Streaming platforms are starting to become less attractive

Netflix started as a platform where old-series could be relived, but now with rivals aiming to replicate the success of the streaming giant, the content world is becoming increasingly fragmented.

The big question which remains is how big is the consumers appetite for content? How many streaming subscriptions are users willing to tolerate?

The news which hit the headlines this morning concerned Hulu. Disney has come to an agreement to purchase Comcast’s stake in the streaming service, for at least $5.8 billion, in a divorce proceeding which will take five years. This transaction follows the confirmation AT&T sold its 10% stake in Hulu to Disney last month.

Disney consolidating control of Hulu is not much of a surprise to those in the industry, but fan favourites disappearing from the various different streaming services might shock a few consumers.

AT&T has also confirmed it will be pulling WarnerMedia content, such as Friends and ER, from rival’s platforms. The Office, one of the most popular titles on Netflix, will be pulled by owner NBCUniversal. The series, and other NBCUniversal content, will also be pulled from Hulu in favour of parent-company Comcast’s streaming service which will launch next year. Disney will also be pulling its headline content, the Marvel movie franchise for example, back behind its own paywall. Amazon Prime has its own exclusive originals, and YouTube has ambitions with this model as well.

Over the next 12-18 months, content will be pulled back away from the licensing deals to reside only on the owners streaming platform. Users will find the content world which they have come to love is quickly going to change. Some might have presumed the cord-cutting era was one of openness, a stark contrast to one of exclusivity in traditional premium media, but it does seem to be heading back that direction.

It is perfectly reasonable to understand why this is being done. These are assets which need to be monetized, and the subscription model is clearly being favoured over the licensing one. WarnerMedia, 21st Century Fox, AT&T, Comcast and Disney might have had an interest in the licensing model in by-gone years, but following the consolidation buzz, it has become increasingly popular to create another streaming service to add into the mix.

The issue which may appear on the horizon is the fragmented nature of the streaming world; consumers wallets are only so thick, how many streaming services can the market handle?

The test over the next couple of months, or years, will be the quality of original programming. Netflix grew its original audience through a library of shows other content companies were ignoring, but today’s mission is completely different; original and local content is driving the agenda.

The question is whether other providers will be able to provide the same quality? With subscription revenue being spread thinner across multiple providers, will there be enough money flowing into the coffers to fuel the creation of this content? Will the pressures of increased competition decrease overall quality?

Today it is very easy to find the best and deepest range of content available. You might have to subscribe to more than one service, but at the moment consumers are able to afford it. Tomorrow might be a different case. The more streaming services in the market and the more fragmented the content, the more decisions consumers will have to made. Having 4/5 services is probably unreasonable. And we’re only talking about quality of experience, the mess of different discovery engines is another topic.

The question which remains is whether the economics of a fragmented content segment can support the original content dream which has been promised to consumers, or whether the old-world of low-quality, low-budget, limited and repetitive content returns. Soon enough Disney+ will launch, as will Comcast’s streaming service, to add to Hulu, Netflix, DirecTV, Amazon Prime, YouTube’s premium service, and any others which might be in the mix.

Content will become fragmented, thinner on the platforms, before consumers wallets become strained. How long the budget for content will last in this scenario remains to be seen as executives look to cut corners and increase profitability. It’s hard to see how current trends are going to benefit consumers.

OneWeb bags another $1.25 billion for global satellite mission

London-based satellite company OneWeb has announced it has secured an additional $1.25 billion in new capital, taking the total funds raised to $3.4 billion.

Having launched it first assets into the skies on February 27, the funds will be greatly welcomed considering the scale of ambitions here. In its mission to deliver high speed, low latency, seamless broadband access everywhere on Earth, from Q4 the team will begin monthly launches of 30 satellites to create an initial constellation of 650 satellites. OneWeb certainly has big ambitions.

“This latest funding round, our largest to date, makes OneWeb’s service inevitable and is a vote of confidence from our core investor base in our business model and the OneWeb value proposition,” said Adrian Steckel, CEO of OneWeb.

“With the recent successful launch of our first six satellites, near-completion of our innovative satellite manufacturing facility with our partner Airbus, progress towards fully securing our ITU priority spectrum position, and the signing of our first customer contracts, OneWeb is moving from the planning and development stage to deployment of our full constellation.”

