📺 Streaming: Industry showdown
Who's winning the battle for your attention
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Many readers have requested industry breakdowns and comparisons.
So we launched our Industry Showdown series.
We previously covered US banks and Luxury goods.
Today, we turn to Streaming platforms.
My goal is to give you the elevator pitch on a specific category:
Who are the main participants?
How do they make money?
What are the performance indicators to follow?
Today, we’ll break down streaming platforms as follows:
The state of the market.
The leading players.
How they make money.
Key trends to watch.
1. The state of the market
We used to be all chained to our cable TV subscriptions, forced to watch whatever the networks decided to air. But Netflix emerged as a new way to watch content. With just a few clicks, we can stream hours of entertainment straight to our connected screens.
As Netflix grew in popularity, the streaming landscape became a battleground, with new services constantly popping up to vie for our attention and subscriptions. We're all the better for it, with more choices and options than ever before.
The many shapes of streaming
The success of Netflix and its original programming helped pave the way for other services to enter the market, including Amazon Prime Video, Hulu, and Disney+. These services offer users a mix of licensed content from studios and networks and original programming produced in-house.
As more and more streaming services have entered the market, competition has heated up. This has led to a flurry of new services launching in recent years, including Apple TV+, HBO Max, Peacock, and Paramount+.
Let’s define some terminology you might not be familiar with:
Over-the-Top (OTT) — Services that can be streamed on any internet-connected device without a cable or satellite subscription.
Direct-to-Consumer (DTC) — refers to content owners selling their services directly to viewers without third-party distributors or middlemen.
Subscription Video On Demand (SVOD) — Services that offer unlimited access to a library of content for a monthly fee. Examples include Netflix, Hulu, and Amazon Prime Video.
Advertising Video On Demand (AVOD) — Services that are free to use but are supported by advertising. Examples include YouTube and Crackle.
Transactional Video On Demand (TVOD) — Services that allow viewers to rent or purchase individual movies or TV shows on a per-title basis. Examples include Apple TV, Google Play, or a la carte content on Prime Video.
Live Streaming — Services that allow viewers to watch live events as they happen, such as sports games or music concerts. Examples include Sling TV and Fubo TV.
Hybrid Services — Many services now offer a combination of the above models with a premium and ad-supported tier. For example, Twitch offer live streaming and optional premium content, including virtual currency.
Creative destruction
The secular shift from cable to streaming is well documented. Since May 2021, Nielsen has reported the share of US Time across four categories:
Broadcast: Any programming delivered over the air through a television station. This includes channels like ABC, CBS, NBC, and Fox.
Cable: Any non-broadcast programming delivered via a cable, satellite, or telco company, including basic and premium cable channels. This would include channels like HBO, ESPN, and AMC.
Streaming: Content that is delivered over the internet.
Other: Uncategorized, DVD/Blu-ray viewing (including gaming).
According to Nielsen, streaming has become the leading category in the US since September 2022. It was 38% of US TV time in January 2023 (+9pp Y/Y).
While Broadcast and Other have remained relatively flat, Streaming and Cable have essentially switched positions.
In this context, the rise of streaming is what Schumpeter would describe as “creative destruction.” It comes at the expense of linear television.
While new entrants in the streaming space only benefit from this secular trend, legacy players like Disney or Comcast have seen their streaming initiatives eat away at their linear TV business.
Original vs. licensing
Streaming services have tried various strategies to encourage sign-ups for their direct-to-consumer services. To name a few:
Amazon secured exclusive rights for Thursday Night Football on Prime Video for the next 11 years.
Apple signed a deal for two Friday Night Baseball games (50 games per year).
Warner released Wonder Woman 1984 directly to HBO Max and skipped the theatrical release during the pandemic.
NBCUniversal boosted its streaming platform Peacock by offering every 2022 Winter Olympics event live on the app with no pay TV subscription required.
YouTube will pay roughly $2 billion annually for the NFL “Sunday Ticket.” It will allow YouTube viewers to stream nearly all of the NFL games on Sunday for an additional fee to YouTube TV.
The goal of these initiatives is to target “cord-cutters” (those willing to switch from cable to streaming) as well as “cord-nevers” (those who never had cable, to begin with).
For businesses that borrow from existing segments (like linear TV or theatrical release), the long-term value created by the direct-to-consumer business ultimately depends on the most important metric of any subscription business: Churn.
Feel the churn
Churn refers to the rate at which subscribers cancel their subscriptions (so the lower the churn rate, the better), and it's a significant concern for streaming services
With so many options available to consumers, it's easy for viewers to switch from one service to another, especially if they're only subscribing to watch a specific show or movie.
