Netflix is winning the streaming war – Nielsen

There might be a lot of pretenders to the video streaming crown but data from the US demonstrates one thing; no-one comes near Netflix.

Hulu, HBO and Amazon Prime might boast and posture about success, but the true measure of victory for a content giant is eyeballs on the screen. According to data from entertainment data firm Nielsen, streaming services now account for 19% of the total TV usage across the final quarter of 2019, with Netflix taking a considerable chunk of the audience.

Perhaps one of the most interesting statistics to emerge from this data is the consumers increased appetite for data.

As it stands, 60% of US consumers subscribe to more than one paid video streaming service. As more options have emerged, 93% of the survey respondents suggest they will either increase or keep their existing streaming services.

One of the big questions which has been circulating the industry for the last few months is how tolerant will consumers wallets be to the increased number of service providers? The market is already fragmented, with more launches on the horizon, though a household will subscribe to more than one service which will offer encouragement to those dreading the prospect of a head-to-head battle with Netflix.

Looking at the reasons behind the purchase, it is not particularly surprising. Cost, ease of use, availability of content and streaming quality are the top reasons anyone would purchase a service.

While it might seem obvious to state, some have clearly not got the memo; user experience is just as important as the content and pricing strategies which have been employed. Sky has ruled the linear TV market in large blocks of Europe for decades because the user experience has been the highest quality, and few can compete with the simplistic and functional set-up which Netflix has created.

Interestingly enough, with the aggressive volume of content which will be available to consumers, the discovery function is going to be important. This will drastically impact the user’s ability to locate relevant content and perhaps the appetite to trial new services. If user experience is completely satisfactory, then why would they look elsewhere, the opposite can also be said to be true.

There might well be a tsunami of new services hitting the streaming market over 2020, including the wave making Disney+, but realistically for the moment, no-one is challenging Netflix for the content crown.

Disney looks like a genuine Netflix contender

Disney’s streaming service is off to a flier as the team boasts of 28.6 million paid subscribers during the latest earnings call. Could this be the genuine Netflix challenger the industry has been promising?

Amazon Prime, HBO, YouTube and countless others have promised to lodge a challenge to the market dominance of Netflix, but few can say they come close. Netflix is still by far and away the leader in the market, but the early signs from the first three months of Disney+ suggest it could be the most likely contender to challenge for the title.

“While this seems to be a good start, it is still early days,” said Paolo Pescatore, founder of PP Foresight and Telecoms.com Podcast number one fanboy.

“The service is starting from scratch. Flagship programming has helped drive awareness and subscriber uptake. Disney will certainly be able to maintain this is the short to medium term, but it still has a long way to go before it is a true challenger to Netflix which is the global paid streaming service leader.”

One takeaway from this early success is that Disney seems to have priced the subscription correctly. The numbers speak for themselves, though the team believes the service will break even between 60-90 million subscribers. This might not account for additional marketing activities or increased spend on original, localised content, but it is a useful milestone to bear in mind.

Interestingly enough, the team expects the immediate gains to be in the international markets.

“In the near-term, we expect subscriber growth to come primarily from outside the US, with the next meaningful phase of domestic subscriber growth likely to coincide with the release later this calendar year of highly anticipated original content, including episodic series from Marvel and Season 2 of The Mandalorian,” said CFO Christine McCarthy during the Walt Disney Company first quarter earnings call.

While this is the opposite from the way in which Netflix produced success in the early years, it does make sense. Netflix is an incredibly popular brand in the US, entrenched in the lives of the consumers already. Netflix is currently focusing on demonstrating the value of the service to international audiences.

This is where Disney might be able to experience more success in the short-term. In terms of validating the value of the brand, Disney perhaps has an advantage over Netflix in some international markets. Disney is one of the most internationally recognised brands after all and it is a simpler task to acquire first-time customers as opposed to wrestling them away from the iron-like grip of Netflix.

After launching in the US last year, the team hoovered up more than 1 million paying subscribers in the first day. Since then the service has been launched in Canada, the Netherlands, Australia, New Zealand and Puerto Rico. Disney+ will make its debut in various European markets over the next few months.

The international markets, aside from a couple, are not as enthusiastic for paid streaming services as the US, so there will be a lot of marketing to demonstrate the value of the proposition. As CEO Bob Igor has pointed out, Netflix has begun seeding these markets with the value of streaming, but it will not be as easy to pry open wallets as it will be in the US.

