Like the son becomes the father, tech disruptors eventually get disrupted.

After years of turning Hollywood’s traditional compensation model upside down — with large upfront payments instead of success-based compensation — Netflix, Apple, and Amazon are rethinking, per a recent Bloomberg report.

Take the Money and Run

In a recent interview with The New York Times, Netflix co-CEO Ted Serandos described many of the streamer’s early market-expansion tactics as “counterpositions” — Blockbuster had late fees, so Netflix’s DVD-by-mail business did not; television had ads, so Netflix’s streaming business did not. Luring talent for original programming with comfortable upfront paychecks was a similar idea and helped turn Netflix into a dominant producer and purchaser of films and television series. But after a decade of the streaming status quo, talent began to sour on the deal. The actor and writer strikes last year occurred largely because both labor guilds felt talent wasn’t sharing in the success they created for streamers. Both guilds eventually won some performance-based concessions in their new contracts. And now, according to Bloomberg, Netflix, Apple TV+, and Amazon — perhaps because of ballooning budgets — are leaning even further into the model.

The question that naturally arises is one of transparency, another key concern of last year’s strikes. Box office figures have always been tangible, as have broadcast and cable TV viewership thanks to third-party firms like Nielsen. But streamers have been far more secretive; Apple doesn’t even publicly report how many subscribers Apple TV+ has. And therein lies the central tension of the pivot to results-based compensation:

• According to an internal memo seen by Bloomberg, Apple is developing a payment structure that will weigh factors such as viewership time, production budget, and new subscriptions added. Netflix and Amazon, meanwhile, are still sorting through similar metrics.
• But without significantly increasing transparency, streamers could face headaches. “When you do a deal with a studio… and you have a back-end, you have audit rights to send in qualified accountants to see if you’ve been given a fair and accurate accounting,” Stephen Saltzman, an entertainment attorney and partner at Fieldfisher who represents both producers and creative talent, told The Daily Upside. “Is that something that the streamers are going to permit in the same manner?” 

Grab the Reins: Another potential pitfall for talent that Saltzman flagged: Algorithmic recommendations and on-platform marketing give streamers a strong hand in what programming becomes successful. Then again, Netflix just saw its splashy, and quite expensive, sci-fi series “3 Body Problem” largely fizzle, just as its scantly marketed “Baby Reindeer” became a surprise hit. Even with a treasure trove of user data, Hollywood has returned to the old maxim made immemorial by legendary screenwriter William Goldman: “Nobody knows anything.” At least Netflix knows it doesn’t want to pay for everything like it’s a modest hit.

Microsoft is more killer than casual gamer.

The tech giant said last week it’s putting the new “Call of Duty” video game straight onto its subscription service, Xbox Game Pass, where users pay monthly to access a catalog of games. It’s not an entirely surprising move, given Microsoft spent $69 billion buying the company that makes the game, but it is leaving a staggering amount of revenue on the table, all because it’s banking that it can pivot to streaming.

Tactical Nuke

The Game Pass has been something of a saving grace for Xbox  — while the consoles were outsold by its competitors, it still generated extra monthly revenue. Microsoft’s gaming chief Phil Spencer said in 2022 that Game Pass accounted for around 15% of Xbox’s total revenue. The trouble is when you put high-budget, blockbuster games on the service the same day they’re released, you’re cannibalizing your business. Scratch that, you’re devouring it.

And you don’t really get more blockbuster than “Call of Duty.” Rhys Elliott, a games industry analyst at MIDiA, told The Daily Upside Microsoft is passing on an eye-watering amount of sales revenue: 

• “Let’s put it this way: If 7 million Xbox Game Pass subscribers were planning to buy ‘Call of Duty’ for $70 but now have no reason to (as it’s part of their subscription), that leaves almost half a billion dollars of revenue on the table,” said Elliott.
• The upper limit for sales is also much higher than 7 million. In 2020, “Call of Duty: Modern Warfare” sold over 30 million copies (although that was in early-pandemic lockdown, when people were buying video games more voraciously).

Elliott said the upside for Microsoft isn’t really about Xbox users. “Game Pass growth numbers on the console have mostly saturated at this point … Game Pass on PC, however, still has plenty of room to grow, so ‘Call of Duty’ could lead to an even bigger influx there.”

All or Nothing: To Elliott, this move shows that Microsoft is pushing its Game Pass business strategy to the limit. “Game Pass has not grown as quickly as Xbox had hoped, as shown by leaks,” he said. “‘Call of Duty’s’ inclusion will be a make-or-break moment for the strategy. If ‘Call of Duty’ can’t give Game Pass the growth it needs, nothing will. Its strategy would need to shift,” he added.

It’s known as Samu Adamusu in Japan. 

With a name like Boston Beer Co. and a brand called Samuel Adams, everything about the business screams “USA.” But the 40-year-old New England brewery’s identity may become the latest casualty in the global beer industry’s consolidation. 

Crack One Open

Beer is still big, but new products and quick-changing consumer habits are disrupting the industry. Anheuser-Busch boycotts aside, US beer consumption fell to its lowest level in a generation last year — the second year in a row the liquor industry held market share over wine and beer. Plus, more health-conscious drinkers are switching to non-alcoholic options.

All of this has made it tough for big brewers, which have tried to respond to changing tastes. Boston Beer’s Truly Hard Seltzer, which debuted in 2016, has slowed in popularity recently, with depletions — the number of cases sold by distributors to retailers — falling 1% in Q4 2023, “primarily due to declines in Truly Hard Seltzer.” Its Twisted Tea, N/A Sam Adams, and Dogfish Head canned cocktails picked up some of the slack but overall revenue fell roughly 4%. Before last Friday, the company’s stock had fallen 25% this year.

But then they got a call from Tokyo: 

• Over the weekend, The Wall Street Journal reported that Boston Beer is in early talks to sell to Japan’s Suntory, which owns American spirits brands Jim Beam and Maker’s Mark. Boston Beer shares shot up 22% on Friday on the news.
• A deal wouldn’t be shocking, given the two companies formed a long-term, strategic partnership in 2021 that delivered Sauza tequila in ready-to-drink cans and Truly hard seltzer in bottled spirits. The deal also needs the go-ahead from Boston Beer Chairman/founder/pitchman Jim Koch, who owns 100% of the voting rights in the company’s B stock.

The San Francisco Treat: Anchor Brewing – the 127-year-old San Francisco brewery bought by  Japan’s Sapporo in 2017 before shutting down last year — could be back in action. Last week, Turkish-born entrepreneur and Chobani yogurt founder Hamdi Ulukaya acquired the brewery for an undisclosed amount, citing that San Francisco is going through an era of rebirth and he wants the brewery to be a part of it. Just don’t start putting fruit at the bottom of the bottles.