Commentary on technology
It’s the year 2030, and your family is getting ready to watch a movie on a Saturday night. You turn on the TV and pause to think which service you should use: Disney+, Prime Video or Netflix. You don’t have any more streaming services. You end up settling for “Avengers 7” on Disney+, a family favorite. Popcorn is ready.
Netflix popularized the concept of streaming movies for a flat subscription fee in 2007 and cemented the idea in 2013, when its in-house production ‘House of Cards’ premiered. The promise of being able to watch virtually “any” movie allowed Netflix to conquer the home video space and drove Blockbuster out of business.
For a few years, Netflix enjoyed weak competition and amassed a big selection of movies for its online streaming service. By 2016, Netflix was spending $6 billion a year on content, and as of April 2019, the media company had over 148 million paid subscribers worldwide. With such a meteoric success, it’s understandable that other companies tried to follow suit, and today Netflix faces competition from tens of other media streaming services that also offer original content: Prime Video, HBO, Hulu, Vudu, YouTube Premium, DC Universe, among many others.
Streaming services by user count – Graphic: David Foster/Yahoo Finance
With so many services competing for users’ attention through a subscription model, global media production companies like WarnerMedia, Disney, or NBCUniversal realized that their content had an incredible value for any online streaming service. Users join (and leave) a subscription service purely based on the content that it offers. That’s how services like HBO Max, Disney+, or even Apple TV+ came to exist. They are all trying to cut into Netflix’s market by reclaiming their intellectual property.
Disney properties – Investor Day 2019
Unfortunately, what this streaming war means for customers is that they will have to pay for each separate service. For example, someone who loves watching Friends, Marvel movies and The Office, will have to pay for HBO Max, Disney+, and the still-unnamed NBCUniversal service.
WarnerMedia properties – Graphic: David Foster/Yahoo Finance
In the long term though, some services will end up being shut down and media companies will return their content to the current licensing model. Which services? All those whose content library is not strong enough to make customers pay for a monthly subscription. Big companies like Disney or Amazon can afford playing this game for a long time, because their main source of revenue is not dependent on their streaming services. Other companies, like Netflix, fully rely on their subscription model for their sustainability.
Given the massive catalog of content that Disney already has at its disposal, and how attractive its new offerings continue to be (Disney is the first studio to have five $1 billion movies in a single year), I expect Disney+ to be the top streaming service in terms of subscribed users by the end of 2030. The service is definitely set for a seemingly successful launch, based on the hype and the fact that the Disney website that offered a deep discount on Disney+, months ahead of its release date, crashed as people rushed to get the 33% discount deal.
Amazon has the power of its Prime membership; many users subscribe seeking the free same-day and one-day delivery options, and end up getting Prime Video as a nice side effect. This bundling strategy allows Amazon to tempt customers with added benefits like Amazon Music, unlimited photo storage, and free Kindle ebooks, on top of the Prime Video offering. Amazon can entice customers who otherwise would not be interested in another subscription. Combined with a growing list of original movies and TV shows, I believe Prime Video will become the second biggest provider by 2030.
I am consciously relegating Netflix to the third position because, although it’s currently the biggest player, its subscription model is the only stable source of revenue. Disney and Amazon have diverse revenue sources and can afford the luxury of offering streaming services at a loss, which will help them continue their expansion. To balance the situation, Netflix has been consistently increasing its spending on content, reaching $15 billion in 2019. Internationally, Netflix has already established a strong presence, buying the streaming rights for already successful shows, and giving a voice to local creators. This enables an unprecedented ability to coordinate multinational releases in a way that traditional media companies cannot accomplish, with critically-acclaimed productions like Roma, Dark or Money Heist as great examples.
In March 2019, Forbes published a study stating that the average American subscribes to only three online services, and that seventy percent of U.S. households have at least one subscription. Thanks to market analysis like that one, media providers know that they will need to be in the list of the top three in order to guarantee their long-term survival. Those that fall below the cut-off line will probably end up getting a better deal by licensing their content. For example, NBCUniversal might end up getting more value out of their Jurassic Park franchise by licensing it to Netflix, than by waiting for users to join yet another streaming service.
In the late 2000s, Amazon Video, Hulu, iTunes, Netflix, and YouTube made cancelling traditional TV services possible (also known as cord-cutting). 2010 was the first year that saw the number of subscribers decline quarter by quarter. Now, the traditional media industry is fighting back with new streaming services, as opposed to the old cable TV bundles. Customers who previously struggled to pay for big TV bundles, can now choose from a big selection of inherently cheaper streaming services, based on the content they want to watch. What’s interesting is that these traditional media companies are doing a come back by playing the same game that once threatened to take them out of business.
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