While the Disney brand certainly holds credibility in the eyes of the international consumer, partnerships will play a vital role in securing subscriptions. The tie-up with Verizon is working well in the US according to the management team (20% of subscriptions are linked to this partnership) and connecting with Canal Plus in France should also be viewed as a positive. In the UK, rumours have been circulating surrounding a partnership between Disney and Sky, which would be a significant win for both parties.

For Disney, bundling the service with the most successful paid TV brand in the country and a prominent ISP makes sense. It is a direct link to the consumer, through an established brand which already has a billing relationship. For Sky, if it is able to embed the service in its interface (as it has done with Netflix), the proposition looks attractive as an aggregator to the consumer, building on its reputation for providing a high-quality content experience.

India is a market which is also on the horizon, with the team launching the service through its Hotstar service on March 29. This is a massive market for any content business, thanks to a significant population and a huge appetite for video content. Disney already has existing operations and a link to the consumer in India, so this could turn out to be a very profitable market, one which few US companies have had genuine success in.

These partnerships will be key to success, key to prying open the wallet of cash-conscious consumers and key to eroding the influence of Netflix on the subscription streaming market. It is certainly early days for the Disney streaming brand, but all indicators are green right now.

Netflix reports solid Q4 but braces for a challenging 2020

Video streaming giant Netflix reported revenue growth of 31% on the back of 21% subscriber growth, but it will face a lot more competition this year.

These numbers were a bit better than forecast and were rewarded with a small share price bump. Perhaps investor exuberance was tempered by the need for Netflix to invest ever greater amounts of cash on content in the face of relentless competition. With the ramping of a bunch of fresh rivals from the US in the form of Disney, HBO and Apple, this pressure to invest will only increase, but the cash has to come from somewhere.

“Worryingly, the company is burning through a lot of cash,” said Paolo Pescatore, Analyst at PP Foresight. “It needs to recoup this by adding customers more quickly, increasing prices or taking on more debt. Therefore, expect price rises in all key markets during 2020.”

“There’s a fine juggling act by raising revenue through price increases vs. retaining subscribers. This could backfire as many of the new and forthcoming video streaming services are cheaper than Netflix. This makes Netflix vulnerable in its home market where it stands to lose out, quite considerably as underlined by these latest results.”

“Let the streaming video wars commence. Netflix has a huge head start and remains in pole position given its broad content catalogue and extensive relationships with telcos and pay TV providers. It should be able to weather the streaming battles over the short to medium term. All the future subscriber growth will come from its overseas operations. EMEA is and will continue to be a key region of growth for coming quarters.”

Of all the new competitors Netflix seems to be most wary of Disney+, with its massive back catalogue of family blockbusters. You can hear in the earnings chat below that the Netflix leadership reckon most of the growth for Disney+ will be taken from linear TV rather than Netflix, but there is presumably an absolute ceiling on the amount a typical household is willing to pay for video content of all types. Faced with all these new offerings some people are bound to reconsider their Netflix membership in 2020.

 

Disney+ to launch March 24 in Europe

Disney will be entering the European streaming wars on March 24 will an offer which undercuts industry leader Netflix.

Launching a week earlier than initially forecast is an interesting bit of news, but ultimately it doesn’t necessarily mean anything material. Plans might be moving a bit quicker than expected or it could just be a ploy to attract more headlines. That said, the beginning of the streaming wars is now one week closer than we originally thought.

Interestingly enough, Disney+ will come into the market noticeably cheaper than its rivals. At 5.99/€6.99 a month, or £59.99/€69.99 for an annual subscription, Disney will undercut Netflix currently charges UK subscribers £8.99 a month, while Amazon Prime is £7.99.

“Let the battle commence,” said Paolo Pescatore of PP Foresight.

“This service ticks all the boxes for households; a broad range of content will be available across numerous devices at an attractive price. However, distribution will be important, and Disney must secure deals with partners including telcos.”

While the variety, quantity and quality of the content will ultimately decide who gains an upper hand in the streaming wars, pricing will obviously play a key role. Disney has decided on an intriguing price-point, as undercutting Netflix by a couple of quid perhaps tempts users into a trial period for the service.

