From Peak TV To Peak Streaming
What Disney’s recent shift in content distribution strategy reveals about the current state of the OTT streaming market, and how brands can prepare for a Peaking Streaming future.
Last week, Disney’s high-profile breakup with Netflix caused quite a stir in the media industry, leading many pundits to question the future of Netflix (ranging from very negatively to rather defensively) and viability of a Disney-only streaming service. Then this Monday, Variety reported that Netflix has signed with Shonda Rhimes, the star producer behind several hit series from Disney-owned ABC Studios. This back-and-forth could very well be the start of a Disney-Netflix rivalry, but it also says a lot about the current state of the entertainment content industry.
Strategic Shift in Content Distribution
Make no mistake, the announcement that Disney is ending its content licensing deal with Netflix in 2018 in pursuit of launching its own streaming service(s) marks a notable shift in the mouse’s approach towards content distribution and windowing.
It serves as a response to the shifting viewer behaviors as more and more U.S. viewers, especially those in younger demographics, abandon linear TV programming in droves for time-shifted viewing and, increasingly as of late, binge-watching. According to Nielsen data, traditional TV viewership dropped by over 40% for both teens and young Millennials over the past 5 years. It is no surprise that Disney realizes there is a lot of profits to be made by cutting off the media middleman and going directly to the Star Wars fans and fairy tale-loving customers with their content.
Considering that Netflix now has more paying subscribers in the US than all of the top cable TV companies combined, one could argue that Disney is already getting its content in front of the majority of streaming viewers in the U.S. But over the past few decades, Disney has built an enviable entertainment brand with dozens of popular franchises and classics well-known to the global audience, and that’s not counting all the sports broadcasting rights they own through their ESPN subsidiary. If there is any entertainment brand that can launch a standalone streaming service with just its own content, that would be Disney.
This strategic move is less about expanding distribution or getting new viewers, but more about owning the customer relationship.
Therefore, this strategic move is less about expanding distribution or getting new viewers, but more about owning the customer relationship, which, in turn, allows the company to learn more about their customers and build a much more personal, rewarding relationship with them. This could lead to more vertical integration as well, as Disney owns a lot of valuable entertainment assets outside streaming, including theater productions, theme parks and resorts, and merchandise, that it might find ways to bundle into its streaming service as an upsell.
As for Netflix, losing Disney content is going to hurt, especially in that it may set a precedent for other media companies to follow. The bigger Netflix gets, the more difficult it will be to get licensed content from other media companies, who are increasingly seeing Netflix as an aggressive competitor for industry talent and audience attention. in the long run, however, losing Disney probably won’t matter that much, provided that Netflix can keep doing the two things they have excelled at. One is to double down on producing buzzy original content that attracts viewers to subscribe (hence the aforementioned talent poach and the Millarworld acquisition), and the other is to keep delivering the best content viewing experience via data-driven personalization and optimized streaming infrastructure. Speaking of which…
Disney’s Streaming Infrastructure Play
Perhaps more tellingly of Disney’s new distribution strategy, Disney also announced that it is upping its investment in BAMTech from owning 33% to 75%, effectively becoming the majority stake owner of the streaming subsidiary of MLB Advanced Media, whose clients include HBO (for HBO Now), WWE, NHL, and Riot Games, the video game publisher behind massive eSports hit League of Legends.
This is a very smart move on Disney’s part, as BAMTech is widely regarded as having the best OTT streaming technology provider besides Netflix, and owning such a prominent infrastructure player in the OTT space will not only gives Disney’s the tech and backend support they need to deliver an optimized OTT experience with their upcoming streaming services, but also allows Disney to take a cut out of other streaming services running on BAMTech.
This infrastructure play is similar to the way Amazon positions its Amazon Web Services (AWS) as a white-labeled cloud service that even competitors can pay to use. Netflix may be fighting tooth and nail with Amazon Prime Video for audience attention, but it has migrated nearly all of its streaming operation from traditional data centers to AWS as of Feb. 2016. If Disney can manage to leverage its majority ownership of BAMTech to build out its streaming infrastructure and backend technology to dominate the field as Amazon has done with AWS in the cloud service space, that could translate into a real advantage for Disney’s OTT initiatives.
The State of OTT Streaming
From a larger picture, Disney’s shifting OTT strategy is illustrative of how the OTT streaming landscape is evolving. OTT viewing continues to gain momentum, as eMarketer projects that there will be 168.1 million US connected TV users in 2017. Meanwhile, cord-cutting continues to accelerate, as the number of U.S. adults who canceled their pay TV subscription will climb by 33.2% to reach 22.2 million this year.
As the content industry comes to realize the inevitability of the shift in media consumption towards streaming, more and more media owners are starting to build their own streaming services in an attempt to take back the control over content distribution and customer relationship. But for every successful OTT venture — such as CBS All Access, which is doing well in revenue and expanding into international markets — there are two OTT services that failed to garner audience attention, such as NBCUniversal’s comedy streaming service Seeso, which is shutting down.
Beyond the legacy media owners like broadcast and cable networks trying to get into the OTT space, powerful tech players jumping into the content business as the competition for audience attention intensifies. Facebook debuted a Watch platform for its episodic original series, while Snapchat saw a 45% viewership lift for its original series on its second season.
If we have supposedly hit Peak TV in 2016, then we are just witnessing the beginning of Peak Streaming.
On Tuesday, WSJ reported that Apple has set aside one billion USD from its war chest to procure and produce original content over the next year, as it plans to acquire and produce as many as 10 TV shows. With all those tech behemoths muscling their ways into online video, the market is more vibrant and saturated than ever. If we have supposedly hit Peak TV in 2016, then we are just witnessing the beginning of Peak Streaming.
What This Means For Brands
As the OTT streaming market continues to balloon, the fight for audience attention will only get fiercer, and only the players with differentiated content and optimized viewer experiences will be able to stand out from the crowd. For entertainment brands, this means adopting a new approach to content distribution and rethinking your overall strategies for connecting with viewers. Obviously, what Disney is doing will not be easily replicate for most entertainment brands, because not everyone has a brand as strong as Disney. However, it is still important for the smaller entertainment brands to leverage new digital tools such as chatbot and voice experiences to communicate one-on-one with the fans and build a rewarding long-term relationship.
As for advertisers, this ongoing shift from Peak TV to Peak Streaming means a lot of the audience attention will migrate to ad-free subscription services like Netflix and, supposedly, Apple. For those lost eyeballs, brands can play around product placement (such as the numerous ones in House of Cards) or other forms of partnerships (like Eggo waffles being featured in Stranger Things’ SuperBowl ad) to get on the coattails of buzzy streaming shows.
Luckily for brands, many of the newcomers in the OTT space are ad-supported and packed with advanced targeting and measurement tools.
Luckily though, many of the new OTT players such as Facebook, Snapchat, and the likes of CBS All Access, are ad-supported and packed with advanced targeting and measurement tools, therefore providing a new cohort of channels for brands to reach their audiences. As far as ad buyers are concerned, it is ultimately just swapping one eyeball-delivery channel for another, albeit with more platforms and fragmented audience segments to choose from.
