What Does the Future Hold for the New Hollywood Streaming Industry? by@davidjdeal

What Does the Future Hold for the New Hollywood Streaming Industry?

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Netflix lost 200,000 subscribers in its first quarter of 2022, the first time that had happened in 10 years. Disney announced that subscriber growth for it Disney+ streaming service exceeded Wall Street analysts’ expectations. The penetration of streaming in U.S. households expanded to 80 percent in 2022 from 79 percent in the fourth quarter of 2021, MoffettNathanson reports. New Hollywood will also witness more consolidation along the lines of Discovery's merger with WarnerMedia. Not every New Hollywood player will survive. Some will go the way of CNN+.
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David Deal

David Deal is a marketing executive, digital junkie, and pop culture lover.

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Where is the New Hollywood streaming industry headed after a wild and crazy 2022 thus far?

The year has delivered some surprises and shocks already. Who could have predicted that upstart Apple TV+ would become the first New Hollywood operation to win a Best Picture Academy Award, as it did in March? Or that Netflix would welcome an advertising-supported tier after shunning ads for years? Or that CNN+ would flame out only 30 days after being launched?

And, perhaps the biggest shock of all: Netflix announced that it had lost 200,000 subscribers during its first quarter – the first time that had happened in 10 years (hence, the newfound interest in advertising). To put that numbers in perspective: Netflix had predicted an increase of 2.5 million subscribers for the first quarter. 

Netflix also predicted the loss of 2 million subscribers over the second quarter. 

The company’s stock value plummeted. The news also led to an outpouring of existential angst about the future of streaming -- especially as the post-pandemic, stay-at-home economy experienced a slowdown. 

But, not so fast: just weeks after the Great Netflix Disaster of 2022, Disney announced that subscriber growth for it Disney+ streaming service in the first quarter had exceeded Wall Street analysts’ expectations. Oh, and research firm MoffettNathanson reported that penetration of streaming in U.S. households actually expanded at the same time. 

New Hollywood is alive and well. But New Hollywood is maturing rapidly. And it’s entering a new chapter of heightened competitiveness. Here’s how I see New Hollywood evolving:

1. New Hollywood Is More Competitive

Netflix made it clear to investors that its growth is threatened by more companies entering the streaming industry. This is a far cry from the days when CEO Reed Hastings boasted that its only competition was sleep and other digital distractions outside of streaming. The subscriber growth of Disney+ – up 33 percent year over year to reach 137.7 million – is obviously a big threat to Netflix. But so is the success of smaller but notable New Hollywood brands. For instance, HBO Max and Peacock also enjoyed subscriber growth in the first quarter of 2022. In fact, Peacock’s paid subscriber growth was up 44 percent from the prior quarter. 

Meanwhile, Apple TV+ has an estimated 25 paid subscribers globally, and its critical win at the Oscars (albeit not for an original Apple production) was quite a feat for a business that Apple launched only three years ago. Apple has deep pockets and patience. 

There is still a lot of room for streaming services to grow. The penetration of streaming in U.S. households expanded to 80 percent in the first quarter of 2022 from 79 percent in the fourth quarter of 2021, according to a report from MoffettNathanson. And according to a Nielsen survey, 93 percent of Americans plan on either increasing their paid streaming services or making no change to their existing plans. But Nielsen says that nearly half of survey respondents say that there are too many content options. And that’s a problem.

A content glut is not sustainable financially. As too much content floods New Hollywood, the streaming companies will become less forgiving of shows that don’t make an immediate impact right away. TV shows that don’t attract eyeballs immediately will be canceled sooner than before. This is bad news for riskier, niche content that takes time to build a loyal following. 

New Hollywood will also witness more consolidation along the lines of Discovery's merger with WarnerMedia. Not every New Hollywood player will survive. Some will go the way of CNN+. The cost of competing in New Hollywood cannot be overstated. Peacock gained subscribers for the most recent quarter, but its losses were $456 million on revenues of $472 million; a year ago, Peacock lost $277 million

Mergers, acquisitions, and also-rans happen to every industry as they evolve. For example, in 1908, there were 253 U.S. automotive manufacturers. The industry evolved, and a shakeout occurred over a period of years.

In the digital age, a shakeout can happen in weeks.

2. New Hollywood Is Getting Savvier about Monetizing Its Audience

As noted, Netflix is embracing an advertising-supported subscription tier. In other words, if you’re willing to endure ads, you’ll soon have the option of paying a lower price to be a Netflix customer. 

