Reading "The Streaming Book" by @ballmatthew

The Platform Shifts That May Yet Come

I opened the STREAMING BOOK by reminding readers that our definition of the “Streaming Wars” is often too narrow. Whether you start with 2019 or 2007 or even 2002, you’re ignoring a decade or more of development. In truth, streaming video is almost as old as the World Wide Web and ever since then, we have been testing various technologies, business models, content formats, and more.

Our newfound lens doesn’t just remind us that we’re far from the start of the “Streaming Wars”. It also reminds us that we are far from its end, too. It took cable/Pay-TV more than fifty years to cross half of all video time and it was another decade until its peak. At 30 years old, barely 30% of US video time, and 10% of global video time, streaming video is still young. And history tells us that many reconfigurations and reimaginations will occur before the medium reaches its end state.

An early indication of the future came in mid-2022. NBCUniversal and Electronic Arts, the second-largest video game publisher outside of China, reportedly came close to merging, but could not agree on price. The combination would have united a series of different D2C platforms, broadcast sports alongside simulation sports (doubtless leading to dreams of fantasy sports, collectable sports NFTs, and sports gambling) and produced new opportunities in esports and theme parks as well. Not only could EA’s original games, such as Apex, Titanfall, and Mass Effect, have produced a high quality IP pipeline for Universal Studios and Peacock, the game maker would also have been able to produce more (and doubtlessly better-monetizing) adaptations of NBCUniversal’s IP, such as Jurassic Park, Minions, and Fast & The Furious.

Though NBCUniversal x Electronic Arts did not materialize, there’s broad consensus that linear and interactive media forms will continue to converge. Gaming is already the second most valuable media category ($200B versus $650B for video across all categories) and its player base, though modest compared to the 5.5Bdaily video watchers, is growing secularly (there are roughly 300MM console and/or gaming PC owners, 600MM monthly players of AAA social games like Fortnite, PUBG and Roblox, and 2.5B total gamers). Many gaming companies are already more valuable and profitable than Hollywood’s most storied giants, and boast larger D2C footprints (funny to think that as Big Media rushed to acquire, merge, and scale up over the past decade, nearly all would have been better off buying a gaming company – and some would have doubled their market cap instead of halving it). A handful of the best told stories of this millennial have been in video games – including those which adapted non-gaming IP such as Star Wars. To this end, gaming IP is rapidly rising to the forefront of culture – Super Mario Bros. is likely to be the top film of 2023, while The Last of Us is likely to be one of the year’s buzziest. In 2019, Fortnite’s Marvel-themed season was played for more hours than Avengers: Endgame was watched. That same year, the prologue to Star Wars Episode IX: Rise of Skywalker occurred exclusively inside the platform. And crucially, tapping into gaming requires less transformation – or M&A – than one might assume.

Although currently under debt pressures, Warner Bros. Discovery remains unique in the entertainment landscape because it already has a full suite of cross-media properties and capabilities. This includes not just excellence in film, TV, and games, but also ownership of top-tier IP (e.g., DC Comics) and its leading direct-to-consumer platform. Some giants have two of these five attributes; none of the Big Tech behemoths boasts more than three, and few can make a claim for four. Few companies are better positioned to build a transmedia universe than Warner Bros. Discovery (the newly installed co-CEO of DC Studios, James Gunn, has already promised that the studio’s cinematic universe will extend beyond TV and film and into video games). As the company broadens HBO Max into Max, might it eventually whitelabel Amazon or Google’s cloud game streaming technology so that subscribers might play the smash Warner Bros Interactive Entertainment hits Hogwarts Legacy or Batman Arkham Asylum. Alternatively, HBO Max customers might be able to use their credentials to receive discounts on, free access to, or free perks inside the games produced by Warner Bros Interactive Entertainment.

If cloud game streaming does mature, I’d expect Disney+ to integrate licensed titles into its platform too. Sony’s Insomniac Studio has made two outstanding Spider-Man games, with another entry due this year, and a Wolverine adaptation due in 2024 or 2025. Insomniac’s titles are typically exclusive to Sony’s PlayStation for their first two years of availability before Sony ports the title to PC.  In the years to come, one can imagine Disney+ buying an exclusive streaming window to the title, perhaps running on a white label of PlayStation’s own cloud service. After all, Spider-Man and Wolverine rely on IP licenses from The Walt Disney Company. Disney could take a similar approach to titles such as Square Enix’s The Avengers and Guardians of the Galaxy or EA’s Star Wars Jedi series.

