Jan 7, 2019
Netflix Has Got Competition For 2019
We have many choices today for on demand video and programming. OTT (Over-The-Top) services are becoming more popular and this has been growing over the years. “Cutting The Cord” is now possible without requiring a cable TV subscription or bundle package when all you need is the Internet to get streaming content. It is convenient and accessible from anywhere and from many devices. Netflix has been the leader in streaming content, but 2019 will see new players entering this market.
According to Fortune Magazine:
“Viewers Are Ditching Cable For Streaming Faster Than Anyone Expected”
The Research firm eMarketer has made the following projections:
By the end of 2018, a total of 33 million U.S. adults will have cut the cord on cable, satellite or telco TV service to date — up 32.8 percent from 24.5 million in 2017
Today’s consumers are a different generation. Add the Gen X and Y with the millennials, and you have the Internet savvy generation who grew up after the Internet became a general purpose technology in the mid-90’s. This is the generation that uses broadband Internet, smartphones, social media and uploads videos. Streaming is the way to go because it offers better access to movies, TV shows and other content since it is available on demand, anytime and from anywhere with an Internet connection. It is leading the growth in the media industry, particularly in music and entertainment. It is a big difference from the way the traditional video outlets operate. There are no late fees because you don’t have to physically borrow the content, like with video rental stores. One other difference is that traditional OTA and cable TV programming also use a scheduled time slot and when you miss a show you often either have to watch the re-run of an episode or DVR in order to catch up. What’s good with streaming services like Netflix is that all you need is one monthly subscription and you have access to all content whenever you need it.
There is also demand for high resolution content, as consumers purchase more 4K UHD TV. This can also be viewed from tablets and laptops at home. Streaming content with this high resolution also requires bandwidth for user devices, and with the upcoming 5G deployments it can deliver more speed and less latency. This will make streaming 4K UHD to 8K content much more realistic to millions or even billions of users around the world.
Netflix is the current media giant of streaming, with over 137 million subscribers worldwide. In order to provide this service, Netflix has to build a very robust and fault tolerant network which costs a lot of capital investment. Profitability is not something immediate, so entry into this market requires players who are ready to absorb initial losses. It is different in 2019 when the new players in this market are already established empires. You have Apple and Disney to debut in the world of streaming content. Amazon, which has been around, is offering up more content to up the ante in competition. These companies don’t need to worry about profit in the short term because they have the capital resources already. Now the next thing they need is the content to provide the service. It’s a lucrative market that can only keep growing as demand for content continues.
Movies, TV shows and documentaries are a staple of Netflix. They provide this as a service to subscribers under license from the studio or content owner. In recent years, Netflix has also started producing their own shows which they market as “Netflix Original”. With new competition, the battle is in who can provide the best content that consumers are going to watch. Apple, Amazon and Disney have their own studios and they are producing original shows as well. In fact this is where they will compete in, so the requirement for talented directors, producers and actors will be on the agenda.
The entry of new players brings more variety to the market, but are consumers willing to pay for additional subscriptions to get service?
Perhaps the answer is yes. This is because these services are offered at very low rates. A typical Netflix subscription is just under $7.99 for the basic service (as of January 2019). There are other tiers depending on what content you prefer that also includes a premium service. When you subscribe to all these services (Netflix, Amazon, Disney, Apple), it may come close to what some people are already paying for full service cable TV. If it falls under $80 a month, it may actually be a good value. That is provided the subscriber does not also have a cable TV connection. Many home users usually have their Internet service bundled with cable TV. This could lead to more cancelations on cable TV, while retaining access to the Internet. The only problem is if the Internet is part of a bundled package, can they still opt out of the plan? With upcoming 5G service, certain users may permanently cancel their cable TV plans and go wireless for streaming content.
Amazon’s own service, Amazon Prime Video, has been around since 2006. It has been the other service which Netflix has been competing with. There are other services like Hulu, Vudu and even Facebook. While in China there is Baidu iQiyi and Alibaba’s Youku Tudou. They have their own set of content for viewers, but Amazon and Netflix have a lot more variety from both Hollywood and International studios. Amazon is positioning itself for further growth in the streaming market by targeting mobile device users. Another offering Amazon provides are channels, much like a cable TV programmer. From this service, Amazon is offering traditional cable TV channels like HBO and Showtime for subscribers. This is giving consumers cable along with other content. Amazon Prime also provides other services besides streaming videos, so there is value in having that subscription.
Perhaps the most hyped news is the offering from Disney, which is going to include not just original Walt Disney Studios shows and movies, but also from the Star Wars franchise and Marvel Studios. Disney will remove its shows and movies from other streaming services and make it exclusive for certain content to be only available from their streaming service. 2019 is also the year Disney will stop putting their content on Netflix, showing their intent to launch their own video on demand service. If the content has already been licensed to other distributors, than Disney will honor that agreement and not show it on their streaming service according to Disney CEO Bob Iger (Variety Magazine).
Apple is also joining the fray. Apple is well funded and will have no problem building their network, but the content they need to provide is just as important to get subscribers. Apple is going to launch their service with the Apple TV as an app. This is something where Apple can turn in more revenue, to offset some of the declines in the smartphone market. Apple is serious about producing their own content as well, dedicating up to $4.2 Billion for original programming by 2022 (from a Variety report).
Streaming TV is also another offering from the likes of YouTube, Hulu, Philo, Sling and DirectTV. It adds another way of getting content delivered via OTT over a public IP data network. In most cases, it can come bundled with another streaming content provider, thus adding more value to a subscription. You get the channels from regular TV and/or cable programming plus streaming content video on demand. It can also be a fraction of the price paid for full cable TV service, not including the Internet.
Other players, like Time-Warner, will be coming to join this market. It is going to cut into Netflix’s market share. It will bring more options for consumers to choose from, so the competition will offer the best content and service available. For Netflix, remaining relevant in this industry means maintaining their content delivery network and production of original content that consumers watch. Amazon is expected to overtake Netflix in spend on original content, which would also lead to Amazon Prime Video having more subscribers.
Netflix is even offering a lower rate for subscription to a mobile only service for smartphone users. This targets new customers who don’t want to pay for the basic rate and is primarily those consumers based in Asia. This is based on studies that Asian consumers treat their smartphone as their first display device.
At some point Netflix may start to experience problems turning a profit with lower market share, it may have to consider a strategic partnership or buyout (from Apple?). Now that they are not the only one that is providing video on demand, things are going to be more interesting. Expect better shows and content. Perhaps gaming services and interactive AR/VR shows are in the works among these media companies. This could very well be the “Golden Age” of streaming media.
