The Streaming Wars Are Entering Their Final Season

We’ve been living in the golden age of video content. Cable, Youtube, Tik-Tok, an unlimited number of streaming services; the choices have been nearly endless. Up until now, the choices have also been cheaper than they should be. Companies have all been creating content at a pace far exceeding their cash flows as they fight for market share. However, the newly announced combination of Time Warner/HBO with Discovery’s
DISCA
assets is signaling an end to the free for all in the streaming markets.

Consolidation and competition over the past few years has narrowed the playing field and made it clear who the front runners are and who needs to make some dynamic moves if they want to remain relevant.

So who are the winners? Who will we all be watching in 10 years? Right now, there are three clear front runners, two unknowns, and then everyone else.

Winners:

The three leaders in the streaming space are Netflix
NFLX
, Disney
DIS
, and the newly announced Time Warner/HBO/Discovery behemoth. Netflix had the advantage as the first mover and has the largest viewership in the streaming space. They have developed a user base where they’re able to generate cash flows to support their platform and they’ve shown repeatedly that they’re able to raise prices without losing customers.

Disney and the new Time Warner/HBO/Discovery entity are similar in that they both have established platforms with fairly broad user bases, deep content libraries, and have gone through a series of mergers to make sure they’re large enough to compete on their own.

Disney has their Disney + platform, a majority interest in Hulu, their ESPN and sports content, a strong bench in animation, and significant content they purchased from Fox a few years ago. They can go toe to toe with anyone in the space in terms of intellectual property and have the deep corporate balance sheet to fund the expansion into streaming.

The new Time Warner/Discovery entity is similar in that through the tie up, they have expansive content in nearly every market segment. High quality program offerings through HBO, powerful cinematic content from the Turner library, and a bevy of popular consumer programs from Food Network, HGTV, TLC, and other channels through Discovery. The new entity will also have a subscriber base and cash flows strong enough to stand alone and compete financially with Disney and Netflix.

These three entities are starting to emerge as the leaders, the new media giants. Their content will be everywhere, offered as bundles by access providers and considered as essential streaming services on any home entertainment platform. Everyone else in the streaming and content space is now under pressure to build out something comparable if they want to stay in the game.

Under Pressure:

The two big streaming names that are under the most pressure now are CBS Viacom
VIAC
and Peacock, the streaming group within NBC, owned by Comcast
CMCSA
.

CBS’s story is pretty straight forward. Even after merging with Viacom, they still don’t have enough content, enough users, or enough money to stand in the arena with the big three. They need more content, or need more capital to get content. Realistically, they can either be a niche offering that struggles along, or they might make an excellent acquisition for someone else looking to expand their streaming content libraries.

The obvious suitor is Comcast, though Comcast is under significant pressure.

Comcast’s business operates through a few different segments. Their streaming and cable content run through Peacock and NBC Universal, and then they have another side to their business which consists of internet and cable access direct to the home or business. They are facing significant pressures on both sides of their business and they need to be both decisive and cautious going forward. Their capital is limited yet both sides of their business need heavy investment to stave off competitors.

The streaming side of their business just isn’t big enough to stand on its own. It needs more content if it wants to be an essential part of any home entertainment bundle and be able to consistently raise prices. That means either dramatically expanding content spending, or going out and making an acquisition, incorporating someone like CBS Viacom.

On the other hand, they are facing increased competition on the customer access portion of their enterprise. AT&T
T
is refocusing on 5G and fiber infrastructure after the spin out of Time Warner and both Verizon
VZ
and T Mobile are spending heavily on 5G. New 5G technologies can bring internet direct to the home, bypassing Comcast’s lines wired into every household. Consequently, Comcast faces pressures to retain their internet and data customers, even as customers continue to shed their cable subscriptions.

In short, Comcast needs to decide where they want to spend their money, and they need to do it quickly.

The Dark Horses:

Finally, there are the unknown players in the streaming game. Amazon Prime Video and Apple
AAPL
TV are the dark horses in this contest. They don’t have the current subscribers or the deep content libraries to take on the big three, but they have cash. If they really want to take the streaming wars seriously, they have the capital on hand to indefinitely run at a loss in an effort to attract users and build out platforms. Unconstrained by minimum fees or profit targets, these entities are always going to be a threat.

Furthermore, they have the capital to acquire more users and have their own large distribution networks they can leverage. Apple could buy CBS Viacom or Peacock’s assets without batting an eye. They also have millions and millions of iPhone users worldwide who they can provide the content to as they build up their user base.

Given the state of the streaming field right now, the easiest path forward for a lot of the smaller streamers like Peacock or CBS Viacom might be to angle towards selling themselves to one of these larger entities who can provide the capital and breadth they need to succeed.

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