Making Sense of the Streaming Wars

On Wednesday, November 12th, 2019, Disney released their streaming service Disney+ throughout North America. Within twenty-four hours the service had gained ten million subscribers, greatly surpassing analyst predictions (Barnes, 2020). By Wednesday’s close, Disney’s stock had risen 7.35%, adding $13 billion to its market cap. Meanwhile, Netflix’s shares had dropped 3.1% (Feiner, 2020).

Although Netflix, Amazon, and Hulu had been battling over consumer subscriptions for well over a decade, it was Disney’s impressive launch into the market that truly ignited the “Streaming Wars”, a sensational title used to describe the escalating competition between OTT video streaming services. Flash-forward to Spring of 2020 and the streaming market is now crowded by some of the most valuable companies on the S&P 500 – Apple, Amazon, AT&T, Disney, Comcast, and Netflix – all of whom are pouring billions of dollars into OTT video content and solutions (Spangler, 2020).

The Streaming Wars represent a particularly important moment for legacy media companies, namely Disney, WarnerMedia, and NBC Universal, who for years had struggled to adapt to the “distribution revolution” happening within the film and television industry (Sutter, 2014). The distribution revolution arrived thanks to a new media ecology that had emerged as a result of a “bandwidth explosion, more powerful laptops, personal mobile technologies, and the advent of cloud computing” explains Curtin et al. (2014, p. 27). This ecology was situated around constant connectivity, user interaction, and data collection; and was established well outside the pervasive reach of traditional media conglomerates that for nearly eighty years had relied on oligopolistic industrial structures and business models of vertical integration to exert massive control over every facet of the film and television industry.

CEOs of these companies were now faced with an “unusual reversal for the media industries [where] business models must now be crafted in response to consumer behavior rather than as a means of engineering or controlling that behavior” (Holt, Steirer, & Petruska, 2016, p. 342). The passive film and television consumer of the 20th century had evolved into the networked viewer, an active subject in the processes of production, who expected content to be delivered instantaneously at their choosing, across multiple platforms, and curated to their personal accounts.

In the face of these shifting dynamics, the strategies of major studios and networks often appeared reactionary, rigid, and late to the game (Barnes, 2012). Bogged down by their own bureaucracy, industrial structures, and old school leadership “many powerful firms have stumbled and lost ground on markets they used to dominate” explain Smith and Telang (2016, p. 3).

Meanwhile, the “digital native” streamers – Netflix, Amazon, and Hulu – saw a business opportunity presented by this tumultuous transitionary period to rebuild the film and television company from the ground-up. Cunningham (2013) refers to Netflix, Amazon, and Hulu as the “disruptive innovators” in reference to their transformative impact on existing industry practices and power structures (Cunningham 2013, as cited by Crisp, 2015, p. 60).

These companies significantly altered film and television practices in ways that now define the foundational elements of the Streaming Wars. Some of these important changes include the following:

• 1) an innovative direct-to- consumer distribution model that operates over the Internet, free from the control and structures of wired cable networks and major film studios (hence the name “over-the-top”)

• 2) the use of Big Data and algorithmic technology for both green lighting and curating content

• 3) less restrictive approaches to developing content, and therefore greater levels of freedom for writers and creators (they had bypassed the constraints of broadcast advertising breaks, as well as standardized season lengths and program runtimes)

• 4) new release strategies, and in turn, novel forms of consumption (e.g. binge-watching); and even new cultural practices from multi- screening to Netflix and chilling.

After years of hesitancy, as well as several cursory attempts at entering the streaming market (e.g. Disney Anywhere, Ultraviolet, and Comcast’s Xfinity), Disney, WarnerMedia, and NBCUniversal have finally embraced the “distribution revolution” head-on. They have, in part, abandoned the struggle to protect their traditional business models and are now betting large on the success of their own streaming services. Disney spent $71 billion dollars acquiring 21st Century Fox, which was in large part a decision made to eliminate streaming competition and build-up Disney +’s content library (Jarvey, 2019). AT&T has devoted $4 billion dollars to developing HBO Max over the next three years (Bursztynsky, 2020), and Comcast vows to spend $2 billion dollars on NBCUniversal’s Peacock within its first two years of operation (Spangler, 2020).

