Disney just took Pretty Little Liars away. NBCUniversal is going to take The Office away in a year. WarnerMedia just hired a new boss whose primary asset is that she spearheaded the creation of BBC’s streaming service back when everyone was simply ceding the streaming market to Netflix.
Another month, another bunch of reminders that we are living through the early stages of the streaming wars. At stake is the future of how we watch TV. Or, more accurately, how we react when there are suddenly too many streaming services to count. (Aren’t we already there?) The current industry leader should be obvious: Netflix.
Like a scrappy underdog, Netflix rose from the ashes of the crumbling home video business and skyrocketed to global dominance largely by licensing older movies and TV shows from Hollywood studios which just saw an opportunity for easy money and didn’t have the foresight to see they were feeding the creation of a monster. However, now studios have flipped position and concluded Netflix represents an existential threat to their very existence. Thus begins an industry-wide effort to starve Netflix of licensed content and port legacy titles like The Office and Friends over to studio-branded streaming services.
It’s all so…inevitable. If you haven’t been paying attention, Netflix’s original content budget alone is now higher than the GDP of over half of every country in Africa. To be more specific, Netflix’s original content budget in 2019 is projected to be $15 billion, a 400% jump from the company’s spending from just 5 years ago.
The reason for this stunning surge is quite simple: Netflix knows the purge is coming. Due to the intricacies of licensing contracts, it won’t all happen at once, but eventually Netflix is going to lose most of those older shows Millennials love to watch and obsess over as weird windows into what TV and pop culture used to look like. The Office, for example, is the service’s most-watched show, followed by Friends. As a result, Netflix has been aggressively seeking to replace what it doesn’t own.
Case in point, The Office might be leaving after 2020, but Netflix already has a lucrative deal with show co-creator Greg Daniels and star Steve Carell to make an original, office-based sci-fi comedy called Space Force. Friends is probably gone after 2019, but Netflix does at least have a Jennifer Aniston-Adam Sandler comedy for everyone to passively watch and completely forget about the next day. I say that with an obvious degree of snark, but Netflix claims 30 million subscribers watched at least a little bit of Murder Mystery, a new record for one of their original movies.
So, while giants like Disney, NBCUniversal, and WarnerMedia have been planning their attacks Netflix has been stockpiling ammunition for years. It is so far out ahead of everyone else globally that only Disney has the might to truly compete in the near future, particularly as it can attack the marketplace from three different angles with its family friendly Disney+, sports-heavy ESPN+, and more adult fare Hulu. Fellow Silicon Valley players like Amazon and Apple would seem well-equipped to make this a four-way race, but they have each been reluctant to truly invest in this area as much as they easily could, though Amazon’s record-setting spend on a Lord of the Rings series is a pretty big step.
NBC and WarnerMedia represented a potential second (or third?) tier, yet NBC has already tried and failed in the streaming game – remember their comedy-only streaming app? – and WarnerMedia’s marching orders from new boss AT&T to turn HBO into a new Netflix risks violating the brand’s quality control reputation. The fact that NBC paid itself $500 million to take The Office away from Netflix and WarnerMedia just paid $500 million to lock J.J. Abrams’ Bad Robot into an exclusive deal for multiple new films and TV shows says a lot about their differing strategies going forward.
Netflix is still winning this war, and as Recode’s Peter Kafka told Digiday Podcast you don’t even need to look at any economic indicators to figure this one out. Just listen to all of the competitors, “The entire narrative is everyone is responding to Netflix/can Netflix be stopped?/does Netflix have an Achilles Heel?/is Netflix finally going to have real competition from Disney? If everyone is positioning themselves as the Netflix killer or this is their response to Netflix, even if that’s not 100% true, that means Netflix is winning.”
Meanwhile, the true losers in this race will continue to be movie theaters. George Clooney, the fifth-richest movie star in the world, is taking his talents to Netflix where he’ll direct and star in the post-apocalyptic drama Good Morning, Midnight. His brand of quirky dramas have always been challenged to find a profit, and his minimal on-screen presence in Hulu’s Catch-22 series hasn’t really done much to move the pop culture needle. However, Clooney heading to Netflix is yet another movie star giving up on trying to open a movie and sell tickets. He’s following old pal Sandra Bullock’s lead after she turned Bird Box into a global sensation.
We are largely already transitioned away from a film or TV business and into a content business, and whoever owns the most or best content will have a leg up. That’s why the studios will take the short-term loss of pulling shows from Netflix and losing hundreds of millions in the process in exchange for the assumed long-term gain of using those assets to build up a new streaming service. However, Netflix beat everyone to this market by at least half a decade. It’ll probably take that long before any of them can truly hope to directly compete. Disney’s own internal estimates say Disney+ won’t be profitable until 2024, but on that point they’re at least talking the same language as Netflix, which hasn’t had a positive cash flow since 2011.
I guess that’s what winning looks like in the streaming wars.
Source: Digiday Podcast