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The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
[Author's Note: My monthly Medium Shift opinion column —”The Media Revolution Will Be Prompted”— was publiished last Tuesday. I wrote about how the AI tools that create videos from text prompts may threaten creators, and why that leaves Netflix vulnerable after its recent pivot to an ad-supported model.]
Netflix is expected to raise its prices in 2024 it put them “largely” on hold in 2023. The rationale, then, was the roll-out of its paid sharing program, which it told investors was “a form of substitute price increase.” Now, it has momentum in subscriber growth and it is licensing more valuable library titles from competitors: HBO’s trophy title “Sex and The City” will be debuting on the service on April 1st.
With all these developments and Netflix now the clear market leader, it is worth asking: Is Netflix on its way to becoming the default streaming platform for over 1 billion customers worldwide? That benchmark was once perceived as the “ceiling” for streaming subscription services.
According to CFO Spencer Neumann, that opportunity is likely smaller. Last September, he told the BofA Media, Communications & Entertainment Conference there is “a total universe of smart TV plus households or connected TV households of about 0.5 billion.”
If the market leader does not see a future where it reaches 1 billion streaming subscribers, then arguably no one will. No single solution will emerge as an alternative for consumers having “to sign up for 95 streaming services to watch 94 shows.” The question is whether this actually will be a problem for consumers, or whether in this age of emerging artificial intelligence technologies, we should be thinking about the outcome differently.
Key Takeaway
The first streaming service to reach 1 billion subscribers will not solve for streaming, alone. the wonkier, more artificial intelligence (AI)-centric and data-centric answer is that destinations will matter less than convenience.
Total words: 1,100
Total time reading: 4 minutes
Crunchyroll
That last quote comes from a question to Crunchyroll president Rahul Purini in an interview by The Verge’s Nilay Patel. It is a wide-ranging conversation, but on this topic of a single solution, Purini offered a helpful answer:
So we just launched Crunchyroll as an a la carte channel on Amazon Prime, as an add-on to Amazon Prime. And we are not only finding that we are attracting a set of audience that we weren’t able to reach before, but we are finding that audience prefers that experience because they have one place they can go to get all of their entertainment subscription services. It’s easy, convenient. So I think that will continue to play out because it’s not working for the consumer either. And I think all of us will have to figure that out.
The irony of this argument is that the “easy, convenient” linear TV experience was, at best, inhospitable to both the anime genre and its fans. It was a niche with a passionate base outside of Japan whose value had been minimized by the economics of mass distribution. There is a Cartoon Network but not an anime network. Even on legacy media streaming services that offer anime, it is a minimized menu item (HBO Max had a Studio Ghibli option if one scrolled down far enough).
But, in 2024, Crunchyroll has grown to 13 million subscribers from 5 million in 2021. They have sized their total addressable market to 800 million people globally outside of Japan and China. But, Purini qualifies growth as “just getting people who already love anime but are getting it via piracy to start paying for it.” The Japanese trade group The Content Overseas Distribution Association found that $15 billion USD was lost in 2021 because of piracy, likely because of the pandemic. This total is more than 5x the amount registered in 2019.
There is no single way of getting this growing cohort to start paying:
“Part of that is pricing. Part of it is the experience. Part of it is the convenience of where and when they can access this. Part of it is also education.”
Crunchyroll vs. “A Digital Everything Product” vs. Piracy
Purini spends some of the interview walking through the flywheel logic of its business model. Streaming is the “the biggest part” of the flywheel and that “our entire emphasis is making sure that we are providing amazing experiences for our fans across their fandom, all of those touch points.”
It is a sophisticated model that is still proving itself out. But, if the market believes there will need to be a service for 1 billion people, it is hard to imagine reconciling that outcome with the needs of Crunchyroll’s business model. In other words, a fan of anime is still better off opting for piracy than hunting and pecking for their favorite genre in a “digital everything product” like the one former WarnerMedia CEO Jason Kilar argued for in Variety last October.
There were three lessons from linear TV serving as the backbone of the film and entertainment industry:
“(1) large number of customers really liked Hollywood’s everything product; (2) because it was everything product, over time more and more of the dollars flowed to those contributing to it (the studios, the sports leagues and the talent); and (3) the everything product allowed for large and small companies alike to earn attractive profits for decades.”
Effectively, if past is precedent, both consumers and the media and entertainment industry need a single solution. But, Purini makes a stronger case that streaming-first business models require multiple touchpoints for multiple consumer behaviors.
The Problem To Be Solved?
Purini does not seem to have intended to imply that streaming solves a narrower problem for the consumer than Hollywood has assumed, to date. But, that is the logical takeaway.
If we take that argument to a logical extreme, the first service to reach 1 billion subscribers will not solve for streaming, alone. It could be a streaming service within a broader “flywheel” platform of services. But, the wonkier, more artificial intelligence (AI)-centric and data-centric answer may be that there will be content viewing will brought to the consumer wherever they are in a "flywheel".
I offered one such wonky outcome in last May’s “Consumer Data May Be Too Complex for Media's DTC Models”. The data warehouse— the system of record or authoritative data source for all consumer data owned—is not a destination for consumers, but it is a location where the data for 1 billion or more consumers can be consolidated. As AI entrepreneur Jonathan Mendez argued in an essay last year:
“The brand’s cloud is going to handle everything data and the data warehouse or lakehouse is the platform. Owned and paid, merchandising and product, finance and forecasts. Applications and services will operate inside databases filled with rich AI ready data. That is what is actually rising.”
In other words, 1 billion consumers will not have a single destination for streaming. Rather, the data of 1 billion consumers will be housed in a data warehouse within which AI “bots” will determine what each of those 1 billion consumers need across streaming, gaming, e-commerce and other DTC services. Effectively, consumers will be paying for the “flywheel” facility that a single database with multiple AI bots as its intermediaries will offer. Destinations will matter less than convenience.
If Crunchyroll's past is precedent, no one seems to need “a digital everything” product on the internet anymore. They need convenience to deliver the when and where of the optimal experience.