A few weeks ago I put up a post asking if any streaming service could catch Netflix. Most respondents said no and agreed with me that Netflix had a commanding lead in the streaming space. A few said that Disney’s new service and Amazon Prime Video would chip away at the lead that Netflix has and a few mentioned Apple getting in to the game as well. One topic that I alluded to in the earlier piece was not mentioned by anyone—Netflix is a powerhouse outside of the U.S. Depending on the estimates that you look at, Netflix has somewhere between 140 and 160 million subscribers. Last year, for the first time, Netflix had more non-US subscribers than domestic ones and their growth is largely overseas as move through 2019. Netflix now is available in 190 countries. They are licensing or producing hundreds of programs in many languages and their knowledge of what viewers like in different cultures is getting stronger by the day thanks to their shrewd use of Big Data.
When people tell me that Amazon will soon catch up, I can only smile. Amazon is a superb on line retailer and will be tough competition at some point for sure. Yet, keep this in mind. Netflix does basically one thing—providing programming. Amazon operates globally as well and many perceive Amazon Prime Video as a free service as it is embedded in an Amazon Prime subscription. The rub is that Netflix can deliver their service to virtually anyone, anywhere who has high speed internet. Amazon Prime operates globally but does not deliver to every podunk village in the world. The costs of delivery would be prohibitive at present and many overseas customers cannot afford a prime subscription. They would have to spin off Amazon Prime Video or make it available freestanding to go head to head with Netflix. It would take years to be a viable GLOBAL competitor to Netflix. Disney needs to crawl and then walk with Disney + before traveling abroad with the service. So, the head start that Netflix has appears to give them an advantage that could protect them for several years which is a lifetime in today’s tech world.
So, is Netflix completely safe? I see one little known (in the U.S) but viable player out there who could possibly upset Netflix’ global juggernaut. We have all heard of the BAT’s in China. Baidu is the Google of China, Alibaba is the Amazon of China, and TenCent is the gaming giant of China. A fourth player is iQIYI (pronounced eye-chee-yee) which is rapidly being nicknamed by securities analysts as the Netflix of China. iQIYI is a bit different than Netflix in that it has free content with advertising plus a subscription service that others use. The subscription video service now has 80 million subscribers and is growing. iQIYI has the same cost issue that Netflix has in that it is expensive to produce original programming. Also, Alibaba and TenCent have a minor entry in streaming video at present which could grow.
A few rumors exist that say that iQIYI may move beyond China’s borders. This could put a crimp in Netflix growth especially in many Asian countries. FYI, iQIYI now trades on the New York Stock Exchange under the symbol IQ (not a recommendation but you may want to read their annual report as I did).
This is what I love about the free market. When some company appears set, they find that their competitive advantage is not sustaining for long. So, even mighty Netflix has to stay innovative and run a bit scared. To date, they have done a fine job of it.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Sunday, February 24, 2019
Tuesday, February 19, 2019
Media in the Next Recession
The last recession in the United States has been projected to have occurred from December, 2007 to June, 2009 (Federal Reserve estimate). Some may argue a month or two on either side but most would agree that those dates are very close to real. Now, with a volatile stock market and recent weak retail numbers, some are calling for the next recession to occur late this year. Others say 2020 or even 2021. Economist Paul Samuelson who wrote the textbook that many of you had in Economics 101 was a winner of the Nobel Prize in Economic Sciences. He had a sharp wit and once said, “the stock market has forecast nine of the last five recessions.” So, no one really knows when it will occur but virtually all agree that this recovery is getting quite long in the tooth and that a recession is inevitable. Yet, it could be six months away or several years from now.
Several readers have asked me what will happen to the media world the next time the United States economy plunges into a recession. I stress that I, like most, have no idea when the downturn will hit. Also, I have based my forecast below on the assumption that the next recession will be a “garden variety” recession and not something mirroring the 2008 debacle that was the worst that we had experienced since 1933.
With no more disclaimers, here goes:
1) Newspaper—this once mighty medium has been in decline for two decades. We project that more titles will go under and a handful will successfully make the transition to digital only delivery. The Wall Street Journal, New York Times, and The Washington Post will survive but earnings will be hurt. Also harmful will be the lack of investigative journalism done in mid-sized markets. Crooked mayors and city councils will sometimes escape needed scrutiny.
2) Magazine—many long time titles will disappear but a handful will buck the trend and, a few, such as COSMOPOLITAN and VANITY FAIR may prance through the media bear market smiling.
3) Radio—young people will continue to avoid their once favorite medium of two generations ago. There will be consolidation but revenue growth will be nil. Sports and political talk will have their niches but it will be tough. Small market players will suffer a great deal.
4) Outdoor—the last authentic mass medium is not going anywhere but prices may get more realistic. Watch for boards staying up a long time with the same message or PSA billboards (especially Smokey the Bear). A sure indicator that the market is soft.
