Stream Wars: The Empire Strikes Back

Disney+.  Netflix.  Prime Video.  Hulu.  Apple TV+.  Max.  Peacock, etc.:  The streaming video services are in full swing, creating a litany of decisions for consumer to make.  Over the last few years, the competition’s heated up even more, because each of these services was spending literally billions of dollars to create exclusive content.

That model made very little sense to me, and it seems the industry finally agrees with that statement. How can they commit to spending billions per year on original content?  They try to justify it based on new subscriber acquisition, but the math doesn’t add up.

A recent piece by Mike Shields broke down updates to these strategies from the leading streamers, who are now decreasing their investments in original content.  Let’s take a look at Netflix as an example.  I love Netflix and have been a subscriber almost since inception.  It spent $16.7 billion in 2022 on original content, down from  $17 billion the year before.  The company generates around $31 billion in annual revenue, with a profit of $4.4 billion net in 2022.  While the math would suggest it can afford to spend approximately 50% of its revenue on content, the businessperson in me says that margin is too low for a sustainable business in a highly competitive marketplace.  It makes sense the streamers are starting to cut back. 



Netflix has also begun to crack down on people sharing passwords, which was inevitable.  Its initial reports suggest the crackdown is working, but what happens over time when it catches everyone?  Those shared passwords don’t all convert to paying subscribers.  As streamers continue to raise prices, as they each have done in the last year, those averages will come down, and consumers will likely become more selective.  Subscriber bases go down, and that leads to lower expenses available for original content.

Beyond the quality of the content, streamers should also be paying attention to user experience.  Most of the platforms work the same, but there are subtle nuances.  For example, when I peruse Netflix for something to watch, every pause to check out a movie results in a trailer automatically playing.  That gets very annoying.  I also travel a lot, so I queue up movies for the plane.  Netflix and Prime movies expire after a certain amount of time, with no alert that would ask me to renew.  Much of the time I find out when I am on the plane, stuck with nothing to watch. 

Disney, on the other hand, allows me to renew without redownloading the content, making it easier to extend easily while I am traveling.  Differentiation on the basis of experience can be just as valuable as differentiation on the quality of the content.

The streaming wars are cooling off a bit, but it is still a highly competitive landscape, and I would expect there to be some sort of fallout or consolidation along the way.  If not, the big winner becomes traditional cable services, as they simply have to message “see, we aren’t so bad and we’re less expensive” in the long run. 

What do you think will be the primary differentiation for streamers in 2024 and beyond?

Next story loading loading..