Vertical Divider

Musing on Display-TV

Streaming Services Roll Out Without Constraint
November 25, 2019

With two new competitors this month and two more in the on-deck circle, streaming feels like it’s reached a saturation point. Experiments in interactive content (Netflix’s Black Mirror: Bandersnatch, a choose-your-own-adventure movie) and virtual reality, but the next wave of streaming might happen on the smartphone. Quibi, short for “quick bites,” arrives in April under the leadership of former Disney Chairman Jeffrey Katzenberg and former HPE CEO Meg Whitman. 
Users will pay $5/month for ad-supported streaming or $8/month for an ad-free version on Quibi’s app. The target audience? 18–35-year-olds who want a few minutes of entertainment while scarfing down Sweetgreen at their desks. 

• Each video will log around 10 minutes. 
• The confirmed list of creators includes heavyweights like Steven Spielberg, Queen Latifah, and Trevor Noah. 

Katzenberg told Fortune that “five or 10 years from now, we’ll look back and go, ‘There was the era of movies, there was the era of television, and there’s the era of Quibi.’ Six months before launch, Quibi said it sold out all $150 million of its first-year ad inventory.

Studios originally created content for networks and their affiliates (local stations), which was then broadcast for "free" to consumers—the only price was the ads viewers had to watch. In the 1980s, cable TV shook up the status quo: Most customers began paying a monthly fee for special bundled content distributed directly to their homes. In the early 2000s, cable became available and cost  ~$70+/month to spend hours each evening scrolling through 700 channels. 
 
Then... the internet arrived …
As the internet matured, computer entertainment evolved from solitaire and pinball to Web-based video content. From 2005 to 2008, YouTube, Netflix, and Hulu launched their video platforms … and just Blockbuster, which added video games to its by-mail service, gained a leg up against competitors, Netflix announced today a major digital partnership with premium TV channel Epix."  Streaming platforms paid studios and networks licensing fees to stream their content, then passed costs to consumers in the form of monthly fees (the Netflix model), tried-and-true advertising (Hulu), or some combination of those. Hulu dropped its completely free tier in 2016, and now has a more expensive, ad-free version and a lower-priced, add-supported plan.  The content on streamers' platforms got better and better—and prices were a bargain compared to cable—so consumers started to cut the cord. The trend has accelerated faster than analysts expected. According to a 2018 study by eMarketer:

• Cord-cutters will account for over 15% of the U.S. population this year and an estimated 21% by 2022. 
• Growth for streaming platforms is coming at the expense of pay-tv providers. 
• Some cable channels are adapting and finding ways to integrate with streaming services like Netflix and Hulu.

 
Studios are shelling out billions for the rights to produce new series and movies that will live exclusively on their platforms. That's resulted in record levels of content creation: Last year, 496 scripted TV shows were made in the U.S....almost twice as many as in 2010. 

• Super showrunners like Shonda Rhimes and Ryan Murphy received 9-figure checks from Netflix to work their magic. 
• Some older shows are just as prized. Networks that made hits like Friends, Parks and Rec, and The Office are pulling their classics from Netflix to live exclusively on upcoming platforms like HBO Max and Peacock. 

Focusing on the original content, because the budgets are wild. 
 

• $15 billion; the amount Netflix is estimated to spend on original content this year.
• Almost $1 billion; the amount of content Netflix consumers receive for every dollar they spend on a monthly subscription, per Wells Fargo analysts. 
• $159 million: Netflix spent producing Scorcese's new movie, The Irishman. 
• More than $6 billion: Apple's total investment in its streaming initiatives, per the FT. 

 
The starting monthly prices of current and upcoming streaming services: Apple TV+ ($4.99); Hulu ($5.99, with ads), Disney ($6.99), Netflix ($8.99), and HBO Max ($14.99). NBCUniversal's Peacock has yet to announce its price.

• Disney probably tried to offer a free year of Disney+ to get these services on a trial period or bundled into other offerings. 
• Viewers get billions of dollars’ worth of content for peanuts. Per-user costs are substantially lower on streaming platforms compared to cable or theaters.
• Netflix has done some theatrical releases, but it’s the closest to a pure-play major streaming company that exists.

 
For the others; one sells consumer devices, one sells mobile coverage another...well...everything. That means they use streaming to support and amplify their broader business while investing profits from other divisions back into new content.  Matthew Ball is the former head of strategy at Amazon Studios/media provided some particularly sharp insights into how/why each company got into streaming:

• HBO Max: HBO now sits under AT&T following the Time Warner acquisition that closed last year. AT&T could make the most of HBO Max by using it to boost its wireless business, tying it to other digital services (like live TV and Showtime), and leveraging new customer data. 
• Amazon Prime Video: Over 100 million Prime members automatically get Amazon Prime Video (a year of Prime is actually cheaper than just paying for the video service). Prime Video keeps customers in the Amazon ecosystem, which translates to more e-commerce sales. A hugely profitable cloud computing business also means more cash to play with. 
• Apple TV+: Apple can push its streaming service to billions of iPhone, Mac, and iPad users around the globe. TV is a big part of Apple's pivot into services, which also includes gaming and health.
• Hulu: The majority of Hulu subscribers are on its ad-supported plan than its $11.99 ad-free plan. It also earns money selling third party add-ons (like HBO or Showtime) and by bundling its live TV package.
• Peacock: Well, who knows. At least it'll have The Office. 
• Disney+: With its first direct-to-consumer platform, Disney is gaining an intimate, direct relationship with viewers. It can use that data across its vast ecosystem of merchandise, marketing, and experiences. 

They call it the "Streaming Wars"... but there may not be a victor. Each of these platforms knows consumers subscribe to some of the others (or, at least have a password to them). So, the race isn't just to sign up users. What matters is how much time users spend on each platform.