I have always hated the “horse race” usage for the evolution of streaming. It is, definitively, not a horse race. There will be no one winner. The success of one streamer does not directly affect the success of the others. And the standards most media, execs, and Wall Street are using to measure the race is… well… stupid.
The origins of all of this start with Netflix, so…
Superfast And Overbroad History Of Netflix: The physical qualities of the DVD allowed Netflix to offer a paradigm-changer in the form of a monthly subscription service for DVDs that allowed for “unlimited” rentals, 3 at a time, for the cost of renting 3 or 4 DVDs at Blockbuster with no late charges. $10. Home run. But within years, Netflix saturated the demand market and there was little room for growth. It was still a bargain and they were the subscription king, but the world’s mail systems were less reliable and welcoming than the U.S., leaving their demise ahead. So they launched streaming, ahead of the technology to do it really well, ahead of ubiquitous High Def, and it held up the DVD business and offered a path forward. Still $10. Even better. Then, tech improved. Popularity grew. But the content providers didn’t seriously follow Netflix. But inevitably, after a few years, the cost of content leapt exponentially for Netflix and they saw that the industry was waking up and that Netflix’s content access would become too expensive or dry up. Also, the world was a problem because even if they were paying, nation-by-nation rights were a sticky wicket. They were still charging $10 or $12, a great consumer bargain. So, even though Red Envelope had failed, they started Originals, making them an even bigger bargain. Then they started the world expansion of streaming, which has turned out to be more of a game changer than originals alone because while domestic content creators (“Hollywood”) would suffer in America by pushing into streaming, the entire world was opening up in a way that was never possible before. Two years ago Disney+ launched. Etc, etc, etc…
Cut To: Last Week
Disney seems to start panicking, as Wall St does, when they announced that they only had 2 million new Disney+ subs in the last quarter. Stock has dropped 18 points since. Meanwhile, Netflix continues to explode, rising 33 points in the same 8 days for no apparent reason.
The statistics are blurry, as they are all extrapolation, but the general assumption is that Disney+ has about 40 million domestic subscribers. Netflix has 74 million. But both seem to be reduced to incremental domestic growth. Disney doesn’t break out their worldwide subscriber segments like Netflix (US/Canada, Asia Pacific, Europe, Latin America), but Netflix only added 70,000 subscribers in America/Canada last quarter, while adding 2.17m in APAC, 1.8 million in Europe, and 330,000 in LATAM.
The two companies both have evolving issues they need to address…but they are different issues.
Netflix is a young, but fairly mature company. They have embraced a variety of innovations since the expansion to the world via streaming, in order to maximize the value proposition in the many regions in which they operate. They are very close to having double the number of non-domestic subs (139.54m) as domestic (74.02m).
Disney Streaming is less mature. The singular power of the Disney family brand came into streaming mature, making the acceleration of Disney+ intense. But it is a narrow brand and they offered it at less than half the consumer cost of Netflix. The Average Revenue Per Unit (ARPU), meaning per subscription, for Disney+ was $4.16 last quarter. For Netflix, it was $11.68.
Estimates are that Disney+, like Netflix, is nearly 2:1 international subs (est 40m:est 76m).
Here’s where they differ again… the biggest amount of new revenue is outside of America. But while Netflix is adjusting to continue to grow where is already has a solid foothold, Disney+ is still working to get its product settled.
Netflix is now looking here and yon for both fresh non-filmed-content bait to keep subs happy and alternate revenue streams aside from subscriptions. Disney+ is a clear product, but the other side of this envelope is Hulu/Star/Hotstar, 3 brands in different countries with similar goals but still, an undeniable lack of coherence. On top of that, Disney has the Hulu Live brand, which is a cable/satellite replacement bundle, which currently has about 4 million subscribers with an ARPU of $85.
Disney needs to stop obsessing themselves and and to stop encouraging Wall St to keep obsessing on Disney+.
It is not only a great brand, but it is the greatest entertainment content brand on earth right now. Netflix is stronger in streaming, but their brand is a certain amount of quality content and an incredible value. But Disney is Star Wars and Marvel and Disney and Pixar and nothing comes close.
But being the greatest content brand on earth and maximizing the advantages of being the greatest content brand of earth are two different things.
The same is true at what once was Warner Bros. The idea that they need to be bigger is absolutely insane. They have a giant, powerful cultural footprint. But it’s not the size of the footprint, it’s how you use it.
