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AlphaSense
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October 23, 2020
11 min read
In 2018, over one million consumers left traditional cable television for streaming services. Within the first quarter of 2019, another 1.4 million subscribers joined Netflix, Hulu, and YouTube full-time.
While cord-cutting may be increasingly popular, apps like Quibi have found the marketplace to be competitive and volatile. The streaming service, which focused on smartphone-first, short-format content, went from a highly-anticipated disruptor to a failure within its first six months of launch. In its announcement this week that it would be shutting down, Quibi noted that its viewership (and advertising revenue) was lower than expected and that users failed to renew their three-month-free subscriptions.
Quibi’s failure starkly contrasts the success of its competitors. In the first half of 2020, Netflix added 25.9 million customers, while new platforms like Disney+ and HBO Max quickly gained traction.
Throughout 2020, executives have expressed a dichotomy: with COVID-19 shutdowns and stay-at-home orders, more people have joined streaming services. Simultaneously, established companies like Netflix were unable to create new content for their platforms despite massive budgets.
Streaming Platform | 2020 Content Budget | # of Subscribers (Current) |
Netflix | $16 billion | 195.15 million |
Hulu | $3 billion | 35.5 million |
Disney+ | $1.75 billion | 60.5 million |
ESPN+ | N/A | 8.5 million |
HBO Max | $1.5 billion | 8.6 million activated users
28.7 million eligible users |
Amazon Prime | $7 billion | 150 million |
Apple TV+ | $6 billion | 33.6 million |
YouTube TV | N/A | 2.3 million |
Peacock | $2 billion | Fifteen million “sign-ups.” |
Quibi | $1 billion | 1.5 million |
Q3 earnings proved difficult for Netflix and Disney in particular. Netflix, which had previously dominated its first half predictions, saw slight downturns in revenue and new accounts. Disney noted the same problem. So, with more consumers returning to work and with COVID restrictions still cutting into content production, how will these streaming giants compete through the rest of 2020 into 2021?
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Netflix: The Streaming Giant
In its Q3 earnings, Netflix missed Wall Street’s estimate of 3.32 million new subscribers, garnering only 2.2 million. This miss comes after the streaming giant added 25.9 million customers in the first half of the year, primarily driven by COVID and mandatory stay-at-home policies.
Q2 Earnings Call – July 20, 2020
“We are the world’s leading subscription streaming entertainment service with over 192 million paid streaming memberships in over 190 countries enjoying TV series, documentaries, and feature films across a wide variety of genres and languages.”
8K – October 20, 2020
This past quarter, we saw the debut of Comcast’s Peacock, which comes on the heels of HBO Max and Disney+ launch. Disney’s recent management reorganization signals that it is embracing the shift to streaming entertainment. We’re thrilled to be competing with Disney and a growing number of other players to entertain people; both consumers and content creators will benefit from our mutual desire to bring the best stories to audiences all over the world.
Q3 Earnings Call Transcript – October 20, 2020
So retention remains well at very healthy levels, better than we were a year ago. The acquisition remains strong. So you’re just seeing some natural, kind of because of that pull-forward effect, some slowdown. But we don’t want to lose sight of the fact that to measure our business, and it’s not based on any single quarter of growth fluctuation. It’s really about — it should be estimated in multi-quarter and multi-year trends. And so if you look at the past three quarters, year-to-date through Q3, we’ve grown by a little over 28 million members, which is more than we grew all of last year. So super healthy growth, and the underlying both top-line and bottom-line growth and retention trends in our business are healthy.
Disney: The Much-Anticipated Newcomer
This year, Disney began offering a package for users that combines its three services into one bundle for $12.99 per month, significantly reducing the cost of the three services combined for cord-cutters. Additionally, in its Q2 earnings, Disney noted that DIsney+ and Hulu significantly offset losses for the quarter from theme parks and resorts, theater closures, cruise line shutdowns, and decreased merchandise revenue.
When you look at Disney’s entire portfolio of direct-to-consumer businesses at Disney+, Hulu, and ESPN+, its combined global reach now exceeds 100 million paid subscriptions. In Q4, Disney “expects [its] DTC segment to generate about $1.1 billion in operating losses, and [it] expects “the Q4 operating results of our DTC businesses to improve by approximately $100 million relative to the prior-year quarter, driven by lower losses at Hulu and ESPN+, partially offset by our continued investment in Disney+.”
Disney +
The Walt Disney Company – Q3 Earnings – 10Q
In November 2019, the Company launched Disney+, a subscription-based DTC streaming service with Disney, Pixar, Marvel, Star Wars, and National Geographic branded programming in the U.S. and four other countries and has expanded to select Western European countries in the Spring of 2020. In addition, in April 2020, our India Hotstar service was converted to Disney+ Hotstar, and in June 2020, current subscribers of the Disney Deluxe service in Japan were converted to Disney+. Further launches are planned for Latin America in the fall of 2020 and Europe and various Asia-Pacific territories throughout calendar 2020 and calendar 2021.
Hulu
The Walt Disney Company Q3 10Q – August 4, 2020
On May 13, 2019, the Company entered into a put/call agreement with NBC Universal (NBCU) that provided the Company with complete operational control of Hulu. Under the contract, beginning in January 2024, NBCU has the option to require the Company to purchase NBCU’s approximately 33 % interest in Hulu. The Company has the opportunity to need NBCU to sell its interest in Hulu, based on NBC’s equity ownership percentage of the greater of Hulu’s then fair value of $ 27.5 billion.
NBC’s interest will generally not be allocated its portion of Hulu’s losses as the redeemable noncontrolling interest is required to be carried at a minimum value. The minimum value is equal to the fair value as of the May 13, 2019 agreement date accreted to the January 2024 redemption value. Accordingly, on June 27, 2020, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $ 8.1 billion.
ESPN+
The Walt Disney Company Q3 10Q – August 4, 2020
The average monthly revenue per paid subscriber for ESPN+ decreased from $5.33 to $4.18 due to the introduction of a bundled subscription package offering of Disney+, ESPN+, and Hulu beginning in November 2019 and lower per-subscriber advertising revenue. In addition, the bundled offering has a lower retail price than the aggregate standalone retail prices of the individual services.
Amazon (Amazon Prime)
Amazon Prime video is intrinsically tied with Amazon Prime memberships – there are over 112 million Amazon Prime subscribers in the United States.
Amazon – Q2 8K – July 30, 2020
“This year:
Amazon – Q2 Earnings Call Transcript –
We continue to see high Prime member engagement throughout the quarter. Prime members shop more often with larger basket sizes. In addition, worldwide streaming video hours doubled year-over-year, primarily driven by Prime video.
AT&T (HBO Max)
Q3 Earnings Call Transcript – October 22, 2020
HBO Max continues to scale. We’ve overperformed on our initial target of 36 million domestic HBO Max and HBO subscribers for this year. All of this is before we launch our AVOD product in the U.S. next year and before we begin our international deployment of HBO Max, also planned for next year.
Apple (Apple TV)
Quibi
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