Member Brief: Eddie and Cactus Jack

Netflix is growing up and Disney is playing it safe. The impending battle between Netflix and Disney Plus is shaping up to become a pivotal moment in streaming’s 22 year history. Two titans are swinging for a monopoly in a field that had none before it. Or is that the case, after all? The pioneer in streaming entertainment has been challenged by the historical favorite in entertainment and intellectual property. But consumers have seen a contrast like this before.

Read more by signing in. Not a member yet? Learn more here.

Sign In

No. 325: Consolidation and Cable 2.0

The center of the home is still the room with the television. In that room, there is an arms race happening before our eyes. Streaming properties are adopting an end-to-end format that reflects the very nature of digitally native brands: own the product, own the channel, and you’ll own the consumer. But it wasn’t always that way and it may not always be.

This past weekend, my wife wanted to watch our favorite show. But in my parents’ market of Northwest Florida, that Sunday evening was disrupted. Their home was in a sort of in between, half traditional cable and half streaming services. But without HBO Now, we couldn’t watch the one show that we agreed upon. This situation was not without its irony.

Now-retired, Cleon Smith spent 30+ years as an executive in the cable industry. First for Time Warner, then Comcast, and finally – Cox Communications. It was within the walls of Time Warner that I interned with his upstart broadband internet department: code named “Road Runner.” As GM of the service, his market (the dense triangle of Houston, Dallas, and Austin) launched shortly after the test in Elmira, New York. At 14 years old, I watched his group tweak, market, and launch a product that would shape Texas’ future and then the nation’s. That broadband service, the first of its kind for the general public, would disrupt his company’s core business forever. Or so I thought.

I understood why the streaming industry took off but in the end, those consumers will yearn for simplicity of the good ole’ cable days. We sold a good product.

With the advent and widespread adoption of broadband internet, services like Youtube launched in 2005. And then, like a hurricane hitting an unsuspecting island of plywood homes, Netflix pivoted to streaming service in 2007. That did change everything.

Companies like Comcast, Time Warner, and Cox Communications began to innovate by introducing on-demand options and, eventually, the ability to login to Netflix or Hulu accounts to their OTT devices. But it didn’t end there. Each of the aforementioned properties were disrupted. First, by the Netflix approach to marketplace growth – an innovation that provided millions of cable, Dish, and DirecTV subscribers the incentive to “cut the cord.”

This is an example of a consumer household in 1995:

  • broadcast television: cable or satellite provider
  • basic: cable or satellite provider
  • premium services: cable or satellite provider

This is an example of a consumer household in 2012: 

  • broadcast television: cable or satellite provider
  • basic: cable or satellite provider
  • premium services: Netflix, iTunes

This is an example of a consumer household in 2020:

  • broadcast television: antenna, Hulu+, Sling, DirecTV Now, CBS All Access
  • basic: Philo, Sling, YouTubeTV, Playstation VUE, Netflix, Roku, iTunes
  • premium services: Netflix, Showtime (streaming), HBO Now, Prime Video, Vudu, Disney+

Between 2007 and 2018, Netflix worked to build a proverbial “mall” of properties by purchasing, licensing, or manufacturing intellectual property. It resembled elements of traditional cable but it emphasized the program, not the channel. Netflix Originals were purchased from independent filmmakers and marketed as Netflix’s own. Broadcast television properties like “Friends” and “The Office” were licensed for tens of millions of dollars per year. Hollywood A-listers and top directors were granted $300 million budgets for films meant to rival big studio releases. Yet, Netflix is currently trading at six month lows after news of: historic subscription losses, a small revolt after a $2 price increase, and the loss of two major properties. Industry analyst Andy Meek [1] on the matter:

Netflix lost 126,000 subscribers during the quarter, the first time that’s happened since the streamer actually started producing original content. Yikes. And then when you couple that fact, plus the quarter’s lack of new hit content and the imminent loss of shows like “Friends” and “The Office” with the forthcoming launch of rival streamers from Apple, Disney, and HBO’s parent company, among others — it’s a recipe for disaster and whatever the Streaming War’s version of hand-to-hand combat is, with everyone taking a piece out of Netflix, right?

As Netflix’s value erupted, an inverse relationship manifested: Netflix’s success and the commodification of the studios. The streaming industry increased their leverage by providing more consumer optionality and negotiation-by-wallet power to end users. In the process, cord cutting began to hurt studios as well. Not only are their cable contracts diminishing in value, their streaming payouts aren’t making up for the lost revenue.

Coupled with changes in consumer behavior, contract fallouts between studios and streaming channels, and the continued proliferation of speedier data services – you have the basis for the continued fracturing of the industry.


