Is being a newcomer in the subscription streaming service streaming
market worth the struggle?
Introduction
As streaming service powerhouses such as Netflix and Amazon Prime Video dominate the Subscription Video-on-demand (SVOD) market, breaking into the industry has become as arduous as ever. This article aims to examine the key factors that drive the desire to enter this market and the strategies that have put the leading companies at the frontier of the SVOD market. To further the analysis of these factors, this article shines a light on a newcomer, Disney+, and the actions it took to propel its entry into this market, alongside its ongoing hardships as it struggles to stay at the top.
Incentives for Subscription Video on Demand (SVOD) expansion
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In recent years, there has been a surge in incentives for media and entertainment enterprises such as Disney and Paramount to launch their own subscription streaming services. This drive for new development stems from Netflix’s domination of the SVOD market for the last decade. So why is the SVOD market so sought after? There are three key reasons to become an important player in this market: high consumer interest in on-demand viewing, customer acquisition through hybrid/exclusive releases, and direct-to-consumer marketing.
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First, consumer interest in on-demand viewing has driven this market since the late 20th century and was the first step Netflix took to undermine Blockbuster. Initially, Netflix started as a DVD movie rental service allowing customers to place orders online for at-home delivery. As technology further developed, consumers could purchase Netflix subscriptions through service providers such as Apple TV, providing access to a variety of movies without the downside of shipping costs and wait times. This convenience of ordering movies, rather than having to walk down to your local Blockbuster, is exactly what makes the notion of on-demand so powerful.
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Second, the idea of hybrid releases, which allows films to be released simultaneously on platforms and in theatres, became highly popular throughout the COVID-19 pandemic. This enabled the synergy between the movie studio and the streaming platform, as the hype of a new movie created by cinema-goers resulted in home viewers’ interest in catching up by watching the same movie. Nevertheless, there have been some controversies surrounding diluted box office revenue by having cinemas compete with the premature availability of a film on home video. In some instances, major cinema chains require films to have an exclusive theatrical window of a minimum length. Another equally salient movie launch approach, stemming from hybrid releases, is that of revenue generation through exclusive releases, which involves creating video content only accessible through a select platform.
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Lastly, the largest stimulus to become an SVOD provider is direct-to-consumer marketing, as it provides a powerful method to market to captive consumers. Since streaming services generate significant revenue from advertisements, this in turn allows for cheaper or free subscriptions for consumers. For example, Netflix offers a monthly subscription at a discount rate (compared to its typical monthly rate) with significantly fewer advertisements for their offered movies, and Crackle popularized free streaming including significant advertising.
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The flip side of the coin is that companies in the traditional media distribution business, that lagged entering the SVOD market, saw significant revenue loss in their main, traditional business. For example, ViacomCBS (now Paramount Global), owner of Paramount+, saw a greater than 40% stock drop in March 2021 due to new shares offerings sending jitters into the analyst community, as a signal that the company is struggling to compete with the established streaming companies. Similarly, AMC Networks had a significant share drop at about the same time, also for lack of market confidence in their business growth. The graph below highlights how the similarity in stock price performance for Paramount Global and AMC Networks contrasts the performance of a well established streaming business such as Netflix:
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Fig 1. Stock prices over a five year period showing significant decline for AMC and Paramount in contrast to Netflix
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Let’s talk Disney+ - Background and Rise as a streaming service
In late 2019, family entertainment and media enterprise powerhouse Disney launched its highly anticipated streaming platform, Disney+. This initial move to a new market was signalled upon in 2016 after Disney acquired a minority (33%) stake in BAMTech, an SVOD company with footing in many sports streaming platforms. A year later, Disney acquired a majority (75%) stake in BAMTech allowing it to begin the TV series production of the well-anticipated Star Wars spin-off, the Mandalorian. To further promote the release of the Mandalorian, Disney strategically leveraged the hype of the soon-to-be-released 9th Star Wars episode (Star Wars: The Rise of Skywalker). Disney did so quite well, since within 24 hours of its initial launch, Disney+ attracted a staggering 10 million subscribers, which rose to 50 million within 2020.
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It is essential to note that the cost of running a streaming service is gigantic, but also necessary, to enable platform scaling for customer acquisition. Disney+’s costs were around $8 billion in 2023, whereas Netflix spent over $17 billion in the same period. These investments, if properly timed, can both enable future growth and become a formidable barrier of entry for competitors.
Fig 2. Estimated content spending for for major media companies
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Disney+ Subscriber Issues
Disney+’s early success story was, however, short-lived as it now struggles to grow market share, with an underwhelming 11% - half the market share of Netflix and Amazon Prime. This market share struggle emanates from a standstill (and even a small decline) of subscribers in 2023 and 2024. To further assess this main struggle, additional examination of the actions its largest competitors took to remain leaders of this market share is necessary.
