Welcome to my freemium newsletter by me, King Williams. A documentary filmmaker, journalist, podcast host, and author based in Atlanta, Georgia. This is a newsletter covering the hidden connections of Atlanta to everything else.
Written by King Williams
Edited by Alicia Bruce
This installment of Media Mondays is a quick look at the recent bag secured by Oscar-winning actress Reese Witherspoon. Media Mogul Mondays are more like it.
Witherspoon’s media production company Hello Sunshine has been sold to private equity firm Blackstone Group with an enterprise value of $900 million+. The deal includes a $500 million dollar cash sale plus $400 million in shares of Blackstone given to Witherspoon and her investors. Witherspoon herself has been rumored to be walking away with at least $120 million once the sale is completed.
The sale of Hello Sunshine is the highest sum ever for a woman-owned and woman-led entertainment company. Founded only 5 years ago, Hello Sunshine has from day one retained a hyper-focus on premium women-centered entertainment properties. The firm has over the last half-decade been able to amass hits on television, streaming services, and at the box office.
Witherspoon is exiting at the right time
What makes Witherspoon’s deal interesting is the timing, as the company may be ahead of the curb when it comes to content deals for premium entertainment properties. As acquisition, development, and production costs have been on the rise over the last few years, so has the need for entertainment companies to own the properties outright.
Driven by the ongoing streaming wars, entertainment companies are consolidating, acquiring, and/or moving production in-house. When the content can’t be brought in-house, these entertainment companies are brokering deals directly with proven creators, producers, and production houses. Disney, Warner Bros., and now Netflix is moving more towards completely owning their intellectual property (IP).
Removing the costs associated with third parties like smaller studios (Sony, Lionsgate), overpaying high-fee producers like Dick Wolf (NBC’s Law & Order, Chicago franchises) as a hedge against rivals, or buying out residuals from high-priced producers with ownership stakes in high-value content like Greg Berlanti (The CW). Witherspoon and Hello Sunshine team saw the writing on the wall, then made a move towards exiting before the party is over.
The streaming video marketplace is changing
Right now the marketplace for content is still high but over the last few years, the appetite for services has changed. Due to covid-19, corporate mergers, inflated production costs, and increased competition from other new media sources media companies are making changes. The changes are primarily driven by attrition in viewership from social media, YouTube, and gaming, as a result, traditional media companies are needing to adjust to a different financial future. A future that requires more focus and better differentiation.
The marketplace for streaming video is going towards two ends: high-end (premium + paywall) and low-end (free + user-generated).
In the high-end segment, combining higher budgeted (often original) premium content is justification for the paywall. The paywall limits the total audience but ensures brand safety + brand focus that is appealing to funding agencies.
The premium route is still the best overall value for any streaming service as it sets an audience pricing expectation. You can add a higher price point, better talent, and better stock price, on top of preparing the company better if/when it needs to merge with another company.
While the low-end likely offers a larger audience (Facebook), and better third-party hardware/software integration (ex: the ubiquity of YouTube everywhere), it’s often hard to both monetize and differentiate. These lower-end platforms are likely ad-supported, and already in place to grab more of the growing digital ad market. The current social media platforms have the scale + analytics advertisers want. What they don’t have is the premium niches television/film offer nor do they show the likelihood of a dedicated customer base premium.
YouTube as an ad market
YouTube is the biggest example of this: its creators and third parties are free labor, and that labor then becomes reliant on YouTube as an ad seller. That ad seller breaks off a small percentage of revenue to the creators. This system works well for YouTube and Facebook, which often don’t pay anyone. The scale and ubiquity of the product make it valuable in today’s market. Today’s streaming services (see: NBC’s Peacock) serve three functions:
An online ad hub for blue-chip brands who are leery of quality control on social media sites (see: PlutoTv)
An entry funnel into a larger ecosystem (ex: free IMDB tv as a funnel to the paid Amazon Prime Video, which is entry to the Amazon Prime shopping ecosystem
Serve as a lead magnet for upgrading to paid premium streaming services (ex: NBC’s Peacock).
Furthermore, lower-end platforms also tend to skew toward younger viewers (see: Crunchyroll), but often rely more on user-generated content (see: YouTube). This is not a barometer of tastes but consumption patterns. It’s not that smaller streaming services can’t survive, but if you’re attempting to be a mainstream streaming service your days may be numbered.