While the images and PR story on the company’s website would leave some to believe this is a philanthropic mission to connect the unconnected, such good will would not attract weighty investments from the likes of Softbank, Grupo Salinas and Qualcomm. The addressable niches are quite broadly spread and certainly profitable.

“OneWeb has extended its first-mover advantage and is on track to become the world’s largest and first truly global communications network,” said Marcelo Claure, CEO of Softbank International.

“At SoftBank, our aim is to invest in transformative companies at the leading edge of technology disruption. OneWeb’s potential is undeniable as the growth in data from 5G, IoT, autonomous driving and other new technologies drives demand for capacity above and beyond the limits of the existing infrastructure.”

OneWeb has stated it will begin to offer commercial services from 2020, providing a neutral Internet access service, allowing any MNO or ISP to extend their services over OneWeb IP connectivity. The team is also pitching the constellation as a ‘5G Ready Network’.

OneWeb’s priority rights to a large block of globally harmonized spectrum and its Low Earth Orbit (LEO) constellation design will aim to create what it describes as a ‘truly global service’, addressing the connectivity needs of the autonomous vehicles, maritime logistics, offshore oil rigs and drill-ships, as well mobile backhaul in some of the more challenging geographical environments.

Although the concept of satellite connectivity has become relatively unfashionable in recent years, the demands of ubiquitous connectivity are creating a resurgence of interest. The perception of satellite might not be the most attractive, but it is quickly becoming a critical component of the connectivity mesh.

Who’s got the stones to buy Netflix?

Apple, Disney, Microsoft or Apple; one of the biggest questions which has circled the technology industry over the last couple of years is who could possibly acquire Netflix?

The streaming giant, Wall Street’s darling, has almost constantly been talked up as an acquisition target. However, another year has passed and it’s another year where no-one managed to capture the content beast. You have to start to wonder whether it will ever happen, but here we’re going to have a look at who might be in the running.

Netflix numbersWith subscriptions totalling more than 148 million, 2018 revenues exceeding $15.7 billion and operating income up to $1.6 billion, Netflix would certainly be a useful addition to any company. However, with market capitalisation now roughly $143 billion and debt which would make your eyes water, an acquisition would be a scary prospect for almost everyone.

First and foremost, let’s have a look at some of the players who might have been in the equation, but alas, no more.

Disney has been a rumoured acquirer for almost as long as Netflix existed. This is an incredibly successful company, but no-one is immune to the shift tides of the global economy and consumer behaviour. Getting in on the internet craze is something which should be considered critical to Disney, and Netflix would have given them a direct-to-consumer channel. However, there was always a feeling Disney would develop its own proposition organically and this turned out to be the case.

AT&T is another company which might have been in the fray, but its Time Warner acquisition satisfied the content needs of the business. All telcos are searching to get in on the content cash, developing converged offerings, and AT&T is a company which certainly has a big bank account. As mentioned above, the acquisition of Time Warner completes rules this business out.

There are of course others who might have been interested in acquiring the streaming giant, but for various reasons they would not be considered today. Either it would be way too expensive, wouldn’t fit into the company’s objectives or there is already a streaming service present. But now onto the interesting stuff, who could be in the running.

Microsoft logo

Microsoft

From doom to gloom, CEO Satya Nadella has certainly turned fortunes around at Microsoft. Only a few years ago, Microsoft was a shadow of its former self as the declining PC industry hit home hard. A disastrous venture into the world of smartphones was a slight detour but under the cloud-orientated leadership of Nadella, Microsoft is back as a lean, mean tech heavyweight.

Alongside the cloud computing business, Microsoft has also successfully lead the Xbox brand into the digital era. Not only is the platform increasingly evolving into an online gaming landscape, but it also lends itself well to sit alongside the Netflix business. If Microsoft wants to compete with Amazon across the entire digital ecosystem, both consumer and enterprise, it will need to expand the business into more consumer channels.

For Netflix, this might be an interesting tie up as well. Netflix is a business which operates through a single revenue stream at the moment, entertainment, and might be keen to look at new avenues. Gaming and eSports are two segments which align well with Netflix, opening up some interesting synergies with Microsoft’s consumer business.

