Its not tech anymore, its TV

Things in the streaming (SVoD) land are moving fast. This week Netflix announced its highly anticipated ad-supported tier to counter slowing subscriber growth and unlock more top line growth via ad-revenues. If you think this through, SVoD, which was initially branded as “Tech” and added to the coveted Big Tech group (FAANG), doesn’t seem like tech anymore. The worlds of old and new media are increasingly converging and this space is beginning to look more like tech-enabled TV. Before we get into why it might be the case, here’s a bit of a backstory on how we got here.


What makes tech so special is that the world of technology is in a constant process of change. Not only technology itself evolves over time, it shapes ideas and defines business models along with it. It is quite fascinating that even something as basic (in 2022 terms) as watching TV has gone through multiple cycles of technology enabled change and innovation.

Only 15 years ago you were choosing your TV content from a limited number of cable networks (channels). You would mark your calendars, clear your schedules and eagerly wait for your favorite shows to be aired when they did. If you missed a key plot twist or the pilot which sets the story up, you wouldn’t feel like following the show till then end. Moreover, every episode was stuffed with ads which would, most of the times, feel like an unwanted intrusion and a waste of time. Your TV time (when you watch it) and the overall viewing experience was controlled by large incumbent media companies, which had a grip on the industry for a long time.

Disruptive innovation. Slowly then suddenly

Disruptive innovation, as Clayton Christensen put it, simmers slowly at the initial stages as the disruptor builds, tests and innovates to perfect its product. Then it strikes suddenly, when the market realises that the threat is real and the disruptor has arrived. Something similar happened in media when Netflix, a DVD reseller, launched a streaming platform that completely transformed the TV viewing/content consumption experience.

It offered you an ad free, all you can watch-whenever you want experience with a classic subscription model. Now we could consume our favorite movies and shows whenever we wanted, binge watch entire seasons over a weekend with the comfort and convenience like we never had before.

But it wasn’t a game changer just for the demand side of things. The supply side – content producers and artists, got a massive global platform where they could showcase their talent. In a pre-Netflix world it was nigh impossible for a Korean series like the Squid Game to be the number one show in 94 countries at the same time, racking up 2.1 billion hours of watch time. Nor would have the creators and the cast of the hit Spanish show like La Casa de Papel thought it would be in the top 10 shows in 92 countries globally with more than 190 million hours of watch time.

2.1 bn hours and number 1 in 94 countries. I’ve heard a prequel is coming soon.

This unlocked a powerful feedback loop where the demand for content pushed creators into bringing more shows and movies online, and the success at this scale attracted more creators and investors into getting this content where it could be consumed the most.

All of it allowed Netflix to blitz scale its growth, as it went from 34mn subscribers in 2013 to more than 220mn in 2022.

Subscribers kept on growing, until they didn’t. Source: 10K filings

But this didn’t come by on its own. Netflix fire-hosed the sparks it was starting to see in subscribers and watch hours with billions of dollars of content production, moving from a licensed content portfolio to producing its own movies and shows.

Content party

Netflix’s spending spree was not trivial by any means. It spent a total of USD 32bn between 2013 and 2018 producing and buying thousands of titles all over the world, to cater to the tastes and cultures of its audience globally.

The incumbents and its competitors from the world of tech were quite late to the party, which would make one believe that Netflix had a substantial head start in the SVoD space. After all, it had the scale, the brand, the content model and most importantly the platform which it had perfected over the years.

But as Netflix realised, building a streaming platform and getting it to scale was not as hard it would have been a few years ago when it itself started out on this path. If you had access to enough capital and talent, you could leverage the connectivity and Cloud infrastructure to launch your own platforms much easily and quickly than ever before. It was a just matter of time as players with a large presence in tech and media went all in.

The space went from having one highly successful tech company, Netflix, to an ultra competitive arena with multiple giants like Amazon Prime Video, Apple TV, Disney +, Hulu and other old media owned cable networks. Some saw it as a massive growth market and with a track record of a proven business model. For others, especially the old media, it was a matter of survival. Get a platform or get out. And they already owned content which they could distribute over the streaming model.

