THB #208: Unanswered Streaming Questions, Pt 1 of 2

As the endless hysteria around the state of streaming, legacy media, and movies whips around, screaming about the deep and forever meaning of every event that occurs in any way, I am often struck by how much we - the media, but really, the industry as well - don’t know about the future. Knowledge that will absolutely define the future in ways imaginable and not.

Here are some of those questions…

What is the TAM (Total Addressable Market)?

This is, in and of itself, a multi-tiered question. To start, lop off China. It’s the biggest market in the world and the basically inaccessible to almost everyone in every format.

The United States/Canada is pretty easy. TAM is around 125 million. Netflix is top dog with just over 70 million paid households in the US and Canada. That’s what everyone else is chasing. The idea that any single platform of paid access will top 100 million ever again (or at least in the next few decades) seems to be a fantasy. The Netflix claim that 30% of American households are password-sharing Netflix is not realistic either.

It is the rest of the world, however, figuring out where the TAM is a giant challenge.

Europe has about 270 million television households, about 100 million paying.
Asia Pacific has about 750 million television households, with about 500 million of them paying for access of some kind, sans China. (There is a range of estimates in this diverse market… so somewhat grain of salt on details.)
About 115 million televisions households in Latin America, with about half of that paying for access.

That’s 650 million or so international households paying for TV access (and almost 500 million not paying). The leader in streaming is Netflix with almost 150 million subscribers. So there is lots of room to run.

However, not only is it rough sledding overall, but pricing is treacherous. The clearest example is Disney’s Hotstar, which has almost 60 million subscribers in India, but only gets $1.20 a sub (ARPU! Bless you.)

US/Canada is already deeply enough saturated that at least 3 of the streamers are already, greatly, in maintenance rather than expansion mode.

Wall Street spent years assuming that Netflix would nail that 650 million subscription-paying international market like it did America… 65% penetration in a hurry. Netflix is still under 20% penetration after years of working the rest of the world.

I don’t write that to smack Netflix, but rather to point out that this is going to be slow, hard-fought growth. The world’s TAM is not so easy to tame. It may be addressable, but converting it is going to be an Indiana Jones movie.

Will global sports rights build major sports league significantly or will the “soccer” experience om the U.S. continue to happen everywhere else?

Another very blurry potentiality. The NFL dreams of breaking through internationally. There was talk of “the next 50 million NFL fans” coming from overseas. This chart seems to be from 2015.

Likewise, here is a decade-old online based estimate of popularity of American baseball. I only included countries with rankings at “10” or above (though I can’t even quantify that)

The whole idea of exporting American sports leagues to large numbers has been a fantasy for a long time.

That said… what happens if we start pumping every game in every season from every major sport across the globe? Will major fandoms develop?

Obviously, sports will be more popular when they are played live in certain regions, their teams building “local” fan bases and competing within a region, whether within a nation or in a continent.

And, of course, the timing of live games will always be a major problem, as fans want live games. Even in the United States, living on the east or west coast makes a huge different in how one experiences college football on Saturday and the NFL on Sunday.

But part of having American-based streaming services delivering content worldwide is that the door for delivery of this very expensive domestic content becomes more open than its ever been before to just let it fly. One never knows what sticks when you start throwing stuff at the wall. (See: Squid Game.)

Even if there was a more successful European Football League under the NFL ownership, it could be a business worth billions. The merchandising for NBA and MLB and NFL could be huge.

Domestic rights deals are in place. I have no idea how aggressively international rights have been sewn into those deals. But one would expect the next wave of deals to take international very seriously. And that would make this next few years a great opportunity for experimentation and exploration. If I’m the NFL, I want the next Sunday Ticket operator to make the service widely available everywhere on the planet. The big money will all be at home. But getting international sports fans to pay to be a test market is priceless.

Maybe it’s nothing. Maybe it adds 10% or more… which is a lot of money.

How many countries will be more effectively served by rolling out AVOD (Ad-Based Video On Demand) or FAST (Free Ad-based Streaming TV) rather than SVOD(Subscription Video On Demand) as their first offering?

This is a huge question.

India is a good working example. Disney/Hotstar has no subscription that costs more than $1.50 a month in India. So they are charging something. But they are, in many ways, acting like a Broadcast network. Their sub base is growing… and so is their ARPU… via advertising.

Now… if Disney was to drop their price a little more, would enough new people sign up to increase Disney’s advertising revenue noticeably or is the balance at its best now? Would a faster increase in subs - with a lower price - devalue the subscribers with advertisers instead of growing revenue?

Keep in mind, Disney let the big package for IPL Cricket go, but they kept in-India broadcasting. They aren’t leaving the market, conceding it to Fox, which will have to decide how they are going to pay for their new and exceedingly expensive IPL package.

Disney Hotstar is really a hybrid. I expect we will see a lot of experimenting with the boundary between free and paid services.

Latin America has the lowest ARPU for Netflix, $8.67 a month with 39.6 million subs. They will be adding AVOD to their SVOD service next year. Can Netflix bring that ARPU up over $10 and add 20 million more subs with a price cut to say $7 a month?

