THB #104: 6 Truths About Streaming
So many claims flying in so many directions… I thought something simple that spoke to the basics might be good to have as a base camp.
1. Nothing Else Is Netflix… Or Will Be Netflix… Or Is Ever Likely To Be Netflix.
It’s almost funny to watch these power players aspire to something they cannot become. And it’s not, as some assert, that Netflix is the leader in streaming and can never be caught. That is just silly. But what Netflix is cannot be separated from its origin story.
Netflix, from the start, took a paradigm-shift in content delivery, the DVD, and flipped the way it was valued by consumers by putting it on a subscription service that was not only more convenient than renting at a brick and mortar store, but was more than price competitive. It was relatively cheap.
The eventual transition to streaming was even more bold. When they started streaming, the tech really didn’t work well. People also didn’t have home internet of high quality or in many cases, any home internet at all. Still, the offering mirrored the DVD subscription pricing and having established the sense that they were a service for all content, vaulted into streaming with customers expecting similar ubiquitous access.
Every other major streaming company has been built out of an existing business. And while Netflix carried the weight of its complete independence as a millstone around its neck, it was, and is, a different millstone than anyone else’s.
This difference has been pointed at, almost universally, as a severe handicap to every other streamer. This is a false idea built out of ignorance about the content business and the weird notion that a good CEO in one industry will naturally be a good CEO in any other industry. Of course, not every CEO is born to the unique segment that every business works within. In many cases, the skills travel... but not always.
AT&T is betting big on David Zaslav being prepared to succeed in the biggest job of his strong career. At the same time, we are seeing serious questions about Bob Chapek, who had great success in various divisions of Disney, but may or may not be suited to seeing the best future for all the company’s divisions.
Netflix is, for the first time, really, the most mature company in its category. In time, others will catch up, the same way that a 30-year-old dating a 20-year-old can be creepy, but a 40-year-old dating a 30-year-old is much less so. There are fewer things that divide one from the other as each matures.
As of this writing, Netflix is the most expensive service (bundle or standalone) and it has a small lead in active subs domestically and a massive lead internationally. How the others get to similar numbers - and I believe they absolutely can, because there is no reason why they cannot - will be through different strategies than Netflix used.
2. Netflix didn’t create a new industry. It created a paradigm within a mature industry.
I respect Netflix and the tech they have developed. But sorry… they are not a tech company and as each year passes, they become less a tech company.
At some point it becomes a semantic argument. For me, it comes back to, how do they spend their money and how do they make their money? The answer to both at Netflix is “content.”
I would even argue that Netflix isn’t even as much a game-changer as Uber, which didn’t invent the idea of transportation, but did launch a different way to think of short-distance travel.
Netflix improved the consumer experience of something with which most consumers already had a life-long relationship, television. Uber created a new category within transportation that massively expanded a niche to a whole new universe of consumers who previously would not be taking taxis more than a few times a year, perhaps.
This is not to diminish Netflix’s achievement. As in the history of cinema, in which one company took the leap with sound and later, color, the chance Netflix took would force everyone else to leap. The big difference between streaming and those earlier innovations is that the tech was barely out of the box when Netflix decided to go there. Sound and color has been around, waiting, long before one studio felt forced to try them with the public in earnest.
3. Streaming Is A Disruptor, But It Isn’t Creating A Single New Model For An Entire Industry.
In leading the way to on-demand television through the internet as a primary delivery system and not just an added value, Netflix mightily disrupted the television business. Somehow, in a failure of imagination, this has extended over into the theatrical movie business, aided by Netflix’s idea that they wanted to be in “the movie business.”
But what Netflix created, as it turned out, made more sense for legacy media than it actually did for Netflix. If a significant part of the on-demand world is and will always be library content, who is best suited to success in that model? The legacy media companies.
Netflix, after a few years of licensing movies for almost nothing, first raised the price point for content in year-long and multi-year deals with companies like The Weinstein Co. and Relativity Media. Then, as those deals led to bigger suppliers wanting even more money, Netflix decided to build its own library. Quickly. House of Cards premiered 9 years ago. Over $100 billion in content later, they are where they are.
Meanwhile, the legacy media companies quickly felt an ache in their Achilles heel, as the ability to move all that library content from revenue-creating legacy models to the new revenue-non-specific streaming model, where the measures of success are open to interpretation and re-interpretation, has been more slow, difficult, and troubled than they would like to acknowledge.
