11◼ REMARKS Bloomberg Businessweek August 5, 2019ILLUSTRATION
BY
SCOTT
GELBER
● Mediabehemothswanttoconquer
a realmnowdominatedbythelikesof
Netflix.ThinkTheHungerGames● ByFelixGilletteandGerrySmith
AllOver But
TheStreaming
Anyonewhowantstowatcha dramatic,treacherousracein
themonthsaheadshouldcheckouttheescalatingcompeti-
tionintheworldofstreamingvideo-on-demandTV.It prom-
isestobethemediaindustry’sequivalentoftheBadwater
Ultramarathon,theannualspectacleinwhicha steelygroup
ofenduranceathletesgatherinthearidlowlandsofCalifornia
andraceuphillonfootfor 135 miles.Inthesummertime.In
DeathValley.
Bythistimenextyear,AT&T’sWarnerMediadivision,
Comcast’sNBCUniversal,WaltDisney,andApplewillallhave
releasedsinewynewstreamingvideoservices,takingonthe
existingonesfromAmazon.com,CBS,Hulu,andNetflix.It’s
unlikelythatanyofthesemediaandtechgiantswillescape
thisloomingshowdownunscathed.Eventheultimatewin-
nersareexpectedtolimpintothefuturebloodiedandbat-
tered.Nextyear“isshapinguptobeTheHungerGamesfor
thestreamingservices,”saysJamynEdis,anadjunctassociate
professorattheNewYorkUniversitySternSchoolofBusiness.
ThemediaconglomeratesaretryingtowinonNetflixInc.’s
turfnowbecausetheydon’thavemuchchoice.Thesuccessof
Netflix’smodel—charginga monthlyfeefora largeamountof
ad-free,on-demandprogrammingthatstreamstoanyinternet-
connected device—has inspired millions of people to cancel
their pay-TV service and get their home entertainment online.
At the same time, the telecommunications and tech industries
have watched Netflix and Amazon Prime Video harvest vast
amounts of valuable consumer data from their viewers and
decided that starting a successful streaming service might be
a great way to sell more of their existing products—phones for
Apple Inc., wireless contracts for AT&T Inc. The trick will be
to persevere through the short-term hazards.
Consider the myriad pitfalls of the course ahead.
For decades, Disney, NBC, Time Warner, and other enter-
tainment behemoths enjoyed a lucrative, straightforward
business model. They packaged TV programs into chan-
nels, then sold them to consumers through cable and sat-
ellite distributors such as Comcast Corp. or DirecTV, which
pass along recurring subscription fees even if few peoplearewatchinga particularchannel.Thenetworkscollected
billions of dollars from the advertising they served up during
commercial breaks.
The streaming world, on the other hand, has proved
largely inhospitable to commercial interruptions. Netflix and
Amazon Prime Video don’t have any. And both have toughed
it out to dominate the market without needing advertising
income. (Hulu LLC has a cheaper version of its service with
limited commercials, but it’s started capping their length to
avoid upsetting viewers.) The new entrants have to master
the art of attracting and retaining loyal streaming subscrib-
ers to survive in the long run. It won’t be easy.
In the days before streaming, if a media conglomerate had
a lull in one of its network’s lineups, it was insulated from the
resulting viewer apathy by big bundles of adjacent options.
For example, a subscriber to Dish couldn’t cancel the Food
Network without also ditching CNN, ESPN, and TNT, among
hundreds of others. Even the process of canceling was unap-
pealing. It required the hassle of calling a customer service
rep trained to bob and weave and wear down would-be turn-
coats with enticing counteroffers.
The dynamics of the new race are much less forgiving. The
internet has made canceling streaming services easy. There
are no calls, no resistant sales forces to overcome, no sacrific-
ing of co-bundled products. To abandon one service in favor
of another takes only a few clicks. As a result, a momentary
dry spell in a streaming network’s lineup can trigger an out-
break of sudden departures.
Brett Sappington, an analyst with Parks Associates, a
market research and consulting company, says that though
annual cancellation rates among traditional cable and sat-
ellite distributors hover around 4%, surveys of consumers
show that churn rates at streaming services tend to be sig-
nificantly higher. Netflix, which has the lowest turnover rate
of any streaming service, still loses about 7% of its existing
subscribers each year, he says. It goes up from there. “The
newest services are the ones that have the highest churn,”
Sappington says.
Not bound by long-term contracts, streaming subscribers
can easily be lured away. In surveys, Parks Associates found
that 28% of consumers said they have subscribed to a stream-
ing service to check out just a single title.
To retain subscribers and entice those of their rivals, the
services will have to strive to stock both popular reruns and
fresh batches of original programming, which will be hugely
expensive. In preparation, the competitors are taking some
drastic measures.
Recently, Walt Disney Co.—the company with argu-
ablythedeepest,richestlibraryofbelovedcharactersand
showsontheplanet—decideditsprogrammingstockpile
stillwasn’trobustenoughandpaid$71billionforthebulk
of21stCenturyFox.Earlierthisyear,Disneyagreedtopay
atleast$5.8billion to Comcast to take over full control of
Hulu. CBS Corp. has introduced several original series exclu-
sively for its online channel, CBS All Access. These include