Winter Is Coming For Streaming Media

Whatever GAME OF THRONES line you want to use, the bursting of the streaming bubble is going be uglier than the end of that show.

I’ve frequently talked about the transition to digital in these columns. A phrase I’ve used in the past has been “We didn’t know what the world would look like when we transitioned to digital and now, we do. It's all streaming all the time.” The transition wasn’t just from analog to digital but from transactional to subscription. It makes sense. It happened in music first, so it's logical that the media of movies would transition as well.

As in the music industry, and as I’ve cautioned in this space a lot, moving from transactional where every piece of content has a specific cost to it, to subscription, where the all-you-can-eat platform is the only part that has a specific cost connected to it, just de-values the content. Pandora’s Box is already open and we’re not going to be able to go back from subscription. It's here to stay. So, what’s next?

At this point, most BMD readers are fluent with the different streaming services out there and I have already started to hear growing worries in the comment sections and on social media about the number of services already out there and the new ones coming. I think these worries are valid. There are just going to be too many options and not enough dollars to go around.

At this point, it's prudent to talk about Pay TV and its history. I am not going to go back to HBO and the 1970s but more the late '90s when cable was at its peak and Pay TV was a huge part of what made cable attractive. Pay TV differentiated itself from linear or “Free TV” as instead of using advertising as revenue, it used subscription dollars. This allowed Pay TV companies the freedom to focus almost exclusively on the content their members wanted to see and didn’t have to factor in the varying needs of multiple advertisers. This model would later lead into Netflix and Starz licensing content (that Starz had licensed from Sony and Disney) to Netflix’s emerging streaming platform. I wrote about this moment in time under the alias Fawn Lebowitz here.

During this heyday, the Pay TV world was largely owned by HBO (and their subsidiary Cinemax), Starz and Showtime. These three companies were focused on both adding new subscribers and retaining the ones they had by licensing box office films from the major studios. HBO was owned by Warner so they would license their content along with Universal and Fox. Starz was in bed with Sony and Disney and Showtime had Paramount (most of the time). and several smaller distributors including The Weinstein Company. They would negotiate the Pay TV rights based on the domestic box office of a given film. They would agree on these terms for ten years, go out to a big steak dinner to celebrate and all that was left was film delivery.

It’s also important to note that Pay TV companies had great success with producing original content. With only their subscribers in mind, they could afford to show edgier content that was too extreme for Free TV and its dependence on advertisers. Original content was able to co-exist with studio content and third-party content that was licensed title by title. Most importantly for our discussion here, multiple studios operated under one channel even if that channel was owned by their archrival (as HBO is owned by Warner).

Let’s jump back to the present. Netflix has been streaming content for over a decade. Hulu has been streaming since 2010 and Amazon Prime since 2012. These three streamers have the largest subscription base with Netflix having more than 150 million worldwide (they believe their ceiling is one billion). HBO has HBO Go and HBO Now with a decent subscription base thanks to Game of Thrones and their other original programming. Lionsgate owns Starz, and the Starz streaming platform has grown slowly but steadily for the last few years. MGM recently bought its partners out so they could own EPIX themselves which has largely focused on licensing their content and not building their own base. Paramount has Showtime and it’s gotten a little penetration with their app. Viacom has seen the future and got into the fray with CBS All Access to exploit the big IPs they own like Star Trek and The Twilight Zone. There are several smaller services that are spending dollars on content that is very friendly to the BMD readers – companies like Mubi and Shudder and Criterion’s streaming platform. Smaller distributors that may be familiar to the BMD crowd like Magnolia and IFC have their own platforms as well. Finally, Google has struggled with building a subscription base with YouTube, but they have tons of cash to spend and while they have a small base right now, it's reasonable to assume they will come back in the near future with more exclusive content.

What has people nervous are the impending additions to this streaming universe. Disney is rolling out Disney+ shortly with the biggest brands in the movie business – Marvel and Star Wars – ready to go with both original content and familiar movies and TV shows. AT&T/Warner is going to expand their HBO brand into HBO Max. Comcast/Universal hasn’t made a big PR push like Disney and Warner, but they will be rolling out their platform spring 2020. Apple, having flirted with getting into owning and making their own content for a decade now, is finally in with both feet with a platform called Apple TV Plus. Sony, who I continue to believe is the next major to be sold, is - perhaps wisely - not investing resources in this brave new world – yet.

And it’s important to note here, this is all a U.S. perspective. If we were talking about another region of the world, this would be a much more complicated conversation. We eventually will be a global streaming world...but not yet.

