Tag Archive: streaming wars

1. The story told by the TV industry’s Q2 results

   August 24, 2021 10:48 Comments Off on The story told by the TV industry’s Q2 results

   Towards the end of July, the TV giants released their Q2 results. The news that got the industry talking was how Disney’s subscriber growth is outpacing that of its rivals, including Netflix. The streaming wars are now fully underway and the pandemic is transforming viewing habits. The TV industry is changing at a dramatic pace – the Q2 results give us a snapshot of this transformation. So what does that snapshot show?

   Disney+ is growing faster than its rivals

   Disney launched its flagship streaming service, Disney+, in many countries towards the end of 2019 and the start of 2020. It enjoyed almost uncanny timing for when millions of people would be locked down at home, looking for new forms of entertainment. Its growth has been remarkable, and at the end of Q2 in 2021, it reported 116 million subscribers – double what it had a year ago. They added 12 million subscribers in Q2 – significantly more than Netflix’s 1.5 million. Disney has undoubtedly benefitted from a cheaper subscription price – $7.99 per month in the US, versus $13.99 for Netflix’s standard plan – as well as the launch of its Hotstar platform in India, where Indian consumers can access all Disney+ content.

   While Disney’s subscriber numbers continue an almost-stratospheric growth, the average revenue for a Disney+ user has fallen by 10% from a year ago. India – where subscriptions only cost the equivalent of $4 a month, now makes up nearly 40% of all subscriptions. Furthermore, Disney is still losing money from streaming as it is still investing heavily in content. Its direct to consumer business unit, which includes Disney+, Hulu and ESPN+, suffered an operating loss of $293 million on $4.3 billion in revenue.

   Netflix’s dominance is eroding – but it isn’t worried

   Netflix’s Q2 earnings report wasn’t nearly as spectacular as Disney’s. It enjoyed an extraordinary 2020, adding more than 36 million subscribers, taking its global total to 200 million. By contrast, it only added 1.5 million new subscribers in the second quarter of 2021. It also lost more than 400,000 subscribers in the key North American market. Netflix’s share of worldwide demand interest – a key barometer of how many new subscribers a service is likely to attract – fell below 50% for the first time in Q2 of this year. So what’s behind Netflix’s declining dominance?

   A hard-to-follow 2020 for Netflix

   Of course, the most obvious factor is the fact that Netflix has been around for longer than its competitors. It’s almost impossible to think back to a time before Netflix launched, when we were still watching DVDs or streaming movies on sub-standard online streaming sites. Netflix has been around so long that it is probably nearing saturation point. This is particularly true after a year in which so many people signed up to streaming services because there was so little else to do. It would be remarkable if Netflix had managed to keep subscriber growth levels on a par with 2020.

   Netflix’s price increase will be affecting uptake

   Another reason that Netflix’s subscriber growth is slowing is because of the increase in its pricing in early 2021. It bumped up the cost of most subscriptions at a time when belts across the world were being tightened. It was also just before Covid-19 restrictions started loosening; now, with the world opening up again, many people will be looking at their streaming subscriptions and wondering which ones can go. The relatively costly Netflix one might be among the first to get the chop.

   Finally, Netflix’s content schedule was lighter than usual in 2021 thanks to Covid-related production delays. The price hike twinned with less new content may have driven some subscribers to take their money elsewhere.

   Netflix isn’t worried about its rivals

   Despite the slowing growth, Netflix doesn’t seem to be worried – after all, its share of TV and streaming watch time grew from 6% in May to 7% in June, compared to Disney+’s 1%. Netflix maintains that its key competition is traditional TV, and that a ‘shakeout’ won’t happen until streaming makes up the majority of viewing – it’s currently at 26% in the US, according to Nielsen. Co-CEO Reed Hastings said to investors ‘Does HBO or Disney… have a differential impact compared to the past? We’re not seeing that in the [data]. That gives us comfort.’

   Netflix is expanding into gaming

   While Netflix seems unperturbed about the pace of its rivals’ growth, it continues to innovate. With its Q2 earnings report, it confirmed its plans to expand into gaming. It has recently hired ex-Electronic Arts and -Facebook gaming veteran Mike Verdu to head up game development. The goal will be to create games based on original TV shows and films, as well as to introduce entirely new games and license some titles.

