Peacock? HBO Max? The New Streaming Giants Explained

The modern streaming industry begins and ends with what many have dubbed the "Netflix Effect." Netflix's digital subscription model and its massive investment in originals have set the bar for the market. Netflix reported 158.3 million paid global subscribers in Q3 2019, 97.7 million of whom are international users.

Last year, the company generated $1.2 billion in annual net profit on $15.8 billion of revenue. However, in 2019 its market valuation has dipped as competitors like Disney+, NBCUniversal, and the HBO Max flex their muscle.

Netflix has become the entrenched leader in this shifting industry, but instead of fighting off startups, it's up against tech juggernauts like Apple and Amazon, and century-old media giants. The latter have not only unveiled competing services, but announced long-awaited plans to reclaim shows like The Office and Friends for their own services.

Netflix saw all of this coming. The one-time DVD rental company-turned-streaming goliath keeps burning cash and raising debt financing to fund its original-content creation, which spans everything from Stranger Things and Martin Scorsese's The Irishman to a vast trove of cheaper films and series to pad its increasingly originals-reliant library. To stem the losses of other classic sitcoms, the service reportedly spent more than $500 million for the rights to stream Seinfeld beginning in 2021.

For now, the strategy is still working. Though Netflix saw its first-ever subscriber drop in the US in Q2, that came after adding a record 9.6 million subscribers in Q1 2019. In Q3, Netflix continued to burn cash while adding millions of new subscribers. The company's latest price hike also dented its subscriber base from from 60.2 to 60.1 million in the US from Q1 to Q2 this year. Jeffrey Cole, a Research Professor at the USC Annenberg School for Communication and Journalism, and Director of USC's Center for the Digital Future, believes Netflix could've been charging a lot more from the outset.

"It must drive [Netflix founder and CEO] Reed Hastings crazy that a dozen years ago in the red-envelope days, he gave you five DVDs at a time and unlimited streaming for $16 a month. Now he's giving you not just five theatrical films at a time but dozens or hundreds plus massive amounts of old television shows and $12 billion worth of originals for $9 or $13 or $16 a month," said Cole, who has researched the television, media, and streaming industries for almost three decades.

"If you paid $16 for five DVDs, you should pay $40 for what you're getting now. But when Netflix broke the company in half, each side priced down at $8. So Netflix is already handicapped by how much it can charge," added Cole. "How much it can spend on originals depends on how fast it grows, and its growth is international. It will hit a wall...the only question is when."

Netflix is ramping up other revenue streams, including a reported expansion of its ad business with more product placement in originals such as Queer Eye. And despite spending more than $1 billion a year on technology, CEO Reed Hastings still positions Netflix as more of a media company akin to Disney than a tech company like Apple or Amazon. Netflix is "mostly a content company powered by tech," he told Recode in response to a question about industry regulation.

That posturing is largely semantic; in reality, modern streaming players are all media, entertainment, and tech companies rolled into one.

Unlike Netflix, Amazon has no discernible caps on how much it can spend, and its business model isn't dependent on video subscribers. Amazon confirmed in 2018 that it has more than 100 million Prime members, and Prime Video's US audience was around 26 million as of last year, Reuters reports.

Prime Video's core value is to drive more Prime subscriptions at $119 a pop per year, which last year went up from $99 in the first price hike since 2014. So Amazon has no qualms about shelling out billions for original series and films on the indie festival circuit through Amazon Studios. Standalone Prime Video costs $8.99 per month.

Amazon also owns Prime Video's underlying infrastructure. Streaming high-quality live and on-demand video requires a complicated content-delivery pipeline, from data hosting and storage to encoding and packaging files, all the way down to content delivery networks (CDNs) and playback. Amazon controls the pipes, and Prime Video can enjoy seemingly infinite scale thanks to Amazon Web Services (AWS).

Other streaming platforms need Amazon's cloud, too. Netflix, for instance, spent years and untold millions building out its own global CDN network (the only streaming provider to do so) but relies entirely on AWS for cloud computing and storage.

"We package up and have built our technology infrastructure on top of AWS," said Girish Bajaj, VP of Software Engineering for Amazon Prime Video. "Because we serve millions of customers and operate this massive amount of scale, it gives both Prime Video and AWS expertise in how to actually operate these systems, and with that level of scale comes cost savings that we then are able to offer back to customers on the consumer side as well as the enterprise side."

Amazon also owns IMDb, which launched a free, ad-supported streaming service in January. Originally known as IMDb Freedrive, it was rebranded in June to IMDb TV.

Amazon has been competing with Netflix for years, but Apple's high-profile entry into the straming landscape has the potential to further tip the balance of power toward the tech industry.

