Mid-Year Wrap Up: Who are The Biggest Players, And Who Is Running Behind?
As the world adjusting to a global pandemic, the streaming and entertainment industry faced unprecedented challenges: a decrease in consumer spending, an industry-wide shut down of studios halting productions, and a competitive landscape with the entry of new services. As we wrap up the first half of a tumultuous 2020, we cover the state of the industry by taking a look at every significant player to see which ones have exceeded expectations and which players are running behind the pack.
Nearly all of the streaming services reported their Q2 results and it is clear that Netflix, Disney+, and Hulu have led their companies to success. With more people in the US stuck at home with nothing but time, the streaming, for most players saw an increase in subscriber count and revenue growth.
We created a methodology to level the plain field across the streaming landscape by ranking the key players across specific metrics. For the purpose of this report, we are accounting for the following factors as a way to measure success across the board: Quarterly Revenue Growth, Quarterly Subscriber increase, Parrot Analytic’s Demand Expression ™, ReelGood Research’s Content Index Quality Score.
Netflix: The Streaming King
If there is one company that has benefited from the COVID global crisis, it would be Netflix. At a Q2 revenue of $2.83 Billion, Netflix saw positive revenue growth due to its ever-growing global subscriber base. Despite new players in the streaming wars, it continues to be the United States market leader. Despite concerns among investors that the company's content spend was negatively affecting net income. Netflix's plans to generate long-term along with generating revenue from other sources such as licensing and merchandise should ensure the company's future profitability.
Netflix is also fortunate that many of its original shows are hits with consumers across the globe, especially during the COVID19 crisis. It’s 2020 roaster of shows such as 'Love is Blind,' 'Tiger King" and 'Never Have I ever' have all seen outstanding demand expression as reported by Parrot Analytics. The research company's CEO, Wared Seger has also stated that Netflix dominates the list of the most popular TV Shows.
Very little is known from Netflix's viewership data, but in 2020, they introduced the Top 10 List feature that now directs (or should I say coerces) users to watch the shows/movies that the company wants to promote in a given week. Netflix will have its users believe that the top 10 content only features properties that are popular based on its users watching pattern. Still, I think that it has less to do with an algorithm aggregation, and more to do with an excellent, and carefully thought out digital strategy. They virtually found a way to promote their weekly drops to incentivizes users to actually watch them. In a world where consumers used to decide what properties were popular on their own, Netflix has now decided it would guide its users to what they should deem as such.
Hulu: The Ultimate Underdog
Hulu's biggest strength in the streaming wars can be summarized to three things: A significant content development strategy, a successful Fx on Hulu launch, and lastly, the backing from the Walt Disney company.
From an outstanding estimated Q2 revenue of $21.13M, a 6.85% increase in subscriber growth standpoint, Hulu has exceeded expectations. From a content-development perspective, Hulu's strategy has always focused it's ad spend and production cost on the quality of original content rather than expanding its library size. Hulu has a content budget of $3 billion this year when comparing to Netflix's $16 billion, they have been relatively conservative with their content expansion. This strategy isn't inherently new; for the past four years, they timidly added new properties to their roasters, but they are finally seeing it pan out for their brands amid the streaming wars.
Four years ago, Hulu was where early cord-cutters would watch next-day primetime Cable shows. Now they have positioned themselves to become a service with prestige original all while retaining mainstream cable content viewers.
With the launch of Fx on Hulu, they have acquired a new subset of mature adults 18-35, similar to an HBO demo. The Hulu viewers have created serious fandoms popular shows such as The Handmaid's Tale, Ramy’, Normal People, and Little Fires Everywhere.
Continuing to build its brand as a one-stop for prestige content Hulu has decided to partner with movie production and distribution company Neon. They painted their 2017 deal output deal as "cutting-edge," where all Neon's titles would be available on the service following a theatrical release. Similarly to A24, Neon is known to have produced and distributed several award-nominated movies such as Portrait of a Lady on Fire, and Parasite.
