When Netflix first introduced video streaming service in the United States 13 years ago, it transformed the cinematic industry, offering a more user-friendly and convenient way to enjoy films. Consequently, Netflix attracted a new group of consumers. In the United States, similar services began to emerge, such as Hulu (owned by Disney since March 2019), HBO Now, Disney+ and Amazon Prime Video. However, more traditional media companies are facing serious challenges, given the soaring number of subscribers in the video streaming sector. Nonetheless, both sides are employing methods to win over loyal customers from their competitors.
As an example of more traditional media, Fox News, the leading broadcast network in the United States by viewership, has only approximately 1.5 million daily viewers as of October 2019. Meanwhile, HBO Now, the fourth largest video streaming service provider by subscribers in the United States, achieved 23.1 million subscribers in 2019. This highlights the difference between traditional media and streaming service viewership. This difference is even larger when Fox News is compared to Netflix (158.8 million subscribers), Amazon Prime Video and Hulu, which are ranked first, second and third respectively. While the traditional media is trying to survive by retaining consumers, the over-the-top media (streaming service) providers are profiting from technological advancements which shift consumers to the online cinematic experience. This is evident from the soaring revenue of over-the-top media providers, which has seen an increase of 358% in revenue from 2010 to 2019 in the United States.
However, more traditional media companies are now pushing into the streaming space mainly through acquiring existing providers of online streaming services or developing their own. For example, in 2018, AT&T, an American technology and mass media multinational conglomerate, acquired Time Warner for 85 billion USD in order to ‘offer customers a differentiated, high-quality, mobile-first entertainment experience.’ As a result of this acquisition, AT&T’s revenue increased by 30% within 6 months of the acquisition. Other broadcasting companies have also opted for similar acquisitions with the Walt Disney Company buying 21st Century Fox for 71 billion USD in March 2019 after a bidding war with Comcast. This acquisition further gave the Walt Disney Company full control of Hulu, which is a fast-growing streaming service. The point of these transactions is that they provide the acquirers with ease to expand into the streaming services market, as it is far easier to acquire an existing and proven streaming service than to develop and market a new one. The result of these transactions has been a huge increase in competition within the streaming space. This is not surprising given that the streaming industry was worth 22 billion USD in 2019, a lucrative industry that even attracted tech giant Apple to enter the space. Indeed, Apple released Apple TV+ in November 2019, which offers content produced by Apple itself.
As these types of services become more widely offered to the public and traditional media companies continue to acquire streaming services, the boundary between traditional and over-the-top media will fade resulting in the streaming space becoming more competitive. For example, Disney+ just one year after launching, has 60.5 million subscribers, nearly doubling Hulu’s 35.5 million. Furthermore, streaming bundles offered by telecommunications company are also intensifying the competition, as they begin to offer a synthesis of traditional TV channels and streaming services. For example, T-Mobile, a US telecommunications company, has now introduced bundles that allow consumers to access TV channels and video streaming platforms, such as Apple TV+ and Netflix, for a monthly fee. This move came after AT&T saw a loss of 2.6 million cable TV subscribers this year so far, thus signaling to the company that a change in strategy was required.
It is clear that the growing popularity of over-the-top media poses a serious challenge to more traditional media companies. However, these companies are beginning to take action on this challenge in the form of a string of acquisitions of streaming services, which is allowing these companies to push into the streaming industry with relative ease. As a result, the streaming industry is becoming far more competitive, as more traditional media companies now rival first comers in terms of both market share and subscriber numbers.
By Sam Cheng
Sector Head: Felix Hooper