   What Q2 results mean for the wider TV industry

   It’s not just the streaming services’ Q2 results that have a story to tell about the state of the TV industry. The more traditional TV companies have also been releasing their results. They tell a story of an industry that is, like the rest of the economy, still finding its post-pandemic feet. Some traditional companies and streaming services have clawed their way back to pre-pandemic revenue levels – but not all have managed it yet. Fox posted a Q2 revenue of 7% more than the same quarter in 2019, while Roku saw a 217% improvement. On the other hand, ViacomCBS and Discovery’s Q2 performances were around 2% shy of the same quarter in 2019.

   The overall trend is that, while money is still moving into streaming in the US, many of those dollars are still going to the traditional TV companies, whether to their linear networks or their proprietary streaming services. However, this may change with the rise of programmatic CTV. In Q2 2021, the number of programmatic impressions in the US on Amazon and Roku’s CTV platforms increased by 49% and 27% respectively, compared to the previous quarter. They rose by 204% and 118% respectively compared to the last quarter of 2020. With so many reach-hungry advertisers seeking to boost their share of mind, linear TV companies may need to fight to keep their share of budgets.

   The bottom line: striking the balance between linear and CTV

   As has been the case for several years, advertisers are seeking the perfect balance between linear TV and CTV. Meanwhile, the ad-free streaming services do battle for consumer eyeballs. The market is volatile; it will undoubtedly be influenced by a rapidly improving programmatic inventory for CTV. The US Upfronts will need to adapt accordingly.

   If you would like to discuss how to allocate your TV budget between linear and connected TV, as well as how to navigate the myriad other choices that marketers are presented with in today’s complex media landscape, please contact us at value@ecimm.com.

   Header image: Dean Drobot / Shutterstock

2. Is this the end of the entertainment mergers?

   May 27, 2021 16:54 Comments Off on Is this the end of the entertainment mergers?

   Last week, AT&T announced a $43 billion deal to combine its content unit, WarnerMedia, with factual TV network Discovery. The telecommunications giant will unwind its acquisition of Time Warner, which it renamed WarnerMedia, to create with Discovery a new media company that could be worth as much as $150 billion. The move is a sign that the huge conglomerates which resulted from a flurry of mergers just a few years ago are no longer big enough to contend with the major streaming giants Netflix and Disney. 

   What’s the context behind the deal?

   The much-discussed streaming wars are currently being won, by a large margin, by Netflix and Disney who both enjoyed significant growth during the pandemic. But even Disney is struggling to keep up with Netflix. Netflix has a huge 206 million subscribers and is still growing, albeit more slowly than Disney, which had 106.6 million subscribers as of early April. Netflix had a significant head start over the other streamers, and has a huge international footprint – crucial for continued sustainable growth in this competitive landscape. What’s more, Netflix is finally able to sustain itself financially, and no longer has to borrow money to fund its programming.  

   The American media conglomerates anticipated this situation, leading to a raft of mergers and acquisitions in recent years, such as Disney’s acquisition of Twenty-First Century Fox and AT&T’s purchases of DirecTV and, of course, Time Warner. These deals created huge entertainment companies, but the WarnerMedia/Discovery news suggests that even they are not big enough.  

   But the new company created by WarnerMedia and Discovery just might be. 

   Teaming up to win the streaming wars

   The Economist neatly summarised the four key things that a streaming service needs to compete successfully in the streaming wars: scale in the domestic market, high-quality content, a flexible balance sheet and the ability to expand globally. WarnerMedia’s HBO Max meets the first two criteria, but falls down on the third and fourth. Parent company AT&T’s financial woes made it difficult to keep up with Netflix in terms of programming spend, while the decision to licence content to foreign companies, such as Sky in the UK, means that its international footprint is very poor. The merger with Discovery will help WarnerMedia to address both of those problems: it will no longer be held back by AT&T’s revenue sheet, and Discovery+ already has a significant presence in Europe and India.  

   The resulting company will present a significant headache for the current winners Netflix, Disney and Amazon. WarnerMedia and Discovery’s combined content library will be huge and diverse: it will include HBO’s critically acclaimed dramas, Warner Bros’ blockbuster films, Discovery’s unscripted shows and a variety of sport and live news services. It will be very interesting to watch how the company unfolds. Will they merge their streaming services, creating a ‘one-stop shop’ that would compare favourably to Netflix but would undoubtedly have a high price point (HBO Max currently charges $15 a month, significantly more than competitors)? Or will they ‘bundle’ existing services and new ones for a discounted subscription price? 

