The Battle To Win Subscribers (Part)1- Out with the OLD and in with the NEW.

David Booth |Global Media Executive driving business growth across OTT, Digital Media & Linear.

I plan to write a collection of themed perspectives from a viewpoint of non-technological determinism, examining how both Entertainment and Sports Media Businesses will attempt to create blueprints for business growth and ultimately long term success.

As the decade draws to a close, November 2019 will go down as the start of a defining period when we reflect back in five or more years on the changing dynamics of the global media landscape with the rise of Over-the-Top Television film and television content (OTT). The parallels are on a par to Cable TV breaking the traditional dominance of US Networks in the mid 80s coupled with the launch of DTH satellite technology across international markets in the early 90s. Moving into the new decade - 2020 heralds a new era marked with continued disruption as a plethora of content rich platforms launch more or less simultaneously- as media companies attempt to reposition current business models via ‘glocalisation’ strategies in this new disruptive landscape.

The media dubbed ‘Streaming Wars -Second Wave’ is now playing out between newly turbo charged and scaled up Traditional Entertainment Media companies (Disney acquiring 21st Century Fox, newly re-acquainted ViacomCBS) Supersized Telecommunications Groups with recently acquired Media assets (AT&T Warner Media, Comcast NBC Universal/ BSkyB), Tech Companies (Apple Inc.) and the original OTT vanguards (Netflix, Amazon Prime Video).

Each upping the ante, with fanfare and gusto as they go Direct-to- consumer (D2C) over the internet to attempt to re-invent their core media businesses and land grab a slice of the OTT video landscape and make inroads on Netflix’s stranglehold of 157million global subscribers. OTT revenues are forecasted to be $485 Billion globally by 2025 of which SVOD will make up a significant portion. Recently Digital TV Research forecast that the so called proclaimed ‘Big 5’ will get around 529m subscribers with Netflix and Disney+ having the lion’s share of this globally. Quite a sizeable chunk of prime real estate is up for grabs.

Disney+ is earmarking between 70-90million subscribers globally with the compelling family fare of Pixar Animation, Lucasfilm- Star Wars, Marvel franchises supplemented with recently acquired assets of 21st Century Fox for $85Bn giving access to films, series and documentaries from Fox, Nat Geo and film arm Fox Searchlight. They have spent a whopping $15million per episode on the Star Wars action fiction series ‘The Mandalorian’ as the launch linchpin for Disney+, to get bums on seats and dovetailing nicely with the release in cinemas at Christmas of the final chapter of the current Star Wars saga with ‘The Rise of Skywalker’. It’s a licence to print money, as this is part of bigger picture plans to maximize all assets and build further on already successful franchises with consumer products - Case in point-new Star Wars experience Star Wars: Galaxy’s Edge at Disneyland California and their subsequent planned themed events at the other Disneyland Parks in the US and Europe.

Apple TV+ has launched with an aggregator content offering coupled with a sizeable $5-6 Billion investment in original programming - attracting some great TV and film talent- exclusive new drama ‘The Morning Show’ developed by Reece Witherspoon, starring Jennifer Anniston, Steve Carrel and Witherspoon, ‘SEE’ post-apocalyptic drama scribed by Peaky Blinders writer Steven Knight and harking back to my childhood, ‘Snoopy In Space,’ to name but a few. In addition they have concertedly acquired tv and movie rights to best-selling novels.

As we roll into the new decade, the express train continues with the launch of ‘Peacock’ from Comcast owned NBC Universal, ‘HBO MAX’ from AT&T’s reconfigured Warner Media and short form mobile video platform ‘Quibi’. Each priced differently and coupled with additional incentives to entice us to part with our cash in order for all to build quickly a subscriber base as they seek to fortify their competitive moats.

And Elsewhere

To stave off linear viewing decline as a result of the behemoth streamers, strategic partnerships have been leveraged between local regional players BritBox in the UK (BBC/ ITV Joint Venture), Salto in France (partnership between M6, TF1, France TV), Joyn in Germany (Joint Venture between ProSiebenSat.1 Media & Discovery, offering live TV and Video Streaming). Also Japanese e-commerce giant Rakuten will enter the space with the creation of the first pan-European VOD platform offering Hollywood, local and exclusive content. This is just the key entertainment players.

Add into the mix, every major Sport League & Sports Governing body are mulling over entering this space soon, coupled with DAZN (the Netflix of Sport) continued buying spree of live sport across a multitude of key growth markets. This quickly becomes a very over crowded marketplace littered with essentially too much choice. It’s like a fight to the death- a content arms race to stockpile the best video war chest and out-content leaders Netflix.

