What’s the state of the video marketplace in 2022? Have the streaming wars been won by the content creators or the tech disruptors — or are they even winnable?
NAB CTO and EVP Sam Matheny and Deadline Business Editor Dade Hayes tackle these questions and more in this installment of NAB Amplify’s “Hey, Sam!” Q&A series, tackling the issues of who’s who and what’s what in tech and M&E.
Hayes characterizes 2019 and 2020 as the “Big Bang” for the world of video content, a singular historical period in which five new video streaming services came online within seven months. These developments also prompted his latest book. Binge Times (available April 19), co-authored with Dawn Chmielewski, which explores the boom in streaming content and services.
So… why streaming video? Hayes explains that streaming is about “getting closer to the consumer in a very competitive world.” He posits that the relationship with the viewer — or perhaps more accurately, the tight relationship between the viewer’s data and the service — is the whole point. Streaming enables companies to intimately know audiences, far beyond age and gender. It taps into the same information that Google and Facebook have taken advantage of and can sell to advertisers to provide targeting benefits.
But what about Netflix? That service does not offer an ad-supported model to justify its data gathering.
Hollywood and broadcasters, Hayes explains felt a kind of “jealousy factor” related to the former upstart that was so effectively monetizing content others’ created and capturing sticky audiences. Others jumping on the streaming bandwagon can be attributed, according to Hayes, as “a mix of… wounded pride and the desire for data.”
We know the why. What about the who else?
For many years, there were three main players in streaming: Netflix, the obvious top dog. Joining it, Hayes says, is Amazon, which “remains a force and kind of singular in terms of its business model.” And there’s Hulu, now controlled by Disney.
In 2022, Disney is now very strong in this market, which also controls Disney+ and ESPN+.
NBC Universal is crashing the gates with Peacock.
WarnerMedia’s soon-to-be merger put them in a strong position. Their combined streaming offerings will include HBO Max, Paramount Plus, Starz, AMC Networks and others. That creates a portfolio of niche streamers.
And then there’s Apple, which is a massive force in the tech world already but is (finally) making its play on the content side, after “flirting with it for many, many years dating back to Steve Jobs,” Hayes notes.
Want more? The CONNECT pillar at NAB Show covers all things distribution and delivery — and that obviously includes streaming. The CAPITALIZE pillar may also be of interested to those focused on reach and ROI, and our CREATE pillar is perfect for content-focused audiences.
In this world, Matheny wonders, do incumbents or start-ups have the advantage? As with most things, it’s not quite that simple.
On the engineering side, it makes sense that the product offerings, from an engineering and data standpoint, are strongest from the tech world. Netflix’s churn — the industry term for cancelled subscriptions — remains by far the lowest at around 4%, contrasting strongly with the industry average of 35% cancellations in any given period. Netflix is “the envy of the streaming world” when it comes to customer loyalty.
However, streaming is also about partnerships, and the recent NFL deals make shake things up. Live sports and news are known to be a significant broadcast component, and that’s likely to have notable affects in this marketplace as well, favoring established industry players, Hayes expects.
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Here’s why. For example, people who want to know about the conflict in Ukraine, Hayes says, are “flocking” to “linear news channels.” Viewers respect the “expertise” of broadcast. “Broadcast craft is something that a newcomer” can’t pick up easily, even if they’re Amazon. But look at their strategy; Amazon’s gone after top broadcast talent for its Thursday night football coverage.
Dade predicts it’s still “advantage tech,” but “the gap is closing. You’re seeing a lot of aggressive hiring at traditional media companies trying to get horsepower in the streaming race.”
Mind the technology/content gap.
Disney offers a valuable case study for companies looking to transition from a pure tech or pure content creation stance. Disney had the content library, so they went and bought the tech to maximize its value in the 21st Century (get it?). A reminder, as Matheny put it, that “Content is king” — as we all know — but apparently some have updated the adage to note that “distribution is queen, and sometimes she wears the pants.” These days, one isn’t good enough s to be a major player in the video streaming marketplace.
Hayes notes that Disney’s foray into the tech sector even preceded its deal with Fox. Then-Disney head Bob Iger set the technology strategy as a clear priority in their roadmap.
But as a reminder, Netflix’s investment in technology is unparalleled because of the single-minded concentration of its business. At Netflix, you have “2,500 engineers getting up every day to work on one app,” Hayes points out. “It’s hard to, you know, topple that.”
You’ve got to spend money to make money. And, boy, are they spending on streaming!
Some of the biggest cash outlays have actually come from studios paying to get their content back from streaming services.
NBC Universal, Hayes notes, “paid 500 million to get The Office back for Peacock. And those shows are important in retaining consumers, but I think it’s a given that they’re not really enough to draw new customers in.”
How does he know? Remember Netflix’s origins as a sort of mail-order Blockbuster where you were guaranteed to be able to watch the movie you’d been dying to see. “Netflix had a 100 million+ subscribers before it started to see results with N.C.I.S. and Grey’s Anatomy and Friends.” Companies need to provide comfort food content, but still be able to afford unique premier offerings. And that sort of investment can’t continue forever, at least not on these extreme levels, Hayes predicts.
