Streaming Industry Outlook: Profitability and Competitive Pressures

Competitive Landscape and Market Share

The streaming industry remains fiercely competitive, with major players like Netflix, Apple, and Disney acknowledging the intense market dynamics. Despite the competition, companies focus on their strategies rather than obsessing over rivals, highlighting the importance of consumer choice and diverse options in the market.

"So I'd say the competitive landscape is still really intense. But I would say honestly, Michael, we don't spend too much time obsessing about it because there's frankly not much we can do about what they're doing." --- (NFLX, conference, 2024/05/15)

"I think it has been and is through last quarter, the most competitive market in the world." --- (AAPL, earning call, 2024/Q2)

"I don't like to get ahead of the next year until we get to the next year. And in addition to that, from a competitive perspective, I'd rather not give my competitors the pathway on exactly how we're -- how and when we're going to achieve the margin goals we're looking to achieve." --- (DIS, earning call, 2024/Q2)

"But again, it's competitive everywhere. And in a way, it's good for the market in the sense that consumers just have more and more choice and different options." --- (NFLX, conference, 2024/05/15)

"Tim Cook: Well, certainly, the competitive environment there is the most competitive in the world." --- (AAPL, earning call, 2024/Q3)

Current Profitability Trends

Streaming giants like Disney, Netflix, and Amazon are experiencing varied profitability trends. Disney and Netflix emphasize non-linear paths to profitability, while Amazon highlights recent profitability increases and future opportunities. Netflix also reports healthy revenue and profit growth, driven by subscriber gains and strategic pricing.

"We've said all along, our path to profitability will not be linear. And while we are anticipating a softer third quarter, due in large part to the seasonality of our India sports offerings, we fully expect streaming to be a growth driver for the Company in the future and we have prioritized the steps necessary to achieve this." --- (DIS, earning call, 2024/Q2)

"So as we said, we've been like - we've been focused on driving that acceleration of our revenue growth, continuing to grow our business, grow our profitability." --- (NFLX, earning call, 2024/Q1)

"We are pleased with the increase in profitability we saw in 2023, we think there are a number of opportunities to improve our operating income moving forward as we continue to deliver for our customers." --- (AMZN, event transcript, 2024/05/22)

"We ended Q2 with 22.5 million ad tier subscribers globally. We are pleased with the progress we're making in streaming although, as we said before, the path to long-term profitability is not a linear one." --- (DIS, earning call, 2024/Q2)

"And at least on the paid member front, we're also probably benefiting from that attractive entry point in terms of price point and feature set for our ads plan. So you put all that together and it was a nice quarter for subscriber growth, but even more importantly, a nice quarter in terms of driving healthy revenue growth and healthy profit growth." --- (NFLX, earning call, 2024/Q2)

Impact of Content Costs on Profitability

Content costs significantly impact profitability in the streaming industry. Disney and Netflix both highlight increased expenses related to content creation, acquisition, and amortization. Disney's ability to manage content costs and Netflix's detailed breakdown of content-related expenses underscore the critical role these costs play in shaping profitability.

"affect entertainment, travel and leisure businesses generally and may, among other things, affect (or further affect, as applicable): our operations, business plans or profitability, including direct-to-consumer profitability; our expected benefits of the composition of the Board; demand for our products and services; the performance of the Company's content; our ability to create or obtain desirable content at or under the value we assign the content; the advertising market for programming; income tax expense; and performance of some or all Company businesses either directly or through their impact on those who distribute our products." --- (DIS, press release, 2024/04/03)

"Three months ended June 30, 2024 as compared to the three months ended June 30, 2023 Three Months Ended Change June 30, 2024 June 30, 2023 Q2'24 vs. Q2'23 (in thousands, except percentages) Cost of revenues $ 5,174,143 $ 4,673,470 $ 500,673 11 % As a percentage of revenues 54 % 57 % The increase in cost of revenues was primarily due to a $360 million increase in content amortization relating to our existing and new content." --- (NFLX, sec filing, 2024/Q2)

"our operations, business plans or profitability, including direct-to-consumer profitability; demand for our products and services; the performance of the Company's content; our ability to create or obtain desirable content at or under the value we assign the content; the advertising market for programming; taxation; and performance of some or all Company businesses either directly or through their impact on those who distribute our products." --- (DIS, press release, 2024/08/07)

"Expenses associated with the acquisition, licensing and production of content (such as payroll, stock-based compensation, facilities, and other related personnel expenses, costs associated with obtaining rights to music included in our content, overall deals with talent, miscellaneous production related costs and participations and residuals), streaming delivery costs and other operations costs make up the remainder of cost of revenues." --- (NFLX, sec filing, 2024/Q1)

"Operating Income (Loss) from Content Sales/Licensing and Other Operating results from Content Sales/Licensing and Other increased $366 million, to income of $254 million from a loss of $112 million due to higher theatrical and TV/VOD distribution results." --- (DIS, sec filing, 2024/Q3)

Subscriber Growth and Revenue Impact

Subscriber growth has had mixed impacts on revenue across the streaming industry. Disney+ and Hulu saw revenue per subscriber affected by subscriber mix shifts, while YouTube and Google One experienced strong revenue growth driven by increased paid subscribers. Netflix's revenue guidance also highlights the importance of balancing subscriber growth with average revenue per member.