For some this will be a licence to print money but for many it will be simply haemorrhaging cash- flipping the TV and Video Industry on its head.

Beyond the hype from seasoned media executives, the risk of failure is high as the initial capital outlay is immense as companies re-engineer their business models and operations- factor in the opportunity costs to launch a D2C service as media companies can no longer earn licensing revenue from other OTT platforms or broadcasters, upending years of business models and deficit financing of hit series. Add to this, the additional cost for Tech infrastructure, continued additional investment for premium content, significant Marketing spend to highlight the array of series, and day-to-day Operational costs.

Case in point, Disney is cited as having to invest in the region of $4 Billion for the first 2 years of Disney+ inception (add to this $3 Billion acquisition of digital video streamer BAMtech Media, loss of revenue from content sales and the cost of the aforementioned Fox deal) and projected to breakeven after 5 years.

For others, such as the recently launched Apple TV+ or Amazon Prime Video– it is only a cog in a wheel to help grow their core businesses. Failing is an option for them to consider, without losing too much sleep.

Simply speaking going D2C has to work for media giants Disney, AT&T’s Warner Media, Comcast’s NBCUniversal as if executed to plan it will give back a far bigger return on investment in the long run. Get it right, it will future-proof other business assets and crucially build globally a much coveted multi-product strategy.

It’s not a zero sum game with consumers simply choosing one over another as they will ‘mix and match’ services based on viewing needs. Also it is not a finite game they are playing, where one company will win outright as per the headlines of who will win the ‘Streaming Wars’. Going beyond the rhetoric and hyperbole, consumers will sign up for several and simply experiment with the array on offer and eventually settle on a few services based around their own viewing requirements- so predicting subscription levels, potential market size, market penetration across various international markets, is far from an exact science.

Insight to date, states that in mature markets in particular the US, that only 5% of all broadband consumers in the US pay for a video service other than Netflix, Amazon & Hulu (Park Associates). In my opinion it is most likely that 2-3 subscriptions will be the magic number (of which a bundled streaming offering maybe at the core) bearing in mind we also subscribe to other offers -music streaming services, download to rent, download to own video content, plus factor in paying for a decent Broadband package to be able to stream in the first place.

What is the definition of winning?

Much is written on who will win the streaming wars or streaming race but that is accepting the status quo, technological determinism AND basing it on a set of criteria such as subscription volume or revenue generated.

Each Company has a different business model, key stakeholder and shareholder expectations. As a result they all have distinct perspectives and metrics on what their respective platform strategy is there to do and what is the overall benchmark for business success.

Measuring SVOD success ‘universally’ is challenging on many fronts - the new platforms are using free offers or trial periods to drive initial subscriber growth, or are built into wider product incentives (Apple giving away Apple TV+ free if you purchase a new Mac, iPad or iPhone or HBO Max being offered free to existing HBO subs via an AT&T Service).

'Not everything that can be counted counts,

and not everything that counts can be counted’

Albert Einstein

These companies will not openly report on the true figure of new subscribers of which some are existing subscribers as they attempt to supersize their base and build new products with the current in-market activations. Equally there is no independent measure of usage such as ‘time spent viewing’ as up until now that information has remained for internal use only by the likes of Netflix and Amazon.

As Broadcaster/Studio Groups pivot to get a slice of the OTT pie- they will be faced with a series of challenges. It is not all going to be plain sailing. There will be many headwinds to deal with that demand a different expertise, perspective and mindset. For those savvy enough to really understand what the consumer wants may well be the ‘feather in their cap’ rather than simply continuously chucking cash to content stockpile, and harness talent at any cost.

Current viewpoints assume the streaming wars is a ‘finite game’ with the same players- yes the market will shake down at some point as these companies battle it out. I don’t believe all the new services will be profitable long term- but one thing is for sure in examining the seismic changes in the last decade, new yet unknown players will enter this game at some point!

There a huge Chinese multinational conglomerates- Baidu, Alibaba and TenCent who have their own respective subsidiaries tech, e-commerce, retail, internet related services/ products of which video streaming is one aspect. TenCent have already made moves into Hollywood via the creation of TenCent Pictures which produces and distributes films. I am sure these conglomerates are eagerly watching the so called battle play-out and may well be eyeing up a move in a timely fashion as part of further product expansion.