The riches are in niches
One of the most important strategies of successful streaming companies has been their ability to identify niche audiences and provide a variety of content.
Netflix is always the reference point here, as a company that started out its streaming focused largely on highbrow, but smaller segmented audiences. But over the last few years, it has made a strong pivot to producing more content that would appear on the traditional broadcast and cable bundles. As well as, a company shift towards producing content for broader international audiences.
Netflix was able to make that pivot because it successfully built up a broader base of many niches. The companies now entering the streaming wars are having a bigger issue as they are trying to compete with Netflix, which is a mistake. The one company that has not made the mistake and is arguably the #2 player in the global marketplace is Disney, with Disney+/Hulu/ESPN+. The success of both of the streaming services is to be noted, with the glaring flaw in both of them is a lack of focused, premium women’s centered content—enter Hello Sunshine.
These companies need premium, female-centered content
Witherspoon has managed to make Hello Sunshine a valued contributor to the Walt Disney Company, Apple, and their rivals. Regardless of the platform, distribution, or release date, the company has mass success after success. It’s because the company realizes it is a programmer for women’s entertainment, then finds partners for its content that are best suited.
Big Little Lies, a limited miniseries starring the likes of several A-list Hollywood actresses (Witherspoon, Nicole Kidman, and Meryl Streep) makes sense for weekly event-level television to be on HBO. Little Fires Everywhere, a smaller star vehicle for two well-known actresses (Witherspoon and Keri Washington) makes sense for Hulu, who’s a tie-in to the traditional television model, and could use that familiarity to retain subscribers.
While The Morning Show, a buzzy network with a combo of uber-successful broadcast and streaming television stars (Jennifer Anniston and Steve Carrell) as a platform launching drama makes sense for Apple TV. With Apple TV, taking a play from the Netflix playbook on how the company launched its own original programming with House of Cards. When it comes to cable television women are the biggest consumers. When it comes to streaming hits, women are also some of the biggest driving forces.
Brands matter more in the digital media age, especially if they are lifestyle brands
Across the landscape, the biggest traditional media companies are looking to spend more money on key brands and individuals as a way to help bolster their streaming services.
Discovery has also inked a recent deal with house flippers-turned-lifestyle entrepreneurs Chip and Joanna Gaines of the hit television show Fixer Upper. Due to the massive success of the show, Discovery has structured a special media entity for the couple entitled, The Magnolia Network. The Magnolia Network is a cable channel, online e-commerce platform, and merchandising arm of Discovery. In this deal, the couple maintains a large minority share in this entertainment venture, while also retaining their own Magnolia brand, which is a food and retail extension based out of their base of operations in Waco, Texas.
Brands = brand extensions
The Gaines deal includes their own (non-majority) ownership of The Magnolia Network, a digital media, and soon-to-be traditional cable channel.
The Magnolia network is a media/lifestyle entity built around the success of the Gaines’ HGTV television show Fixer Upper. The show has already built a cult following since it launched in 2013, while the couple themselves have become advertisements for a new suburban American lifestyle. A rugged but well-skilled man, alongside his attractive and creative wife. The two work together on remodeling and selling homes with all of the latest home furnishings. The two represent a potential entry point for Discovery, an online /offline portal for new business models.
From The Hollywood Reporter (6/30/2021):
Fans of Fixer Upper have an almost uncanny knack for sniffing out its stars’ aesthetic. And it’s become ubiquitous around their small city of Waco.
Here, the Gaineses draw devotees with the 5-acre Magnolia Market shopping complex, the Magnolia Press coffee shop, the Silos Baking Co. bakery and, yes, Magnolia Table, all under the Magnolia umbrella.
In the traditional and digital media space, every media company wants to be Disney. Movies, television shows, merchandise, licensing deals, and in-person attractions. If this is successful, Discovery would have built a long-term bet against the decline of the traditional cable bundle—the largest lifestyle brand. A brand built around the aesthetics of HGTV, the rugged iconography of red-state America and racially diverse blue-state America.
With a place like Waco, Texas becoming in the public imagination, both flyover country and emerging America all-in-one. This is Disneyland for idealistic adults who want open-concept kitchens filled with mason jars, in-home offices, and quaint countryside restaurants only a 15-minute drive away with three-star dining experiences.
