Hugh Scallon’s Post

Great article + summary of the streaming environment.

From Deadline: After last year’s Great Netflix Correction, the streaming sector in 2023 entered a decidedly more pragmatic phase. As viewers continued to cut the pay-TV cord and increasingly look to streaming as their primary source of entertainment, subscriber levels stabilized and Netflix returned to its leadership perch after last year’s scare. Profitability for all players has become the new North Star. Top-line growth is always welcome, but Disney CEO Bob Iger spoke for many last February when he said the company had become “intoxicated” by the early gains by Disney+ and had therefore mismanaged its streaming business. This year, the priority for many players (especially those outside of the fuzzy-math realm of Big #Tech) became declaring that “peak losses” had been achieved and a path to success had been identified. One way for companies to relieve pressure on subscription revenue turned out to be as old as the living-room box itself: selling time to sponsors. #Advertising-supported services, initially on the periphery of the business and seen as a somewhat down-market form of streaming, got a boost with Netflix and Disney rolling out ad tiers introduced at the end of 2022. Prime Video is set to join the ad ranks in 2024 and rumors persist about Apple TV+ possibly following suit, especially now that it has nearly doubled its monthly subscription price to $10 a month. Bundling fever also gripped the #streaming world, prompting ever-more-arch references to the cable bundle replicating itself via the internet. In-house bundles like those deployed by The Walt Disney Company and Paramount have been proven winners. The next chapter could see frenemies joining forces in the name of simplifying the experience for consumers while also reining in costs. “If we don’t do it to ourselves, I think it will be done to us,” Warner Bros. Discovery CEO David Zaslav said at a recent Wall Street conference. “It will be Amazon who does it, or Apple who does it, or Roku Inc. who does it. They’ve already started.”

Is Netflix the winner of the #streaming war? In recent years, traditional studios like #Disney with #Display+ and Warner Bros. Discovery with HBO Max have entered the streaming industry, significantly intensifying the competition in the space. The streaming business requires huge investments to produce high-quality original #content, which is key to "stealing" users from competitors. But with monthly subscriptions starting from as little as $5, streamers need an exceptionally large user base to turn a #profit. Profit hasn’t happened at #Disney yet, whose streaming unit lost $420 million in FY23 (down from a loss of 1.4bn the year before). Warner Bros. Discovery does better, finally scoring a profit of $111 million in 2023, up from a loss of $634 million in 2022. But Netflix does significantly better! 🎉 In 2023, it increased users by 13% to 260 million, against a worrying drop the year before. It’s been consistently #profitable for over 15 years, delivering almost 5.5bn net profit (after tax) in 2023 at a net margin of 16%. On top of successfully cracking down on password sharing and launching an ad-supported subscription tier, Netflix has a secret weapon: content #licensing. Competitors, under pressure to deliver profit, are (re)starting to license their original content to third-parties, including and especially to Netflix. While this generates easy money for the likes of Disney, it also enriches the Netflix’s #catalogue, for the delight of its users. #Netflix is so good at servicing its subscribers that when NBCUniversal licensed “Suits” in June 2023, the show went straight to the number one most watched, despite being relatively old (originally aired on cable TV in 2011). In fact, according to Nielsen, in November 2023, nine of the ten most streamed programs were #licensed content. With around $17bn spent on content in 2023, Netflix might reduce this expense while still expanding its catalogue with premium, although old, content. Beware, this is not reciprocal! According to Netflix’s executives, there’s more value in acquiring licensed content, than to sell it. So don’t expect “Ozark” to stream anywhere else. Also, #ad revenue is increasing and projected to represent up to 22% of total revenue in 2027. With this, Netflix won’t have to fight for new subscribers, but rather will extract more value from existing users. If we add to the mix the recent $5bn deal to livestream #WWE, we get the perfect recipe to declare Netflix as the winner of the streaming war. However, streaming remains a costly and hit-driven business. When compared to YouTube, which spends virtually nothing on content, streaming looks way less appealing. Stay tuned!

The most interesting thing about Netflix’s transition is how it reflects broader changes in the way the market treats streaming. Entertainment companies are always trying to work the refs, especially in the streaming era. Warner Bros. Discovery thinks it doesn’t get enough credit for its progress toward making Max (formerly HBO Max) healthy. Others say that Warner Bros. Discovery’s numbers, which show profitability from its direct-to-consumer segment, are hard to parse because they include traditional HBO. Peacock still seems to get points, at least in the press, for gaining subscribers, despite losing massive amounts of money. Now Netflix is trying to shift market expectations again. But this time, on its own terms.

