Thursday, February 20, 2020

Streaming All The Way

The Streaming War has begun, and entertainment giants are going all out 

 

By Jasmine Chan

 

Despite much anticipation, Disney+ launched shakily on November 12, 2019. Ten million subscribers either couldn’t log in or couldn’t stream content due to server issues. While Disney+ experienced a significant hiccup, Apple TV+ was quietly testing the waters with a small number of original productions after launching on November 1, 2019. These two eagerly-awaited streaming services are just the beginning, as Comcast’s Peacock and HBO Max, owned by WarnerMedia, will be joining the race in mid-2020. 

 

The world has its eyes on the imminent ‘Streaming War.’ The battle comes down to each party’s ability to manipulate market trends, as how these entertainment giants manage their content production and pricing strategy will determine who wins over the viewers. 

 

Be exclusive and original

 

Long before the Streaming War, media giants were working to take back their studio productions from Netflix. The breaking of Disney’s US$150 million streaming rights contract with Netflix in 2017 revealed the entertainment conglomerate’s intent to break into the market. By 2020, HBO Max will gain the exclusive streaming rights to fan favorites, including Friends, Pretty Little Liars, and The Big Bang Theory. 

 

 

Following in Disney and HBO’s footsteps, NBC’s hit workplace sitcom, The Office, will be removed from Netflix in 2021–a signal that we will soon have another contender in the mix. The battle for exclusive content is a move to bait new subscribers and shrink the content library of the industry’s most formidable opponent: Netflix.

 

Netflix has been well aware of this strategy for some time. Since releasing its first original series, House of Cards, in 2013, Netflix has made a name for itself in producing a wide range of successful original films, television series, and reality shows, including Stranger Things, Orange Is the New Black, and 13 Reasons Why. 

 

At the Recode 2019 Code Conference, Netflix Original Content Vice President Cindy Holland said, “The more successful we were at building an on-demand subscriber base with content, the more likely they were going to stop licensing to us. It’s actually one of the reasons why we started original content in the first place because we believe the shift will happen.” 

 

Netflix announced in October 2019 that it would raise $2 billion, given the company was $12.43 billion in debt as of September 2019 (Reuters). With more and more studio productions being removed from its platform, Netflix needs another giant check to film more Originals.

 

Reclaiming exclusive productions is not enough to seriously threaten Netflix. New streaming platforms must also continuously generate new, hit content to maintain a steady flow of subscriptions. As a recent arrival in the entertainment space, Apple doesn’t own any well-known television series or movies. Apple TV+ launched with nine original shows, including the extensively-marketed The Morning Show starring Jennifer Aniston, Reese Witherspoon, and Steve Carell; See starring Jason Momoa; and Oprah’s Book Club with the one and only, Oprah Winfrey.

 

According to Financial Times, Apple spent $6 billion on its new shows; The Morning Show alone cost $300 million for two seasons. Without any exclusive streaming rights, Apple is investing in high production value and stellar A-list casts to compensate for a meager library.

 

Well-established studios are taking a different approach, producing sequels and spinoffs for their most popular characters. Disney+ is at a considerable advantage, with an arsenal of beloved franchises at its disposal, as it also owns Pixar, Marvel, and Lucasfilm. The company has already announced a reboot of Lizzie McGuire, and Marvel television shows Falcon and the Winter Soldier, WandaVision, and Hawkeye. Business Insider reported that Marvel shows cost around $25 million per episode. The recently-released Star Wars series, The Mandalorian–reportedly costing $15 million per episode–is already winning with audiences and critics alike with a score of 93% on Rotten Tomatoes (Business Insider). 

 

Disney and Apple are not the only ones pouring cash into original content. WarnerMedia’s HBO Max, apart from providing access to the Warner Bros., HBO, and Cinemax content libraries, will release a Game of Thrones prequel, House of the Dragon, in 2020. A single Game of Thrones episode cost $10 million to produce, so one can only assume that its prequel will boast an equally, if not more shocking production budget (SCMP).

