Netflix’s blockbuster Q1 results grabbed the headlines last week. But this is just one event in a quarter that I believe marks a watershed in the evolution of streaming video. Let’s look at four significant announcements and then put it all together into the story of the quarter:
- Netflix topped its global net new subscriber goal by 80%.
- Disney+, launched on November 12, 2019, topped 50 million subscribers about five months after the launch. Netflix took seven years to reach this number, while Hulu still falls far short of it.
- Fox, having divested its stake in Hulu when Disney bought its 21st Century Fox unit, turned around and bought ad-supported streaming service Tubi.
- NBCUniversal, on the verge of launching its Peacock streaming service, doubled down on streaming by buying Vudu from Walmart.
These events — and the fact that they all occurred in a single quarter — indicate that streaming video has hit the inflection point between streaming as an early-adopter/fast-follower behavior or niche add-on to traditional TV and streaming as a mainstream element of the media industry. In this world:
- Consumers view video entertainment as an essential service. Facing stay-at-home orders with an uncertain end date, people flocked to Netflix as one of the essentials they couldn’t live without, along with, yes, toilet paper.
- Media companies view streaming as essential to their future. ViacomCBS kicked this phase off with the acquisition of Pluto TV. Fox clearly believes streaming is essential to the future, spending $440 million for Tubi to plug the gap left by its loss of Hulu. Meanwhile, NBCU is beefing up its streaming portfolio in what looks like a rollup of movie-centric streaming by adding Vudu alongside its Fandango property.
- Consumers embrace multiple streaming services. Netflix achieved impressive net new subscriber growth in the face of the blowout Disney+ launch. But even before the pandemic hit, Netflix stated that its net new subscribers were on track to hit its forecast. Chalk the Disney+ success to the power of its brand as well as its immensely powerful franchises. Consumers clearly understand the different value propositions of these two services and are willing to pay for both.
The definition of an inflection point is that it is followed by hockey-stick growth and change. The ongoing economic uncertainty and rising unemployment will challenge the subscription streaming service to retain this influx of new customers in the next quarter or two. But don’t let that distract from the longer-term trend, which we will know from the following events:
- Cord cutting accelerates. So far, true cord cutting (i.e., completely canceling cable, satellite, or fiber TV delivery) has been a story of a slow, steady trickle. But now, if consumers are faced with the necessity to cut expenses, will they cut their Netflix subscription or their cable TV? With the breadth of streaming services available — both free and via subscription — consumers will look to build their own smorgasbords of content to suit their appetite, funding this from their current TV costs.
- Digital antenna sales will spike. Sports is still the one content genre not fully available on streaming, but a growing number of consumers are learning that a digital antenna connects them to the sports on their local over-the-air (OTA) stations. Sling already actively promotes the combination of OTA and streaming TV.
- The streaming wars will come to the market. So far, the idea of a streaming war has been in the minds of the industry, the media, and, yes, analysts. But the Q1 Disney/Netflix results show that consumers don’t see it as a zero-sum game — at least not yet. The launch of HBO Max will further test the amount of streaming services that consumers will pay for, while Peacock, Tubi, and Pluto TV, all backed by the major networks, will vie for their share of viewing time, as well. Look for pricing wars and promotions to break out as each player fights for share in this critical mainstreaming phase of adoption.