Here’s what makes ‘On My Block’ one of Netflix’s most intriguing shows
The video-streaming industry is crowded with big names—some with already-existing services and others with impending apps. Considering the current three largest platforms, the agglomeration of media companies, and the tech companies investing heavily in video, it can be hard to wrap your head around the sheer scope of the entertainment giants that make up this market.
Each service has its own origin story, business interests, and exclusive originals and licensed content. There’s also a wide assortment of fluctuating prices, packages and plans, and technology under the surface.
“We’re seeing a ton of fragmentation,” said streaming media consultant and expert Dan Rayburn. “NBCUniversal is coming out with a service, Disney, WarnerMedia, Viacom bought PlutoTV, Amazon launched IMDb Freedive, and on and on. Netflix, Hulu, Facebook, YouTube, Amazon Prime, HBO…as consumers we’re inundated with video everywhere we look.”
Here are the most important streaming services to watch in the next hyper-competitive phase of this industry, including interviews with execs from Amazon Prime Video, Hulu, CBS, and Disney, as well as industry analysts and experts.
The modern streaming industry begins and ends with what many have dubbed the “Netflix Effect”: Regardless of how many Oscars, Emmys, or Golden Globe Awards the one-time DVD delivery service does or doesn’t win, Netflix’s digital subscription model and its massive investment in originals have set the bar for the market. Netflix reported 58 million US subscribers in September and 139 million subscribers worldwide in Q4.
The company generated $1.2 billion in annual net profit on $15.8 billion of revenue in 2018, giving it a current market valuation of around $154 billion, according to Bloomberg. Netflix keeps burning cash and raising debt financing to fund its original-content creation, but for now, the strategy is working. The service adds millions of subscribers around the globe each quarter.
Even a recent price hike isn’t expected to dent Netflix’s subscriber base much. Jeffrey Cole, a Research Professor at the USC Annenberg School for Communication and Journalism, and Director of USC’s Center for the Digital Future, believes Netflix could be charging a lot more.
“It must drive [Netflix founder and CEO] Reed Hastings crazy that a dozen years ago in the red-envelope days, he gave you five DVDs at a time and unlimited streaming for $16 a month. Now he’s giving you not just five theatrical films at a time but dozens or hundreds plus massive amounts of old television shows and $12 billion worth of originals for $9 or $13 or $16 a month,” said Cole, who has researched the television, media, and streaming industries for almost three decades.
“If you paid $16 for five DVDs, you should pay $40 for what you’re getting now. But when Netflix broke the company in half, each side priced down at $8. So Netflix is already handicapped by how much it can charge,” added Cole. “How much it can spend on originals depends on how fast it grows, and its growth is international. It will hit a wall…the only question is when.”
Netflix is ramping up other revenue streams, including a reported expansion of its ad business with more product placement in originals such as Queer Eye. And despite spending more than $1 billion a year on technology, CEO Reed Hastings still positions Netflix as more of a media company akin to Disney than a tech company like Apple or Amazon. Netflix is “mostly a content company powered by tech,” he told Recode in response to a question about industry regulation.
That posturing is largely semantic; in reality, modern streaming players are all media, entertainment, and tech companies rolled into one.
Amazon Prime Video
Unlike Netflix, Amazon has no discernible caps on how much it can spend, and its business model isn’t dependent on video subscribers. Amazon confirmed in 2018 that it has more than 100 million Prime members, and Prime Video’s US audience was around 26 million as of last year, Reuters reports.
Prime Video’s core value is to drive more Prime subscriptions at $119 a pop per year, which last year went up from $99 in the first price hike since 2014. So Amazon has no qualms about shelling out billions for original series and films on the indie festival circuit through Amazon Studios. Standalone Prime Video costs $8.99 per month.
Amazon also owns Prime Video’s underlying infrastructure. Streaming high-quality live and on-demand video requires a complicated content-delivery pipeline, from data hosting and storage to encoding and packaging files, all the way down to content delivery networks (CDNs) and playback. Amazon controls the pipes, and Prime Video can enjoy seemingly infinite scale thanks to Amazon Web Services (AWS).
Other streaming platforms need Amazon’s cloud, too. Netflix, for instance, spent years and untold millions building out its own global CDN network(the only streaming provider to do so) but relies entirely on AWS for cloud computing and storage.
“We package up and have built our technology infrastructure on top of AWS,” said Girish Bajaj, VP of Software Engineering for Amazon Prime Video. “Because we serve millions of customers and operate this massive amount of scale, it gives both Prime Video and AWS expertise in how to actually operate these systems, and with that level of scale comes cost savings that we then are able to offer back to customers on the consumer side as well as the enterprise side.”
