The battle has begun and YouTube has fired the first salvo. On Dec 5, Alphabet Inc.’s (GOOGL - Free Report) Google announced it was removing support for its YouTube app on Amazon.com, Inc.’s (AMZN - Free Report) Fire TV. The search engine giant cited a number of reasons for this drastic move.
Firstly, Amazon has for long refused to sell Chromecast and recently removed Nest products from its website. Further, Amazon has failed to make Prime Video available on any of Google’s streaming devices.
But this was only the beginning of a tale which has likely yet to run its course. On Dec 6, Apple Inc. (AAPL - Free Report) made the Prime Video app available on its Apple TV devices. The launch of this app clears the way of the resumption of Apple TV sales on Amazon’s website. This little example alone is sufficient to illustrate the level of competition prevailing in the streaming services arena.
According to market research firm Park Associates, nearly a third of households in the United States now subscribe to several over the top (OTT) streaming services. With more than 200 OTT video services available within the country, competition is only going to get fiercer. And feeling the heat will be the incumbents of this once small business segment.
Follow the 800-Pound Gorilla
Leading the streaming services pack is segment pioneer Netflix, Inc. (NFLX - Free Report) . November data from Park Associates show that Netflix continues to hold the top spot among all OTT video services in the United States, followed by Amazon Video and Hulu. Further the company’s stock is up nearly 50% year to date. So can the 800-pound gorilla of the streaming universe carry its success into 2018 and beyond?
Daniel Ives from GBH Insights thinks that those holding Netflix should refrain from cashing in too quickly on the stock’s success. Despite the increasing competition in the space, Ives thinks that Netlfix’s original content, first mover advantage, international growth and franchise appeal will hold it in good stead going forward. Currently, GBH projects that Netflix will touch 60 million subscribers by 2019 and close in on the 100 million mark by 2020. Netflix has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Two-Day Delivery plus Much More
Closing in on Netflix’s success is Amazon’s Prime Video which offers a range of non-streaming benefits to its customers. Two-day delivery of products purchased on Amazon’s portal alone provides it with a significant edge in the competition, especially during the holiday season.
The only sticking point for viewers signing on to the Prime Video service is possibly the fact that you can only subscribe for an entire year at $99, unlike say Netflix or Hulu where you can sign up for a month at a time for around $8-$9. Per month costs in these case, are of course marginally higher.
And now the online retailer is reportedly considering launching a completely new video streaming service. Unlike Prime Video, this new service would be entirely free and utilize advertising to meet its costs. If Amazon does indeed launch such a service, it could divert significant viewership from Netflix and Hulu, ranked at number three on the list of the United States’ top video streaming services.
New Kids on the Block
Data from Park Associates also shows that the top four video streaming devices, rounded off by MLB.TV, have remained unchanged from a year ago. According to the research firm’s senior research director Brett Sappington, this means that new and emerging services will find it difficult to break down barriers to entry and create a loyal subscriber base.
However, HBO Now currently features at the number five spot on this list, a progression which clearly indicates consumers’ preference for niche streaming options. A host of streaming services was announced around the end of 2016 and all through the current year. Most of these are targeted at fulfilling a very specific need set.
For instance, Filmstruck, which features the best of the hallowed Criterion Collection, showcases the best of critically acclaimed cinema. On the other hand, Acorn TV brings the best entertainment produced in the United Kingdom.
Yet another dimension has been added by traditional broadcasters, who have launched streaming services in order to effectively compete with the new format. DISH Network Corporation’s (DISH - Free Report) Sling TV has 1.7 million subscribers, according to Bloomberg and already features among the top 10 U.S. video streaming services. Meanwhile, AT&T Inc.’s (T - Free Report) DirecTV Now breached the 1 million subscriber barrier earlier this week.
Increasing Fragmentation, Rising Library Costs
Ultimately, the end of TV subscriptions is approaching at a much faster rate than earlier expected. This process has been hastened by the rising preference for personalized and niche services which focus on the needs of the individual viewer. In the process a highly fragmented space is likely to emerge, especially with the trend to create and develop exclusivity over original content.
Of course, this amount of original content will come at a price. Expenditure on original content is likely to jump substantially in 2018. For instance, Netflix is planning to spend almost $8 billion on producing its own content next year. This is a substantial jump from the $6 billion that it spent on content in 2017. Amazon isn’t too far behind, having spent $4.5 billion on content for its Prime Video services. Meanwhile, Hulu and HBO spent $2.5 billion each for the same purpose this year.
Brave New 2018
Next year is set to be an even more exciting one for the streaming space. On the one hand, The Walt Disney Company (DIS - Free Report) is set to launch its streaming service, featuring content from the Marvel and Star Wars stables. During its last earnings call, Disney CEO Bob Iger said the service would be priced “substantially below” Netflix, which is also likely to lose loads of premium content to this new service.
Further, social media giants, such as Facebook, Inc. (FB - Free Report) with its Watch service, and YouTube are going to become particularly active in the streaming game. Live TV streaming is another are which is opening up in a big way with Hulu, Sling and DirecTV Now leading the way.
Increasing competition, mounting content costs and fragmentation is likely to force industry occupants such as Netflix to become more traditional. For instance, Netflix is increasingly releasing episodes every week, much like old television broadcasting. This is a clear departure from the binge watching trend it created when it began releasing entire seasons at one go. The going is likely to be tough for industry insiders such as Netflix in 2018. And the only likely winner in such a situation would be the consumer.
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