18 April 2022

Bloomberg: “The Phone Company didn’t Destroy HBO. Will the Cable Guy?”

Many of the current streaming services will fold or merge.

There will be a winnowing. It’s going to happen over the next 24 to 36 months. In the same way that broadcast TV history had the emergence of three and then four with Fox in the US.  Even though streaming has unlimited shelf space, we’ll see three major scaled players when it comes to pure play storytelling companies. There will be increased separation between the leaders. I do believe WarnerMedia and specifically HBO, Disney and Netflix will separate themselves. The level of investment some folks are making is not sustainable.

Most customers will accept advertising for a lower price.

Close to 50% of every new [HBO Max] subscriber is choosing the ad tier. Hulu, the last stat they shared publicly, is they are north of 60%. I suspect that in the not too distant future you’ll see the majority of new HBO Max subs choose the ad-supported option. We tried to price it in a way where we’d be indifferent. We’re making a little more on the ad-supported version because of dollars we’ll generate from advertising.

That means Netflix will adopt ads.

I don’t think the ceiling is 222 million subscribers. I think the ceiling is far closer to 1 billion. You get there by giving customers the choice.

Lucas Shaw

Seems fairly obvious that people would opt for the lower price when given the choice – in fact Spotify used this model successfully for years to drive growth for both tiers. HBO Max doesn’t have different tiers here in Romania, but the price is much lower than Netflix and the migration from previous HBO Go subscribers came with a lifetime discount, so I don’t see much need for an ad-supported option. I would at least hope that advertising doesn’t interrupt the viewing, as it does with classic TV and on YouTube – YouTube’s ads have become increasingly aggressive and annoying. I think streaming companies could run ads between episodes or before and after the movie, as in cinemas, and still get enough return to justify the lower price.

Netflix subscriber additions by year
Netflix sported over 20% year-over-year subscriber growth for years (usually more than that), but hasn’t broken the 20% mark since Q4 2020; growth for the last three quarters was in the single digits

A similar discussion has emerged recently about whether Netflix should offer cheaper, ad-supported subscriptions. The business argument is mostly in favor, while the counterargument is that it would damage their brand. From my point of view, Netflix is far from having a premium brand to damage with advertising; being the default choice in the “background noise” category, as Ben Thompson puts it, is not some grand achievement to be proud of (and YouTube has arguably a much larger and more diverse library of “background noise”-like content). The days of House of Cards are long gone; while the number of Netflix originals has gone up since, their quality has gone down noticeably – you can’t produce something gripping and memorable if you’re only aiming for ‘background noise’. These days, the average Netflix show is either cancelled after 2–3 seasons at most, or goes down in quality so abruptly it becomes almost unrecognizable. In short, I would certainly consider an ad-supported Netflix subscription if the ads are not very intrusive.

As for consolidation of streaming services… one can only hope. A friend asked me a couple of days ago on which platform she could find classic movies to stream, in particular starring Sophia Loren, and my answer was simple: nowhere! Companies are so focused on new releases, so driven to control the distribution of their catalogue, that it’s next to impossible to find multiple movies in a single place. For the consumer, the ideal setup would be a single streaming provider licensing content from all the major studios, as Spotify is doing with music. On the business side though, acting as the distribution channel for someone else’s music is not exactly profitable, so even Spotify is looking to diversify into original content, with questionable success.

With TV streaming, we are stuck in a user hostile environment with multiple providers expanding haphazardly throughout the world, content disappearing as licenses expire only to reemerge on newly launched platforms that may or may not be available locally, and so on. I stopped watching The Expanse and Star Trek: Discovery because they were no longer streaming on Netflix. I worry that we are stuck with the current fragmentation and unpredictability in TV streaming for many years to come.

Update: well, that didn’t take long: in its earnings report for Q1 2022, Netflix announced it has lost 200,000 subscribers, for the first time in more than a decade. Moreover, the company is forecasting a loss of 2 million paid subscribers worldwide for the second quarter, and co-CEO Reed Hastings said they are exploring lower-priced, ad-supported tiers.

Post a Comment