Legends of the Streamers 

After a week of cinema’s opening up and studios seeing the income filter in from the box office once more, we can start to reflect on what the last 18 months has done for the film and TV industry. More specifically, how the pandemic has ignited the fire around the OTT streaming industry.

Think back to January 2020. Ricky Gervais’ introduced the Globes with his opening monologue saying, “Everyone’s watching Netflix. This show should just be me coming out, going, ‘Well done Netflix. You win everything. Good night.’” Yet, fast forward 18 months, Netflix has some serious competition nipping at their heels.

There’s no doubt Netflix remains a seriously big fish, and reigns supreme with 200m subscribers across 190+ countries (WeForum, 2021). But Disney+, Prime Video, Discovery+, Hulu and Peacock are all eating up their fair share of the market too. Disney+ being the greatest threat to Netflix’s market leading position having amassed 104m subscribers in just over a year, more subscribers than they expected to reach by 2024 (Digital TV Europe, 2021). Amazon is adding more weapons to its armoury with expansion into live sport, and the latest speculation around its $9bn acquisition of MGM. Discovery+ are set to join forces with AT&T’s Warner Media unit to create a standalone service that will compete with the streaming giants.

Yet, we are also seeing the pressure of such a saturated market. Apple TV’s subscriber numbers are way behind the rest of the pack, reaching an estimated 40m in 2020 (Statista, 2021). It’s also suspected that they are struggling to gain profitability due to the volume of subscriber ‘free-riders’. And Quibi, the 10-minute video streaming platform that launched in 2018, shut up shop shortly after as it failed to justify the need for a standalone streaming service.

In short, the wars are hotting up. And the fight is set to continue for a chunk of the $171bn industry (Statista, 2021) as players join the battle in an already saturated market with a finite share of consumer’s wallets.

The OTT Crowd

Take a closer look at the market and we can see the 3 types of business models begin to emerge.

• The content purists: best example of this is Netflix

• The ecosystem players: think Amazon and Peacock

• The membership minded: think niche, fan-based brands like Shudder and powerhouses like Disney

The content purists

Netflix, despite being the arch disruptor, actually has the simplest business model; pay a subscription and get ad-free access to programming. Content, licensed and originals, is at the core of their proposition, and with the former quickly disappearing to the creators it’s no wonder that they’re spending more on creating their own ($19bn projected in 2021 – Business Matter, 2020) than Amazon, Hulu, HBO, Apple, Showtime, Starz, CBS All Access and YouTube combined. With content as the ace up the sleeve to get subscribers through the door, their retention weapon is their masterful use of customer data profiling and content recommendations. This drive to deepen engagement is estimated to save the company $1bn each year from reduced churn (Business Insider, 2016). However, the model may be starting to crack at the seams. Netflix’s latest subscription growth rate is around 34% (Visual Capitalist, 2021), which falls way behind its competitors such as Disney+ (and Hotstar), Amazon and Paramount that all achieved 100%+ growth over the same time period.

Netflix’s impact on the market was felt hard by the traditional network players whose customers were ‘cord cutting’ their cable subscriptions. This has fuelled the rise in the emergence of cable-owned OTT streaming service, and resulted in their content being pulled from Netflix for exclusive right to their own platform. Thereby, driving Netflix to throw money ($17bn to be precise) at creating its own original, exclusive content. But when everyone has their own extensive catalogue of high-quality content, what is Netflix’s USP beyond its library? And how much longer can this content battle go on for? Which begs the question, what does Netflix’s future entail?

The ecosystem play

Amazon, Peacock and AT&T (owners of HBO) have their eyes on a prize other than the acquisition and retention of a large volume of subscribers. With their broad portfolio of products and services, they don’t see content as an independent revenue stream, but one that can open up opportunities for cross and up selling.

Amazon Prime Video is a catalyst for acquiring, retaining and growing the value of Prime members by driving traffic to their ecommerce business. It’s a smart strategy, and the numbers don’t lie; Amazon Prime achieves $750 average revenue per user (ARPU) per annum vs Netflix’s $130 (Mondaynote, 2019).

With the ability to generate more value elsewhere, these players are able to set aggressive price points for their SVOD services. Apple TV+ is priced at $5 per month, and HBO MAX at only $1-3 dollars more than AT&T’s cable subscription service (given away for free to high value customers), which means that they’re asking for ~50% less of what Netflix is.

By creating content that’s just as compelling as Netflix, whilst charging less, and offering consumers the opportunity to enjoy other things, it’s hard to see how these players don’t have a good chance to steal Netflix’s SVOD crown.

The membership minded

And then we come to memberships. Whilst the market is full of transactional subscriptions, we have yet to see anyone go down this more holistic business model route. Memberships are all about bringing together fans and like minded people, which is something that naturally smaller players outside of the limelight are well positioned to reap the benefits of. Crunchyroll (Animation) and Shudder (Horror) are focusing on specific content verticals to drive engagement and stickiness. With a narrower proposition, and a laser focused understanding of what their user base wants, they’re able to expand their monetisation model beyond subscriptions to opportunities like live events (Crunchyroll’s Anime Expo for example) and premium affiliate partnerships.

And then we come to Disney. With a similar level of engagement, following and fan base but on a vast, global scale we see an opportunity for Disney to become a powerhouse in the membership model. With its immense catalogue from Walt Disney Original to Pixar to Marvel, it has a strong starting point. But we think the content is just the opening gambit. It has the potential to become a portal for other Disney touchpoints and products, digital and physical, improving cross-portfolio margins and cutting out traditional partners like travel agents. With more commercial opportunities than Netflix, and a more loyal fan base than Amazon, Disney could shape up to be a real disruptor in this white space.

Final thoughts and reflections

With the battle well and truly underway for the King (or Queen) of the Streamers, it is an exciting time to have an eye on this industry. Every week there is more news and announcements around the big players trying to muscle their way to the top. So here’s our final takeaways on where the market is at present.

• Disney, Amazon, HBO MAX and Peacock are the biggest threats to Netflix’s crown because they have the vision and resources to think about Total Customer Value across multiple revenue streams, allowing them to absorb losses on content production by cross and upselling to higher-value products and services.

• Players will need to diversify their commercial models to win this race. Focusing on finding new ways to drive engagement and monetising that engagement means that streaming services position themselves as a membership. This opens up the network effects associated with a user community, and creates valuable commercial opportunities across events, e-commerce and advertising as well as just subscription.

Stay tuned for my next blog post where I will drill down into each of the three business models introduced and explore what’s next in order to reign supreme in the streaming wars.

For more information about what membership means in the media sector, go here to download our Membership Economics report.

10th February 2020

This blog is part of Manifesto Growth Architect’s content series, Membership & Media. Manifesto Growth specialises in subscriptions and memberships models for media organisations, helping clients drive lifetime value through audience engagement and audience-centric propositions.