Series addicts: this is the millionaire business of streaming

DAQ

The

streaming

TV -Issuance live on Internet- accounts for 70% of the network traffic. In the world there are 850 million households subscribing to existing platforms, which multiplies your reach three or four, as some members of the family share subscription with third parties;

roughly a third of the planet's population is hooked on a screen.

At a rate of premieres of almost 550 series last year, the colossal business has revolutionized the world of entertainment and has been consecrated in record time, just over a decade, without sparing resources: a chapter of the exquisite series T

he Crown

costs $ 13 million;

10, one from

Game of Thrones

.

The confinement derived from the pandemic has assessed its strength, but the breadth of the offer threatens to saturate the election, and some are wondering not whether which bubble will burst, but how long it will take to do so, or at least to settle, in an emerging market like few others, but also stressed in efforts, investment and competition.

This is made explicit in a report that JP Morgan distributed to its clients on January 7: “With the launch of Discovery + on January 4 and the rebrand of CBS All Access in Paramount + at the beginning of the year, the front lines in the streaming war have been defined.

If 2020 was the year of the big launches OTT [

over the top,

services

streaming

online], 2021 could be one in which we begin to know the winners and losers of this race. "

The period between "between the next 6 and 18 months" will be the sieve that clears the horizon of the platforms, according to this investment bank: "Few expect that there will be dozens of winners, but we do believe that there may be five great leaders."

The report establishes four categories in descending order: “Almost Certain Winner (Netflix, Amazon Prime Video, Disney);

with potential to be a winner (Paramount +, HBO Max);

heads or tails (AVOD, Discovery +, Apple TV + and premium networks), and losers (everyone else) ”.

AVOD (acronym for

Advertising Video On Demand

) is the video on demand that is financed through advertising;

the paradigmatic case is YouTube.

Separating the wheat from the chaff and decanting the survivors, this seems to be the next phase of the phenomenon that has revolutionized the concept of leisure and our relationship with screens, from television to tablets or mobiles.

But not everyone believes that there is a bubble.

“The dotcoms exploded because they sold smoke.

Here we talk about real services, which are consumed and have managed to enter homes.

There may be an excess supply and an evolution that leads only those who offer a differential advantage to find a gap in the market, but we would not say that it is a bubble, ”says José Antonio Luna, Filmin's chief operating officer.

Also ruled out the risk of implosion Álvaro Jabón Gómez, Diaphanum analyst: “The

streaming

business is

already older than the dot-com bubble;

It is a mature business that has already exploded for a large percentage of society who will never see or read this article, but will see a video of a person who is followed on YouTube.

The potential is brutal.

There is a clear trend towards value in the generation of content and this is the very high investment in blockbusters.

Companies have only begun to realize the communication power of

streaming

, and if a

youtuber

is able to interest four million viewers from home, playing a console game, perhaps the problem is not the format, but discovering what those four million people are interested ”.

Netflix, the pioneer company, generated revenues in 2020 worth 25,000 million dollars (24% more) and increased its profits 47% to 2,761 million.

Last year, the

streaming

leader

gained 37 million subscribers and already exceeds 200 million worldwide, "and about 29 million more are expected in 2021," says a report by Deutsche Bank on the company, underlining its success in Southeast Asia, led by India, "which guarantees it room for growth and possible new sources of ancillary income."

"In the US, one of the most mature markets, at the end of December more than 70 million people were Netflix customers," emphasizes Dirk Seel, analyst at fund manager Flossbach von Storch.

“Considering that there are about 130 million households in that country, more than half are subscribers.

But that does not have to be the limit, as there are almost 100 million pay television customers ”.

Growth margin

Netflix's growth margin exists for this analyst: “It is probably the only

streaming

service

that is approaching a breakeven point in generating cash flow.

Their management team announced that they no longer need to resort to external funding for day-to-day operations. "

In similar terms, Alison Porter, manager of Janus Henderson, expresses: “Netflix has suffered many years of losses and negative cash flow and is now in a position to reap the benefits of its investment, since spending on content can globally leverage more users ”.

This supremacy, recalls the manager, will mean that in the future all subscription packages must include Netflix, "and Disney will probably emerge in a similar way, as a necessary content provider."

The global market volume metric varies according to the experts consulted.