HBO & HBO Max: If Content is king, distribution is the castle
HBO and HBO Max have always been a force to be reckoned with in the streaming wars. With Award-Winning Shows and documentaries and the fact that properties like Euphoria, Insecure, and Succession generate high demand expression, it comes to no surprise that HBO owns Sunday night viewing. While HBO is still positioned as a strong player, HBO Max, since its launch, has faced some stateful hurdles. In their earnings Call, AT&T CEO John Stankey told analysts that cumulatively HBO and HBO Max have amassed a combined subscription total of approximately 36.3 million subscribers.
I believe that HBO Max is one of the best streaming services from a consumer perspective by its firm content decision. Whereas the stand-alone HBO had a broader appeal to an adult demographic, HBO Max's offering reaches all four demographic quadrants. From a content library perspective, their licensing deals and original content roaster are strong enough to compete in all key demographics. They have the advantage of leveraging the whole of HBO's premium content, they also benefit from having properties from high-value entertainment brands. By owning the DC portfolio. they are competing with Disney's Marvel. They are differentiating themselves by satisfying niche international appeal with the entire library of Studio Ghibli and Crunchyroll. They have also been able to add value to a Kids 2-11 demographic with the addition of Sesame Street, Looney Tunes and Cartoon Network.
“In the early days of the streaming landscape, content might have been King, but in this day and age, without a strong distribution strategy, your content will be the King of an empty castle.”
Beyond their substantial content library, both HBO and HBO Max have one of the biggest hurdles facing the streaming landscape: Not being on Roku and FireTV. Both company's products are the most pervasive ways to stream on televisions in the US. Together, they reach a combined of 80 million active users and now account for 70 percent of US households' market penetration. The fact that they aren't reaching the majority of US televisions will drastically impact how many people can sign up for HBO Max.
The implications of this failure to reach a deal with these platform giants have left AT&T struggling with their brand positioning. Existing loyal customers who qualify for free Max are not signing up for the newer service. Out of more than 36 million HBO total US customers, many of whom are eligible for Max at no cost, only about 1.1 million have bothered to register with the new, more prominent service. Also, acquisition for net new customers has been soft since the HBO Max launch as they have only been able to generate 3 million net new sign-ups.
Disney+: Exceeding Expectations, but will it last?
With a whopping 50 million subscribers, Disney+ has been able to carve out a sizable piece of the streaming market due to its high-value franchises, like The Avengers and Star Wars, and the company's substantial nostalgia-fueled library of animated classics.
Compared to the other players, they have fallen behind when it comes to creating net new original content. In the long run, to sustain its audience, Disney Plus isn't interested in a big original content plays, but rather, it is interested in creating co-viewing moments. The service does an incredible job of anthologizing classic properties. Still, beyond that in the first two quarters, Disney Plus created big family moments with its musicals: Coco the Live Concert Experience, Hamilton the Musical, and its latest drop from last week Beyonce's Black is King.
While it's true, they could make more high-profile originals. That strategy worked for them as they continue to see subscriber and revenue growth and have been able to generate high demand expression for these significant events from a wider demographic span.
The first two quarters have been an indisputable success for the big mouse. Still, the next six months will be more crucial than the first, as viewers figure out where Disney Plus sits in their online viewing habits – and we'll see if a slow drip-feed of big originals works as well as a Netflix-style strategy of shotgunning them out.
CBS All Access: Will aggressive Licensing pay out in the long run?
To their benefit at the time, CBS was one of the earliest entrants in the streaming wars. While the company launched its own streaming service CBS All Access in October 2014 — seven years after Netflix, it still managed to get a five years head start before Disney+, Apple TV+, Peacock. As we know in this landscape, being an incumbent does not guarantee success, the product never became the streaming leader CBS had hoped it would. In their Q2 results, CEO Bob Bakish stated the companies streaming arm (including All Access and Showtime) generated $489 million in revenue, which is up 25 % since Q1.
As of Q2 2020, they have 16 million domestic subscribers with an estimated 11.6M coming from All Access. To put it into perspective, CBS All Access has a 6 years head start falls behind Disney Plus's 28 million subscribers, which the company amassed within just the first three months of its launch. All Access is still short of Hulu's 32.1 million subscribers and a far cry from Netflix's 60 million subscribers in the US.