 

New streaming entrants value content quality over cost, investing billions into exclusive streaming rights and productions. Consumers, however, are torn. According to Deloitte’s ‘Digital media trends survey, 13th edition,’ 47% of U.S. consumers are “frustrated by the growing number of subscriptions and services they need to piece together to watch what they want,” and 57% of consumers are upset that their streaming platforms are losing rights to their favorite shows and movies.

 

Streaming services used to be a convenient and affordable option. But having countless choices is no longer a blessing, as the content tug-of-war is forcing consumers to subscribe and spend more. Those who are price-conscious or still want access to specific content may turn to piracy–a red flag for the industry. 

 

PCMag found in a survey from November 2019 that 75% of participants are not planning to subscribe to any upcoming streaming services, hinting at the possibility of using alternative means to obtain content. Although the diversity of content available in the market is increasing dramatically, it has become clear that consumers are not wholly happy. 

 

Bundling a profit 

 

The Streaming War doesn’t only involve a content battle, but also the cutthroat competition of product bundling. Streaming defines Netflix’s business model, but its competitors generate revenue from diverse streams, such as theme parks, merchandise, the box office, and tech products, which is why Disney, Apple, and HBO can afford to offer bundle deals. 

 

Their immediate aim is to obtain a loyal subscriber base, and they are willing to forgo short-term revenue to achieve it. Despite having to offer a discount, these companies will earn a higher combined profit due to the increased sales of each individual product.

 

Similar to what Amazon has done in bundling its streaming service with Amazon Prime subscriptions, Apple TV+, which costs $4.99 a month, is free for one year to customers who purchase an Apple product–be it an iPhone or Macbook. Bloomberg reported that Apple is also considering bundling its paid news app Apple News+ and Apple Music with Apple TV+ in the near future. 

 

At $6.99 per month, Disney+ offers a package bundle with ESPN Plus and Hulu for $12.99 a month, as it owns a majority stake in the two platforms, thus providing three streaming services in one. Its aggressive pricing is a declaration of war to Netflix, as Netflix’s standard plan also costs $12.99 per month. 

 

Pre-installed access is a great gateway to consumers who care less about home entertainment. HBO Max, which costs $14.99 per month, will be free for current customers of AT&T’s premium video, mobile, and broadband packages. 

 

Flixed, an online publication covering streaming news, surveyed over 1,000 streaming subscribers and found that price, video quality, and pricing model are the main factors they consider when evaluating a service. Product bundling is satisfying for users who stress about their subscriptions not being worth the cost, making the practice a win-win. 

 

Netflix’s throne 

With Disney+, Apple TV+, and HBO Max coming in strong, many doubt whether Netflix will be able to maintain its position for long. Netflix, Hulu, and Amazon Prime currently lead the industry. With 160 million global subscribers, Netflix has the biggest slice of the pie, followed by Amazon at 105 million and Hulu at 28 million (Bloomberg). 

 

The 2019 ‘CNBC All-American Economic Survey’ found that 57% of Americans subscribe to streaming services–51% of whom are Netflix customers. Founded in 1997, the company is confident about maintaining its leadership position. In its 2019 third-quarter earnings letter to shareholders, Netflix stated that “the launch of these new services will be noisy,” but the strength of its service and large market opportunity will guide its growth.

 

Newcomers are setting different subscription targets in their early stages. WarnerMedia CEO John Stankey is hoping to hit 50 million HBO Max subscribers in the U.S by 2025. Barclays expects Apple will reach around 100 million subscribers in a year due to its bundle with Apple products. Disney+ is targeted to reach 60 to 90 million global subscribers by 2024 (The Hollywood Reporter). Although it was impressive for Disney+ to have brought in 10 million subscribers for its launch, it still has a long way to go if it wants to catch up with Netflix. 

 

That said, the combined force of these new streaming services, although not immediately lethal, makes the future of Netflix uncertain. Exclusive content and product bundling are the marketing strategies of choice at the moment. Given the dynamic nature of the industry, which is still in its early days relative to its cable television predecessor, new strategies will be introduced by providers to turn the tide in their favor, however slightly. 

 

It’ll be tough to predict the winner–if there will even be one at all–but viewers will undeniably be inundated with choices. Selecting a service that is worth the money is another matter entirely. 

 

Jasmine is Jumpstart’s Editorial Assistant. 

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