“What we can see is that there are 850 million connected homes around the world (about 12 million in Spain alone), along with more than 2 billion smartphones (about 40 million in Spain) that allow easy access to transmission. .

This represents a great opportunity in the global arena that will only increase as Internet penetration accelerates and smart devices continue to gain ground ”, consider Nolan Hoffmeyer and Walid Azar Atallah, managers of Natixis IM.

Pedro Palandrani, analyst at Global X ETF, specifies more about the business dimensions.

“At the global level, the video

streaming

market

is estimated to have reached 72,000 million dollars in 2020. By the end of 2025 it is expected to be 127,000 million [105,800 million euros at the current exchange rate].

China is the market with the highest potential growth;

Revenues are expected to increase from 10 billion in 2020 to 23,000 in 2025. The US is already a much larger market, from about 31 billion last year.

By 2025 it can grow to 51,000 million.

Spain, the fifth largest market in Europe (15,000 million in 2020), reached 800 million last year and is expected to grow to 1,200 million by 2025 ”.

A turning point, for some experts, could be in the new smart TVs, which include applications to watch different platforms as standard.

The terms of use and contract prohibit the manufacturers of these televisions from facilitating access to viewer data to the platforms that colonize their screen, and this is for some the point at which the business would find itself: salivating at a new sale of data.

Mining to find those that allow us to better understand the consumer and anticipate their wishes —that is, create them— would be the next step in a model based precisely on the use of information about the client.

“One of the advantages of these platforms is the large amount of

big data

that they generate in terms of user tastes.

This is where one of the fundamental factors for the success of platforms comes in, their algorithms ”, Palandrani explains.

“Streaming can offer unique and personalized experiences through recommendations.

And all these recommendations are based on information from user behavior.

Netflix, for example, has used

big data

to recommend movies and shows, saving it around $ 1 billion a year in customer retention expenses.

And, at the same time, the data serves as a tool to make decisions about future productions that are adapted to the needs of the users ”, he adds.

Scratch fee

According to the Global X ETF researcher, the

streaming

market

can still grow, if “a greater number of cable television and / or antenna subscribers migrate to services of this type in the coming years”.

Because the dominance of

streaming

is clear, but not a monopoly in the entertainment sector.

“Today, its main competitors are still cable television companies.

In fact, it is estimated that at the end of 2020 there were 78 million households in the United States with subscriptions of this type, a number higher than the number of Netflix subscribers in that country during the last quarter of 2020 (74 million).

And from a revenue standpoint, cable television networks in the US generate roughly $ 86 billion a year.

It is a very big market opportunity for

streaming

companies,

”adds Palandrini.

Another probable line of evolution would be the commitment to local markets;

landing in countries that have proven to be good consumers and, at the same time, thriving producers, from Turkey to India, passing through Israel or Spain.

“We have the market leaders like Netflix, Disney + and Amazon, but we also have smaller local names like Hulu in the US, Canal + in France and FlixOlé in Spain.

The business model has already proven its success and has little reason to change, however we will see more and more partnerships in content creation, particularly for global companies aspiring to produce local content.

This will help them penetrate new markets ”, consider Hoffmeyer and Atallah.

The quality of the products that are seen in

streaming

is evidenced by the last call for the Golden Globes, which inaugurate the season of film awards in the US and in which Netflix has left its competitors by the wayside, by achieving 42 nominations .

But excellence, as a weapon of mass destruction, could also reach a point of no return.

Each

major

(as the audiovisual giants are known in the guild) launches their respective bets, to which more spectacular, in a

tour de force

that defies any limit.

Disney +, for example, promised in 2019 that by 2024 it would have between 60 and 90 million subscribers.

But it only took him eight months to reach that goal, thanks in large part to

The Mandalorian

series

, a space western spinoff from its popular

Star Wars

franchise

.

The company's digital transformation plan was thus completed in a heartbeat, for the market evolution deadlines, which leads some to wonder if the pitch will last for a long time.

Especially when, following the case of Disney, but also of many other companies, the success of little Yoda has pushed him to disdain his traditional ecosystem, movie theaters, and advertise more exclusive content only for television.

That is, to place almost all the eggs in the same basket, which would multiply the size of the supposed bubble.

There is no doubt that Hollywood, which used to drag us to movie theaters, continues to decide what we should see, in whatever format and place.

