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The way we watch TV and movies is changing. Before the 1980s, only broadcast TV existed. This free, ad-supported television broadcasted to homes and typically included three-to-four national and two-to-three local channels. Next, cable was invented, and for a monthly subscription, users could access hundreds of channels and additional content for a paid subscription.
The Shift to Streaming
As recently as 2016, almost 100 million homes had cable TV. Then, streaming emerged, significantly changing how we consume TV and movies. When streaming started to dominate, the first main platform was Netflix (founded as a movie rental platform in 1997). The number 2 player in the market, Disney+, started in 2019. The streaming wars, where numerous streaming platforms competed for revenue and viewership, soon followed. By 2023, the number of homes that subscribed to cable dropped to 73 million, and there were almost 393 million streaming subscriptions globally. Per Morgan Stanley research, this number is expected to grow to 475 million subscriptions by 2026. This means that in 2026, almost half of the revenue in the TV and movie industry will be generated by streaming platforms.
Challenges with Streaming
Cable was effectively a monopoly, but since the introduction of streaming, there are now many competitors. As streaming became ubiquitous, many smaller players tried to differentiate themselves and take a share of the market. However, this was costly because companies had to buy or make content to gain subscribers. In 2021, Netflix was the only platform making money. All players, including Disney+, Warner Brothers Discovery, Paramount, and Peacock, were losing money because they were spending too much on content. Another challenge within the industry is that there are no costs to switch: subscribers do not have to pay any sign-on fees so they are not incentivized to stay with a particular platform. The overarching problem was that these businesses were subscale: they had too few subscribers, yet they had to continue producing content to gain market share. In response, the industry had to consolidate to get economies of scale and become profitable.
Competitive Forces Drive Change in the Streaming Landscape
The streaming industry needed to adjust to become profitable, and so over the last couple of years, we’ve seen consolidation within the industry. Trying to aggregate content, Disney bought Hulu and ESPN+. More recently, in May 2023, HBO Max and Discovery+ merged into a new streaming service, Max. Paramount+ is currently being bought by Sundance, which owns CBS and MTV, among others. Consolidation often results in platforms staying separate, but companies start offering bundles for access to all the platforms they own. As a consumer, you pay for the bundle and get access to all subscriptions within that bundle.
Amidst this consolidation process, platforms are navigating the changing market by pursuing different business models. Netflix and Apple TV chose to develop a lot of proprietary content. For example, Apple TV has spent a lot of money on developing shows such as Ted Lasso, The Morning Show, and Slow Horses. Disney already has essential proprietary content in the form of all the Disney movies. Prime is building up an extensive library. Disney and Warner Brothers have a large variety in their content. Other platforms are trying to go after certain market niches, such as sports.
Concluding Thoughts
Ultimately, these changes should benefit consumers as the market becomes more rational. Profitable companies will develop quality content, and with bundles, consumers will have broader access to content with fewer subscriptions.
TV and movie consumption is an ever-evolving market, with streaming becoming the dominant form over the next several years. Students should really benefit as they will be able to access more content on demand for lower prices as the market consolidates. Stay tuned; there’s never been a more dynamic time in this marketplace!