Just as Hollywood had been ruled by the ‘Big Five’ film studios for nearly a century, five major players have also begun to emerge during the early stages of the Streaming Wars, whom I will be referring to as the Big Five Streamers: Netflix, Amazon Prime, Disney+, Hulu (which is owned by Disney), and HBO Max.1 Battling for a sixth position is Apple TV+, Peacock, CBS All Access (owned by CBSViacom) and to a lesser extent Jeffrey Katzenberg’s experimental mobile-only streamer Quibi.

As for the other major studio conglomerates – ViacomCBS, Sony Pictures, and Lionsgate – they will be taking what Littleton and Low (2019) called the “arms-dealer approach” to the Streaming Wars: “This evolution has bifurcated the largest studio conglomerates into two types of companies: those marshaling content armies (Disney, AT&T and Comcast) and those who aim to be content arms dealers (ViacomCBS, Sony Pictures, Lionsgate).” Rather than developing their own OTT services, these companies will primarily rely on licensing their own content to the highest bidding streamer, which includes their extensive film and television archives (Littleton & Low, 2019).

However, it is important to note that CBSViacom has taken a multi-tiered approach, licensing content to other streamers, while still offering their own OTT streaming services: CBS All Access and Pluto TV. Key to their strategy is reintroducing traditional advertising revenues into the streaming space, a tactic also being adopted by NBCUniversal with Peacock (Little & Low, 2019).

In addition to these major corporations, there has also been a proliferation of niche streaming services. In October of 2019, research firm Parks Associates announced that there were 271 streaming services available in the United States (Barnes, 2019). Some popular examples include, the Criterion Channel targeted at film buffs, Shudder for horror lovers, and Crunchy Roll for fans of anime.

Adding to the incessant fragmentation of the industry, there is a parallel battle being waged between streamers offering live television specifically. These include Youtube TV, Hulu Live, DirectTV, Sling, Philo and again, Peacock, CBS All Access and Pluto TV. All of these services abide by traditional broadcast schedules offering bundles of top cable channels, with some even offering local channels based on user geolocation. These services are quite literally transferring the cable viewing experience to the Internet, though they provide typically sleeker and more intuitive interfaces, as well as additional functions such as DVR.

This has given way to the ‘cord cutting’ phenomena, where customers are increasingly abandoning their subscriptions to traditional cable and satellite packages, and opting for cheaper OTT options. According to research by Deloitte (2020), 80% of all U.S. consumer households subscribe to at least one OTT streaming service, up 7% from their pre-COVID survey. And in 2019, all U.S. cable providers saw a massive drop in subscribers, losing a combined six million customers over the course of the year, a 7% year-over-year decline (Spangler, 2020b).

Further complicating matters, many of the aforementioned services follow different monetization models, with the most common being subscription video on demand (SVOD), ad- supported video on demand (AVOD), and transactional video on demand (TVOD). Several services even combine these models. For example, Peacock offers three price tiers: a free ad- supported version with limited content; a $4.99 US subscription with all available content and advertising; and a $9.99 US premium subscription with all content and no advertising. Similarly, while YouTube is first and foremost a free AVOD service for watching online video, the company also offers a pay subscription version of the service for premium content (YouTube Premium), a built-in TVOD service that offers thousands of film and television titles for one- time purchase or rent, and a separate live streaming TV service (Youtube TV). Strangely, YouTube has received far less media attention in regards to the Streaming Wars narrative, despite the fact that people are consuming a staggering 1 billion hours of content through the service every day (Youtube, 2017).

In addition, several of the new streaming services can be purchased in bundles, if offered by the same parent company. For example, Disney offers multiple bundling options for Disney+, with its most popular option being the “Disney Bundle” which includes Disney+, Hulu, and ESPN+. Meanwhile, AT&T, Comcast, and CBSViacom are giving away their respective streaming services – or at least certain tiers of them – for free to customers already subscribed to their various video, internet, and mobile plans; Verizon does the same for Disney+ (Bursztynsky, 2020; Hayes, 2020; Kidwell, 2020).