2PM Data: The Macroeconomics of Streaming

Subscriber losses for selected cable companies in the U.S. 2018 | Source: Leichtman Research Group
Pay TV penetration rate in the United States from 2010 to 2018 | Source: Leichtman Research Group
TV services used as substitute by cord-cutters in the U.S. 2017, by viewer type | Source: Nielsen
Monthly time spent watching OTT services in the U.S. | Source: comScore

The final graph is, perhaps, the most interesting. Disney-owned Hulu has begun to close the gap between their offering and Netflix. With Disney’s properties growing in popularity, analysts anticipate Hulu will continue narrowing Netflix’s lead.

Netflix planned to be the modern consumer’s iteration of cable television – a model that depended on a critical mass of content and viewership. That critical mass had to remain greater than the sum of all potential streaming competitors. For a time, the Reed Hastings-run media company had enough of what America needed: great classics, go-to films, syndicated sitcoms, game-changing originals. And then the ecosystem began to fracture. Properties like “Friends” left for WarnerMedia’s streaming service while “The Office” prepared to depart Netflix’s content menus for NBC’s streaming equivalent. Becca Blaznek on why “The Office” has left Netflix [2]:

Among them is NBCUniversal, which owns the rights to The Office. On June 25, 2019, the company released a statement that they will not be renewing their deal with Netflix, instead bringing the “rare gem” to their platform beginning in 2021. According to the Hollywood Reporter, this will not affect international viewers for the time being.

Like the consumer categories that went vertical to compete in a new economy, so have the studio brands competing for the mindshare of cord-cutting consumers. This had an unintended effect however. While modern consumers prefered streaming over traditional broadcast or service providers, the traditional consumer still prefers their traditional television over other devices for streaming media.

The DTC Evolution

Sales of OTT devices | Source: Strategy Analytics

As media fracturing continues, contract negotiations between studios and existing streaming services will only intensify. This will result in added subscription costs for consumers. The promise of the cord-cutting age was two-fold: (1) improved household economics and (2) accountability. Consumers wanted to avoid the pages of unused television programming that went neglected. Today, it’s typical for a cord-cutter to maintain subscriptions to 5-10 monthly media services to accomplish the same consumer tendency: availability irregardless of usage rate.

Today’s consumer is submitting to this dizzying dance of “subscription / login / password recall / and idle subscription” but without the convenience that consumers found with traditional cable providers.

As such, the disruptor is due for disruption. And in this way, an earlier inference may have been mistaken and my dad could end up right. With cable and data providers like Comcast, Cox, and AT&T controlling the pipeline and studios increasingly at odds with new-age streaming services, the momentum is tipping in the favor of tradition. While OTT boxes like Roku and Apple TV have made subscriptions and programming search infinitely easier, the 1:1 connections between consumers and streaming agents continues to subvert the innovation’s original intent: ease, consistency, and value.

It’s likely that the traditional media consumer has reached their limit. Cord cutting was an economically-driven phenomenon. Foregoing the streaming economy in exchange for returning to traditional cable is a question of programming availability and ease of access (try logging into Netflix on a relative’s cable box).

Streaming services will be bundled. It’s likely that we’re near the point of OTT carriers marketing the opportunity for consumers to purchase pre-negotiated, economically-friendly bundles of streaming services packaged. With no-login, one collective price, and less of a fear of missing out – the past has become the present. Disney’s streaming offering may be the sole victor here; their value and reach may outlast a shift back consolidation. For all others, the fracturing market of streaming video on demand (SVOD) has begun to cannibalize the direct to consumer opportunity that was the initial appeal.

In this manner, there is similarity between retail’s DTC cost-elasticity and SVOD’s elasticity. For online retailers, CAC has risen as digitally native brands flooded the market (performance advertising inventory remained constant). For streaming media companies like Netflix, CAC has risen as studios flooded the streaming market and costs to feature their properties became prohibitive. While Facebook and Google’s ad inventory’s limitations have resulted in price elasticity, the SVOD parallel is slightly different. The streaming consumer’s spend is nearing its point of elasticity. And the end game may be consolidation, a result of the yearning for good old cable days.

Read the No. 325 curation here.

Research and Report by Web Smith | About 2PM

Additional reading: (1) Member Brief: The Netflix Report (2) Monday Letter: The Hundred Year Titan (3) This wonderful thread by Nate Poulin that further contextualizes this report.

No. 268: The Billions Effect

facebook-ad copy 2

Affleisure: affluent leisure. Showtime’s hit series Billions peers into the life of Bobby Axelrod, a 9/11 survivor who rose through the ranks to become a billionaire hedge fund investor only to establish a rivalry with U.S. Attorney Chuck Rhoades. Axelrod is loosely based on hedge fund manager Steve Cohen and is described as a man from humble beginnings. This is the appeal of the most polarizing character on television. And he is just one part of premium cable television’s most talked about show.