The Challenges with D2C

In my capacity as a Content & Business Executive having worked for both Pay TV platforms and Global Broadcasters, I can say with certainty that churn is everyone’s headache. You can have all the nice, exclusive programming in the world but if you don’t have the mindset and perspective of your customer backed up with excellent customer service across the various different markets you operate in, you can forget it- you are dead in the water! Yes we are in a different world with digital video services where two clicks on a tablet or smart phone you can unsubscribe from a service- no year long commitment, no phoning a call centre to speak to an assertive sales person hitting you with incentives to stay. Dreaded churn and swapping services will be one of the biggest challenges facing OTT operators as consumers mix and match in the coming months based on their propensity to consume.

Factor in customer satisfaction with a service- the ‘numero uno’ priority for any consumer facing business. We are seeing complaints already with many OTT operators attempting to showcase LIVE Sport and facing the challenges of event streaming- Amazon’s Prime Video coverage of US Open (Tennis) last year, Australian operator Optus problematic coverage of the FIFA World Cup and most recently the Rugby World Cup- where Telco operator Spark in New Zealand had challenges live streaming the opening game and the hugely significant game between ‘The All Blacks’ and ‘The Springboks’.

The damage albeit short term can be huge as a consumer can unsubscribe if they are cheesed off with their experience AND most likely never return. That is a critical loss of much needed monthly revenue and a PR nightmare that all adds up especially when you are expected by the consumer to invest heavily in thousands of hours of great premium content and have a flawless broadcast service akin to Televisual Broadcasting. Putting the customer experience first will be key for success in this new era. For some, the next few years will be a steep learning curve. For many, the day of reckoning may well come sooner.

With the fantastic choice of direct to consumer options available to us, we are going to suffer from subscription fatigue and ultimately a confused consumer proposition where our programming of choice is littered across multiple options or worse still on the offering we don’t yet subscribe to and we don’t know about it. As the OTT marketplace becomes crowded and extremely competitive for subscribers cash AND entertainment viewing time, a new skill set of expertise is needed beyond tech set up, securing a catalogue of staple fare and amassing thousands of hours of programming.

Realistically for many to break-even it will be a long time coming with a huge degree of finger in the air predictions over subscriber growth and scratching one’s heads over sustainability of business models. Essentially it is a race to build a subscriber base fast, to create a deeper understanding of the consumer and consolidating all this insight into a meaningful business model within the next 5 years. This begs the question do some of these new video streaming services actually need to be profitable and can essentially operate as loss leaders?- for some this is simply a means to an end to get access to a far bigger lucrative prize. (More perspective on that in future blogs).

As these platforms launch, strategic planning will be essential in giving the new born a chance to flourish, grow and retain a subscriber base. This is a multi-faceted approach combining both tech via AI, mining of Big Data to distil consumers preferences and layering on top a real doze of editorial and commercial nous to de-risk content investment decisions.

The blueprint will be pretty fluid, however there are some guiding principles worth adhering to as the key to success will be creating a rewarding user experience, going beyond the Algorithm with an enhanced content strategy and creating a more experiential user experience. (More of that in Part 2 of the series).

The End Game

It is about building a service that is more than just attracting subscribers. Gathering data on your consumer’s usage and preferences, distilling this into meaningful information to enable real-time consumer understanding which aids wider business informed decision making is the top priority.

Developing E-commerce opportunities where long-tailing a content property via retail and consumer products will be paramount. Capturing subscriber data will aid the decision making process on what video content to produce, what talent to attract to create your content and what merchandise to sell.

No doubt Disney will be the first to interface key merchandise in a one- stop shop where you can view ‘Frozen 2’ or all the ‘Star Wars’ films and at a click of a button or through voice activation- request to purchase toys, books, apparel, or even book a Disneyland holiday in California, Florida or Paris.

As legacy media companies shift from a mindset entrenched in Audience Ratings, TV Market Share and securing Advertising Revenue to embrace this new era of going direct-to-consumer, they need to remain at all times consumer centric and have this at the forefront of all decision making.

A customer’s ability to part with hard-earned cash is based on a simple premise:

Does it meet my needs and/or my family as a product / service?

Do I get added value from this product?

Will I really miss it if I no longer have it?

However all customers are not created equally and that is the hard part!

Interesting times ahead for all, as new market dynamics play-out for both incumbent OTT operators, the legacy Media Companies and the consumer, with the digital video industry being segmented further via a greater personalised content offering and dare I say it- the rise of the streaming bundle.

If you wish for deeper thinking, insight or guiding principles for your own business, please do get in touch:

Email: DavidBooth@dbb12mediaconsultants.com

David Booth is a Global Media Executive who likes to blog, strategise and talk about Sports & Entertainment content.