Amazon has been competing with Netflix for years, but Apple’s high-profile entry into the streaming landscape has the potential to further tip the balance of power toward the tech industry.
Last week, Apple unveiled its Apple TV+ and Apple TV Channels services. TV Channels is coming in May with a major Apple TV software update, and TV+ will be available this fall in over 100 countries. The redesigned Apple TV app is also coming to more form factors, including Roku and Amazon Fire TV devices, and smart TVs from Samsung, Sony, LG, and Vizio.
The new Apple TV app will offer original content through the Apple TV+, as well as streaming app and network subscriptions through TV Channels, which is similar to the add-ons offered by Prime Video and Hulu. We don’t know what Apple TV+ will cost yet, but Apple confirmed it will be an ad-free subscription service, seemingly disproving reports that Apple TV and iOS users would get access to Apple’s original content for free. However, both TV+ and TV Channels will be available to other users in a household via Apple’s Family Sharing.
Through TV Channels, Apple aims to bring an App Store-like gatekeeper approach to controlling streaming content on iOS devices, and will reportedly take a 30 percent cut on every streaming app subscription through its service. That’s a steep commission, but in line with the 30 percent it currently takes on premium app and streaming-service subscriptions through the App Store. The commission drops to 15 percent for subscription renewals.
TV Channels is launching in May with some big partners, including Amazon Prime Video, HBO, Hulu, Showtime, Starz, CBS All Access, and many others (but not Netflix); Apple showcased Prime Video originals such as The Marvelous Mrs. Maisel in demos during its launch event. TV Channels will also let users choose traditional cable bundles from providers such as Optimum and Spectrum, as well as over-the-top (OTT) cable replacement services including DirecTV Now and PlayStation Vue.
Apple’s Grand Designs
This strategy is part of Apple’s broader push into software and services: It has grand designs to expand to several other industries beyond the steadily growing chunk of recurring revenue it currently makes from iCloud, Apple Music, and Apple Pay. Amid stagnating iPhone sales, Apple’s glossy launch event for its new slate of services highlights how Apple sees its future growth.
Apple, like Amazon, owns its data centers, so every new service it releases holds tantalizing profit margins. Along with its new streaming offerings, Apple also unveiled its $9.99-per-month Apple News+ service for a bundled subscription to 300 magazines and newspapers, its Apple Arcade games subscription service, and the Goldman Sachs-backed Apple Card.
For all of these services—particularly where it’s aggregating content under its own banner—Apple will take a hefty cut. The Wall Street Journalreported that the tech giant is demanding 50 percent from news publishers for Apple News+, which is built on Apple’s acquisition of Texture, described as a “Netflix for magazines.”
As for original content, Apple’s shows will reportedly be family-friendly; no sex, violence, or profanity from Cupertino. When adding yet another online content platform to the digital media pile, banning R-rated content of any kind is certainly one way for Apple to differentiate its originals. That, and signing Oprah to make documentaries and bring back her book club as Apple exclusives.
“I think entertainment’s going to become a key element of Apple’s business,” said USC’s Jeffrey Cole. “For them, spending $2 billion on [original content] is just dabbling. If they like what they see, I think they’ll have a $10 billion budget.”
The third established veteran in the market, Hulu is a particularly intriguing player given its new mouse-shaped overlord. Hulu now has 25 million subscribers across its ad-supported, ad-free, and Hulu + Live TV services; it declined to break down that number into specific subscriber totals in an interview with PCMag.
With Disney’s acquisition of 21st Century Fox, the entertainment powerhouse also picked up Fox’s 30 percent stake in Hulu, giving it a majority 60 percent (it already owned 30 percent). Variety reports that Disney is in negotiations with AT&T to pick up an additional 10 percent stake, leaving Comcast/NBCUniversal’s remaining 30 percent as the only outside ownership stake in a streaming platform that has long represented the network TV industry’s collective streaming interests. Not anymore.
“Hulu really benefited, I think, by being owned by a handful of studios. Now it’s basically a division of Disney,” said USC’s Cole.
But Cole doesn’t believe Comcast will relinquish its Hulu stake for less than a kingly price. He cited Comcast’s ultimately failed $65 million bid to steal 21st Century Fox away from Disney and the open secret of bad blood between Comcast CEO Brian Roberts and Disney chief Bob Iger.
Beatrice Springborn, Vice President of Content Development at Hulu, said the service doesn’t measure success by nightly ratings or individual show performance. It’s about getting new subscribers to sign up for Hulu, watch a lot of content on the platform, and remain subscribers for the long haul.
As for how Disney’s streaming plans will affect Hulu, Springborn said the company is staying the course until directed otherwise.
