VideoNuze readers will recall that several months ago I made a prediction that Netflix would launch a lower cost (around $5-$7 per month) ad-supported tier in 2020. I predicted this despite Netflix management having steadfastly resisted the model, because I believed the logic was just so compelling and straightforward that no “religious” argument to the contrary would preclude it.
However, a month after posting, on Netflix’s Q4 ’19 earnings call, management once again rejected the idea. In my and other analysts’ view, Netflix offered what seemed to amount to a “we can’t chew gum and walk at the same time” argument that focused on its perceived inability to compete effectively with the ad triopoly of Google, Facebook and Amazon. Despite CTV ad dollars being scooped up by the likes of Hulu, CBS All Access and other premium video providers, Netflix somehow concluded it simply couldn’t play.
With the coronavirus upending life and prompting a surge in stay-at-home viewing, I’d like to suggest 6 reasons why now would be the absolute perfect time for Netflix to announce a lower priced ($5-$7 per month) ad-supported tier (note to readers: feel free to let me know if I’m missing something colossally obvious that would negate my assertion).
A new app called Watchworthy is the antidote for viewers who are overloaded by the bewildering array of program choices in the Peak TV era. Watchworthy, introduced by Ranker, the fan-rankings company, asks for a minimal 30-60 second investment of the user’s time upfront so it can start making program recommendations. Viewers are quickly shown a sequence of images for existing programs. Then like a dating app they swipe left/right (or thumbs up/thumbs down) to indicate their preference if they’re familiar with them.
Those preferences and the programs’ attributes are analyzed against data gleaned from a billion preference votes that have been cast on Ranker over the years to generate the recommendations. Clark Benson, CEO of Ranker, told me in a briefing that there are currently 100-120 programs that viewers can cast preferences on in the upfront process, which can then be translated into recommendations from a pool of 7,000-12,000 different shows.
With people spending more time at home due to the virus, there has been a ton of speculation around what impact this will have on streaming consumption. For example, based on prior disruptive incidents, Nielsen estimates viewing could increase 61%. WURL released data that it saw 7%-44% regional increases on its platform last weekend. A message I received yesterday from SpotX said its experienced a 16% increase in video ad inventory across their entire global marketplace. So the data suggests increases, the range of them is pretty wide.
A sub-question within the “streaming is surging” speculation is how it affects AVOD vs. SVOD services. Even before the virus the dynamics in both categories were fluid. AVOD services are benefiting from multiple tailwinds: cord-cutting, CTV-based viewing, targeting, content proliferation, etc. SVOD services were proliferating, with new competitors like Disney+, Apple TV+, Peacock and soon HBO Max (Quibi could be included too, although its mobile-only). From my perspective, the new competition made incumbents like Netflix look vulnerable. I calculated there was a decent chance Netflix would actually lose subscribers in its US/Canada region in Q1, which would be unprecedented.
I’m pleased to present the 502nd edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
First up this week, on the heels of ViacomCBS reporting 11 million subscribers between CBS All Access and Showtime, Colin and I agree that the company is looking well-positioned in OTT. While more needs to be learned about its “House of Brands” strategy and how Pluto TV will be fully leveraged, we both believe ViacomCBS is looking more and more like a serious OTT contender. A big unknown remains what pricing and bundling will be for “CBS All Access Max” as Colin dubs it. And then there’s the impact of pricing pressure from Disney+, Apple TV+, Peacock, etc.
Regardless, ViacomCBS’s OTT success is coming not a moment too soon, because, as we discuss, new UBS data based on Nielsen ratings, shows TV viewership continuing to plunge in Q1 ’20. Net, net, we both believe connected TV advertising is continuing to shape up as TV advertising’s long-term savior…though who falls through the cracks in the meantime remains to be seen.
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I’m pleased to present the 500th(!) edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
On today’s podcast, Colin is still mopping up his tears from the 49ers’ heartbreaker last Sunday night, but is being a good sport about the loss. He quickly recaps the game’s streaming audience and shares his insights.
This week’s main topics are Disney+ and YouTube. Coincidentally, this week we all got a first look at both of their performances, in Disney’s and Alphabet’s earnings reports, respectively. The headline from Disney+ was clearly the 28.6 million subscribers reported after just 84 days after launching - a noteworthy accomplishment by any standard. We discuss how sticky those subs are (i.e. what will the churn rate be?) and what Disney+ will need to do from here to keep up momentum.
Then we shift to YouTube; we’re both a little surprised that YouTube TV only has 2 million subscribers given how much advertising around marquee sports it has done (by comparison, Hulu Live had 3.2 million at the end of 2019). Nevertheless we are both quite bullish about YouTube going forward, particularly if Google decides to hold off price increases for some time and cord-cutting continues to accelerate. I believe the company as a whole could crack $25 billion in revenue in 2020.