From that same Hollywood Reporter article:
Thanks to the married home-renovation team who catapulted to fame in 2013, Waco now rivals The Alamo as the state’s top tourist destination. Nearly 2 million annual pre-COVID visitors are expected to return now that the pandemic is in retreat. The pair also have a magazine (Magnolia Journal) and best-selling lifestyle books as well as apparel, furniture and design lines.
Discovery, Hello Sunshine, et al are all trying to be Disney
Discovery is attempting to build a new model based on the Disney model, but focusing on its top-tier creators instead of cartoon/comic characters in hopes of developing a longstanding relationship between families. Discovery is a lifestyle brand but it’s still not the definitive lifestyle brand…yet. This allows for competition for cable television networks such as Bravo (NBCUniversal) and Lifetime (Disney), to own overlapping audiences.
Walt Disney’s infamous flywheel from 1957 is the stuff of lore within the entertainment industry. Despite the disdain for a mini from the corporatization of entertainment properties, it was Walt Disney's beginning of the 1950s who saw the long tail of what successful media looks like.
Disney saw that the end of a successful movie studio would be beyond just a movie studio. Disney understood that if done correctly, a consumer would have several different experiences amongst platforms, mediums, and venues. It’s the model that all large-scale entertainment businesses, old and new are trying to reach. And so far only one company has managed successfully to do it in almost every category, the mouse house. But this isn’t stopping media companies and even telecoms from trying.
Even food is a competitive lifestyle space
Even in the competitive food media space, Discovery (owners of the Food Network) competes in the cable world against those aforementioned companies alongside PBS, the BBC, and even Vice. Well online, Discovery now competes with Vox Media, BuzzFeed, The New York Times, and several hundred Youtubers are all carving out various profitable niches and food. This has led Discovery to also recently ink an NBA-sized deal with the Food Network’s most popular star, Guy Fieri.
Listen: Sway Podcast with Kara Swisher - Guy Fieri has a reminder for America
The producer deals have also cooled on the biggest mainstream streaming services
Netflix has cooled the most on issuing large individual producer-led deals as most of these projects have not worked out as expected. The exception is Shonda Rhimes (Grey’s Anatomy, Private Practice). Rhimes, who after leaving ABC under contentious terms departed for Netflix to the tune of a four-year $100 million dollar deal.
Within year two of her deal, Rhimes has managed to hit a home run with her European period piece, Bridgerton. So much so, that Netflix has been rumored to renegotiate her contract to the tune of well over $400 million dollars over several more years. While fellow cable television producer Ryan Murphy's (American Horror Story, Glee, 9-1-1) $300 million multi-year agreement with Netflix has not been as successful.
Furthermore, ABC’s other successful producer Kenya Barris (Blackish, Grownish, America’s Next Top Model), departed the company for Netflix in another $100 million dollar deal only to depart this year for a role at Paramount with an equity stake in its new BET Studios venture and content deal for BET+.
Conclusion
While capital is cheap and deals are likely to continue being approved on the DOJ level, expect more high-level mergers to continue. Also, expect 9 to 10-figure exits to continue in the entertainment industry. Reese Witherspoon isn’t the only person who’s looking to exit as LeBron James is trying to do the same with his company Springhill Entertainment.
James’s company is similar to Witherspoon in that it owns no intellectual property but has proven itself to be successful at producing a variety of hits in film and television. Some of the hits include the $1 billion dollar grossing Joker, plus the television show Survivor’s Remorse for premium cable channel STARZ. In addition to the recently released Space Jam: A New Legacy. James’s company is seeking a $750 million dollar buyout.
But this is not an anomaly as Legendary Entertainment, Lionsgate Entertainment, and even broadcast/cable behemoth CBS-Viacom are looking for a corporate exit. This includes 2021 which has seen a few high-profile media moves including a spinoff of WarnerMedia from parent company AT&T into a new entity with Discovery.
This is on top of AT&T announcing today a selloff of nearly $1.2 billion dollars for the purchase of global anime website/app Crunchyroll from WarnerMedia to Sony Entertainment. but despite many of these larger companies looking for exits, the future is far from done. What the Hello Sunshine deal represents is a focus on brand, expertise, and certified niches as the defining traits for this next era of entertainment. The future of entertainment is still being made and it’s far from over.