Streaming services may be forced to become more transparent

The coronavirus pandemic has fundamentally changed the entertainment industry.

With movie theaters shuttered, studios have been forced to either delay their film releases or turn to on-demand and streaming options to present their content to audiences. While cinemas are preparing to reopen this month, eagerly awaiting new films in July, it’s still unclear if there is enough demand to keep these businesses profitable. Theaters are also facing social distancing restrictions that have led them to adopt new safety measures that limit their capacity.

This means even when new films are released, it will be difficult to measure success. Given the massive shift in the landscape, the performance of new films won’t be comparable with prior releases. 

Movie theater owners also fear that studios will start to shift away from the theatrical model and toward the in-home market — especially if crowds don’t return to the theaters. Studio executives like Sony Pictures CEO Tony Vinciquerra have so far pledged their allegiance to theaters, claiming that releasing movies to theaters first is more lucrative for them than making films available directly to consumers’ living rooms. 

However, that could change if moviegoers fail to return to cinemas or if production shutdowns cause more films to be delayed. Industry members worry that if films begin to shift towards on-demand and streaming that all of the metrics that were used to gauge success could disappear.

“It’s really the most transparent industry in the world,” Dan Mintz, CEO and founder of DMG Entertainment, a production and distribution company, said of the film industry.

It’s easy to figure out if a film is successful because studios give out all of the necessary information. You know the production budget, can ascertain that the marketing budget was about half of the production budget and then you see the box office receipts. If the box office numbers are larger than the production and marketing budgets, then the movie was a success. If that number is smaller, it was a flop. 

There’s even data about how many screens a film was shown on in a given weekend and the average that film made per screen.

“We are used to having an amazing amount of numbers,” Mintz said. 

These metrics not only help studios determine the profitability of a movie, but can also aid in its marketing. 

Hollywood discovered that reporting these numbers could inspire more moviegoers to head out to see a film, said Paul Dergarabedian, senior media analyst at Comscore. And it was an effective tool. Of course, the reporting also exposed when a film wasn’t well received by audiences.

In the world of streaming, and even on-demand and home video, that level of transparency is not present. There are very few sources that track the home entertainment market and even fewer companies that share their data on the subject.

Of course, the model for subscriptions services is very different from that of theatrical releases. Consumers pay up front a flat fee for a month’s worth of content on a service like Netflix or Disney+, whereas theaters charge per view. So, it’s difficult to assign a monetary amount to a movie released on a streaming service.

The strongest measure of success for streaming services is total number of subscribers. This figure can be used to persuade content makers to work with one platform instead of another because of the potential reach they could have with an audience. It’s not a guarantee that all of those subscribers will watch the content, but they will be exposed to it.

Competition in the streaming space has grown in the last few years with more companies offering their own platforms to the public. This saturation has lead many services to begin providing viewership numbers in an attempt to show that their content is gaining traction with consumers. 

However, the viewership numbers from different platforms aren’t always comparable and don’t offer the same kind of insight that a monetary sum would. For example, Netflix currently counts a “view” as someone who chose to watch a program for at least two minutes. 

“The streaming metrics provided by Netflix are pretty useless,” Michael Pachter, analyst at Wedbush, said, in an email. “Who cares how many people watched a particular movie (other than them and the press)? It doesn’t translate to revenue unless the movie is the reason to join the streaming service.”

And it’s very difficult to determine if someone signed up for a service just to watch one program. 

Nielsen, which tracks traditional television viewership, has started releasing information about streaming viewership. It tracks streaming in a similar fashion to traditional TV: using Nielsen families. These are households across the U.S. that represent varying demographics and can tell Nielsen who’s watching programs on TV, how many people are watching, when they are watching and how long they are watching for.

As more streamers enter the market and need to differentiate themselves from each other, Mintz expects the kinds of metrics that are shared with the public will change and become more uniform.

“The habit that Netflix started, that I think is going to have to change on a number of levels,” he said, “now that there is competition in the streaming business. They are going to have a problem to compete with nontransparent numbers.”

“There are new competitors in town who will set a new bar,” Mintz added.

However, there’s still a definitive lack of transparency with streaming numbers. And that’s not just frustrating for analysts and industry experts, but for consumers.

Take the cancellation of Netflix’s “One Day at a Time.” A lack of public information about how many people watched the show fueled confusion, and later outrage, about why the show was canceled by the streamer.

The program — which was later picked up by Pop TV, a cable channel owned by CBS — is about a Latin American family and it tackles hot topics like immigration and LGBTQ issues.

Netflix gauges the success of shows by calculating how many viewers it was getting compared with the cost of the show. In this case, it said the show wasn’t popular enough to be renewed. It is unclear what that ratio was for “One Day at a Time.”

Without viewership data from any of Netflix’s shows, it’s difficult to determine how big of an audience a show on the platform needs to achieve in order to be considered viable by the company.

On-demand streaming is another avenue for studios looking to bring their content directly to consumers. This method offers customers the opportunity to rent or buy a film for a flat fee. For new releases, this typically costs between $15 and $25.

For Universal, on-demand was a lucrative option for its release of “Trolls World Tour,” which it released simultaneously in theaters and for rent in March. 

Typically, theaters take about 50{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of box office sales, depending on what deal was struck with studios. So, Universal only pocketed around $77 million from the first “Trolls” film in the U.S. during its run in theaters.

For “Trolls World Tour,” Universal was able to retain around 80{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of the digital sales. In April, the company reported that it had garnered nearly $100 million from rental fees, making the film more lucrative than its predecessor.

However, just because one film found success on-demand doesn’t mean that it is the right place for all films. “Trolls World Tour” is a family-friendly feature that arrived at a time when parents were homebound with their children due to the coronavirus pandemic.

While on-demand sales do provide a monetary glimpse at how a film performed, there is so little reporting on this method of distribution that it is very difficult to compare the results of “Trolls World Tour” to any other release.

Even before the pandemic, studios weren’t releasing up-to-date numbers for on-demand purchases. In many cases, these purchases were supplemental to theatrical releases, occurring once a film had finished its run in cinemas and entered the home entertainment market. 

Industry experts like Mintz and Dergarabedian rely on data to make decisions about distribution methods (in Mintz’s case), and to inform investors about the standing of a company compared with another company (for Dergarabedian’s clientele).

A massive shift in how streaming and on-demand viewership is presented to the public isn’t likely to happen overnight. Reporting box office numbers wasn’t widely supported until the mid-to-late ’80s. It took decades to ramp up.

“Then it went mainstream and now it’s a part of life,” Dergarabedian said.

However, all of the streaming services and studios would need to agree on what metrics would be used and that they would provide the information publicly. If one service counts a view as watching for at least two minutes and another platform uses the five-minute mark as the metric, the numbers aren’t comparable.

“For subscription-based services, there’s no expectation right now,” Degarabedian said. “Once you let that genie out of the bottle, once you start reporting real numbers on streaming, which I think should happen, people will start to expect it.”