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Netflix will hold off assault from pay TV studio alliances

Netflix, more than any service provider, has redefined the global landscape for on demand streaming and has triggered great structural realignments between studios and pay TV to compete. The big three of AT&T, Disney and Comcast now have Netflix in their sights as they prepare to launch directly competitive streaming services and pull their content from rivals in a bid to gain subscribers as fast as possible.

This is taking the whole pay TV industry into a new phase as legacy linear viewing migrates rapidly to streaming over the next few years, equally affecting live services as major sports leagues are increasingly drawn to D2C (Direct to Consumer). This has led Rethink TV, the TV research arm of Rethink Technology Research, to release a forecast of video revenues for these three big pay TV and studio groupings and compare them with Netflix.

The main conclusion is that Netflix alone will enjoy uninterrupted and sustained streaming growth, largely because the others will be fighting between themselves for the same streaming slots. While Netflix will largely maintain its position as a “must have” because of its strong content strategy, the others will be seen more as optional second or third SVoD subscriptions subject to greater volatility and churn.

The other three, including AT&T which has just spent $85 billion buying Time Warner, Disney which has acquired 21st Century Fox for $71 billion, and Comcast which has owned NBC-Universal for a while now and which has just acquired Sky for $39 billion in Europe – will all experience reversals as service cannibalization affects their ability to build streaming revenues.

This is laid out in a stark new report from Rethink TV, entitled, “Disney, AT&T, Comcast stumble in the Netflix slipstream – Revenue forecasts to 2024,” released this week. The report reveals that AT&T will struggle to realize its ambition to be the leader in addressable advertising, while Comcast will do well outside the US in both advertising and pay TV but come last in the race for SVoD subscribers. Disney, which holds wild cards in ESPN+ and a massive movie catalog starts from a leading position, will still struggle to make inroads into SVoD globally, despite inheriting some key leading positions in a few markets, notably India through its HotStar service.

Come 2024, Netflix will remain the dominant force in streaming, earning more streaming revenue than the big three put together and it will have a growing influence on what is watched around the world. Its market share will dilute from 63% in 2018 to 52% by 2024, reflecting the intensifying competition, but our forecasts indicate that Netflix will still hold onto its number one spot.

The extraordinary success of Netflix has definitively affected the strategy of the big US Hollywood studios and forced their arms. The question investors have been asking is how Netflix can stand up to that assault on multiple fronts. The question they should be asking is how can the other three, and other companies like Apple and Facebook, keep enough of their existing content revenues to remain relevant.

The conclusion is that while many will survive to live on, few can thrive overnight and both AT&T and Comcast will continue to be reliant on their cellular and broadband revenues for all growth until beyond the forecast period.

One imponderable the report grapples with is the fate of Advertising Video on Demand (AVoD), and whether its success in some large developing countries, especially India and China, will be replicated in mature video markets like the US. It forecasts partial success only here for the big three, with AVoD making some impact lower down the value chain, but with the Netflix strategy of not surrendering to it holding out.

It is a different story for live sports, where streaming services will drive astonishing advertising revenues, alongside subscriptions, although this will largely be at the expense of traditional broadcasting for the big three. In fact, live sports could become an increasingly challenging arena with the specter of D2C threatening both advertising and subscription revenues for traditional operators further out in the forecast period. This may vindicate Netflix’s strategy of eschewing live sports altogether, unlike big rivals in the streaming arena such as Facebook and Amazon.

So, despite huge content reserves, the big three will struggle to become significant streaming forces, with Disney likely to reach just 96.5 million subscribers at the end of this forecast, barely 12.5% of the global total, by then.

Meanwhile across legacy pay TV, AT&T revenues will decline by $16 billion by 2024, and Comcast’s will fall $5.8 billion. Even Disney, which has no pay TV offerings, will lose $2.5 billion in channel licensing over this period and more through shrinkage in the global box office.

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