Except Netflix and Amazon, everyone cancels?..."Streaming Chaos, Only 3-4 Will Survive"

Interview with Executives from Streaming Companies like NYT and Netflix
Significant Increase in Content Production Costs
Market Survived with 100 Million Subscribers
Now Must Secure Over 200 Million to Compete

As the so-called 'streaming war' among online video service (OTT) providers such as Netflix, Amazon, and Disney has been ongoing for several years, there is a growing expectation that only about three to four companies will survive soon, while smaller players will disappear. This is because intensified competition has driven up content production costs, significantly increasing the minimum number of paid subscribers needed to generate profits.

[Image source=Reuters Yonhap News]

The New York Times (NYT) recently interviewed about ten current and former executives from the U.S. media industry, including Netflix CEO Ted Sarandos and Liberty Media Chairman John Malone, a cable channel operator and a major figure in the American media industry, about the future of the streaming sector. Most of the executives who responded described the streaming industry as currently chaotic and predicted that only three to four companies would survive in the future.

NYT reported that Netflix and Amazon are highly likely to be the surviving players in the streaming industry, followed by the Disney and Hulu combination. Apple is also expected to endure in niche markets despite lower profitability. However, Peacock, Warner Bros., Discovery's Max, and Paramount Plus are forecasted to struggle to survive.

Due to COVID-19, consumers who have subscribed to multiple streaming services are now facing practical concerns such as costs. According to a Deloitte survey, American consumers use an average of four streaming services and pay a total of $61 (about 85,000 KRW), yet they do not feel they receive equivalent value. Similar research in South Korea has shown that the average person subscribes to four streaming services.

Chairman Malone said, "The question is whether you can be a successful player in the industry and generate wealth over the long term, or whether you will become 'roadkill.' Small companies will have to either shrink further or exit the market."

The survival of these streaming companies depends on profitability. To generate profits, it is crucial for streaming providers to secure a certain level of subscribers. Considering the industry's reality of pouring enormous costs into content production, the number of paid subscribers sharing these costs directly correlates with profitability.

[Image source=Reuters Yonhap News]

Streaming industry executives estimate that the minimum number of subscribers needed to generate profits in the market is 200 million. Previously, executives evaluated the minimum as 100 million, but as market competition intensified, the required number doubled. Mike Hopkins, head of Amazon Prime Video and Amazon MGM Studios, said, "If you want to become a complete entertainment service with live sports broadcasts and large-scale blockbusters, 200 million is a hopeful number that indicates growth potential." Former Disney CEO Bob Chapek also assessed that "(around 200 million) is the level at which you can compete in the market."

Is it possible to secure over 200 million paid subscribers?

Among U.S. OTT providers, only three have more than 200 million paid subscribers. Netflix has 270 million paid subscribers. Consumers pay Netflix an average monthly fee of over $11. Netflix's operating profit margin is 28%, the highest in the industry. Besides Netflix, Amazon, which owns Prime Video included in its commerce subscription, and Disney, which owns two streaming services?Disney Plus and Hulu?have attracted over 200 million global subscribers.

The reason streaming providers need to secure more subscribers is that content production costs are increasing. Netflix plans to invest $17 billion in content production this year, the highest in the industry. CEO Sarandos said, "Entertaining the world is a very difficult task," adding that viewers constantly want content and will hit the unsubscribe button if there is no content worth choosing, so continuous investment is necessary.

Recently, streaming companies have been competing to secure live sports broadcast content, exponentially increasing cost burdens. Live sports broadcasts are a win-win content for streaming providers because they can attract subscribers who enjoy watching football, baseball, basketball, and other games live, and also retain advertisers who have traditionally advertised during sports events.

Amazon has secured live sports broadcast content including the National Football League (NFL), NASCAR, Canada's hockey league (NHL), and the Champions League in Germany, Italy, and the United Kingdom. Apple secured 'football emperor' Lionel Messi and obtained exclusive broadcasting rights for Major League Soccer (MLS), and Netflix announced it will stream MFL games on Christmas for the next three years. Some executives believe that without sports, streaming services will struggle to survive as an independent industry.

Given the massive funds streaming providers pour into securing content, it is unlikely they will eliminate ad-supported plans. To maintain subscribers without significantly raising monthly fees while covering content production costs, generating revenue through advertising is the only option. Former Disney CEO Chapek evaluated this as "a good way to attract price-sensitive consumers."