The battle for consumer hearts and wallets in the subscription-video industry got off to a premature start this month, led by HBO’s flood of Emmy nominations and a Netflix face plant on subscriber growth.
Netflix’s anemic global numbers, barely half what analysts expected, also saw the U.S. subscriber count dip. Wall Street whacked Netflix’s share price 10 percent in a day, though it remains hefty (120X P.E.ratio). Several law firms hope to pile on the big drop with shareholder lawsuits.
The hiccup happened just a month before Disney+ showcases its first programs at D23, the Mouse House’s annual fan confab. And we finally got an arrival date (April, as with Jeffrey Katzenberg’s Quibi venture) for the Comcast/NBCU contender. AT&T’s HBO Max also said it will arrive early next year.
And then there were this week’s Emmy proceedings. HBO reclaimed from Netflix the crown for most nominations of any network, led by its retiring heavyweight, Game of Thrones, with a record 32.
None of the top six shows receiving nominations came from Netflix (Ava DuVernay’s fine When They See Us was seventh, with 16).
It’s tempting to see the Emmy numbers as another example of Netflix’s relative decline amid growing competition.
But the Big Red N still came in second overall, a testament to the depth of its programming, which will be crucial when all the newcomers finally do arrive.
Netflix even received five more noms this year, 117, compared to 2018, when it broke HBO’s 16-year streak at the top. Notably, Netflix snagged more than twice as many nominations as No. 3 NBC and the other likely future contenders, Amazon’s Prime Video, CBS, FX Networks, Hulu, and Showtime. This is still a two-horse race for quality signifiers.
Was this just a bad quarter, or a portent of terrible times to come? If folks are diving off now in Netflix’s home market, what happens when those other guys show up? Will consumers leave for good?
We won’t know for a while yet. But Netflix almost certainly will bounce back.
Going forward, Netflix expects to add 7 million subscribers this quarter, putting it close to 160 million in 192 countries. It’s rolling out a cheaper mobile-only offering in India, its biggest overseas opportunity. And of course, none of the newcomers will actually be here until at least Q4 (Disney+ has announced a November launch).
Problematically for those aggrieved investors who filed suit, the company did say in its previous earnings call that it expected “temporary churn” after its latest (and biggest-ever) price hike.
Which brings us to the ad-supported, or AVOD, services. At this month’s OTT_X Conference, I moderated an onstage conversation with Adam Lewinson, Tubi’s chief content officer. It’s clear that Tubi sees itself as less Netflix competitor than a substantial supplement for bargain-hunting “TV” viewers.
“People are always going to want to watch Stranger Things or whatever that big show is,” Lewinson said. “So they’ll go watch it, whether it’s HBO or Netflix or Amazon. AVOD is really complementary to SVOD. It’s like the basic networks all rolled up into one. And this is where you find your library, the spot where you find the content that specifically speaks to you.”
Tubi says it’s the biggest AVOD service. It’s privately held (investors include Lionsgate and MGM, along with several big VCs), so there’s no way to corroborate the stats. But Lewinson trots out some admirable numbers: content library of 15,000 titles and 44,000 hours, 20 million monthly active users, 94 million hours streamed per month, “nine-figure” content budget.
Regardless of size, AVOD services face different expectations from SVOD in some key ways, Lewinson said. People are exchanging their time (watching an ad load, perhaps half that of traditional TV) for free programming. But the biggest headaches remain similar.
“It’s really about customers: customer acquisition, retention, churn,” Lewinson said. “Those are really at the fundamental level. If you don’t have an audience, and you can’t retain that audience, you don’t have a business, you’re not going to monetize streaming, right? And then as a subset of that, I’d say content discovery.”
Churn will challenge all the services, ad-supported or subscriber, when audiences can shift in and out with a few clicks.
“I think the ad-supported companies are in a good place,” said Jon Giegengack,founder of Hub Entertainment Research, which just issued research findings on the future of TV. “People have enough subscriptions where, say, if I added another one, I’d have to cut another one. There’s more people now saying they wouldn’t add without cutting something else. The ad-supported ones, especially with some exclusive content, there’s no downside to trying it out. The barriers to entry are really low.”
AVODs don’t have to worry how much money people have to spend on entertainment. Their big question: how much time do people have to spend on entertainment?
The AVODs provide largely what traditional TV has always provided: more or less free shows with ads wrapped around them.
“So, 85 to 90 percent of television historically has been ad supported,” Lewinson said. “And then 10 to 15 percent has been paid (premium channels), HBO, Showtime, etc. The history of television, I think, still holds: 85 percent of Americans have a tolerance for ads. Just don’t overdo it.”
Unique content is less important than similar content, Lewinson said. Neither Tubi nor any of its AVOD competitors is likely to have Friends, which Netflix famously paid Warner Bros. $100 million to keep on its screens through 2019. Now HBO Max says it will back the show when its service launches next year.
Instead, for people searching for Friends on Tubi, the service will serve up ’90s and ’00s sitcoms similar to Friends. Most customers are looking less for Friends and more for the comfort-food viewing of familiar shows from that era, Lewinson argues.
In August, the company just announced, it will add big-name library films such as Alexander, Confessions of a Dangerous Mind, American History X, Four Weddings and a Funeral, and Thelma & Louise. Sounds a lot like what you’d see on TBS on a Saturday afternoon.
The AVOD providers have to get on as many devices as possible, then make sure consumers consistently find shows they like, so they’ll keep coming back. Tubi has invested substantially in machine-learning technologies to help it improve suggestions for its viewers, Lewinson said. Such tools are table stakes in the SVOD space, but relatively new on the AVOD side.
As for availability, Tubi is on the Web, mobile devices, the game consoles, the major streaming devices, Comcast’s Xfinity X1 box, and Samsung and Amazon Fire connected TVs.
There will be a nasty battle for SVOD primacy, but not until the spring or later. That fight will be, as Sinclair Broadcast Group’s CEO Chris Ripley said, ‘a sea of blood.”
The AVOD services such as Tubi, meanwhile, are already here, building audience relationships and a reasonable value proposition for many TV viewers.
They’ll have to contest with each other and competitors such as the Roku Channel and Amazon’s rechristened IMDB Channel. But at least they’re already here, using a business model people know and Hollywood can work with.