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"Young people don’t watch television any more," says Julien Leegenhoek, tech stock analyst at Union Bancaire Privée (UBP). In Switzerland, the amount of time 15–29-year-olds spend watching television has decreased by 50% in 10 years (barely more than 45 minutes a day in 2018), according to the Swiss Federal Statistical Office.
In the US, the pioneer of streaming, almost every demographic group is showing a declining interest in traditional television: paid television channels have lost more than 10 million subscribers in the last 10 years, according to the latest release from consulting firm Leichtman Research. Even more surprising is that 74% of US households are now subscribed to one of the top three video on demand services (Netflix, Amazon and Hulu), compared to 52% in 2015.
"The decline of linear television is inevitable," says Thomas Coudry, an analyst at investment bank Bryan, Garnier & Co. "Especially because the arrival of new platforms such as Disney+ will expand the SVOD offering and encourage more people to subscribe. This trend puts pressure on players in the traditional television industry, both paid and free, who now have to react."
"War has only just begun. And it will be epic."
Julien Leegenhoek, analyst at Union Bancaire Privée
Like RTS in Switzerland, Canal+ (Canalplay) and HBO (HBO Now), channels have started to offer "replay" offerings, giving viewers on-demand access to programmes that have already aired on their channels. But at a time when Netflix and Amazon Prime are ramping up their original content, that is no longer enough.
A major turning point was when Walt Disney, which has entertained generations of children via the Disney Channel, launched its streaming service. As well as aggregating its older productions, Disney is also offering exclusive content on its Disney+ platform, such as The Mandalorian, a Star Wars universe spin-off. It was one of the first strong reactions from a traditional player.
And it won’t be the last. In December 2019, US companies CBS and Viacom finalised their merger. The goal was to become powerful enough to develop an audience for its streaming offering, CBS All Access. “We are becoming one of only a few companies with the breadth and depth of content and reach to shape the future of our industry,” said Bob Bakish, CEO of ViacomCBS, in a press release.
Netflix: the end of the golden age
But the biggest moves are still to come, and, as always, will be in the United States: NBCUniversal (Comcast) has announced it would launch its SVOD service, Peacock, in April 2020. It will be joined by the long-awaited HBO Max from the WarnerMedia group, expected in spring 2020, which will include flagship titles such as Westworld, Chernobyl, The Sopranos, Sex and the City and the massive hit Game of Thrones. It will also host original content, such as a spinoff series from the Gremlins universe, which is currently in production.
"The expression 'streaming wars' has become widespread, and it isn’t just a figure of speech," says Leegenhoek. "In terms of the players involved, the number of platforms and the colossal investments expected, the war has only just begun. And it will be epic."
Netflix is already feeling the effects of the launch of Apple TV+ and especially Disney+, which both came on the scene in November 2019. In Q4 2019, the California company only gained 550,000 new subscribers in North America (the US and Canada), well below the 1.7 million it gained the year before. "Our low membership growth in UCAN is probably due to our recent price changes and to US competitive launches," said the company in a letter to shareholders published on 21 January.
"For about a decade, Netflix was more or less the only player in the market," says Thomas Coudry. "Today, it must compete with newcomers. But not all platforms are direct competitors. Disney and Netflix, for example, have fairly complementary approaches to content, which encourages people to subscribe to several services. In the US, for example, households subscribe to an average of 1.7 SVOD services."
Globally, SVOD customers currently subscribe to 1.43 streaming services on average. This figure will increase to 1.78 in 2024, according to Digital TV Research. This prediction leads several analysts to believe that there won’t be enough room for everyone. "At some point, the industry will undergo a concentration," says Coudry.
Analyst Dan Rayburn from US firm Frost & Sullivan sees things differently: "The question is not whether customers will pay for several subscriptions. They simply won’t have the choice not to if they want content!" Rayburn believes that the offers are complementary, because they all host very different content. "I’m not saying that tomorrow everyone will subscribe to six platforms, but you’ll see that many households will soon have four or five subscriptions."
Netflix has planned to spend $17.3 billion on producing original series and films in 2020
Whatever happens, the battle for the top has begun. And Disney is bringing out the big guns. In addition to offering its large catalogue of content at an affordable price ($6.99 per month, much lower than Netflix’s prices), the firm owned by Bob Iger is on the offensive. For the past several weeks, for example, Netflix ads have been banned on all of the group’s television channels (ABC, Disney Channel, ESPN, etc.).
"The price is important, but the key will be content," says Coudry. According to BMO Capital Markets, Netflix has planned to spend $17.3 billion on producing original series and films in 2020, compared to $15.3 billion in 2019 – much more than its competitors ($9 billion for Amazon and $6 billion each for Disney+ and AppleTV+).
But Netflix has a major problem: the California company is losing bigname programmes. The iconic sitcom Friends, a runaway success since the 1990s and the second most-watched series on Netflix in 2019, left the platform in early January and moved to HBO Max. The Office and several successful NBCUniversal series will do the same in late 2020 to join Peacock, Comcast’s future platform.
A flightier audience
Netflix wasted no time in responding to these attacks. In August 2019, the showrunners of Game of Thrones – David Benioff and D.B. Weiss – left Disney, where they were preparing a new Star Wars trilogy, and joined Reed Hastings’ empire in a move that cost $250 million according to the US press. Before that, Shonda Rhimes, the showrunner behind the wildly successful Grey’s Anatomy and Scandal, as well as Ryan Murphy (Glee, Nip Tuck), also joined Netflix.
"The inflation on content production is enormous," says Leegenhoek of UBP. Each platform needs to offer flagship content. Disney – which boasts a massive catalogue and strong franchises (Star Wars, Marvel, Pixar, National Geographic, etc.) – seems to have a significant advantage. Netflix, and Amazon to a lesser extent, want to produce their own blockbusters. But this strategy is very expensive."
And this causes serious problems for TV fans: with so many platforms to choose from, viewers will have to make choices: House of Dragons (HBO Max) or The Mandalorian (Disney)? The Witcher (Netflix) or Lord of the Rings (Amazon Prime Video)? "Since SVOD subscriptions aren’t contract-based, the public will likely become more flighty," adds Leegenhoek. "Each month, they could subscribe to a platform, binge-watch content, then move to the next platform the following month."