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’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.
Now with added video!
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 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.
Now with added video!
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.
The entertainment landscape is shifting at remarkable speed, but it might surprise a few to see the internet giants are hording such a monstrous proportion of the wealth.
According to the latest statistics from the British Association for Screen Entertainment (BASE), the home entertainment sector grew by 9.5% in 2019, bringing the total market value to £2.6 billion. Subscription video on demand (SVoD) accounted for 65.9% of this total, with Amazon and Netflix leading the charge in the UK.
“The UK’s creative industries make a significant contribution to both GDP and the broader employment landscape, something likely to be further enhanced by the success of emerging SVoD platforms and by the response to that from other quarters,” said Kevin Dersley, Co-Vice Chair of BASE.
“All of this change endorses the buoyancy of film and TV content but as a category we must ensure we’re fleet of foot and part of the ongoing digital revolution mentioned earlier. We know that audiences find enormous value in our content and the first half of 2020, packed with diverse new IP as well as must-see franchise titles, should serve as the perfect reminder that in a market of consumers hungry for content, there’s plenty of room for those able to adapt.”
As Dersley points out, while this is an impressive number, there is plenty of room for growth as the concept of SVoD is adopted by more demographics and additional platforms are launched.
Looking at the current UK market, Netflix and Amazon are clear market leaders, 9.9 million and 7.7 million subscriptions respectively, though Now TV, Sky’s answer to the OTT trends, also has a notable presence. Perhaps one of the more interesting developments over the course of 2020 will be the emergence of new competition.
BritBox and Apple TV+ have already launched in the market, while Disney+ will enter the fray on March 31. The marketing assault has not been felt in the UK just yet, but analysts are predicting with some venom these three services will aggressively attempt to carve a slice of the incredibly profitable pie being selfishly horded by Netflix and Amazon currently.
While these figures are of course noteworthy, because the most interesting development tied to these services is the shift towards mobile consumption of content.
Although traditional broadcasters are creating more VoD services and answering the mobility demands of consumers, the hand is generally being forced. The likes of YouTube and Netflix are driving the shift towards mobile consumption of content, and trends are accelerating.
Twitter has said that 90% of the videos viewed on its platform are from mobile devices, while more than 50% of all YouTube’s content is consumer via mobile. Cisco predicts that 82% of all mobile internet traffic will be video by 2022. Consumers are ditching the laptops and consuming more content via mobile.
SVoD is already making a considerable dent in the wallet, but with more services to be launched and more consumers intrigued by mobile consumption, there is still plenty of room for growth.
US operator Verizon has done a deal with Disney to offer its new Disney+ subscription video to its customers.
Rival AT&T has gone all in on video through its acquisition of Time Warner, which enables it to offer things like HBO Max to its loyal customers. Verizon has no offsetting video assets of its own and its digital content efforts in general seem to be struggling, so it’s compelled to look for partnerships if it wants to remain competitive.
So today we have the news that Verizon is the exclusive wireless carrier partner of Disney+ and will offer all 4G and 5G customers a year’s access to all those lovely cartoons and super hero movies, which includes Fios Home Internet and 5G Home Internet subscribers. Assuming Verizon customers attach some value to Disney+, this is effectively an $84 discount on their phone bill for a year.
“Giving Verizon customers an unprecedented offer and access to Disney+ on the platform of their choice is yet another example of our commitment to provide the best premium content available through key partnerships on behalf of our customers,” said Verizon Chairman and CEO Hans Vestberg. “Our work with Disney extends beyond Disney+ as we bring the power of 5G Ultra Wideband technology to the entertainment industry through exciting initiatives with Disney Innovation Studios and in the parks.”
Vestberg may have been making a nod towards a few minor 5G announcements it had drip-fed over the past few days. You can read an excellent summary of them on Light Reading here, which is testament to the conscientiousness of its writers. Verizon also seems to be focusing its efforts on densely populated environments such as sports arenas.
While it remains highly debatable that operators will ever make significant profit from content, it does at lease serve as a good sweetener to current and prospective customers. Verizon couldn’t afford to lose too much ground to AT&T in this area after its Time Warner acquisition, so partnering with Disney makes sense. But Verizon’s negotiating position will have been weak so it has probably paid a heavy price to retain SVOD credibility.