Reading "The Streaming Book" by @ballmatthew

The Commodification of Access Innovations

The arc of access-led innovations ends in commodification.

Consider the core delivery technology of streaming video. It was once hard to reliably stream a video and to build and sustain OTT streaming video applications. In addition, there were few engineers with much experience doing either. Neither of these challenges exist today. This doesn’t mean that all services are equally good at delivery—certainly not. But it used to be a considerable challenge to get an OTT video on the living room screen. In 2013, the most used Netflix devices were the Xbox 360 and the PlayStation 3. This wasn’t because these devices were particularly good fits for streaming video, nor affordable, nor even widely distributed. They were just the most capable and deployed devices at that moment. Now families have dozens of devices that can do this, as well as several iPads (which launched three years after Netflix went OTT and Hulu premiered) that can be used instead. Note that commodification of core access technologies and capabilities does not mean that all market entrants shift to the new modality, as that represents an internal readiness and business model concern—witness the twelve-year gap from the birth of Hulu to Hollywood’s slow embrace of the “Streaming Wars.”

Another view to the maturation of the Access Era, if it can be so termed, is customer adoption. It took Hulu, the second pureplay SVOD service to launch in the United States, seven years to get to 10MM subscribers, and Netflix eight years to add 10MM subscribers in a single year. Growth was constrained by the work needed to explain streaming to a customer, why they should sign up, how to sign up, how to access it, and so on. But when Disney+ launched in 2019, it was able to add 10MM customers in less than 24 hours and another 10MM in the six weeks that followed—and with a much smaller catalogue than Hulu and Netflix. The successes of Disney+ had many internal drivers, including nearly a century of brand building and the acquisitions of Pixar, Marvel, and Lucasfilm. But Disney+ also benefited from twelve years of consumer familiarity with SVOD, the widespread deployment of iPads, the advent of smart TVs and connected TV boxes, and the ease of replicating once-novel growth tactics like ad placement on set-top-box remotes or the use of wireless providers to amass customers in a wholesale fashion.

The way to understand when “Access” had ended is to observe consensus. Consensus in technology, business models, launch plans, economics, strategies, and so on. Once consensus is established in these areas, it can no longer provide a competitive advantage. They are merely table stakes, requirements for success and liabilities when lacking. In other words, no one is hyper-scaling an SVOD in 2023 because they’re on a Roku remote (there are at least three others on it) or distributed by Verizon (every SVOD has a partner or three).

It took a long while for Hollywood to agree that streaming was the future, a bit longer still to realize that that future was near, and a bit more time than that to do anything about it. Recall that Netflix had begun streaming tests in 2000 and established it as a discrete business line a decade later, yet most legacy competitors didn’t launch for another decade (and kept selling to Netflix for much of that time). This “thesis arbitrage” allowed Netflix to become the largest streaming company on Earth. Three years after the “Streaming Wars” kicked off, Netflix still has 36% more subscribers (or 59MM) than the second-largest service (Disney+). And the average monthly revenue per subscriber is three times higher ($12 versus $4).

Netflix’s first-mover advantage was far from inevitable, especially the degree of the advantage. Look at this chart.

For years, I posted quarterly updates to this chart. Nearly every time I did, at least one Hollywood executive would email me asking:

  • “Is this real?” (Yes);
  • “Is this all viewers?” (Yes);
  • “Does it capture all platforms?” (Yes);
  • “What is it missing?” (no categories, though it’s certainly not perfect)

But the best question was always “When will it bottom?” What’s brilliant about this chart is the answer was fully predictable—the lines are essentially straight and uninterrupted. But year after year, most of the “legacy TV ecosystem” convinced itself that when 18–34 was down 15% (Q3 2013) or 20% (Q1 2014) or 25% (Q3 2014), the trend could not continue. There wasn’t enough left to lose after accounting for “must see TV.” In truth, it was easy to predict 2019 —you just had to look at 2010 and 2012. Or for the skeptics, 2010 and 2015, or 2010 and 2017. But regardless of when the future can be modeled, consumer preferences are eventually irrefutable and primitive emerge as a result.