Or Warner Bros Discovery… which has 39.1 international subs, early in their worldwide journey. These subs seem to be mostly in Latin America, mostly from Discovery+ at $3.69 ARPU. What happens when they inject HBO/HBO Max content? What’s the target? How much price elasticity do they have, up or down?

I find myself thinking like the AMPTP talking to Talent Unions for decades, somewhat falsely claiming that new technology couldn’t pay a fair rate because the financial viability was not clear yet. But… the streamers need a lot of room for experimentation as it breaks new ground across the globe. And the promise that if the financials play out, the streamers will share the wealth with the players in an equitable way in a reasonable amount of time.

Netflix is moving into Africa. How will those countries be best served while making the most money for the streamers? Any combination is possible. Any combination should be possible. At least in the next 5 - 10 years.

Can you match or surpass subscription revenue per sub with ad-powered revenue per sub?

This is going to be a major question for Netflix as it adds ads to the domestic market and those higher-ARPU international markets.

Clearly, in a market like India, people are making hard decisions about whether to pay $.50, $1 or $1.50 and I don’t want to show any disrespect to that. But in America and other higher-ARPU countries, I see the decision making as more impulsive than budget oriented.

In America, if you are a household with interest in Disney streaming, you will soon have a series of choices.

$8 - D+ with ads.
$8 - Hulu with ads
$10 - D+ with ads, Hulu with ads
$10 - ESPN+ alone with ads (ESPN+ always has ads)

$11 - D+ ad-free

$13 - D+ and Hulu and ESPN+ all with ads

$15 - D+ ad-free, Hulu with ads and ESPN+

$15 - Hulu ad-free

$20 - D+ ad-free, Hulu ad-free and ESPN+

So… if you are ok with ads… prices rage from $8/mo = $13/m

If you hate ads, prices range from $11/mo to $20/mo.

In some ways, Disney is offering too many options. I’m sure they are hoping that when consumers short-circuit, trying to make a choice, they will go higher instead of lower, seeing it all as a value buy. But they continue to ask a lot of the consumer… too much, I think.

Many have questioned whether Disney+ will lose subscribers by forcing $8 subs to either watch ads or pay $11 a month? I don’t think they will lose any significant numbers. And they may be better off financially with those who choose the cheaper ad-based level.

But I wonder, does Disney really believe they are going to expand the subscription base in US/Canada by not offering a lower priced tier for D+? “If you weren’t a customer before, now we’d like you to buy the same product… BUT WITH ADS!!!”

We’ll see how it goes, but if ads go well, I could see the split in pricing between ads and no-ads becoming a lot more stark to really expand the sub base. What does that $5 ad-based tier look like, Mickey?

Is Disney telling us with their pricing that on D+, they think ads can add $3 to ARPU and on Hulu, ads can add $7 to ARPU?

Is Disney telling us that advertising on D+ will have to less frequent and more limited by the family audience expectation? (That one is kinda rhetorical.)

The only option to have both Disney+ and Hulu bundled ad-free is the $20 Bundle, which is $6 less than buying the 2 services ad-free a la carte. Disney would probably like to price the Big Ad-Free Bundle at more like $25 (including the added-value ESPN+), but right now $20 is the high mark in the streaming business.

If you are ESPN+ focused, the lowest price is $10… then add $5 for an ad bundle or $10 for the ad-free bundle.

Side Note: You know what would make a great holiday gift? Ad-Free Streamer upgrades for a year. Maximum $144 to go Full Ad-Free Bundle, minimum of $36 for an ad-free upgrade. Discount these and they not only improve revenues, they get people used to going ad-free.

The range of Disney offerings is going to give them a really good roadmap about how what motivates these spends. And I suspect that Netflix will be watching as closely as anyone. Signals are that they won’t go with ads in any of the high ARPU countries (maybe Canada) until well into 2023. Disney rolls out the new pricing in December.

Of course, plenty of people will put a toe in the water and be seriously influenced by what the ad experience is on Disney+. Even more so when Netflix ultimately offers an ad option. And let’s not forget HBO Max, which has said they won’t be cutting ads into HBO content, which means they are going to be looking, like Netflix, for an innovative, subscriber-friendly option for a lot of their content.

The thing about the streaming ad market is that we really don’t know where it will land until it lands. Will it ever be like network television was? Probably not… but maybe. I haven’t see a better way to watch an ad on a TV… and many have tried. But ye olde sponsorship model could be quite powerful, especially on binge series. It’s always in the execution… because for viewers, it is a feeling. Do you feel cared for or taken advantage of?

I mean, Google is one of the biggest ad companies in the world and I am still stuck listening to that agonizing jingle when ads haven’t been sold in the local ad space on CNBC and CNN and elsewhere, driving my to insanity!!!! Come up with something better so my child doesn’t have to listen to that thing. Please. I’m begging.

Tomorrow… 5 more questions about the domestic business. What it might take to tip legacy to move faster towards the stream in various areas, for both distributors and for consumers.

Until tomorrow…