Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 329

The ‘streaming wars’ could penalise viewers

In 2017, when Netflix was 20 years old, the ad-free on-demand-video or streaming service achieved three milestones. One was that Netflix hit 100 million subscribers worldwide. Another was the streamer earned its first Oscar when White Helmets won Best Documentary Short Subject. The third was the company premiered its first blockbuster movie; namely, Bright featuring Will Smith.

In that giddy year, legacy free-to-air and balkanised cable TV rivals appeared passé and Prime Video and the like looked like limp competition. Netflix co-founder and CEO Reed Hastings declared the creator of ‘binge watching’ had even beaten an unobvious competitor. “We actually compete with sleep,” Hastings said. “And we are winning.”

Succeeding might get harder for Netflix

Even though Netflix has intensified content creation, boosted global subscriptions to 152 million and still dominates the subscription video-on-demand market globally, the company risks losing its dominance in streaming for two reasons.

First, Big Hollywood and another Big Tech company are entering the streaming landscape that in the US already includes Amazon’s Prime Video.

Coming soon to streaming are Hollywood icons AT&T’s WarnerMedia, Comcast’s NBCUniversal and Disney, recently bolstered by its purchase of 21st Century Fox. This trio will arrive with competitively-priced packages, marketing budgets to promote their arrival, libraries of premium content, plans to create compelling programs exclusive to the new services, and intentions to reclaim the popular content they have licensed to Netflix. They enter streaming with an aim to arrest sharply declining viewership of their linear channels (where video content is delivered to a schedule), build direct customer relationships and protect their position as global media giants.

Apple is arriving with US$6 billion to spend on content for its upcoming TV+ service, which is about what Amazon is thought to devote to content on Prime Video that was founded in 2006. While Big Tech lacks content archives, they are wealthy, have huge customer networks and might be willing to loss-lead on streaming to attract and retain more people on their platforms that they monetise in different ways.

The second problem for Netflix and streamers such as Australia’s Stan relates to content. Four areas of concern stand out:

1. New entrants are claiming back marquee content such as Friends and The Office.

2. Heightened competition has boosted the value of licensed content, which hampers newer streamers with smaller back catalogues compared with Hollywood rivals.

3. Binge watching hastens the need for fresh content.

4. The last (and a less urgent problem) is that countries are setting local-content rules requiring streamers to invest in local content.

These reasons are pushing the streaming industry to boost content spending. Netflix, for instance, is expected to spend almost US$15 billion in cash on content this year, more than 60% higher than only two years ago.

The heightened competition and rising content costs are bound to transform the streaming TV industry. Smaller stand-alone streaming platforms could struggle as the giants fight to become one of the small number of services to which most households subscribe. Before too long, market share is likely to be more evenly spread across the vertically integrated giants.

The rising problem of multiple subscriptions

But given the way TV viewing works, that scattering of market share is likely to prove a situation where competition leaves consumers worse off. The future facing viewers is likely to be one where many households will need to subscribe to multiple streaming services (on top of traditional pay-TV packages) to see the mix of shows they want – which means paying more all up. They might see ads where none exist now (a de facto price rise). Or they might spend more time planning an app churn that brings them the content they prefer (another hidden cost even if it might be small for the tech savvy).

In short, the period in which viewers could access the right mix of enough programs, including all their favourite shows, at an affordable price on one or two ad-free streaming platforms is ending. Consumers face a fragmented and costlier world of streaming that could remind people of the disjointed and frustrating pre-Netflix era.

For all its streaming stranglehold, Netflix, to be clear, has only about 10% of total viewer screen time in the US. Netflix will hold a healthy, even if shrinking, grip on this fast-growing viewing segment for the foreseeable future because the company owns a rapidly growing stash of content and has the industry’s most-honed algorithms to promote content. There is nothing remarkable in the likely trajectory of streaming; a company comes to dominate a new niche and others enter to share the profits. But it is likely to be notable for how market forces can act against the interest of consumers and for how tech can transform industries without fulfilling its initial promise.

