Vice President – Finance & Strategy
The Walt Disney Company
Lindsay’s 18-year career in the entertainment industry began with GE Capital, where she was a Controllership Manager for NBC Universal (Film Distribution). As a Director for financial operations at CBS news she led the financial operations for CBS’s international news Bureaus and subsidiary companies. This eventually led to her role as vice president for finance and strategy at The Walt Disney Company where she leveraged her knowledge and experience in strategic finance for Walt Disney’s global operations.
Section 1: Current Loyalty Programme Challenges
1.1. How do you define customer loyalty in your industry?
In entertainment, customer loyalty is where there is a customer paying for a benefit, where the price of the program is actually much less than the value of the content, the service, would fit into a definition of a loyalty program. Especially with the example of Amazon Prime, where most people sign up for Amazon Prime because of the shipping benefit. They enjoy Amazon Prime Video while they are there, but the cost to acquire the content for Prime Video is not a one for one match and what the customer is paying for their yearly subscriptions.
1.2. What is the leading customer loyalty program in your industry?
I would say Amazon because it has the largest breadth of people involved in the loyalty program. In September 2020, there were an estimated 126m Prime users in the US. If you think of a theater, if you continue to go to the same theater, there is either a discount on the concessions or possibly ticket discounting, those are much smaller, regional and there is not that same breadth or scope of offering.
I think on the personal consumer side, usually the greatest challenge is the quality of what they are getting, what the person is actually getting. And that is usually measured. If you think about different styles of that customer at different stages in their life, it is going to be a little bit different. If it is a young single person who maybe goes out with friends, if it is maybe a young parent with young children, if it is a parent with older children, or if it is a couple, maybe the children are completely outgrown the nest and they are empty nesters, that is also very different.
I think the perception of what the biggest challenge is the value for the money that they are getting. Similarly in the movie theater experience, the families and the people who enjoy it the most feel like they are getting something out of it by going to see whatever films and usually it resonates with them. So, it might not always be directly attributable to the actual loyalty program with the theater or brand, but what they might also think about it a little bit differently in the content and the quality of what they are getting. Maybe if they are going to see a Disney film versus if they are seeing a smaller art house film, it is the perception of how that time is being spent and if that’s quality time. So, the preservation of really having that be a very valuable experience is probably the hardest, it is probably the biggest challenge, not to necessarily get them to sign up and try it, but to retain them actually as customers and clients.
1.3. Why is it leading? What are its strengths?
I think it is actually because it is part of a bundled service, most people that you talk to sign up for Prime because of the shipping aspect and being able to buy things off amazon.com, there’s fewer people who will sign up for Prime because they have seen an advertisement of something that is on Prime Video that they actually want to watch. And so, as part of that bundled service Prime Video comes as a perk to having everything that comes with the Prime bundle, not just Prime Video, I think it would be different if Amazon adopted a Netflix subscription model where there is a monthly fee for the content that was accessed, but that is not what their current business model is for the Prime Video business.
1.4. What are some of the challenges in developing a successful programme?
There are a couple of ways to define the success. Initially usually the metrics that we look at are people who actually start the subscription. So, number of people who join, and then we also look at an average, usually, monthly average users in terms of how many people are regularly using the service, because at different points in time there is always going to be a churn. Usually, churn is caused by customers who start the loyalty program, because there is something that they want to watch, a film or a television series, and they have finished that series. They will usually, in some cases if they do not think that there’s other things valuable as part of that program, they will leave that service. And so that will create the churn of customers leaving. Market surveys found that Disney+ had a churn rate of 13%, whilst HBOMax and Apple TV+ had 20% rates.
There are different churn rates at different periods of time, depending on what is being offered. So, the biggest hurdle is how do you retain those customers once they have signed up, how do you get them to stay? How do you get them not to leave? How do you get them to stay for one season and then maybe a year later when the second season is released, how do you get them to stay around for that whole time? So, the biggest challenge is making sure that there is a pipeline of content that they can always find. We have to make sure that that content is good, that it is actually high quality, and they want to watch it.
This is maybe a little bit more of a niche point for our industry than for others, but I think it probably holds true in other examples, our release cadence in terms of when things are released, every Friday or once a month or if there is a big movie, doing it around a holiday weekend when you know people are going to be interested in watching it. The timing of those is very much an art and very much taken into the decisions that are made at the time to make sure that you can get the biggest pop in audience numbers at that point. So, thinking about all of those things, those are all the factors that need to come together to properly retain all of those people as part of the loyalty program.