This is the challenge which Disney will face over the coming months; stealing subscriptions off Netflix. The video-on-demand (VoD) market is starting to become very congested and priced at such a point that consumers will have to make decisions. It is becoming too expensive to simply subscribe to everything, but Disney is the cheapest available. It is not inconceivable for consumers to trial Disney+ for a couple of months at £5.99, which allows it to prove value.

Disney+ is an unknown for many customers today. If the objective was to go head-to-head with Netflix from the outset, it would lose; Netflix is a trusted and popular service. Some might elect for Disney+ over Netflix, but not as many as Disney would hope for. Setting the price this low, allows for some to dip their toe into the Disney waters, and a couple of months might be enough to either hold onto them as subscribers, or turn them away from Netflix.

The question which remains is how many services can a household tolerate? There are now three main players (Netflix, Amazon Prime and Disney) which would cost a subscriber £22.97 a month to gain access to all three. Then there is Sky, a dominant player in some markets, Viaplay, HBO, Movistar, TimVision and a host of others. The wallet can only be stretched so far.

As Pescatore notes above, partnerships will be key to gaining leverage in a very competitive market and also a more direct link to the consumers wallet. Telcos offer a trusted service to consumers, and therefore are a logical choice, but Disney is yet to announce deals in Europe. Both Amazon Prime and Netflix have partnerships in place, and this will be a very important aspect of the battleplan should Disney want to capitalise on the momentum it is building in the US.

Looking at Sensor Tower’s estimates for the period leading into Christmas, Disney can be very encouraged. It was the most popular app to be downloaded in the US with 30 million, taking in more than $50 million in revenue in the first 30 days. This would suggest Disney can be a very viable threat to Netflix’s dominance in the SVoD market.

With a recognised catalogue of content, heavy investments into new titles and a brand which is known, and trusted, throughout the world, Disney is starting to look like a genuine threat to Netflix.

Major mobile-only SVoD service Quibi set to launch in April

A subscription video on demand service designed solely for mobile consumption will launch with the backing of much of the entertainment establishment.

Quibi is an abbreviation of ‘quick bites’ and is headed up by Silicon Valley veteran Meg Whitman and Hollywood aristocrat Jeffrey Katzenberg. This combination is being offered as evidence that the new service will deliver an ideal combination of entertainment and technology. We first encountered Quibi last year, but it used a CES keynote to ramp up the hype ahead of a 6 April launch.

The unique selling point is that all the content it offers will be specially created to be consumed on a mobile phone. This means not only special framing but clips ranging from four to ten minutes in length. The big new feature Quibi execs banged on about in the keynote was the ability to auto-rotate the content between portrait and landscape mode. In most cases this seems to just mean the portrait view is just a cropped and zoomed version of landscape, but there’s also the potential to offer unique perspectives depending on the alignment.

That last feature is novel but could easily become an annoying gimmick if used clumsily. So could a Steven Spielberg series called after dark, which you can only watch at night. What if you want to watch it during the day? Quibi needs to be careful that, in it’s desire to differentiate itself in the highly competitive SVoD market, it doesn’t get carried away with cute but irritating features.

On that note we spoke to Ovum’s Chief Analyst for entertainment Ed Barton, to get his take on the imminent launch. “Quibi’s innovations are revolutionary and it must, arguably, inspire a revolution in viewing habits to succeed,” he said. “Mobile-first viewing services have not enjoyed a particularly illustrious track record and already huge volumes of mobile video consumption are driven by YouTube, messaging and social apps, and Quibi is betting that there is space for a premium player. It is a bold bet especially when competition is more intense than ever before.”

Barton’s cautious assessment is reflected in Ovum’s initial forecast for emerging global direct to consumer video platforms, which you can see below. It should also be noted that Ovum still only sees these new platforms accounting for 29% of the total US (where most of them are expected to have the most traction) SVoD market by 2024.

Quibi does have a lot going for it, not least the apparent backing of the entire mainstream media and entertainment establishment. On top of that T-Mobile US will be offering it to its punters from launch and Google seems to have a major role too. It has promised three hours of fresh, original content per day and is asking for $5 with ads and $8 without ads for access. The pitch is that Quibi is premium video for millennials, which makes its partnership with Google especially intriguing as that puts it in direct competition with YouTube.

Initial reviews of the Google Stadia cloud gaming system aren’t great

For just £119 you can buy a controller and a three-month subscription to Google’s new games streaming service, but is it worth even that?

