TV streaming
For some, like Disney, 2023 proved to be a harsh reality check. For others, especially Netflix, it was a return to the top of the market
It's official: This year marks the end of the era of the single-winner battle for global streaming supremacy.
After a dismal 2022 in which investors turned to the global giants' wasteful spending and seemingly endless loss-making strategies due to the abrupt and dramatic slowdown in subscriber growth post-pandemic, this year has been about building the streaming model 2.0.
For some, like Disney and Warner Bros. Discovery, which operates streaming services Max and Discovery+, it was a harsh reality check. For others, especially Netflix, it was a return to the top of the market.
Initiatives including a global crackdown on password sharing and the introduction of a cheaper ad-supported tier to appeal to increasingly cost-conscious consumers amid the cost of living crisis have boosted subscriber growth at the world's largest streaming service.
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From a UK perspective, Netflix is estimated to have more than doubled the number of new subscribers this year, from 540,000 in 2022 to over 1.1 million, according to Ampere Analysis.
In comparison, Disney+'s new additions have almost halved from 1.35 million to 700,000, while Amazon Prime Video will see new user growth fall from 262,000 to 78,000 when estimates are finalized in the new year.
“There’s Netflix and then there’s pretty much everyone else,” says Tom Harrington, head of television at Enders Analysis. “Everyone except Netflix is making losses quarter after quarter. While Netflix has of course not yet recouped its multi-billion dollar losses, it is now making profits and will now make up for them fairly quickly.”
Investors who shaved billions of dollars off Netflix's market value in a matter of months last year – after Netflix reported its first subscriber loss in more than a decade as the pandemic-fueled TV boom waned – are back on board.
The company's stock price has risen by about two-thirds this year, adding more than $70 billion to its market capitalization – although Netflix is still worth about $100 billion less than its all-time high in 2021 .
“Last year was tough, a tough year, but 2023 was really strong,” says Larry Tanz, Netflix vice president and head of content for EMEA, whose credits include hits like “The Crown,” “Squid Game: The Challenge” and the documentary “Beckham” refers . “First and foremost, content drives the business, but we also did a few things that were really difficult – paid sharing [crackdown] and the introduction of advertising – big things to deal with in a year and which also prove to be significant drivers of the business.”
Now it is Disney, which harbored ambitions of overtaking Netflix and its 247 million subscribers and achieving global streaming supremacy, that has realized that its business model is far from sustainable.
Disney+ launched worldwide under perfect streaming conditions, while global lockdowns kept everyone on the couch and the rapid success of subscription growth seemed to justify its mega-investment and decision to withdraw all content from the competition and offer it exclusively through its own services.
After the pandemic, his model was debunked, and last November his former boss Bob Iger, the talismanic leader who led the global entertainment giant to global success in his first 15-year tenure and launched its streaming service, made a surprise return as CEO Disney must deal with the consequences.
A $7.5 billion cost-cutting plan followed, raising prices for streaming plans and introducing a tier of advertising as streaming losses have reached more than $11 billion and Disney still has around 100 million subscribers behind Netflix.
Earlier this month, Iger made a remarkable and previously unthinkable about-face, announcing that Disney would begin licensing series to Netflix again, although not for crown jewel content from the Star Wars, Marvel and Pixar franchises.
Still, the recognition that walled-garden content models save billions in licensing revenue annually is a tacit assumption that if you can't beat it, you should join Netflix.
Similarly, David Zaslav, the head of Warner Bros. Discovery, embarked on a $5 billion cutting spree after the merger, criticizing the streaming model, cutting shows and commissions and moving to produce more content to license it to competitors like Netflix.
“The streaming content monetization strategy was just crazy,” says Harrington. “Audiences have been watching content that is now more expensive than ever to create, even though the history of television and film has been all about 'windows' to commercialize content on various platforms for years and make them pay for it again and again. “It just wasn’t profitable.”
As the streaming market matures and most households use one or more services, growth will continue to slow next year.
Ampere Analysis predicts the total number of new subscribers added to the market will roughly halve next year, from about 4.5 million to 2.3 million, with many players like AppleTV+ and Paramount+ moving toward bundling over traditional TV Packages like Sky and Sky rely on Virgin Media for growth.
With services like Apple, a tech giant but relatively small in streaming subscriber numbers, pushing through a 33% price rise to £8.99 in January, consumers are likely to find it harder to opt for thinner content offerings than Apple's spending giants.
As the streaming wars enter the new phase of engagement and combat, one truism remains: Content is king.
“We believe there will be a sequel [subscriber] “Ride for us,” says Tanz. “There are cheaper entry points, we can monetize ad inventory better and paid sharing offers a lot of scope. But it's content that underpins the fundamentals of the business: Are consumers willing to stay and pay? You’re not going to get that without great content.”
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