5) Cable—this one is a stick of dynamite. Some tell me that cable can go thru the next downturn relatively unscathed as TV will be many people’s only meaningful entertainment option. I respectfully disagree. When things get tight next time, many young adults will want to meet their college loan payments. Cutting the cord on cable can save them $100-120 over month in many cases. They can still get their video for less with Netflix, Hulu+, Amazon Prime Video, Freestanding HBO and ESPN, and the new Disney +. A few other players may enter the streaming game before the recession hits. People can cobble together a package of streaming options for a fraction of what they now pay for cable. Also, we see a real sleeper out there that does not get mentioned much. You Tube! It is free but has a tremendous amount of content. People who have an internet connection and are really strapped for cash will gravitate there. When I visit my county library each week, I see dozens of people at the free terminals watching You Tube. Sadly, all appear to be really down on their luck. You Tube is a great comfort to them. Cable will try and hold people with more attractive “Trifecta” packages of Phone, Internet and Cable access but I see a significant loss if unemployment really jumps.
6) TV—some have written to me stating that local TV will have a renaissance if cable gets hit. Maybe a bit in terms of viewing and it is clear that several million folks have purchased antennas to get local station reception in recent years. Yet, advertising will not be vibrant in local TV. Network TV may still have the “upfront” cavalry charge in spring but it will be muted and could be the last one.
7) On line and Social Media—continued growth but at a slower pace than presently.
To stress again, I do not know when the next recession will rear its ugly head. When it does, some long time players will be hurt and a surprising number of time honored media vehicles will go down for the count.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Several readers have asked me what will happen to the media world the next time the United States economy plunges into a recession. I stress that I, like most, have no idea when the downturn will hit. Also, I have based my forecast below on the assumption that the next recession will be a “garden variety” recession and not something mirroring the 2008 debacle that was the worst that we had experienced since 1933.
With no more disclaimers, here goes:
1) Newspaper—this once mighty medium has been in decline for two decades. We project that more titles will go under and a handful will successfully make the transition to digital only delivery. The Wall Street Journal, New York Times, and The Washington Post will survive but earnings will be hurt. Also harmful will be the lack of investigative journalism done in mid-sized markets. Crooked mayors and city councils will sometimes escape needed scrutiny.
2) Magazine—many long time titles will disappear but a handful will buck the trend and, a few, such as COSMOPOLITAN and VANITY FAIR may prance through the media bear market smiling.
3) Radio—young people will continue to avoid their once favorite medium of two generations ago. There will be consolidation but revenue growth will be nil. Sports and political talk will have their niches but it will be tough. Small market players will suffer a great deal.
4) Outdoor—the last authentic mass medium is not going anywhere but prices may get more realistic. Watch for boards staying up a long time with the same message or PSA billboards (especially Smokey the Bear). A sure indicator that the market is soft.
5) Cable—this one is a stick of dynamite. Some tell me that cable can go thru the next downturn relatively unscathed as TV will be many people’s only meaningful entertainment option. I respectfully disagree. When things get tight next time, many young adults will want to meet their college loan payments. Cutting the cord on cable can save them $100-120 over month in many cases. They can still get their video for less with Netflix, Hulu+, Amazon Prime Video, Freestanding HBO and ESPN, and the new Disney +. A few other players may enter the streaming game before the recession hits. People can cobble together a package of streaming options for a fraction of what they now pay for cable. Also, we see a real sleeper out there that does not get mentioned much. You Tube! It is free but has a tremendous amount of content. People who have an internet connection and are really strapped for cash will gravitate there. When I visit my county library each week, I see dozens of people at the free terminals watching You Tube. Sadly, all appear to be really down on their luck. You Tube is a great comfort to them. Cable will try and hold people with more attractive “Trifecta” packages of Phone, Internet and Cable access but I see a significant loss if unemployment really jumps.
6) TV—some have written to me stating that local TV will have a renaissance if cable gets hit. Maybe a bit in terms of viewing and it is clear that several million folks have purchased antennas to get local station reception in recent years. Yet, advertising will not be vibrant in local TV. Network TV may still have the “upfront” cavalry charge in spring but it will be muted and could be the last one.
7) On line and Social Media—continued growth but at a slower pace than presently.
To stress again, I do not know when the next recession will rear its ugly head. When it does, some long time players will be hurt and a surprising number of time honored media vehicles will go down for the count.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Monday, February 11, 2019
Can Any Competitor Catch Netflix?
In recent weeks, we have read and heard a great deal about the coming battle ahead in streaming video. All types of media players seem to be gunning for Netflix with the biggest players being Disney, Comcast, Amazon, and possibly Apple and Facebook. Legacy players are realizing that “direct to consumer” will be the new mantra and a wide number of entities are trying to position themselves for survival . New entrants such as Apple and Facebook see opportunity.
The question that is rarely addressed is has Netflix already won the direct to consumer war? They are truly global and have approximately 140 million subscribers worldwide and they have granular data about what their subscribers want and like and can produce programming accordingly. Even though some of the prospective competition have deep pockets, Netflix has a commanding lead. One that has surprised me in growth or lack of it is Amazon Prime Video. The service, Amazon Prime Video, comes included in an Amazon Prime subscription. Admittedly, this is anecdotal but I have been surprised with the reaction of people in recent weeks re the Amazon streaming service. When I asked people if they watch it, some say, “No, I do not subscribe.” When I follow up with do you use Amazon Prime, I can receive an indignant, “Of course.” It appears that some do not realize that it comes as a part of the Prime subscription. A few young adults have told me that they are so far behind on Netflix, they cannot deal with another service at present even if they have access at no additional cost. It seems as if Amazon has not done a great job of promoting Amazon Prime Video to Amazon Prime members. Also, speaking personally, their content seems stronger than a year ago with many fine original series.
