The revolution has just been televised
As on-demand services have usurped traditional broadcasters, is there still room for new entrants or will media consolidation among tech giants and telecoms firms define our future viewing habits, asks Jules Gray for the BVCA Journal.
When American entrepreneurs Reed Hastings and Marc Randolph founded Netflix in 1997, it was little more than a mail order video and DVD service. Hastings says that a US$40 fine for returning the film Apollo 13 to his local Blockbuster rental store inspired him to set up a rival firm.
The idea was to harness the internet to deliver films to customers for a subscription, with no late-return fees. The Netflix founders’ goal was to take on the US$16 billion home video sales and rental industry — and Blockbuster itself. Twenty-two years later, Netflix has moved far beyond that ambition. It has helped to transform the way people around the world watch film and television; struck fear into the hearts of all the major broadcasters and film studios; and encouraged a legion of imitators, eager to ride the wave of this revolutionary new age of television.
Since 2007, Netflix has provided an easy-to-access service with a low-cost subscription and a vast library of films and TV shows — all you need is an internet-enabled device (and an internet connection).
While it hasn’t always been plain sailing — in 2000 the firm was losing money and the founders offered Blockbuster the chance to acquire it for US$50 million — Netflix is now worth more than US$150 billion and has nearly 150 million global subscribers.
Getting in on the action
Netflix’s rise wouldn’t have been possible were it not for internet speeds dramatically improving in the past 15 years, enabling instant consumption of high-definition video. However, it is also the expanding catalogue of films and television shows that has attracted subscribers.
Signing licensing contracts with major film studios and television broadcasters quickly meant Netflix was an in demand destination for on-demand viewing. In turn, the user data that Netflix gathered has proven to be hugely valuable, giving the firm insights into what types of films and programmes viewers like and when they prefer watching them.
Such has been Netflix’s success, many film studios and broadcasters have realised they could launch their own streaming platforms for their content, without the need for Netflix at all. And at the same time, other businesses have sought to get in on the streaming action, from the technology giants Apple and Amazon through to AT&T and Comcast.
Perhaps the most anticipated service to launch this year is Disney+, which many have hailed as a ‘Netflix killer’. With a vast catalogue of well-known franchises, including Marvel superheroes and Star Wars, as well as many of its classic films and cartoons, Disney will be able to launch its service without the need to build up a large library of original content. Even so, it is dedicating at least US$500 million towards original programming in 2019 alone. Disney will also be removing all of its titles from Netflix once their contracts expire, which could prove extremely damaging to the streaming giant.
In an effort to soften the blow of Disney’s move, Netflix has invested millions of dollars into original content that will be exclusive to its service. Many high-budget programmes and films are part of the service, with Netflix desperate to continue to be the place for people to ‘binge-watch’ TV shows. Such is the value in capturing these audiences that many providers are throwing vast sums of money at producers to get the next hit show.
Content is king
In May 2019, millions of people across the world gathered round their television sets to watch the finale of the most expensive programme ever made. Game of Thrones, HBO’s fantasy show based on the books of George RR Martin, has won widespread acclaim, a legion of viewers and huge amounts of money for the US cable network since its first episode aired in 2011.
For HBO, it was yet another high-concept, high-budget drama to add to its catalogue of ‘ground-breaking’ shows. HBO has been a pioneer in the US TV market since launching in 1972, providing a subscription service of premium content. It has been the pioneer of a wave of high-budget, daring dramas and comedies, and is home to ground-breaking shows that include The Sopranos, The Wire, and Curb Your Enthusiasm.
So highly regarded was HBO’s output that the slogan ‘It’s not TV. It’s HBO’ quickly caught on in the US, positioning it as a premium broadcaster somewhere in between the traditional networks and high-quality Hollywood films.
With success comes imitation, however, meaning that HBO’s position is no longer unique. Amazon has announced it will spend around US$1 billion on a TV version of The Lord of the Rings (apparently because founder Jeff Bezos is such a huge fan), while Apple recently announced plans to offer its own service, Apple TV+, which will have original TV shows from Hollywood names including Steven Spielberg, Reese Witherspoon and JJ Abrams. The Silicon Valley giant is so determined to attract viewers that it’s reportedly set to spend US$2 billion on content this year alone.
According to a report by Deloitte, The Future of the TV and Video Landscape by 2030, bigger players will deploy ever bigger budgets in the creation of content: “Big content owners with strong program brands and global reach target a global audience with costly blockbuster productions and benefit strongly from economies of scale. Smaller producers have been pushed out of the market. The variety of content has decreased, but the quality of global productions has reached new dimensions.”
