- As consumer cord-cutting continues nationwide, premium streaming platforms with a targeted lineup of movies and shows are racing to draw subscribers.
- Starz says its internet-based subscribers surpassed traditional cable subscribers for the first time and it is betting unique content will help it stand out against all-in-one content libraries like Netflix.
- The new year brings Paramount+ and Discovery+ to a crowded streaming video market.
As the global streaming war heats up, premium internet video subscription services that offer narrow content libraries are positioning their businesses as a complement to all-in-one platforms.
Services like Lions Gate Entertainment's Starz, Viacom's Showtime and MGM's EPIX are banking on add-on content that caters to targeted demographics, including underserved minorities and niche audiences, to help them survive against the massive content libraries and continued content spending of streaming media giants like Disney and Netflix.
Their bet is that the premium cable channel is still a winning strategy, it is just continuing its transition from the cable box to the over-the-top internet connection, and they say it is working.
"We believe that we are set up to be — just like we are in the traditional business today — sold on top of all those tier one services and it makes us a very important component to the future of the ecosystem," said Starz CEO Jeffrey Hirsch in a recent interview with CNBC's "Squawk Alley."
In the most recent quarter, the Lions Gate subsidiary showed 24% over-the-top subscriber growth while traditional subscriptions were flat and Hirsch said that OTT subscribers surpassed traditional for the first time, a trend that accelerated during the pandemic but he said won't reverse even as the world moves past the worst of Covid-19.
"This past quarter was an inflection point," he said.
Starz isn't the only long-time cable service hedging its bets with a streaming service that accompanies all-in-one platforms like Netflix. Discovery is banking on its non-scripted and reality TV shows which includes a line-up of more than 2,500 shows from brands like Food Network, TLC and HGTV.
"We're a great companion to Disney and Netflix," said Discovery CEO David Zaslav in a December interview with CNBC's "Squawk Alley. "If you have Disney or Netflix, you have two great products, but we're completely different and we go really well with them."
Zaslav said he is banking on the company's non-fiction content, which includes popular shows like "90 Day Fiance" to appeal to consumers that have "seen everything" during the pandemic.
This spring, several former Disney and Discovery executives plan to launch a subscription service platform called Struum. Using a model similar to Classpass — which offers fitness class access through a credit-based system — users can explore content across several streaming platform.
Risks for any new streaming model are high. Some niche streaming services have struggled to survive as an add-on in a saturated market. Quibi, the high-profile streaming service backed by entertainment and tech heavyweights that aired short-form videos, shutdown roughly six months after it launched in 2020.
In an October interview with CNBC, Quibi founder Jeffrey Katzenberg cited the pandemic as one of the factors contributing to the platform's failure. The company banked on the app's appeal to younger consumers looking for quick content while on-the-go, a routine curtailed by nationwide lockdowns.
"Somewhere between the idea being less than perfect, which we own, and the environment we found ourselves in is where the fail has come. What each of those are in that equation, I'm not sure any of us are ever going to know. But it didn't work," Katzenberg said.
This month Roku announced that it acquired Quibi's content, including several previously unaired programs; it will offer the content for free with ads to Roku users. Buoyed by pandemic shut-ins, the television streaming service that allows users to access platforms like Netflix added 14 million accounts in 2020 and saw a 55% increase in streaming hours in the fourth quarter.
There is space for premium services like Starz and Showtime, which already have content libraries, says Needham analyst Laura Martin.
Many of these platforms, which came to the forefront during the cable boon, originated as pricey add-on channels to premium packages.
"You know there's demand or they wouldn't have survived as part of the big bundle," she said.
The future premium streaming market will likely include a range of one or two million subscriber services appealing to niche viewers, Martin said. Consumers may also subscribe to several premium platforms periodically, although these offerings are unlikely to overtake streaming services like Disney+ or Netflix, she said.
The pandemic has allowed streaming giants Netflix and Disney to boost their subscriber bases on an accelerated timeline.
Disney Plus expects to reach between 230 million and 260 million subscribers by 2024, up from an early forecast of 60 million to 90 million when it launched in 2019. Netflix announced in its Tuesday earnings that its quarterly subscribers came in roughly two million above estimates and in a sign of its maturation as a business, Netflix said it will stop needing to finance content production through new debt and expects to soon be cash flow positive.
