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(Image: Getty, additional design: Tina Tiller)
(Image: Getty, additional design: Tina Tiller)

PartnersSeptember 26, 2023

Whatever happened to the streaming wars?

(Image: Getty, additional design: Tina Tiller)
(Image: Getty, additional design: Tina Tiller)

A pandemic made the rivalry between Netflix, Disney, Apple, Amazon and more the hottest story in business. Now two strikes have the industry at a crossroads.

It’s easy to forget, but the first “streaming war” actually broke out in music. In the mid-2010s, when Obama was still president, the rivalry between Spotify, Apple and an upstart named Tidal saw artists like Taylor Swift, Kanye West and Beyoncé moving releases among platforms and forcing fans to shuffle between different services. While that era has long since passed, it was mere prologue to a much bigger and more substantive rivalry between streaming services in film and television.

If you wanted to pick the moment it all really kicked off, how about November 2019? That was the month Disney+ launched in the US and New Zealand, a move which brought Disney, the biggest player in the old model of cable television (through its ownership of sports giant ESPN), into direct competition with Netflix, the biggest streaming outfit. Only a few months earlier the two had been partners, with Disney selling its movies and shows to Netflix and earning huge cheques in the process. Now they were bitter rivals, competing for subscribers and cultivating direct-to-consumer audiences which would have been unthinkable for Disney for almost all of its century-long existence.

Yet while the debut of Disney+ felt symbolically important to the rise of streaming video, a week earlier another company had launched its own direct-to-consumer streaming service. Apple TV+ saw the company hire Richard Plepler, the adored architect of HBO’s rise, to build a boutique, highly curated offering matched to Apple’s mass-luxury market position. They joined an increasingly crowded market, featuring Hulu and Amazon Prime, with others like Paramount+, Peacock and HBO Max (recently, contentiously, renamed simply “Max”) arriving not long after. 

This was interesting to TV audiences, but the fact these services had all arrived in quick succession meant that this became one of the most fascinating and high profile stock market stories of the era too. When the pandemic trapped everyone at home, subscriptions surged, and the companies seemed to be perfectly positioned to spend a decade growing into major customer bases and ample profit margins. 

Then things got complicated. Stubbornly high inflation led consumers to cut down or cancel subscriptions, especially as the number of services started to exceed the cost of an old-school cable bundle. Higher interest rates left some businesses paying far more to service debt, and everyone scrutinised spending to see whether people were actually watching the hundreds of new shows being pumped out each year. 

Then, earlier this year, the biggest blow of all: twin strikes from the writers and actors guilds saw Hollywood shut down for months, and despite yesterday’s tentative deal with the writers, restarting production feels a long way off. This means that there is a finite and shrinking number of new productions coming, and little to replace them – particularly impacting those who rely on cinemas for major revenue. Though according to investment platform Stake’s market analyst Megan Stals, not all streamers will be equally impacted. “It depends on the entertainment company’s exposure to scripted versus unscripted content, as well as the need for producing new content versus having users happy to browse a library of older content.” 

All this has had a predictable impact on share prices, some of which have crashed from giddy highs to much more pedestrian levels. With a little help from Stake, The Spinoff assesses recent moves from the major players to imagine how the sector might perform in years to come.

This content was created in paid partnership with Stake. Please note that this content is intended for informational purposes only, and should not be construed as financial or investment advice. To learn more about Stake, visit their website today.

Netflix, mortal but still fearsome


The pioneer of the category, Netflix has endured a torrid few years. As recently as 2016, when it was almost unchallenged in the space, its market capitalisation stood at just US$50bn. That precipitated a sharp rise to a gaudy peak of over US$300bn in late 2021, before an equally shocking plunge, to less than US$80bn just a few months later. This was prompted by an admission it had lost quarterly subscribers for the first time, an astonishing record scratch for a company used to an unimpeded growth.

Its response was instructive, though. The company announced an ad-supported tier, contradicting a long-held anti-advertising position, along with a crackdown on password sharing and a renewed focus on gaming as a category. It also leaned hard into its strengths, says Stals. “Netflix’s algorithms and datasets allowed them to gain detailed insights about users and specifically target them with series”. While some have critiqued this as excessive specialisation, Netflix remains the streamer with the best technology and strongest TV brand. The impressive pace at which it shipped its ad-supported tier, and a positive market response (the ad tier is cheaper, but delivers more revenue per user) has helped Netflix recover to a market cap of US$195bn – more than a third higher than its pre-pandemic position.

