Disney, Netflix, and Sports

Why would you need anything else?

At the Apple event this week, they announced the price point for their video streaming service: $4.99 a month, and free for a year if you buy a new Apple device. That’s a great deal for consumers, especially compared to the pricier streaming options like Netflix or HBO.

The problem is, I can’t come up with a reason why anyone would want to subscribe to it.

Demand for video content has already been filled, and Apple is coming in with no seasoned brands like Disney+. Like many of the other streaming initiatives, I think Apple TV+ will be a dud from a cultural/viewership perspective. In fact, I believe everything but Netflix and the new Disney bundle will be flops.

Why Most Streaming Services will Fail

Media is not a growing industry. There are only so many hours that people can consume content, meaning demand will stay relatively constant for video. And if demand is constant, why are companies assuming they will succeed by doubling the supply of undifferentiated shows?

I personally watch one or two hours of video content a day (this includes YouTube and social media, but not sports). Netflix already has the content to fill this time and has proven for years that it can produce high-quality shows that, at least for me, are on par with HBO. I’ll also likely be subscribing to the Disney bundle of Disney+, Hulu, and ESPN+, mainly for the differentiated content (Star Wars, sports, Marvel, etc.) that I can’t get anywhere else.

If I am paying $12-$15 a month for Netflix and the Disney bundle, why would I add another $15 from HBO when my personal needs are already filled? Apply this scenario to worse content providers like CBS, NBC, Showtime, etc. and you can see why I am bearish on the prospects of most streaming options. Maybe some people think there is a gap in quality between HBO and Netflix. If there is, this gap will only decrease in the coming years as Netflix scoops up more Oscar-level talent.

Apple TV+ and Prime Video will end up succeeding. Not because of their original content, but in spite of it. Both companies have a competitive edge over other content providers in that they can bundle their video service with their flagship product (Prime for Amazon, hardware for Apple). So even if the content is nothing special (trust me, it won’t be), they will still sustain high subscriber numbers. Plus, it will drive more people to become Apple TV and Amazon Fire TV users.

The wild card for content, at least in the United States, is sports. Most league rights are owned by ESPN and Fox Sports (which was left behind in the Disney merger), with CBS and NBC owning stuff as well. Keeping these rights might delay a few million people from officially “cutting the cord,” but it is no hail mary for analog TV. Eventually, the league contracts will be up, and the platforms with the money and the users (Disney, Netflix, Amazon, etc.) will outbid the cash-strapped legacy businesses.

Don’t Forget About Free Services

When evaluating the content people consume, I’d be remiss to forget about ad-supported services. YouTube, Instagram, and other tech platforms are immensely popular, especially among young people. Each month, 3.25 billion hours of video are watched on YouTube. That number will only grow in the coming years and eat away at hours that could be spent watching paid-streaming services.

Weekly Value Proposition

Some of you might be thinking, “I love [random show] on HBO, it’s better than anything on TV right now.” While that statement may be true for millions of people (Succession takes the cake for me), one show doesn’t make HBO worth $15 a month, at least for a majority of people.

For example, let’s say on average you watch two hours of video content a day, which comes out to 14 hours a week. If you subscribe to HBO and the Disney bundle but not Netflix, you’d have trouble finding enough programming to watch each week. That means eventually you’d end up subscribing to another streaming service, upping your bill to around $40 a month. However, if you flip the scenario and subscribe to Netflix and Disney but not HBO, you’d likely have enough quantity and quality to fulfill that 14 hours each week. Even if Netflix raises prices, your overall bill will be lower because you only have to subscribe to two services, not three.

Maybe consumers won’t think this logically about their streaming subscriptions. Maybe HBO can build a Star Wars-like brand with Game of Thrones, keeping millions of subscribers around for a decade. But Netflix has already won the quantity game. If they can stay competitive from a quality perspective too, other streaming services will have no way to beat them.

Why would you need anything else?

Disclosure: The author is not a financial adviser, and may have an interest in the companies discussed.

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