MediaTech Radar is a bi-weekly newsletter put together by IABM’s Head of Knowledge Lorenzo Zanni. It focuses on a spotlight topic in MediaTech and reflects on a series of past, present, and future business developments in the industry. In this edition, our spotlight topic is Streaming Maturity.
MediaTech Spotlight: Streaming Maturity
A spotlight topic in MediaTech.
- In our previous newsletter, I shared some data on financial markets moving away from growth to value stocks. Streaming maturity has led to a crash in the valuation of OTT stocks, and most notably in Netflix’s. In this newsletter, I wanted to focus a bit more on streaming maturity and what Netflix is doing to weather the threats to its business model.
- Adding AVOD to the mix is one way to go about it. Netflix could introduce an ad-supported, lower-priced subscription by the end of the year, quicker than originally anticipated – Disney announced a similar move earlier this year. According to a new report by Wells Fargo, adding an ad-supported tier would increase Netflix’s total available market for subscribers. The report estimates that with an AVOD offering available, subscribers would increase by 272m by 2025, or 6% higher than previous estimates. In this scenario, AVOD would account for 30% of Netflix’s total subscribers.
- Disney+ and Netflix could generate $1.8 billion and $1.2 billion from ads respectively by 2025 according to MoffettNathanson.
- Netflix is likely to outsource its ad tech operations to a provider, as indicated by CEO Reed Hastings. Ad tech is complex, with the previous report by Wells Fargo predicting that it would take Netflix a considerable amount of time to set up an effective AVOD offering. The report adds that, if Netflix chose to outsource its ad tech operations: “about 35% of spending by advertisers on Netflix will go to intermediaries rather than to Netflix’s top line.”
- Netflix is also rumoured to be exploring other avenues for growth which are rather unconventional for the streaming giant. At the start of June 2022, Roku’s shares jumped 9.5% on the back of reports of Netflix intending to acquire the business. Moreover, Netflix reportedly entered the race to bid for F1’s US TV rights, which is at odds with its historical aversion to live sports.
- As part of its attempt to weather a slowdown in subscribers, Netflix also laid off 150 employees in May 2022 and 300 in June 2022. This is in addition to the possible introduction of advertising to the service mentioned above as well as a crackdown on password sharing.
- The only thing not slowing down at Netflix is content spending, which is key to retain and win subscribers in a competitive streaming landscape. As of June, total content obligations were over $22bn, up from about $19bn two years ago. The content binge of the streamer has been facilitated by spectacularly low interest rates allowing it to fund programming through increased debt-taking. With inflation on the rise, central banks worldwide are raising rates, which represents yet another challenge to the streamer’s business model.
- Disney is not doing much better despite its subscriber base continuing to grow. Its stock performance has felt the impact of Netflix’s slowdown, casting doubts on the growth of the streaming sector. As of mid-June 2022, Disney’s stock was down by over a third of its value. Disney is still compensating streaming losses with its traditional divisions, including theme parks, and expects its streaming division to become profitable in 2024.
MediaTech Watchlist: Microsoft/Xandr, LiveU/PLM, BBC and more…
A watchlist of selected past, present and future business developments in MediaTech.
- Microsoft completed its acquisition of Xandr from AT&T in June 2022. The tech giant reportedly paid $1bn for Xandr, which is less than the $1.6bn paid by AT&T to acquire AppNexus in 2018 – AT&T’s acquisition of AppNexus initiated its foray into advertising and set up Xandr. This is consistent with AT&T’s latest strategic moves to exit the media business – it spun off WarnerMedia last year – and focus on growing its core broadband division. With Xandr, Microsoft is reportedly aiming to grow its digital ad business and compete with the likes of Google and Facebook.
- LiveU has announced the acquisition of its channel partner Pacific Live Media (PLM). According to the linked article: “The deal is part of LiveU’s strategy of getting closer to its customers in key markets that led to last year’s successful acquisition of LiveU UK partner Garland Partners Limited.”
- In June 2022, the BBC announced that it would cut 1,000 jobs by closing BBC Four and CBBC. This was due to the UK government’s decision to freeze the licence fee for two years. The BBC also said that it plans to reinvest its efficiency savings in the iPlayer, consistent with a series of broadcasters shifting resources from linear to digital.
- Apple and Major League Soccer have announced a 10-year streaming partnership in yet another deal seeing a big technology company buying sports rights. This follows Apple’s acquisition of a Major League Baseball rights package earlier this year.
- Another big technology platform, Amazon, bought a smaller package (17 matches) of the UK sports rights for Champions League football in July 2022, breaking BT’s long-standing dominance of this market. This move follows a similar foray of the technology giant into the Italian market in 2020, when it ended Sky Italia’s dominance.
- Warner Bros Discovery is reportedly set to cut its ad sales force by up to 30% due to the synergies deriving from the merger. In a previous newsletter, I reported that CFO Gunnar Wiedenfels had said that a lot of the total $3 billion synergy target “is really coming from efficiency against that D2C technology and marketing spend.” Cutting the ad sales force should be one of the major consequences of the marketing spend synergy.
- In a previous newsletter, I focused on the growth of virtual production. In June 2022, Hill Country Group announced plans to build a $267m virtual production, TV, and film studio in Texas.
- fuboTV has integrated sports betting and free-to-play games into its streaming offering in continuation with its push to differentiate its sports proposition.
Thank you for reading this newsletter. If there are topics you would like me to cover, or have information/ideas you’d like to share, please get in touch with me.
Lorenzo Zanni
Head of Knowledge
IABM
