Jason Kilar on the Chaotic Streaming Wars—and How This Hollywood Story May End

Netflix, the global streaming giant has had a roller coaster ride in terms of its share price – after soaring 25x in the decade preceding the peak of the tech boom last year, it lost almost 70% by this summer. Whilst the fall in shares can be partly attributed to some generic reasons that affected all tech stocks – such as an extrapolation of the consumer behaviour during the Covid lockdown till perpetuity fuelled further by irrational exuberance –  Netflix also suffered from rising competitive intensity from other entertainment companies such as Disney scaling their streaming services. This week’s Business Breakdowns podcast on Netflix elaborates on the economics of the streaming business. In this article for the WSJ, Jason Kilar, the former CEO of Warner Media and founder of streaming service Hulu, takes a shot at predicting the future for the streaming industry and the related entertainment industry in general.

“There will be multiple business casualties in the paid streaming wars and a few business victors. Digital markets for industries that have high fixed costs and relatively low variable costs have tended toward a few, unusually large winners, and I believe such will be the case in entertainment. In this scenario, no more than three global entertainment companies are likely to attain the streaming-service scale required—300 million global subscriptions at an average of $15 per month—to generate attractive cash flows. (Amazon and Apple, both purveyors of streaming, will be in addition and measured differently.)

Expect two or three major mergers and/or acquisitions involving entertainment companies in the coming 24 months as a result. Given the unusually large addressable market and the relatively fixed cost of content at scale, I believe the streaming cash flows of the leading companies will eventually be north of $10 billion a year, far greater than what most entertainment companies have each historically generated. For a precious few, the considerable investment will be well worth it. Some of the most telling signs of progress will be revealed by a clearly articulated path to compelling cash flows and strong performance on key metrics like average revenue per user, engagement, subscriber acquisition costs, churn and the number of fully owned customer relationships.
….As for the cable bundle, it will become synonymous with the landline: clear decline and surprising longevity.”

He predicts innovation in business models for sports leagues and cinema halls alike before concluding with this passage suggesting why Disney is likely to be the big winner out of this:
“One of the most exciting prospects of the leading entertainment companies in the next century will be the ability to superserve fans in ever more differentiated and personalized ways digitally. Walt Disney was the original visionary of this strategy, offering fans of Mickey Mouse everything from a one-size-fits-all theatrical experience to consumer products, television and a magical visit to Disneyland. Those entertainment companies that earn robust, authentic digital relationships with customers have the chance to deliver profoundly positive experiences and financially meaningful results. These experiences are likely to include digital theme parks (how fun would it be for kids to claim their dorm rooms at Hogwarts?), socially fulfilling videogames, digital goods and epic, live digital events that speak to the biggest of fans.”  

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