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Streaming Is Starting to Look A Lot Like Cable TV

Streaming services are raising prices and introducing advertising now that their subscriber growth has slowed.

The Disney+ website on a smartphone in the Brooklyn borough of New York, US, on Monday, July 18, 2022. Walt Disney Co.'s ESPN will raise the price of its streaming service by 43% next month, betting that it can help cover the escalating cost of sports rights without losing subscribers who are grappling with soaring inflation.Photographer: Gabby Jones/Bloomberg
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Programming update: This is now coming from a generic email (not mine). If you want to reach out about anything in this newsletter, please email me ([email protected]) or text me (if you have my number). 

Prices are going up. Advertising is coming in. And there are more channels to watch than anyone wants or needs. The streaming business is starting to look like cable TV from 10 years ago.

There are some obvious improvements. We can watch on-demand and cancel with ease. Programming is global. The user interface is generally better. And you don’t have to watch ads, at least if you don’t want. 

But it was only a few years ago that streaming pitched itself as the consumer-friendly alternative to the cable bundle. Many of the most recent changes feel as though they are geared towards a different audience (namely Wall Street).

It may have been inevitable that the disruptor (streaming) ended up copying ideas from the disrupted (cable). For all of the innovation that Netflix brought to Hollywood, it was still making TV shows and movies in the same general manner as everyone else. And nothing — not even a monopoly — grows forever.

The biggest difference between cable and streaming (at least for now) is that most streaming services aren’t profitable. Companies have spent billions of dollars to chase subscribers, believing Wall Street would give them a break on profitability. (It did, until it didn’t.) 

In the irony of all ironies, Netflix is far and away the most profitable streaming service. This is the company that spent years preaching a growth story and skeptics said would run out of money. Now it’s the company that investors to look at its bottom line.

It is not the most profitable media company, of course. That would be Disney. Or Google. Or Apple. It depends on your definition of media. We just finished another cycle of corporate earnings for the biggest media and tech companies in the US, so I thought it would be good to run through a few of the major developments that got us to this point. That starts with...

Streaming services aren’t growing in the US anymore

Netflix lost customers in the US and Canada for the second quarter in a row and has fewer domestic customers today than it did a year ago. (It peaked at about 75 million at the end of last year.)

Disney+ added about 100,000 customers in the US and Canada, which is not growth when your base is 45 million. The major streaming services added only 2.7 million customers in the US this past quarter, according to research firm MoffettNathanson, and most of that came from Paramount+.

“That represents the lowest single quarterly increase in the post-2020 period and.a clear signal that the streaming wars have given way to the reality of financial markets,” Nathanson wrote.

Domestic Streaming Growth Slows

Only one major streaming service added more than 1 million customers in the US and Canada last quarter.

Source: MoffettNathanson

We knew the slowdown was coming for Netflix. While the company still believes it can get to 100 million customers in the US and Canada, the days of adding 5 million people a year at home are long gone.

Disney+ and its peers are the bigger red flag. While Disney+ has added almost 8 million customers domestically over the last year, a quarter of neglibile growth suggests it is reaching some kind of plateau. Disney’s cable networks used to reach about 100 million people, so the company needs to more than double its customer base to get close to that kind of penetration.

HBO has always targeted a smaller section of the audience, but its owner started spending more on streaming because it wanted HBO Max to be as mass market as Netflix

This slowdown is a big reason that...

Prices are going up, ads are coming in

What do you do when growth in your most lucrative market slows? You raise prices, and/or find a second source of revenue.

Disney is raising prices for almost every major plan and introducing an advertising-supported service in December. Warner Bros Discovery hinted that the combined HBO Max-Discovery+ service will cost more, as it creates three tiers. Netflix and Amazon have been raising prices for years, and both are investing a lot more money into advertising-supported video.

Paramount+ and Peacock don’t have pricing power but they do have ads. Apple TV+ may have ads soon as well.

The total cost of every major streaming service out there now rivals the cost of cable, and that may have an adverse effect on subscriber growth for many of these companies.

The Rising Cost of Streaming

If you want to watch every major streaming service without advertisements, it will soon cost you about $100.

Source: Company reports

Disney + ”churn will be worse than the rosy scenario implied by management,” Cowen analyst Doug Creutz wrote in a note this week. That’s where advertising comes in. These services can now offer a cheaper, advertising-supported plan when customers threaten to cancel. 

The new focus on advertising is one reason for this next trend.

Executives will talk a lot more about viewership…

Even if subscriber growth slows, overall usage of streaming has grown. Streaming accounted for 33% of all TV viewing in the US last month, its highest share thus far. Amazon, Disney+ and Netflix all saw significant gains.

We don’t have a comparable number overseas, but let’s assume that streaming’s share is growing there too.

Streaming’s share of overall viewing is likely to dip in the fall when football returns. The NFL remains the most popular programming in the US.

We are about to have our first major NFL game on streaming (Amazon), and the overall trend is still towards streaming. The number of people paying for TV is going down. They aren’t watching less video. They are just watching more video online.

