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Big Media's libraries of content vs Big Tech's piles of cash: which will win?

Industries with two different approaches are colliding while they seek dominance in video-streaming services

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An imminent clash of two titans’ armies looms on the horizon. On one side of the front, Big Media, after losing ground and revenues, is gathering troops to face Big Tech in an offensive to reclaim a field that has been its domain for decades: the video entertainment business. 

Big Media’s biggest fighter is Disney, whose Disney+ streaming service was launched in the United States and a few other countries last November and is expected to arrive in Latin America’s largest markets in October 2020. It will soon be joined by WarnerMedia, now owned by AT&T, which will premier the HBO Max platform for American consumers next May and has not yet disclosed plans for its international expansion. 

Their ranks also count with NBCUniversal‘s upcoming Peacock platform and Viacom‘s plans of expanding its CBS All Access service, as well as regional streaming operators such as Globoplay in Brazil and Blim TV in Mexico, whose parent companies are respectively Globo TV and Televisa, traditional leaders in TV entertainment in their homelands.

The tech pack is following the trail of last decade’s great disrupter and video-streaming main incumbent, Netflix. Last November, a few days before Disney+’s arrival, Apple made its video entertainment ambitions very clear and launched AppleTV+ in over 100 countries. 

In the US, Amazon offers video-streaming services for as long as Netflix, but if Prime Video gave the impression, up until a few years ago, of being merely a way to retain customers of the e-commerce giant’s main business, it is now investing heavily in content and being perceived as a serious and committed contender. 

Burn some cash

The only certainty in this scenario is that piles of cash, or more precisely mountains of cash, will be burnt in the race to the top. According to UBS, since 2010 just three companies — WarnerMedia, Disney and Netflix — have invested a total of $250 billion into programming. The stakes are even higher now, since the bank reckons the industry is ploughing $100 billion a year on content. Bloomberg Intelligence says that the average cost of producing a single TV-series episode has doubled in the last four years to almost $6 million.

While costs are surging, traditional ad revenues are dwindling, and viewers do not want to pay as much as they did during pay-TV and cable dominance. In the end, this is the equation that all players are trying to resolve and over which some of them will trip up and perish.

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As a special report by The Economist pointed out, there are basically three ways to make streaming services break even and generate profits. First, they can amass a huge base of subscribers and figure out ways to guarantee their loyalty. A second course of action would be to ramp up prices without scaring users away. Or they could also spend less money on producing content.

Winning over audiences

Gaining new subscribers is getting harder, as there are growing concerns of “subscription fatigue” and “streaming service overload”, that is, an unwillingness of viewers to pay for various platforms simultaneously. Once broadband connection cost is added, consumers who subscribe to three different services may already be spending the same, or even more, than they used to cough up for traditional pay-TV packages. 

And that is not to mention the myriad of other subscription-based services that are crowding the landscape, all using a business model that became the norm for a vast array of segments. As Reed Hastings, CEO of Netflix, stressed last year, gaming and sleeping are among his main competitors.

Emerging markets

The battle for new users will increasingly be fought outside the United States, where Netflix’s user base decreased last year, with a special focus in emerging markets. But expanding in international markets, where 90% of Netflix’s growth is coming from, is comparatively more expensive because content needs to be tailored for different cultural tastes.

Netflix is on its way to reach 200 million global subscribers some time next year, and solely by its sheer size it will be hardly displaced soon by its challengers. Disney+ hopes to attain 60-90 million users by 2024, when it plans to break even. 

HBO Max can count on AT&T’s 170 million customers across mobile, video and broadband operations in the American market, but its executives already said that they will invest $2 billion on its first year alone and do not expect revenues and no profit generation before 2025. Amazon Prime already counts 100 million on its base, but most of it is comprised of subscribers to the e-commerce company’s expedited shipping service who see entertainment as a bonus.

High-churning rates

A big challenge will be retaining customers. Subscription services are easy to cancel and switching a platform of preference can be done with a mouse click or a screen touch. Analysts predict that users will be very price sensitive. Marshall Cohen, a media researcher, told USA Today that consumers are talking about “signing up with a streaming service for certain hit shows, only to plan on churning out after watching them”. This lack of fidelity has the potential of depressing and holding down prices, as different platforms bid for viewership.

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Libraries war

Investment on content shows no sign of abating, and there lies an important advantage point for Big Media – and Netflix. Disney+ sits atop the world’s most valuable entertainment vault, from its classic library of animated films, plus everything from Pixar, Star Wars and most of Marvel catalogues, as well as content from the recently acquired 21st Century Fox. HBO Max will give viewers access to new and old fare from the libraries of Warner Bros, HBO, New Line Cinema, Japan’s Studio Ghibli, TNT, the Cartoon Network and DC Comics

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Both face an uphill battle against Netflix, which, it can be argued, is now a hybrid between the media and tech camps’ constituents. It has 47,000 TV episodes and 4,000 films in its American catalogue, according to Ampere Analysis. Although fewer than 10% of its content is globally licensed – that is to say, available in all countries – it is still an enviable collection. In Latin American largest markets such as Brazil, Mexico and Colombia, Netflix is estimated to offer  around 2,800 films and 14,000 TV episodes, with titles varying in each country. That is much more than the 7,500 episodes and 500 films that Disney+ is offering in its first year, or HBO Max’s announced 10,000 hours of content.

Nevertheless, Disney+ and HBO Max, along with Netflix, are in for the long run, while other Big Media streaming spinoff operations may have to find more niche audiences to endure the competition.

Distribution avenues

Big Tech behavior in the field is harder to predict, though. Its firms may not be the guardians of instantly recognizable content but they do have another equally, if not more, relevant asset: piles of cash to spend. They are showing signs of spending it wisely, installing experienced media and entertainment executives and creative minds to guide them through and invest in high-quality content that is making inroads in awards ceremonies like the Oscars and the Golden Globes

Apple and Amazon also have their avenues for distributing content through hardware or service platforms. And let’s not forget the recent HBO announcement that its parent company AT&T was partnering up with Google, a not-to-be-neglected player, to offer HBO Max through the live-streaming service YouTubeTV. If Big Tech firms get tired of trying to grow on their own and are serious about their entertainment gamble, they could also use their money to snatch a middling or even a large media firm in the future – and create new dilemmas for competition regulators around the world.