As Hollywood continues to embrace gaming, we should consider that gaming is also embracing Hollywood. Riot Games has long envisioned itself as a modern Disney—and, having created one of the most popular and most enduring franchises of the last quarter century, it has a fair claim to that ambition. Since 2020, Riot has launched three spinoffs to its hit League of Legends franchise (an auto-battler, a mobile MOBA, and a digital collectable card game) with several more to come. Riot also has a growing portfolio of other titles, such as Valorant, all of which are self-published, use a Riot account, and on PC are run through Riot’s own gaming platform. Overall, Riot has more daily users than many streamers have monthly users. Riot also “operates” a virtual K-pop girl group composed of League of Legends heroes that has already topped Billboard global streaming charts on two occasions, and the squad’s first music video hit100MM views on YouTube in its first month and is now approaching 500MM. In 2021, Netflix released Arcane, a League of Legends anime series that was mostly developed in-house(and was reportedly the most expensive animated series by literal multiples),and won the first-ever Emmy for a series based on a video game. It’s impossible to believe that Riot, which will eventually reclaim its rights to Arcane, prefers to distribute its groundbreaking content through third-party platforms—especially those that place its adaptations alongside those of competing game-makers.

The growing embrace and integration of gaming by Warner Bros. Discovery and Disney, and the expansion of Riot into “linear formats” are, from my perspective, inevitable. But my favorite way to explain the platform era – while also proving the battlefield and timeline for the “Streaming Wars” isn’t as locked as we assume – is to explain that both Sony and Microsoft have a plausible path to market leadership in video.

In the introduction to this book, I discussed Microsoft’s very early, but also unsuccessful entry into the streaming wars. The company’s strategy was not actually wrong. At the time, Xbox was the second most popular way to watch Netflix on the big screen (with PlayStation, not Roku or Apple TV, the leading device). And we know the connected TV category has become a large and important business in the years since – with market leader Fire TV not launching until a year after the Xbox One debuted. Microsoft also began its original series investments at the same time as Netflix and Amazon(and years before Hulu and Apple) and could have succeeded there as well.

But the Xbox ecosystem was not yet strong enough and the device's entry-level price was too high ($500, or $650 in2023 dollars). Microsoft was also still in its pre-Satya Nadella doldrums, while also focused on vertical solutions (i.e. Xbox content and services available only on Xbox). Furthermore, the company’s would-be pay-TV partners still believed the future of digital video was theirs to own – and thus refused integration as to avoid their set-top-box being supplanted Microsoft’s Xbox. Today, Microsoft is also far strong than it was in its era, both in governance and financials(the company generated $90B in operating cash flow in FY 2022,versus $29B in2013). Xbox now operates one of the world’s largest video streaming subscriptions in the world through Xbox Game Pass (25–30MM), with its Xbox Live subscription more than five times that size (far larger than most SVODs). The entry-level Xbox is now $300 (55% less in inflation-adjusted terms)and Xbox’s gaming services no longer require the hardware (just as Roku, Fire TV, and Apple TV have separated from a physical box, too).

Xbox is also one of the largest producers of original content in the world in 2023 – and growing this scale quickly as the platform undertakes its own access-to-content shift. Since launching its game subscription service (an access innovation) in 2017 and cloud delivery service (ibid) in 2020, Microsoft has spent $7.5B to buy ZeniMax(makers of Skyrim, Fallout, Doom, and other hits) and announced it was buying the largest independent game publisher in the world, Activision Blizzard, for $75B in the largest Big Tech acquisition in history. This not only grows Xbox’s content scale, it provides it with an enormous catalogue of original gaming IP (including Halo, Warcraft, Call of Duty) at a time in which gaming IP is leading in film and TV. More broadly, Microsoft now powers Netflix’s advertising solutions - and it’s quite possible it will Netflix’s cloud game streaming tech provider, too. There are also reports that Microsoft is building a 3D advertising network that it will make available to third party publishers alongside its whitelabel cloud game streaming tech.

I’d bet on Microsoft buying Roku before Netflix—although to be clear, neither seems likely. But not many other moves could so quickly enhance the monetization of a streamer, rather than just its scale, and the plausibility of the transaction reminds us that the “war” will not end in 2024 or 2025. Apple, after all, restarted its streaming video strategy twice; Microsoft may need only one CTRL+Z.