1.5. What has been the impact of COVID-19 on loyalty programmes?
We have seen a couple of different themes that emerged. There was a lot of people who ended up losing their jobs, loyalty programs were the first things to be cut, we saw a drop for certain people experiencing that as an economic hardship. However, we also saw families for whom in some cases it was not about the jobs, but they were replacing whatever activity that we are doing outside the home with things in the home.
A lot of the subscription services were a cheaper alternative than what they might have done before, i.e. If they had previously been going out to a theater for, let us say, $20 a ticket, times a family of four that is $80 plus concessions, 20 that would be a hundred dollars they would spend every Saturday. Versus having access to those movies for maybe like $10 a month or as part of their Prime, their Amazon Prime subscription bundle, it offered a more economical alternative to some of the activities that they had done previously. So, we did see a shift in how people were consuming things. You would also see more customers start to try new things that they might not have before. So, especially in the last year, let us say 12 months.
in the last 6 months, there has been a number of different, smaller players that have emerged that have gotten traction because you have had a captive audience at home, experiencing the pandemic. Where they were not able to go with their families so, you saw this explosive growth of people doing more things at home and looking for value in how they were spending their loyalty dollar programs. What will probably happen though, if we just think about that is how it has been impacting the last year, but we are also expecting to see a little bit of a boomerang effect. In a sense that in the next 12 months, as vaccinations become more popular, as people are going out a bit more as the fatigue of being at home, having the same access to the same services is a little bit tiring, a little bit fatiguing, and they are seeking new opportunities to go out.
We are probably going to see a bit of a shift in some of the people who signed up for the services during the pandemic, go away. We’re not expecting those are going to be huge drops because in some cases the families that had started it or the people in the audiences that had started it at an earlier time, if they found something that they liked would probably stay and be retained, but we’re expecting a behavioral shift in how people are consuming their media and the opportunities to watch a larger, big tent pole film, not from their TV screen in their living room, but maybe going back into a theater again, once they open and having it as a different experience. So, we are kind of pacing, we are in that a little bit of that transition period right now, and probably be in the next few months and then in the year will probably look very, very different is what we are forecasting and predicting right now.
Section 2: Future of Loyalty
2.1. What does the future of loyalty programmes look like?
So, what we are thinking is that it is going to be a different competitive set than what there is right now, in the sense that there is going to be a greater demand for a broader scale loyalty programs where things are encompassed in a different way. And I think there is actually going to be an extension. Some of the hypothesis is that there is actually going to be extensions of these loyalty opportunities, where other things get bundled in the same way as part of that offering. There are a lot of players, where there is either going to be some consolidation amongst them or some who might not actually make it. And so, what we are starting to think about now is that in five years, who are going to be the players? How are they going to be pricing their offerings and what kind of access are they going to have?
There is also a lot of greater expansion. So, part one is, the actual marketplace offerings, industry players look like, another one also in five years. our business and our industry relies upon technology and the technology also to be able to access people wherever they are. Every year that keeps getting better. People’s phones, the screens get a little bigger, they want to watch them differently. They might have a better-quality access to high-speed streaming and high-speed internet service in their homes or in their businesses or wherever they are going. And certainly, if you think about it from a global perspective, that high speed internet is also from a technological standpoint is reaching more homes as time goes on.
We are thinking that as that continues to expand, there is also a different offering from an international perspective that that growth will also still continue as some of the areas that might not have high-speed internet access now, have it five years from now and the offerings become kind of very different. There is a little bit of an argument there too, that as people move around, what will that mean and how will that either accelerate the demand and put pressure on the suppliers to make sure that supplies are there, but that certainly is another factor that influences our business and in the future that is something that we have to consider and be mindful of.
2.2. Do you think that sustainability is going to have a role to play in terms of loyalty programs?
So there’s definitely been a push in the last five years, to create more environmentally sustainable content and certain companies and certain production houses and certain content distributors have also put that as part of the demand before they even approve a project, that it will be carbon neutral, they’ll make sure that they’re giving back to giving back to the environment in different ways to make sure that they’re offsetting some of their carbon footprint impacts. To be quite frank, I think in this past year where productions have been shut down, the pipeline for our content has been shut down because of COVID. And towards the end of last year and into this year, did things only start to open up and start to go back into production? And the focus has really been on making it safe from a COVID perspective for the crews, for the talent, for everybody who is creating that content.
