Content Crash — Part 3
To the victor go the spoils.
By now you are all highly familiar with the big names of the streaming wars. The ones that have so far enjoyed great triumphs and the ones that might endure heavy losses. But as the dust settles in a few years from now who will be the real winners and losers?
- A large customer base of subscribers
- Pricing power to balance growth and margin
- Leadership & vision that convinces shareholders to take a leap of faith
- Deep pockets that enable them to play the long game
- A well-established brand
- Control over parts of the value chain
- Owning the data & customer relationship
For the victims of these streaming wars, we should look beyond the mediatized tug of war we are witnessing between the big SVOD platforms. On-demand video is widely expected to boom further and as long as the pie is growing there is room for more guests at the table. Nevertheless, customer attention is finite. Once you widen the horizon of the battlefield and include the whole spectrum of media, the grim reality starts to sink in. Pay-TV for example is expected to lose over 23 billion dollars by 2024 in the US alone according to a recent Moffet Nathanson report. A recent Ampere Analysis report forecasts even higher global losses.
So who is in a good position to win in the long run?
Pure players with a globally recognized brand: this is the category of VOD services that have the scale, talent, money, technology and customer base to deliver a seamless experience, a well-balanced portfolio of premium hits mixed with original content and a sizeable library of diverse titles that offers something to everyone. Because of their broad international presence, they are the best positioned in the increasing powerplay of content negotiations and arranging for prominence on consumer devices. Moreover, they can spread the cost of technology, product, and marketing across multiple markets.
- Established and leading pure player in the SVOD space.
- Appealing original content and aggressive strategic investing.
- Strong pricing power in the market allowing them to increase subscription fees where others cut prices.
- A huge subscription base across hundreds of territories allowing economies of scale.
Big tech companies leveraging streaming as a mere loss-leader meant to support and amplify their broader business. In other words, they are willing to lose money with their video platforms as long as it helps them grow their core business.
Example: Amazon Prime Video
- A seamless bundle with Prime. Video as a key feature to keep people hooked into the Amazon e-commerce ecosystem generating recurring revenue.
- A huge library of titles (currently 17000+ movies and 1900+ TV shows in the U.S)
- Owning and controlling vital parts of the value chain (discovery, distribution, cloud services, payment,…)
Example: Apple TV+
- The streaming service makes the company’s existing products and services more attractive
- The first year is free with any product.
- Apple has huge marketing and brand power.
- Very deep pockets and healthy financials.
- One weak point: it is yet unclear if their content strategy/catalog will be strong enough to keep subscribers after 1 year. If it doesn’t attract users it will stop serving its function.
Who might catch up or even overtake the current leaders?
Big studios and right holders. The fight for talent and rights give the studios and right holders an envious starting position. There is more money than ever on the table. But they will have to make choices. Do they move from B2B to D2C? While that might sound obvious it does come with challenges:
- Moving from managing commercial partnerships with a few distributors to handling millions of one-to-one relationships with end consumers in a personalized and scalable way is daunting and a completely different game.
- It also requires a transformation from being a content-focused company with a distinctive creative culture to mastering technology and embracing the culture of digital products.
- Retaining rights also means leaving money on the table. Relative stable income will be replaced by more volatile subscription revenues.
- A love brand with a strong catalog.
- A huge marketing budget and adjacent experiences.
- Not afraid of price-cutting until it hurts. The current bundle starts at 6.99 €/month (Netflix starts at 11.99 €/month)
- The current growth (+54 million subs as of May 2020) goes beyond expectations (early projections were 60–90 million subs by 2024, recent ones see Disney hit 247 million subs in 2025!)
- Weakness: Streaming is only 10% of their business and Disney parks are bleeding money in the Covid19 reality.
In Europe, smaller production companies and studios might want to stick to their core business. There is a huge demand for content and the multi-billion production budgets of the big streamers paired with European content quota make that a fair amount of that money probably will be spent in Europe.
New aggregators. Since a lot of content ends up in siloed VODs there is a new opportunity for aggregators that bundle VODs. In Europe many Telco’s offer VOD services as part of their bundle. Alternatively, big tech companies are looking to integrate and facilitate subscription services. This is a relatively new field and there are numerous players in the digital ecosystem ready to assume the role of the marketplace/aggregator (and in the end maybe also gatekeeper) that offers consumers a much wanted “one-stop-shop” for their media entertainment needs.
Public Service Media. PSM have an established brand and customer base, are less dependent on commercial revenue and can afford to differentiate their catalogs making them less subject to certain market forces. I’ll go into more detail in Part 4.
AVODs or advertising-based video on demand. These services have in general less appealing libraries and need millions of views to properly monetize their offer. Given the current decline in ad spending, they might face a tough period but in the long run, they might be better suited for the ‘next billion’ consumers in regions with lower purchasing power and less infrastructure and they might appeal to anyone who’s tired of paying subscription fees.
Who might lose the most in the years to come?
Traditional Pay-TV, commercial broadcasters and aggregators offering cable or satellite packages: Cord-cutting is a reality that will only accelerate in the years to come as consumers trade their expensive cable TV and satellite TV contracts in favor of lower-cost OTT subscriptions or ad-based online services.
- The global TV advertising market is tipping into decline and as the effects of the Covid19-crisis become clearer an increasing number of advertisers will seek to manage costs.
- Traditional broadcasters need to combine investments in their core TV business with diminishing returns with additional spending on digital properties that are not yet compensating with new digital revenue. Certainly, in Europe, it’s not realistic to expect broadcasters to compete on all these levels. While it’s clear that many of the current incumbents remain powerful players in the marketplace they might face an uphill battle to maintain that position online.
- The effect of the international streamers, dominated by English series and movies, will be more pronounced in markets that are already exposed to a high volume of English language content. In other markets, driven by the local language and content, there will be less impact.
Other subscription-based media. In part 1 of this series we showed how finite consumer time, money, and attention will lead to a content crash. There is more content produced than ever can be consumed. In the end, the streaming wars might impact how consumers spend their time across other ‘media’ subscriptions including newspapers, magazines, digital services, gaming subscriptions, streaming music subscriptions.
New platforms without a proper strategy. As in any time of great acceleration, we will see plenty of new platforms come and go. Innovation experiments without the long view. Legacy companies launching platforms without due diligence or the deep pockets to sustain the effort. And any platform without the proper supply lines and poor brand recognition. The fumbled launch of Quibi is a vivid example.
Any subscription-based platform that doesn’t make it in the top 3 or serves a viable niche. Consumers will only stack a limited number of services (3–4 according to surveys). In a crowded market that might lead some platforms with a subscription base that is not large enough to be sustainable. And as the Covid-19 pandemic pressures consumer budgets down, the number of subscriptions per household is likely to decrease in the years ahead.
PSM if they don’t reinvent themselves, sort their branding and channel strategies and consolidate across different channels and outputs.
Disclaimer: The list above is not set in stone and was put together based on reading countless analyses of industry experts. Where relevant I have entered the link to the original source material. Please let me know if you feel I forgot something. If you are interested in more detailed market insights then I would recommend checking the blog of Ampere Analysis or the European Audiovisual Observatory.
How things play out will depend a lot on the strategies the players in the field adopt. As you might have noticed I have put PSM in both the winning and losing categories since they are in my opinion at a crossroad and can go either way. In part 4 I will zoom in on some of the steps they could take to end up in the column of survivors.