We haven’t had a go on it yet, but it’s worth a look at what those who have are saying about it as a thriving cloud gaming industry could have significant telecoms implications. If, as has happened with music and video, people increasingly access games from the cloud rather than local storage then that will be another significant strain on networks, but possibly also an opportunity to upsell premium connectivity.

There’s no reason anyone should buy into Stadia right now,” advises The Verge. “Google has made sure of that, partly by underdelivering at launch and partly with a pricing scheme that sees you paying three times (for hardware, for the service, for games) just to be an early adopter.”

“Many Stadia-exclusive features that were supposed to set the platform apart also aren’t ready in time for launch, despite being discussed publicly since March,” laments Ars Technica. “Maybe one day these features and more will put Stadia at or above par with other game platforms. Right now, across all three hardware use cases, the platform itself feels a bit half-baked.”

“Ultimately, the only real benefit of the system is the absence of that box under the TV,” scoffs the Guardian. If your impeccable sense of interior design values that above game selection, price, offline play or community size, go for it. Otherwise, stick with a home console if AAA games are where your heart lies, or pick up Apple Arcade to see what a revolution looks like when it focuses on the games and not the technology.”

“Until Google finds a way to loop in YouTube and develop truly unique competitive large-scale games, Stadia isn’t worth your time yet,” sighs Cnet. “Yes, the future is possibly wild, and you can see hints of the streaming-only cloud-based playground Stadia wants to become. But we’ll see what it shapes into over the next handful of months and check back in.”

What’s remarkable is how unsurprising this is. Google is terrible at product launches to the extent that they have an almost apologetic feel. This is clearly a very early version of the service that Google is hoping a few compulsive early-adopters will provide unpaid beta-testing for. The main problem with this approach is how to relaunch it when you think it’s finished and might actually be worth bothering with.

Disney revenues surge as world waits for streaming service

Revenues at ‘The House of Mouse’ have surged more than 34% for its final quarter of 2019, collecting more than £69.5 billion for the full year.

While investors will certainly be happy with the news, perhaps the best is yet to come. Next week, Disney’s own streaming service will enter int frame for the first time, while it has also been confirmed the service will launch in the UK on March 31. With analysts expecting more than 15 million subscribers in the 12 months, 2020 could be a very profitable year.

“Our solid results in the fourth quarter reflect the ongoing strength of our brands and businesses,” said Robert Iger, CEO of The Walt Disney Company. “We’ve spent the last few years completely transforming The Walt Disney Company to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we’re excited for the launch of Disney+ on November 12.”

Fourth Quarter Full Year
Total Revenue $19.1 billion $69.5 billion
Costs $16.8 billion $57.7 billion
Net Income $1.05 billion $11.05 billion

Despite costs climbing 49% for the three months ending September 28, share price in overnight trading climbed more than 5%. With the launch of the $7 streaming service only days away, it is clear Disney is not shy about spending some cash to compete with the likes of Netflix and Amazon Prime on a global scale.

Iger as bet big on the streaming service to lead a new wave of revenues at Disney, and for the sceptics out there, there are now several interesting partnerships to back-up an already packed content library.

On the telco side, Disney has teamed up with Verizon to offer free subscriptions to customers who have an unlimited data tariff, while iLifers will receive a free subscription for 12 months when purchasing a new Apple TV.

Although the content world is certainly looking congested already, Disney looks like a service which could challenge the leading pair. Disney has the brand awareness, content library and aggressive investment strategy to make it work, though delivering effective customer experience will be critical. November 12 will be the day customers first get the opportunity to taste Disney+, so judgement will be reserved until this point.

AT&T delivers bullish 3-year outlook amidst a mixed Q3

US telecom and media giant AT&T has reported a steady Q3, with revenues slightly down coupled with improved operation. A bullish 3-year outlook to further de-leverage is welcome news to the capital market.

The company lost 1.2 million premium pay-TV subs, but the HBO business registered growth. The corporate level revenue of $44.588 billion is a 2.5% decline from a year ago (2% decline on constant currency). Operating income grew by 8.7% to reach $7.901 billion, up from $7.269 billion a year ago. EPS was dropped by 23% to $0.50.

