by these companies.
  • Intensified competition: The increasing overlap of features among startups and the entry of big players like Shopify and Amazon have intensified competition in the marketing tools space. This is likely to lead to the development of more innovative and cost-effective tools for online merchants, benefiting DTC brands.
  • Diversification of client base: Klaviyo’s efforts to diversify its client base beyond eCommerce and reduce dependence on Shopify clients indicates its intention to expand and strengthen its market position. This could lead to the development of more tailored services for different industries, benefiting a wider range of DTC brands.
  • Valuation challenges: The lower-than-expected valuation of Klaviyo at its IPO could signal challenges for other companies in the space and lead to a reassessment of valuations. This could result in more realistic valuations for DTC brands, making them more attractive investment opportunities for investors.
  • Growth of retail media: The continued growth of retail media signals an increasing shift of advertising dollars towards online retail platforms. This presents an opportunity for DTC brands to access a larger audience and potentially achieve higher sales. The increased advertising revenue for online retail platforms could also lead to more investments in enhancing their services, benefiting DTC brands.
  • Interest of investors in Klaviyo’s IPO: The intense interest of investors in Klaviyo’s IPO indicates the attractiveness of the online marketing tools space. A successful IPO of Klaviyo could lead to increased investor interest in other companies in the space and potentially more liquidity events for DTC brands.

The road to liquidity events for DTC brands is not without challenges. The intense competition in the eCommerce space means that companies need to continuously innovate and invest in growth to stay ahead. Moreover, the high valuations of many DTC brands mean that they need to meet high expectations of growth and profitability to justify their valuations.

The points raised above could signal increasing odds of liquidity events for DTC brands. However, DTC brands need to navigate challenges such as intense competition, high expectations of growth and profitability, and the need to continuously innovate and invest in growth.

By Web Smith | Editor: Hilary Milnes with art by Christina Williams and Alex Remy