As a result, the market just exploded with content driven by swaths of capital.

SVoD content spending is still running at full steam. Source: Variety media

Is it even tech anymore?

Finally, fast-forwarding to today. The environment is a different one from just one-two years ago when all of were binging on anything and everything on our TVs and laptops. As inflation has started to bite into consumer budgets and content exhaustion is setting in, subscribers have pivoted from volume (as many services and shows you can consume) to value (we only need the best shows and movies). This quantity to quality shift has stopped the content party in its tracks as platforms are now forced to rethink their strategy and their positioning in this new environment, while still ensuring growth they promised their shareholders.

But this new pivot is starting to make the SVoD playbook increasingly look like the old TV playbook, just with a platform at its back. Here’s why I see it this way:

From unbundling to bundling

The cable TV to streaming shift was unbundling all the way down. We went from a cable bundle, where you could watch all kinds of channels, to having different platforms for different types of content like sports, gaming, entertainment, movies and shows, news etc. Today you are starting to see a shift back towards bundling as platforms try to differentiate themselves from the competition. Netflix with gaming, Amazon with sports and documentaries and Disney with its all-in-one bundle (Hulu, Hotstar in Asia, Disney Originals etc.) are a few clear examples of it. This unbundling to bundling might have some more way to go I think.

Different types of content spending. Source: Financial Times

Ads are making a comeback

As a consumer you love the TV viewing experience without ads. Most of us even got quite used to non-stop ad free experience over the last few years. But as subscriber growth slows down, platforms are looking at a cheaper ad-supported tier to reach a new cohort of price sensitive customers. This week, Netflix finally announced a cheaper, USD 7/month ad-supported offer in 12 countries. Disney+ already has an ad-supported tier, whereas Prime Video might be starting to offer ad-inventory to publishers as well (I wrote a bit about it recently here).

I was recently served this privacy notice on Prime Video, which made me suspect they might be starting to offer ad inventory to publishers.

As far as Netflix goes, this is a complete 180 degree pivot from its ad-free experience value proposition.

Weekly or batch episode releases

The days of binge watching might be slowly coming to an end as platforms change their release strategy to batches or weekly format, just like the good old cable TV days. Apple TV already did it with a handful of decent shows it has, whereas Prime Video has been doing it often. Netflix joined them with some of its biggest series like Stranger Things 4 and Ozark, releasing them over two parts. There were some reports that it plans to do that for most of its hit shows.

This allows these companies to amortise their content over a slightly longer period of time, and therefore slow down the content production treadmill they were on for the last decade. It might be another way of of trying to keep their viewers hooked to the show and wait for the next part/episode like we used to back in the day.

Hybrid movies

For the first time ever, Netflix will be “previewing” its new big budget movie Glass Onion: A Knives Out Mystery in the theatres in the U.S. before it is released on its streaming platform. It signed a large deal with AMC, Cinemark and Regal cinemas to release it across 600 locations, in addition to playing it worldwide in Canada, the U.K, Ireland, Italy, Germany and Spain, Australia and New Zealand.

Remember the time when the platforms and SVoD was killing physical theatres? What about this then. Is this a shift towards a hybrid model post Covid, just like everything else in our lives? Maybe some of us might never want to go to the theatres again, but some of us still might to do bit of both.


The TV/media industry has come a long way though. It was disrupted by a DVD reseller with its tech and platform first model, which was hugely successful at scale globally. Well funded competitors eventually realised what they were missing and moved fast to catch-up, which somehow turned the important questions from being tech questions into TV questions (h/t Benedict Evans).

Everyone has a platform now, but the boardroom meetings are likely to be more about what differentiated content to offer, how to price it, how to bundle it, etc. From a technology standpoint, the industry now might be better equipped to latch on to additional growth levers and ship new features much more rapidly. But its not tech anymore, its more like tech enabled TV.

NFLX is not far away from trading at old media multiples. Source: Koyfin

Until next time,

The Atomic Investor

2 Comments

  1. Croissant says:

    That’s a pretty much detailed analysis!!!

    Like

  2. niftyfifty1994 says:

    From tech to streaming kudos for d content 👊🤛

    Like

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