Matthew Ball @ballmatthew Venture investor, strategist, essayist, that guy on Twitter. Prev. Head of Strategy @AmazonStudios, ex-Otter Media, @MediaREDEF. 🇨🇦 Dec. 03, 2018 4 min read

1/ On Netflix’s Marvel cancellations, there seems to be some nuance that’s missing which tells you a lot about the future of OTT video in 2019. I’m sure both sides wanted a renewal, but the *absolute* not just relative value for both sides continued to decline. And thus no more.

2/ Netflix reportedly holds the right to keep renewing these shows, irrespective of Disney's preferences. Disney may be entering Netflix's territory with Disney+, but that didn’t drive the cancellations. Netflix was making a rationale decision based on quality, cost, viewership

3/ To point, the shows will remain NETFLIX ORIGINALS for years, Disney would have to buy them back (and says they don’t fit with Disney+’s positioning and won't be rebought) and there’s likely a hold on re-using the IP in TV (i.e. Disney can’t just launch a new Luke Cage in 2019)

4/ The reality is these shows were unprecentedly expensive (Netflix reportedly paying 60% markup), but they weren’t very good, audiences have undoubtedly declined precipitously (you can see this in the marketing spend) and it’s hard to grow audience in late seasons (con't)

5/ With old, mediocre shows it's just about viewer retention each year

To point, Disney never put much effort in their Netflix shows. Daredevil had 3 showrunners in 3 seasons, Luke Cage was 2 in 2, Jessica Jones 2 in 3, etc.

(And the teased MCU integration never happened!!)

6/ It's telling that the signature achievements and performers of the MCU are the 'Avengers' films, but the 'Defenders' was one of the least buzzy, least viewed titles (in part because the preceding two series, the back half of Luke Cage and all of Iron Fist, were very poor)

<Sidebar> Poor quality always catches up to you with content 

7/ The Netflix-Marvel deal was set at a time (Nov 2013) when NFLX needed big, buzzy IP that stood out and didn't need to be managed internally. Willing to pay whatever it took for it

And note, the deal was meant to be single seasons. Despite its end, Marvel/Netflix was a success

8/ In 2019, Netflix has a huge internal pipeline - fueled by mega-deal with Shonda Rhymes, Ryan Murphy etc - and there's no markup for their own stuff

And Netflix's audience and brand are much larger. This means Netflix's needs grew as the contribution of the Marvel shows waned

9/ And with Marvel now focused on their own SVOD shows (e.g. the MCU Loki series for Disney+), it’s hard to imagine Disney’s best foot forward was going to go towards aged Netflix series

10/ Netflix reportedly wanted to shorten the seasons, thereby reducing total spend and improving retention and quality (Netflix’s shows, especially the Marvel ones, are famously bloated). Reportedly from 13 eps to 6-8. 

11/ Which means Disney would have to effectively reduce their revenue from 2/3rds, while keeping valuable characters unavailable for all other live action applications, while focusing on their own D2C. And while Netflix could force a renewal, they couldn’t do so at new terms

12/ So Disney liked balked. The value wasn’t there for either party. It once was. And everyone is now tired of financing another party’s enterprise value growth – the economic incentives (cost minimization and upside maximization) drive vertical integration.

Fin/ In short, it just wasn’t working for anyone. Including most of the series’ original fans.

For more on how Originals work 

Also - To give an numbers example:

Marvel shows need 60% more viewership than one made by Netflix, or 30% more made by another producer, just to be even.

If we assume Marvel shows have lost 50% of their S1 averages, it's possible DD S4 is 3x+ more expensive than alternatives

Also important: the importance of capital letter "Quality" is only growing over time. Netflix is increasingly focused on quality/impact over tonnage 

Marvel series were primarily about the latter.

To be super clear. The shows will not be revived on Disney+, Hulu, Amazon, etc

1/ Netflix would have blocking rights
2/ Netflix won't sell early seasons
3/ No one would want to drive their customers to Netflix for S1-3
4/ Characters are likely contractually hibernated for 1-2yrs

5/ Disney has said they don't fit Disney+, even when the season rights revert after 5+ years
6/ Talent has been released and is very hard to re-assemble (usually far costlier)
7/ There is more upside in starting fresh, with a different take (see Spider-Man Homecoming)

Also keep in mind, Netflix has 11 seasons (6 subsequent seasons) to assess audience declines and projections going forward. It's not that hard to *know* what future viewership figures would be, 99% of the time.

Other option is to cut the budget, but it's very hard w/ a license

CORRECTION: Luke Cage only had one showrunner

No Marvel shows on Netflix's 2018 ranking of original shows with the "highest average watch time per viewing session"

Fin+10/ Yesterday, Disney's head of Disney+ was asked about reviving the Netflix Marvel shows on Disney's forthcoming services. His response (image) set off many rumors that the shows might come back

Fin+11/ Worth highlighting this is a diplomatic answer that reveals nothing (anything is possible), avoids hard truth. Obviously, if this were of interest, Disney would have had this discussion. Even if it weren't! After all, they had to release talent from contracts, not Netflix

Fin+12/ Disney could go to Netflix and give enough money to make anything possible. But they've said these shows are off target brand (Mayer doesn't saying the exact shows would be revived - could just be IP) and have made active decisions to end them. They've had the discussion.

You can follow @ballmatthew.


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