Disney still has the magic, but could do with a new spell


The pandemic was a paradox for Disney. It proved a boon for its just-launched streaming service, Disney+, which had a strong slate of kids’ programming just as parents were desperate for something to entertain their children. Yet its theme parks business was deeply wounded by closed borders and idled aircraft. CEO Bob Chapek then got into a bruising battle with Florida’s governor (and would-be Republican presidential nominee) Ron DeSantis, which saw Disney lose valuable tax concessions around Disney World in Orlando, while the rapid loss of cable subscribers hit sports giant ESPN hard.

It culminated in the dramatic return to power of former CEO Bob Iger, who had previously led the company for an extraordinary 15 year span, highlighted by its adroit acquisitions of Pixar, Marvel and Lucasfilm. While initially greeted warmly, its stock is currently trading at less than half its 2021 peak as it grapples with Disney+ subscriber losses and seeks a business partner for ESPN. “Disney’s issues could get bigger,” warns Stals. “It’s not met profit and subscriber expectations. They are being accused of using a ‘cost-shifting structure’ as part of their broader restructuring that misled investors about the reality of their financials.”

Warners Brothers Discovery asks what’s beyond Barbie


It’s taken as a truism that the streaming sector remains excessively fragmented. Depending on where you draw the line, there are a dozen or more streaming companies competing to offer similar priced packages of on demand video content in the US, with many more in different regions across the world. Two companies which obeyed the implication and merged are venerable movie studio Warner Brothers and reality TV behemoth Discovery.

The merger required it to take on imposing debt, now running at US$47bn, under CEO David Zaslav, but its combined assets feature a motherlode of impactful media brands, including CNN, HBO, Discovery, DC Comics and more. While they aren’t all a perfect complement, Zaslav is much admired for his tenacity and vision. He’ll need every ounce of it, as his Max service recently followed others in the sector into subscriber losses. While Barbie has been the year’s biggest hit, Stals says the “billion dollar film’s earnings will show in the next quarter, but these revenues alone might not be enough” to help it through the strike while still paying down its debt.

Apple TV+ is still taking small bites – for now


If you were to overlay the performance of these five stocks, the movements of three appear to be much more highly correlated than the other two. That’s because Netflix, Disney and WBD all have streaming and video production more broadly as core parts of their businesses. That’s not the case for Apple or Amazon, each of which uses streaming as a combination of brand play and incentive to use a different product entirely. In Amazon’s case it’s the Prime delivery service, while in Apple’s it’s an array of ubiquitous hardware.

The end result is that while the first three have had a bumpy market ride, Apple have fared well – its shares reached their all-time high in late July, and though there’s been slight regression since then, the company’s market cap remains north of US$2.5 trillion. It also makes assessing the relative performance of their streaming products more difficult, as neither breaks out specific streaming subscriber numbers (Apple’s are estimated at between 20m-40m). However, both Amazon and Apple are investing into sports, a high cost area which could propel them into new commitment – or, as Stals warns, prompt them to assess whether they really need to be in video at all. “If there is pressure on these firms, they might focus on more profitable units instead, and put less emphasis on streaming.”

Amazon’s Prime Video is a colossus in search of an identity


When Amazon first entered streaming, it did so with an unruly library of content rented from other suppliers. Its first originals were crafted and low budget, but did spawn the highly acclaimed hit Transparent. Yet as founder Jeff Bezos became more interested in the division, and in Hollywood, he demanded his own version of HBO’s mega-hit Game of Thrones. That led to Amazon’s blockbuster deal to make a TV version of Lord of the Rings – first shot in New Zealand, before the UK lured it away.

Yet while Amazon Prime is one of the biggest streamers in the world by customer – it has an estimated 200 million members – most are primarily motivated by fast delivery and cheap products, and Prime Video lags Netflix, per Parrot Analytics. Its stock is way off its pandemic-era high (though it remains one of the five biggest companies in the world by market cap). New Amazon CEO Andy Jassy does not have the same loyalty to video as his predecessor, though there are no signs of an exit. And, as Stals notes, it has exposure to streaming even beyond Prime, as “Netflix pays Amazon a significant monthly bill for AWS hosting services.”

Where to from here?

Beyond the big five there is the competing world of user generated content, where the likes of YouTube, Instagram and TikTok are big players (as is Amazon to some extent, through gaming streaming site Twitch). There remain a number of smaller streamers and production libraries ripe for acquisition. All of this tumult sits behind the strikes, and the delicately poised streaming ecosystem. After years of unimpeded growth, the streaming industry faces a more restrained era, while retaining huge opportunity and upside. One thing most analysts agree on is that the sector will likely look different and more consolidated again by the decade’s end.

Please note that this content is intended for informational purposes only, and should not be construed as financial or investment advice.

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