THB #122: The Next Big Streaming Question

The Big Question coming out of the last Netflix and Disney Quarterlies was, “Is Streaming A Good Business?”

My issue with this - besides being 2 years late in being asked by so many - is that Streaming is not a business. Streaming is a paradigm shift within a very well-established business… television. It’s a new delivery system.

I think what confuses people in this regard is Netflix itself. Because it is a standalone AND the leader in Streaming, people somehow let it define Streaming in their thoughts and imaginations.

Netflix is fantastic. But it is a $30 billion a year business in a (broadly) $250 billion worldwide television market. That ain’t nothing. But it ain’t everything.

Netflix is more than a shiny object… but in the world right now, it is a shiny object.

Disney’s television-only business is bigger than Netflix. ABC, ESPN, Disney+, Hulu, Star, production (not just in-house), etc. Market people, who are unlikely to be opining on CNBC by the time linear becomes a marginal revenue stream, scream about linear becoming a marginal revenue stream. But money is money and Streaming is not the entryway to anything more than the evolving pile of money that will continue to shift over time from Linear to Streaming. There is a cap. And it will be split between at least 4, if not 6 major players.

Don’t get me wrong… I have enormous respect for that $250 billion television market and given time (decade+), it can expand to a $350 billion worldwide market as these big footprint companies with major streamers crack the code on converting Linear options worldwide to streaming and maximize the new opportunities that Streaming offers.

Where we are, in the next few weeks of quarterlies (Netflix on 4/19 - Disney on 5/11), is at a moment where Wall Street’s years-old thinking about these entertainment-driven companies is going to have to change to something a lot closer to reality.

The domestic Streaming market is saturated and can only grow by forcing cord cutting. Domestic consumer spending can’t just expand (as it did for Netflix)… something needs to go in order to get more spending on Streaming. That something is cable/satellite. And of course, this is a place of massive disruption for Disney (broadcast/cable network), Comcast/Universal/NBC (b’cast/cable nets, and wired cable biz), and Paramount Global (linear ads and a broadcast network). Not facing all of these headwinds are Warner Bros Discovery, Amazon, Apple, and of course, Netflix.

It’s not a coincidence that serious Streaming players pushed away from the conflict of cable and satellite revenues… or that Fox removed itself from the Streaming business relatively early. The 3 top Broadcast networks and their associated major cable nets are still suffering from schizophrenia, Comcast carrying the most legacy weight around its neck… and not coincidentally, being the slowest player in major Streaming.

The international streaming market is the arena where most of the legacy domestic entertainment companies have a real growth opportunity. America has been saturated by television for decades. It is unclear - and probably unlikely - that Streaming will create higher profits domestically. The growth in revenues/profits is in controlling their content across the globe, expanding on limited revenues in resale from the 1.5 billion interested consumers outside of US/Can to higher controlled revenues from what is likely another 300 million potential paying households outside of the 110 million or so inUS/Can. (One of the big “revelations” of the current thinking is that a large chunk of those 1.5 billion interested eyeballs cannot afford to pay a profitable amount for SVOD and will have to be addressed by AVOD.)

But the wall that Streaming has hit - and likely to become explosive tomorrow - is the majority of potential international Streaming Households that are not low-hanging fruit.

While Disney and WBD are revving their engines in still-early stages of international expansion, Netflix has been there for a few years and seems to be a bit stuck.

Disney and WBD would love to be advanced enough to be stuck like Netflix is stuck. They aren’t. But they are heading there as fast as they can.

And they will all have their own strategies in the world markets they seek to concur.

A big piece of “the stuck” that Streamers are finding internationally is quality internet access itself. It is also an issue for the about 40% of the potential domestic audience. (Some households who sub to Netflix are still without high quality internet. They will put up with this to have Netflix, but aren’t realistically going to cut the cord or subscribe to a wide array of streams.)

The biggest piece is pricing. And again, Wall St is just going to have to avert its eyes. Disney’s entire sub growth last quarter came with a $1 ARPU (avg rev per user) from India. Lots of people in India… not a high percentage of them who can afford $7+ a month sub spends.

So much of the conversation about the future of Streaming is obsessed with a universality. Streamers fear Wall Street and VPNs. But the bottom line is, if $20 is the top Netflix sub price, there should probably be at least 20 different ARPU availabilities for Netflix across the globe. $1, $2, $3, etc.

Likewise… bundling between these companies. It is an inevitability. Could take another decade or more… but inevitable.

In America, where we spend the most, a Netflix/Disney/WBD/Comcast/Amazon/Apple/Par/Google $120 full-impact cable replacement would certainly run into regulatory issues, it would also dampen the fantasy of any of these players of, say, a $30 monthly price point by 2030.

But realistically, that is what the consumer wants (even if they don’t know it yet). There would need to be an $80 a month offering and $100/mo, but I would estimate that 60m-80m US/Can households would jump all over the $120 complete offering.

But to offer a similar massive mix of SVOD/AVOD that includes Indian content for $12 a month… $10 a month… $9 a month… this could be the cleanest, least troubling answer for this wide range of companies… assuming India would allow it.

It seems unlikely that we will see a breakthrough quarter for a Streamer anytime again soon. Wall Street is going to have to start valuing smart moves and steady growth and building for the long-term than sub growth for a while.

There is nothing bad about this… except Wall St may be an unwilling participant.

And that may be good too, as companies like Disney stop chasing what they thought was the magic answer to their the stock price and get back to doing what is best for their business and perhaps, the overall industry ecosystem.

A boy can dream.

Until tomorrow…