If Microsoft has a chance of making a comeback, then there’s certainly a lane for Sony. Although Sony Pictures is a poster child for success as an “arms dealer” in the streaming wars—having provided hits such as The Boys, The Crown, For All Mankind, Better Call Saul, Cobra Kai, Outlander, and more—PlayStation has amassed more than 80MM subscribers, averaging more than 60 hours of usage per month. In addition, no one has created more globally resonant (and largely narrative) IP, from God of War to The Last of Us, Horizon Zero Dawn, Uncharted, and more. Most of PlayStation’s titles are now being adapted at major streamers, while most of Sony Pictures TV series and films are also tied up that various streamers, most rights will revert by the end of the decade, at which point PlayStation’s subscription offering is likely to be even bigger. It’s not impossible to imagine that after fifteen years sitting out the “Streaming Wars,” Sony might suddenly join the fray. The advantages here would be many. For example, it’s likely the battlefield will have thinned by the end of this decade, with Sony not just skipping this phase’s costliest period, but with other participants having financed the growth of its content library. And despite the delay, Sony might still have one of the world’s largest monthly subscription services (perhaps 100MM subscribers?) and probably one of its most profitable, too.

In fact, we can already see evidence that Sony is considering such a move. In 2021 and 2022, PlayStation trialed “PlayStation Video Pass,” a free add-on to PlayStation Plus that was available only to Polish users, but provided access to a range of hit Sony TV shows and films, from Venom to Zombieland, Baby Driver, Blade Runner 2049, Jumanji, and Community. Reports also suggest that Sony is contemplating a discounted bundle of PlayStation Plus with Crunchyroll, the hit anime streaming service acquired by Sony in late 2021. It's also worth noting that Sony's "arms dealer" strategy is not a universal one. Instead, it's mostly the company's approach to English-language markets. In many countries, such as Brazil, the company already operates a series of Sony-branded FAST channels.

The potential of a multi-category service is partly proven by the success of Disney+, which consolidated the company’s TV and film franchises into a single portal. But the broader opportunity has been proven by Demon Slayer, a seven-year-old manga franchise developed by Sony Music Entertainment Japan. Since 2016, Demon Slayer has amassed nearly $9B in gross revenues – making it the youngest franchise to reach that mark, while also passing tentpoles such as Sesame Street, Minions, The Simpsons, and Power Rangers. In 2019, a Demon Slayer anime series debuted, while the 2020 anime film won the global box office crown with over $500MM in grosses—even though it was released in October of that year, rather than during the pre-pandemic window that included films such as Sonic the Hedgehog, Bad Boys 3 and Pixar’s Onward. The film also as Japan’s all-time box office record, beating Frozen, Spirited Away, Avengers: Endgame, Your Name and more. The Demon Slayer IP has also been adapted to hit video games, stage plays, and novels and has appeared on several national music charts.

Still, Sony’s advantage is not just the ability to unite game subscriptions and video subscriptions while also expanding its IP across both. Instead, it will come from what new experiences might be built across this multi-category ecosystem. Sony, already a market leader in VR, might extend its offerings into immersive social movie viewing, sports watching (or virtual attendance), education, or concerts (where Sony Immersive Music Studios is a leader). Apple, which is widely expected to be the market leader in XR, has a similar opportunity.

If we’re discussing the future of entertainment—and who would provide it—then a good place to conclude is Epic Games. Not only is Fortnite one of the most popular direct-to-consumer platforms globally and one that intermingles many of the most popular franchises globally, but its involvement in “traditional” storytelling continues to grow. In 2019, the company premiered an exclusive clip of Disney’s Star Wars Episode IX: The Rise of Skywalker inside Fortnite, with part of the film’s canonical storyline taking place exclusively inside the game. For four years, the company has also been showing independent short films and Hollywood blockbusters as well as premiering Hollywood trailers inside the “game,” in addition to producing original concerts and music performances. The game has also told season-long stories set in the Marvel universes (and its own universe), which have carried over into Marvel’s comic book lines. Epic’s Unreal Engine is also the world leader in virtual production for film and TV, thereby enabling a pipeline of assets to flow between the linear and interactive mediums. More recently, Epic formed Epic Studios, led by the former CTO of LucasFilm, with reported plans to produce its own linear-to-interactive films and TV series. I don’t expect Fortnite to become an SVOD, to be clear, but we’re only a quarter century into the “future of digital video.” Where might we be after a half century?

Thanks for reading. Matthew Ball.