There’s still plenty of growth abroad

This is where Disney excelled in the most recent quarter. It added about 6 million customers outside the US in places not named India and another 8 million in India.

Asia Pacific is the only region where Netflix is growing, buoyed in part by a price drop in India. Granted, growth in India is kind of like empty calories. The average Disney+ Hotstar customer there only pays $1.20 a month.

We don’t have regional breakouts for services like Amazon, Apple TV+ or HBO Max. But Amazon is already a leader in Japan, India and much of Europe. It seems to be investing a lot of resources abroad, which is typically a sign it’s seeing results. Apple, HBO and the others are just getting started and it is also safe to assume that they have millions of potential customers.

There is one other potential shift…

If streaming is going to start stealing business ideas from cable, it might as well go all the way and bundle services together. If you could pay $35 or $40 a month for Netflix, HBO and the Disney services, would you ever cancel? Probably not.

Most of these companies aren’t ready to do that. They want to “own” the customer relationship. They figure they won’t add enough customers to offset the price cut that is built into a bundle. Amazon and Apple already offer programming from other streaming services within their video services, and now YouTube is reportedly trying to do the same. No one has been able to convince Netflix or Disney to participate in one of these programs.

But Shakespeare was onto something when he wrote the Tempest. What’s past is prologue. — Lucas Shaw

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Amazon’s stealthy summer smash 

LOS ANGELES, CALIFORNIA - JUNE 22: Amazon executives attend "The Terminal List" Red Carpet Premiere on June 22, 2022 in Los Angeles, California. 
Photographer: Amy Sussman/Getty Images North America

Have you watched “The Terminal List”? Do you know someone who has?

The series starring Chris Pratt was one of the top five programs on streaming the first three weeks of July. (We get Nielsen data about a month late.) It is the service’s biggest new hit of the summer and followed not long after returning hit “The Boys.”

“The Terminal List” embodies a shift in programming at Amazon, at least in the US, where it has gone from targeting coastal viewers to those in the middle of the country. It is a paint-by-numbers thriller that has received little affection from critics. It has a 39% on Rotten Tomatoes and a 40 on Metacritic.

But viewers love it. It has an 8/10 on IMDb and ranks in the site’s top 10. It is between FX/Hulu’s “The Bear” and “The Old Man,” both of which have received higher scores with critics. 

Music dealmaking slows down

The music company BMI has ended talks to sell itself after it didn’t get an offer that was to its liking. The company, which represents songwriters such as Ed Sheeran and Rihanna, had been aiming for at least $1.5 billion and hoping for more than $2 billion.

BMI is the latest in a series of major music entities that hasn’t convinced a buyer to pay what it wanted, which signals a major shift in the market for music assets. (Goldman Sachs has whiffed on two big ones this year.)

Market volatility “has thrown more of these processes into an uncertain state,” said Josh Gruss, the chief executive officer of Round Hill, told me Friday.

Not TikTok. It’s YouTube, according to the Pew Research Center. Some 95% of teens say they use YouTube, far more than any other service. Nearly one-fifth of teens say they used YouTube “almost constantly.”

TikTok comes in second, just ahead of Instagram and Snapchat. Facebook, Twitter and Tumblr all saw their popularity among teens plummet over the last few years.

Fox, CBS and NBC box out ESPN for Big Ten

ESPN has dropped out of the bidding for rights to broadcast Big Ten football. The sports media giant has carried Big Ten Football for 40 years, but it didn’t want to pay as much as the conference wanted.

The Big Ten expects to land more than $1 billion a year in rights fees under its new deals, a reflection of the high value on live sports and the conference’s growing might. (It is adding UCLA and USC to an already stacked conference.) That is more than double the value of the prvious deal.

Fox, CBS and NBC are expected to split the rights.

Deals, deals, deals

  • Apple signed its biggest podcasting deal thus far.
  • Walmart has talked to major media companies about creating a streaming service. Raise your hand if you ever used its previous streaming service, Vudu.
  • What do Jeff Bezos, Kevin Durant and Drake all have in common? They’ve invested in Overtime
  • An activist investor has amassed a 7% stake in the New York Times and is pushing for the company to raise prices on its subscription bundle.

How will crypto change the music industry?

The number of NFT pitches in my inbox has slowed to a trickle of late. I’d like to believe it’s because people read what we wrote in March. But it’s more likely to do with the decline in the value of cryptocurrencies.

Bloomberg has some of the best coverage of crypto in the world – if not the best – and that includes a daily radio show/podcast. I spoke with host Stacy-Marie Ishmael last week about how crypto will (and won’t) change the music industry

Weekly playlist

Broken Bells is a musical duo that consists of Brian Burton (better known as the producer Danger Mouse) and James Mercer, the lead singer from The Shins. If that all sounds like gobbledygook to you, look up their song “The High Road” and decide if it’s for you.

They are about to release their first album in more than eight years, and dropped their first single this past week.

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 15.08.2022

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