The truth is, advertising is no stranger to New Hollywood. HBO Max and Hulu both offer different price plans that include an ad-supported tier. Netflix has taken note. In its most recent quarterly earnings announcement, Hastings cited the success of an ad-supported model at competitors such as Hulu. In a letter to employees, he wrote, “Every major streaming company excluding Apple has or has announced an ad-supported service. For good reason, people want lower-priced options.”

But monetizing an audience means more than advertising. It’s about creating co-brands and merchandising based on culturally relevant content. Disney is the master of spinning gold out of entertainment. Disney rakes in billions from the sale of merchandise spawned by its movies and shows. The company has already turned its Disney+ streaming service into a cash cow for merchandise inspired by shows such as The Mandalorian

And then there’s Amazon. The company’s streaming service, Amazon Prime Video, exists in order to monetize its customer base, period. It’s why Prime Video is included as part of a Prime membership: to drive sign-ups of paying customers. In essence, being a Prime member means you pay $139 a year for Prime Video (as well as all the other benefits that come with a membership). Those who pay for Prime memberships spend reportedly 133 percent more annually than non-Prime members. As former CEO Jeff Bezos once said, “When we win a Golden Globe, it helps us sell more shoes.”

But Netflix is learning quickly how to merchandise and monetize. As I wrote on Hacker Noon, in 2021, Netflix partnered with Shopify to open up its own e-commerce operation, the Netflix Shop. This site complements Netflix merchandising deals with retailers such as Target and Walmart. Merchandising capitalizes on Netflix’s ability to create culturally relevant entertainment. Netflix hits reflect and create culture, which builds audience loyalty and love – the kind of loyalty and love that makes someone want to buy an Ozark hoodie or Chilleez plushie. 

I expect Netflix will dial up co-brands with its shows – and knowing Netflix, the tie-ins will be done carefully in a way that cements its cultural relevance. In 2019, brands ranging from Burger King to Cadillac appeared in episodes of Netflix’s hit show Stranger Things, Season 3 – in fact, part of the fun of watching Stranger Things has always been seeing those brands in context of the 1980s vibe of the show. Netflix is monetizing those relationships. In 2019, launched 75 co-brands, including those with Burger King, Coca-Cola, H&M, and Nike. For example, Netflix and bike maker Mongoose agreed to offer a limited edition Mongoose based on a fictional bicycle used in Stranger Things.

These relationships — hybrid in-show product placements plus real-world merchandising — offered a glimpse of how Netflix would monetize its titles more broadly. But in 2019, Netflix still viewed merchandising and co-brands as a way to gain exposure for Netflix shows as opposed to being a serious revenue stream. At the time, Hastings said that Netflix did not want to “get distracted with alternative revenue sources,” because its subscriber engine was the revenue driver.

Well, those alternative revenue sources are no longer a distraction. They’re essential to Netflix’s future. Advertising will create impressions and revenue. Brand tie-ins and merchandising will create revenue streams that capitalize on fandom.

3. The Lines Are Blurring Between New Hollywood and Old Hollywood

Remember movie theaters?

Well, people are returning to them as the pandemic subsides. Entertainment analysts believe that ticket sales for 2022 won’t approach the $11.4 billion generated in 2019, but even so, sales should almost double the $4.4 billion collected in 2021. With movie theater attendance picking up, we’re seeing a change in the contentious relationship between the New Hollywood and the Old Hollywood movie distribution system.

Streaming companies -- Netflix in particular -- have long been at odds with movie theaters over film distribution. In the pre-pandemic days, theaters insisted on exhibiting films for 75-to-90 days before they were distributed via video and streaming. Old Hollywood studios played ball. But this model didn’t quite work for New Hollywood streaming companies such as Netflix, which believed that giving movie theaters exclusive access to Netflix productions would cannibalize potential streaming subscribers. Why give away audiences? So, Netflix quarreled with movie theaters over the distribution of Netflix titles such as The Irishman

Then the pandemic changed everything. When movie attendance virtually disappeared, suddenly New Hollywood was holding all the cards. Exclusive streaming windows for theaters seemed pointless. Old Hollywood studios, saddled with enormous sunken costs for movies they’d created already, negotiated with streaming companies to distribute their films, bypassing theaters completely. Disney, an Old Hollywood studio with a New Hollywood distribution platform (Disney+), controversially released movies simultaneously in theaters and through streaming. This approach is known as a day-and-date release.

