Saturday Thought: You Lost

I hope everyone is staying dry amidst this gloomy and rainy week.

Today’s newsletter is about the writer’s strike.

I hope you enjoy.

Shout out to today’s sponsor Jimmy Fusco.

Jimmy works for NCM, and they’re about to go on a run.

Taylor Swift movie coming out in mid-October. Maybe you’ve heard of her after Travis Kelce put her on the map last weekend.

And, with the strike over, the movie slate is locked and loaded for 2024.

Hit up Jimmy and talk shop with him.

Onto to the thought.

Saturday Thought

Advertisers lost the writer’s strike.

Let me explain.

On first blush, you could think that advertisers came out ahead.

Writers are going back to work, and actors will soon follow.

That means fresh, premium video content will soon hit our airwaves.

While most of this content has been pushed out to 2024, most advertising budgets have been pushed out as well, with many companies looking to make bigger bets next year vs. this year.

More content back on TV will also decrease pricing pressure on sports.

And, more content to run against is sorely needed next year, when an influx of political dollars will compete with traditional advertisers for airspace and airtime.

But most of this fresh content will not go to TV. It will go to streaming.

Hulu, Netflix, Disney+, etc.

Streaming services are the de facto home of dramas, comedies, etc.

While TV has become the de facto home of sports and news.

And, streaming services are under increased pressure to perform.

They are big money losers.

Disney+ has lost $11B since 2019.

Peacock will lose $3B this year, up to $6B lifetime.

That means a few things for advertisers.

The first is, and again on first blush, a good thing.

The companies behind the streaming services not only have to pay for this new content, but also higher writer salaries and residuals on hit shows.

The only way to do that, is by increasing their advertising tiers.

Why?

They make more money off of their ad-supported customers than their non ad-supported ones.

For example, in Q2, Netflix’s average revenue per user on its ad tier was higher than its standard ad-free plan.

On its ad tier, Netflix can double dip - they get money for the $7 ad-supported subscription, and then make an additional $8.50 per customer from advertising to them.

So, in order to pay these higher fees to writers, advertising on premium streaming services will have to explode.

Netflix’s password crackdown will finally happen.

Disney+ will continue to bundle its ad tiers with cable subscriptions for more reach.

And finally, a valve long closed off to advertisers - Netflix content, with meaningful reach - will be possible to buy against.

What’s more, these companies will maximize targeted and programmatic advertising in this content, to sell to as many advertisers as possible.

For example, instead of just selling one :30 spot to all viewers of a program, Netflix will sell the same :30, but to different people based on their interest.

Dog lovers will get a pet brand ad, moms will get a CPG brand ad, etc.

All of this seems…amazing for advertisers.

More video content back on air to surround.

More premium content to buy ads against.

More advanced targeting to reach the right people.

So why did advertisers lose?

Cost.

The studios wanted to give the writers an $80 million raise.

The writers won a $240 million one.

The studios can’t pass these costs onto the consumer.

People are incredibly picky and willing to drop streamers that raise their prices.

So who is going to foot the bill?

Advertisers.

These shows will come back on air, and by default, command higher pricing.

New shows will cost more to buy ads in, because if they take off, the studios have to pay up for their performance.

And what’s more, less shows will be made, because studios will be pickier about funding expensive productions and potential residuals.

Less shows will lead to more competition, which will lead to higher pricing.

And while targeted advertising may allow for more advertisers, these ads will serve in the long-tail of these platforms vs. the Stranger Things of the world.

Ultimately, while the writer’s strike fought for the little guy of the writer’s room, it will have a negative impact on the little guy of the advertiser room.

Advertisers with smaller budgets will be gate kept from this new CTV world.

And forced to continue to rely on other channels for growth.

So if you work for a brand, let them know this:

The writer’s strike is over.

And even though premium content is coming back…

…and there will be more quality video ads then ever before to buy…

…you probably lost.

Stay thinkin,

Danny