Apple unveiled its Apple TV+ and Apple TV Channels services in April, and finally launched Apple TV+ on Nov. 1 for $4.99 a month. Apple knows its content library is small, so it plan to gain market share by giving one year of Apple TV+ for free to those who buy a new iPhone, iPad, Mac, or Apple TV. Here's how to get it.

Apple TV+'s launch titles include: cable news drama The Morning Show starring Jennifer Aniston, Steve Carell, and Reese Witherspoon; future post-apocalyptic series See starring Jason Momoa and Alfre Woodard; an Emily Dickinson biopic series starring Hailee Steinfeld; and sci-fi space race series For All Mankind. Most of the shows have received tepid reviews, but Apple has billions of dollars worth of original content investments in its development pipeline to populate the fledgling streaming service in the next year or two, including collaborations from big names like Steven Spielberg and Oprah.

The redesigned Apple TV app is also available on more form factors, including Roku and Amazon Fire TV devices, and smart TVs from Samsung, Sony, LG, and Vizio. It will offer original content through Apple TV+, as well as streaming app and network subscriptions through TV Channels, which is similar to the add-ons offered by Prime Video and Hulu.

Through TV Channels, Apple aims to bring an App Store-like gatekeeper approach to controlling streaming content on iOS devices, and will reportedly take a 30 percent cut on every streaming app subscription through its service. That's a steep commission, but in line with the 30 percent it currently takes on premium app and streaming-service subscriptions through the App Store. The commission drops to 15 percent for subscription renewals.

TV Channels launched in May with some big partners, including Amazon Prime Video, HBO, Hulu, Showtime, Starz, CBS All Access, and many others (but not Netflix); Apple showcased Prime Video originals such as The Marvelous Mrs. Maisel in demos during its launch event. TV Channels will also let users choose traditional cable bundles from providers such as Optimum and Spectrum, as well as over-the-top (OTT) cable replacement services including AT&T TV Now.

Apple's Grand Designs

This strategy is part of Apple's broader push into software and services: It has grand designs to expand to several other industries beyond the steadily growing chunk of recurring revenue it currently makes from iCloud, Apple Music, and Apple Pay. Amid stagnating iPhone sales, Apple's glossy launch event for its new slate of services highlights how it sees its future growth.

Apple, like Amazon, owns its data centers, so every new service it releases holds tantalizing profit margins. Along with its new streaming offerings, Apple also unveiled its $9.99-per-month Apple News+ service for a bundled subscription to 300 magazines and newspapers, its Apple Arcade games subscription service (which also costs $4.99/month), and the Goldman Sachs-backed Apple Card.

For all of these services—particularly where it's aggregating content under its own banner—Apple will take a hefty cut. The Wall Street Journal reported that the tech giant is taking up to 50 percent from news publishers for Apple News+, which is built on Apple's acquisition of Texture, described as a "Netflix for magazines."

“I think entertainment's going to become a key element of Apple's business,” said USC's Jeffrey Cole. “For them, spending $2 billion on [original content] is just dabbling. If they like what they see, I think they'll have a $10 billion budget.” (Photo by Roy Rochlin/WireImage)

The third established veteran in the market, Hulu is a particularly intriguing player given its new mouse-shaped overlord. Hulu had 28 million subscribers as of Q3 2019 across its on-demand and live TV services, and Disney hopes to boost that number by packaging Hulu with with Disney+ and ESPN+ as a
$12.99/month bundle.

With Disney's acquisition of 21st Century Fox, the entertainment powerhouse also picked up Fox's 30 percent stake in Hulu, and the Mouse has since inked deals to pick up AT&T and Comcast's remaining stakes to take full control of Hulu. The streaming platform that long represented the network TV industry's collective streaming interests is now another arm of Disney's entertainment empire, and Disney hasn't wasted time adding the jewel to its infinity gauntlet.

"Hulu really benefited, I think, by being owned by a handful of studios. Now it's basically a division of Disney," said USC's Cole.

Beatrice Springborn, VP of Content Development at Hulu, said the service doesn't measure success by nightly ratings or individual show performance. It's about getting new subscribers to sign up for Hulu, watch a lot of content on the platform, and remain subscribers for the long haul.

As for how Disney's streaming plans will affect Hulu, Springborn said the company is staying the course until directed otherwise.

"It is impossible to predict the future, but we do know that Hulu is a major strategic asset for all of our owners. Hulu added 8 million subscribers last year, and that kind of growth is only possible when you have owners that support you and are aligned with your strategy," said Springborn. "There is a lot of noise and speculation about transactions right now, but our teams are staying laser-focused on making Hulu the number-one choice for TV."

