Netflix became a streaming king during the COVID-19 pandemic, but competitors are playing catch-up. We talk about what's next for everyone.
Streaming services were one of the few winners from the pandemic, especially Netflix. But the pandemic’s binge boom seems to have burst.
Today, the winners and losers in the streaming wars and how providers are handling the post-quarantine subscriber drop.
Host: Gustavo Arellano
Guests: L.A. Times film business reporter Ryan Faughnder
More reading:
After Netflix’s week from hell, why streaming is becoming more like ‘just TV’
Same-day streaming film releases are ‘dead,’ cinema group leader says
Layoffs at Netflix have some staffers questioning company strategy and culture
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Streaming services were one of the few winners from the pandemic…
The shows — so many shows! Netflix had Tiger King :
CLIP: Joe Exotic for the people of America.
And Squid Game…
CLIP: Here’s the first game. You’ll be playing red light, green light.
“Encanto” turned into a worldwide smash on Disney Plus, right Bruno?
And right now, people are flipping out about Severance on Apple Plus…
CLIP: I am a leader who cares about his employees and takes their requests seriously.
But then…
AP CLIP: Netflix as its customer base fell by 200,000 subscribers during the January to March period…
CNN's foray into streaming service has collapsed a month after its launch…
The pandemic’s binge boom…seems to have burst.
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I'm Gustavo Arellano you're listening to “The Times,” daily news from the LA Times.
It's Monday, Monday, May 2, 2022.
Today, the winners and losers in the streaming wars and how providers are handling the post-quarantine subscriber drop.
Gustavo: Ryan Faughnder is a film business reporter for the Los Angeles Times. And he covers all things streaming for us.
Ryan, welcome to “The Times.”
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Ryan: Thanks for having me.
Gustavo: Man. I remember when Netflix was just DVDs and red envelopes and mailboxes. Actually, I remember when televisions had knobs and the highest channel you could get to was 58. All of this to say that the rise of streaming is still really, really new.
Ryan: That's right. And you know, Netflix has been around for a long time, but they didn't launch their streaming service until as late as 2007.
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Ryan: And you can really trace their streaming revolution to when Netflix put out a little show called house of cards,
CLIP: Thank you, Mr. Chairman, , I have agreed to appear before this committee today because I'm guilty.
Ryan: That was their first real entree into the business of original programming for streaming.
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Gustavo: Yeah, you say House of Cards, but I remember when they brought back Arrested Development.The legendary sitcom from Fox..
CLIP: You’re the selfish one, you’re the one who charged his own brother for a Bluth frozen banana.
Gustavo: It wasn't the biggest of hit, but it kind of surprised people saying like, oh shoot, like Netflix is starting to come into this original programming game now?
Ryan: Right. Yeah. And that was, uh, I think mixed reviews. And when the New York times review came out and they didn't like the reboot very much, the stock of Netflix actually dropped, so…
Gustavo: Damn. Yeah, it was okay. I hate to say that, but House of Cards on the other hand was a massive smash.
Ryan: Yeah, huge hit and they spent a lot of money on it. And that was really the thing that got people to say, oh yeah, this is a place that we need to keep an eye on.
Gustavo: And for a while, they were it. They were basically the only game in town. You had Hulu, a little bit, but really the big, huge marquee shows that were becoming buzz hits- just stayed with Netflix.
Ryan: Yeah, exactly. They pretty much had that lane to themselves. I mean, Hulu came on the scene and has a few hits and they won Emmy's with the Handmaid's Tale.
CLIP: I had another name but it's forbidden now.
Ryan: And Amazon Prime was in the mix too. But other than that, I mean, you just didn't see the space getting that crowded until a few years ago.
Gustavo: When did this streaming gold rush really start?
Ryan: I would peg it to 2019, which is when the streaming wars really kick off. Other companies like Disney and HBO started to look at the landscape and what Netflix was doing. And seeing that this was getting to be a pretty popular way of watching TV content. People could just go online and binge whatever they wanted whenever they wanted to do it. And they said, well, we've been making TV shows and movies for way longer than Netflix. And now they're eating our lunch. So let's get into this ourselves.
Ryan: So in 2019, you know, Disney acquires Hulu..
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Ryan: Later that year, they launch Disney plus in November,
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Ryan: And that gets off to a roaring start. They add 50 million subscribers in their first few months. Now they're up to 130 million subscribers. Also in November 2019, Apple launched Apple TV+ with a slightly different strategy of trying to do more quality rather than quantity.