Antenna shared streaming net paid additions since 2019, with gross addition and cancellations breakdown. Whiles subscriptions ramped up in the past three years, so did cancellations.
By Antenna’s estimates, the premium SVOD market had a monthly churn rate of 5% (or ~46% annually). So if you have 100 existing paid subscribers, 95 are still around a month later. A year later, only 54 are still paying.
Netflix is notoriously known for having one of the lowest churn rates in the industry (therefore, better retention). I believe the absence of live sports content has been a factor. Companies that build a solid back catalog will likely win over time. While live sport is a great way to acquire new subscribers, the content is outdated the second the game is over. Conversely, evergreen content can do wonders for retention.
To combat churn, streaming services are turning to a variety of strategies. One approach is to offer exclusive content that can't be found anywhere else. This is why so many services are investing heavily in original programming. They hope to keep subscribers hooked by offering unique and compelling shows and movies.
Another approach is offering subscription tiers, with varying access levels and features. For example, some services offer ad-supported plans cheaper than their ad-free counterparts. This can make streaming more accessible to viewers on a budget.
Finally, many services use data analytics to understand their customers better and tailor their offerings to their preferences. By analyzing viewing habits, search queries, and other data, streaming services can offer personalized recommendations and content that's more likely to keep subscribers engaged.
A large market to address
"We compete with (and lose to) Fortnite more than HBO."
This quote from Netflix CEO Reed Hastings in a 2019 interview still resonates today.
The battle for our attention is not limited to movies and TV shows.
The real competition is anything that can be an alternative to starting a new subscription:
User-generated content (YouTube, Twitch).
Linear TV (live sports).
Gaming (PC, mobile, consoles).
Short-form entertainment (TikTok, Reels, Shorts).
That being said, the entertainment industry is gigantic:
Pay TV/streaming: $300 billion (source: Omdia).
Branded TV advertising spend: $180 billion (source: PwC).
Gaming: $130 billion (source: SNL Kagan estimates excluding hardware sales).
Note: These figures exclude China and Russia.
2. The leading players
Streaming is now the leading share of US TV time, but who are the dominant platforms in the category?
An important indicator is the engagement of the audience, based on the number of hours spent on each platform. Nielsen estimates that YouTube (including YouTubeTV) commanded 8.6% of overall US TV time in January 2023, ahead of Netflix with a 7.5% share. Hulu (including Hulu Live) was next with a 3.5% share.
Note that the “other streaming” includes the time Nielsen could not allocate to a specific platform.


It’s worth noting that Disney+ has a low engagement relative to its number of paid subscribers. Its nascent catalog is partially to blame, with only a few episodes available for new original shows .
Let’s turn to the number of subscribers (or users) globally, which gives a better sense of the forces at play.
YouTube: Over 2.5 billion people access YouTube monthly. The platform surpassed 80 million Music and Premium subscribers in November 2022 (+30 million year-over-year). The company doesn’t offer any breakdown. YouTube Premium ($11.99/month) includes both YouTube and Youtube Music ad-free and offline access. YouTube Music alone is $9.99/month.
Netflix: 231 million subscribers in Q4 2022 (+4% Y/Y).
Prime Video: included as part of Amazon Prime (more than 200 million subs).
Disney+: 104 million subscribers(+24% Y/Y), excluding Hotstar.
HBO Max: Included in Warner Bros. Discovery’s 96 million DTC subscribers.
Paramount+: 56 million subscribers 56M (9.9 million added in Q4 alone).
Hulu: 48 million subscribers (+6% Y/Y), including Hulu Live TV.
Apple TV+: No exact number has been released.
Peacock: 20 million subscribers (more than doubling Y/Y).
PlutoTV: 79 million monthly active users.
Watching YouTube ads catching up to Netflix in revenue generated has been fascinating in the past three years. After all, a top YouTuber like Mr. Beast commands hundreds of millions of views on his best videos.


3. How they make money
Streaming platforms are often a specific segment of a larger company. For example, YouTube is ~10% of Alphabet’s overall revenue (Google’s parent company). Amazon doesn’t break down Twitch in its financial reports.
Incumbent entertainment companies make most of their profit from linear TV, a segment facing a secular decline. While direct-to-consumer has become a key initiative, building a profitable streaming business at scale is hard (more on that in a minute).
Several performance indicators are commonly used to measure the success of streaming platforms.
Here are a few key ones:
Subscribers: Number of paid members for SVOD
User: Overall number of users for AVOD.
Average revenue per user (ARPU): Usually monthly revenue.
Segment operating margin: Operating margin of the streaming segment.