Media consolidation
A major consequence of the transformation of the TV industry has been media consolidation on a grand scale.
Earlier this year, Disney acquired rival studio Fox, gaining a large amount of intellectual property rights, channels around the world and a controlling stake in streaming service Hulu (a joint venture between major US broadcasters also launched in 2007 to compete with Netflix). The deal didn’t go smoothly as a bidding war broke out in 2018 with US telecom giant Comcast, leading to Disney ultimately paying US$71.3 billion for Fox. Disney was also interested in buying Fox’s stake in Sky, but ultimately lost out to Comcast in a £11.6 billion deal.
The deal came six months after an even bigger takeover of a major TV network: AT&T’s US$108.7 billion takeover of Time Warner, owner of HBO. That deal was first mooted in 2016, but faced considerable regulatory scrutiny.
All this competition between established media giants, some now backed by even bigger telecoms, would suggest there’s little space for start-ups or smaller firms to make any headway. However, there are a few entrepreneurs attempting to get in on the action and opportunities for smaller players.
Some are doing so with innovative technology, such as Simplestream, a London-based start-up that helps broadcasters, including Discovery Networks, Turner Broadcasting and QVC, with innovative cloud-streaming services. It has been backed by both Beringea and Clydesdale Bank over the last few years.
Both Apple and Amazon are taking a slightly different approach to their streaming services. While they will have original content, they are also acting as launchpads for smaller providers of video content. Apple TV+ will offer a series of subscription ‘channels’ for other providers’ services, which could work in much the same way as Amazon’s Prime Video service.
Deloitte thinks providers like Apple and Amazon will stick to the subscription channel model: “Digital platform companies have retreated to becoming pure distribution channels, focused purely on technical delivery. The digital platform companies’ business model has changed fundamentally since consumers are no longer paying for a specific platform, but directly for their preferred content.”
Independents have their day
One such provider of preferred content is British cinema chain Curzon, which has run smaller, arthouse cinemas throughout the UK since 1934. It has developed its own Curzon Home Cinema streaming service over the last few years, which shows independent, arthouse and foreign language films instead of the major blockbusters — something which is both cheaper to offer and differentiates it from the bigger players. Curzon is also able to harness the heritage of its brand to attract viewers that want expert curation.
Philip Knatchbull, CEO of Curzon, is bullish about the opportunities in the market for smaller players like his, telling The Telegraph in 2014 that they wanted to become “the Apple of independent film”. Since this bold declaration, the service has continued to grow.
Another string to the group’s bow is the Curzon Artificial Eye film distribution service, which is highly respected in the arthouse and foreign language film space. It is able to use this catalogue of films as part of its streaming services, giving it essential original content.
In 2017, Curzon launched an additional subscription service, Curzon12, which allows members to watch 12 recent and classic films each month. In the same year, Knatchbull suggested a possible tie up with a large tech giant, or potentially a buyout. While that hasn’t materialised yet, Curzon seems like a natural fit for one of the ‘channels’ offered on Amazon’s Prime Video service, as well as Apple’s forthcoming Apple TV+ platform.
What are the opportunities?
One version of the future could see niche services like Curzon’s sitting within the broader platform of Apple TV+ or Amazon Prime Video. People would pick and choose bundles of channels tailored to their tastes, rather than being forced to have hundreds of channels of little interest to them. This version of the future does rely, however, on service and content providers working together to combine and recombine their offerings.
In the UK, the traditional broadcasters seem to have been slow to capitalise on their own services. While the BBC iPlayer has been hugely successful, it is a free service funded by the licence fee and restricted by what it can show from the corporation’s vast library. This year it is coming together with ITV and Channel 4 to offer BritBox, which will be a consolidated subscription service of old and new programmes from the channels to rival the likes of Netflix. But are they too late to the party? It will certainly be hard to capture younger viewers who may feel loyalty to services like Netflix.
At the same time, telecoms firms are eager to lock customers into the so-called ‘quadruple play’, where they sign up to broadband internet, telephone, wireless internet and television services. That’s certainly what AT&T and Comcast are aiming for with their acquisitions of Time Warner and Sky respectively.
For Netflix, the challenge is to continue to capture more subscribers, particularly before new rivals start taking their content away from the platform. Netflix has racked up vast amounts of debt to pay for original content — reportedly US$3.5 billion in 2019. Whether it is able to secure enough new subscribers to pay it off in the long term is debatable, especially if rival services eat away at its subscriber base.
But when has a revolution ever been plain sailing? Whatever the future holds, Netflix can be assured of the role it has played in challenging and transforming the status quo. Watch this space.
