The Arrival of Peak TV

Manatt Digital and Technology

We are living in a time that has been coined “peak TV,” thanks in large part to the sheer amount of content that is available to viewers. On the TV side alone, over 500 scripted shows aired in 2018, and that number is expected to continue to rise each year. The increase in the supply of content has been driven mostly by the large amounts of money flowing into Hollywood from companies in Silicon Valley and Seattle. Netflix has been the most influential player, having amassed its power by doing content deals with the same studios and content companies that are looking to compete with and beat Netflix, resulting in some interesting “competition.”

To stay competitive, some companies are now willing to take losses in the short term by pulling their content from Netflix to feed the content needs of their own streaming service, the biggest example being Disney. Marvel shows and some movies have started to disappear from the service, and more Disney-branded content will do so in the coming year. As more companies begin launching their own direct-to-consumer, over-the-top (OTT) streaming platform to either compete with or supplement Netflix, we can observe the launch strategies and approaches and draw some conclusions around best practices for launching an OTT service.

One new OTT service that is worth noticing is Disney+. Disney recently offered a preview of the service in a three-hour, highly choreographed announcement ceremony. The service will have the entire Disney, Pixar, Marvel and Star Wars catalogs, will include legacy and new Fox Studios and National Geographic content, and is set to be priced at $6.99 per month. When Disney officially launches the service in November, it will be able to leverage the massive reach of the media conglomerate’s promotional infrastructure to market the service effectively—so effectively, in fact, that the service is expected to have 60-90 million subscribers within five years of launch.

Disney’s content will play a large part in its continued growth. The ability to go to market with a massive library rich with dozens of legacy characters and multibillion-dollar franchises instantly makes Disney+ a viable Netflix competitor among some audiences. Additionally, Disney-owned ESPN+ and Hulu are two other OTT streaming services that Disney can bundle to create a very attractive offering that makes subscribers willing to pay each month for the service. Market penetration and quality content are key contributors to how Disney will successfully launch its service.

Apple also recently announced its new streaming TV service, which is set to launch this fall. Apple is taking the aggregator approach, building on the newly revamped Apple TV app. The app will allow users to subscribe to and view premium channels like HBO and Showtime, all within the same app. Apple is also planning to develop and distribute its own original content. The approach here is largely to contract with Hollywood’s biggest names (Jennifer Aniston, Jason Momoa, Steven Spielberg and Oprah, just to name a few) and create content around them to entice would-be subscribers.

When its service launches, Apple will lean heavily on the competitive advantage of having over 1 billion Apple devices in circulation. This provides instant distribution and monetization opportunities. But Apple is not depending on its massive device network alone for distribution. The Apple TV app will be available on smart TVs as well, creating even more monetization opportunities for Apple through non-Apple device owners. Apple is definitely investing to win.

Other major players are making moves in the space as well. AT&T’s consummated merger with Time Warner was the first step in creating and launching WarnerMedia’s OTT service, which should benefit from its Warner Brothers Studios catalog and HBO brand, and also AT&T’s distribution and marketing channels. Comcast-owned NBCU will take a free, ad-supported approach when it launches its streaming service next spring. DAZN streams live sports, primarily boxing. The service has a large foothold in the Asian market and has successfully acquired the rights to major fights in the U.S.

There seems to be some fundamental blocking and tackling that each player should consider when launching an OTT service, to at the very least maintain a foothold in the space. While developing the right tech stack and hiring the right team of creatives and executives are both important, content is still king, and consistently making quality content is key. It is also perhaps the most expensive and time-consuming component of owning and operating an OTT service. Consistently funding the production or acquisition of quality content that attracts and engages millions of users is not an easy thing to do, which may ultimately favor the companies with the deepest pockets.

The other fundamental need of OTT services is the ability to attract subscribers to their respective platforms. We are living in a world where Netflix sees a video game as its competition. This essentially means that the ability to access content anywhere, anytime has leveled the playing field for media companies trying to reach viewers. In other words, the competition for eyeballs is greater than ever, and the competitive landscape is no longer linear.

OTT services will have to find the sweet spot where the value of the viewers they acquire is worth more than the cost to acquire and retain them. This is a skill that companies like Apple, AT&T and Amazon have mastered through decades of their core business practices. New OTT services that don’t have this core strength will not only incur the cost to acquire viewers but the associated costs of learning to do so. This will make it much harder for them to compete, and they may have to take more of a licensing approach, offering their content to the big players in order to succeed.

Any conclusions we would dare draw on which service will ultimately succeed would be exceptionally bold, to say the least. Regardless of the best practices each OTT company will follow or innovate, the consumers of the content and subscribers of the services will choose the winners. So as we continue to watch the amazing content that peak TV is giving us, we can also keep an eye on how these services work to keep us watching.