Following Netflix's price increase, Hulu took the opposite route and cut the price of its entry-level ad-supported plan from $7.99 to $5.99 per month. But it did raise the price of its Hulu + Live TV plan package from $39.99 to $44.99 per month. Though Disney is hoping most subscribers grab the $12.99 bundle to get all its streaming services in one package.

WarnerMedia is one of the most recent examples of high-profile corporate consolidation fueling the next wave of streaming services, and the result is HBO Max, launching in May 2020 for $14.99 per month. The service will also roll out an ad-supported pricing tier in 2021.

The pool of media brands and TV channels centralizes AT&T's Time Warner assets under one streaming roof, with HBO as its centerpiece. HBO Max will be the priciest streaming option on the market, eclipsing Netflix's most popular $12.99-per-month plan.

WarnerMedia is betting that streaming viewers will be enticed to subscribe through a combination of high-quality HBO content, 50 new original series by 2021, new and existing shows and movies from brands under its banner like CNN, Cartoon Network, and Warner Bros, the Studio Ghibli animated film collection, and a selection of TV shows including Friends, Sesame Street, The Big Bang Theory, Dr. Who, The Fresh Prince of Bel Air, South Park, and Rick & Morty (all of which WarnerMedia paid handsomely to license).

AT&T's major corporate restructuring of WarnerMedia was enacted shortly after the long-awaited regulatory approval of its merger with HBO and Turner parent company Time Warner. The major changes approved by AT&T exec John Stankey include installing former NBC and Showtime head Bob Greenblatt as the new chairman of WarnerMedia Entertainment, the division handling WarnerMedia's TV assets and direct-to-consumer operations.

Execs also said the company plans to roll out deals for HBO subscribers signing up through cable providers. As for existing HBO Now subscribers, WarnerMedia chief John Stankey called it an "IQ test," projecting that 30 million current HBO subscribers will swap it for HBO Max. The company's philosophy is basically: it costs the same, so why not switch?

WarnerMedia is projecting 50 million US subscribers and 75-90 million global subscribers by 2025, which is also when the company estimates the service will turn a profit.

Comcast-owned NBCUniversal's streaming service, Peacock, is set to launch in April 2020 with 15,000 hours of content, including The Office, Parks & Recreation, and revivals of several old favorites. Peacock will reportedly be a free, ad-supported streaming service for anyone with an existing cable subscription, though there may be multiple pricing tiers.

Toplining Peacock's originals are a Battlestar Galactica reboot from Mr. Robot and Homecoming creator Sam Esmail, revivals of Saved By the Bell and Punky Brewster featuring original cast members, and what's sure to be an ambitious sci-fi adaptation of Aldous Huxley's classic novel Brave New World starring Alden Ehrenreich and Demi Moore.

NBC is also dipping back into the well for a streaming-only season of A.P. Bio and a second spin-off movie of one-time USA series Psych, along with a number of other scripted and unscripted originals, including an adaptation of the Dr. Death true crime podcast starring Alec Baldwin and Christian Slater.

On the unscripted front there'll be a Saturday Night Live docuseries from Lorne Michaels, a Real Housewives spin-off, a new talk show series starring Jimmy Fallon, and a new weekly late night show starring Late Night with Seth Meyers' Amber Ruffin. As with Disney+, NBCUniversal is also stocking Peacock with a vast library of shows and movies to which it already has the rights: Brooklyn Nine-Nine, Cheers, Everybody Loves Rayymond, Frasier, Friday Night Lights, and Will & Grace, among many others. Users will also be able to stream movies, including Back to the Future, Brokeback Mountain, Casino, E.T., Jaws, Shrek, and plenty more.

NBCUniversal's bet is that plucking The Office from Netflix in 2021 (and its cavernous stable of other classic sitcoms and network shows in the NBC vault), along with some nostalgia-inducing originals, will be enough content to hold its own in the crowded market.

One media giant that often flies under the radar in the streaming wars is CBS, which owns Showtime and CBS All Access. The latter has spent a modest original-content budget on a few big franchises, headlined by Star Trek: Discovery and upcoming Star Trek series; The Good Wife spin-off, The Good Fight; a reimagining of The Twilight Zone from Jordan Peele (pictured above); and a coming adaptation of Stephen King's The Stand.

CBS All Access is $5.99 a month with limited commercials or $9.99 a month without ads. Showtime is $10.99 for the standalone service, but you can buy or add the network to existing subscriptions through Prime Video, Amazon Fire TV, Hulu, Roku, Android, or iOS, or through a long list of cable and OTT streaming providers for varying prices. It's also available to existing cable subscribers as Showtime Anytime.