(Apologies - Colin’s audio quality isn’t very good this week, we’re working to fix for future podcasts.)
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Back on November 13th, the day that Disney+ launched, I wrote, “Disney+ is a Winner.” I went on to describe my first experiences with the new service - the seamless sign-up process, extensive content, impressive UX (modeled mainly on best practices gleaned from other streaming services like Netflix), ability to download content for mobile use, etc.
My main takeaway then was: “Disney+ is a winner. Period. End of story. It will have millions of subscribers by the end of this holiday season, and a multiple of that a year from now. As international markets roll out, the millions will multiply again, many times.” In other words - although I’ll be the first to say that there are no guarantees with anything in life - Disney+, with its ridiculously low $7/mo price (and free for certain Verizon Wireless subscribers) - looked as close to a sure thing as I’d seen in a long, long time.
With Disney’s fiscal first quarter earnings report yesterday, it became official, Disney+ IS a winner. Period. End of Story. Disney reported having 26.5 million subscribers at the quarter’s end, Dec. 28th in the U.S and Canada. Since then Disney+ has gained another 2.1 million subscribers to be at 28.6 million as of this past Monday, Feb. 3rd.
Now that NBCU has revealed its launch plan, pricing and forecast for the Peacock streaming service, some quick math shows how much Comcast missed out on by not buying out Disney’s stake in Hulu. VideoNuze readers will recall this is what I proposed back in May 2018 (“Why Comcast Should Take Control of Hulu”) when Comcast and Disney battled to take over Fox. With Disney and Comcast each owning around 30% of Hulu at the time, as well as Fox owning around 30% and AT&T 10%, it was clear that whoever ultimately bought Fox would assume majority ownership of Hulu.
At the time I articulated all the reasons why, as part of any deal Comcast might make to step away from Fox, it should negotiate to take control of Hulu. Instead Comcast prioritized Sky (which it ultimately bought for $39 billion) and made a subsequent deal with Disney to sell off its Hulu stake. Disney also acquired AT&T’s approximately 10% stake in Hulu, making it Hulu’s 100% owner. Taken together, the moves make Disney CEO Bob Iger look like a genius, even if Disney was overcoming a late entry into the streaming party.
Comcast could have likely acquired the 70% or so of Hulu it didn’t own for around $13-15 billion, based on the $5.8 billion Disney ended up paying Comcast for its 30% share (Comcast also has an upside based on Hulu’s valuation in 2024) Comcast could have done this in reverse. All of this is assuming Disney would have sold its share to Comcast. My hunch is there was a deal to be had if Comcast had said it wouldn’t bid up Fox’s valuation, in turn saving Disney billions of dollars. All in all, it would have been a very modest deal for a company Comcast’s size.
I think all of my original reasons why Comcast should have acquired Hulu still stand up pretty well a year and a half later. But now some quick math also reveals that acquiring could have generated nearly $6 billion/year for Comcast and NBCU and the springboard it could have become for Peacock, before even factoring in cost savings. I suppose it is worth keeping in mind that had the deal gone the other way, Comcast wouldn’t have received the $5.8 billion for its share in Hulu, but then again Comcast didn’t need the cash, so does that really matter?
In my view there are 5 key things to understand, 3 that relate to subscription revenue and 2 that relate to advertising revenue.
I’m pleased to present the 498th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
On this week’s podcast, we do a deep dive into Netflix’s Q4 ’19 results (reported earlier this week), and what they imply for 2020. Colin mostly focuses his comments on the decelerating growth rate in international subscriber additions and the ARPU squeeze that’s coming this year.
My focus is on the all-important domestic or “UCAN” (U.S. + Canada) region. Based solely on Netflix’s prior results and its own Q1 ’20 global subscriber addition forecast of 7 million, I think there’s at least a 50-50 chance Netflix will lose subscribers in UCAN in Q1 ’20. Just two years ago, this would have been an unimaginable thing to say; remember in Q1 ’18 it gained 2.28 million U.S. subscribers and in Q1 ’19 it gained 1.74 million.
That’s all before talking about Q2 ’20 where it will almost certainly lose UCAN subscribers, at a multiple of the 130K it lost in Q2 ’19, given the new competitive landscape. Netflix really needs to launch a lower-priced ad-supported tier, but yet again Netflix management rejected the idea, this time for inexplicable reasons.
Add it all up and Netflix is in for a bumpy ride in 2020. Meanwhile, since announcing its results on Tuesday after the market’s close, Netflix stock is up over $30 (about 10%, or around $15 billion extra market capitalization), once again proving that speculators simply can’t quit the stock regardless of the company’s actual performance or prospects.