Overall operating margin: How other segments may be funding streaming.
Operating cash flow margin: Cash generated net of content spend.
Net cash/debt: Is the business in a position of strength to invest in content?
These are just a few examples of performance indicators to assess a company’s health and performance.
Let’s look closer at the specific businesses.
YouTube
In Q4 FY22:
Alphabet’s revenue grew +1% Y/Y to $76 billion ($270M beat)
YouTube ads declined by 8% Y/Y to $8.0 billion.
Google Other grew +8% Y/Y to $8.8 billion, including YouTube subscriptions (Music, Premium, TV) on top of hardware and Google Play.
Operating margin was 24% (-5pp Y/Y).
Earnings per share $1.05 ($0.14 beat).
Noteworthy items:
YouTube declined due to a broadening pullback in ad spending, and it was lapping an impressive quarter (YouTube ads grew +25% Y/Y in Q4 FY21).
YouTube Shorts are now averaging over 50 billion daily views, up from 30 billion a year ago. Now Shorts include revenue sharing to reward creators. Shorts are still relatively new and under-monetized (like Reels for Meta).
YouTube Music and Premium surpassed 80 million subscribers (including triallers).
Netflix
In Q4 FY22:
Total paid memberships grew +4% Y/Y to 231M.
Net paid memberships increased by 7.7 million Q/Q (vs. a 4.5 million guidance).
Average revenue per membership declined -2% Y/Y but grew +5% Y/Y fx neutral.
Revenue grew +10% Y/Y fx neutral (vs. +9% Y/Y guidance).
Operating margin was 7% (vs. 4% guidance).
EPS (earnings per share) was $0.12 ($0.38 miss).
Noteworthy items:
Netflix is profitable (18% operating margin in FY22) and cash flow positive ($2 billion in cash generated from operations in FY22). So it’s already passed the cash-intensive part of its shift to original content.
Netflix launched its ad-supported plan on November 3 at $6.99/month. The plan includes 5 minutes of advertising per hour.
More than 100 million households play Netflix through another account's password. However, starting this quarter, Netflix will be limited to a single household, and members will have to pay extra to share their account with people they don’t live with ($2.99 per additional home).
The Walt Disney Company
In Q1 FY23 (ending December 2022):
Revenue grew +8% Y/Y to $23.5 billion ($0.2 billion beat).
DTC Revenue grew +13% Y/Y to $5.3 billion.
Subscribers grew +25% Y/Y to 162M.
Disney+ (including HotStar): 162 million (+25% Y/Y).
Hulu: 48 million (+6% Y/Y).
ESPN+: 25 million (+17% Y/Y).
Adjusted operating margin:
Media: 0% (-6pp Y/Y).
Parks: 35% (+1pp Y/Y).
Adjusted loss ($1.1B).
Non-GAAP EPS $0.99 ($0.20 beat).
Noteworthy items:
Bob Iger returned to the CEO seat. He wants to put the decision power back in the hands of creative leads. Moving forward, linear networks will be a separate division. Iger intends to be more selective with sports rights.
The entertainment segments (DTC and Content Sales Licensing, which include theatrical releases) are in the red. The content spending required to build up its Disney+ catalog has hurt the bottom line. But Disney is playing the long game, aiming for multi-generational retention across its portfolio of intellectual properties.
Disney announced it would eliminate 7,000 jobs or about 3% of its workforce.
Warner Bros. Discovery
In Q4 FY22:
DTC subscribers grew +11% to 96.1 million (+1.1 million Q/Q).
Global DTC ARPU +1% Q/Q to $7.58.
Revenue -11% Y/Y to $11.0 billion ($220 million miss).
EPS -$0.86 ($0.41 miss).
Free cash flow $2.5 billion.
Gross debt is $50 billion, and 5.0x net leverage (this balance sheet is not for the faint of heart).
Noteworthy items:
It was a poor quarter, with all metrics coming below expectations.
Warner doesn’t break down the exact number of subscribers for HBO Max. However, the sequential subscriber growth has been soft compared to the rest of the market.
DTC is still loss-marking and pulling revenue away from other segments.
The company incurred $1.2 billion in restructuring costs.
HBO Max was re-launched on Amazon Channels in December. In contrast, Netflix forces subscribers to pay through its website.
The company plans to release a larger service combining HBO Max and Discovery+.
Paramount
In Q4 FY22:
The company reached 77 million DTC subscribers.
Paramount+ subscribers were 56 million, with 9.9 million added in Q4 alone.
DTC's adjusted loss margin was -41%.
Revenue +2% Y/Y to $8.1B ($30 million miss).
