A Streaming Wars Update

Streaming video is a dynamic and fast-changing growth area for many media giants. To find out about the latest developments and trends in this space, GLG sat down with Matthew L. Ball, currently a Managing Partner of venture-capital fund operator Epyllion Industries, and formerly Head of Strategy at Amazon Studios. Following are a few select excerpts from our broader discussion.

Walk us through how competition in the streaming space is shaping up.

After years of preparation, the Streaming Wars now sit in an interesting place. We know all the players, their brands, strategies, programming budgets, aspirations, and payback periods. As a result, the next two years or so are about waiting. Each player’s strategies will change modestly, as will their packaging, but for the most part, it’s time to see who was ready, who can execute, who was too late. And keep in mind, for all their differences, each service has a shared goal: maximizing subscribers and maximizing engagement.

I’ll give two helpful examples. Brian Roberts, Chairman and CEO at Comcast, has said he has no interest in continuing down a business model that he doesn’t believe has a pathway to profit. He has about a four-year time frame to break even, and Comcast has a clearly articulated plan to reach their overall domestic and international objectives on advertising and subscriptions. As such, it’s unlikely the market sees substantial changes to this strategy in the next 18 to 24 months, even if there are alterations. For example, I wouldn’t be surprised to see them ease back from dramas to focus more on their competitive advantage: comedies. But if, in two years, Peacock is well off its target, we could see an exit.

ViacomCBS is an example of a company whose strategy hasn’t changed overall, but is being adjusted. Several months ago, the company indicated it was going to pursue a “House-of-Brands” approach in which it would still operate multiple SVODs (subscription video on demand) and OTT (over-the-top) service, but also offer a wrapper service atop them all. Neither investors nor the press was impressed. Recently, ViacomCBS announced they are pulling back from that strategy and going to start pushing Noggin, their direct-to-consumer platform for kids, into CBS All Access, which they’re going to rebrand, as well as along with MTV and BET. Soon, you’ll log into CBS All Access and see different tiles for each of their subbrands. At the same time, Viacom is taking the hard-to-execute approach of supporting licensing and distribution deals, not just to their cable networks, but also to other players in the marketplace. They’ve licensed much of the best catalog content on the Showtime platforms, such as Ray Donovan, the rich and deep catalog from the MTV properties, as well as other hits such as South Park, which is on HBO Max, to Peacock. Over the next 18 to 24 months, we’ll see if those long-term plans are working. The strategy is set, but the feedback is yet to come.

Go into those new entrants — HBO Max and Peacock — a bit more.

Let me make four observations. The first is how much more difficult it seems to launch a streaming service with a legacy brand than with a new brand. While logic might suggest it’s easier to drive a new service that already has 30 million customers, there has been considerably more enthusiasm for Peacock than HBO Max out of the gate, because everyone understands what Peacock is, despite it’s being new, while HBO has to explain what “Max” is.

Second, there’s a programming-level advantage of a new service. Many of the shows going on Peacock are shows that haven’t been available on OTT before, like Cheers and Everybody Loves Raymond. HBO Max is really an expanded version of the old HBO with more titles, but all of them have been available for years on direct-to-consumer platforms, most notably Netflix. It is easy to understand how Peacock might drive more enthusiasm here.

Third, and perhaps most interesting, is how COVID is going to affect the theatrical window. Here there are two inevitabilities. One is that an ever-growing share of theatrical releases are going to go directly to streaming video on demand (“D2SVOD”). The other is premium video on demand (“PVOD”) that is exclusively available on a film studio’s sister company OTT service — e.g., Warner Bros. makes its PVOD releases exclusive to HBO. What’s interesting here is how either approach reinforces existing scale advantages. For example, Disney+, with 50 million subscribers, has a huge advantage of HBO over WarnerMedia, which has 35 million, or Universal’s Peacock, which has under 15 million.

Finally, much of Peacock’s early momentum is a result of its free- or subsidized-access model. Let’s see what happens when HBO launches its ad-supported AVOD (advertising-based video-on-demand) service, which probably will be $5.99, $6.99, or perhaps $7.99 per month. My expectation would be that come 2021, AT&T will make HBO Max AVOD available to 100% of its subscriber base, which will drive penetration. I think that will be a fairer comparison of Peacock versus HBO today.

What is the value of library content compared with original content?

Acquired series generally depreciate in value over time. A few, like Friends, defy the trend and continue to grow in value, but they are the exception. The rest, which represents an enormous volume of content, eventually sorts itself down to AVOD services. This irks the content owners, who don’t like that their content is being treated as a commodity. But the truth is, there’s just a small amount of licensed content that is incredibly valuable. Most of it is filler engagement.

And if this content is “filler,” it makes sense that SVOD services instead prefer to make a massive shift to originals. Not just because of the rent-versus-own dynamic, but because only new original exclusive content, it seems, really drives subscription behavior en masse.

What about content for children?

Kids’ content is generally underappreciated. It’s purely IP driven, average production costs are much lower, and the repeatability is enormous. The number of times your child has rewatched Cars in the past five years probably exceeds the cumulative number of times you’ve watched any film in the past five years. That’s an enormous leverage opportunity for some of these services.

For the most part, the market has consolidated around Disney, a late entrant, and Netflix for Kids. There’s some belief that Nickelodeon can serve through CBS All Access and Showtime. But the important thing to understand is that parents are willing to platform-jump to find the content they want to watch. That’s one of the reasons we’re seeing children’s programming as one of the most valuable segments in streaming content because it’s one of the ones where the winner takes all, or two winners take almost all.

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About Matthew Ball

Matthew Ball was previously Amazon Studios’ first Head of Strategy, where he advised the company on programming, budgets, annual planning, partnerships and talent deals, metrics, and data analysis. He reported to the chief executive officer and chief operations officer. His work spanned original film and TV, licensed content, live sports, and linear. Prior to joining Amazon, Matthew was a Director of Strategy & Business Development at The Chernin Group, a leading digital media investment company founded by former 20th Century Fox Chief Executive Officer and News Corp. President Peter Chernin. Here, he helped the company acquire and grow several of the first major global SVOD services, most notably Crunchyroll, and make a series of venture investments including Pandora, Barstool Sports, and Headspace. Matthew Ball is now a Managing Partner of Epyllion Industries, which operates a venture capital fund, as well as venture and corporate advisory arms.

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This article is adapted from the July 31, 2020, GLG teleconference “Streaming Wars Update: Assessing Final Entrants to the Market.” If you would like access to this teleconference or would like to speak with Matthew Ball, or any of our more than 700,000 experts, contact us.