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Netflix reported its Q4 ’19 and full year results yesterday, exposing the cold hard reality it is facing in the U.S. While the company gained 8.8 million subscribers globally (ahead of its 7.6 million forecast), it gained just 420K in the U.S. specifically (compared to 600K forecast). To put the 420K into more context, it’s by far the lowest Q4 US sub add since Q4 ’11 following the Qwikster debacle. It’s the first time since then that U.S. sub additions have fallen below 1 million in the seasonally strong Q4. And it’s down a whopping 79% vs. just 2 years ago, in Q4 ’17 when Netflix added 1.98 million U.S. subscribers.
Now some will say the “law of large numbers” is catching up with Netflix and that’s true to an extent; it’s a lot harder to add a million subscribers off a base of 60 million than it is off a base of 20 million. But this explanation just scratches the surface of what’s happening now at Netflix.
I’m pleased to present the 497th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
This week Colin and I share our initial impressions of Peacock, NBCU’s new streaming service. Our impressions are based on watching the investor day presentations yesterday. We break down our discussion into covering Peacock’s economics, release plan and user experience. Again these are all our first impressions and not meant to be an exhaustive analysis.
Perhaps the most interesting thing to me is that Peacock’s Premium tier viewer monetization is below its two nearest ad-supported comparables, Hulu and CBS All Access. Both charge $6 per month while Peacock is $5 per month. Peacock is also ensuring maximum ad load of just 5 minutes per hour, which it forecast would amount to $6-7 per viewer, compared to the $7-10 per viewer Hulu is currently generating.
Peacock’s pricing and financial projections remind me why I still believe Comcast should have bought the remaining 70% of Hulu it didn’t own, as I wrote in May, 2018. It feels like an even bigger missed opportunity now. It probably would have cost Comcast around $12-$14 billion to do so, a fraction of the $39 billion it paid to acquire Sky - and it would have been more strategic.
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This afternoon at 4pm ET, Comcast will host an Investor Meeting to share details about NBCUniversal’s upcoming Peacock streaming service. It is a session comparable to what Disney and Apple did last year for Disney+ and Apple TV+ respectively (and what AT&T/WarnerMedia will do for HBO Max). So we all get to learn all the official information about Peacock: pricing, availability, content, overall strategy/fit with existing businesses, marketing, etc.
Following the format of other investor days, we will hear from senior NBCU and Peacock executives, and likely someone from Comcast. Matt Strauss, an old friend of mine, who was moved over from Comcast to become Chairman of Peacock and NBCUniversal Digital Enterprises late last year, will no doubt be the maestro of this afternoon’s session. All the dribs and drabs of information that have been shared by the company previously will be reconciled with all of the rumors and speculation that have gurgled up from around the web.
There was nothing surprising when I read last week’s coverage of FX CEO John Landgraf’s tally of original productions in 2019. According to Landgraf, the number of original dramas, comedies and limited series across all SVOD and TV networks in the U.S. reached a new high of 532 (approximately what he previously predicted). That was up from 495 in 2018, 487 in 2017 and just 182 in the pre-SVOD days of 2002.
This dynamic, which Landgraf has dubbed “Peak TV,” is leading many, if not most, ad-supported entertainment-oriented cable TV networks onto a road to nowhere if their goal is to remain ad-supported entertainment-oriented cable TV networks in the long-term. What is far more likely is that being this type of network will become unviable and so they’ll morph into studios that provide premium original and library content, mostly for bigger platforms (e.g. Amazon, Netflix, Apple, Hulu, etc.) and sometimes for their parent companies’ direct-to-consumer OTT services.
These days there’s no shortage of SVOD services to choose from, with each one seeing to grab a slice of viewers’ monthly spending. And with cord-cutting on the rise, undoubtedly there IS some spending freeing up as viewers cancel their pricey pay-TV services.
But two major industry trends should keep SVOD providers from being overly optimistic about replicating anything close to Netflix’s ad-free hockey stick subscriber growth over the past decade: first, the prevalence of password sharing and second, a tolerance for advertising related to “subscription fatigue” that the proliferation of SVOD services is engendering. New data released this week by Hub Entertainment Research and The Trade Desk underscores the extent of both.
A question that has been following Netflix since the beginning of time is whether the SVOD giant would ever include advertising. Netflix management has consistently responded “no” and emphasized that their viewers expect an ad-free experience. Saying this so many times has created the perception that Netflix’s opposition to advertising is “religious” (i.e. so core to its brand/strategy/user experience that deviation simply isn’t possible) that no logic to the contrary will prevail.
