Why Netflix May Prove To Be A Transitional Enterprise, Not the Future of Media

Just as Netflix dispatched Blockbuster and the retail video rental model, so it may, in turn, be undone by market fragmentation driven by other media companies like Disney, Apple, Google (YouTube) and Facebook or governments like France and China, all wanting to capture streaming viewership, revenue and advertising potential for themselves.

Consumers are unlikely to pay for six or seven competing packages. Eventually, someone will aggregate them - again. But the big question is who that will be: telecoms, internet service providers, tech company ecosystems, hardware manufacturers like Samsung or Huawei, or national governments. It's going to be messy - and not at all clear that Netflix can prevail without allying or being acquired to create sufficient scale. JL


Rich Haridy reports in New Atlas:

Streaming promised a more cohesive future entertainment world, a step beyond the messy, fragmented universe of cable TV where one chose from combinations of "bundled" networks. The irony consumers will soon face is that the subscription streaming landscape may move through the same loop cable TV went through in the 80s and 90s. Every major content producer in Hollywood (is) rushing to consolidate their own catalogs. Streaming services will not be just be content aggregators but also content producers. Why license out your TV and film archives when you can build your own streaming service?

For the last decade Netflix has rapidly built an empire that was more than just a new way to watch television and film. Netflix pioneered the on-demand subscription model of streaming mainstream movie and television content over the internet. From releasing entire seasons in one fell swoop, to blurring the line between a TV series and a film, Netflix was not just a disruptor in an industry that had become complacent, it was a nuclear bomb, forever dismantling an entire entertainment business model.

Audiences making the transition to streaming have had it easy over the past few years, only having to navigate a small handful of offerings. Netflix, Amazon, and Hulu, plus a few smaller niche entries made subscription decisions relatively straightforward. However, the first phase of the streaming transition is now over and as we look towards 2019 and beyond we see a looming battleground with every large media company beginning to catch up.

Over the next 12 months several major players will look to challenge Netflix's supremacy – Disney, WarnerMedia and Apple are all entering the streaming fray. So get ready to make some choices as the streaming landscape fragments.

Netflix is not a television network, Netflix is television

More prescient observers may have better read the writing on the wall but the rise of Netflix, and streaming in general, seems to have taken much of the entertainment industry by surprise. Back in 2011, Brian Roberts, CEO of Comcast, the company overseeing NBC, one of the largest broadcast networks in the United States, expressed great positivity at this young streaming upstart called Netflix. Roberts essentially saw Netflix as value-adding the large back catalog of NBC content, literally referring to Netflix as a new euphemism for "reruns".

"We're not seeing it cut into our core business, but we are glad as a producer of content to see the value of that content rising," Roberts optimistically said in 2011.

While the early 2010s were filled with Netflix scraping major content deals from Hollywood's big players, the streaming service knew its model was on shaky ground. It was well aware that a business model based on licensing other company's content would quickly become unviable. To be entirely secure it needed to become a ground-up content producer, and it needed to get onto this quickly, before the major studios wised up and pulled their libraries of TV and film into their own streaming services.

In 2011 Netflix began its original content mission, but the first programming didn't appear until 2013, when season one of House of Cards dropped in its entirety on the service. Over the next few years Netflix was not shy about declaring its grand plans, yet it still took a while for Hollywood to take this new player seriously. While Hollywood continued doing what it had been doing for decades, Netflix was pumping billions of dollars into its original content pipeline, from funding shows at the development stage to buying the rights of others during post-production. This was a game of quantity over quality, and it worked.

By the end of 2018 Netflix had spent over US$12 billion on content, just in the prior 12 months alone. Worldwide, the company has produced, or exclusively acquired, around 700 different television shows, and hundreds of movies. And the pace is not slowing down, with that yearly original content spend continuing to grow as the company pumps billions more into producing everything from reality TV to potential Oscar-winning movies.

The Disney challenge

In 2016 Disney invested a billion dollars into a streaming technology company called BAMTech. It was the first step in the company's long game to get into the streaming business. Over the next couple of years Disney consolidated much of its content, while also spending over $50 billion to acquire the entire back catalog of 20th Century Fox content.

And in 2018 Disney+ was revealed. Due to launch in 2019, Disney+ will be a huge new streaming player, composed of everything from Disney's enormous back catalog of movies and animated films, to both old and new content from the Marvel and Star Wars universes.

Disney+ is going to be big. It's estimated that on launch it will boast over 7,000 episodes of TV and 500 movies, with a vast array of original content on the horizon, including Marvel, Pixar, and Star Wars TV shows. And Disney+ isn't the only streaming service Disney is investing in. The company will also launch a massive sports streaming service called ESPN+, and it's rumored to be working towards gathering a majority stake in the Hulu streaming service. All in all, this will suddenly turn Disney into a massive streaming delivery and production player.

Just a billion dollars in content

Not to be outdone, Apple started laying the foundations for its own original content in 2016. The company, already technologically equipped to stream content to hundreds of millions of people around the world, slowly built up a team of former major studio executives before dropping a raft of huge content announcements in 2018. With an initial annual production budget of around $1 billion, the company revealed upcoming productions to include a comedy-drama series featuring Reese Witherspoon and Jennifer Aniston alongside original series from Oscar-winning creatives such as Damien Chazelle and M. Night Shyamalan.

At this point it is unclear exactly how Apple is planning on rolling out its original content but the rumors are it will attempt to upend the subscription model by offering many shows free of charge to existing Apple device owners. This may take the form of a new "TV" app appearing on Apple TVs, iPhones and iPads.

The ability for Apple to roll original media content into its pre-existing technological ecosystem certainly places it in a novel position. But how many billions of dollars is it willing to burn in the attempt to drag streaming audiences away from the torrent of other services that are popping up?

How many streaming subscriptions can you handle?

Alongside all of this we find every major content producer in Hollywood rushing to consolidate their own back catalogs. It seems Netflix's 2011 prediction was prescient, to say the least. Streaming services in 2019 and beyond will not be just be content aggregators but also content producers. Why license out your TV and film archives when you can build your own streaming service?

WarnerMedia is another big player set to reveal a new streaming service in 2019. This one will aggregate decades of Warner Bros film content, including such franchises as Harry Potter and the DC comics films. WarnerMedia also manages a vast array of TV content from HBO series to the Cartoon Network.

And just to add more insanity to the mix, we must not forget the broad array of smaller streaming services producing original content. Facebook Watch, CBS All Access, YouTube Premium, and many more are producing original TV shows or movies designed to drive subscribers to their own services. Back in 2016 this burgeoning production pipeline was described as a looming "arms race," but in 2019 we will see the beginnings of an outright war.

Streaming is undoubtedly the future of entertainment delivery but how many subscriptions can one household handle? In an increasingly fragmented streaming universe are you willing to pay for five or six different monthly subscriptions?

A decade ago streaming promised a more cohesive future entertainment world, a step beyond the messy, fragmented universe of cable TV where one chose from infinite combinations of "bundled" cable networks. The irony consumers will soon face is that the subscription streaming landscape may move through the same loop cable TV went through in the 80s and 90s. Fragmentation, leading to bundled packages, culminating in consumer frustration. It is nearly impossible to envision a future where Disney, Apple and Netflix all agree to some kind of single bundled streaming subscription, so in the short term get ready to manage a complicated portfolio of personal subscriptions.