Will Apple, Amazon or Oracle (Paramount) Be First To A Cloud-Usage Streaming Model?
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Warner Bros. Discovery’s recent distribution deal with Charter and a recently announced “agreement in principle” between DirecTV and The Walt Disney Company are a helpful contrast to last Thursday’s essay.“Hollywood's Next Decade Lies In The Hands of Apple & The Ellisons”.
I suggested Apple or Oracle (with Paramount) could pivot to curating and distributing “prestige” third-party content across Hollywood studios within a cloud service-driven “pay-as-you-go” model. They would pay for content usage the same way they “pay for utilities like water and electricity”, as Amazon writes.
Every studio should pivot into that model because the “walled gardens” of media conglomerates have driven outcomes that kill both the value of intellectual property and their streaming services. The recent Warner Bros. Discovery-Charter deal and the DirecTV-Disney deal accomplish the latter.
Both are wholesale agreements that allow subscribers to receive streaming services for free within select packages. Warner Bros. Discovery and Disney are paid regardless of whether those subscribers opt in. These deals offer the obvious financial upside of being paid for millions of “zombie subscribers” who never sign up for a streaming subscription.
Warner Bros. Discovery may add 6 million plus such subscribers in Q3 2024 from the Charter deal, or 11% of its 50 million domestic subscribers to Max. Disney may add as many as 11 million subscribers when it reports its Q4 earnings or 20% of its domestic Disney+ subscribers.
But, advertising models require both scale and engagement and Disney’s current distribution deal with Charter—which set the precedent—is driving neither for Disney’. Puck News’ John Ourand reported in July, “Disney streaming products have performed poorly so far for Charter, with take rate for both apps way down in the single digits”.
Apple, Oracle (with Paramount) and Amazon are all positioned to launch cloud-usage-type models in Hollywood that may be better for driving scale and engagement.
Who will make the pivot first? And why?
Key Takeaway
It will be easier for Oracle's Larry Ellison to pivot Paramount to a cloud-usage model than Amazon or Apple. But, recent UX upgrades from Amazon suggest it could make a similar pivot with Prime Video.
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It Won't Be Apple
Thursday’s essay argued that Oracle was better positioned to make this pivot than Apple. Larry Ellison is an unsentimental technology executive and The Wall Street Journal reported that Skydance CEO David Ellison (Larry’s son) “has laid out a plan to grow Paramount by investing in technology, moving aspects of the business to the cloud and putting more resources behind its studio.”
Amazon Web Services (AWS) customers pay for access to storage space and computing capabilities in the cloud. Those needs are highly technical. Whereas Apple’s iCloud is a cloud service where Apple customers store photos, files and backups of their Apple devices.
The value proposition of iCloud is simple because it is direct-to-consumer. Similarly, Apple TV+ is only offered with a free tier or a subscription tier.
In the cloud usage model, the consumer’s needs seem simple, too. They would watch “prestige content” and then they are billed for that viewing at the end of the month. In theory, that would create a better model to monetize infrequent viewers or Antenna’s “serial churners”—”individuals who have canceled three or more Premium SVOD services in the past two years”—to consume the content they need without the burden of a monthly subscription.
How could Apple offer a per-month usage model that both mirrors cloud businesses and is more consumer-friendly? And how could they price without confusing streaming consumers?
Apple (and others) could offer tiered pricing like AWS, so that the more a consumer uses the service, the less they pay per unit of content consumed (AWS bills based on gigabytes (GB) used). However, the past is precedent and streaming models have implicitly set a market cap on monthly usage.
However, for the economics to work, current paying subscribers would end up paying more per month than they do for a monthly subscription. The argument in last Thursday's essay was that the opportunity for consumers to create their own bundles with prestige content would be worth it.
It May Be Amazon
To succeed with a cloud-based solution, Amazon would have to convince over 200 million Amazon Prime subscribers worldwide, over 165 million subscribers in the U.S. alone, and the owners of over 200 million Fire TVs to pay to watch content after getting it as a free perk with Prime.
In July I wrote about Amazon’s redesign of Prime Video. Prime Video channels now offer a single login access to third-party apps like Max and Starz and “a streamlined path to the titles you want.” This redesign points the way to a cloud model because it creates “a reduced need for the consumer to sign up for a third-party app outside of Amazon’s ecosystem.”
In this model, the third-party app is relatively “unimportant” within the Amazon ecosystem, but the content consumers want to watch is important. So, converting Prime Video inventory from streaming services to only “prestige content” from studios would simply be changing the pricing model behind what is already being served to consumers in the UX.
As for changing the billing model, Amazon is already tracking usage and billing based on premium subscriptions. It would need to replace that system with a simpler version of its AWS billing system. This is not straightforward—there are legal and ethical issues with licensing partners it would need to navigate.
But, Amazon will not need to reinvent the wheel if it pivots to a cloud-based service.
The Catalyst
What would be a catalyst for such a pivot?
The streaming business model cannot continue as is. Stagnant growth and increasing churn rates signal that unmet needs of both consumers and studios, despite nearly a decade and billions of dollars of investment in streaming..
It will be easier for Larry Ellison to pivot than Amazon or Apple because Paramount+ is not a competitive service and Ellison is a ruthless innovator. There is little Oracle can do to change the technology or direction of Paramount+ without rebuilding it from scratch. Presumably, its engineering teams could take the bare bones of its cloud services and layer the Paramount+ UX over it. Voila, a cloud-based usage platform for viewing “prestige content”.
Obviously, a pivot will not rely on technology alone. No licensing agreements are structured to reflect cloud usage. The contracts with Hollywood unions are structured to reflect benchmarks in the streaming business model. This will neither be an instantaneous nor seamless pivot.
The core question is when Hollywood studio distribution partners will be amenable to a pivot. Given a projected period of chaos for the next 18 to 24 months”—as Sony Pictures Entertainment CEO Tony Vinciquerra told the annual Bank of America Media, Communications & Entertainment Conference last Thursday—it could be as soon as early 2025, before Ellison takes over Paramount.