"The average monthly revenue per paid subscriber for Hulu SVOD Only was comparable to the prior-year period as increases in retail pricing were largely offset by the impact of subscriber mix shifts." --- (DIS, sec filing, 2024/Q3)

"And then the other component within that line is Google One that also delivered strong subscriber and revenue growth." --- (GOOG, earning call, 2024/Q2)

"Spence Neumann: Thanks, Spencer. Spencer Wang: No problem, Spence. So to follow-up on the revenue guidance question, we have Jason Helfstein from Oppenheimer, who is asking for some more color on the drivers of the full year revenue guidance with respect to subscriber growth versus ARM growth and how that - those two dynamics will play into the revenue forecast, Spence? Spence Neumann: Yes. You want to take this one as well? Spencer Wang: Yes." --- (NFLX, earning call, 2024/Q1)

"Domestic Disney+ average monthly revenue per paid subscriber decreased from $8.00 to $7.74 due to the impact of subscriber mix shifts." --- (DIS, press release, 2024/08/07)

"The growth was primarily driven by an increase in subscription revenues, largely from growth in the number of paid subscribers for YouTube services." --- (GOOG, sec filing, 2024/Q2)

Technological Advancements and Their Influence

Technological advancements in the streaming industry are enhancing ad efficiency and customer engagement (AMZN), revolutionizing video understanding and multimodality (GOOG), and introducing powerful new features (AAPL). These innovations are driving improved customer experiences and process efficiencies, significantly impacting profitability and competitive pressures.

"This advancement leads to more efficient ad spending and higher customer engagement levels, transforming how ads are crafted and delivered." --- (AMZN, press release, 2024/06/13)

"Advancements in video understanding and multimodality are taking Search to a whole new level." --- (GOOG, Twitter, 2024/05/14)

"We shared powerful new features and advancements to our 6 incredible platforms." --- (AAPL, event transcript, 2024/06/10)

"We seek to invest efficiently in numerous areas of technology and infrastructure so we may continue to enhance the customer experience and improve our process efficiency through rapid technology developments, while operating at an ever increasing scale." --- (AMZN, sec filing, 2024/Q1)

"Thanks to advancements in video understanding, we can take visual search to a whole new level with the ability to ask questions with video." --- (GOOG, event transcript, 2024/06/07)

Strategic Partnerships and Collaborations

Amazon's Audible collaborates with Holland America Line to offer curated content and a co-branded book club, while Google engages in industry-wide initiatives and partnerships. Disney emphasizes strategic partnerships for ESPN, highlighting the importance of collaborations in enhancing streaming services and competitive positioning.

"The strategic collaboration also includes curated destination-focused playlist collections, free in-stateroom content, and an exclusive offer for guests SEATTLE, April 4, 2024 /PRNewswire/ -- Holland America Line is working with Audible, a leading creator and provider of premium audio storytelling, as the first cruise line to offer a co-branded book club with celebrated authors across different genres." --- (AMZN, press release, 2024/04/04)

"And we're continuing to work across the industry on these issues with initiatives like the Tech Accord, the Coalition For Content Provenance and Authenticity, C2PA, the Frontier Model Forum, and the Partnership on EIA." --- (GOOG, event transcript, 2024/06/07)

"Thanks. Robert Iger: I know I've sounded like a broken record because I've talked about strategic partnerships for ESPN over the last number of quarters." --- (DIS, earning call, 2024/Q3)

"The strategic collaboration also includes curated destination-focused playlist collections, free in-stateroom content, and an exclusive offer for guests SEATTLE, April 4, 2024 /CNW/ -- Holland America Line is working with Audible, a leading creator and provider of premium audio storytelling, as the first cruise line to offer a co-branded book club with celebrated authors across different genres." --- (AMZN, press release, 2024/04/04)

"earnings.With that, I'll finish by saying a huge thank you to Google's everywhere for their extraordinary commitment and to our customers and partners for their continued collaboration and trust." --- (GOOG, earning call, 2024/Q2)

Regulatory Impacts on the Streaming Industry

Regulatory changes in the streaming industry are expected to take a long time to materialize, posing significant risks for non-compliance. Companies like Amazon, Google, and Netflix emphasize the importance of transparency, consent, and safety, particularly with AI-generated content and child safety, to navigate these regulatory challenges effectively.

"And we spent a lot of time making sure that as a team and as individual teams, the majority of our energy, the vast majority of our energy and attention goes towards trying to provide the best possible customer experience that we can deliver for customers. I think that the all the machinations around what will happen in the regulatory world will take a long time." --- (AMZN, event transcript, 2024/05/22)

"To evolve globally, failure to comply with relevant regulation may lead to significant risk to the company." --- (GOOG, event transcript, 2024/06/07)

"In our view, the development and deployment of AI systems should center transparency and consent from workers, consumers and other stakeholders.The use of AI to generate media content raises particular risks for entertainment companies such as Netflix." --- (NFLX, event transcript, 2024/06/06)

"Angie Quinnell: Thanks, Andy. Can you give us an update on regulation and any potential impacts on your business?" --- (AMZN, event transcript, 2024/05/22)

"So in conclusion, we believe that investors would benefit from the publication of a report outlining clear targets, quantitative metrics, assessing whether YouTube has improved its performance on child safety impacts globally." --- (GOOG, event transcript, 2024/06/07)