How Hollywood Can Create its Biggest Hit Ever newsbhunt


Hollywood is hurting. The financial backbone of the industry — linear television — is rapidly shrinking as consumers continue to cut the cord at alarming rates. At the same time, YouTube, TikTok and other innovative digital services continue to earn more consumer attention each day with their seductive offerings. Most acutely, production remains halted due to the now 105-day impasse between SAG-AFTRA and the studios. There is a way forward, but it starts by looking back to when all corners of the industry contributed to Hollywood’s greatest hit.

First, some additional context: it is no longer controversial to state that the future of entertainment will largely be streamed. As linear television declines at a rate of close to 10% per year in the U.S., consumers are already choosing streaming more than either broadcast or cable television. In the most recent network linear television season, the median age for most entertainment shows was over 60.

Despite the rise in digital consumption, only one company from across the industry — Netflix — is generating material cash flow from streaming. This should not be an indictment of streaming’s ability to deliver strong cash flow. Contrary to what many have stated, streaming is neither a bad business nor is it a broken business model. While streaming is not broken, a number of entertainment and sports companies’ streaming strategies may be. The distinction is important. Netflix is in command of a sound streaming strategy, which has been to invest and execute consistently such that it can substantively replace the linear pay TV bundle. Netflix has attracted just about 250 million paying households as of this writing and is going to generate over $6 billion in cash flow as a result of the company’s streaming strategy. These results are remarkable for such a relatively young company that has only one business. By the end of this decade, Netflix has a credible chance, given the high growth rate in its cash flow, to generate more cash flow annually than any entertainment company in the industry’s 100-year history. Just from streaming.

The big question confronting and confounding the industry is how can companies not named Netflix generate attractive cash flow from streaming? I believe it comes down to one of two paths.

The first path entails earning Netflix-esque high daily usage from a large customer base of at least 200 million households. Such that those customers happily pay a sufficient price every month for your service and do not churn. This path requires offering enough compelling series, movies and other programming such that members of the household consume hours each day, every day of the year. There are no shortcuts. This path is not in the cards for the vast majority of companies, as it requires creative scale and an unusually large amount of disciplined investment over a long period of time. It also requires a balance sheet that makes it possible to do so. In success, the cash flows from this first path are extremely attractive (see: Netflix).

The second path entails a company playing a contributing role in someone else’s scaled, heavily used streaming service. But contributing in this context does not mean licensing or selling individual series or movies to a streaming service. This path entails a company contributing a branded, continuously updated programming lineup and in return receiving a share of the ongoing revenues from a scaled streaming service. It means being a new kind of channel that’s part of one big streaming service (ironically, this is the way that Hulu and its Hollywood partners operated for many years). In success, this second path is financially attractive.

Either of the above options can generate attractive cash flow. What will not generate attractive cash flow? A streaming strategy or service that is not on a credible path to earning high daily usage from over 200 million customers that each pay a sufficient price each month. Unfortunately, most companies in the industry currently fall into this latter camp.

Having a diverse set of companies earning or tapping into streaming scale is fundamental to the industry being financially compelling into the future (as opposed to just one company being financially compelling). To this point, the lessons from Hollywood’s history weigh greatly and it is worthwhile to look back.

Beginning in the 1980s, Hollywood thrived financially for more than three decades in large part (not entirely, but in large part) because of its ability to 1) create great entertainment and 2) collectively aggregate entertainment in an offering that consumers devoured.

Creating great entertainment meant the artistry and alchemy that resulted in beloved movies, series, documentaries, and other programming. Aggregating entertainment in an offering that consumers devoured meant carefully curated television channels and, as importantly, the bundling of those television channels. But why did television channels — and the bundling of television channels — generate such attractive financial returns for Hollywood?

First, people really liked getting access to — directionally speaking — all television series, movies, news and live sporting events for one price in one seamless interface. In this way, the linear pay TV bundle was an everything product and 90% of all homes in the U.S. chose to purchase it. Think about that: nine out of every 10 customers who could have purchased the product ended up doing so. While not every series or movie ever made was available in the bundle, almost every new series was, along with news programs, plenty of popular older series and almost every major live sporting event. Purchasing the linear pay TV bundle was a no-brainer for households seeking entertainment.