CLIP: Apple // didn't skimp on the star power for its announcement. Calling in Jennifer Aniston, Reese Witherspoon, Kumail, Nanjiani, big bird.
Ryan: And setting itself apart by having really alias talent like Oprah Winfrey and Steven Spielberg making stuff, everyone had their own approach to this business.
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Gustavo: Man, at this point, which giant does not have a streamer?
Ryan: There are a couple and the ones that are left like Sony and Lionsgate are in a pretty good position to just be an arms dealer for all these streaming services that need content. So now you've got HBO Max, you've got Peacock from Comcast // you have Paramount plus from what was formerly known as Viacom CBS. So all of these places need content and there aren't that many independent studios left to make it. Everyone's just kind of making shows and movies to feed their own beast.
Gustavo: So a lot of success stories, but who are the first big flops in the streaming wars?
Ryan: Well, the first big failure that everyone really noticed was Quibi.
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CLIP: Quibi is shutting down six months after launching its short-form streaming service.
Ryan: And this was a company that. Jeffrey Katzenberg from Dreamworks animation and Meg Whitman, they launched this company to basically cater to the // market for short form content. And the idea was that they would get people to pay for this stuff and have A-listers make it. The strategy did not work and it folded within seven months.
Gustavo: And now there seems to be a very surprising kind of loser… Netflix itself.
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Ryan: Yeah. So here's what happened in the last couple of weeks. Netflix recently unveiled its first quarter earnings for 2022. And it wasn't pretty.Their stock fell actually more than 35% the day after they reported earnings. After they said that their subscribers around the world dropped for the first time in more than a decade. They lost 200,000 subscribers and they projected that in the current quarter. They're going to lose about 2 million more.
Gustavo: And before that every quarter they had gained and they had never lost subscribers before.
Ryan: They were gaining, gaining and gaining for years. And they were going at a rapid clip, especially at the beginning of the pandemic. They had Tiger King, they had all this stuff that people were binging while they were stuck at home. But as we've seen in the rest of the streaming market as well, the growth has started to slow, to, you know, single digit millions, which for Netflix was pretty much a reality check.
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Gustavo: Man, the streaming bubble seems to have popped so bad that now Netflix is starting to do job cuts?
Ryan: In the animation department. Some people have been let go. In the marketing division, uh, other people have lost their jobs. And a lot of those people were, uh, workers who were recently hired to try to promote Netflix shows.
CLIP: Back in August, Netflix recruited many women of color journalists and writers, majority of them Black women to be writers on their fan site Tudum.
Ryan: Netflix is looking like it's trying to control costs some more. After years of lavish spending, that's got some people at the company worried.
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Gustavo: So is Netflix going to become the Dumont network of streamers?
Ryan: They still have the lead on this business by a lot. Let's just put this into context here. Netflix still has 222 million subscribers globally, which is way more than even the nearest competitor, which I believe is Disney plus. And they're at 130 million. So don't count Netflix out just because they seem to be reaching a ceiling.On the other hand, what people are saying now, like analysts and wall street investors and people like that is that this business might not be as big as we thought it might be.
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Ryan: Like the total addressable market, Wall Street's fancy terminology for how many people they think they could get to switch over from cable to streaming may not be as big as what people were thinking when all this started.
Gustavo: More on the streaming wars after a quick break.
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Gustavo: Ryan, Netflix is a bit down, but by far still the dominant force in streaming. But a total shocking loss was the collapse of CNN+.
Gustavo: I kind of was interested in seeing some of its shows. Like the ones advertised with Audie Cornish and Chris Wallace. But the streamer just shuttered three weeks after it launched. Um, what the hell happened?
Ryan: So this was a combination of poor strategy and also the fact that. They launched about a week before they got acquired by Discovery. So they launched and then they had a new corporate owner that got a chance to look at the books and look at their own strategy and clearly had their own ideas of what they wanted to do with the company. And they said, forget about this. We're just going to cut bait and bail on CNN+.
Gustavo: It was so disastrous for such a big player. What does that do for other companies who are planning their own streaming services?
Ryan: I don't know. It's definitely a function of bad corporate timing, and there's a lot of internal politics that were getting worked out behind the scenes, uh, with CNN+ and Warner Media and Discovery and the whole merger and everything. It's also a sign that these kind of niche streamers that are coming into the market are going to have a really hard time right now. It's an incredible. Crowded space. It's heavily invested right now. And if you're CNN, you're coming to this with $300 million in investment, that's nothing in this business. When people like Netflix are spending $19 billion just on content. And if you're just another place, that's trying to get people to pay $5 to $6 a month. That's going to be incredibly hard if you don't have the goods to back it up.