TV Media declined -7% to $5.9 billion.
DTC revenue grew +30% to $1.4 billion.
Non-GAAP EPS $0.08 ($0.15 miss).
Noteworthy items:
Like Warner, Paramount missed Wall Street’s top and bottom line expectations.
The continued decline in TV Media offset the revenue growth in DTC.
The adjusted losses from DTC widened from $502 million to $575 million.
Paramount+ is merging with Showtime. As a result, both the linear channel & app will be rebranded: "Paramount+ with Showtime."
Management believes the company will return to earnings growth in 2024.
Comcast (NBCUniversal)
In Q4 FY22:
Peacock crossed 20 million subscribers.
Revenue grew +1% Y/Y to $30.6 billion ($190 million beat).
The Media segment grew +3% to $6 billion (including streaming and broadcast).
Non-GAAP EPS $0.82 ($0.04 beat).
Noteworthy items:
The FIFA World Cup positively impacted the quarter, which only happens every four years.
Peacock added 5 million paid subscribers in the US, boosted by live sports, recent films, and originals.
Peacock revenue nearly tripled Y/Y to $2.1 billion.
Note that Comcast owns a third of Hulu.
Other market participants:
Amazon Prime Video is part of the Amazon Prime Subscription, making it difficult to evaluate. Amazon Prime has more than 200 million subscribers. The first season of The Lord of the Rings: The Rings of Power reached over 100 million viewers in Q4 2022. Amazon is a billing partner of many streaming services, taking a cut when the sign-up occurs in its store.
Apple TV+ is a relatively new entrant in the original content space after launching its streaming app at the end of 2019. Apple increased its monthly price from $4.99 to $6.99 in October 2022. The number of subscribers is unknown, but the company disclosed 900 million subscriptions across its services in 2022.
Roku is the leading TV OS (operating system) in the US and counted 70 million active accounts in Q4 2022 (+16% Y/Y). The company has entered the content space with its own Roku Channel since 2017. Like other App Stores, Roku takes a cut of SVOD revenue through its billing system. The company subsidizes its hardware to increase its platform adoption, but profitability has been elusive.
4. Key trends to watch
The streaming industry is constantly evolving, and there are several key trends to watch as we move forward. Here are a few that are likely to shape the future of streaming:
Original Content: The battle for subscribers has led to an increased focus on original programming. Streaming services invest heavily in producing their own content to differentiate themselves and offer something viewers can't find elsewhere. This trend will likely continue, but with a concentration on pillar content that can move the needle.
Global Expansion: As the US streaming market becomes more crowded, many services seek to expand globally. In recent years, Netflix, Amazon Prime Video, and Disney+ have all launched in multiple international markets, with plans to expand even further with tailored content. This trend will likely continue as streaming services look for new audiences to tap into.
Live Sports: While streaming services have primarily focused on movies and TV shows, there is a growing interest in live sports. Services like ESPN+ and DAZN have already made inroads in this space, and more services will likely follow suit. However, the high barrier to entry has favored big tech. Live sports investments are a means to an end, and only those with a much larger ecosystem (with higher ARPU opportunities) can afford it.
Ad-supported Streaming: Ad-supported tiers will likely become increasingly important to combat churn as the steaming market matures. It could unlock a higher revenue per user for the platforms with the most engaged audience. Connected TVs also offer more upside potential with targeted shoppable ads.
Interactive Programming: As streaming services look for new ways to engage viewers, there is growing interest in interactive programming. Netflix has already experimented with this (for example, Black Mirror: Bandersnatch and You vs. Wild) that allow viewers to choose their own adventure. This trend is likely to continue, with more services offering interactive programming that puts viewers in control of the story. In addition, there is tremendous potential for MILEs (massive interactive live events), but that’s a topic for another article.
Overall, these trends show that the streaming industry is still in a state of rapid evolution, and many exciting developments are on the horizon. I’m expecting more consolidation in this space.
As new services enter the market and existing ones evolve, streaming will remain a critical part of the entertainment landscape for years to come.
Whether you're a seasoned binge-watcher or a casual streamer, one thing is certain —The battle for our streaming attention has created a content frenzy, and we're all along for the ride.
That’s it for today!
Stay healthy and invest on!
Disclosure: I’m long AAPL, AMZN, GOOG, NFLX, and ROKU in the App Economy Portfolio. I share my ratings (BUY, SELL or HOLD) with App Economy Portfolio members here.
The left side of your charts are very interesting. I was not aware of this fragmented landscape in content production.
Does Disney disclose how much money it "makes" from ESPN? I'm curious, as a hardcore anti-Disney, anti-ESPN person ahha