Well, things have changed again. Netflix’s fortunes have fallen. Spider-Man: No Way Home is one of the sixth highest grossing movies ever (globally) with all of that money coming from in-theater tickets sales. The big-summer blockbuster movies such as Doctor Strange in the Multiverse of Madness and The Batman are enjoying strong opening weekends in theaters – with more potential theater-friendly hits such as Top Gun: MaverickJurassic World DominionThor: Love and Thunder waiting in the wings. (I predict Top Gun: Maverick will be monster hit.) Meanwhile, movie theaters appear to be more flexible about insisting on a 75-to-90-day exhibition window: 45 days is the new standard

But even still, the times remain uncertain for everyone. I believe that:

  • Netflix will become more flexible about allowing theaters to distribute its movies during the 45-day-window. This will happen for a number of reasons. First, Netflix’s previous strategy of living and dying by subscriber growth alone will change with the introduction of an ad-supported tier. Generating revenue from ads will lessen the need to grow through sheer subscriber volume. Second, Netflix needs to recoup the cost of movies. The most popular Netflix movie ever, Red Notice, cost $200 million – but it captured none of the buzz and staying power of Netflix’s limited series such as Stranger Things. Third, distributing films in theaters will help Netflix attract more Old Hollywood artists who prefer having their movies appear on the big screen. 
  • New Hollywood will expand its presence through the Old Hollywood distribution system, too. A few New Hollywood companies actually own theaters: Netflix owns the Egyptian Theater in Hollywood, and the Paris Theater in New York. Disney owns the El Capitan Hollywood theater, where it plays its own movies. Owning a limited number of brick-and-mortar theaters gives New Hollywood a means to hold special events and build buzz for major releases without competing with chains. But would it make sense for a streaming company to expand even further? One fascinating possibility is for Amazon to scoop up some cash-strapped theaters, as has been speculated. I could see movie theaters becoming cash cows for Amazon to hustle its private label brands in the lobbies and offer special rewards for Prime members. The time may or may not be right for Amazon. The company suffered a rare loss in its most recent earnings announcement. But then again, theater chains are still hurting financially. And Amazon is clearly moving into brick-and-mortar industries such as retailing (most notably via the acquisition of Whole Foods a few years ago). Will Amazon make a move now?

Flexibility is the theme of 2022. Studios are increasingly comfortable distributing films – especially blockbusters – through movie theaters first under the new 45-day window. The Batman was closing in on $800 million worldwide before it became available to stream -- which raises an intriguing question: might a shorter 45-day window actually create buzz in advance of its streaming release? 

It will be a big summer for blockbusters that play well in theaters. But studios may take a different approach for quieter, “serious” fall and winter releases especially as the pandemic rears its head with occasional spikes as it will.

4. Netflix Will Rebound 

Netflix, the company that built New Hollywood, no longer enjoys undisputed leadership. But never underestimate Netflix. Don't mistake Netflix’s slumping stock price as a sign of a company in decline. Netflix is resilient. 

I believe the most intriguing development at Netflix consists of its embrace of gaming. Since September 2021, Netflix has made three acquisitions to build gaming development chops. Netflix recently said it’s going to partner with card and tabletop game studio Exploding Kittens to launch an Exploding Kittens mobile game and an animated cartoon series. Netflix has also made mobile games a part of its subscription package. 

All of this gaming action is happening for good reason: according to MIDiA Research, 46 percent of Netflix’s weekly active users play games on mobile devices and 33 percent play on consoles. In addition, gaming keeps Netflix’s audience locked into its own platform. After you’re done watching Stranger Things, you can play the Stranger Things game without leaving the Netflix universe thanks to Stranger Things games Netflix launched in 2021. In addition, gaming creates the potential for revenue through features such as in-app purchases, a model that Fortnite has mastered. 

Not long ago, Netflix showed us another way the company is incorporating gaming — by embedding a gaming experience into the content itself, as we’ve seen with the choose-your-own-scenario interactive film Bandersnatch that Netflix aired in 2018, and the choose-your-own adventure experience Minecraft: Story Mode. These are not games, per se, but interactive content in which the viewer participates in the storylines. 

Netflix Chief Operating Officer Greg Peters said the interplay between shows, films, and video games is part of the company's long-term strategy for boosting subscriber engagement. Watch for Netflix to create more sophisticated social experiences that merge plots with games, perhaps with augmented reality and virtual reality.

Keep an eye on what Netflix is doing in gaming. It's a gigantic growth opportunity, especially with the Gen Z audience. Within the next five years, the company is capable of reinventing New Hollywood.

Fasten Your Seatbelts

Competition. Maturity. Reinvention. Disruption. New Hollywood is growing up quickly. And although New Hollywood is fallible, streaming companies are still re-writing the rules. To paraphrase Bette Davis in All about Eve: fasten your seatbelts. It’s going to be a bumpy ride. And an exciting one.

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