Not only did people want to buy Hollywood’s everything product but they also used it … a lot. Households that subscribed to the linear pay TV bundle consumed over eight hours each day. Very few people churned out of the service. Financially, it allowed Hollywood as an industry — not just one or two companies, but the industry — to earn unprecedented profits.

A second reason Hollywood’s everything product generated so much cash flow for the industry was because the design of the product caused consumers to expect, well, everything (in this case, all the TV channels). That meant that Hollywood companies were able to retain more of the economics from the everything product when compared to distributors (who had no real choice but to offer all of the channels that people expected).

A third reason Hollywood’s everything product generated so much cash flow was because the entire industry contributed to it, which meant that no single company had to shoulder the high level of investment needed to entertain an entire household (much less a country of households) for many hours each day of the year. Far less was invested in programming a linear television channel over the course of a year compared to the annual content budget of a typical streamer. Perhaps the most extreme example is when the AMC channel earned its reputation — and its cash flows — largely on the back of just two breakout series (“Mad Men” and “Breaking Bad”). Hollywood’s everything product enabled small companies (e.g., AMC Networks), medium-sized companies (CBS) and large companies (Disney with ABC, ESPN and Disney Channel) to each play a role and for each to generate attractive cash flows as a result.

Hollywood’s history lessons are thus threefold: 1) large number of customers really liked Hollywood’s everything product; 2) because it was everything product, over time more and more of the dollars flowed to those contributing to it (the studios, the sports leagues and the talent); and 3) the everything product allowed for large and small companies alike to earn attractive profits for decades.

What does this mean for today’s Hollywood? Particularly for those companies that are currently investing heavily in streaming but are not on a credible path to getting to the streaming scale needed to generate attractive cash flows? Many if not all of those companies should be architecting a modern everything product that consumers will adore.

Designing a digital everything product that will benefit Hollywood for decades is not easy. It is hard to earn the daily habits and wallets of over 200 million customers, all while maintaining control over one’s destiny. What does an everything product look like in today’s digital world? It starts with a singular, delightful, intuitive user experience offered for one attractive price. It is not a hard bundle (e.g., when a cellular service provides its customers access to a streamer) and it is not a synthetic bundle (e.g., when access to two distinct streaming apps are sold for one price). The product design entails thoughtful solutions for curation, promotion, advertising sales, data transparency and financial participation. Crucially, the vast majority of players in the industry need to come together in order for the product to be a no-brainer of a purchase decision for nine out of 10 consumers. While pulling this off will be challenging, it is increasingly hard to see anything — outside of resolving the SAG-AFTRA strike — being more important or more urgent for almost every entertainment and sports company in the world.

Though I have zero involvement or financial participation in the company anymore, I think Hulu could be a good (but not the only) choice to birth Hollywood’s digital everything product. Given its history of being owned and controlled by major entertainment companies, Hulu presents a rare situation where Hollywood companies could in theory quickly and productively align on a product and economic vision that could delight customers and work well for themselves…and get to market swiftly. In this scenario, once the digital everything product proves to be a hit with consumers, other distributors would be able to offer the same product to their customers, so long as they contributed their content into it under the same terms as others.

It should be stated that there are some fair arguments at this point to not contribute to an everything product. One is that you are Netflix. Another argument to go it alone entails conviction that a corporate transaction is soon to occur, such that a newly-formed, larger company will get on a credible path to earn streaming scale. A final argument is if there are material changes expected in the balance sheet and operating decisions of one of the few Hollywood companies that potentially has the goods to get to streaming scale on their own. After all, the long-term outcomes in streaming have yet to be determined, given that Netflix’s current share of television viewing time is less than 10%.

With all of this said, there is no getting around the reality that, in the face of the clear decline of linear television and the dramatic rise of TikTok, YouTube and other digital services, Hollywood is in need of its biggest hit yet. For most entertainment and sports companies, that means coming together to deliver a product so good that nine out of 10 people choose to purchase it and happily devour it daily.

Jason Kilar is the former CEO of WarnerMedia and was the founding CEO of Hulu. He was also an early executive at, where he wrote the business plan for Amazon’s entry into video and eventually ran that business.


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