Disney+ isn't really the beginning of the streaming wars — the next year is just a warm-up
- It may seem like consumers are being overwhelmed with streaming services and will abandon some of them right away, but the calculation is actually more complicated.
- Many of the new streaming products are free, or free for a year, or come as added benefits to other things many consumers already pay for.
- Disney+ signed up more than 10 million people on its first day of existence this week.
Disney+ is here, ushering in the unofficial kickoff to "The Streaming Wars" -- the slew of monthly subscription services that are flooding the market to win your last incremental entertainment dollar.
But in reality, "war" is a misnomer for what's about to happen in the world of streaming video. Perhaps there will be a day, years from today, when Disney+, Netflix, Hulu, Amazon Prime, AT&T's HBO Max, a hypothetical melded product from CBS and Viacom, Comcast-NBC Universal's Peacock, a service from Discovery Communications, Jeffrey Katzenberg's Quibi, Lionsgate's Starz, Apple TV+ and others all fight for your wallet share, with some surviving and others failing.
In the meantime, the average consumer isn't going to look at a menu of a dozen options and select three or four, thus determining winners and losers. There are too many complicating factors for such a simple calculation. Some services already exist (Netflix, HBO) and will be largely grandfathered in by their existing subscriber bases. Others come with additional benefits (Amazon) that make "losing" extremely unlikely.
Here's a more realistic vision of what's about to happen over the next year.
The idea of a streaming war suggests conflict, or at least some degree of unpredictability. But when it comes to the streamers, Disney+ can't lose, if losing means rejection by most consumers. Disney+ is going to be an essential part of any family's streaming diet.
There's not much guesswork here. Disney is charging just $6.99 per month for nearly its entire back catalog of Star Wars movies and related series, Marvel movies and series, Pixar movies, old Disney movies, 30 seasons of "The Simpsons," Disney Channel shows, 35 original movies and shows in year 1, and much more.
If a streaming service were selling just Marvel and Star Wars series and movies, it would a significant player in the "over-the-top" non-cable world. Disney's offering is simply too robust to fail.
Indeed, Disney signed up more than 10 million subscribers for Disney+ in less than two days!
One way to define success or failure is if Disney hits its own internal subscriber targets. But those numbers are home-cooked, selected by the company to provide achievable benchmarks. Disney estimates it will have 60 million to 90 million subscribers by 2024. Disney has already struck a partnership with Verizon that will give away Disney+ for free to Verizon unlimited data subscribers and new Fios and 5G broadband homes. MoffettNathanson estimates there will be 18 million Disney+ subscribers by the end of Disney's fiscal year 2020.
Amazon will be a "winner" by default. Prime Video comes with Amazon Prime subscriptions, and it's going to make sense for tens of millions of Americans to get free shipping on Amazon. Prime Video, which spends billions each year on original movies and shows including "Fleabag" and "The Marvelous Mrs. Maisel," comes as a throw-in for most consumers. It almost definitionally can't lose, unless Amazon, itself, decides video no longer moves the needle for its Prime subscribers.
NBC is leaning toward offering an advertising-supported version of Peacock for free to everyone, sources told CNBC earlier this month. While there may be tiers of the service that offer more content (and no ads) for a price, NBC has decided that advertising revenue can make up for subscription revenue. As a result, NBC isn't really playing the same game as everyone else, and therefore also can't really lose. A lot of people are going to subscribe to a free service. It's free.
About 34 million U.S. subscribers already pay for HBO. So when AT&T announced last month that HBO Max would be the exact same price as HBO, it can't totally lose -- at least if "lose" means being totally rejected. As soon as it strikes distribution deals, current HBO customers almost certainly will take the additional HBO Max content for free.
The question then becomes if enough new subscribers will come aboard to cover the billions AT&T plans to spend on new content.
As Netflix CEO Reed Hastings said earlier this month, using customer signups as a metric for success is flawed because it's too easy to maneuver. AT&T says it wants 50 million U.S. subscribers by 2025. But AT&T is giving away HBO Max to its premium unlimited wireless subscribers and top-tier home broadband customers. And if AT&T finds that few people are subscribing, it can simply offer HBO Max to more AT&T customers for free to meet targets. AT&T has about 160 million total mobility connections and customers.
Apple is giving its streaming video service away for free for a year before charging $4.99 per month to customers. But Apple can easily change this offer if it notices that few customers are paying for its limited library of originals, either bundling the service with its more popular music streaming service or extending the offer indefinitely as consumers buy new Apple products. Apple hasn't released an internal streaming subscriber goal because the whole point of Apple TV+ isn't to get you to pay for video -- it's to keep you using Apple electronic devices. Like Amazon, Apple will continue to be in the streaming game as long as it wants to be in the streaming game.
So if all these other services will win, or at least comfortably exist, does that mean Netflix will lose? Probably not. Because so many of the services are free or cheap or throw-ins as benefits to products you're already paying for, Netflix isn't in any immediate danger of losing its place as the centerpiece of streaming solutions.
Netflix also outspends everyone, paying $15 billion a year for content, and has more than 160 million global subscribers. T-Mobile wireless subscribers get Netflix for free indefinitely.
First-mover advantage, brand recognition and massive content spend on original programming will almost certainly keep Netflix as an essential part of an average consumer's streaming package.
Eventually, it's possible that millions of subscribers will conclude that a bundle of, say, Disney+ and HBO Max is a good replacement product for Netflix. But while that decision may impact Netflix's marginal growth, it probably won't disrupt the company's global expansion ambitions.
Finally, we reach the contestants in the actual Streaming Wars, at least in the near term -- everyone else. Congratulations, Quibi! I'm not sure you will succeed. Starz and Discovery? Maybe you'll stick, or maybe you'll need to merge with CBS and Viacom to gain the necessary scale to compete. Everyone else I didn't mention? You're here until you prove yourselves.
These are the players Americans could actually refuse to spend money on, driving them out of business with more choice. This is why Hastings noted that a better metric for success may be time spent on a service instead of subscriber numbers.
These streamers are the junior varsity of available products. Of course there will be cut downs at this level.
There are a lot of streaming services. Most are going to stick around for a while. Investors can dial back the Streaming Wars rhetoric.
There's good news for consumers, too: You probably already pay for a lot of these services, and many of the new ones are free for a while. Your entertainment budget isn't going to blow up just yet. Relax.
(Disclosure: Comcast's NBC Universal is the parent company of CNBC.)
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