“It is impossible to predict the future, but we do know that Hulu is a major strategic asset for all of our owners. Hulu added 8 million subscribers last year, and that kind of growth is only possible when you have owners that support you and are aligned with your strategy,” said Springborn. “There is a lot of noise and speculation about transactions right now, but our teams are staying laser-focused on making Hulu the number-one choice for TV.”
Following Netflix’s price increase, Hulu took the opposite route and cut the price of its entry-level ad-supported plan from $7.99 to $5.99 per month. But it did raise the price of its Hulu + Live TV plan package from $39.99 to $44.99 per month.
WarnerMedia is the most recent example of high-profile corporate consolidation fueling the next wave of streaming services. The newly formed pool of media brands and TV channels centralizes AT&T’s Time Warner assets under one streaming roof.
AT&T’s major corporate restructuring of WarnerMedia was enacted shortly after the long-awaited regulatory approval of its merger with HBO and Turner parent company Time Warner. (HBO and Turner initially agreed to participate in this story but dropped out shortly before their scheduled interviews, in the wake of the sudden resignations of longtime HBO chief Richard Plepler and Turner head David Levy.)
The major changes approved by AT&T exec John Stankey (pictured above) include installing former NBC and Showtime head Bob Greenblatt as the new chairman of WarnerMedia Entertainment, the division handling WarnerMedia’s TV assets and direct-to-consumer operations. He will oversee the group’s crown jewel—its forthcoming streaming platform combining all the content from HBO, TNT, TBS, TruTV, CNN, the CW, Warner Bros. and DC Comics films, Cartoon Network, and more under a single app.
HBO will still be offered as a standalone service, but all of the premium cable network’s original series, movies, documentaries, and so on will also be incorporated into the as-yet-unnamed WarnerMedia streaming service, which is targeted to launch in Q4 2019. We don’t know pricing details, but Stankey said it’ll be more expensive than HBO Now’s current $14.99-per-month cost, which will put AT&T’s service at the high end of the price continuum. AT&T CEO Randall Stephenson said on an earnings call that the new service will have a “two-sided business model” with both a premium tier offering commercial-free programming and a more affordable ad-supported tier akin to Hulu.
AT&T’s first foray into OTT streaming, DirecTV Now, hasn’t enjoyed long-term success. It went with the cable-replication model of bundling channels together into various digital packages, similar to other Virtual Multichannel Programming Distributors (vMVPDs) such as Hulu + Live TV, Sling, PlayStation Vue, FuboTV, and YouTube TV. But as competition has increased, DirecTV Now subscribers have been fleeing in droves. The service lost 267,000 subscribers in Q4 of 2018 alone, and it has raised prices twice in the past year: a $5 increase last July and another $10 hike in March.
The telecommunications giant’s move to buy Time Warner exemplifies a corporate-level shift across the industry away from that costly standalone model and into Subscription Video On-Demand (SVOD) with its WarnerMedia streaming service.
“We’ve been talking about cord-cutting for years and the death of cable for a decade, but how many subscribers do these services have?” said Dan Rayburn. “Sling is small. YouTube TV and PS Vue are less than a million each. DirecTV Now is down. That’s the reality of this business. None of those services can survive on their own because of the cost of standalone.”
Comcast-owned NBCUniversal’s streaming service is set to launch in early 2020. There’s still much we don’t know, but the ad-supported service will reportedly be free for Comcast and Sky cable subscribers, as current on-demand episodes are on network websites with a cable login. NBCUniversal also hopes to ink deals to offer the service free to subscribers of other cable providers such as Charter, DirecTV, and Dish.
The company will also offer a paid, ad-free version of the streaming service for non-cable subscribers. That gives NBCU a subscriber pipeline back to traditional cable and a standalone paid subscription offering to compete in the crowded market for a slice of consumers’ monthly entertainment budgets.
“We think we can get around $5 a month from people who would use a free service,” said NBCUniversal CEO Steve Burke.
One media giant that often flies under the radar in the streaming wars is CBS, which owns Showtime and CBS All Access. The latter has spent a modest original-content budget on a few big franchises, headlined by Star Trek: Discovery and additional upcoming Star Trek series; The Good Wifespin-off, The Good Fight; a reimagining of The Twilight Zone from Jordan Peele (pictured above); and a coming adaptation of Stephen King’s The Stand.
CBS All Access is $5.99 a month with limited commercials or $9.99 a month without ads. Showtime is $10.99 for the standalone service, but you can buy or add the network to existing subscriptions through Prime Video, Amazon Fire TV, Hulu, Roku, Android, or iOS, or through a long list of cable and OTT streaming providers for varying prices. It’s also available to existing cable subscribers as Showtime Anytime.