Gustavo: So. These existing streamers, are they now reconsidering their strategy in this post-pandemic era? Like one thing I've noticed was binge model was huge. Like Cobra Kai. That's the one show I see on Netflix. I just think it's awesome. It all came out at once. My wife and I, we see it all in a day, but now some of these newer shows…they seem to be going back to that one show a week model.
Ryan: Yeah. Netflix is sticking with its binge models. Certainly for now. It's experimenting with breaking shows into two parts like it's doing with Stranger Things. It'll release those separately to try to get a little bit of juice out of them.
CLIP: Young lady, you know you have to pay for those.
Ryan: But other companies they're going to be doing these streaming releases on a week-to-week basis. In other words, it's the old way. Just like TV.
Gustavo: And then I heard Netflix is also considering ads on like, you know, you pay less and then you're going to get ads kind of like with Hulu. So is that something that other streamers are also seeing and why?
Ryan: Yeah, other streamers have been doing it for a long time and typically streamers would offer a cheaper tier with advertising. HBO Max does this, uh, Peacock also does this. So this is something that Netflix is now willing to experiment with now that they're starting to see the limits of just having the pure streaming subscription model.
Gustavo: Why didn't they do it before?
Ryan: The argument for not doing it before was sort of the HBO argument, which is that advertising clutters up the user experience. You don't necessarily want to see ads for erectile dysfunction pills while you're watching Bridgerton, that's sort of a weird thing. People just don't like the intrusion, or this was the theory, but I think people are starting to see that as long as the ads aren't terrible And as long as the ads aren't too great in quantity, people don't mind paying a little less and watching a few ads so they can save a few bucks.
Gustavo: And then the other thing I noticed during the pandemic was that everyone was sharing their passwords, whether for Disney+ for Netflix, I think I only know like five people who subscribed to Netflix. Everyone has Netflix, my wife included, but everyone else seems to be borrowing someone else's password. I imagine it must be taking some money away from all these services.
Ryan: Yes. I think the correct phrase is “we’re shocked, shocked!” that people are sharing Netflix passwords. Um, no, this is a rampant problem. And it's becoming a big deal for Netflix. I mean, they basically accepted this practice of password sharing with a wink and a nod for years and years. But now that they're starting to see that, there's the trade off and that they're not getting as much money. They're starting to find ways to, if not clamp down on the practice, then at least make more money from it. So what's happening now is they're experimenting with this strategy in a couple of countries in Latin America where instead of telling you, Hey, you can't share your password with your grandma; sorry, she's cut off. What they'll do is they'll ask you to pay two or three bucks more a month in order to add those accounts that are outside your household.
Gustavo: And how has that worked so far?
Ryan: Uh, they say it's working well. And you know, you should not be surprised to see a similar strategy // spread to Europe. And the US. I mean, Netflix has really got to combat this. They said in their most recent earnings report, that about a hundred million accounts are watching Netflix with a shared password and 30 million in the US and Canada. So that's basically saying every other account is sharing a password with at least one person outside their household.
Gustavo: Ryan, you mentioned Europe. And the big story, of course, in Europe this year has been Russia invading Ukraine. And there was a lot of news about Western based companies pulling out of the Russian market. And one of those companies was Netflix. How, if any way, has that move affected? Netflix's bottom line.
Ryan: It hasn't been too much of an effect. I mean, Russia had 700,000 subscribers. So that's not a huge number for Netflix, but it did make the difference between Netflix being able to say we gained half a million subscribers in the quarter to saying instead that it lost 200,000 subscribers during the quarter. So that definitely turned the headline in a certain direction. And the stock price reflected that. But overall it's, it's just not a huge market for U.S. entertainment.
Gustavo: So it's just the overall market for subscription streaming just not as big as people thought it was.
Ryan: It's possible.
Ryan: The thing is we just don't know, Netflix executives were saying that the pandemic created a cloud, it clouded their vision. They thought they were going to reach certain numbers based on how they were growing during the early part of COVID. And that sort of created this effect where now we don't really know where things stand exactly.
Gustavo: After the break, how the streaming wars are impacting Hollywood.
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Gustavo: Ryan, during the pandemic studios Warner Brothers, Universal, Walt Disney, they experimented with same-day releases to boost their streaming businesses when it comes to movies, are those days over?
