How will Netflix compete as the streaming wars heat up?
The clock is ticking for Netflix. This year, 2019, will be the year the streaming wars heat up. In fact, both Disney and WarnerMedia will be launching their own respective streaming services this year. And on top of that, there’s Amazon Prime Video, Comcast is apparently interested in launching a streaming service, Fox News launched “Fox Nation” last year to accompany Fox News, and we can’t forget that even Apple is getting into the streaming business with its own content. All of this puts a lot of pressure on Netflix, but should the company be worried?
New entrants: Disney and WarnerMedia
Disney’s streaming service, Disney+, will feature content from its own vast library, as well as from popular brands including Pixar, Marvel, Star Wars, and National Geographic. Thousands of ABC network television show episodes will be available as well. Plus, Hulu, which will soon be 60 percent owned by Disney, also features in the entertainment giant’s plans. CEO Bob Iger says he wants to start expanding the streaming service into international markets.
Meanwhile, WarnerMedia, which owns HBO, Turner, 50 percent of The CW, Cartoon Network, Audience, Warner Bros., CNN, DC Comics, Otter Media, and a 10 percent stake in Hulu, will have three tiers for its streaming service: an entry level service which will focus on movies, a premium version which will include original programming along with “blockbuster” films, and finally, a third option which will include both of those services as well as a library of other WarnerMedia options and content licensed from other producers. It’s still unclear how WarnerMedia plans to separate out its various assets across its streaming service.
It will be interesting to see how these two companies compete against Netflix when it comes to subscription price and investment in new original content. I think it’s going to be the investment in original content that really determines the success of these services. More than 90 percent of Netflix’s customers tune in regularly to watch original programming. While both Disney and WarnerMedia clearly have massive existing libraries of content that people love, if Netflix’s numbers are any indication of what really draws people to a streaming service, it’s the new content (and then they just happen to also watch a lot of the old content because it’s there).
How will Netflix compete?
The are two big issues facing Netflix: losing content and the cost of creating new content, but how big a deal are these things anyway?
When it comes to losing content rights, there’s not much Netflix can do. If Disney decides to not renew its deal with Netflix for Grey’s Anatomy for example, that hurts Netflix, especially since the show will likely be on Disney+. That being said, I think to date Netflix has been really smart about its situation. The company realized years ago that it couldn’t just rely on old movies and re-run TV for growth and it started investing in its own original content. It’s those investments that have really paid off with hit shows like Stranger Things and Narcos as well as movies like Bird Box. It even brought back classic shows with cult followings when it released Fuller House.
But in order to fund this expansion into original content Netflix has had to raise the price of its service because creating original content isn’t cheap. In fact, in 2018, Netflix spent $13 billion on content (with 85 percent of that budget earmarked for original content). That’s a lot of money. To put that in some perspective for you, that is more than any Hollywood studio spent on a slate of movies in 2018. With this budget, Netflix subscribers got 82 new feature films to binge. In comparison, the studio with the biggest slate, Warner Brothers, put out just 23 films, and Disney only released 10.
When you pair the investment in content with Netflix’s investment in data analytics, I think what you end up with is the key to the company’s long-term success. The more content they create–and let’s be clear, not every show and/or movie created by Netflix is a hit or gets a lot of attention–the more data points they have to work with when it comes to figuring out which show/movie has the most chance to succeed. Which ultimately leads to more hits and more subscriber growth. It’s in these areas, along with its massive 137 million person subscriber base, that Netflix has a huge incumbent advantage against all of its new competitors regardless of whether or not the company loses rights to popular third-party content.
What do you think? Should Netflix be concerned about the upcoming streaming services from Disney, WarnerMedia, and others?