Due to the risk of losing the direct relationship with their customers and the struggle to deliver media content at breakneck speed, media and telecom players are now looking to provide their own direct-to-consumer (DTC) video streaming services. The result is an elimination of content aggregators from the media value chain with a move towards a horizontally integrated model. The recent frenzy of M&A activities in the media and telecom space (e.g., Disney and Comcast going after 21st Century Fox, or AT&T acquiring Time Warner) is driven by the desire to replicate the DTC model championed by over the top (OTT) players, such as Netflix, Hulu, and Amazon.
The current video streaming service landscape has become increasingly fragmented as result of the availability of numerous streaming services provided by telecom service providers (TSPs) such as AT&T and Comcast, FAANG companies, OTT players, and big media players (e.g., Disney). Recently, AT&T announced that it would launch its own HBO-based video streaming service in late 2019 and bundle it with the acquired Turner and Warner Bros. content. Similarly, Apple kickstarted its own production house this year by signing Oprah Winfrey and others to create original content for its own upcoming streaming service.
As content becomes the key differentiator and core asset in the horizontally integrated media value chain (for details on horizontally integrated media value chain, see our blog post), content licensing across various streaming service providers will be significantly reduced. Come 2019, Disney will stop selling its content to Netflix and will run a streaming service that hosts its own content along with Fox's huge library of content (which will be made available once the Disney-Fox merger is complete).
Streaming video customers, who initially benefited because of the vast array of content and cheaper streaming services from the few OTT players, will eventually have to subscribe to and pay for multiple streaming services provided by the many TSPs, FAANG, OTT, and media players, based on the availability of their favorite shows and pricing of content. With numerous new services available along with Netflix and Hulu incumbents and new entrants, such as Apple and AT&T, investing more in original content, viewers will be spoilt for choice.
Yet the question is, how many subscriptions will viewers be willing to pay for?
A Morning Consult poll, conducted in 2017, shows that 54% of millennials (the biggest proponents of video streaming services) are subscribed to only one or two streaming services. Very few customers are subscribed to more than two services as more subscriptions burden the viewer with too many bills a month. In addition to this, customers have to deal with the hassles of tracking which shows are available on which service, determining who in the family can watch it, and managing multiple apps which prescribe what shows a viewer should watch. In the same poll, 57% of millennials said there were too many streaming services and 73% said they wished all their preferred shows were available on a single service (see Exhibit 1).
The bigger question is, how many streaming services will survive in this over-crowded video streaming market? Many streaming services have failed in the past as they were not able to gain traction with viewers due to lack of original content, lack of personalized viewing recommendations, and unsustainable price points leading to significant dent in the providers balance sheets and their eventual closure. For example, Shomi video streaming service (Netflix's biggest competitor in Canada), which is jointly owned by Rogers Communications and Shaw Communication, shut down in late 2016. NBC Universal's (Comcast) Seeso closed in 2017 and more recently, in 2018, Verizon decided to shut down its video streaming service, Go90. More such closures are expected to happen in the not-too-distant future.
Consolidation of streaming services will gather steam soon and will lead to bundling of several streaming services into one or the rise of a few mega-streaming service providers. There's the opportunity for a converged telecom-media player to aggregate the services offered by various players and manage the relationship with the end user, the viewer. Until that happens, devices like the Amazon Fire TV Stick and Google Chromecast will flourish and aggregate various streaming services.
For more details on the topic, please see our White Paper on Telco-Media convergence.
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