Can Netflix Win Without Paramount+ Losing?
(Bloomberg Opinion) -- The streaming-TV market was only supposed to have room for so many apps: Netflix, Disney+ and maybe one other. But with the American consumer showing such little resistance to the higher prices seen lately in most other areas of their everyday world — grocery stores, clothing, car dealerships, fast food — it seems streaming companies may be benefiting from this phenomenon, too. We aren’t yet choosing among the different online-video services; we’re signing up for them all.
This largesse is giving the also-rans a chance to gain traction, even as the leaders don’t lose much of any. ViacomCBS Inc., the latest cable-network-operator-turned-streamer to open up its books, said Thursday that the Paramount+ app drove the bulk of its 6.5 million new streaming customers last quarter, bringing the total to 42 million. That’s a stronger pace than Wall Street had anticipated, sending ViacomCBS shares up 5%. Earlier this week, Discovery Inc. disclosed 18 million streaming subscribers — also not bad for a reality-TV programmer that only just launched its namesake service in January. AT&T Inc. lifted its estimate for HBO Max subscribers to at least 70 million by year-end. And analysts are calling for 113 million Disney+ subscribers when Walt Disney Co. releases earnings next week on the heels of its Marvel film “Black Widow” and new series “Loki.” Together, these tallies suggest immense subscriber overlap.
The fear heading into summer was that post-pandemic reopenings would discourage paying for at-home activities. Instead, a J.D. Power survey released Thursday suggests the opposite is happening: The number of households that say they subscribe to four or more online-video services rose to 57% in June from 50% in December as more choices entered the market. Consumers also continue to place increasing value on watching TV, paying an average of $55 a month on streaming, up 45% since April 2020, the survey showed.
That said, the pandemic’s tailwind effect has lessened for some of these businesses. On Wednesday, Roku Inc. executives blamed loosening Covid restrictions for posting fewer active customer accounts and streaming hours than analysts had been projecting, and its shares are being punished for that. Netflix Inc. has also lost steam in the U.S. But considering that Netflix warned its library would be hurting last quarter from 2020’s production shutdowns, the app’s subscriber retention remains impressive.
What’s interesting about the growth at Paramount+ and Discovery+ is that it shows the power of niche, enthusiastic fan bases built on cable TV. Compared with the barrage of advertisements when Disney+ launched in late 2019, ViacomCBS hasn’t made the same wide push, instead focusing on luring viewers of its CBS, MTV, Nickelodeon, Comedy Central and other channels to Paramount+ with franchises that are familiar favorites. “It’s not about just cutting a check to buy a bunch of advertising real estate,” Naveen Chopra, ViacomCBS’s chief financial officer, said in a phone interview Thursday. The strategy appears to be working as some 42 million make the switch, initially enticed by programs such as “iCarly,” “The Challenge: All Stars,” the straight-to-streaming film “Infinite” and UEFA Champions League soccer games.
Of course, the tide can’t keep rising forever, and some boats will link up with others to avoid being swept out to sea. Discovery is buying WarnerMedia and HBO Max from AT&T, while Comcast CEO Brian Roberts has reportedly entertained merger options for NBCUniversal to support its Peacock streaming service (although Comcast investors may be better served by forgoing streaming). A distribution partnership announced Thursday between Paramount+ and Comcast’s European pay-TV provider Sky forges a closer relationship between the companies.
The spread of the delta variant may delay things, but at some point consumers will choose which streaming services they really need. Only after this eventual shakeout will clearer profit models emerge. Scarlett Johansson’s lawsuit against Disney shows the challenge of moving from the profitable and predictable box-office and cable-TV businesses to the opaque world of streaming. Still, Chopra says streaming is the best use of funds. For now, it’s “about achieving scale in terms of subscribers and revenue, and in the longer term we think that that scale translates into a nicely profitable business,” he said. As consumers decide which apps are worth paying for, “we think we have a very solid opportunity to be one of those.”
Netflix still looks unlikely to lose its lead, but the battle for second or third place hasn’t been decided.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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