If you’ve built a great product, you’ll need an audience. And if you’ve built a captive audience, you’ll need a great product. The study of content x commerce shouldn’t be reduced to digital publishing.  We see examples of media properties’ influence on commerce all around us. As such, analysts cannot ignore the influence that Billions and, particularly, Damien Lewis’ portrayal of ‘Bobby Axelrod’ has had on apparel consumers.

Historically, a media property’s proof of influence is the measure that drives advertising revenue. Thanks to a shift to streaming media, media conglomerates like Showtime, Inc. will measure this data in new ways. Namely: how will this media property advance our subscription business? 

The show, which averages between 4.5-to-5 million weekly viewers across platforms, has a very loyal legion of fans that via word-of-mouth, have helped grow the show’s viewership season-over-season. Throughout season two, the series grew on Sunday nights by more than 35% from premiere-to-finale. And, the season three premiere was the show’s highest-rated ever with the March 25 debut up 23% from last year.

Fans Love Billions, Forbes

Taking note of the viral spread of pop culture trends based on influence, Showtime recognized the opportunity to drive an additional revenue stream beyond the standard media subscriptions and event sponsorship (boxing, etc.).


Here is a recap from Issue No. 252: Content x Commerce Super Powers:

Billion’s Axe Capital is one of the most intriguing fictional companies on television. It should be no surprise that I’ve stumbled upon a handful of sophisticated finance-types wearing these branded hedge fund vests on a spring day in Manhattan. They are in on the joke.

But more than just intellectual property hawking, Showtime is innovating here. Their commerce software is capable of overlaying store content on screen during broadcasts.

Connekt’s patent for T-Commerce enables seamless and secure viewer engagement and checkout by combining consumer profiles with pre-existing registration services.

Showtime is preparing for an Apple TV-driven entertainment world where purchasing products is as simple as authorizing your iTunes account to spend $44.95 for the hoodie that Bobby Axelrod was wearing.

See the Showtime store here.


As media and branding continues to converge, controlling the ecosystem is key for many industry players. One of 2PM’s capstone beliefs is that success in merchandising is a foremost indicator that a publisher’s existing community can grow by word of mouth. And without the pull of fickle social networks or a weakening advertising business.

Web Smith on Twitter

Bobby Axlerod is influencing white collar soccer dads. Everyone is dressed in head-to-toe, all-black, biz-athleisure.

This is where cultural impact comes into play. Unlike viewership and eCommerce sales, culture can be difficult to quantify. But it’s apparent that the show is influencing its target demo: 24-39 year old males.

Type “Bobby Axelrod” into Google and the first recommendation that pops up is “Bobby Axelrod hoodie.” So, to satisfy your curiosity: Mr. Axelrod, the cool-as-an-ice-cube-in-Alaska protagonist of Showtime’s series “Billions,” wears Loro Piana zip-ups. They’re cashmere and just in case you’re really interested in dressing like the man who makes the billions on “Billions,” each one costs $2,295. 

How to Dress Like a Billionaire, Wall Street Journal

There is a palpable shift in both the style of clothing and the color palette used by the upper-middle class fans of the show in Silicon Valley, Los Angeles, New York, and even the metropolitan midwestern cities. Brands are beginning to partner with Showtime to capitalize on this.

Last week, Brooklyn’s Greats Brand released an ultra-limited edition Axelrod shoe; 100 pairs of the premium Italian-suede shoes sold out in under 17 minutes. Viewers are so drawn to morally-ambiguous Bobby Axelrod that they’re buying shoes in his name.

Screen-Shot-2018-05-07-at-3.41.18-PM.png
May 2018 saw peak search traffic for the ‘Billions’ character

CEO of GREATS Brand (2PM No. 73), Ryan Babenzien had this to say in defense of the collaboration:

Bobby Axelrod is a man from humble beginnings. A desire to escape his means and prove his ambition drove years of hustling and grinding. Add no small amount of cunning, and eventually Axe made himself into one of the most powerful men on Wall Street: a bona fide billionaire. We admire Axe for his ambition as much as we do for his style. Favoring a well-worn pair of jeans and Metallica t-shirt over the obvious power-suit, Axe carries himself with the confidence and understated elegance that we appreciate here at GREATS. With Axe as our inspiration, we partnered with Showtime to create our richest Royale yet.

Billions has achieved a television milestone like only a handful of shows before it. It’s influenced men’s fashion by redefining business casual (specifically high dollar affleisure) for white collar workers. Babenzien’s aforementioned statement perfectly summarized the character’s appeal. The shoe collaboration further established the influence of the show’s culture and the virtuous cycle of water cooler chatter, media buzz, and search traffic around each week’s episode. Coincidentally, the most recent Sunday night was the show’s strongest in its three year history.

Read more of the issue here.

By Web Smith and Meghan Terwilliger | About 2PM