Cord-cutting was already a trend; the coronavirus pandemic gave it new legs
Netflix is still king, but competitors are making big plans to dethrone it
A warning to investors: COVID-19 fatigue and binge-watching are now creating “subscription fatigue”
Binge-watching TV has never had such a moment.
The coronavirus pandemic has done much—and continues—to alter the lives and lifestyles of folks around the globe stuck at home for weeks and months at a time with untold hours of free time.
It’s been a boon for streaming services and nearly all the publicly owned companies behind them. Cable cord-cutters are on a fast clip that began before the COVID-19 outbreak in the United States, have picked up considerable speed since, and don’t look to be substantially slowing down any time soon.
And no wonder. The choices of new movies, new series, remakes of old movies, and fresh episodes of old series seem endless, if not mind-boggling, for those who’ve found themselves spending an inordinate amount of time in front of wide screens.
When the year began, the streaming wars was just beginning to move beyond the innovators Netflix (NFLX); Hulu, owned by Disney (DIS); and Amazon (AMZN) Prime Video. Disney+ (DIS); Apple+ (AAPL); Peacock, part of the Comcast (CMCSA) family; and AT&T’s (T) HBO Max were all prepping for and taking their first steps into grand entrances.
No one knew then that the grand entrance would be on par with a red-carpet event in which royalty would still hold sway, though Cinderella would snatch many an eyeball. Overall streaming video membership soared, with a Deloitte study reporting the average cord-cutting household had four separate streaming service subscriptions.
Put that into perspective: A Netflix subscriber may have already been an Amazon Prime member who added Disney+ for the kids and Apple+ for its original programming. And that doesn’t include the gaming, music, or audio books that many consumers also have at their fingertips.
Deloitte cautioned in its study that the field may be getting too crowded: “There is growing frustration in trying to navigate the flood of streaming choices, all while trying to manage costs.”
The King Lives On
Netflix is still king. With analysts expecting it to reach the 200 million mark of subscribers before the year’s out, it could hold the throne for some time even as its market share begins to erode with all the new entrants to the game.
NFLX turned in mind-blowing new subscriber numbers in the first and second quarters at 16 million and 10.1 million, respectively. But it warned all along that the steep growth was unsustainable and likely tied only to the surge in bored stay-at-home crowds.
The third quarter proved them right when many potential new members were choosing to spend their summer nights outdoors as it (wrongly) appeared the coronavirus was slowing down: Only 2.2 million joined the NFLX subscriber gang then.
Still, its lineup of new shows and the success of Netflix Originals such as “The Queen’s Gambit” and “The Umbrella Academy,” action movies Extraction and The Old Guard—and who could forget “Tiger King”?—should keep many a member tuned in. And let’s not forget Prince Harry and Meghan Markle have inked a multi-year contract with NFLX to produce a wide range of content that CEO Reed Hastings expects will be “some of the most exciting, most viewed content next year.”
“It’s gonna be epic entertainment,” Hastings said on CNBC when it was announced in September.
Hulu, only available in the United States, gained new members too, growing to 36.6 million subscribers as of the end of August. But it looks like Hulu might take the Macaulay Culkin role in Home Alone, getting forgotten in the flurry and attention of the Disney+ rollout. More on that later.
Amazon Prime has added 14 million new users this year, according to Consumer Intelligence Research Partners. That puts its total at 126 million U.S. members who not only get Amazon Prime video and music services but also free delivery on most Amazon and Whole Foods purchases.
Amazon Prime Video is also playing it up big in the original programs category, with such hits as Judy, Rocketman, and Borat, not to mention old-time fan favorites like To Russia with Love and It’s a Wonderful Life.
And it’s got some tricks up its sleeve, such as this week’s kick-off of the weeklong NFL Holiday Blitz. Calling it “the gift of football,” Amazon Prime members will get exclusive behind-the-scenes programming and the games themselves, although they also will be offered on NFL, Fox, and NBC properties that typically air them.
A Cinderella Story
Yes, of course, that’s Disney+ and its rapid membership growth during a pandemic that had many parents plopping their children in front of their new babysitter, the wide screen. Disney+ membership stood at a jaw-dropping 86.8 million subscribers, the company announced December 10, just over a year after it launched.
For illustrative purposes only.
Given that pace, DIS now boldly sees Disney+ putting Netflix to the test by forecasting its membership could swell to 230–260 million by 2024. That represents a near-threefold growth, well above its initial three-year forecast that it’s already surpassed and a pleasant surprise to its C-Suite, not to mention its shareholders. But is it doable?
DIS plans to release 100 titles—both familiar and new—in 2021 and onward as it puts its focus on streaming-only productions rather than what used to be its bread and butter in theaters. At the December investor conferences, DIS said it will draw on popular franchises such as Star Wars and Marvel Studios while also producing shows and movies “much more robust than we originally anticipated,” said Robert Iger, DIS executive chairman, in The Wall Street Journal.
DIS is also relying on the titles it believes still have legs, such as Beauty and the Beast and Night at the Museum with sequels, prequels, and spinoffs, according to the Journal.
Like Kevin in Home Alone, Hulu’s getting some attention with original content that includes a new show with the Kardashian-Jenner clan once “Keeping Up with the Kardashians” ends its 20-season run on E!. But will it be enough to keep the service viable?