The focus has really been COVID safety. And unfortunately, sustainability it is a little bit of an afterthought right now because of the demands from a pandemic to keep people safe has been paramount. So, I think a lot of that work and the good things that had been done in the last few years has kind of been put on hold, But I think probably in another like six months to a year, sustainability will probably be coming back into the forefront in a different way, because the pandemic measures that needed to be taken will have died down and the business as usual mindset in terms of making sure that we are doing things correctly for the future will become prominent again.
What I have seen though is not everybody is uniformly great at it. Some companies that have a bigger brand or maybe have different content offerings, they are more visible. And so, there is a little bit more pressure to get them right. For smaller organizations, smaller studios, where they do not necessarily have your brand recognition with your common audience member, it might not be as much of a focus, but where they would be asked to participate in sustainability would be from a larger distributor, who has that as part of their company’s ethics or work demands, or sometimes it is actually included in the production contracts that certain things must be met.
I think the other thing that will certainly help is that as different voices in the sustainability environment continue to stay very loud, probably very differently under this current us administration than the previous one. As it will be talked about and socialized, there is probably a greater chance for a better level of success than we have had, and I think there is a different, everybody doing it feeling that will certainly be impacting and I think helping to drive it forward without companies necessarily feeling like they are doing it on their own.
2.3. What is going to be the financial impact of these programmes? How will the strategic value of programmes change?
In terms of measuring the financial impact, I think about it from a strategic point of view. The previous models of how the entertainment business had been monetized have completely changed. And I say that from the access to content, the very quick version of when you think you have a title and it is going to live in a movie theater for some time and box office revenue, and then it will go and live on a premium cable channel for a little bit, maybe on the airlines, and then maybe you will see it on network TV.
And then later in his life, it will be on a Saturday afternoon on linear television, when you add up all the revenue streams that contribute to monetizing just a single title, minus the costs, there should be a good profit margin that comes after that. What has happened though, is all the windows have started collapsing, either getting shorter or now no longer existing. And so how content is even valued when it is even being decided to be made, has materially shifted. The problem with that is because of all these new emerging, emerging markets and different options for these platforms, some of them have collapsed upon themselves. Some of them have been compressed. Some of them just do not have their price points anymore. And so, the pressure is then put on the content creator to make sure that they are making a financially efficient production, not overpaying, not overpaying your stars, not overpaying your production company, making sure things stay on schedule and do not overrun.
It is materially changed. The problem with that as well, though, is that it takes a long time to make something good. Usually there is sometimes even like a two-to-three-year lead time, at least a year. And so, for every single title, every single season, every single film it started years ago. And then what you see now is as a long tail behind it, and a long history and the decisions that we make now, we will not actually see them. We will not see the financial impact of them, at least for a year, if not two to three years, in some cases sometimes longer. And so, when you have this like very long time to model of how things are being done but at the same point, marrying up to the platform distribution options are changing in real time.
It can be really tricky to how to best monetize that when certain real times things are changing, but the actual, how content is getting made is not getting any faster. And you do not necessarily have the levers to pull today to immediately see an impact tomorrow or next week or next quarter. It is a very different place. And so, when we think about it and this is why a lot of the strategic portion of it is really predicting what people are going to be watching, how they are going to be watching, what loyalty programs are going to be a part of, how many there will be. And if there is the emergence of more what drives those people to change their behavior. All of those will get rolled up into the monetization question of each of those individual title pieces of content.
And then of course, when you roll them all together and you have a slate, or you have an offering of licensed content becomes much different. So, there is a lot of things that are impacting it on a very real scale. And certainly, the valuation of a lot of those pieces of content, even in the last year where there has not even been box office revenue coming in. I think the only international box office that did really well was China during the pandemic and as we start to see things emerge, we will see that shifting again, but almost to our first point to how people are consuming that content. If they are circling back to theaters, if they end up staying at home more, if they do not want to ever go to a theater and only stay at home, there’s going to be different emerging trends on how that top line revenue, the different forms in which it’s coming in, the different access to it, and how that’s going to cover the production costs, the distribution costs, the marketing costs, all of it.
To be able to drive a bottom-line number and the overall financial impact. And so, there is a lot of work being done now in terms of thinking about how to do that efficiently and in these very, very changing times, how to get the most out of it. If you think about, as I mentioned, like there is a two-to-three-year lead time, you could say that everybody is a little bit late already now. And so, the ones who are really going to survive and do well are the ones who are able to pivot, move quickly and kind of see the forecast of the future and quickly act upon it now.