By Mark Richards.
Disney is about to launch a streaming service – entering a highly competitive market. Can all the streaming services survive? Will Netflix continue to grow its subscriber numbers? Can Apple work out how to make programmes? The industry could see big changes over the next few years…
As we wrote at the beginning of the week, Disney is about to launch a streaming service. For around a fiver a month or £50 a year you will be able to access Star Wars, Marvel, National Geographic and Pixar – plus all the old classics…
The new streaming service will not happen overnight – Disney will need to reclaim some of its content, which was sold to other streaming services before Disney had streaming plans of its own.
In fact, it could take up to four years for Disney to get all its content back – and by that time, the streaming market could look very different.
Not all streaming services will survive
Obviously, streaming is here to stay. The idea that you could only watch a programme at 8:30 on Monday is rightly seen as ridiculous – as ridiculous as sending dad out on a cold, dark, wet Saturday night so he could get the kids a video from the video shop.
But the streaming market is becoming very crowded: Disney will be joining Apple TV, Netflix (which started as a DVD rental company in 1997) and Amazon in the market, with the BBC and ITV also set to enter. So there is an obvious question: will all the streaming companies and services survive?
Apple TV is a good example. Sales of the iPhone are slowing down: whatever you think about the security concerns, anyone who is serious about using their phone for photography will switch to a Huawei phone.
So Apple needs new ways to stay at the top – and one of those ways is to produce content. But can a tech company do that successfully? You may not want to watch Marvel or Star Wars – but say what you like about Disney, they know how to make shows that people want to watch, which is a skill Apple will need to learn.
Pressure on Netflix
So far Netflix has been the undisputed big fish in the streaming service pool. As we mentioned above, it started life in 1997 as a DVD rental company and moved into producing its own content in 2006. Among its early releases were Nice Guys Sleep Alone, This Film is Not Yet Rated and The Puffy Chair. No, I have not seen any of them either…
Although that part of Netflix was closed down in 2008 – due to pressure from competing film studios – the company was soon back making content and it has been an almost continuous success story, with rapidly rising subscriber numbers and critically acclaimed series like The Crown and Oscar-nominated films like Roma.
But even Netflix is coming under pressure, and the company admitted that subscriber growth was likely to slow as it announced price rises in several countries, including the US. Yet the company still added other 9.6m subscribers in the first three months of the year with profits up to $344m (£264m) and sales up by 22% to $4.5bn (£3.46bn).
So why the price rise if everything is going so well? Simple: if Netflix is going to stay ahead of the competition it constantly needs to produce new content – and that is very expensive.
Netflix or Notre Dame?
Those numbers from Netflix look good – but right now the company is putting ‘content above costs’ and many people are asking if the policy is sustainable. The company currently has around $30bn (£23bn) of long term debt, and last September added another $2bn more debt as it continued to invest in new content.
Then again, that round of fundraising valued Netflix at $160bn (£123bn) – which currently makes the company worth more than Disney. Netflix will spend the new cash on buying and making programmes, as well as acquisitions.
The amount Netflix is spending on content seems to be increasing even faster than its subscriber numbers: the company spent $8.9bn in 2017 and a fraction over $12bn last year. This year industry experts expect that figure to reach $15bn (£11.5bn). I have seen plenty of estimates for the cost of rebuilding Notre Dame – none of them come close to what Netflix is planning to spend on content…
Is there enough quality content?
Netflix has received a lot of praise for the quality of its content. A recent hit was Bird Box which – according to Netflix’ own viewing figures – was watched by 80m subscribers in the first four weeks after its release. But clearly, there is only so much quality content to go round – and viewers only have a limited amount of time: they cannot watch everything.
That is why experts are predicting that not all the current streaming services will survive. Disney has a back catalogue – but they do not yet own it all. Netflix has the subscribers – but a mountain of long term debt. Apple has a pile of cash – but no programming expertise. Amazon has a marketing machine which has made its founder the richest man in the world. But you suspect that sooner or later mergers and acquisitions in the sector are inevitable. For example, will customers really change their perception of Apple and see it as the second coming of Disney?
What does it mean for customers?
Interestingly, it may mean that your streaming service may look like Sky did ten years ago. Is it really feasible to subscribe to three or four different streaming services – plus Amazon Prime and Spotify and everything else you need in your life? Not forgetting Sky Sports…
Almost certainly not. Bundled services may well make a comeback, with customers paying one monthly subscription for say, Netflix, Amazon Prime, Disney and some sports channels. Hopefully, competition between the big players will keep the costs down: Netflix has admitted that they expect to see subscriber growth slow down following their price increase. And there is clearly a limit to how much people can pay, irrespective of how good the content is…