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Fig 3. Market share of major SVOD companies
The first, and largest competitor worth discussing, is Amazon Prime. Similar to how Disney+ came to fruition, Amazon Prime Video emerged from its parent company, Amazon. However, Amazon Prime Video was able to transcend Disney+’s breakthrough, as it was offered as part of the Amazon Prime subscription, the popular and widely-used online shipping service. At the time of Amazon Prime Video’s release (late 2016), Amazon Prime had over 65 million subscribers, providing a huge momentum gain for Amazon Prime Video. Moreover, this deliberate Amazon tactic allowed a seamless integration of their streaming service into their massive product ecosystem and automatically generated a market share as Amazon Prime Video was seen as an extension of Amazon Prime, rather than an additional monthly subscription fee to its users.
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The second, and most experienced competitor to consider, is Netflix. Apart from being a revolutionary to the subscription streaming service market, Netflix remains prominent by constantly releasing Emmy-winning Netflix exclusive shows or featuring the latest movie releases in North America. This captivating tactic entices consumers to frequent Netflix, stay on top of their favourite shows, or watch the “top trending movies in Canada” as labelled by Netflix. However, producing shows comes with a budget toll as an episode of a hit show such as Stranger Things can cost up to 30 million USD to produce, and with 34 episodes per season, Netflix spends almost 700 million on just one show! Nonetheless, this significant investment remains profitable, as evidenced by another record-breaking quarter in Q2 2024, with 6.6 Billion USD in revenue and a projected 6.6% year-on-year increase:
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Fig 4. Netflix show production costs in USD($MM's)
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The maturity of the Netflix business recently enabled them to focus on profitability reporting as their primary performance metric, versus subscriber growth.
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The final, but equally important competitor to examine, is HBO Max. Launched in 1972, HBO pioneered modern pay television by directly transmitting to individual cable television systems. HBO paved the way for pay television services that require a monthly fee. Additionally, HBO produced many exclusive shows that were available on cable services, which followed the typical release routine of programmed television with weekly movie or series releases at a certain time. This caused consumers to incorporate watching these shows as part of their weekly routine. HBO Max remains dominant by combining its arsenal of unique TV shows with weekly episode releases. Weekly releases have proved to be powerful, as they increase customer satisfaction by mitigating binge-watching of shows, which translates into increased retention rates, as consumers now have to be subscribed for several weeks or months to complete their favourite shows.
Conclusion
As Disney+ finally became profitable in the second quarter of 2024, it still shows signs of great promise - but what actions in particular should it take to gain market share? From the thorough analysis of its competitors, Disney+ needs new exclusive releases. As of Summer 2024, Pixar began production of its first original series, Win or Lose, an animated show about young athletes preparing for a championship, catered to a younger audience; this approach will primarily cater to roughly 22% of Disney+’s youngest subscribers, aged 1-17 years. Concurrently, Disney+ is leveraging its past success with its two big brand names, Marvel and Star Wars, by releasing three new TV series: IronHeart, Daredevil (Marvel), and Star Wars: Skeleton Crew. These new releases are projected to increase Disney+ revenue by another ~ USD 5 million in the next quarter of 2024.
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As the Subscription Video on Demand market matured, due to its three leading competitors, new companies looking to enter this market will have a rather difficult and risk-prone time. A newcomer will likely have to make a breakthrough by propelling itself with a new tactic or idea to entice consumers to join their platform, a feat that was proved to be rather difficult as observed through Disney+’s attempt to surface in this market.
References
Business of Apps. (2020, May 13) Disney Plus Statistics
The rise of streaming services: How they are changing the Film Industry (2021, Sept 24) Starburst
Global SVOD Market Share Trends based on audience demand for Digital Originals. (2019, May 5) Parrot Analytics
HBO max: How they conquered streaming with quality over quantity (2024, May 22) ProfileTree.
Most expensive Netflix series 2023. Stoll, J. (2024, May 15). Statista
International Energy Agency (IEA). (2024). Global EV Outlook 2024.
U.S. Energy Information Administration (EIA). (2024). Short-Term Energy Outlook - June 2024.
McKinsey & Company. (2024). A Year of Electric Vehicle and Mobility Trends.
Resources for the Future (RFF). (2024). Global Energy Outlook 2024: Peaks or Plateaus?.
World Nuclear Association. (2024). Nuclear Power in the World Today.
Earth.Org. (2024). What the Future of Renewable Energy Looks Like.
Financial Times. (2024). Volkswagen Scales Back EV Investment.
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