Consolidation is going to create “3 billion in synergies” for the combined Discovery-WarnerMedia. In Europe, Comcast and Paramount Global have a similar empire crafted via joint venture. The movie studios are also find that TV makes for an efficient distribution mechanism when trying to reach new markets. Hayes sees these M&As and JVs as a sign that the market is already finding these levels of investment to not be sustainable for long.
What’s in this alphabet streaming soup?
VOD. SVOD. FAST. AVOD. Live plus VOD. Is the subscription or ad-supported model ultimately likely to win out?
Hayes thinks it’s not a binary choice for either consumers or companies. Analysts have long predicted that there’s a ceiling on for either the price point of individual subscriptions or the number of services they will see as reasonable to pay for. But companies have gotten around that with tiered pricing models or by joining forces to create gargantuan libraries that rival cable offerings.
The sweet spot may still land around $8-10 per month per subscription, but advertising is becoming an accepted part of streaming video again in some arenas. “Ad-free premium channels can coexist with the major broadcasters, local stations, cable networks that are ad supported,” Hayes says, pointing out that the same seems to be true for streaming equivalents. After all, it seems very unlikely that “$70 billion TV ad bundle doesn’t in some form or fashion migrate to streaming.”
Where are we on the innovation curve?
In case you did already know, the tech world loves an acronym. And to answer the market maturity question, Hayes offers another one as key: TAM, which stands for total addressable market.
To date, Netflix at only at 10% of current U.S. television watching, which probably seems shocking for such an established brand. And that doesn’t even touch on their potential global growth. It’s clearly “early days in terms of penetration,” which makes the streaming market far from mature globally.
But that also doesn’t mean that there’s still room for every upstart niche streamer.
The Osborne effect enters, stage right.
The Osborne effect is a social phenomenon that Hayes explains as “the inverse of the kind of hype and marketing driven model of Hollywood.” Hayes thinks that the streamers with tech roots are positioned to weather or avoid this concern, but those more used to the “razzle dazzle” of show biz may find the culture counterintuitive.
(Hayes’ Binge Times co-author Dawn Chmielewski has a tech journalism background that enabled her to dig into the role of the Osborne effect on streaming video services in the book.)
There’s still a disconnect between Silicon Valley and Hollywood, even if Netflix CEO Ted Sarandos calls LA home. 😉 Others have followed suit, with Apple, Amazon and Roku adding large presences in Tinseltown. Nonetheless, Hayes doubts that the tech-content tension is going away anytime soon. “I think it’s kind of at the heart of both industries.”
Let’s talk about Quibi — and HBO Now, HBO Go and HBO Max.
“Quibi is an interesting contender,” according to Hayes. The startup helmed by Jeffrey Katzenberg “came and went fast,” despite Katzenberg’s bonafides, smart partnerships with other companies, and $1.8 billion in funding.
The idea of a subscription service providing “high-quality, episodic content on your phone” seemed great in theory, but that turned out to be a flawed premise, or at least before its time. Hayes found profiling Quibi and by extension Katzenberg to be fascinating.
AT&T CEO John T. Stankey is another standout in this arena, per Hayes. In his prior role, Stankey served as COO and CEO of WarnerMedia, covering the former Time Warner Cable assets. Under Stankey’s leadership, HBO’s content offerings were available to subscribers who preferring a streaming option, first via HBO Now, then a combination of HBO Now and HBO Go, but he still understood the promise and greenlit HBO Max.
Stankey apparently reconciled the idea of the new offering — in theory a competitor to an existing, moderately successful product — by chalking it up to an IQ test with pricing and content offerings the only questions. Stankey apparently said that “the customer should be able to pass the IQ test and figure out, well, ‘Hey, if they’re both the same price, why wouldn’t I get HBO Max, which has so much more on there?’” and said it without cracking a smile.
Follow the money.
Hayes says that another cultural difference to obsess over is found in the compensation divide. Entertainment and tech companies historically have very different payment structures for their major players. They may all be traded publicly, but investor expectations vary widely on this front.
Tech payouts are typically given in the form of equity; remember that Mark Zuckerberg still owns half of Meta (aka Facebook), but “when you’re in media, you’re all about the next quarter — and the quarter after that, and your bonus is tied up on delivering those numbers.”
Hayes acknowledges that executives in the streaming media space are also often ” still running these very lucrative high cash flow businesses in linear distribution. You’ve got stations; you got lots of movie studios; you’ve got lots of traditional operations that can’t simply be turned off like a spigot, or it’s your bonus.”
“When companies say ‘we all in on streaming,’ it’s hard to be all in” in to the extent that multiple teams are willing to sacrifice bonuses for multiple quarters. Hence the reason that compensation is a key area to explore when understanding what’s next in the word of streaming media.