On
November 24th, Taylor Swift was recognized as the Artist of the
Decade by the American Music Awards.
If a similar award was given to a firm in the video streaming industry
it would have to go to its pioneer, Netflix.
At the start of the last decade, Netflix had 12 million subscribers, all
in the U.S., and most of them consuming video content on DVDs received in the
mail. Just one year into the decade, Netflix
had expanded into Canada, grew its subscriber base to 20 million, and began
delivering a majority of its licensed content over the internet instead of
through the postal system.
With
the floodgates opened, Netflix would spend the rest of the decade adding
award-winning content to its platform and scaling across the globe. It will end the decade with nearly 160
million subscribers in over 190 countries.
It will end the decade with more of its content being created
exclusively for Netflix viewers. It will
end the decade being ten-times more profitable than what it was at the start. It will end the decade, however, with having
to face new competitive threats from former business partners.
While sticking to its
core competency proved to be the right strategic move for Netflix over the past
ten years, will it continue to be going forward? Afterall, the market entrants are no small
fries. They are legends that spent most
of the last decade a bit complacent and unwilling to adapt to changing consumer
taste preferences But, that is now a
thing of the past. The disruption to
Netflix and the broader industry is coming from content providers going direct
to consumer with their own offerings, bypassing content aggregators like cable
and satellite providers. Leading the charge
is a re-energized, re-focused Disney.
Since the inception of
cable TV, the success of broadcasters (e.g. ABC, CBS, NBC) and cable networks
(e.g. ESPN, HBO, Discovery) was tethered to the rise in popularity among
households to pay for a bundle of channels delivered to their television set
via a cable box or satellite transmission. At its peak in 2009, 100 million
households subscribed. However, fed-up
with rising prices for these fat channel bundles, households began cutting the
cord early in the decade. As broadband
technology improved and more streaming services (e.g. Hulu, Amazon Prime) became
available, cord-cutting accelerated. The
decade will end with less than 88 million U.S. households subscribing to payTV.
For Disney and the other
content owners, the challenge is and will continue to be how to hold onto their
lucrative relationships with payTV operators (for now) while building out their
own competing platforms. While it is
uncertain how consumers will respond to unbundled, somewhat customizable
choices for how they allocate their screen time, Disney is primed to be a
favorite among consumers and the “one to beat” among its competitors in the
decade ahead. Its success will derive
from its extensive content library and theatrical dominance combined with
recent acquisitions (e.g. BAMTech and Fox) and product launches (ESPN+ and
Disney+). Its success, however, won’t come
easy and cheap. Disney will have to fiercely
compete with the likes of Comcast, ViacomCBS, AT&T (Time Warner), and, yes,
Netflix to attract and maintain subscribers.
It will have to spend a lot of money on content creation. It will have to/want to acquire content by
scooping up smaller, fringe firms that have found it difficult to sustain
profitability on their own with insufficient scale and consumer loyalty. In ten years, expect that the video streaming
market is much bigger and dominated by the same handful of giant firms
(including Netflix) that control the big screen. Stay tuned!
