It’s Not All About Content Spend
With the recent merger of Warner Media and Discovery, and Amazon’s acquisition of the MGM archives, it has become quite popular to compare the merged companies in terms of total content spend. As a result, analysts believe that some providers like NBC Universal’s Peacock and ViacomCBS’s Paramount+ will need to make additional acquisitions in order to compete with the behemoths. As they see it, there will be only four, maybe five big winners in the space and the rest will not remain viable.
Is this the right way to view success in the streaming marketplace?
Consolidation Was Underway Before Streaming
If you examine the TV landscape prior to the ascendance of Netflix et al., mergers were already in vogue. Studios were consolidating. Cable networks were consolidating. Video distributors were consolidating.
This wave was primarily about leveraging against other parts of the entertainment ecosystem. And it was not focused on increasing service to specific markets, but, rather, more about providing the broadest coverage possible. The possible exception to this was the Discovery Networks/Scripps merger. There were some cost efficiencies to be gained from merged back office/sales force and cross-promotional efforts, however the primary benefit was the company’s increased leverage over other layers in the distribution chain.
Impact of Consolidation on Consumers
While the consumer did benefit from having access to tons of niche content that would not have been viable without the larger entities, they paid a price for this consolidation. Network consolidation increased license fees at a pace that well exceeded inflation, costs that were passed directly to consumers.
If consumers wanted to watch their particular channels, they were forced to buy whole packages with hundreds of channels that they didn’t watch. The most frequent complaint among consumers was that they only wanted to pay for the channels they watched, which was typically in the 20-channel range. There are very few households where all of these channels aligned and the choice of channels always crossed the consolidated network families.
The internet has allowed very niche content to stand alone and often for free, with services like YouTube lowering the value of digital networks. The higher-cost, higher-quality, broader-demand content that people would be willing to pay for, however, is driving the debate in the streaming wars.
Total Content Spend Is Not Enough to Understand Provider Viability
When you break content down into types as opposed to focusing on total spend, you get a better perspective on the viability of each provider.
- Movies have a very broad consumer coverage, but demand type is very diverse. There are some very strong franchises but most movies fill a genre roll and are stand-alone content.
- General Entertainment – Some series gain a large buzz, generating a significant following and promoting a long shelf life. The show itself drives viewership and loyalty which is not extended to the streaming service itself. There is opportunity to direct the viewer to what to watch next within the service with internal promotion of shows, but recommendations from other sources is a stronger driver.
- Documentaries are similar to movies. They are genre-specific, but it is difficult to maintain a franchise.
- Sports is often lumped into a single group, though content value is sport-specific and demand is most always live. The NFL is the biggest driver of viewing in the U.S., and that content is distributed through multiple providers. League-specific packages have proven viable to niche consumers, but could not generate the funds necessary to support the leagues on their own.
- Kids programming is niche programming that covers less than 20% of households and has little appeal outside of homes with children. The variance in age of the children to the programming makes each individual niche even smaller. There is a limited set of suppliers in this space and different age groups to serve.
- Live/Companionship programming is a very broad category often split into multiple genres like news, talk shows, game shows, and cooking/home improvement. From a consumer perspective, this is TV shows viewed live or those that can be watched back to back. It isn’t focused viewing, per se, but the consumer will pay attention for the parts that interest them. Live/Companionship content enjoy strong followings and is largely the category holding up the cable business.
Disney has split its content into three buckets (Sports, Live, and General Entertainment/Kids), allowing consumers to pay only for the content type(s) they want to watch. According to recent TDG research, only 8% of its DTC subscribers pay for all three services, even with a bundle discount.
The Warner Media/Discovery merger is also being evaluated based on total content available, and while there is some overlap, it will appeal to different market segments. For example, among consumers subscribing to either HBO Max or Discovery+, there is only a 14% overlap between HBO Max and Discovery subscribers. Notably, only half of Discovery+ subscribers that also used HBO Max valued the content enough to pay for it, the rest were freeloading via shared passwords.
To better serve the groups that like that content, Warner Media must realign the programming between the two services, though it will be somewhat limited in its ability to raise prices to justify a single combined service.
Must a Provider Be in the Top Four or Five to Survive?
Each of the content genre segments are different. There is not one provider right now that has a significant play in all of the genres. If looking only at the Movie/Show/Documentary genres, then the 4-5 provider perspective might hold, but there is a lot of money to be made in the other genres as well as traditional cable services continue to decline. Advertising dollars will continue to shift to streaming services and the niches they control.
The minimal viable product for a stand-alone streaming service would be valuable content launched at a regular pace where customers are looking forward to the next show, as well as a sufficient library to keep them busy when not watching new shows. All of the major services have anchor shows and movie content, but some have more than others.
Providers like Paramount+, Peacock, Hulu, and potentially Discovery have a lower cost-to-consumer due to advertising. I believe that as pay-TV households continue to decline due to rising costs, these alternatives will become more viable and have the value of constantly-updated content. Live shows and channels that are constantly happening and updating will serve a need that is not currently being filled by Netflix/Amazon.
The streaming video landscape is changing and expanding rapidly. As traditional distribution rates increase and more options are available to consumers, the broadband-only segment watching streaming content will dramatically increase. Viewing the streaming landscape from a simply Netflix-direct-competitor perspective is an overly narrow focus.
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Michael Greeson co-founded TDG in 2004 and serves as President and Director of Research. As a 20-year veteran of the connected consumer and broadband media spaces, he has designed and fielded more than 50 quantitative consumer research projects and authored/co-authored more than 75 reports on multi-screen/multi-platform video and the connected consumer.