Now that CBS is re-merging with Viacom, the company may soon be able to draw upon a host of properties including MTV, Comedy Central, and Nickelodeon to bolster its streaming offerings as well.

CBS has been in the digital media and streaming games longer than most, going back to its 2004 deal to buy SportsLine (before CBS and Viacom split up in 2006) and CBS' subsequent acquisition of CNET for $1.8 billion in 2008. CBS has built its own streaming infrastructure atop that stack and now has its business firmly planted in all the big buckets: traditional cable and news, live sports, premium cable with Showtime, and a standalone streaming app in CBS All Access. In its Q4 2018 earnings, CBS reported 8 million streaming subscribers, including 2.5 million for CBS All Access.

Marc DeBevoise, the newly announced CEO of CBS Interactive, spoke to PCMag earlier this year about the company's choice not to invest in Hulu a decade ago along with Fox, NBC, and ABC/Disney.

"Our greatest gift was not doing the Hulu deal. Because we didn't, we saved our powder. That's where All Access was born," said DeBevoise. "We felt we could go out and compete, because we had 160 million users in the US across our web properties and reserved libraries of content with over 100 series. By the time 2014-2015 came around, we were ready, whether the content rights were exclusive or not. Then we had the conversation of putting original content on [All Access] to move the needle." (Photo by Emma McIntyre/Getty Images)

To get a sense of where the broader entertainment and streaming industry is going for the long term, Disney's strategy may be the model to watch. Its much-hyped Disney+ streaming service, launching on Nov. 12 for for $6.99 a month or $69.99 a year, will undercut Netflix and other competitors while offering a small number of big-budget originals on top of the vast library of content from the Disney vault.

Disney's foray into streaming market dates back to 2016, when it invested $1 billion for a 33 percent stake in BAMTech. The video-streaming company—which was initially spun out of Major League Baseball's Advanced Media (MLBAM) arm—at one time powered streaming apps including MLB.TV, HBO Now, the NHL and PGA Tour apps, PlayStation Vue, and even the WWE Network streaming app before Disney took full control and rebranded BAMTech as Disney Streaming Services.

BAMTech's outside-consulting focus came to a halt when Disney bought another 42 percent stake to take majority control of it in 2017, and announced its direct-to-consumer streaming services, which would become ESPN+ and Disney+, in the same press release. ESPN+, which costs $4.99 a month or $49.99 per year, hit a million subscribers a few months after its launch.

Disney's advantages outweigh its challenges as the Mouse enters the SVOD market. Armed with original Marvel and Star Wars series, the Disney and Pixar film vault, Disney Channel kids programming, and the 21st Century Fox catalog—including National Geographic—Disney+ looms large. JPMorgan projects Disney+ will eventually sign up more than 160 million subscribers—compared with Netflix's current count of a little over 150 million—on the basis of its "unmatched brand recognition, extensive premium content, and unparalleled ecosystem to market the service."

Big-budget franchises like Marvel and Star Wars are key to Disney's business strategy in all their forms: from Disney book series and toys, to blockbuster films and TV shows, to cruise lines and theme parks such as the massive Star Wars: Galaxy's Edge parks opening in Disneyland and Disney World. Disney's end-to-end pipeline is the most fully realized version of a true content-industrial complex, and the one piece missing until now was a streaming subscription service.

As the new players, including Apple, HBO Max, and Peacock, have found (or will find out), building a streaming platform from scratch takes time. Streaming expert Dan Rayburn described BAMTech as "the special forces of our industry. They're the best at what they do, and they've been doing OTT streaming longer than anyone. And by the time Disney+ rolls out, it will still have taken them 18 months to build it."

The man building it is Joe Inzerillo, the CTO of Disney Streaming Services. Inzerillo is the former CTO of BAMTech and one of the founders of MLBAM. He oversees all Disney's video-streaming tech, including Disney+ and ESPN+.

Inzerillio spoke to PCMag in advance of the formal Disney+ launch. While he wouldn't comment on any specifics related to the content or original programming we're now privy to, he talked about how Disney built its streaming interface to highlight its moneymakers—it's sprawling, interconnected Marvel and Star Wars cinematic universes.

"The thing I find so incredibly compelling about [Marvel and Star Wars] is that it's they're one enormous narrative with a bunch of stories around it," said Inzerillo. "So the user interface of a company's streaming service that makes epic sagas like that needs to be user-connected and one narrative designed to showcase the content for you and put it in front of the fans that love it, not get in the way. But it also needs to be personalized. It needs to be able to do all sorts of things. So it's the fusion of all those components to create this vision of a constant narrative."