Therefore, a crucial macro-level trend to consider is the ways these companies are using streaming services as tools to entice consumers to buy into larger media ecosystems. Matthew Ball (2020), industry analyst and former Global Head of Strategy for Amazon Studios, argues that the Streaming Wars are a by-product of a broader “ecosystem war” being fought between the largest technology and media companies in the world.

Due to this, streaming services and the content they offer are becoming increasingly entangled in a much more complex and opaque valuation process. This is particularly notable in the case of Amazon and Apple, two non-traditional media companies that have entered the streaming market in full-force. Amazon, an e- retailer and cloud service provider, positions its video streaming service, Amazon Prime Video as being “free” with a subscription to Amazon Prime. So, despite the company spending an estimated $5 billion dollars a year on content for Prime Video (Ball, 2020), the service is ultimately only one feature within the Amazon ecosystem, where it operates synergistically to funnel consumers into the broader e-retailer experience; paying for a sustained membership to Amazon Prime year after year becomes significantly more reasonable for consumers if they are expecting new seasons of their favourite show to be released annually on Prime Video. CEO of Amazon, Jeff Bezos, has been incredibly vocal about the synergistic approach to developing Prime Video, saying:

“When we win a Golden Globe, it helps us sell more shoes. And it does that in a very direct way. Because if you look at Prime members, they buy more on Amazon than non- Prime members, and one of the reasons they do that is once they pay their annual fee, they're looking around to see, 'How can I get more value out of the program?' And so they look across more categories — they shop more.”

This also explains why Apple is offering Apple TV+ at the aggressively low price point of $4.99 US a month, in addition to giving away the service for free for a year to millions of Apple customers who have purchased an apple device, computer, or even student subscription to Apple Music (Alexander, 2020). According to Ball (2019) Apple TV+, just like Apple Music, will operate as a structurally unprofitable service that intentionally looks to generate revenues elsewhere in the Apple ecosystem. Just as Prime Video helps Bezos sell shoes, Apple TV+ should, in theory, lead to greater sales of iPhones. Because of this, the idea that the Streaming Wars are being fought just for total subscriber numbers, or even max profits, is a common misconception. Really, as Ball argues, these companies are battling to monopolize consumer spend, data, and more abstractly, free time (the more time spent on one service means the more time spent within one company’s ecosystem versus their competitors).

This explains what can appear to be trivial differences between these services business models, which in reality reflect their varying goals, as Ball (2019) explains:

Some of them charge, some don’t; some will generate direct profits, some won’t; some aspire to maximize view time, others just want a part of it. However, they all share a common business strategy: they’re not focused on the video TAM (“total addressable market” value). Instead, they’re being used to access other, more lucrative ones. Sometimes these TAMs are based around high-margin consumer devices, other times it’s trillions of dollars in retail spend, hundreds of billions in wireless service revenue, or terabytes of consumer data. (Ball, 2019)

Ultimately, while OTT streaming services have revolutionized distribution, it has become clear that they are far more than just distributors. More appropriately they should be conceived of as platforms that exist and operate at the intersection of a myriad of industrial, economic, cultural, social, technological, and political developments. Here, I borrow Van Dijck and Poell’s (2016) definition of platforms as “online sites that facilitate and organize data streams, economic interactions, and social exchanges between users” (p. 2).

As platforms, services like Netflix, Hulu, Disney+ and HBO Max, are the ultimate products of convergence. They are at one time distributors, as well producers of content, entertainment providers, as well data miners; they combine various technologies and forms of media, as well blend numerous industries under one company name (Buck & Plothe, 2019). Furthermore, many of these services now operate within much larger consumer ecosystems where their value is often widely dispersed, and therefore difficult to measure from a third-party perspective. As a result, the cultural practices associated with film and television are also becoming increasingly complex and networked.

These are the new dynamics defining the Streaming Wars, which itself signifies a new era in film and television history. And while there are many elements to dissect in regards to the emerging OTT film and television landscape, a good place to start is by first considering the technologies it has been built upon, as the complexity of the Streaming Wars only mirrors that of the algorithmic technologies defining its parameters – check out the rest of my Masters Research Paper where I do just that.