ICYMI: Netflix's surprising move to cease reporting subscriber numbers has sent shockwaves through the streaming industry, raising questions about the company's future trajectory. With shares taking a 4.2% hit, investors are left wondering about the implications of this decision and how it will impact Netflix's competitive position in the ever-evolving #streaming landscape. https://lnkd.in/gNM_B2NU

Amazing long form article on the streaming media at a crossroads, with industry titans like Brian Roberts, John Malone, and Barry Diller recognizing the unsustainable nature of current business models. Here are the key takeaways: 1. Legacy media giants like Paramount, Warner Bros. Discovery, and Disney are struggling financially, while disruptors like Netflix and Amazon thrive. 2. The magic number for profitability in streaming is at least 200 million subscribers, with Netflix leading the pack. 3. Costs for content production and sports programming are soaring, creating significant financial pressure. Opportunities: 1. Bundling services can attract price-sensitive consumers and reduce churn. 2. Advertising-supported tiers offer new revenue streams and potential growth. 3. Licensing content, as demonstrated by Sony, can be a profitable strategy without running a streaming service. Challenges: 1. Achieving profitability requires massive investments in content and sports rights. 2. High churn rates and subscriber acquisition costs are ongoing issues. 3. The industry may consolidate, with only a few major players likely to survive. The future of streaming hinges on balancing quality content with financial viability. Innovation and strategic partnerships will be crucial for navigating this evolving landscape. #Streaming #MediaIndustry #Netflix #AmazonPrime #Disneyplus #WarnerBros #Paramount https://lnkd.in/gu-pY6ew

Interesting read.

We're analyzing #Netflix earnings over at TheWrap: "Netflix handily beat Wall Street estimates when it reported adding 13 million subscribers to end 2023. This brings the platform’s total number of subscribers to over 260 million globally." So, Netflix increased its audience in Q4, but how did it do in regards to audience demand for its content? "In Q4 2023, Netflix grew its demand share for original series with global and US audiences for the first time in over four years, since before Disney+ and Apple TV+ launched. The wave of new content this quarter helped Netflix reverse the trend of losing U.S. market demand share to the competition. The last time it was able to turn the tide in the U.S. (even if only for a single quarter) was in Q3 2022 when the return of “Stranger Things” gave the platform a massive boost in audience attention." Read the full report at The Wrap: https://hubs.ly/Q02jpLrp0

In a world where streaming giants continually redefine innovation, Netflix's strategic decision to stop regularly reporting subscriber numbers marks a bold shift. This move places a greater emphasis on financial metrics, revenue, and profit growth, positioning Netflix for potential expansions into advertising and video gaming. Mirroring the evolutionary steps of tech behemoths like Amazon and Apple, Netflix's focus on broader success measures signals a significant evolution from a pure-play streaming service to a multifaceted, tech-forward entity. However, this raises questions about data transparency and competition among streaming services. In the ever-evolving media landscape, this strategy not only showcases Netflix's readiness for future industry shifts but also challenges the established norms of entertainment and technology. For media and tech industry leaders, it serves as a clarion call to rethink what constitutes success in the digital age. As Netflix explores new sectors, adopts financial metrics, and evolves beyond traditional streaming, it underscores the importance of strategic planning and competitive positioning. What are your thoughts on the future of data transparency and competition in the streaming services sector? How do you think Netflix's strategy will reshape the competitive landscape and potentially signal future technological advancements in media? Share your insights and comments below. #Netflix #StreamingServices #MediaInnovation #TechTrends #DigitalStrategy #EntertainmentIndustry #VideoGaming #Advertising https://lnkd.in/dh7e9VQJ

From the NYT: Streaming has long been hailed as a promising business, because companies like Netflix can add additional subscribers at little extra cost. The more paying subscribers a service has, the more the company’s costs can be spread out over a large base, lowering the cost per subscriber. But those subscribers want lots of options, and the costs of making enough programming can be enormous. As a result, a #streaming service’s profitability depends in large part on how many paying subscribers are needed before those #TV shows and movies become cost-effective. There was a time when industry executives hoped that number might be as low as 100 million. But now the consensus among many of the executives interviewed is that the number is at least 200 million, and possibly more. “If you’re going to be a full entertainment service with live sports and tent-pole blockbusters today, 200 million is a number that can give you the scale with the hope for growth over time,” Mr. Hopkins of Amazon said. Netflix has reached that, and then some, with about 270 million paying subscribers. $50 Million an Episode, Over and Over The costs of attracting — and keeping — those millions of customers is no cheap feat. Overall, Netflix has said it will spend about $17 billion this year on programming, about what it did before last year’s Hollywood strikes depressed production. “It’s a tall order to entertain the world,” Mr. Sarandos of Netflix said. “You have to do it with regularity and dependably.” For Netflix, $17 billion represents only about half of its total revenue. But almost no competitor can match that spending level, the executives said, except for maybe Amazon. Not all of those pay off. But when they do, the impact can be huge, like wildcatters when they hit a gusher. Play Ball Adding to the cost pressure, the executives said, is the soaring cost of #sports programming. Even in the bygone era of traditional television, the broad appeal of sports was obvious. But that was before streaming and the arrival of the deep-pocketed #tech giants. The appeal of live sports is both unique and twofold: They attract new streaming subscribers and reduce churn since viewers want to watch sports live. It is also a big draw for advertisers as streaming services look to grow their ad businesses. #Advertising to the Rescue? “It’s a nice way to get price-sensitive consumers,” said Mr. Chapek “Heavy users will still come and pay the higher monthly fee.” Mr. Chapek acknowledged that advertisers covet — and will pay more for — mass audiences. As a result, the streaming services have a strong incentive to produce programs with broad appeal instead of more niche content, including some of the kind that generates critical acclaim. Who Will Survive? “Can your current business be a successful player and have long-term wealth generation, or are you going to be roadkill?” Mr. Malone mused. “I think all the small players will have to shrink down or go away.”