To date, ViacomCBS has been in linear television; thus, their strategy has been to sell off or license a number of its critical properties to SVOD providers in return for quick revenue. They licensed high-value properties like Start Trek and Avatar The Last Airbender to Netflix, they licensed the entirety of the South Park library to HBO Max for $500,000.
There was a time in the earlier year of the streaming wars where the content was the leading consumer driver, which is still the case. But as of now, players have to worry about where that content lives and where it is being distributed. CBS All Access, from a content-development standpoint, has been an understated player. With properties like Star Trek Discovery, Picard, and The Good Fight, there is no doubt that they have high-quality content with the propensity to become mainstream hits. Unfortunately, acquiring new subscribers has not been the easiest to battle, and I believe that it would have been a much easier battle if they had decided to keep their high value existing IPs in-house.
It is unclear if ViacomCBS will continue to license its high-value IP at the rate they have done in the past 5 years. Something the other services have done successfully is to rally back their properties back to their platforms. In a world where consumers are saturated with content, content is only King if they live under your own control.
Apple TV Plus: Exclusive original content is a risky play
Not much is known about the current state of Apple's current subscriber count. We know that as of Q2'2020, they have approximately 33,6 million total subscribers (most of whom where enrolled for free in the first year due to the deals with Verizon). I do know that there are greatest lessons to be learned for new players that do not have first-mover advantages. The first lesson is that overspending on high production value shows is not an indication of consumer interest. The marketing strategy in late 2019 was for them to position the highly anticipated, extremely costly The Morning Show as a flagship show that would lure in net new subscribers into their platform, and that simply has not been the case. From its start, they wanted to create a set of flagship shows similar to what The Mandalorian is to Disney or what The Handmaid’s Tale is to Hulu. Still, it is clear is that streaming services ultimately cannot decide on their flagship shows, consumers do. To think that a company with no previous entertainment industry experience would enter the streaming landscape and immediately deliver a slate of hits that would generate consumer demand and a mass appeal was an over-confidence in their own brand and an under-estimation of consumer volatility at large.
Apple TV Plus's most significant disadvantage is that it needs big hits in how other incumbent streaming services do not. And while we've seen other players having a mix of original content and licensed properties, Apple TV only has original shows and movies and no licensed content.
SVOD platforms like Netflix, Hulu, and even lower-tiered Ad-supported platforms such as CBS All Access and Peacock have decades of proven hit TV, and film content gives subscribers plenty to watch. At the same time, they wait for the next big exclusive original. With only original shows to lean on Apple TV+, consumers are not seeing the value yet.
Quibi: The Dead Zone
By now, it is evident that Quibi is significantly underperforming relative to the hundreds of millions of dollars the company spent on content development and advertising. It's been disclosed that Quibi has spent nearly $2 billion on their creative development with CEO Jeffrey Katzenberg stating, "People on Quibi have $100,000 a minute to make content" which has always striked me as a hindrance than a quality . As has been the case for Apple TV+, we know that high production value is not an indication of consumer acquisition or retention.
"People on Quibi have $100,000 a minute to make content"
And we see that being the case for Quibi since According to a Wall Street Journal report, "daily downloads peaked at 379,000 on its launch day, but subscription sign-ups continue to trend downwards with less than 20,000 on any day in the first week of June. It's been reported that Quibi is on pace to acquire a total of 2 million paid subscribers by year-end, from its predicted 7.2 million.
Beyond a botched launch, Quibi's hurdles are not yet behind them. The biggest challenge is not net new customer acquisition but existing subscriber retention.
Quibi currently offers two subscription prices: $4.99 with ads or $7.99 without ads. Neither of these two options is competitive from a consumer's perception. The ad-supported version is more expensive than the largest platform for short-form content YouTube, while the premium option makes it more costly than winning streaming player Disney Plus.
Ultimately, Quibi fails due to a gross miscalculation of what consumers consider valuable and at what prices. It is unclear how they will be able to create demand for a product where the market was inexistent, but if they don't pivot their pricing model or value proposition entirely, they are at risk of remaining on the dead zone.
Disclosure: Sarah-Mikal is a current an Analytics Manager at Nickelodeon, a subsidiary of ViacomCBS.