Streaming Wars Reshuffled: Why Netflix finally doing ads is a big deal
Netflix wanted to become HBO, HBOMax wants to be like Netflix, and Apple TV+ became the new HBO.
Welcome back!
What’s Inside?
Recent Headlines
Overview
Twitter Talk
Netflix’s Identity Crisis
May Streaming Guide
Recent Headlines
Netflix to cut down content spending cancels animation projects
CNN+ beats Quibi for fastest streaming service to be canceled in less than 30 days
Amazon to rebrand free service IMDB TV as Freevee
NextHollywood launches its first project, Timewrecked, led by David H. Steinberg
Crypto dating show Proof of Love is airing its season finale this tonight!
Doctor Strange 2 likely debuts with a 200M+ domestic opening next weekend
Charli D’Amelio to star in “Home School”, the first thriller of an eight-movie franchise
Tale of Two Streamers
2021 was quite the eventful year with the streaming wars beginning to heat up: we saw new competitors enter, all types of different box office experiments, and even some major industry consolidation. For a quick summary of what you may have missed here’s a great article by Lucas Shaw with some key trends and bold predictions for 2022. While Squid Game may have been the biggest global hit of the year, HBO Max had the best year especially domestically. Netflix last week announced that in Q1 2022 they ended up losing 200k subs instead of gaining 2.5M subs that had previously been projected, the bombshell, however, was when Netflix said they expect to lose another 2M subscribers in Q2. That would mark the first back-to-back quarter’s losing subscribers since they got into streaming and it’s important to note that Q2 even features a very strong slate with new seasons of some of Netflix’s most popular shows (Stranger Things, Ozark, and Peaky Blinders) releasing soon. Speculation is that streaming is decreasing as the pandemic wanes but recent data from HBO Max doesn’t really show that.
During AT&T's latest Q1 earnings presentation, the HBO Max former parent company gave us some insights into the growth of the service over the last quarter. The streamer is now up to 76.8 million subscribers globally and 48.6 million subscribers in the United States with the average subscriber now paying $11.25 a month (only behind Netflix). While Netflix lost about 200k subscribers domestically in Q1, HBO Max gained 1.8 million in the same period likely helped out by a Netflix price hike. Morgan Stanley analyst Benjamin Swinburne added, “In contrast to its competitors, which are seeing across-the-board download weakness, HBO Max trends are significantly stronger.” The last subscriber guidance from AT&T CEO John Stankey was increased with management expecting HBO Max and HBO to now reach between 120 million and 150 million subscribers by the end of 2025, not to mention an additional 20 million subscribers from Discovery+ as the services are set to eventually merge. HBO Max/HBO also led all streamers with 19 Emmy’s and 8 Golden Globe Awards, edging out Netflix in their first year nominating shows under one banner.
Twitter Talk 🤣: where I summarize a major story through funny tweets
It wasn’t all smooth sailing for HBO Max however, to put it lightly the rewind feature and UX for the service seemed to cause some frustration for subscribers…
…and these are just the tip of the iceberg, go search “HBO Max rewind” on Twitter and you’ll find a lot more tweets like the above. This even became a viral meme trend in early August. Funny enough, it seems like the Product team for HBO Max read some of these tweets as just a few days later in August the service announced they were working on a major upgrade, particularly overhauling the backend.
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Identity Crisis:
In the summer of 2019, AT&T announced the name of their streaming service, HBO Max, a bold new idea to go all-in on streaming, focus on going direct to consumers, and be “like Netflix” was the message shared by executives. HBO Max launched in May 2020, amidst a pandemic, and has been doing everything it can to compete directly with Netflix including offering the service for free to all existing HBO cable subscribers. The irony though is that Netflix had already figured this out all the way back in 2013. When asked about Netflix’s early ambitions for streaming in a GQ interview, Co-CEO Ted Sarandos stated, "The goal is to become HBO faster than HBO can become us.” In the early days of streaming, Netflix was actually able to poach away House of Cards from HBO by outbidding the network and landing its first breakout Netflix Original. Netflix’s original strategy may have been premium entertainment but riding a soaring stock price, success expanding internationally, and a bit of hubris from management the company has a serious identity crisis now. Andrew Rosen wrote about the current identity crisis in-depth and Brandon Katz wrote an article last year on how Netflix stated overzealously they wanted to focus on animation to become Disney, even claiming they might surpass Disney in family animation. While wanting to become HBO and Disney, Netflix actually became a supercharged digital broadcast station, à la CBS for Millenials. Here’s some proof Netflix has become a broadcast station with the chart below featuring the top 7 programs by viewing minutes for Netflix in 2021, the majority of the top 7 are actual broadcast shows.
