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David Poland

By David Poland poland@moviecitynews.com

Tipping Point: The Streaming Wars Are About To Start (in 2020)

The pieces are coming together.

Disney is the first to announce that it will launch a proper studio streaming-app business in 2019.

The non-renewal of the deal with Netflix will “open up” $450 million or so for the streamer… but the number is irrelevant to both Netflix and Disney, although all the headlines seem to find this the most important angle.

Netflix can do a deal with another studio, though the price will be higher.

But Disney is going after the future. Completely guessing at a number here, but… $8 a month… 10 million subs in the first year… almost a billion in gross revenue.

$5 more a month for ESPN? Add 5 million more subs and we’re at $2.34 billion. (And ESPN drops to 60m cable/satellite households. About $3.6 billion annually.)

$2 more a month for Marvel and $2 more for Lucasfilm. Let’s say those two entities drive another 5 million subs in that first year. The streamer is now generating over $4 billion a year.

And that’s just the first year or so, with only about 40% of Netflix’s penetration.

I think $17 a month for those services (including ABC, Disney films and Pixar), is a doable number in the current marketplace. It will eventually be high… but that’s down the road. Things get more complicated down that road. Cable and satellite will find a way to re-assert themselves. Consumers will have a lot more options.

Who’s next in the pool? AT& T seems like a sure bet. They have a more complicated portfolio than Disney. For instance, they own DirecTV, which generates over $30 billion a year. Still, the interest in keeping revenues at the satellite provider high hasn’t kept DirecTV from offering a streaming bundle product, DirecTV Now.The big trick they have to figure out is how to keep the numbers up among the top tier of spenders, who pay $150 a month-plus for service.

Add to this mix Warner Bros film and TV content as well as HBO (which already has a $15 a month streaming option), Cinemax, and streamer Warner Archive, while also hoping to keep monthly numbers going up or even remaining stable.

Of course, there is also the potential for heavy cost savings for the DirecTV brand, if they slim down. The spend a fortune paying the channels they carry. This is a big complication moving forward for both AT&T and Comcast, as a big part of their spending and revenue is based on paying competitors for broadcast content while the current trend is leaning on selling your own created content as exclusive.

Comcast is already the most integrated business in the game, bringing in individualized companies, rather than isolating them. For instance, you can get Netflix through your Xfinity cable box. Comcast has also developed a much more complete system of video on demand for broadcast on their system than, say, DirecTV, where it is still more sporadic.

Like Disney (unlike the planned AT&T/Time-Warner combinaton), Comcast has a major broadcast network. All three have studios that produce both film and television. AT&T/Time-Warner will have the biggest library to work with once the merger lands, but Disney may have the must-subscribe library, with the power of family films, ESPN, Marvel and Lucasfilm. (Stories suggesting that Netflix might keep the Marvel or Lucasfilm packages for more years seems truly foolish for Disney, even if there seems to be some upside in cash money. If they are serious about launching streaming, they need to launch with full aggression.)

The upside for Netflix is that as the studios (and the broadcast and major cable networks with them) build out these standalone options, the plateau Netflix is on can expand from the mid-50 million subs to the ubiquitous 100 million subs. Netflix can keep spending about where it is now and double their domestic revenue. This would still make their stock price significantly too high for the real value of the company, perhaps even more so because the market would now see the massive competition landing on the company’s doorstep.

Other major content producers will follow the lead. Fox is the most obviously analogous to Comcast, AT&T, and Disney as they have a broadcast network, cable nets, big film and TV businesses, and the biggest library of the last three major studios. Financial concerns at Sony and Paramount could propel those companies into a more aggressive position than their current status would befit.

Also, this movement could force another reconsideration of Viacom reconnecting Paramount (etc) and CBS. If the price point does become $15, selling CBS, Showtime, Paramount and Nickelodeon as standalones is not happening. Even if the base price is $8 a month, the real world is not going to pay these companies $32 a month for their content, which represents only about 20% of what is out there.

The giant question that remains: How will Comcast and AT&T combine the new not-really-a-la-carte universe of On Demand (expect a new name to be coined soon) and their traditional cable and satellite businesses, which represent over 75% of American households right now? Every 10 million households subscribed is about $8 billion a year in gross revenue. A skinny package that cuts the monthly cost to consumers in half may be a solid foundation for most American households and the future of these delivery systems with a-la-carte purchases adding to that total.

But if Comcast has their gross cable revenue cut in half and then every buyer pays an additional $15 a month for NBC/Universal, they are still 25% short. Hard bridge to cross. Is the uptick in home internet service where them make up (and/or exceed) their original revenues?

AT&T is more complex, already in the process of trying to expand its home internet position, leveraging the DirecTV audience to wire as many homes with their broadband services as DirecTV has subs. Comcast’s position, in this case, is a bit better than AT&T’s as change is hard and AT&T likely needs to make up the shortfall indicated above with broadband revenues (unless they have a bigger idea).

And then there is the next evolution. Even if the price for each major studio and the connected cable nets, broadcast nets, etc, is $15 apiece, there are six of them and we are at $90 a month for the complete package… before adding Netflix, Hulu and Amazon. That makes it $120 a month. Now add all the cable nets, like FX and AMC, nickel-and-diming, but still adding on. The average spend on what comes to America’s TVs is not going up to $150 a household anytime soon.

And so, bundling will begin. How much will people pay to not have commercials? Maybe an added $30 a month per household is realistic (if you include broadcast TV). How does that get cut up? Is there going to be enough for those broadcasters?

There will be those who will be happy to overpay. (Same people who the film industry fantasizes about when discussing collapsing windows.) But the average spend is going to be under $85 a month for most households for many years to come. So how do you cut up the pie when streaming comes to shove?

That is the next big story.

For now, Disney is the tipping point. If they fail early on (and separating out Marvel and Lucasfilm could cause that), the evolution will slow. If they are a hit, the evolution will be like sound in film… virtually overnight as everyone chooses to eat the financial costs to avoid being shoved out of the business completely within a few years.

It’s gonna be fun. It’s gonna get ugly. And in about 10 years, consumers will have the most access for the most reasonable price in the history of filmed entertainment. A price will be paid. That is what this next decade will be about… who pays it and how much it hurts.

4 Responses to “Tipping Point: The Streaming Wars Are About To Start (in 2020)”

  1. Good analysis, Dave. This could be the case for the USA market. I believe it’ll be different in the rest of the world ’cause many networks and studios have contracts with many different countries. And outside of USA, Canada, Japan or the European Union, people don’t have the money to afford US$130 month on streaming services. Compromises will have to be made. An example, ‘Star Trek: Discovery’ will be seen in USA in CBS All Access but it will be seen in Latin America through Netflix.

  2. What I’ve learned from experience it’s that the consumer is always the one who pays the price. And the rich will get richer.

  3. David Poland says:

    International is going to be a bear, as Netflix has already found, but it won’t be seen as a failure since there isn’t such a big pot of money already in play.

  4. jspartisan says:

    The thing with Disney is: they have so much content that hasn’t seen the light of day, in decades, that they could make having their service worth it in ways few others are. They should also create an amazing UI, that ports over the extras from all of these movies/dvds/VHS tapes. Their service, needs to have that Disney quality, and be second to none. If it’s just some cookie cutter bullshit, then what’s the point?

    Also, the future is cheap cable. That’s the future. There’s no real fucking way, to sustain all of this content on an a la carte basis, so the future is cable/satellite. It’s just reasonably prices cable/satellite.

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