Kliuless #54: A Decade of LoL

Businesses based around storytelling franchises (rather than “movies” or “media”) excel based on an intangible sort of operating leverage. Because it doesn’t actually “cost more” to make someone “love your content more”, but the “value of this love” is substantial, companies like Disney benefit from enormous “returns to marginal affinity”. And the more opportunities to exploit this love – and the better you are at doing so – the greater the leverage. Today, Disney leads on both. [...]

Even the smallest and hardest to quantify elements of a creative product will have a powerful effect on affinity – affinity that spans time, products, and failures. And it costs nothing. As a result of this leverage dynamic, a 5% increase in “affinity” can, say, drive 10% more revenue and 15% more profit. Consider, for example, that while Disney’s studio revenue has grown over the past several years, its operating income has grown far faster. The leverage is profound. [...]

So, the right frame for Disney is not really an “IP” play, but an “affinity leverage” one. And this dynamic goes both ways. Marvel Studios has clearly overperformed forecast “affinity” over the past decade and the results have been extraordinary. [...] For similar reasons, falling short of anticipated affinity can become expensive quickly. Earlier this year, Disney admitted that its newest theme park attraction, Star Wars: Galaxy’s Edge, had underperformed. [...] And as films, like theme parks, are mostly fixed costs, the results of declining affinity are significant [(e.g., Episodes VII & VIII, Rogue One, Solo).]

One of the challenges here is that just as affinity picks up momentum, the reverse affect occurs, too – which I call “accrued disappointment”. Whether it’s a movie, album or book, unit sales in media are typically referendums on prior releases. In 2016, for example, DC boasted about the irrelevance of critical reviews and exit polling after Batman v. Superman (27% Rotten Tomatoes, B CinemaScore) and Suicide Squad (a barely known franchise in the DC universe that also earned a 27% and B) opened to massive $166MM and $134MM grosses. Two years later, DC’s signature film, Justice League (40%, B+), cratered with $93MM despite starring the three most popular DC characters (Batman, Superman and Wonder Woman). We saw a similarly precipitous decline with Fox’s X-Men. [...]

A good storyteller must constantly challenge and shift audience expectations – otherwise there’s no surprise. But to subvert, you have to then delight by an equal (if not greater) amount. And the more (or longer) you subvert, the more precarious the execution and the more endangered the affinity.

Meta Games raises $2 million for esports mobile games

Millennial Esports acquires YouTube channel LetsGoRacing

Nerd Street Gamers raises $12 million for building esports facilities  

Sony Interactive Entertainment lays off dozens in UK and US

Bendy and the Ink Machine studio Kindly Beast lays off just under 50

Daybreak Games lays off multiple employees in company 'realignment'