When it comes down to business group level, the Communications group delivered a largely steady result. Wireless service revenues edged up, helped to a large extend by the increase in postpaid subscriber base (including 173,000 postpaid smartphone subs) and the upward move of postpaid ARPU ($55.89, up from $55.58 a year ago). The entertainment part of the Communications business was less steady. The company lost 1.16 million “Premium” pay-TV subs (DirecTV satellite and U-verse IPTV) and 195,000 OTT-TV (AT&T TV Now) customers. The total number of AT&T pay-TV subs stood at 21.56 million by the end of Q3, down from 25.15 million a year ago.

Numbers from WarnerMedia, the second largest business group of AT&T, epitomised the “mixed” nature of the results. The total group level income went down by 4.4% to $7.8 billion, but HBO reported an impressive 10.6% year-on-year increase in revenue to reach $1.8 billion, and the $714 million operating income represented a 13.7% growth.

The strong performance of HBO came at a time when AT&T is about to launch HBO Max later today. Priced at $14.99, the current HBO package is the most expensive offer among the major video streaming services (Netflix and Amazon at $12.99, Disney+ at $6.99, Apple TV+ at $4.99). It remains to be seen how AT&T will choose between maxing the user base by pricing HBO Max more aggressively and defending profitability by retaining it at the premium tier.

Guidelines to 2022

The company delayed its Q3 results reporting by a week to finalise its discussion with activist investor Elliott Management Corporation. Presumably as a result of that discussion, AT&T published a rather detailed 3-year financial guidance (to 2022). The key items include growing revenues by 1-2% CAGR, EBITDA target set at 35%, free cash flow to reach $30-32 billion, and no major M&A planned.

The items that made most headlines are related to debt reduction. Specifically, AT&T promised to “Pay off 100% of acquisition debt from Time Warner deal; net-debt-to-adjusted-EBITDA5 of 2.0x to 2.25x in 2022”. Its current net debt to adjusted EBITDA ratio is 2.5, down from 2.66 at the beginning of the year.

According to the analysis by the Washington Post, the Time Warner deal could have cost AT&T over $108 billion including the debt it assumed from Time Warner at the acquisition. AT&T would not be able to pay off its debts, which stood at $153 billion by the end of September (coming down from $166 billion at the end of 2018) with the income generated from its business operations. This means more non-critical assets will be divested. The company is on way to generate $14 billion through asset monetisation in 2019 and plans to recoup $5-10 billion of non-strategic asset sales in 2020.

“The strategic investments we’ve made over the last several years have given us the essential elements to meet growing demand for content and connectivity,” said Randall Stephenson, AT&T chairman and CEO. “Our 3-year plan delivers both substantial and consistent financial improvements over the next 3 years. We grow revenues, EBITDA and EPS every single year, and free cash flow is stable next year, but then grows in both of the next two years, as well. And all of this is inclusive of our investment in HBO Max.”

When it comes to what qualifies as strategic or non-strategic, Stephenson told investors “we have no sacred cows. We’re always open to making portfolio moves.” However, DirecTV, albeit being highlighted by Elliott as one of the failed acquisitions, is not viewed as a target to liquidate in the near future. The business “will be an important piece of our strategy over the next 3 years”, said Stephenson.

The guideline largely reflected what Elliott’s letter to AT&T has demanded. In addition to the defence of DirecTV, probably the only other exception AT&T has made in its guideline was Elliott’s call for management change – AT&T stated “CEO transition not expected in 2020”.

Microsoft unveils details for Project xCloud public trial

It’s been a year in the making, but Microsoft is going through the final preparations to launch its game-streaming service, Project xCloud.

The project itself will allow Xbox gamers to play their favourite games by streaming the content onto their mobile devices. Although the technology giant has had to fit out its data centres with specialist servers to run the games, the extensive geographical footprint of its data centre network could make Microsoft a force to be reckoned with in the emerging cloud gaming segment.

“Our vision for Project xCloud is to empower the gamers of the world to play the games they want, with the people they want, anywhere they want,” said Kareem Choudhry, Corporate VP for Project xCloud at Microsoft.

“We’re building this technology so gamers can decide when and how they play. Customers around the world love the immersive content from Xbox in their homes and we want to bring that experience to all of your mobile devices.”

Next month, the public trial will be launched. The US, UK and Korea have been selected as the initial testing grounds, with consumers able to sign-up here. All you’ll need is a wireless controller with Bluetooth and a stable mobile internet connection of 10 Mbps.

More to follow…