CBS has been in the digital media and streaming games longer than most, going back to its 2004 deal to buy SportsLine (before CBS and Viacom split up in 2006) and CBS’ subsequent acquisition of CNET for $1.8 billion in 2008. CBS has built its own streaming infrastructure atop that stack and now has its business firmly planted in all the big buckets: traditional cable and news, live sports, premium cable with Showtime, and a standalone streaming app in CBS All Access. In its Q4 2018 earnings, CBS reported 8 million streaming subscribers, including 2.5 million for CBS All Access.
Marc DeBevoise, President and COO of CBS Interactive, spoke to PCMag about the company’s choice not to invest in Hulu a decade ago along with Fox, NBC, and ABC/Disney.
“Our greatest gift was not doing the Hulu deal. Because we didn’t, we saved our powder. That’s where All Access was born,” said DeBevoise. “We felt we could go out and compete, because we had 160 million users in the US across our web properties and reserved libraries of content with over 100 series. By the time 2014-2015 came around, we were ready, whether the content rights were exclusive or not. Then we had the conversation of putting original content on [All Access] to move the needle.”
To get a sense of where the broader entertainment and streaming industry is going for the long term, Disney’s strategy may be the model to watch most closely. Disney’s much-hyped Disney+ streaming service, set to launch in late 2019, will cost less than Netflix—Jeffrey Cole projects somewhere in the $6-to-$8 range per month—and offer a small number of big-budget originals on top of the vast library of content already in the Disney vault.
Disney has taken its time making a definitive, calculating, multi-stage entry into the streaming market, going back to 2016, when it invested $1 billion for a 33 percent stake in BAMTech. Formerly part of MLB Advanced Media (MLBAM), at one time the video-streaming company spun out of Major League Baseball powered streaming apps including MLB.TV, HBO Now, the NHL and PGA Tour apps, PlayStation Vue, and even the WWE Network streaming app.
BAMTech’s outside-consulting focus came to a halt when Disney bought another 42 percent stake to take majority control of BAMTech in 2017, and announced its direct-to-consumer streaming services, which would become ESPN+ and Disney+, in the same press release. ESPN+, which costs $4.99 a month or $49.99 per year, hit a million subscribers a few months after its launch.
Disney’s advantages outweigh its challenges as the Mouse enters the SVOD market. Armed with original Marvel and Star Wars series, the Disney and Pixar film vault, Disney Channel kids programming, and the 21st Century Fox catalog, including National Geographic, Disney+ looms large. JPMorgan projects Disney+ will eventually sign up more than 160 million subscribers—compared with Netflix’s current 139 million—on the basis of its “unmatched brand recognition, extensive premium content, and unparalleled ecosystem to market the service.”
Big-budget franchises like Marvel and Star Wars are key to Disney’s business strategy in all their forms: from Disney book series and toys, to blockbuster films and TV shows, to cruise lines and theme parks such as the massive Star Wars: Galaxy’s Edge parks opening in Disneyland and Disney World this summer. Disney’s end-to-end pipeline is the most fully realized version of a true content-industrial complex, and the one piece missing until now was a streaming subscription service.
As the new players, including Apple, WarnerMedia, and NBCUniversal, have found (or will find out), building a streaming platform from scratch takes time. Rayburn described BAMTech as “the special forces of our industry. They’re the best at what they do, and they’ve been doing OTT streaming longer than anyone. And by the time Disney+ rolls out, it will still have taken them 18 months to build it.”
The man building it is Joe Inzerillo, the CTO of Disney Streaming Services. Inzerillo is the former CTO of BAMTech and one of the founders of MLBAM. He oversees all Disney’s video-streaming tech, including Disney+ and ESPN+.
While Inzerillo wouldn’t comment on any specifics related to the content, original programming, or user interface of Disney+, he hinted to PCMag that Disney is cooking up some fresh storytelling mechanisms to bring its big, interconnected franchises—the Marvel and Star Wars cinematic universes—to viewers in fresh ways.
“The thing I find so incredibly compelling about [Marvel and Star Wars] is that it’s they’re one enormous narrative with a bunch of stories around it,” said Inzerillo. “So the user interface of a company’s streaming service that makes epic sagas like that needs to be user-connected and one narrative designed to showcase the content for you and put it in front of the fans that love it, not get in the way. But it also needs to be personalized. It needs to be able to do all sorts of things. So it’s the fusion of all those components to create this vision of a constant narrative.”v
Welcome to the Streaming-Industrial Complex
Now you know the players, let’s break down the escalating war for original content and the tectonic shifts in an industry that’s straddling the media, tech, and entertainment worlds. Then jump into the tech powering it all.
This article originally published at PCMag here