Disney gets the most press about their new entry for 2019, Disney+. They would have to be considered formidable given their great track record, seven movie studios and ownership of ESPN. Also, ESPN+ seems to be off to a successful start. Additionally, all Disney content will be removed from Netflix when the Disney streaming service launches. Bob Iger, Disney Chairman, reiterated his commitment to direct to consumer in a recent investor conference call.
On January 18, 2019 there was an excellent interview on CNBC with Kay Koplovitz, founder of USA Neworks and Tom Rogers, former CEO of TiVo and CNBC founder. Both said Netflix was sitting pretty and had a commanding lead over competition. Tom Rogers also raised the fascinating thought that legacy companies such as NBC, CBS and Disney had to develop a new business (streaming video) as they simultaneously oversaw and managed the decline of their existing media (ad supported) business (Interview is available on You Tube).
Finally, Netflix is near the top of the list on having the most loyal customers according to research firm Second Measure. Some 80% of their subscribers only buy Netflix and no other direct to consumer service.
So, is it all clear for Netflix? Not so fast. Netflix still is not a great money maker. They are spending $18 billion this year on developing new programming which is a staggering amount of money for a one trick pony that is largely reliant on subscriptions for income. Apple, Disney, and Amazon all have very deep pockets and can play a long game losing money for years as they gain share. When I brought this up with someone recently, he called me an “old mossback”, telling me that I did not remember how Amazon lost money for years but Wall Street was happy as long as sales growth continued. I agreed but see Netflix as much smaller and with limited upside relative to Amazon.
What could save Netflix over the long pull from financial problems? My best thinking is that Apple or Microsoft could buy them and both would be decent fits. I would not be surprised if Apple has not wished they purchased them 18-24 months ago.
The fun is about to begin. Does Netflix have a prohibitively large head start? Time will tell.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
The question that is rarely addressed is has Netflix already won the direct to consumer war? They are truly global and have approximately 140 million subscribers worldwide and they have granular data about what their subscribers want and like and can produce programming accordingly. Even though some of the prospective competition have deep pockets, Netflix has a commanding lead. One that has surprised me in growth or lack of it is Amazon Prime Video. The service, Amazon Prime Video, comes included in an Amazon Prime subscription. Admittedly, this is anecdotal but I have been surprised with the reaction of people in recent weeks re the Amazon streaming service. When I asked people if they watch it, some say, “No, I do not subscribe.” When I follow up with do you use Amazon Prime, I can receive an indignant, “Of course.” It appears that some do not realize that it comes as a part of the Prime subscription. A few young adults have told me that they are so far behind on Netflix, they cannot deal with another service at present even if they have access at no additional cost. It seems as if Amazon has not done a great job of promoting Amazon Prime Video to Amazon Prime members. Also, speaking personally, their content seems stronger than a year ago with many fine original series.
Disney gets the most press about their new entry for 2019, Disney+. They would have to be considered formidable given their great track record, seven movie studios and ownership of ESPN. Also, ESPN+ seems to be off to a successful start. Additionally, all Disney content will be removed from Netflix when the Disney streaming service launches. Bob Iger, Disney Chairman, reiterated his commitment to direct to consumer in a recent investor conference call.
On January 18, 2019 there was an excellent interview on CNBC with Kay Koplovitz, founder of USA Neworks and Tom Rogers, former CEO of TiVo and CNBC founder. Both said Netflix was sitting pretty and had a commanding lead over competition. Tom Rogers also raised the fascinating thought that legacy companies such as NBC, CBS and Disney had to develop a new business (streaming video) as they simultaneously oversaw and managed the decline of their existing media (ad supported) business (Interview is available on You Tube).
Finally, Netflix is near the top of the list on having the most loyal customers according to research firm Second Measure. Some 80% of their subscribers only buy Netflix and no other direct to consumer service.
So, is it all clear for Netflix? Not so fast. Netflix still is not a great money maker. They are spending $18 billion this year on developing new programming which is a staggering amount of money for a one trick pony that is largely reliant on subscriptions for income. Apple, Disney, and Amazon all have very deep pockets and can play a long game losing money for years as they gain share. When I brought this up with someone recently, he called me an “old mossback”, telling me that I did not remember how Amazon lost money for years but Wall Street was happy as long as sales growth continued. I agreed but see Netflix as much smaller and with limited upside relative to Amazon.
What could save Netflix over the long pull from financial problems? My best thinking is that Apple or Microsoft could buy them and both would be decent fits. I would not be surprised if Apple has not wished they purchased them 18-24 months ago.
The fun is about to begin. Does Netflix have a prohibitively large head start? Time will tell.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
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