   An admission of failure by AT&T

   The merger between WarnerMedia and Discovery is a de facto admission by AT&T that its foray into entertainment has failed. When it acquired Time Warner, which it renamed WarnerMedia, just a year after its purchase of satellite service provider DirecTV, the plan was to vertically integrate the businesses of content creation and content distribution – but that plan has been shelved. AT&T’s CEO John Stankey said that the telco giant lacked the global reach necessary to build a successful streaming business that could match the likes of Netflix and Disney. DirecTV will be sold to TPG. 

   What does this mean for advertisers?

   The question on every advertiser’s lips is ‘how many unique individuals can I reach through as few companies as possible?’. By merging, WarnerMedia and Discovery may provide the most convincing answer yet to this question. They will aggregate more inventory than the separate companies already do, and will provide advertisers with a huge, diverse audience. This will put them in a very strong position, particularly as Netflix does not currently host any advertising on its platform. 

   Interestingly, however, WarnerMedia’s ad tech arm, Xandr, is not part of the merger, and will remain under AT&T’s ownership. This is likely because it would take a lot of time, effort and money to disentangle Xandr from AT&T’s customer data, but given the importance of targeting and measurement in TV and streaming, and of mining media companies’ first-party data, it is would certainly be an advantage for WarnerMedia/Discovery to have its own tech stack. 

   A scramble to create more mergers

   With the streaming landscape now dominated by three giants – Netflix, Disney and now the company formed by WarnerMedia and Discovery – the rest of the industry is now scrambling to form mergers of their own. One of the most significant is Amazon’s purchase of Hollywood studio MGM, confirmed this week for a price of $8.45 billion. The deal will bolster Amazon’s TV and film library for its Prime Video service, and the jewel in MGM’s crown, the James Bond franchise, will help Amazon to compete in the streaming wars, even though it will only own 50% of 007. 

   AppleTV+ is yet to take off, despite giving away a huge number of free subscriptions – more than 60% of its 40 million users are thought to be on a free trial. However, it does of course have plenty of money to spend on acquiring another media company if it chooses to do so.  

   The other giants of American entertainment, NBCUniversal and ViacomCBS, themselves the products of huge mergers a few years ago, have found themselves in a difficult position. The very fact that WarnerMedia and Discovery have decided to merge is a sign that even NBCUniversal and ViacomCBS aren’t big enough to compete with Disney and Netflix. The problem? There isn’t really anyone left for them to merge with. They have too much competing content to merge with each other and anyway, the Federal Communications Commission prohibits such a move. That is unlikely to change given the current White House’s stance on antitrust. They could purchase smaller media companies, but this wouldn’t give them the global scale they need. 

   The race to grow and consolidate audiences continues

   As the world opens up again after the pandemic, people will be spending less time in front of their televisions. Many may decide to unsubscribe from some of their streaming services as TV no longer plays quite such a central role in their entertainment schedules. The race to grow and consolidate audiences – and therefore advertising dollars – continues, and the company resulting from the WarnerMedia/Discovery merger will be well-positioned to catch up with the current leaders. 

   Header image: atk work / Shutterstock

3. The streaming wars part two: Pandemic

   September 1, 2020 16:32 Comments Off on The streaming wars part two: Pandemic

   Until late 2019, Netflix was the undisputed king of the streaming sector. It had competitors, notably Amazon Prime, but its subscriber base, content catalog and accessibility were almost unrivalled. 2020 heralded the much-anticipated ‘streaming wars’, with many media companies such as Disney, NBCUniversal, ViacomCBS and AT&T releasing their own streaming services. The competition was always going to be fierce, and then coronavirus came along. The global pandemic forced billions of people indoors for weeks and months, and many turned to the streaming services – old and new – for entertainment. A lack of live sport also drove many fans into the arms of the streaming services.