“Microsoft is at a crossroads,” said independent telco, media and tech analyst Paolo Pescatore. “Its rivals have made big moves in video and it needs to follow suit. The acquisition addresses this and complements its efforts with Xbox. The move also strengthens its growing aspirations in the cloud with Azure, firmly positioning itself against Amazon with AWS and Prime video.”

However, while this is a company which could potentially afford to buy Netflix, you have to wonder whether it actually will. The Netflix culture does not necessarily align with Microsoft, and while diversification into new channels is always attractive, it might be considered too much of a distraction from the cloud computing mission. Nadella has already stated he is targeting the edge computing and AI segments, and considering the bounties on offer there, why bother entertaining an expensive distraction.

Apple Store on 5th Avenue, New York City

Apple

Apple is another company which has billions floating in free cash and assets which could be used to leverage any transaction. It is also a company which has struggled to make any effective mark on the content world, excluding iTunes success. With Netflix, Apple could purchase a very successful brand, broadening the horizons of the business.

The last couple of months have shown Apple is not immune to the dampened smartphone trends. Sales are not roaring the same way they were during yesteryear, perhaps because there has been so little innovation in the segment for years. The last genuine disruption for devices probably came from Apple a decade ago when it ditched the keyboard. Arguably everything else has just been incremental change, while prices are sky-rocketing; the consumer feels abused.

To compensate for the slowdown, CEO Tim Cook has been talking up the software and services business unit. While this has been successful, it seems not enough for investors. Netflix would offer a perfect opportunity for Apple to diversify and tap into the recurring revenues pot which everyone wants to grab.

However, Netflix is a service for anyone and everyone. Apple has traditionally tied services into Apple devices. At CES, we saw the firm expand into openness with new partnerships, but this might be a step too far. Another condemning argument is Apple generally likes to build business organically, or at least acquire to bolster existing products. This would stomp all over this concept.

Alibaba Logo

Alibaba

A Chinese company which has been tearing up trees in the domestic market but struggled to impose itself on the international space, Alibaba has been hoping to replicate the Huawei playbook to dominate the world, but no-where near as successfully.

Perhaps an internationally renowned business is exactly what Alibaba needs to establish itself on the international space. But what is worth noting is this relationship could head the other direction as well; Netflix wouldn’t mind capitalising on the Chinese market.

As with any international business a local business partner is needed to trade in China. Alibaba, with its broad reach across the vast country, could prove to be a very interesting playmate. With Netflix’s Eastern ambitions and Alibaba’s Western dreams, there certainly is dovetail potential.

However, it is very difficult to believe the current US political administration would entertain this idea. Aside from aggression and antagonistic actions, the White House has form in blocking acquisitions which would benefit China, see Broadcom’s attempted acquisition of Qualcomm. This is a completely different argument and segment but considering the escalating trade war between the US and China, it is hard to see any tie up between these two internet giants.

Google Logo

Google

If you’re going to talk about a monstrous acquisition in Silicon Valley, it’s difficult not to mention Google. This is one of the most influential and successful businesses on the planet with cash to burn. And there might just be interest in acquiring Netflix.

Time and time again, Google has shown it is not scared of spending money, a prime example of this is the acquisition of YouTube for $1.65 billion. This might seem like pocket change today, but back in 2006 this was big cash. It seemed like a ridiculous bet for years, but who is laughing now?

The issue with YouTube is the business model. Its advertiser led, open to all and recently there have been some PR blunders with the advert/content alignment. Some content companies have actively avoided the platform, while attempts to create a subscription business have been unsuccessful. This is where Netflix could fit in.

“Google has made numerous failed attempts to crack the paid online video landscape,” said Pescatore. “Content and media owners no longer want to devalue their prized assets by giving it away on YouTube. Acquiring Netflix gives Google a sizeable subscriber base and greater credibility with content and media owners.”

Where there is an opportunity to make money, Google is not scared about big cash outlays. Yes, Netflix is a massive purchase, and there is a lot of debt to consider, but Google is an adventurous and bold enough company to make this work.

However, you have to question whether the US competition authorities would allow two of the largest content platforms to be owned by the same company. There might not necessarily be any direct overlap, but this is a lot of influence to have in one place. Authorities don’t generally like this idea.

Verizon Logo

Verizon

Could Verizon borrow a page from the AT&T playbook and go big on a content acquisition? Perhaps it will struggle to justify the expense to investors, but this one might make sense.

