John Malone is the CEO and Founder of Liberty Media a global broadcasting brand and pioneered the US cable business. Through this experience, he has learned a thing or two about the industry here are some of the fundamentals of the industry and its many strategies.
As the Streaming Wars enter their next phase, here are four guidelines for media investors to watch from John Malone’s talk:
1. Direct Customer Relationship vs. Content Strategies
With the big cable bundle dying, Malone highlights two main strategies for streaming companies. First, build a direct customer relationship - how many people do you already have a direct billing relationship with? Amazon(AMZN) and Apple(AAPL) are examples here because they already have their customers’ credit card numbers, emails, and other information. Even if streaming isn’t Amazon’s and Apple’s main revenue stream, they can use streaming video to make their services stickier.
The second strategy is the content strategy where you put efforts into building and acquiring the best content. Disney+(DIS) is a great example of this because of their rights to Marvel, Disney, Star Wars, Pixar, to name a few.
The only brand clearly in a leading position in both direct relationships and quality content is Netflix(NFLX) who has put resources into growing its content and has one of the largest, direct streaming platforms.
The old media companies are coming out with their own products, such as Viacom’s(VIAC) Paramount Plus, Comcast’s (CMCSA) Peacock, AT&T’s (T) HBOMax, and others, but it is difficult to compete with the massive user bases of Disney+, Netflix, and Amazon Prime.
2. Optionality on timing and amount of investment into streaming for bundlers
While many traditional media companies are fighting for their survival, platform companies like Apple and Amazon have optionality when it comes to investment. Both companies have large amounts of capital they could invest into their streaming service, however, they first are testing the waters for profitability and how competitive their offerings actually are. Both Apple and Amazon could potentially buy another streaming service from a traditional media player and combine that arsenal of content with their user base. That may happen over time. These giants can wait to see how the battle plays out and buy a competitor with their sizable budgets, after a costly war for attention.
A different route they could take is the bundler route. This means they would be the umbrella provider of multiple streaming services. Amazon has been developing Prime to bundle many other services. Since Amazon and Apple both have physical offerings in FireTV and Apple TV, they are in a good position to serve as a gateway bundling a wide array of services.
3. Some might succeed in the niches
Possibly the best way for old media providers like ViacomCBS to survive is to focus on niche content. An example of this is sports, the average person wouldn’t pay for the limited selection of movie content alone on the new Paramount+. However, an avid sports fan would pay solely for live sports. Old media networks can survive for a while because in a lot of cases they have the rights to the content like sports and experience to produce it themselves. If they can show demand in streaming sports, then they may become an acquisition target for an Apple or Amazon type company down the road. A near-term possibility would be licensing channels or content to a bundler and potentially using that income stream to grow their content and eventually become a major player.
4. International growth
For most US streaming services, international markets are the vital growth engine. As the US market becomes saturated with services, the companies that want to grow from tens of millions of subscribers to hundreds of millions of subscribers will need to look overseas.
This means that companies need to control their content and use it to drive international growth, avoiding the short-term temptation of a one-time licensing payment. In the case of AT&T’s HBOMax HBO owns the rights to many of the most popular shows in the US, like Game of Thrones, but Hotstar(owned by Disney) owns them in India. Strategic errors like these limit the chances a company has to grow internationally.
International rights can also be a catalyst for stickiness, streaming services that own rights for soccer, formula one, and cricket, which have widespread fan bases internationally, can use this content to extend their reach across the globe.
We are witnessing a battle of strategy. The next decade will bring a whole new wave of online streaming innovation and a powershift of the main providers. The keys will be to watch the global dominance of each brand in terms of subscriptions, content, platforms, and global presence.
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Disclaimer: I do hold a position in ViacomCBS mentioned above. I am not being compensated for writing this article. Outside of my position in ViacomCBS I do not have any relationship with any of the companies mentioned. For all other list companies I do not hold positions and I do not plan on initiating a position in the next 72 hours. This is not financial advice, always do your own research.