 

Michael Collins is an Investment Specialist at Magellan Asset Management, a sponsor of Cuffelinks. This article is for general information purposes only, not investment advice. For the full version of this article and to view sources, go to: https://www.magellangroup.com.au/insights/.

For more articles and papers from Magellan, please click here.

 

RELATED ARTICLES

TV - the end of the world as we know it?

The digital transformation of Australia’s media

banner

Most viewed in recent weeks

Welcome to Firstlinks Edition 433 with weekend update

There’s this story about a group of US Air Force generals in World War II who try to figure out ways to protect fighter bombers (and their crew) by examining the location of bullet holes on returning planes. Mapping the location of these holes, the generals quickly come to the conclusion that the areas with the most holes should be prioritised for additional armour.

  • 11 November 2021

Why has Australia slipped down the global super ranks?

Australia appears to be slipping from the pantheon of global superstar pension systems, with a recent report placing us sixth. A review of an earlier report, which had Australia in bronze position, points to some reasons why, and what might need to happen to regain our former glory.

Welcome to Firstlinks Edition 431 with weekend update

House prices have risen at the fastest pace for 33 years, but what actually happened in 1988, and why is 2021 different? Here's a clue: the stockmarket crashed 50% between September and November 1987. Looking ahead, where did house prices head in the following years, 1989 to 1991?

  • 28 October 2021

How to help people with retirement spending decisions

Super funds will soon be required to offer retirement income strategies for members in decumulation. With uncertain returns, uncertain timelines, and different goals, it's possibly “the hardest, nastiest problem in finance".

Tips when taking large withdrawals from super

You want to take a lump sum from your super, but what's the best way? Should it come from you or your spouse, or the pension or accumulation account. There is a welcome flexibility to select the best outcome.

“Trust your instinct” Hamish Douglass in conversation with Sir Frank Lowy AC

Sir Frank shares his story, including his journey from war-torn Europe, identifying opportunities, key character traits necessary for business success, and the importance of remaining paranoid yet optimistic.

Latest Updates

Investment strategies

Charlie Munger and stock picks at the Sohn Conference

The Sohn Australia Conference brings together leading fund managers to chose their highest conviction stock in a 10-minute pitch. Here are their 2021 selections with Charlie Munger's wisdom as the star feature.

Interviews

John Woods on diversification using asset allocation

All fund managers now claim to take ESG factors into account, but a multi-asset ethical fund will look quite different from a mainstream fund. Faced with low fixed income returns, alternatives have a bigger role.

SMSF strategies

Don't believe the SMSF statistics on investment allocation

The ATO's data on SMSF asset allocation is as much as 27 months out-of-date and categories such as cash and global investments are reported incorrectly. We should question the motives of some who quote the numbers.

Investment strategies

Highlights of reader tips for young investors

In this second part on the reader responses with advice to younger people, we have selected a dozen highlights, but there are so many quality contributions that a full list of comments is also attached.

Investment strategies

Four climate themes offer investors the next big thing

Climate-related companies will experience exponential growth driven by consumer demand and government action. Investors who identify the right companies will benefit from four themes which will last decades.

Investment strategies

Inflation remains transitory due to strong long-term trends

There is momentum to stop calling inflation 'transitory' but this overlooks deep-seated trends. A longer-term view will see companies like ARB, Reece, Macquarie Telecom and CSL more valuable in a decade.

Infrastructure

Infrastructure and the road to recovery

Infrastructure assets experienced varying fortunes during the pandemic, from less travel at airports to strong activity in communications. On the road to recovery, what role does infrastructure play in a portfolio?

Economy

The three prices that everyone should worry about

Among the myriad of numbers that bombard us every day, three prices matter greatly to the world economy. Recent changes in these prices help to understand the potential for a global recovery and interest rates.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.