3 Key Insights on the Streaming Biz From Analyst Laura Martin

3 Key Insights on the Streaming
Variety Intelligence Platform

If you missed Variety Intelligence Platform’s “State of Streaming” webinar last week, there were deep insights to glean from Laura Martin, managing director and senior analyst of entertainment and internet at Needham & Co. Here are three valuable takeaways: 

1. There’s High Potential for Netflix to Eventually Enter the Advertising Business: Martin argued Netflix shouldn’t get too comfortable and that it will be only a matter of time before the company is forced to make some big changes to its business in order to stay competitive.  

“I believe that to compete as they start losing U.S. subs, they will have to come up with new revenue streams because they are at maturity for penetration of subscribers,” she said. “They can no longer drive subscribers, so they must figure out a way to drive revenue per subscriber… rather than losing a subscriber to get zero.

Netflix has long stated it would not be adding any ads to its service; however, as newer competitors introduced tiered services (like Paramount+ last week) that include ad-based and ad-free options, the pressure is stronger than ever on Netflix to make a move. 

Subscriber growth in the U.S. and Canada has decelerated somewhat, and most of the growth for Netflix comes from abroad. The company said 83% of 2020’s net sub additions of 37 million came from outside the U.S. and Canada during its fourth-quarter earnings announcement Jan. 19.  

2. Connected TV Will Have a Hot 2021: Netflix can’t currently partake in the growth of connected TV, the advertising play for any Internet-linked devices streaming to big screens, which is positioned to have a breakout year on Madison Avenue.  

“But that means not Netflix, because it takes no ads,” said Martin. “Places like Roku were how they have a double revenue stream, of which two thirds is advertising but on a big screen only,” Martin explained. “So that CTV growth is a really prominent investment theme.” 

There are many investment opportunities within CTV, but Roku has been a real standout over the past year. The COVID pandemic forced people around the world to shelter at home, and as a result entertainment consumption at home through devices like Roku skyrocketed. Shares of Roku have soared more than 250% over the past 12 months, and Martin said the future remains bright for the company. 

3. Streaming Market Entrants Will Explore Rebundling: Because the streaming space has gotten so saturated over the past few years, Martin believes there will likely be a rebundling. 

She doesn’t see any big M&A deals on the horizon because the likeliest acquisitors are the tech companies currently under regulatory scrutiny. 

So as new entrants continue entering the market, she noted, the best way to not only differentiate but retain customers is through bundling rivals together.   

“Our research shows that bundling doubles the economics of the underlying services, because it lowers churn,” Martin said. “The more things you bundle, the lower your churn gets because it’s just so complicated for the consumer to replace all five things.”