Despite all the hoopla, it’s important to remember DIS is so much more than Disney+, and the COVID-19 pandemic has inflicted a lot of pain on the company’s theme parks, retail stores and product sales, and movies. Any investment in the company because of its overwhelming early success in Disney+ during a pandemic should be carefully examined as merely a piece of the bigger puzzle.
The Other Players
Apple+, Peacock, and HBO Max are all eating into market share and the subscription fatigue that Deloitte’s charting. Their platforms differ substantially, but they’re still players looking to make headway in the game.
Peacock’s got a massive library with more than 20,000 hours of shows in its catalog, thanks to the likes of “Saved by the Bell” (and its reboot), “Parks and Recreation,” and “30 Rock.” But its catalog is tiered, with some stuff free, some for a nominal monthly charge but with ads, and another at double the cost but ad-free.
It’s highly likely those membership tiers will change once Peacock starts rolling out original programming that’s far more costly to air than rerunning clips or curating shows. But until then, free trials have helped fuel 22 million new accounts through the end of September.
Apple+ is a different ballgame with a limited library but has offered free one-year subscriptions to Apple product users. What makes it different is that the service is housed on the Apple TV app, which has a boatload of other video subscriptions and an ability to rent or purchase movies and shows.
Apple+ debuted with original programming that included “The Morning Show” and has added shows such as “Defending Jacob” and “Ted Lasso” that’ve garnered critical approval.
HBO Max is the latest entry to the scuffle, and it might be too soon to take sides on how well it might do. The decision to stream all Warner Bros. new movies the same day they hit theaters means they’ll be in your home a lot sooner than ever before.
The first release comes Christmas Day with Wonder Woman 1984 and the results are highly anticipated. What does this mean for the future of streaming, not to mention the lifeline of movie theaters?
Rich Greenfield, a media analyst at LightShed Partners, might’ve said it best in a recent CNET article: “We’re going to have a new normal. The question is, what flavor of new normal? It is 100% certain that the movie business of 2019 is never coming back.”
In early January, Discovery (DISCA) channel will jump into the streaming wars fray with its own direct-to-customer service aptly named Discovery+. Its CEO boldly touted it as a soon-to-be force to be reckoned with along the lines of Netflix and Disney+. In a presentation to investors in early December, CEO David Zaslav claimed “superfans” of cooking, home improvement, and history will soar into the 470 million zone that no other streaming service is even near reaching.
Discovery+ will tap more than 55,000 episodes across 2,500-plus shows that have been seen on sister channels, including HGTV, the Food Network, the DIY Network, and the Oprah Winfrey Network. Titles include “Shark Week,” “Storm Chasers,” “The Property Brothers,” “Dr. Pimple Popper,” “Guy Fieri’s Feeding Frenzy,” and “Dr. Phil,” among a host of others plus some new ones.
The stock market has rocketed this year, mostly since hitting 52-week bottoms in March. The recovery of the markets overall has set new highs, so it might not be surprising that many of the publicly held companies behind streaming video services have logged some impressive numbers. Here’s the rundown since March lows:
- NFLX – up slightly over 80%AMZN – higher by nearly 93%DIS – adding close to 111% in valueAAPL – jumping nearly 137%CMCSA – advancing by nearly 62%T – edging up 7%DISCA – tacking on nearly 63%
Source: TD Ameritrade, as of December 31, 2020.
But What About That “Subscription Fatigue”?
By Deloitte’s reckoning, as more media players join the streaming wars scrimmages, subscription fatigue will run deep—and when vaccines stem the pandemic that fueled the battleground, so too will this clash.
Already four-fifths of U.S. consumers have streaming subscriptions, with Gen Z at 94%, and Millennials and Gen X at 88% each, leading the pack.
“With cheap trials and easy cancellations, consumers can binge-watch their favorite shows, drop the subscription, and then return when the next season launches,” explained Jeff Loucks, a Deloitte executive director, in the report. “Since the COVID-19 pandemic began, streaming services have attracted more subscribers than ever. The biggest challenge for providers will likely be to retain customers once their series is over and the full price kicks in.”
At the same time, the average streamer pays for more services than ever, according to the report. “However, as more media providers join the fray, competition is growing and putting pressure on content and pricing. Additionally, when COVID-19 restrictions are lifted, consumers may reduce their subscriptions as they turn their time and attention to other activities.”
What to Do, What to Do
The COVID-19 pandemic has had a dramatic effect on the viewing habits of nearly everyone with a TV or movie screen in their home. The streaming wars revolution might’ve been just starting ahead of the pandemic, but like so many other aspects of our lives, the coronavirus has put the pedal to the metal and fast-tracked many trends—and streaming was among them.
But as subscribers and investors alike—and many of them could be one and the same—should know, it’s always good to slow the enthusiasm down to read the fine print. Subscribers should be fully aware of which and how many services they have because they can add up fast without warning. As an investor looking to add streaming platforms to their portfolio, consider what best suits your goals, objectives, and risk tolerance, not what’s being touted as the latest “must-have.”
And remember to look beyond the streaming platform. Many of these streamers’ parent companies are giant amalgamations. Disney+ is one segment of a media and theme park empire. Amazon Prime Video is dwarfed by AMZN’s e-commerce and cloud services divisions. And then there’s AT&T’s legacy telecommunications business that has had its ups and downs.
Even the platforms themselves aren’t fungible. Their ecosystems are typically more apples and oranges—or in this case, popcorn and candy.