Viacom is doing exactly what they have done through almost the entire time they have been owned by a Redstone… retreating. Or to be kinder, getting smaller, not bigger. They are protecting what they have instead of risking it all to be something greater. The decade of Brad Grey never had an expansive idea… it was close to the vest, then hand it off to DreamWorks, then be close to the vest. And it’s been worse since he exited. The only major thing Paramount brought to the industry during Redstone’s history is Jason Blum. And he got out of there in a hurry. Paramount+ carries all of that corporate twitchiness into this era.
And Comcast… oh Comcast. They have a footprint be bigger than Warners, given the theme parks and the broadcast network. So why does Peacock feel like an afterthought? Well, in part because of the broadcast network and cable holdings and the parent company being a cable company… streaming isn’t helping those other businesses which are still the dominant revenue creators.
Somehow, the primary tool that these companies have leaned on is the tool that got them here… movies. But this notion that opening expensive movies on streaming is how to build a streaming service is INSANE.
You want your Squid Game? It cost less than $3 million an hour. How do you get it? You make 200 or 300 hours of original series content a year and open yourself up to the world and then you get lucky. That is what happened to Netflix. Lucky. Lucky and hard working and working with good people. But lucky. It’s a percentage game. It’s not “throw your IP at the audience even harder.”
But the price of every hour is going up every quarter now. (Another reason why Netflix was very, very lucky. Bridgerton is a lot more expensive, less impactful, and they have a lot less control of the future with Ms. Rhimes.) And if you start spending $5 billion, $10 billion, $15 billion hoping to get lucky, you may well get bankrupt.
And so… stasis.
What of Apple and Amazon?
They remain wildcards. Obviously deep, deep pockets. Both a making some really good product. Amazon is delivering lots of diversity and women-driven shows and AppleTV+ is the home of White People Programming of the highest order (they’ve added Swagger and Acapulco to the service this fall, so maybe that is evolving too).
But Amazon and Apple are, too, a bit frozen. Every one of these companies is working its ass off and creating quality shows and (eh) movies and continuing to deliver good stuff. My point is not to denegrate what is being made or who is making it and delivering it. This is about the perspective of the industry, its future, and all of these companies.
Buying MGM and building a sparkly new campus in Culver City is cool… but those are just structures. It still feels like a giant question mark when one considers what Amazon really wants. It may be more than another way to get close to you so you will buy more toilet paper and overcoats on Amazon.com. Or maybe that is all it is… even with all the hard work of all those great people.
Apple, too. Are they really just after more acreage on the equipment you already own and carry around all day? Is it just a quality piece of the puzzle when it comes to a bundle like Apple One, selling you 6 or more services, half of which you likely won’t use, but enough to get you to subscribe and keep a steady flow of cash coming in every month from 100s of million of customers?
And don’t sleep on Hulu or Netflix or HBO Max either. They are all pumping out some good stuff and some great stuff.
So why is the streaming business in statis?
1. International For Everyone But Netflix
2. Domestic Cable/Satellite/Broadcast
3. Hulu for Disney and Comcast
1. Netflix is still wrestling with some international (and everyone with China forever), but they are well ahead everyone else. International is what makes the losses on domestic tv worth the transition. There’s a very long way to go.
2. Cable is in the way. Broadcast is in the way. There is too much money still in that pipeline to give it all up for streaming, which will take 5-10 years to be anywhere near as profitable, if everything goes well. We don’t seem to be at The Moment yet. But we will get there. Between SVOD and AVOD (ad-based VOD), broadcast as a major delivery service and the affiliate system with it will have to go. Nearly half the country is really not ready for this transition, even though, unlike the transition to HD, it will not require expensive new equipment to transition… but it will require solid or better home internet service. It just a show business issue
This segment be the biggest slog, as unlike international expansion, it is not new territory, but a replacement of something familiar and, if not liked, very comfortable.
Also, there will not be a uniformity in the transition. Some will buy vMVPDs (virtual cable). Some will use antennas for broadcast, ad-based VOD, and either buy none of the paid streamers or be very selective. There will always be some percentage of people who want to buy content show/movie by movie/show. This unpredictability makes it even harder
I believe we are getting to the breaking point here, from a business perspective. But no matter how extreme the tension, getting to the “snap” won’t be easy.
3. Disney needs to free Hulu. The longer they wait, the more it will cost. It’s really keeping them from flying. Has to happen.
Change is exciting and scary. Always. These in-between moments are the worst.