But then four new factors came into view. First, AVOD (ad-driven on demand) showed that it could build an unexpectedly robust audience. Second, it has turned out that internationalizing television is a lot more complicated than it first seemed, not just for them, but for Netflix too. Third, linear media is dying a lot slower than expected. Fourth, all the players are considering multiple strategies, which have only begun to show themselves. Amazon and Apple are both buying live sports rights… but how will they (and everyone else but Netflix at this point) use them? Will others become as good as Netflix at using customer data? How many options will consumers consider before considering it all a waste of time?
Netflix is also buying into gaming and guys like Jason Kilar are talking up NFTs as a major revenue stream. We shall see about those potential money pits.
4. Tne Importance Of Streaming Is About & Has Always Been About The Whole Wide World (China or not).
The streaming model makes no sense for large legacy companies if these are primarily domestic businesses. Domestically, they would be better off fighting off the slow slide of the classic model and supplementing it with streaming for reruns and some library.
But the promise of, at least, tripling their household access and perhaps growing it by 5 - 7 times, is too big to pass up. That is where the money is in this transition.
5. Legacy Is Working Through Things, Not Struggling To Catch Up
You can look at a house under construction and see it as half built or half unbuilt.
Each of the major non-Netflix companies - Disney, Warners/Discovery, Amazon, Apple, Paramount, Comcast - has clearly had wins and losses as they have joined the streaming scrum. Some more wins… some more losses.
But the endless kicking at Legacy for its growing pains is a bit too dramatic, on the whole. It’s true. They have not become Netflix in 2 years after Netflix took 10 years to get where it is.
No matter how many names from how many departments journalists might throw around, those “experts” know pretty much what everyone else knows from the outside. What they actually do. Much more important than what they say over lunch. Every once in a while, we get a legit story about what some person or company might have done that was truly unexpected. But the real insight is in what has actually been done.
So… Paramount is a bit of a blur, feels like it’s getting better, but most of the media feeling about it driven by the mistakes around distributing Yellowstone and spin-offs, the lack of a public face offered by Brian Robbins, and the Shari story of a 67-year-old woman constantly defined by the reflection of her father.
Comcast has some good stuff happening, but not much sexy happening. Universal is the most strategically consistent full-service studio. NBC seems to be turning into CBS of a decade ago, with no strong voice under 60. Peacock is still unable to launch a hit. And Wall St media is still obsessed with them buying Paramount or some other studio to no clear end.
Amazon seems to be changing their idea of what they want to be when they grow up every 6 months or so. What will it be as the seat assignments with MGM/UA get settled?
Apple+TV has, indeed, delivered on the promise of some very good, very high profile programming. They have also missed by a country mile on more than half of what they release. CODA is one of the great surprise stories of the year, from the $25 million purchase at Sundance to the Oscar nomination to the possible win next Sunday (3/27).
Disney conversations are almost always too much D+ and not enough Hulu. Disney needs the combination, whether it’s called a bundle or not, to make enough month revenue per sub to make this work for them, especially as cannibalization of their linear business speeds up. Hulu is a lot more like Netflix, conceptually than Disney+ is. They just need to up their game and present a united front.
And the new Warners/Discovery brand… people got all worked up about the acknowledgement that this will try to be a single-brand service. But what about folding in CNN+? Etcetera. It sounds like Zaslav will act on his best idea of how to do things rather than react to the market… at least at first.
The point is, all these companies come to the streaming evolution with a different set of strengths and weaknesses and the worst thing for any of them is to chase anyone else’s success. We are too early in this cycle - except for Netflix - to be playing the game that way and winning.
6. TAM has always been overstated
Rich “Always Wrong” Greenfield has been a bit humbled by the stock drop at Netflix, but he was one of the first pushing the idea of the billion+ TAM (Total Addressable Market) universe, w/o China.
It’s not complicated. Addressable households are very different in the United States than in most international markets.
Here is my little chart of countries with over 100 million in population, their TV penetration, and their internet penetration. The numbers are rough in spots, but not to the point of being misleading.
These 14 countries alone have 4.9 billion of the 7.9 billion population of earth.
You’ll notice that 6 of the 14 1m+ population countries have 20% or less internet penetration. And #1 on the chart, China, remains inaccessible.
Smaller countries that we are familiar with (Canada, France, Germany, South Korea, U.K.) look a lot like the United States, with TV penetration in the 90%s and internet penetration in the 80%s. Those are the low hanging fruit and those countries are already being harvested or are about to be harvested by every streaming company. But as you can see, only the U.S. and Brazil have 100m+ populations and internet penetration over 55%. These numbers are improving… but how quickly?
That is a challenge.