The battle tactics in the streaming wars in 2022 shifted from outright land-grab mode toward building sustainable and defensible positions.
Netflix saw its subscriber rolls shrink in the first half of the year following a COVID-fueled bump — prompting the industry leader to scramble to find new areas of growth. The company quickly rolled out an ad-supported tier, in a reversal of its years-long resistance to the idea, and is aiming to try to monetize rampant password-sharing in 2023. Media conglomerates Disney, NBCUniversal, Paramount Global and Warner Bros. Discovery have been forced to rationalize streaming investments, as Wall Street has refocused on bottom-line results rather than subscriber numbers.
In 2023, for major streaming services, “there’s an intensifying focus on profitability and free cash flow generation,” amid uncertainty about which way the economic winds will blow, notes John Harrison, Americas media and entertainment leader at EY. He adds, “We’re moving to this really large decision point for media companies where they need to reconfirm their commitment to direct-to-consumer [streaming] — to make it as robust and attractive as possible — or they need to say, ‘Long term, this won’t be as big as we expected.'”
Here are five key questions heading into the new year for the sector.
How Will Bob Iger Recalibrate Disney’s Streaming Strategy?
Iger is back as Disney’s CEO, taking over for the ousted Bob Chapek. Iger has already signaled that he intends to pull back on “aggressive marketing and aggressive spend on content” for Disney+ in favor of profitability. How that exactly will play out in 2023 is an open question. MoffettNathanson principal analyst Michael Nathanson, in a research note this month, opined that Disney+ would be better served by focusing on “premium branded IP” rather than general entertainment or sports. “We think new CEO Bob Iger should address the long-term viability” of Disney+’s previous growth targets “and reduce investment in general entertainment content,” Nathanson wrote. On a similar front, there’s the question of Hulu’s future ownership (Comcast has the right to sell its 33% Hulu ownership stake to Disney as early as January 2024, and conversely Disney can require Comcast to sell it at that point). Chapek had expressed an interest in doing a deal with Comcast to bring Hulu fully into the Mouse House fold sooner rather than later. Iger may have different thoughts on Hulu’s strategic value to Disney going forward.
Will Netflix’s Ad Tier and Password-Sharing Monetization Move the Needle?
Netflix sees an opportunity to generate millions in new revenue through its ad-supported streaming play, while it’s also going to start nagging password-sharing violators to pay up for illicit account piggybackers in early 2023. How well the company can execute on these plans remains to be seen. Third-party data indicates the ad tier is off to a relatively slow start. The revenue Netflix can realize from account-sharing customers will be gated by how aggressively the company intends to push — and signs point to a gentler honor-system approach, at least at first.
What Will the Combined HBO Max-Discovery+ Platform Look Like?
Warner Bros. Discovery is hoping a merged HBO Max-Discovery+ platform, set to debut in the U.S. next spring, will prove that the whole can be greater than the sum of its parts — and help justify Discovery’s gargantuan acquisition of WarnerMedia. But it’s still unclear how WBD will manage the transition: The company has not announced pricing or packaging details, much less a name for the combo (“Max” is among the contenders). At a high level, EY’s Harrison says, it makes sense for streaming providers to move toward consolidation and bundling. “For all the companies with multiple streaming apps… there has to be a decision about whether the most compelling offering is pushing everything into a single app and reducing as much friction as possible,” he says.
How Much FAST-er Will FAST Get?
In 2022, free, ad-supported television streaming (FAST) continued to accelerate. Paramount’s Pluto TV, Fox’s Tubi, Amazon’s Freevee and the Roku Channel saw gains that in some cases outpaced the growth of subscription-based services. Now others are looking to jump into the FAST lane, including Warner Bros. Discovery: WBD announced plans to license certain content that has been on HBO Max — including “Westworld,” “The Nevers,” “Raised by Wolves” and “FBoy Island” — to third-party FAST partners. And Warner Bros. Discovery chief David Zaslav has said the media company will be “aggressively attacking” the low end of the streaming market with its own FAST offering to launch sometime in 2023.
How Will YouTube’s NFL Sunday Ticket Deal Change the Game?
Google is betting football fans will flock to NFL’s Sunday Ticket on YouTube — which, for the first time starting with the 2023 season, will be available to anyone in the U.S. without the purchase of a pay-TV package (as has been the case with long-time distributor DirecTV). Google will need to sign up at least 2.25 million Sunday Ticket subs to break even on the deal, according to an estimate by Baird senior research analyst Colin Sebastian. But it could turn out to be a loss-leader for YouTube as the video giant looks to siphon away more TV ad dollars and pack on more YouTube TV customers. Under the seven-year pact, Google will reportedly pay the NFL at least $2 billion per year for Sunday Ticket.