Some experts say a big challenge for the premium services is that all-in one streaming giants are already catering to multiple demographics and that will keep them on top as more consumers cord-cut.
"The consumer's not going to want to buy from a broad number of subscription services," said Liberty Media Chairman John Malone in a November interview with CNBC. "They're going to tend to want to go to one convenient supplier."
The streaming services also vary in pricing. A Starz subscription and Netflix's basic plan both cost $8.99 a month, while the base Discovery plan with ads sells for $4.99. By March, Disney+ plans to hike prices on its service to a monthly fee of $7.99 or yearly $79.99.
HBO Max, which combines the premium content of HBO and Warner Bros. broader movie and television libraries for roughly $15 a month, recently made waves when it announced that all 2021 theatrical releases would hit streaming at the same time as theaters, a move that experts say could potentially "destabilize the exhibition business" although HBO will boost subscribers as a result, said Andrew Wallenstein, president and chief media analyst at Variety Intelligence Platform, in a recent interview with CNBC's "The Exchange."
AT&T, which acquired HBO in 2018, has long hinted at building their own streaming giant rivaling Netflix and Disney+. As of December, HBO Max had roughly 12.6 million subscribers, a fraction of the 73.7 million subscribers Disney+ reached late last year.
Since the 2018 buyout, AT&T CEO John Stankey has restructured the company and redirected focus toward the streaming platform; he's long sought to add content to HBO Max with the hopes of reaching 50 million subscribers by 2025. In 2019, the company announced it would spend $4 billion on the platform over a three-year period, with expected revenue from subscriptions, ads and content to top $5 billion by 2025.
Zaslav told CNBC that a handful of services concentrated on movies and scripted series will accumulate enough sales to survive in the future, and ultimately merge or partner to persevere. He thinks the winners of the streaming war will likely be determined within the next two years.
The next 18 months will see the most competition between the "basic streamers" according to Starz' Hirsch. "That's where the battle is going to start," he said.
Hirsch said being a non-ad-supported platform with a focus on adult drama and "content people are willing to pay for" positions Starz apart from that broad-based streamer war. "The battle is to be the first choice," he said.
Small premium service providers like Starz, though, face frustrated shareholders of the platform's parent-company Lions Gate — which is now roughly one-third the value it was in 2018, though it has rebounded since the pandemic low last March — in a market dominated by media titans like Netflix with a market capitalization that swelled to $260 billion after its blowout earnings this week.
In its fourth quarter earnings released Tuesday, Netflix reportedly added 36.57 million subscribers last year, topping 200 million globally. The streaming platform is also planning a slew of new programming, with plans to release one movie every week in 2021.
At its investor day in late 2020, Disney executives said 100 new projects were underway and 80% would go straight to Disney+. Apple, the most profitable company in the market, is planning to spend billions annually to build its content library.
Servicing underserved communities, like female audiences and minority groups, is one way that premium platforms are carving out a place in the streaming world. Female audiences accounted for 59% of 2020 linear series audience and 70% of app subscribers at Starz.
In a July 2020 interview with CNBC, Hirsch defended the company's business strategy, citing its strength attracting underserved demographics including African-American communities and women.
"Nobody has been able to replicate what we've done to date with that audience," Hirsch said. "We see ourselves as a very valuable add-on to all of those broad-based services."
Other streaming services are also curating demographic-focused content. HBO has long pioneered female-focused series like "Sex and the City" and "Girls," while Fox debuted a streaming service geared toward African-American viewers last year.
Univision also plans to launch a free Spanish-language streaming service later this year that will cater to Hispanic audiences, while Netflix has tapped mega-producer Shonda Rhimes, widely known for female-focused shows like "Grey's Anatomy" and "Scandal", to produce original series for the platform.
Last month, Netflix released her first project for the platform, a regency-era romance series called "Bridgerton" that is projected to reach 63 million households within its first four weeks of streaming.
Correction: This article has been updated to reflect that Andrew Wallenstein is president and chief media analyst at Variety Intelligence Platform. An earlier version misstated the company name.