Are We Already Past ‘Peak’ Streaming’?

on July 2, 2020

The average number TV viewing hours per household has, not unsurprisingly, risen during the coronavirus era. It has also shone a light on the good, the bad, and the ugly of the streaming TV revolution, which has been steadily upending traditional pay TV viewing patterns and business models. But I’d argue that we’re starting to reverse course on what, until recently, has been mainly a good thing. For streaming as a business, there will be higher levels of churn, several failures, and eventual consolidation. For consumers, there will be greater confusion and an eventual paring back of the number of services subscribed to.

My view is that we’ll look back on the successful launch of Disney+ as the peak of streaming TV. Until that point, most developments in the sector were accretive to the business and a positive for consumers. It all started with Netflix’s first original programming in 2013 (was it that recently?). The other ‘majors’ mainly added value. Hulu was a great alternative to a cable subscription and also produced some excellent original programming. Amazon Prime Video made a lot of sense as another reason for subscribers to keep their Amazon Prime subscriptions, but its success is measured differently than other streaming services.  HBO and Showtime doubled down on original content and successfully migrated to a TV Anywhere model, with options for non-cable subscribers and good apps for tablets and phones.

Then came Disney+ in late 2019, which has been successful so far for three reasons: exposure of previously unavailable titles from its vast library, combined with some signature original content; it’s a legendary brand serving a well-defined market segment; and the pricing is attractive.

To me, the beginning of the downward slope began with Apple TV Plus, which launched in November 2019, technically two weeks before the Disney+ launch. This is the start of what I call the “unnecessary” phase of the streaming era. It’s Apple’s latest foray into what has been, for the most part, a failed, 10+ year attempt to achieve the same success in TV it had in music. Apple is throwing billions of dollars at new content (most of it mediocre). Sure, the free year of Apple TV Plus that comes with any new Apple device purchase is a nice perk, but I doubt anybody is buying a new Apple device because of this benefit. It will be interesting to see how many people pay for the service once they come off their free year. Aside from that, there’s little value add to the experience.

Then there’s the recent launch of HBO Max, with most rational people asking “what?” and “why?”. This is a classic example of messing with the ‘if it ain’t broke, don’t fix it’ mantra. But we could see this coming from a mile away. Question: has there ever been a successful telecom company foray into media? HBO was a beloved brand with New Yorker levels of customer loyalty and a defined place in the universe with prestige content. You might have gotten Netflix to do My Brilliant Friend, but that’s HBO’s default level of quality.  So AT&T acquires Warner, and within months most of HBO’s top brass leaves and the then new head of AT&T’s media biz John Stankey tells HBO to produce more content (translation: content dilution). Then HBO Max launches, sowing further confusion into the already messy HBO Now/HBO Go distinction, and instantly upsetting millions of customers who can no longer get the HBO app on their devices. Why didn’t AT&T just leave HBO alone and tack on an extra $2-3 per month for access to Warner’s wonderful content library, if that’s what they needed to do in order to justify this ill-advised acquisition?

And what of Peacock, which is now soft-launching for Xfinity (Comcast) subscribers? Since I get it for free, my reaction is “ohhh, that’s nice” to some of the TV and movie treasures in Universal’s library. But it’s more like when the restaurant presents you a couple of nice chocolates after a good meal than something you would have ordered.  It’s also hard to compute the added value for a subscriber who already gets a decent pay TV package from Comcast, most of whose content is available on-demand or through Hulu. Yes, there will be some new original content for Peacock subscribers, but that piece of it is looking more like Apple TV Plus: “too much already, and if there’s something really good I’ll subscribe for a month and get out”.

And for those who don’t have cable, Peacock is the Comcast/Universal version of CBS All Access I suppose. But will consumers pay X per month for Peacock so they can get The Office plus some other content they didn’t even know they were missing? Put another way, Peacock+CBS All Access+HULU = Cable.

And then you’ve got Quibi, the least necessary of them all. $2+ billion invested so far. Ask ten of your under-35 year-old friends whether they were looking for more shorter form content for their phones. And they’d answer: “isn’t that what YouTube is? Jeffrey Katzenberg has always loved sequels — but I don’t think he was looking for go90: The Sequel, which Quibi is rapidly turning into. And, yes, I know, this isn’t technically streaming TV, but one of the chief complaints (perhaps amplified by Quibi’s coronavirus era launch) is, ironically that you can’t get Quibi on your TV.

So now let’s look at this from the customer perspective. It’s never a good thing when you throw customers into the underwear of the business. Consumers already were a little deer in the headlights with this streaming TV thing, so overwhelmed by the dizzying choice 500+ new scripted series every year that they opted just to watch The Office or Friends instead. But now you have the industry forcing consumers to develop some sort of mental matrix of what studio produces which content. Quiz: who produces Law & Order? a) Comcast/Universal  b) AT&T/Warner c) Paramount  d) Disney/Fox

So, in the middle of a challenging economy, when households are looking more carefully at their spending, the Netflix+HBO+CBS All Access+Showtime+Hulu+DISNEY+ is a $60+ nugget, and doesn’t include any live, linear TV.

Consumers are also now thrown into the crosshairs of this new season of content licensing and moves from one place to another. It’s not unlike the war for talent in the sports business: the free agents are the prices bidded up for established content/talent (The Office, Friends, Ryan Murphy), and then the bidding wars for the hot prospects (new shows with top talent).

There’s certainly been an upside to the streaming explosion. There’s loads of fantastic content — pretty much something for everyone. This has been a boon for writers and others involved in content development and production. And, Netflix and Amazon have filled a huge gap left by the major studios — who appear mainly interested in funding franchises and comic book movies — by funding films like the Irishman and Da 5 Bloods.

However, something’s going to give over the next couple of years. The first stage of this is already happening, in the form of subscriber losses not only in Pay Cable but also live TV alternatives such as Sling and AT&T TV (DirecTV Now). There will be further exits or consolidations in the vMPVD space (could there also be an exit for this acronym?).

The next stage will be elevated churn among some of the streaming-only players, which some recent data is already showing. Subscribers will binge a couple of favorite shows, then move on. There will be some high-profile failures, while others just quietly fade into the sunset. There will also be some consolidation. If Quibi continues to underperform, it could become a bargain buy for an AT&T/Warner or Comcast. Netflix, which has eschewed acquisitions to date, could also be a buyer.

I also think there will be an emerging, and more interesting market for inexpensive, niche services. Philo, for example, has performed well as a $20 per month skinny bundle of mainly entertainment channels, which it can do profitably because it’s not saddled by rights-prohibitive sports channels (a particularly good deal in our current sports-less TV universe!).

I think one way this space could go is that consumers might opt for a smaller number of ‘foundational’ streaming services that they subscribe to on an ongoing basis. Then they’ll then layer on shorter-term subscriptions to the niche channels (adventure sports, cooking, indie movies) for a temporary or seasonal fix.

I’ll mark late 2019 as the ‘Peak Streaming’. The next chapter is already starting to be written.