How many streaming services is too many? | Mobile Dev Memo

How many streaming services is too many?

Last week, Nielsen released its Q1 2019 Total Audience report, revealing an interesting statistic: streaming subscribers use their services purposefully, with 66% of adults logging into a streaming service with the intention of watching specific content. Only one third of adults log into services speculatively to browse, and when they don’t find something suitable, 58% of US adults revert back to linear, terrestrial television.

Combine these tendencies with the continued decentralization of streaming content as more and more media companies launch their own streaming platforms, and one has to wonder: how many streaming services is too many? With content scattered across a hodgepodge of services, each of which likely features a flagship series, to how many streaming services will the average household realistically subscribe?

When Disney unveiled details of its upcoming streaming service, Disney+, back in April, the prevailing sentiment amongst commentators was that Disney+’s low price point ($6.99 / month or $69.99 / year) meant that Disney+ didn’t serve as a threat to Netflix, which is priced much higher at $12.99 / month for the standard plan. Disney announced back in 2017 that it would start removing content from Netflix ahead of its own streaming service launch, and it has been doing that incrementally for the past two years. With Disney+’s catalogue growing to 7,500 episodes of current and off-air TV shows (including The Simpsons) and 400 movie titles, in addition to 25 original series and 10 original movies, by one year after launch, popular wisdom asserted that most households wouldn’t see Netflix and Disney+ as mutually exclusive subscriptions but would pay for both.

And maybe that’s true for Disney+ and Netflix. But what about the plethora of other streaming services that are launching and will feature exclusive tentpole content? In late June, NBCUniversal announced that it had purchased the exclusive rights to feature The Office on its own streaming service, which will launch in 2020, for a staggering $500MM: $100MM per year, starting in 2021. In response to the announcement, Netflix tweeted a tongue-in-cheek reminder to its subscribers that they can consume as much of the show as they want before it departs the platform:

But the trickle of content away from Netflix is a problem for the service, which is spending extravagantly on content production at $12BN in 2018 and an estimated $15BN in 2019. At the end of last year, WarnerMedia — which is also launching a streaming service in 2020 — agreed to renew Netflix’s rights to Friends for one year for roughly $100MM, with the implication of the one-year renewal being that Warner will either claim exclusive rights to Friends thereafter or share them with Netflix for a discount.

A few interesting tidbits about that deal illuminate the dynamics behind the war for streaming content:

  1. Netflix was paying $30MM per year for the Friends license before the renewal;
  2. The increased price was driven by an extremely competitive bidding process involving Hulu (which is owned by Disney), Fox, NBCUniversal, Amazon, and Apple.

WarnerMedia will similarly soon have to decide what to do with the rights to its other multi-camera megahit sitcom, the Big Bang Theory: a small portion of the series is currently available on CBS’ All Access app, but a no-streaming clause in TBS’ acquisition of rerun rights has thus far prevented the entirety of the show from being featured on a SVOD service.

So while it’s true that people are shifting more and more of their media time to streaming services (and away from linear TV), it’s also clear that the streaming services are willing to pay handsomely for evergreen, tentpole content in order to address the reality of intent-driven content consumption that Nielsen flagged in its recent report. There are two important behavioral considerations to this that I believe analysts and these media companies haven’t fully appreciated.

First, as these streaming services proliferate and segment content behind paywalls, more and more people will likely resort to piracy to watch exactly what they want (rather than subscribe to yet another streaming service). A recent report from analytics company Sandvine revealed that BitTorrent traffic has seen an uptick after years of decline.

And second, modeling revenue for these services must take into account strategic subscriptions and unsubscriptions, timed around content releases. Off-air series with massive numbers of episodes like Friends and The Office surely account for a large percentage of viewing time on streaming services, but it’s impossible to imagine that popular current series don’t drive subscriptions and concomitant unsubscriptions at season premiers and finales. Surely the end of Game of Thrones caused a decline in HBO Now’s subscription count; these services can’t view the lifetimes of users as contiguous blocks of time, but rather a collection of subscription-month spans that start and end with content releases.

Modeling this phenomenon is more complex than simply using an average lifetime month number. When Disney+ was announced, Disney’s CFO, Christine McCarthy, revealed that the company predicts 60 to 90 million subscribers for the service by the end of fiscal year 2024, two-thirds of which are expected to be located outside of the US. But in terms of subscriber-months and revenue, are those users continuous subscribers over the course of the year, or do they start and stop their subscriptions? For Disney+, with its massive back catalogue of classic content, perhaps users are more likely to remain subscribed — which underscores the importance of featuring evergreen, high-episode series content like The Office and Friends.

But given how much money these services are spending on new content (Disney will spend $2.5BN on original content production for Disney+ in 2024), it’s obvious that some level of strategic churn will impact overall revenue. If, as Nielsen indicated, users consume streaming content with particular intent, then surely the number of subscriptions that any household will maintain at once is capped, given that they can opportunistically subscribe and unsubscribe at will. And that number of concurrent streaming subscriptions per household may not be very high.