The Streaming Wars--Conclusions

This post will conclude (at last!) our series on The Streaming Wars


When you look at the media landscape, most of us who analyze the streaming arena come to pretty much the same forecast—Netflix and Disney will likely be the big winners when the smoke clears in five years or so. Here is how I have come to that conclusion:


1) Netflix is without question the global leader in both usage and content in January, 2020. RBC Capital (Royal Bank of Canada) projections are that 95% of their subscriber growth will come from OUTSIDE the U.S. going forward. They still may add two to three million per year in the U.S. but the explosive growth will come from overseas. Also, they are developing original content (programming) in many languages and with interest to people in far flung places around the globe. For the foreseeable future, Netflix has won the streaming war if you look at the company from a global perspective. They do have one big problem and that is that producing the tremendous amount of quality content they air each year costs a great deal of money. Last year, they were said to have spent $12 billion and some of that was borrowed. At some point, their new competitors with deep pockets such as Apple and Amazon might be a white knight and form an alliance with them. Apple would be a great partner as would Alphabet. They could provide endless financial resources and let Netflix produce world class content. If we ever go in to a global economic downturn, this might happen faster than you think. Netflix is a wonderful service but they may have to blink if competition gets fierce and money gets tight. Remember, as more financial powerhouses enter the streaming space, it will be very expensive for Netflix to bid for old TV series and films and even to produce new content. Also, and very importantly, when Netflix had streaming largely to themselves, they had pricing power. This is no longer the case so they need to grow even faster to cover their production commitments and still make money.

2) Disney is the global leader in entertainment. Their streaming service is off to a fine start but, on a worldwide basis, they have a long way to go to catch Netflix. They should get significant traction in the U.S. with their inexpensive trifecta package consisting of Disney +, ESPN + and Hulu in the U.S. Their movie studio continues to grind out blockbuster films and the merchandising profits from their franchisees are significant. Remember that they have been realistic about Disney + growth projecting that they may not see a profit until 2025. Disney is in the game for the long term but they will not kill off Netflix even though they have a lot going for them. Also, don’t forget Hulu.

3) Amazon is now the world’s leading retailer. They have positioned  Amazon Prime Video as “free” with an Amazon Prime subscription. Content is improving each year and they can buy up the rights to a great deal of high quality content if they wish. A relative handful of people get Amazon Prime Video on a subscription basis but are not Amazon Prime members. As Amazon Prime expands overseas in the next few years, their now small video division may get a real lift.

4) Apple’s foray into streaming does not make huge sense to me. They have some big names and billions to sink into content although, to date, not much is there. As written in earlier posts they have HUGE cash balances that they can deploy in to developing or buying content. So, they can do what they want. When I think of them re streaming, I wonder about Warren Buffett’s famous comment about sticking to your “circle of competence.” Why are they doing this? However, when the inevitable shakeout occurs in the space with 24-36 months, Apple could buy their way in by purchasing struggling smaller services or even an elephant such as Netflix.

5) Cable has to be in a bad spot looking ahead. Every month, thousands of American households “cut the cord.” As people analyze the new offerings, you can receive Amazon Prime Video, Netflix and Disney + for around $21 per month. Add Apple and maybe HBO and you are still under $40. Cable defenders tell me it will be hard for Disney. They are not used to service. What if they do not get billing right? What if there is a service issue with transmission? Are they equipped to respond? That is truly the pot calling the kettle black? How many of you have been tickled with the service you received from Time Warner and Comcast over the years? Disney is a mega-company. They can handle billing and will learn quickly how to best deal with service issues.

I have also been told of a straw in the wind as streaming services are gaining ground. Reputedly, some 500,000 Americans have over the last few years purchased a TV with rabbit years and a basic antenna. So, if they cancel cable and put together their customized package of streaming venues, they can get over the air TV as well. Apparently this has some appeal and there is no monthly bill. It this turns in to a trend, it may gallop modestly at some point. Cable would really get hurt. People have learned that they do not need or use 250+ channels. Streaming services give them content and that is what they want. Why spent $150 per month for cable when you can get the streaming services that you want for $20-40 per month and you still would not have time to digest all the good content? Also, whenever the next recession occurs  a number of people who will be struggling may cancel cable but still have significant entertainment options by subscribing to a few streaming services for a fraction of their then cable bill. They may never go back.

6) ROKU—their long term hope to me is to be a server for competing services. One stop shopping has lots of appeal.

7) Over the Air TV—the slow death will continue. The reversion back to rabbit ears will not be done by everyone and young adults are addicted to streaming and are deep in to commercial avoidance.

8) Minor players—consolidation will take place in a few years and programming will shift over to the majors. Some sports channels may move from cable to a successful streaming king.

So, Netflix and Disney look like good bets although Netflix may be short on cash at some point. Amazon, Apple and Alphabet (Google) have the money to do what they want for a long time and AT&T’s new HBO entry may survive as well.
The consumer will have a field day sorting through the options and financial people will do some sharp figuring sorting through the rubble of failed streamers and seeing what can be salvaged.

It is going to be very interesting and fun to watch. As Yogi Berra allegedly said, “The future ain’t what it used to be.”

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

The Streaming Wars--Part V

Special Situations

If you take a look at the whole cavalry charge of players that is unfolding in streaming it is clear that several large players have the best chance of surviving and ultimately winning. Yet, there are a host of other players out there who are worth a look or may go the distance when consolidation occurs in the space in a few years. Today, we talk about a few of these players:

Roku

This is a both a hardware company and content platform. They provide some free content from the internet and also take some advertising and have subscriptions. They serve the majors such as Netflix and Amazon Prime plus have a modest service called Roku TV and well as sell actual TV boxes. The service could thrive if they can maintain relationships with the major providers—their low cost may have appeal to the likely wave of cable“cord-cutters” to come.

Quibi TV—this was profiled quite a while back in MR (see update on Quibi TV--MR, 5/30/19). Available only on mobile phones this spring, they will provide some original video content in “bite size” offerings of 12 minutes or less. The assumption is that it will be a go-to place for millennials and those on the move in the course of a day. Have strong management team led by Meg Whitman and Jeff Katzenberg. Here is the link to a 1/8/20 interview on Bloomberg TV—https://www.youtube.com/watch?v=3B0Of5XV7no

My bet is that Apple TV Plus, Disney, or Amazon Prime will gobble this service up if it clicks.

IMDB TV—somewhat quietly owned by Amazon, this contains some original programming and it’s FREE!

You Tube TV—You can view live TV here and over 70 channels from parent Google. This is not cheap—$49.99 per month at present

Acorn TV—a personal favorite with a nice mix of British and international shows, some of very old vintage. Has narrow appeal but only $5.99 per month.

There are dozens of others that are free, sports oriented, or with very narrow breadth of content. Candidly, the average consumer will have a hard time sorting them all out which may help a non-controversial carrier such as Roku that can offer several for one stop shopping.

Next up—Conclusions

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com