Ryan: So I'm in Las Vegas right now, for CinemaCon.
Gustavo: Recording this, from Caesar's palace. And during the festivities here, the head of the national association of theater owners, declared those same day release strategies as dead. And we're probably not going to be seeing a lot more of those, you know, during the pandemic studios released movies on streaming services and on video, on demand at the same time as they release them in theaters, you're going to see more of a split, more of a clean break between movies that are made for streaming and movies that are made for. And come to streaming services later. Before the pandemic shuttered theaters, movies played in cinemas for an average of 90 days before becoming available in the home that is changing. Now the model is becoming more around 45 days.
Ryan: You might've noticed that the Batman from Warner brothers came to HBO max, just a few weeks after it debuted in theaters, which I think was, somewhat surprising for people who have been used to waiting a lot longer, but that's looking like it's going to be the strategy, for at least the near term until they figure out what the model looks like for movies.
Gustavo: So, what is the current state of the box office?
Ryan: It's still extremely unclear where things are going to end up this year. Box office hit a very low point, of about $2 billion in the US and Canada during the pandemic in 2020. 2021, it rose to $4.4 billion in the US and Canada. This year, some analysts are saying it could hit 9 billion, which is way up, but still 20% down from 2019 levels. So it's not really clear when it'll get back to that pre-pandemic level. Now we have seen some signs that things are coming back in a good way. Uh, Sony, Spider-Man no way home grossed, almost $2 billion in global box office. The Batman took in more than $750 million worldwide. I mean, these are signs that movies will do well. If studios release them in theaters exclusively and wait before sending them to streaming. But still the regular cadence of movies hasn't really gotten started yet. We're probably going to see a lot of movies come out in the summer, top gun Maverick,
CLIP: Top Gun Maverick clip
Ryan:Lightyear from Pixar
CLIP: Lightyear clip
Ryan: And a few others that are going to do some good business. So that'll give us a much clearer indication of where ticket sales are gonna be.
Gustavo: And speaking about how streamers are getting into Hollywood. Of course, the last best picture, the one that was picked this year, came out on apple TV, a film called Coda.
CLIP: There are plenty of pretty voices with nothing to say. Do you have something to say? I think so? Good.
Gustavo: Just on a Hollywood film nerd thing: do you think this trend of streamers getting more prestige and getting more, uh, Oscar shine is going to continue?
Ryan: A hundred percent. I don't think Netflix losing best picture this year means it's out of the game. It probably wants it more than ever. Ted Sarandos, the co-CEO of Netflix, clearly has Oscar's in his eyes. You know, he's just beaming wanting to take home the trophy. So we'll see what their big play is for 2022, 2023. But you can bet they're not going to sit on the sidelines and they are willing to spend a lot of money to get there.
Gustavo: Is Netflix then, you think, the next dreamer to win best picture or maybe a hallmark channel?
Ryan: Maybe the ghost of Quibi will, will win an Oscar. Yeah, I mean, it could be anybody, it could be a traditional studio. I mean, Hollywood is still a place that has a lot of love for the old guard and the traditional studios like Warner Brothers and Disney with its acquisition of Fox and Fox Searchlight. I mean, these players are all still in it to win it.
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Ryan: They all spend a lot of money on awards campaigns and, you know, buying up Sundance film festival titles so they can get into the mix.
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Ryan: So, yeah. I mean, we'll see. We'll see what happens when Warner Brothers puts out Dune part two. That should be a big player. but yeah, I wouldn't count out the regular, uh, studios, even as the streamers, try to take over the business.
Gustavo: You can read all about the streaming wars and more, and Ryan's newsletter.It's called The Wide Shot all about the business of entertainment.
Ryan. Thanks so much for this conference.
Ryan: Thanks, it was fun.
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Gustavo: And that's it for this episode of “The Times,” daily news from the LA Times.
David Toledo and Angel Carreras were the jefes on this episode.
And our show is produced by Shannon Lin, Denise Guerra, Kasia Broussalian, David Toledo, Ashlea Brown and Angel Carreras. Our engineer on this episode was Mike Heflin. Our editor is Kinsee Morlan. Our executive producers are Jazmin Aguilera and Shani Hilton. And our theme music is by Andrew Eapen.
Like what you're listening to? Then make sure to follow “The Times” on whatever platform you use.
Don't make us the Quibi of podcasts.
I'm Gustavo Arellano, we’ll be back tomorrow with all the news and desmadre. Gracias.