In 2019, Disney is throwing its full weight into creating a streaming platform to rival Netflix with the launch of Disney+, an OTT SVOD offering, in September. The service will include high-end programming from Disney-owned brands such as Pixar, Marvel, Star Wars and Fox, which was acquired by Disney at the end of 2017. According to Disney’s CEO, Bob Iger, the service’s price will be substantially lower than Netflix’s due to its initially smaller content library. Disney+ is predicted to reach almost ten million subscribers by next year, about 5% of the current number of Netflix subscribers. On another front, technology giant Apple should join the battle for digital eyeballs with its first streaming service. Apple, which has been recruiting talent to boost its original content capabilities, sees streaming as part of a company-wide strategy to increase its reliance on digital services as smartphone sales wane. Broadcast and new media are gearing up for the streaming wars.
The battle for digital eyeballs does not know geographical borders as media companies continue to expand into new territories. In February 2019, news outlets reported that the BBC and Discovery, two major media companies, were in talks to launch a joint streaming service that will be available in all major international markets aside from the UK and China. This offering would include their joint natural history and wildlife programming. The BBC had already launched BritBox, a streaming service focused on British content and created in conjunction with ITV, in the US and Canada, about two years ago. Comcast is also plotting a global streaming service after the acquisition of Sky, which enabled the telecom giant to expand into Europe. In sports, DAZN is adopting a similar approach to Netflix, aggressively expanding into different international markets. Many other media companies are looking at geographical expansion as they continue to search for scale.
Major media companies like the BBC, Discovery, ITV and ProSieben.Sat 1 have partnered to launch joint streaming services and match the financial firepower, content investment and reach of new media and big tech companies. Viacom-owned Paramount has instead taken Netflix’s side when it signed an exclusive deal with the streaming giant in 2018. In advertising, similar partnerships have sprung up to combat the digital dominance of Google and Facebook. These alliances are shaping the future of the broadcast and media industry, a future in which scale and collaboration are key. Going OTT alone is a costly and risky business as shown by Disney and Netflix’s recent experiences. Disney’s costs have relentlessly risen since its expansion into streaming as recent investments have taken a toll on its financials. Netflix announced at the start of 2019 that it expects to burn $3bn in free cash flow this year as a result of its binge-spending on content.
In digital warfare, content is proving to be a major weapon to attract digital subscribers. Investment in content is reaching new levels as demonstrated by recent deals in the broadcast and media industry. Netflix, who spent a whopping £12bn on content in 2018, is set to increase its investment to $15bn in 2019. Apple’s Tim Cook recently said to investors: “we will participate in the original content world” after announcing deals with TV stars such as Oprah Winfrey and production houses such as A24. Google’s biggest rise in investment for 2018 came from increased spending on original content for YouTube aimed at creating a digital subscription business. As highlighted earlier, Disney is spending more on content for both its upcoming Disney+ and Hulu, which became majority-owned by Disney following the Fox acquisition. As demand for content rises, content producers continue to enjoy the bonanza and raise prices, sparking a digital inflation.
The digital inflation sparked by the streaming wars, along with the fall in content distribution costs, is not only leading to an investment bonanza but also to a fragmentation of the content available to digital eyeballs. For example, the fall in distribution costs has favored the rise of YouTube stars and influencers capable of attracting millions of viewers (and Dollars). The rise in the number of streaming offerings is a source of increased competition and viewership fragmentation. This has major implications for broadcasters that range from branding to the personalization of consumer experiences. As content proliferates on multiple platforms, the need to stand out is becoming greater than ever. Therefore, this is also translating into an important technology spending shift as we will argue later in this report. Viewers, who are faced with an infinite number of content choices, will be lured by scale or focus.
Content fragmentation is also exacerbating the digital divide between companies going big and those going niche. Media outlets like Netflix and Disney are going after big audiences by providing a varied slate of content that includes everything from drama to animation and documentaries. There will also be, though, a parallel war between niche outlets appealing to specific content needs and communities of interests. The barriers to entry to the latter market are indeed lower as demonstrated by the rise of niche OTT offerings in recent years. Recently, major English Premier League (EPL) teams have been in talks to launch their own OTT offerings to cater to their fans and defy traditional distribution outlets. As mentioned earlier, recent initiatives by some broadcasters such as the BBC, ITV and Discovery also aim to appeal to niche audiences such as those passionate about history and wildlife programming.
Velocity is the new focus of media companies and a consequence of digital warfare and inflation. Consumers’ expectations have shifted forever towards online consumption of media fueled by its convenience and their growing impatience. Viewers want to be able to access and binge-watch content online at home and on the go without any quality of service issues. This means that costs are rising and media companies are required to roll out new services and channels much more quickly than they have historically been used to doing. As we will argue in the next section of this report, this is prompting them to drive velocity through efficiency. Increased efficiency is being achieved through the automation of some workflows and the deployment of disrupting emerging technologies such as the cloud, artificial intelligence and blockchain.
The shift in consumers’ expectations coupled with the need for standing out in a crowded marketplace is leading to the increased personalization of media experiences. This is another major priority for media companies as they transition from a one-to-many to a one-to-one model. This transition has also major implications for technology investment as media companies shift their focus from legacy technology and hardware to software and consumer-facing tools capable of delivering personal experiences such as apps and user interfaces, and emerging devices such as virtual assistants. Recently, the drive towards personalization has also hit the content sphere as Netflix launched Bandersnatch, an interactive movie that puts the viewers in control, at the end of 2018. Consumers are increasingly in control of the direction of the media industry.
Change, in all its forms, has brought about a platformization of the broadcast and media industry. Media companies are now managing and distributing content on different platforms – both virtual and physical – to reach consumers. For example, the digital transformation that Disney is undergoing is bringing its content to different direct-to-consumer platforms, including the upcoming Disney+, ESPN+ and Hulu, as well as existing traditional distribution outlets such as Pay-TV operators. As a result of this, complexity is greatly increasing from both a business and technology perspective. As we have seen in this section, the industry platformization has introduced new drivers of change. These have translated into shifting technology buying trends, which we will examine in the next section. This change is unprecedented/