Verizon has been attempting to force its way into the diversification game and so far, it has been a disaster. While AT&T bought Game of Thrones, Verizon went after Yahoo to challenge the likes of Google and Facebook for advertising dollars. A couple of data breaches later, the content and media vision looks like a shambles. Hindsight is always 20/20 but this was a terrible decision.

However, with a 5G rollout to consider, fixed broadband ambitions and burnt fingers from the last content acquisition, you have to wonder whether the team has the stomach to take on such a massive task. Verizon as a business is nothing like Netflix and despite the attractive recurring revenues and value-add opportunities, the integration would be a nightmare. The headache might not be worth the reward.

You also have to wonder whether the telco would be scared off by some of the bold decisions made from a content perspective. Telcos on the whole are quite risk-adverse organizations, something which Netflix certainly isn’t. How many people would have taken a risk and funded content like Stranger Things? And with the release of Bandersnatch, Netflix is entering the new domain of interactive content. You have to be brave and accept considerable risk to make such bets work; we can’t see Verizon adopting this mentality.

Softbank Logo

Softbank Vision Fund

Another with telco heritage, but this is a completely different story.

A couple of years back, Softbank CEO Masayoshi Son had a ridiculous idea which was mocked by many. The creation of a $100 billion investment fund which he would manage seemed unimaginable, but he found the backers, made it profitable and then started up a second-one.

Son is a man to knows how to make money and has the right connections to raise funds for future wonderful ideas. Buying Netflix might sound like an absurd idea, but this is one place we could really see it working.

However, the issue here is the business itself. While Son might be interested in digital ventures which are capable of making profits, the aim of the funds have mainly been directed towards artificial intelligence. Even if Son and his team have bought into other business segments, they are more enterprise orientated. There are smaller bets which have been directed towards the consumer market, but would require an investment on another level.

Tencent Logo

Tencent

Another Chinese company which has big ambitions on the global stage.

This is a business which has been incredibly successful in the Chinese market and used assets effectively in the international markets as well. The purchase of both Epic Games and Supercell have spread the influence of the business further across the world and numerous quarterly results have shown just how strong Tencent’s credentials are in the digital economy.

Tencent would most likely be able to raise the funds to purchase the monster Netflix, while the gaming and entertainment portfolio would work well alongside the streaming brand. Cross selling would be an option, as would embedding more varied content on different platforms. It could be a match made in heaven.

However, you have to bear in mind this is a Chinese company and the political climate is not necessarily in the frame to consider such as transaction. Like Alibaba, Tencent might be viewed as too close to the Chinese government.

No-one

This is an option which is looking increasingly likely. Not only will the business cost a huge amount of money, perhaps a 30-40% premium on market capitalisation, the acquirer will also have to swallow all the debt built-up over the years. There will also have to be enough cash to fuel the content ambitions of Netflix, it reportedly spend $7.5 billion on content last year.

Finally, the acquirer would also have to convince Netflix CEO Reed Hastings, as well as the shareholders, that selling up is the best option.

“If I was a shareholder or Reed Hastings, I’d be wondering whether it is better to be owned by someone else or just carry on what we’re doing now,” said Ed Barton, Practise Lead at Ovum.

“These guys are going down in business school history for what they have done with Netflix already, do they need to sell out to someone else?”

Netflix is growing very quickly and now bringing in some notable profits. The most interesting thing about this business is the potential as well. The US market might be highly saturated, but the international potential is massive. Many countries around the world, most notably in Asia, are just beginning to experience the Netflix euphoria meaning the growth ceiling is still years away.

What this international potential offers Netflix is time, time to explore new opportunities, convergence and diversification. Any business with a single revenue stream, Netflix is solely reliant on subscriptions, sits in a precarious position, but with international growth filling the coffers the team have time to organically create new business streams.

Ultimately, Hastings and his management team have to ask themselves a simple question; is it better to control our own fate or answer to someone else for a bumper payday? We suspect Hastings’ bank account is already bursting and this is a man who is driven by ambition, the need to be the biggest and best, breaking boundaries and creating the unthinkable.

Most of these suitors will probably be thinking they should have acquired Netflix years ago, when the price was a bit more palatable, but would they have been able to drive the same success as Hastings has done flying solo? We suspect not.