The streaming wars to come
S06E01: Game of Streams (The streaming wars to come)
Our Media Solution Specialist, Magnus Svensson, is sharing his reflections on the online streaming industry in this post. This is part of a monthly series so make sure to follow us here if you do not want to miss an episode.
It is not just sleep anymore… in the latest Netflix shareholder letter you could read: “While this added competition may be affecting our marginal growth some….” Even if Netflix reported a net growth of 8.3M new Netflix subscribers to a total of 222M, which is still exceptionally good, the increased competition for viewers starts to become evident.
The small note in the shareholder letter emphasizes the state of the so-called streaming wars. Economy of scale is very evident and the increased competition over the last years makes it harder for the established services to continue to grow at the same pace quarter after quarter. All entertainment services compete for the same limited inventory, the viewer time.
To stay relevant as a service you need to keep the viewer in your domain as long as possible. Attractive content is of course the most important piece of the puzzle, but that is not enough. The content needs to be presented in an engaging and easy to use way, both inside the service but sometimes also where the users are.
A service of today needs to expand in all directions and span over multiple areas, in most cases a horizontal expansion within the streaming wars three layers, more on that later. Connected to your content that could be for example sports, movies, series, or news, you could offer connected offerings such as podcasts, merchandise, games, and communities. It could also be that you distribute your content in multiple channels and formats, either direct or through partnership with other services or distributors.
The battlefield of streaming
You could illustrate the streaming wars in three layers, service, platform, and distribution. The service is what most people are aware of, usually in the form of an application that contains the content and service offering. The platform is the enabler for the service and application. This could be for example a streaming device, a smart TV, a game console, or a set top box. Finally, distribution is the way the content is reaching the platform and the services. This includes the broadband connection, the CDN, and the home environment with routers and Wi-Fi connections.
Some companies focus on one layer while others try to expand into multiple layers. And some companies focus on providing one part of the layer while others span over multiple parts of the same layer. In general, the bigger the piece you try to swallow the harder it gets.
Netflix focus is horizontal scale within the service layer, with movies and series combined with games and podcasts. They leave the platform layer for others, but they grab a bit of the distribution layer with their own cache servers that are distributed across the world. Disney have similar focus with the difference that they today utilize partners for the distribution, for example open caching instead of their own servers. Apple, however, are stronger in the platform layer but still active within services to drive the platform business. As Tim Cook stated at the last earnings call “We don’t make purely financial decisions about the content. We try to find great content that has a reason for being.”
The platform layer might be the most interesting battlefield with multiple large companies fighting to grab as big a piece as possible. Most combatants also expand into other layers, mostly providing their own service as part of their platform. As for the mobile phone industry, we will see a consolidation of the platform layer to a few giants. And most likely the same giants as for the mobile phones will be candidates also for TV and streaming.
The network layer might be the area that are going through the biggest change. Traditionally TV and video was distributed through closed network and content owners and services had to use the network owner to reach the viewers. Pay-Tv distributors, e.g., cable or satellite companies relied on monthly subscription fees paid by the viewers.
When more and more content is distributed over the public internet that leverage for the pay-tv distributor decrease. To keep the subscribers, they expand into other layers, mainly with their own streaming services but also providing their own platforms in the form of streaming devices and lately smart-TVs. A more natural expansion might be to grow their part of the distribution layer and provide a better experience for the viewer and the service provider. This could be better internet connection, including the home equipment, for the viewers and efficient caching for the service providers.
Common for all layers is the increased competition, the economy of scale and we will see less combatants in each of the layers. With that said, it is far from impossible for smaller niche players to establish in any of the layers. But you need to do this in an efficient way and leverage partnership and cooperation. While the big combatants try to expand both horizontal and vertical, smaller players should instead stand on the shoulders of the giants.
To watch out for the coming months…
Some large events are coming up, including the Olympics and Super Bowl. This year we will see a clear trend towards streaming taking a bigger share of the viewing. We will also see a huge uptake on alternative distribution formats with highlights distributed on TikTok, Snapchat and other services combined with behind the scenes from the athletes. The content will reach the viewers where they are.
Magnus Svensson is a Media Solution Specialist and partner at Eyevinn Technology. Eyevinn Technology is the leading independent consulting company specializing in video technology and media distribution.