   Strong Q2 performances

   The streaming platforms’ second-quarter results reflected the millions of new subscriptions, with particularly remarkable performances from Netflix and newcomer Disney+. For the big media companies, streaming performance was a bright spot in balance sheets dominated by bad news in the form of closed movie theaters, canceled sporting events and major advertisers slashing their TV budgets. But as the world slowly transitions into a post-pandemic landscape, can the streaming services maintain their success?

   Let’s start with a round-up of the major players’ performances over the last two quarters.

   Netflix

   Netflix had an incredible Q2, adding 10 million subscribers to end the first half of the year, to a total of 193 million subscribers across the world. That was on top of an unprecedented addition of 15.7 million subscribers in the first quarter of the year. However, Reed Hastings, Netflix’s co-CEO, warned that this kind of growth couldn’t last, suggesting that the pandemic had pulled subscriber growth into the first half of the year. He predicted that the platform would attract just 2.5 million new subscribers in the third quarter, a prediction which caused Netflix’s share price to plummet.

   Disney+

   Many argue that Disney+, The Walt Disney Company’s much-publicized on-demand streaming service, is the big success story of the pandemic. It is the biggest streaming launch on record, with a huge 10 million subscribers in the 24 hours following its launch, and more than 60 million subscribers by early August – four years ahead of their target of 60-90 million subscribers by 2024. This is particularly impressive given that they have yet to complete their global roll-out. Including Hulu and ESPN+, both of which it also owns, The Walt Disney Company’s streaming subscriptions now top 100 million.

   Peacock and HBO Max

   It is still early days for NBCUniversal’s Peacock, which is ad-supported, and AT&T’s HBO Max, which is the premium version of cable channel HBO. Peacock launched in the US in mid-July, and at the time of writing has attracted 10 million subscriptions – a third of its 2024 target. Meanwhile, HBO Max launched in late May and has grown the pool of HBO and HBO Max customers by 1.7 million in the first half of this year, to a total of 36.3 million subscribers. It is helping AT&T to mitigate the effects of cord-cutting, although there are signs that HBO subscribers don’t yet fully grasp what the new service offers, or how and why they should get it.

   Is brand-supported streaming the future?

   It is indubitable that the coronavirus pandemic has created extremely favourable market conditions for the streaming platforms, both new and established. But, as Reed Hastings said, it’s possible that it has simply pulled 2020’s – and possibly 2021’s – entire pool of new subscriptions into the first half of 2020. To date, the streaming companies have focused on the production of high-quality content to lure new subscriptions and maintain revenue. But content by itself isn’t enough – Quibi’s unsuccessful launch is testament to that – and, what’s more, supply far outstrips demand: consumers in the US subscribe to an average of three SVOD services. The streamers will need to find new ways to deliver increasing value to shareholders.

   There has been some concern amongst advertisers about the growth of ad-free streaming, but many industry players now agree that brand support seems almost inevitable. With ad dollars always wanting to follow eyeballs, there are potentially billions of ad dollars up for grabs. What’s more, the consumer data that the streamers own will be of huge value to advertisers, allowing the likes of Netflix and Disney+ to compete with that infamous tech duopoly, Facebook and Google. Horizon Media CEO Bill Koenigsberg told AdAge earlier this year, ‘if they [the streaming companies] go that way, if they will be able to allow us to unveil the walled gardens and provide data back, then that’s an enormous competitor to the Facebooks and Googles of the world in terms of the audiences these platforms are going to attract and our ability to engage with them’.

   The big streaming platforms have huge tech capabilities which will allow them to create new ad models, formats and partnerships to drive revenue. However, they will need to prioritise consumer experience – part of the appeal of the streaming platforms is the low ad load, or total lack thereof, particularly for US viewers who often sit through more than 15 minutes of ads per hour on primetime TV. Brand partnerships will need to enhance rather than disrupt the consumer’s experience.

   A key moment in streaming

   While the streaming sector has been one of the few winners of 2020, it is far from certain that this success will continue. As the world continues to emerge from lockdown, the economic ramifications of the pandemic are becoming clear. Many countries, including the US, are in recession and unemployment is rising dramatically. Consumers will be looking for ways to make savings and non-essentials such as streaming subscriptions may well be among the first thing to go, particularly as restrictions on other parts of life ease. Netflix, Disney+ and their competitors will need to work hard to retain consumers and maintain their profit.

   Image: Metamorworks / Shutterstock