It's exhausting, isn’t it? And that’s the problem. It’s coming to the end of 2019 and the options out there are already overwhelming. I want to take that energy and apply some logic to this. Cutting cable is more and more popular. In 2019, streaming video worldwide has more subscriptions than cable does. But cable still rakes in a lot of money, namely $118 billion dollars in 2018, and 80% of Americans still watch cable in one way or another compared to the 70% of Americans that watch streaming services.

The average cable bill in 2010 was $71.24 and that’s risen to $107 a month per this late 2018 study. Let’s go with that $107 number to look at the present and future subscription landscape and establish a few assumptions. To reiterate, this is not what one individual would do, it’s a best guess as to what most people will do:

  • Most people will cut cable to have more freedom over their content and pay less than their cable bill.

  • Most people will pay for Netflix's most popular pricing tier ($12.99) and when given the option for ads or a more expensive ad-free platform, they will go with the cheaper option.

  • Most people will keep the four currently popular current services (Amazon, HBO/AT&T, Hulu, Netflix) and add Disney +. Let’s call this grouping TIER A.

  • Most people will have a few more streaming services outside the five we put in Tier A. It's logical to think the next most popular platforms will be the ones with large libraries, big IP, recent box office titles and popular original programming. Let’s call this grouping TIER B and it will be made up of studio backed platforms (Apple, Comcast, MGM, Paramount, Lionsgate). Finally, let’s assume most folks will have four of these.

  • Most people will have a few more that are closest to their tastes. Let’s call this grouping TIER C and it will be made up of platforms like Criterion, Shudder, Mubi and CBS All Access. Let’s assume folks will have three of these.

How does all this add up? Tier A will cost you $53.95. If your average cable bill is $107 you have $53.05 left.

Tier B will cost you $32.76. You have $20.29 left.

Tier C will cost you $21.97. You have $5.64 left

Now keep in mind this is just what’s available now and at the current pricing. It's very likely there will be additional services with popular content in the future. Meanwhile, the Netflixes/Amazons/Disneys of the world are going to keep raising their pricing. Additionally, I want to throw out there that most folks want to spend less than the average cable bill. The situation we're looking at in the first half of next year is already untenable! Like I said in the beginning, there are too many options and not enough dollars to go around. I’m worried that a few of these newer platforms are going to fail right out of the gate and a lot of the smaller ones are going to struggle not just with streaming, but overall as the market for their transactional revenue dries up as consumers shift to a subscription mindset. I am also concerned about HBO as their high price point might be too high (almost three times Disney!) but they are stuck there because they charge that price for HBO NOW and they can’t go lower than what they’ve already established.

So, what do we do? I have some ideas:

  1. Paramount, MGM, Lionsgate and Sony merge or at least, merge streaming platforms. This would combine Epix, Showtime, Starz, and CBS All Access under one roof. Separate, they cannot compete with Disney, Comcast/Universal and AT&T Warner and their massive IPs. We’re getting more and more top heavy in the box office and they need to be aware that their “singles”, “doubles” and “triples” aren’t enough to compete with the franchises like Star Wars or Marvel or Fast and Furious. Maybe Paramount can make it. Viacom has some deep pockets and plenty of cash on hand. So why not just buy MGM, Sony and Lionsgate? This harkens back historically to the days when multiple companies would have their content under one Pay TV platform.

  2. All the “Arthouse” distributors, from A24 to Zeitgeist, need to band together under a well-known indie banner and create one platform. Sundance would be ideal but as a non-profit, there are some hoops to jump through under that name. I would suggest Z-Channel out of some nostalgic idealism, but if Sundance can’t work, I’d do it under IFC. This would literally be hundreds of companies but a combination like this would create a serious library of content that create a destination for the millions of folks who crave alternative content.

  3. Everyone else considering a streaming platform? Don’t yet. Focus on AVOD (Ad-based video on demand) which is free for consumers to engage with as it's getting its revenue from advertisers based on who watches what. Amazon has this model and it’s called Prime Video Direct. You get your content up on Amazon Prime and it's profitable for select content. This is more challenging for a more sustainable model, but smarter smaller distributors are already buying up content and other AVOD platforms to accumulate a critical mass of content that will garner enough eyeballs.

My goal for writing this, like most of the words I get the privilege to write on this website, was to share my perspective on current industry trends. It may come across negative and that’s because even though there are some great movies being made (in my opinion, 2019 is another banner year), the industry is no longer at a crossroads. Where we’re heading is going to be challenging for everyone – both for creators and for distributors – to be successful. I do present options on what I think are good ideas on this current path, but I also acknowledge that they are unlikely. So, I leave you with this. You’ll have a lot of choices in this brave new world, but your time and your dollars are very valuable. It may seem like they have little consequence, but they have great consequence. Please subscribe to multiple indie streaming platforms. Encourage others to do so. That will make the most difference in reinforcing a future where all films and all companies can have a path forward to success. Thank you for reading.