But looking ahead to the new decade and the vastly different industry dynamics that are unfolding, I think there are many reasons why religion is finally going to give way to business imperatives. For anyone already saying, “no, no I just don’t believe Netflix could undergo such a conversion,” keep in mind the intense objection Steve Jobs had to subscription music. Then came Spotify’s incredible growth and in 2015, Apple Music was launched (note, Tim Cook took over as CEO in 2011, just prior to Jobs's death).
VideoNuze readers and podcast listeners know that as the streaming wars have heated up I’ve become focused on whether subscribers will increasingly churn in and out of various services (“spinning” as I’ve called it). There are arguments on both sides of this issue, and it’s not yet clear to me how it will unfold.
But research late last week from PwC suggested that the potential for spinning is quite high. When PwC asked “Would you make any changes to your current subscriptions in order to subscribe to these new services?” 64% of respondents said they would terminate or downgrade one or more current services while 36% said they would make no changes to current services.
I’m pleased to present the 493rd edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
First up this week we return to the topic of “spinning” SVOD services, which I wrote about and Colin and I discussed on last week’s podcast. “Spinning” is the idea that subscribers will dip in and out of SVOD services to manage their monthly expenditures. Colin and I were at TVOT this week and on a panel Colin moderated spinning came up. We discuss our key takeaways.
Another topic that came up was where Disney+ pricing will go in the future, which we discuss (I think the only direction is up).
Last up we talk briefly about Cheddar’s monetization strategy. Colin did a good interview with Melissa Rosenthal, EVP at Cheddar, about the company’s success with native advertising.
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Click here to listen to the podcast (22 minutes, 45 seconds)
I’m pleased to present the 492nd edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
This week Colin and I discuss my post from earlier this week, “Will Spinning Video Subscriptions Become a Thing?” which highlighted Hulu’s explicit offer to subscribers to switch (or spin) between its Live TV and ad-supported SVOD service. Hulu made the offer to mitigate a $10 per month rate increase it announced on its Live TV service.
Colin and I examine the pros and cons of SVOD services explicitly pitching spinning as a value proposition and whether it will take hold. Related, Colin also raises the interesting point that with the SVOD landscape getting more crowded, it might be beneficial for SVOD providers to offer smaller bite-sized on-ramps to start customer relationships (e.g. weekend passes, pre-paid credits, etc.) as we’ve seen in other industries.
SVOD is entering a significant period of transition, and from our perspectives, all ideas are going to be on the table to attract and retain subscribers.
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We all know about the proliferation of subscription streaming services (Disney+, Apple TV+, soon Peacock, HBO Max, all in addition to Netflix, etc.). Each service is investing heavily and wants to become a core part of our video behavior, entrenching itself as an unquestioned line item on our credit card statements.
Achieving that status is nirvana because inertia is a powerful force; once achieved, a subscriber needs to not only have an ah-ah recognition moment, but then follow it up with action to drop the service (figuring out how to do alone could be too much for many - find a cancellation link, an 800 number to call, etc.). For example, ever wonder how many people don’t check their statements closely and still pay for unused AOL dial-up service years since they’ve used it? I’m guessing it would be shocking.
I’m pleased to present the 491st edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
Disney+ launched this week, nearly 2 1/2 years after Disney announced a massive pivot to focus on direct-to-consumer distribution. Colin and I have both spent time using Disney+ in the past few days and on today’s podcast we share our perspectives.
There’s a lot to like about Disney+, but of course there’s no such thing as completely clear sailing. Potential issues we explore include whether Disney+ can/will create enough new content to keep pace with Netflix (and even whether it should try), how significant churn will be among the first 10 million activations (all of which are on some type of free trial), whether Disney+ can truly scale to 90 million subscribers while maintaining a family focus, what role bundling will play, and more.
Disney+ marks a major step forward in the evolution of the TV/video industries. It will be lots of fun to see how it unfolds.
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Over the past few years a powerful virtuous cycle of wired broadband Internet access, connected TV and over-the-top premium content has taken hold, disrupting the traditional TV and pay-TV industries. This virtuous cycle is going to accelerate going forward, causing further instability for established providers and significant opportunity newer entrants.
Robust broadband is the foundation of the virtuous cycle. Today Leichtman Research Group reported that U.S. homes subscribing to broadband cracked the 100 million level for the first time. Big cable TV operators, who have been offering broadband for 25 years, are the winners, now accounting for 67% market share, vs. 33% for big telcos. That’s up from a 64%-46% split 2 years ago in Q3 ’17. Big cable TV operators continue to gain subscribers (830K in Q3 ’19, up 14% vs year ago) while telcos continued to lose them (down 225K in Q3 ’19, the biggest quarterly loss in over 3 years).
Topics: Leichtman Research Group