Author's note
My plan is not to send out a Friday mailing given the holiday weekend. That said, I learned while at Viacom that major media companies use Labor Day Weekend to announce big-name hires or big-name departures (and, as fate would have it, Netflix just hired two executives from Snap to run advertising, and Paramount just announced it is merging Showtime into Paramount+), so odds are there could be a big media-related headline on Friday.
While writing Monday’s essay, I remembered something Netflix Chief Product Office and Chief Operating Officer Greg Peters shared on the Q2 2022 earnings call:
…many years ago now it feels, I was able to spend a couple of years in Japan, launching the service there. And I got a chance to work with the local teams that we were hiring and growing there, as well as our global teams to really look at every aspect of the service and try and improve it for our Japanese members and grow our membership base there. So I think of that as sort of like a mini version or a trial or a test out for what I anticipate I'll be doing more in this role.
Peters was referring to his time in Asia as President of Netflix Japan, where he led international development efforts between 2015 and 2017, prior to being appointed CPO and later COO of Netflix. His work in Japan laid the foundations for his later work as CPO and COO, and in 20/20 hindsight, laid the foundations for the regional and global success of “Squid Game”.
Arguably, but for the success of Netflix’s efforts in Asia, Squid Game would have never taken off, nor would have Japanese dystopian thriller “Alice in Borderland”, which “saw a "sizable uptick in global viewing" after "Squid Game" became a phenomenon. That series was released in 2020, and it “landed back in the top ten series ranking in more than fifty countries around the world, more than nine months after its initial launch”, as Yahoo! Business reported last November.
In light of Amazon’s “The Rings of Power” rollout, is there anyone in senior management of Amazon who spent time internationally building out the infrastructure of streaming in key regional and/or international markets? Or someone in a senior position who has been overseeing what could be described as “connecting the dots” to deliver global hits like “Squid Game” for an Apple, a Paramount+ or even Comcast (Peacock in U.S., Sky in U.K and Europe) ?
The answer across the board seems to be, no. That seems to be significant given growing market beliefs that there will only be a handful of winners in streaming, and that they will emerge in the next 36 to 48 months.
Predictions of Three to Five Winners in Streaming
Kevin Mayer, the former Disney Chairman of Direct-to-Consumer and International and now Co-CEO of Candle Media, predicts “four or five big global services” at most, and also smaller niche programming services “doing very well, continuing to be profitable, but smaller”.
There is also former WarnerMedia CEO Jason Kilar’s prediction from a Vulture interview earlier this year:
I’ve long held a belief that generally speaking, there’s going to be a relatively short list of streaming services that are must-have. My hunch is there’s probably going to be three must-have general entertainment streaming services. And on this, I’m referring to the storytelling-centric companies. So WarnerMedia is clearly one with HBO Max, and then I put Disney and Netflix in that camp as well. I’m setting aside Apple and Amazon, because they’re kind of different things — one supports a hardware strategy, the other supports a retail strategy. But my hunch is that if you get into a time capsule and get out in a decade, you’re going to see three storytelling-centric companies that are at scale — probably over 300, 400 million happy, paying subscribers. And I think that the others are going to be refactored, [either] through M&A transactions [or] a pivot to be production entities, like Sony Pictures Entertainment has been. I just think that we’re about to see, in the next 36 to 48 months, a fair bit of changes to the chess board.
There are three important takeaways from these two perspectives:
There ultimately will be three to five global services;
There is a difference between streaming services from “storytelling-centric companies” versus those from Apple and Amazon; and,
We likely will see the winners and losers shake out over the next 36 to 48 months.
There is also a fourth, implicit one based on the Greg Peters story: the most successful streamers will need a senior executive to “connect the dots” globally, and presumably three to five winners will have that person or those people.
Outside of Netflix and perhaps Disney’s Rebecca Campbell - who is now Chairman, International Content and Operations at Disney after serving as Chairman, Direct-to-Consumer and International Operations following Mayer’s departure - it’s not clear that Greg Peters-like figures exist at Amazon, Apple, NBCUniversal or Paramount Global ( in the case of Disney, it’s worth noting that Campbell issued the press release on why they opted not to bid to win the streaming rights for India’s Premier League (IPL) cricket). [1]
It is also possible that the hardware-first and retail-first structures of Amazon and Apple mean that no such figurehead is required: Even if there may be junior executives at these companies who could emerge as Greg Peters-like figures within the next three to five years, there are none who need to oversee the enterprise of “connecting the dots” of a vision towards a global streaming service. That may simply not be a business priority anywhere outside of Netflix, whose lifeblood relies on subscriptions for streaming.
On this point, it’s worth noting how Paramount and Comcast’s Sky are pursuing an international partnership independent of their streaming efforts for Paramount+ and Peacock domestically and in other countries. , Paramount+ is also pursuing more local partnerships through “hard bundles”, where existing subscribers to local streaming services or cable providers can stream Paramount+ content at no extra cost. Neither is appointing a Greg Peters-like figure.
