In 2007, Netflix severely disrupted the entertainment industry by using new technology to stream movies and TV shows directly to users in their homes. Netflix dominated the past decade which was defined by the opportunities created by streaming.
The New Players
Since 2007, there have been several new television streaming platforms competing to take over the market.
Jeff Bezos’ Amazon established its service, Prime Video, which has been very successful and is vertically integrated within Amazon’s own ecosystem. Disney’s streaming service, Disney+, is increasingly popular and owns and features content from ESPN, Hulu, Marvel, and much more. Warner Brothers and Discovery recently merged and offered the newer streaming platform, HBO Max. Even other players such as Apple’s Apple TV, Paramount Global’s Paramount+, and Google’s YouTube TV have made significant headlines.
With so many young and incumbent players in the market, the question for this decade: Who will win the streaming wars?
Revolution and Incumbency
To tackle this question, we can see what the current leader, Netflix, did in the past to capture the “Iron Throne” of streamed entertainment.
Netflix began as a disruptive innovator, offering a new technology that radically improved the content-to-customer experience. At a relatively cheap subscription cost, Netflix’s service was able to capture and establish its network of users, taking complete control of the industry.
While Netflix still leads as a streaming service, its user base has been dwindling. As demand for entertainment rose during the Covid-19 pandemic, new players who entered the market were able to differentiate themselves and capture some of the market shares.
So, the question remains, which players will come out on top? First, we have to determine whether the streaming market allows for a winner to take it all.
In a true winner-takes-all market, there is limited opportunity for differentiation and restraints to competition that only allows for one player to capture a substantially large market share. Is this true for the streaming entertainment industry?
Short answer, No.
The reason why this market cannot yield an absolute winner is because of one important factor: network effects. Netflix has been the king of the industry for a long time, but the reason for this long-standing monarchy depended on the lack of competition. Netflix’s subscriber and market share advantage doesn’t necessarily deem Netflix a monopoly. It lacks direct network effects, the same effects that have allowed Google to control search and email, Amazon to control marketplaces, and Meta to control social.
User content, functionality, and compatibility all allow for users to benefit from more users, which creates an exponential influx of people on a service or product. Netflix doesn’t have this unquenchable fire associated with direct network effects. The content provided to users by each of these services doesn’t vary greatly; large or medium-sized market shares don’t have a significant effect on the content a streaming service can provide, therefore, this cannot be a winner-takes-all market as it lacks network effects.
Innovation over Repetition
Finally, how can we determine who will come out on top? Well, it’s tough to tell. Since content remains relatively similar and is quite hard to predict, it may be important to note other factors that can redefine the service entirely.
Netflix won early because of its unique innovations, and the same can be said for the next 10 years. Innovation will always supersede repetition. These potential innovations have to both radically improve user experiences and make costs cheaper.
As streaming comes closer to being a substitute for cable TV, channel-like services that can provide both live and video-on-demand (VOD) streaming may succeed in capturing a large market share. Services like Disney+, Apple TV, and YouTube TV have begun to make strides toward this. Look out for Acquisitions, Mergers, and Partnerships as they can determine the oncoming paths these companies will take.
The inclusion of video games can also be a profitable route to take. Keep an eye on Amazon and Netflix as they have implemented the idea and progressed their capabilities.
As stated before, network effects may play a major role in determining the biggest winners in the industry. As services start to create vertically integrated systems, user-to-user interaction can create benefits and improve experiences in ways we have yet to experience.
Nevertheless, with inflation rates rising to 40-year highs, the cost of living has increased substantially, forcing subscribers to dawn upon which services they would keep and sacrifice. During this time, content, cost, and value will all determine which players are deserving of being extinguished or kept alight.
The question remains unanswered, leaving you to take the ideas and available information to decide: who, if anyone, can or will surpass Netflix as the streaming king?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.