It’s official: this year has marked the end of the era of the winner-takes-all battle for global streaming supremacy.
After a dire 2022, when investors turned on the profligate spending and seemingly endlessly loss-making strategies employed by the global giants as a result of the abrupt and dramatic post-pandemic slowdown in subscriber growth, this year has been about building streaming model 2.0.
For some, such as Disney and Warner Bros Discovery, which runs the streaming services Max and Discovery+, it has been a harsh reality check. For others, most notably Netflix, it has proved a return to form at the top of the market.
Initiatives including a global crackdown on password sharing and the introduction of a cheaper ad-supported tier to appeal to increasingly cost-conscious consumers amid the cost of living crisis has reignited subscriber growth at the world’s biggest streaming service.
From a UK perspective, Netflix is estimated to have more than doubled its number of new subscribers this year, from 540,000 in 2022 to more than 1.1 million, according to Ampere Analysis.
This compares with Disney+, which has seen new additions almost halve from 1.35 million to 700,000, while Amazon’s Prime Video will see new user growth drop from 262,000 to 78,000 when estimates are finalised in the new year.
“There is Netflix and then there is sort of everyone else,” says Tom Harrington, head of television at Enders Analysis. “Everyone except Netflix is making losses quarter by quarter. While Netflix hasn’t of course yet balanced its billions in losses it is now making profits and will catch that up pretty quickly now.”
Investors who stripped billions of dollars from the market value of Netflix in a matter of months last year – after it reported its first loss in subscribers in more than a decade as the pandemic-fuelled viewing boom fizzled out – are back on board.
The company’s share price is up about two-thirds this year, adding more than $70bn to its market capitalisation – albeit Netflix still remains worth about $100bn less than all-time peak levels hit in 2021.
“Last year was hard, a tough year, but 2023 has been really strong,” says Larry Tanz, Netflix vice-president and head of content for EMEA, who points to hits including The Crown, Squid Game: The Challenge and the documentary Beckham. “First and foremost content drives the business but we also did a couple of things that were really difficult – a paid sharing [crackdown] and the introduction of advertising – big things to take on in one year which are also proving to be meaningful drivers of the business.”
It is now Disney, which held ambitions of overtaking Netflix and its 247 million subscribers to claim global streaming supremacy, which has realised its business model is from a galaxy far, far away from sustainability.
Disney+ rolled out globally in perfect streaming conditions as global lockdowns kept everyone on the sofa, and the soaring success of subscription growth appeared to justify its mega investment and decision to pull back all of its content from rivals to offer exclusively on its own services.
Post-pandemic its model has been exposed and last November its former chief Bob Iger, the talismanic leader who guided the global entertainment giant to global success over his initial 15-year tenure and launched its streaming service, made a shock return as chief executive of Disney to deal with the fallout.
A $7.5bn cost-cutting plan has ensued, streaming plan prices have been raised and an ad-tier launched as streaming losses have hit more than $11bn and Disney remains about 100 million subscribers behind Netflix.
Earlier this month, Iger performed a remarkable, and previously unthinkable U-turn, announcing that Disney was to start licensing series to Netflix again, albeit not crown jewel content from the Star Wars, Marvel and Pixar franchises.
Nevertheless the realisation that “walled garden” content models forgo billions annually in licensing revenues is a tacit acceptance that if you can’t beat Netflix, join it.
Similarly, David Zaslav, the chief of Warner Bros Discovery, has embarked on a $5bn post-merger cutting spree criticising the streaming model, axing shows and commissions and moving to license more content to rivals including Netflix.
“The monetisation strategy of streaming content has been quite simply crazy,” says Harrington. “Viewers have been bingeing content that is now more expensive than ever to create despite the history of TV and film being all about ‘windows’ of commercialising content on different platforms to make them pay over and over again for years. It just hasn’t been profitable.”
As the streaming market continues to mature, with most households signed up to one or more services, growth will slow further next year.
Ampere Analysis is forecasting that the total number of new subscribers being added to the market will roughly halve next year, from about 4.5 million to 2.3 million, with many players such as AppleTV+ and Paramount+ relying on being bundled through traditional TV packages such as Sky and Virgin Media for growth.
With services such as Apple, a tech giant but relative minnow in streaming subscriber numbers, pushing through a 33% price rise in January to £8.99 consumers are likely to find it more difficult to justify splashing out for thinner content offerings than those provided by the giants.
As the streaming wars enter the new phase of engagement and battle one truism remains: content is king.
“We feel there will be a continued [subscriber] drive for us,” says Tanz. “There are lower priced entry points, we are getting better at monetising the ad inventory and paid sharing has a lot of room. But it is content that underpins the fundamentals of the business – are consumers willing to stay and pay. Without great content you won’t get that.”
