The Streaming Wars intensify as a new contender enters the fray. WarnerMedia is the latest in the series of copycat moves by other studios to form their own streaming service. The new service is expected to go into beta release late in 2019, and is the first streaming service to feature different content at different pay rates for subscribers.
Since AT&T bought Warner Bros., they’ve had a pretty big pile of debt attached to the property that now has to be dealt with. They a $84.5 billion for the studio, and their plan now is to build this new streaming service to try to get money directly from the audience. AT&T is currently operating with a debt load more than 2.5 times its current earnings, and they’re “laser focused” on getting that debt down by the end of the coming year. For those who don’t work in the corporate world, that often translates to “we have no idea exactly how we’re going to do this, but we’re hoping what we’re about to try, against the odds, actually works.” Getting that debt down is literally job one for them at this point, and they think starting their own streaming service is the best way to do that.
AT&T said WarnerMedia’s SVOD service will offer consumers three options to subscribe, starting with “entry-level movie-focused package.” It will also feature “a premium service with original programming and blockbuster movies” and a third option “that bundles content from the first two plus an extensive library of WarnerMedia and licensed content.” We hope that includes more than old movies and Harry Potter.
Unfortunately, they’re not the first out of the gate with the idea.
Already rolling are Sony with its Crackle service, CBS with CBS All Access, and MGM (with Walmart) with Vudu, Netflix, the Hulu service, Amazon Prime and a few other minor players. The Walt Disney Company will be rolling out its Disney+ streaming service later this year and changes to contracts with established licensees are slowly being modified so as to allow them to pull back their content so that they can have exclusive control over them for their new service. Comcast is hinting that NBC/Universal may launch its own streaming service in 2019 as well. AT&T already holds 10% of Hulu, by the way, and the most likely buyer for that 10% is the Walt Disney Company.
Things are already getting complicated and mired in swirling distributions negotiations, and it’s all built on the idea that consumers are going to develop some kind of brand loyalty when it comes to content producers. The fragmentation in the streaming wars is going to be really really high, with a lot of studios actually losing money trying to be their own distributors.
All this may be going in a bad direction. The studio system, where studios made creators sign exclusive contracts with creatives and then distributed their own material through studio-owned theater chains, was effectively put to death in 1948 in the landmark Supreme Court case of United States v. Paramount Pictures, Inc., wherein it was determined that the studio producing all its own content and distributing it through its own studio-owned channels constituted a violation of anti-trust laws. Every other major studio was included in that law suit, by the way, it wasn’t just Paramount doing it. It was the introduction of television as a new distribution medium that finally broke the stranglehold of the studios on what films got produced, who would be in them and where they could be seen.
Now it appears we are hurtling headlong in the same direction, with history repeating itself. First, though, there will be a shakeout, with a few top players owning the entire business. It may take two to five years for the shakeout to really happen, but we believe that Disney, Netflix and Amazon will stay on top as the main contenders.
Netflix will obviously be fine. Amazon goes in the automatic win column too, because their fee is almost invisible – the streaming comes free with Prime and people are paying $119 (less than $10/month) for the free shipping as much as anything else. Comcast and AT&T should be okay because their core businesses are the medium of distribution, not as purveyors of content, so they have a built-in customer base the others don’t have. Disney is also said to be charging less than $10/mo so there’s not a whole lot of room for the competitors to charge more unless their current customers are already inured to the cost.
As for the rest of them, though, each one of these newcomers are all going to have to replicate the entire technological distribution system, the entire subscription platform, all the financial management subsystems, and absolutely everything else it takes to create a streaming service from nothing.
At the bottom of the pyramid are the consumers, and the weight of all this is build upon their backs. We haven’t done a survey, but we believe that at most people are going to be interested in subscribing to 3-4 different services, and that’s probably about it. The next five years should see a radical shakeout.
All in all, this is a terrible time for WarnerMedia to dip its toe in the water. Everybody wants to be first to be second, but WarnerMedia will be starting out at the back of the deck.