Additionally, the fact that the top 7 acquired programs all had more viewing minutes than any Netflix original demonstrates that premium entertainment is not the main value proposition for most Netflix subscribers. This trend isn’t new as even looking back at 2018, the top most-watched series on Netflix were all broadcast shows with The Office famously being a popular subscriber favorite to rewatch on the service.
Netflix losing the premium entertainment value prop might just explain why subscriber growth has slowed even while Netflix continues to spend more on content than ever. Netflix needed to keep building quality content, not quantity, there’s an abundance of content now with multiple streaming services, YouTube, and social media all on the rise. Kenya Barris also called out for Netflix “becoming CBS” and cited the streamer not allowing him to make edgier content as the main reason for him leaving his 100M deal with the company to go launch BET Studios instead.
Even though they just recently entered and are much smaller on a subscriber basis, Apple TV+ is a major problem for Netflix. Apple TV+ is focusing primarily on premium entertainment and has strong success with originals, it shouldn't come as Apple TV+ has a major production deal with Richard Pleplar came from HBO where he greenlit Game of Thrones, The Sopranos, Big Little Lies, and more. For years Netflix thanks to its inflated stock price was able to outbid other studios to land top projects or lure talent to work for them. In interviews with Hollywood stars, they claimed that Apple TV+ and Netflix generally pay the most for projects but Netflix will now have to curb their spending and be more frugal in negotiations. Netflix has also been notoriously disliked by talent and Apple TV+ seems to be taking advantage as they were able to land George Clooney and Brad Pitt’s newest project by committing to a pure theatrical release before the movie would be added to Apple TV+. Netflix is in a tough position currently as they are being challenged both high and low by premium entertainment services and free ad-supported services (FAST) like HBO Max, Apple TV+, and TikTok respectively.
The Netflix algorithm has been touted as the company’s competitive advantage, their secret sauce to making buzzy cheap content but it doesn’t make sense for Netflix to keep making shows like Is It Cake or The Floor Is Lava. Both of these shows trended in the top 10 for quite some time but they aren’t preventing subscribers from churning, instead of quantity Netflix needs quality shows that keep customers from leaving. Netflix touted big-time hours viewed metrics after the releases of Red Notice, Don’t Look Up, and Squid Game but subscribers don’t care about that, ironically the only people those stats impress are advertisers that they don’t have. For the better part of the last five years, Wall Street has asked Netflix to start doing ads, lean into live sports, and manage their large content spending but management has ignored them citing Netflix is playing a different game than legacy media. While most Netflix subscribers could have told you Netflix isn’t premium entertainment, it seems Reed Hastings and Ted Sarandos may have just recently realized this fact as they unenthusiastically announced on their earnings call they will be launching an ad tier and will limiting their content spending.
Predictions
Curation is going to be the most crucial aspect for any streaming service going forward now that their so much content and consumers are overwhelmed
Netflix will likely roll out micro-transactions….(early access, bloopers, BTS, live streaming)
Netflix will copy Paramount+ and roll out live channels that mimic the linear experience to maximize ad inventory
Doctor Strange 2 will go to Disney+ in just 45 days after Disney announcing a weak Q1 for subscriber additions
Instead of signing huge deals with a particular studio or service talent will begin starting up creator-led studios and selling individual content like Hello Sunshine
📰 May Streaming Guide:
Winning Time - HBOMax
Flight Attendant (S2) - HBOMax
Super Pumped - Showtime
Better Call Saul (S6) - AMC+
Ozark (S4) - Netflix
Moon Knight - Disney+
The Offer (limited series) - Paramount+
1883 - Paramount+
WeCrashed - Apple TV+
Severance - Apple TV+
Everything Everywhere Always At Once - Theaters only
Richard Pepler is not the head of AppleTV+. He has a production deal with them (https://www.nytimes.com/2020/01/02/business/media/richard-plepler-apple.html)