After a period of years when Netflix, Hulu and Amazon reigned virtually unchallenged as subscription streaming’s Big Three, the landscape is getting more crowded than the last act of Avengers: Endgame.
The 2020s will dawn with major new pay-to-stream offerings from Apple, Disney and WarnerMedia all jockeying for the attention of consumers and the talent community. Still other media giants like NBCUniversal and Viacom agree that the future is online, but they believe advertising, still a $75 billion annual revenue source on linear TV, remains the centerpiece of their free services. And then there are social-minded upstarts like Jeffrey Katzenberg’s Quibi (opposite), which is preparing to go toe-to-toe with Facebook and Snap Inc. in the mobile video arena with a well-funded launch in late 2019.
As they hear all of those sabers rattling, the original Big Three are dipping deeper into their war chests, combining for an estimated $20 billion in content spending in 2018. Throw in the new kids on the block and the tally tops $30 billion in total annual investment.
This complex, multi-front battle qualifies as perhaps the disruption of the 21st Century (with apologies to President Trump). It has implications for everyone in the entertainment business for a number of reasons—changing distribution economics, talent deals and the flooding of the market with yet more high-end stuff to watch.
Disney has wagered $71.3 billion on its digital future, the price of acquiring two-thirds of 21st Century Fox, whose stable of brands (The Simpsons, Avatar, X-Men, etc.) join Marvel, Pixar, Lucasfilm and others under the expanded tent.
AT&T, similarly, laid out $81 billion for Time Warner, took on $40 billion in debt, and survived a legal challenge by Trump’s regulatory forces, largely in the name of streaming. Legacy companies, having contentedly sold programming to SVOD services, pocketing handsome checks for years, have come to realize that with the traditional pay-TV bundle fraying and technology advancing, they need to develop a more direct relationship with viewers. With the 85 million U.S. TV homes at its lowest level since 2007, the tide of cash is going out, and the paranoia is that the turf traditional media has occupied for decades could be ceded to the tech business. Or, as veteran Wall Street analyst Craig Moffett puts it, “The status quo is blowing up around them.”
Disney has taken an early lead in the disruption sweepstakes, dazzling analysts and the media during its Investor Day, held in mid-April at its Burbank HQ. During the three-and-a-half-hour presentation, it revealed extensive details, financial projections and footage from original series to be included on Disney+. The company expects the service, which is attractively priced at $7 a month, to rack up 60 million to 90 million global subscribers by 2024. Even though Netflix currently stands at 149 million, the notion of serious competition was enough to dent Netflix stock and send Disney’s up 10%.
Randall Stephenson, chairman and CEO of AT&T, pronounced himself “impressed” with Disney’s presentation. The bullish investor reaction, he said during the company’s earnings call in late April, was “very instructive” and “gave the market an appreciation that this is a viable DTC product”.
WarnerMedia has been comparatively tight-lipped about its plans, saying it will tell all during its own investor day in September or October. The challenge before the company is to harness the power of HBO, whose HBO Now is a well-established but slower-growth SVOD entity, and combine it with the other disparate assets at WarnerMedia.
Sarah Aubrey, who is head of original content for WarnerMedia’s new service, said the focus internally thus far has been on surfacing intellectual property that can cross boundaries at the traditionally siloed company. During a panel at the NAB Show moderated by this reporter, Aubrey said the leadership team (which includes network veterans Kevin Reilly and Bob Greenblatt) has been embracing the power of data and analytics. “I used to hate data,” she said, noting her pre-corporate days as a producer. In her current role, though, “We call it, ‘Gut, data, gut.’ You can really love something, but then you need to see if the data can support it and help you understand what audiences respond to.” Theatrical releases for some titles developed for the platform are also a possibility, she added.
Marc DeBevoise, president and CEO of CBS Interactive, told Deadline that it is increasingly crucial to tailor strategy to the nature of the content on the service. While CBS All Access is in the mid-single-digit millions of subscribers (i.e., far from Netflix), it has gained steady traction thanks to a mix of live TV and originals like new editions of The Twilight Zone and Star Trek as well as spinoffs like The Good Fight. “We look at it by cohort, by individual type of audience,” DeBevoise said. “We believe we have a strong product and we believe we know how to build it over a number of years.”
As of this writing, there are 235 over-the-top [OTT] video services available in the U.S., according to market tracker Parks Associates. And even though customers are increasingly doing away with their traditional pay-TV bundles, the question for all of the new entrants is whether they will bring must-have offerings to the crowded marketplace. Studies have shown that three services tend to be the limit in most households—how will the new breed replace one of the current must-haves?
Apple may be aiming for the most interesting strategy. It devoted much of its March show-and-tell event for its forthcoming service, Apple TV+, to bringing A-listers like Steven Spielberg and Jennifer Aniston to the stage in Cupertino, CA (and frustrated many by revealing next-to-no footage or details during the hour-long show). But don’t let the glitter distract you from the ruthless focus on the bottom line. The company is emphasizing its services revenue, collecting a 30% “Apple tax” on every app downloaded from the App Store or music track downloaded on iTunes. One executive familiar with the company’s thinking says that for all of its seeming embrace of Hollywood, the company is “a revenue machine, so whatever they do has to bring in money.” Speculation has them distributing its original shows from Oprah Winfrey, Spielberg and Reese Witherspoon for free on Apple devices and then banking on third-party pass-through revenue from apps like Starz and Showtime, which will be sold on Apple as they are through platforms such as Amazon or Roku.
The range of approaches to hooking viewers increasingly unlikely to be tethered to their traditional living room represents one of the rare moments in media when conglomerates are not displaying groupthink. No competing asteroid movie projects or copycat efforts to create “cinematic universes,” but genuinely distinct battle plans in the high-stakes streaming war.
“Many people want to make this a zero-sum game,” DeBevoise says. “People say, ‘One person’s going to win, everyone else is going to lose.’ I disagree. I think we’ll all have our distinct places in the market and the value proposition for viewers is going to have to be worth it.”
Dade Hayes, Deadline’s New York Business Editor, is co-author with Dawn Chmielewski of Binge Times, a book about the streaming wars to be published in 2021.