Expect Big Changes from Streaming Video

One of the biggest uses of bandwidth continues to be streaming video from the many online vendors like Netflix, Disney, Hulu, and many others. Final 2022 earnings reports show that this is an industry segment in crisis.

  • Warner Brothers, which owns HBO and Discovery reported losses for online video of as much as $2.3 billion in 2022.
  • Paramount reported losses of $1.8 billion for its online platform.
  • Comcast and its NBC Universal subsidiary that operates Peacock reported losses in 2022 of $2.5 billion.
  • Disney reported a loss of $4.1 billion for its Disney Plus platform, which is hard to fathom with a platform that has 162 million subscribers.

Altogether, the losses for just these four video platforms were almost $11 billion in 2022. There are other big platforms like Apple, Google (YouTube), and Amazon that don’t specifically report on the performance of the video streaming segment. There is one exception to the trend towards losses as Netflix, with 230 million global customers, reported profits of over $6.5 billion in 2022.

The companies with the losses have already reported taking measures to trim the losses. That involves some staff cuts, but mostly it’s going to mean cutting back on the budget for developing new content.

This raises some interesting questions about how the performance of the video streaming industry segment will affect broadband. There has been a significant proliferation of video platforms. Ten years ago, you could count the video platforms on one hand. The earliest platforms like Netflix and Amazon spent almost all of their content budget buying existing TV shows and movies.

But in 2013, Netflix broke the mold with the introduction of House of Cards, followed by a ton of original content. Amazon followed suit in 2015 with the introduction of The Man in the High Castle and Mr. Robot, and now with a wide array of original programming. It now seems that every platform has original content, which seems to be the primary strategy for attracting new subscribers.

It’s hard to think that the industry can sustain these kinds of losses for a long time. Netflix purposefully lost money as it was building its platform, and the company knew it wouldn’t be profitable until it eventually got a lot of subscribers. But with the proliferation of platforms, the idea of any platform suffering losses to get to the top seems like a difficult model to repeat.

One of the ways for the industry to become profitable is to raise rates, but with so much competition, that doesn’t look like an easy solution. Anyone who has tracked subscribers at platforms like Hulu or SlingTV can see how customer counts shrink and grow quarter to quarter. Very few of these platforms have developed a stable, loyal customer base, and the online platforms have made it easy for subscribers to come and go at will – their big differentiator from traditional cable.

The chances are that poor performance, or even the disappearance of a few platforms won’t make much of a difference in the industry overall. If a few of these platforms fail, the subscribers will watch video elsewhere. Probably the only thing that would cause cord-cutting to slow might be if the online platforms raise rates to the point where people decide to keep traditional cable.

Probably the best news for online platforms is that traditional cable companies keep raising rates, largely in response to the ever-climbing cost of traditional TV programming. The programmers seem determined to raise rates significantly every year, even in the face of losing customers. For many traditional programmers, the loss of American subscribers is being offset by a growing audience around the world.

The Future of Video Streaming

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I predict that we are going to see a huge shake-out in the online video market over the next few years. The field of OTT providers is already crowded. There are providers that offer some version of the programming offered on traditional cable TV like Sling TV, DirecTV Now, Playstation Vue, Hulu Plus, YouTube TV, fuboTV and Layer3 TV. There are also numerous providers with unique content like Netflix, Amazon Prime, CBS All Access, HBO Go, and more than 100 others.

The field is going to get more crowded this year. Disney is planning a Netflix competitor later this year that will include Disney’s vast library of content including unique content from Marvel, Lucasfilm, 21st Century Fox and Pixar.

AT&T also plans to offer a unique-content platform that includes the vast library of content it acquired through the merger with Time-Warner along with the content from HBO.

Apple has finally been creating unique content that it will start showing some time this year. Amazon has stepped up the creation of unique content. Comcast is planning a launch with the unique content it owns through NBC Universal and Illumination Studios.

But the biggest news is not that there will be more competitors – it’s that each of the creators of unique content is intending to only offer their content on their own platform. This is going to transform the current online landscape.

The big loser might be Netflix. While the company creates more unique content than anybody else in the industry they have benefited tremendously from outside content. I happen to watch a lot of the Marvel content and my wife sometimes refers to Netflix as the Marvel network – but that content will soon disappear from Netflix. Disney owns the Star Wars franchise. NBC Universal (Comcast) recently purchased the rights to Harry Potter. CBS owns the Star Trek franchise. AT&T owns the Game of Thrones. Amazon bought the rights to develop more Middle Earth (Lord of the Rings) content. Is Netflix going to be as attractive if they are unable to carry attractive external content in addition to their own unique content?

Each of the major content owners is aiming to capitalize on their most valuable content. For example, the industry buzz is that there are numerous new Star Trek efforts underway and that CBS All Access will become all Star Trek, all of the time. Each of these content owners is making similar plans to best monetize their content.

This looks it is going to turn into a content arms race. That means more content than ever for the viewing public. But it also means that a household that wants to watch a range of the most popular content is going to need numerous monthly subscriptions. I think 2019 is going to become the year when the monthly cost of online content starts climbing to rival the cost of traditional cable.

My family is probably fairly typical for cord cutters. We watch local channels, traditional cable networks and sports through Playstation Vue. We have subscriptions to Netflix, Amazon Prime and Hulu. During the year we add and subtract networks like ESPN Plus, CBS All Access, HBO NOW and several others. And we also buy individual TV shows and movies that aren’t included in these various platforms.

I’m not unhappy with our array of content. Each of our three family members gets to watch the content they want. We’re each free to use the devices we like and watch at times that are convenient.

The number one reason cited for cord cutting is to save money. I’m pretty certain that as a family that we already aren’t saving anything compared to what content cost us before we went online. However, saving money was not our primary reason for going online. I look forward and I suspect that we’ll probably add some of the new content this year such as Disney, so our costs are likely to keep climbing.

A few years ago there was a lot of speculation about where the industry is headed. A lot of people thought that the Amazon super-aggregator model was the future, and Amazon is doing well by reselling dozens of unique content platforms under its name brand. However, it looks like the industry is now headed in the opposite direction where each big corporate owner of unique content is going to want to extract the maximum value by selling directly to the public.

I have to wonder what this all means for the public. Will the high cost of buying numerous online packages dissuade many from cutting the cord? It’s also confusing trying to find what you want to watch with so many different sources of content that are in separate silos. It’s going to be interesting to see these industry giants battling each other for eyeballs.