What does the data tell us?
Our best option for predicting who may be the winners should be data. However, there is no global source for first-party data beyond Netflix's top ten lists. Netflix's “total hours viewed” metric that tells us how Squid Game and Alice in Borderland actually performed globally and country by country. For everyone else, we need to rely on third-party data sources like Samba TV or Parrot Analytics, but neither tells a particularly cohesive or thorough picture about who is succeeding globally and why.
Netflix’s data tells us its technology and algorithms now enable cheaper local productions from across the globe to scale internationally, and it now may be devoting over 50% of its content budget to local originals (up from one-third in 2020). That’s the case study of Alice in Borderland, the Spanish series “Elite”, and the French series “Lupin”, the last of which ranked #1 in Brazil, Argentina, Germany, Italy, Spain, Poland, Vietnam, the Philippines “and many more”, according to Netflix’s Q4 2020 letter to shareholders.
Prime Video reaches 190 countries, Apple TV+ reaches 107 countries, and Disney aims to expand Disney+ into over 200 countries and territories, but it has only reached 30% of that total, to date, reaching over 60 countries and 11 territories across Europe, West Asia and Africa. [2]
Despite that competitive reach, none have offered first-party data that enables one-to-one comparisons to Netflix’s successes with global distribution. No business seems to be as invested as Netflix in delivering global streaming success (and the favorable economics from lower production costs that come with original local productions).
That puts the general market prediction of a handful of streamers “winning” in a different light: it will not those with Greg Peters-like figures helming their global technology efforts who will win alongside Netflix. Rather, it may be only those businesses with pre-existing global scale and the business models to support streaming: Amazon, Apple, and Disney.
The “bland middle”
This would suggest Jason Kilar’s prediction seems to be holding up ok. He’s right about Netflix, Amazon and Apple. Disney is slowly scaling globally so he may be right there, too. They may not have a Greg Peters to drive Netflix-like results globally, but as Kilar points out, Apple sells hardware and Amazon sells retail. [3] But otherwise Warner Bros. Discovery management may have killed his prediction of HBO Max being one of more than two “storytelling-centric companies” succeeding.
Kevin Mayer’s prediction seems to be holding up better because he splits the streaming market into scaled and niche. So Apple, Amazon, Disney and Netflix meet the scaled standard. Perhaps there could be one more. On the niche end, Starz, AMC Networks, Sony’s Crunchyroll and CuriosityStream are examples of more successful global niche businesses.
Mayer’s and Kilar’s predictions both mirror the worldview and investment hypothesis that Peter Chernin of The Chernin Group has long held since he was President and COO at News Corporation. Back in 2006 he was interviewed by The Financial Times:
The changing behaviour and technology will have lasting implications. Content will aggregate at two extremes: the big blockbuster hits and niche products. “What’s gone, and gone forever, is the bland middle,” the executive says.
“When a big phenomenon occurs then it will spread like wildfire to become much bigger. Take American Idol: there is so much distribution power we can throw at it. On the other side will be all kinds of niches, which are much more easy to reach. People can now almost always find something they love.”
Meaning, Mayer's, Kilar's and Chernin’s perspectives all envision the “bland middle” to fall out in the marketplace over the next 36 to 48 months. Conversations I have had with studio executives recently - mostly around the post-production markets and specifically the visual effects (VFX) marketplace - have independently offered this timeline, too.
Conclusion
Outside of Apple, Amazon, Disney, Netflix and a handful of niche services, it’s hard to say which services survive over the next 36 to 48 months, and why. The “bland middle” may best describe companies that cannot scale because they have not invested in either a Greg Peters-like figure or technology that can distribute content globally.
This market reality will have a whole bunch of implications for content libraries - which may have less value in the streaming marketplace - and the post-production marketplace, which now relies heavily on the Peak TV demand for productions worldwide. 36 to 48 months from now, all signs point to fewer productions for fewer streamers.
But, as I wrote last week, these may be distractions from larger issues, like the post-production process currently being oversaturated with demand, which is impacting the ability of TV series, movies and video games to get to market. From my conversations lately, that seems to be weighing increasingly on everyone’s minds. They are each and all trying to figure out who will be among the “bland middle”, and what that outcome will mean for their production businesses.
It's not yet clear which companies fall into that "bland middle", but the market signals are starting to become clearer. Trying to identify a Greg Peters-like figure at other companies is a helpful start.
Footnotes
[1] Given that the Warner Bros. Discovery team has been actively taking apart the streaming and production businesses it inherited from WarnerMedia, it is safe to say that HBO Max will no longer be one of these top three to five services.
[2] HBO Max is in 60 countries, and Warner Bros. Discovery recently cut back on local original productions.
[3] I would add Disney is a PARQOR Hypothesis ecosystem where streaming feeds the flywheel of monetizing the consumer across multiple channels (Parks, in particular, which I wrote about back in April). Also, it’s safe to say HBO Max is going to be out of the picture given new management’s focus on cost-cutting and linear.