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As more players try to solidify their position in the video on demand industry, each incumbent's ability to provide differentiated content gets increasingly important. The cost of creating content to feed media platforms, marketing new titles, and maintaining the platform itself are huge, fixed, and can only be offset by higher subscriber numbers. To grow subscribers companies cannot take a "me too" approach, as why would customers pay multiple subscription fees for overlapping content. Today, Disney or Hulu, Amazon, Netflix, YouTube, and Apple each have a unique value proposition for the customer, but with Disney taking a bigger foothold in the market, the market positioning of the company may change.

amazon is king of bundling

Amazon prime has over 100 million subscribers globally. Through the Amazon prime subscription service, the company offers a bundled service that includes free two day shipping of goods purchased from Amazon marketplace, lowered rates on overnight shipping, video on demand through prime video, music on demand through prime music, and audiobooks in Audible. The cost of the Amazon prime service is approximately US$13 per month. Given the large subscriber base already in place, much of Amazon's video on demand business is already underwritten, and so is much easier to scale than other pure play video on demand services. In the Q1 of fiscal year 2019, Amazon spent approximately US$1.7Bn (+13%) on video and music content, coming from US$1.5Bn in the previous year, which puts them at a run-rate of US$7Bn for the year (relative to US$5Bn in 2018, & US$4.5Bn in 2017). The company's original content catalog is much smaller than Netflix's, Disney's, and HBO's but they have a ready captive audience.


Netflix IS ABOUT cost leadership and scale

Netflix has one of the largest and most diversified original content catalog in the industry at a starting price of US$8.99 per month. The company's platform is available in over 190 countries. They also produce a range of video content types including television series, films, animations, and documentaries in many different countries across the world. Being in many different countries allows the company to spread the large fixed cost associated with creating and storing original video content across a much larger base. In addition, the company's ownership of its content allows it to offer a much wider array of exclusive content than many of the other incumbents in the industry. In 2019, Netflix's paying subscriber base amounted to over 154 million, and their spend on content is expected to hit US$15Bn coming from US$12Bn in 2018 according to reports .



YouTube is an advertising business

Reports are that YouTube generated approximately US$15Bn (based on analyst estimates as the company does not disclose all financials) from primarily advertising revenues in 2018. The company has also launched a live TV business which has amassed 300k subscribers, which when take together with YouTube's music services, and YouTube's video on demand services accounts for small share of enterprise wide revenues. According to reports YouTube spends less than US$1Bn on original content cost, which is small relative to what the other incumbents are spending. YouTube's content comes mostly from freelancers and other third parties that provide content with the aim of growing subscribers, and advertising revenues.

Apple is looking to services

Since the 1980s Apple Inc. has been known has a hardware company where they specialize in computers and mobile devices. With the slowdown in the iPhone business - their most successful product - the company has been focusing on building out a suite of services using their 1.5 billion install base as a captive audience. Though the company has spent just US$1Bn to secure original content deals, much like Amazon they offer a broader range of services, in fact that their suite of services is much broader than any other video streaming company. The company has launched a payments based service line - the apple card and apple pay, Apple Arcade - video games on demand, Apple Music - a music streaming service, and Apple News - an all you can read subscription based news service. All the price points of Apple services have not yet been established as the company is in the very early stages of the rollout, but the company has priced Apple news plus at US$9.99 per month.

How will disney Be Positioned ?

With purchase of 21 Century Fox, Disney's ownership in Hulu went to 60% which was further bumped up to 70% after the company acquired AT&T's 10% stake for US$1.47Bn. Comcast owns the other 30%. Now that Disney has a greater stake in Hulu how will Disney position the company going forward ? First, Disney will be rolling out their own subscription video on demand service - Disney+ on November 12, 2019, separate from that provided through Hulu. Early indications are that the company will start at a price point of US$6.99 /month, which is one of the lowest price points in industry given todays layout. There is also the possibility that as the service rolls out internationally, the company will begin to bundle the Disney+ service with ESPN+, and Hulu at a discounted price. Recently, Disney slashed Hulu's monthly subscription fees down to $5.99, while offering an ad free plan for US$11.99/ month, and a Hulu with Live TV plan at US$44.99 / month. ESPN+ currently costs $4.99 per month. Disney's content is already highly differentiated, and when their exclusive licence agreements with international partners expire in 4 years, they will able to make all their content exclusive to their platform. They already have strong global brands, top of the line original assets, and a "shovel ready" distribution network which should see them being able to scale the business fast. Hulu currently has user base about 25 million the USA while ESPN + has roughly 2 million, which allows for an enormous runway for growth in the years ahead.


Sneak Peak of The New Disney+ App

Sneak Peak of The New Disney+ App
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It appears to us that Disney will be in a formidable position to deliver a complete package to consumers through bundling Hulu with the other content in its catalog. Disney's current content catalog centres primarily around animation, cartoons and comics. Hulu provides an avenue to diversity the company's content catalog into on demand tv series, non-sports live TV, and original movie titles outside of comics. This suite of services allows Disney to not only compete with original on demand content from the likes of Netflix, but also content provided by cable TV players. Disney is also already one of the largest spender on original content in the industry (certainly larger than Netflix) with an estimated spending bill US$23Bn in 2019, according to an interview conducted by RBC Capital Markets Analysts.


The entertainment industry continues to be impacted by the digital revolution which has created a great opportunity for for incumbents to diversify their content delivery from TV to desktop, and mobile. On the other hand, it has also created room for technology companies to take an increasing larger share of the media and entertainment pie. It is still too early to determine who will be winners and who will be losers, but given the importance of scale and the global nature of the industry, the company with the larger subscriber base and content catalog will certainly have an advantage.





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