Other greats are betting on a hybrid model, in whose configuration the evolution of the pandemic will still have the last word.

Thus, AT & T's Warner Bros studios announced in December that they will present the 17 films they plan to release in 2021 in world cinemas, while offering a one-month trial period on HBO Max in the US, in parallel to each premiere.

It's a one-year plan to help WarnerMedia's movie business navigate the impending post-pandemic phase if immunization goes mainstream.

The year 2020 was a decisive year for the future of the business, not only due to the forced immobility of the population induced by the pandemic and the record consumption figures, but also due to the incorporation of the last big ones, such as Apple TV +, which arrived just before the health emergency and opted for titles such as

Tehran

, the fast-paced

thriller

about the adventures of an Israeli spy in Iran.

The spectacularity and exclusivity are paid, both in production costs and rights - the

royalties

of

The Lord of the Rings

have cost Amazon Prime 250 million dollars - and not a few wonder about the sustainability of the effort.

“The market tends towards the phenomenon of 'the winner takes the most': the more viewers a service has, the more attractive it is to the actors and directors;

the more content that is produced, the more attractive it becomes to consumers, so the biggest players would be expected to maintain their lead.

Ultimately, it is a question of content and only a few companies can compete with firms such as Netflix, Disney, Amazon and YouTube ”, adds Seel, by Flossbach von Storch.

But let's put ourselves in the skin, or in the wallet, of the consumer.

The sum of subscriptions does not drop below 100 dollars a month in the United States, although a slightly sybarite viewer may have a monthly budget only for series of 200 dollars, compared to the 80 that, on average, the television service costs per cable.

For now, sports programming is not the highlight of streaming, still included in conventional pay channels.

In addition, the total cost must be added the broadband rate.

The snacking to which the consumer is now forced, having to subscribe to several platforms to access the most cutting-edge titles, also goes against the current model, and the platforms that offer the best product in a condensed way will take the lead, according to experts.

Disney is well placed, as it has the best movie franchises.

Netflix is ​​not willing to be left behind, even at the cost of investing billions in new productions, while other rivals license their best products.

"There are more than 300

streaming

services

in the US right now, so there are too many options," said Kevin Westcott, vice president of Deloitte, in June 2019 in a statement to the

IndieWire

specialized portal

.

Subscriptions are still cheaper than the annual rate for closed cable television, so the cost reduction and the convenience and flexibility of streaming, which allows viewing at any time and unhooking on demand, pay even more interest of the spectators.

However, according to a Deloitte survey from June 2020, 47% of US viewers said they were frustrated by the effort required to subscribe to multiple platforms, so the original content offered becomes another factor key to success ("customers are looking for the best value-time-money ratio", according to the aforementioned survey).

In 2018, records were broken in the production of own content, that study points out, and in 2019 and 2020 the trend was established.

Mergers

The emergence of platforms would not have been possible without the prior reorganization of the telecommunications market, creating an enabling ecosystem.

“Over the past five years, M&A activity has focused on a few mega deals, including three of the largest video providers: AT&T and Time Warner, The Walt Disney Company and Fox, and Viacom and CBS.

These mega-deals, valued at more than 10 billion dollars, have accounted for more than 50% of the media business in these years ”, explains a Bain & Company report, which suggests a new wave of mergers and a subscription horizon“ of three or four [platforms] per consumer ”.

Very competitive prices (monthly fees under $ 20);

antidote to the traditional piracy that undermines operating profits in theaters;

conspires against

prime time

or prime time of conventional television programs, as well as screen share ... the world of

streaming

offers, for both advocates and critics, innumerable advantages over other conventional entertainment formulas.

Although it may seem unique to us, it may not represent, over time, a greater revolution than that which was once the

surprise

from television to radio.

“Radio was the dominant home entertainment medium for half a century, until television stole the limelight in the 1950s and 1960s.

Today we live in the 'era of Internet television', due to the wide availability of smart phones and televisions.

The flexibility in viewing and the ease of multiple devices have become the norm for a large part of the population.

The market opportunity remains huge and will continue to grow as more households access broadband.

Geographically, even the most developed market, the US, should continue to grow significantly, ”concludes Gergely Majoros, member of the Carmignac Investment Committee.