The streaming wars are on – and the winning strategies will rely on more than just subscriber numbers or content investment.
If we can learn anything from the golden age of cable TV, it’s that the TV and content businesses are constantly changing. Early on, it was mainly about subscriber numbers – own the customers, and you can dominate the market and choose the content. But when a content production company makes a really successful series or film, it changes the balance of the power – suddenly, the production company can choose which networks can have its content. The same changes happened between original content producers and content licensing companies. Now the streaming business has also changed the structure, as streaming services try to cover a larger part of the value chain, from production to distribution.
When Netflix published its latest results, which projected a slowdown in growth, its share price dipped 20% – despite its 27 Oscar nominations and the fact that its Korean unit produced Squid Game, one of the biggest global TV hits of 2021. Meanwhile, Disney+ – which only entered the streaming business in 2019 – has been growing faster than expected. Both services are powered by investing in original content production, which streaming rivals like Apple TV and Amazon Prime Video are also doing, but it is very expensive. Meanwhile, around the world, the streaming space is getting more crowded at market-level as local streaming services compete for eyeballs and clicks.
What are the winning strategies that will determine who is the future of video streaming services? Can there be more than one? And is heavy content investment (especially local content) a prerequisite?
Buy new subscribers with expensive content
Netflix has over 220 million subscribers. Amazon Prime Video has approximately 200 million subscribers (although Amazon Prime subscriptions offer more than just video). Disney+ and Tencent Video are well beyond 100 million subscribers. These are big numbers, but compared to Facebook’s roughly 2 billion active users, almost 2 billion TV households worldwide and Spotify’s over 400 million subscribers, they’re not that huge. It’s also worth remembering that in some markets, many people have several streaming subscriptions, so there is quite a bit of overlap.
On the content side, the Financial Times estimates that the leading American media companies plan to invest at least $115 billion in content production in 2022. Disney’s content investments are estimated to grow 35-40% to $23 billion in new movies and TV series. Netflix’s content investments will grow 25% to $17 billion in 2022. The interesting thing is that different companies now have quite similar content strategies, although their background and legacy are very different. Disney will have its 100th anniversary in 2023 and had built up a wealth of popular content in that time. Netflix started as a DVD rental business, Amazon as an e-commerce platform and Apple as a desktop computer company.
Netflix’s ARPU has been over $14 a month, which is higher than Amazon’s (under $13, although it plans to increase prices), Disney+’s and Apple TV’s (both below $10). On the other hand, comparisons like this are complicated – for example, Amazon’s and Apple’s streaming subscriptions are linked to other products.
But let’s estimate an ARPU of $10 a month, or $120 a year. With 100 million subscribers, that comes to $12 billion in revenue a year. So if a company then must invest $10 billion in content, it must really target growth.
Global and local actors
As a whole, the market is much more fragmented than it looks at first glance. Aside from the big-name brands like Netflix, Amazon, Apple, Disney and HBO, there are many more services that focus on certain types of content (to include language-specific content), or offer streaming bundled with other services. This has forced global leaders to invest more in local content. For example, Netflix’s investments in language-based content have been significant, and has also opened more international markets for non-English content. Many new series from Europe and Asia are finding international audiences, South Korea’s Squid Game being the most recent and well-known example. So it makes sense for global companies to invest in smaller language content to win subscribers – but is this sustainable when the market becomes more mature?
Telcos have been active in the streaming market as well. With many having competed with local cable TV companies for years with quad-play offerings, the shift to streaming made sense, not least because telcos already have a relationship with mobile and broadband customers. Bundling of streaming and connections is a way to improve customer retention, as is unique content. But in the US, telcos have been selling their content assets: AT&T spun off WarnerMedia, and Verizon sold both Yahoo and AOL. Still, in many other countries telcos still own content and TV businesses, which makes sense for local-language content and live content like sports, where they don’t need to compete with the global giants.
Components for winning strategies
Over 20 years ago I read a book about Sony’s history (Sony: The Private Life, 1999). It contains a chapter about how the future might look like to Sony. At the time, Sony expected that hardware would become a commodity and the real value would be in content. They were right – games, movies and music are now a very important part of Sony’s revenue, while its consumer electronics business is relatively much smaller. With Apple, the picture is not so clear – content (especially if we include mobile apps, not just original TV shows and films) is becoming more important to Apple, but the content ecosystem is also designed to support hardware sales. But as a whole we can see that the winning strategy is not so unambiguous – it involves a combination of many components.
The growing streaming business also means changes for production and media companies. Cinemas and advertising are becoming less important. People are ready to pay for the content, but if you want to get that money, you must get your content onto a streaming platform.
Data has also become an important component of the streaming business. The more you know about a subscriber, the better you can plan and offer them new content and keep them from churning. Streaming services try to keep subscribers tuned in by recommending a new movie or series when you finish the previous one. But in reality this doesn’t work too well when the segmentation and content categorization models are quite simplified (“You are a man who watched a war movie, so we recommend another war movie”), and good personalization is more complex, as I wrote earlier. And once users will be able to utilize their own data, they could actually get their own apps to find good content from any service, which will probably make them less loyal to one service.
We see now streaming services invest heavily in content to win more customers. This is a winning strategy when the whole market grows – and for now, there is still a lot of room to grow the market. But sooner or later the growth will slow down as people start to calculate how many services they really want to pay for. Then we will see who becomes the real media giants, what happens in smaller-language areas and whether it is possible to keep investing significantly in new content.
If the past is any indication, there probably won’t be a single winning strategy – the market will be in a constant change, and there will be several winning strategies (and losing strategies) based on different combinations of content, distribution, bundling and partnerships.