TCE 21.12: A streaming video stream of consciousness
Let's talk about video shall we ...
Sorry everyone for the break. There’s not much to it - sometimes you don’t have anything interesting to write about. But I’m back today in time for some Friday media feels.
The AFR’s Miranda Ward (who is a consistent must read journalist in my view) wrote a great piece on some of the open ended questions around the domestic streaming market in the AFR. You can read it here.
Miranda’s piece got me thinking about a few scenarios that could play out in 2022 and beyond within the streaming environment. Anyone who knows me knows that I do enjoy hypothesising about potential future movements. Even though it’s such a fools errand (it opens you up to being mocked in the present, and even if your predictions are correct in the future no one remembers or really cares) I can’t resist it.
So, inspired by the intel in Miranda’s AFR piece below are 4 scenarios to get all of us thinking.
Foxtel has a lot of big strategic decisions to consider and ultimately make
The overnight results from Newscorp show that subscriber growth in the Foxtel and Streamotion assets is providing a lot of reason for optimism. Overall Foxtel’s revenue growth is low, but when you split out fixed line versus OTT it’s a tale of two different fortunes.
In short, the Streamotion assets have a lot of upside as there is a reasonable case for continued strong growth. Binge in particular, in my view, has a potential upside of 2 million plus incremental subscribers. Maybe more. It’s a good service at a good price point and with around 800-900k subscribers its well beyond where its potential lies. Kayo is more mature, more expensive, and has a more limited potential audience. But it could double in the next 3-5 years.
If you run those numbers, Streamotion (even excluding the newly launched news service) could have 4-5m subscribers by end of 2024.
Does Newscorp buy out Telstra and own Foxtel 100%? There’s some rationale to this - namely it gives NWS full control, and also allows them to bring in a more strategic content based partner as a minority equity partner. That partner makes sense as WarnerMedia/HBO - which is a key differentiator for the Binge product and provides a lot of tentpole programming. WarnerMedia as an equity partner also *could* negate the entry of an HBO Max product. This need is even stronger considering FX and Fox content is due to migrate into Disney+ by the end of 2023
Foxtel has a case as a spun out listed entity, but my view is Newscorp will want to maintain as much of a stake as possible as there’s a lot of value to be realised in the mid term. Divesting too much of a stake now would leave value on the table.
Stan will need a strategic equity partner, not just distribution arrangements
Stan is one of the most incredible and admirable success stories I have seen in the Australian media world in my career. Mike Sneesby did an incredible job and has been justly rewarded with the leadership of the entire Nine group. It launched alongside a much more cash rich, global competitor, and held its own. And it’s loved by users.
So far, Stan has managed to hold its independence. It’s managed a deep content pipeline from Starz, Showtime, Sony, NBCU and built new subscribers and held existing with consistently high quality new releases.
But what happens when these content providers have their own aspirations of streaming. And what happens when the shareholders of these companies start demanding action on this?
I predicted a few years back Disney would look to acquire a stake on Stan as a jump off for Hulu in the AU market. I was wrong about that, Disney ended up launching a lot of the Hulu content via the Star platform. But as we head in 2022 NBCU is looking at how it expands in Australia.
So the question is - does Stan want to lose this content AND compete with NBCU or a NBCU backed AU newco?
And does NBCU want to partner with a Seven West, who has no experience in streaming and can’t offer the platform that Stan or Nine Entertainment Co can?
I feel NBCU and NEC are solid partners with mutual benefits. Placing NBCU and Peacock content within Stan makes sense, and 9Now provides an additional monetisation platform for catalog content. NBCU content alone (partnering with a SWM for instance) has to compete with Paramount, Amazon, Stan, Netflix, Disney+, Apple TV etc. Is it compelling enough?
Stan and NBCU makes sense. The question will be the price. Stan is valuable and NEC won’t carve out a piece unless they feel it’s fair value.
If you’re going to do sport, make sure it has depth
Sport is being touted as a key battle, but so far it has one really credible player in Kayo.
For what it’s worth, I think the value of sport in Australia is overstated. It’s viewed incorrectly as an entry point into half the population (males), when in reality sport is not as widely popular as we think it is. Sport rates moderately on the whole, and even the big ticket events are hardly consuming the majority of the population (for instance a Grand Final may engage 4m of a population of 25m … so 21m people are doing something else)
Paramount Plus, Stan, Optus and Amazon are all playing on the edges with sport. They have a few codes, and the hope is these codes have a bunch of loyal followers that will translate into recurring subscriber revenue. These codes are generally lower cost, lower risk bets. Low risk, low upside.
Can a population of 25m handle this much fragmentation? I’m not sure. If you’re a soccer fan in AU there’s 4 streaming businesses wanting your affection. This price point really lowers the realistic audience for one code.
My view is to really challenge Kayo there needs to be a deep offering with a competitive price point - like a $10 sticker price. Grab a bunch of different codes and leagues and provide a banquet that sells on value - basketball, baseball, golf, NFL, soccer, ice hockey, boxing, MMA, docos, college sport, catalog classics, cycling, tennis. This sort of bundle has potential with males 35 plus.
Stan is closest to this - it has Rugby, Tennis and Champions League. Nine has a bunch of sports assets. NBCU also has a lot of leverage in this area and a similar US play.
With the exception of tier 1 sports - AFL, NRL, cricket - sport offerings need depth to scale.
The international players could avoid local partners altogether and just go it alone
Disney demonstrated you don’t need a local media partner to launch at scale. They built a business quickly with smart marketing and the power of catalog. And COVID also helped.
A friend of mine with a lot of entertainment marketing experience is adamant the likes of HBO, NBCU etc do not need a local partner. If anything they would complicate things. Why give up a big chunk of equity for $100m of advertising you maybe wouldn’t pay for.
Their logic is the value of ‘contra’ advertising is overstated - and TV networks and their older audiences aren’t of huge value when these platforms can use YouTube, Facebook and other digital platforms as a way of scaling at speed.
And because these streaming platforms are built, implementing in a local market is relatively low energy and requires very low overhead. So economically a partner dilutes future profit potential, and provides very low risk mitigation and cost saving in the immediate term.
If you take this angle, then HBO Max, Peacock and even DAZN could launch on their own without any local involvement.
My view here is I agree with this sentiment on one hand. Operationally, these streaming platforms can expand without local operational assistance. BUT … and it’s a big but … is there room in the market for all of them as standalone entities? My hypothesis is there is not.
So partnership is key, but the more compelling approach would be to partner with an existing player in the streaming space rather than someone with no footprint unless that partner had something else of significant value to offer (catalog, IP, technology)
So … there’s 4 points to spark some thinking. Will any of these eventuate? Who knows. Probably not, but they’re interesting enough to think about.