Q&A With Media Business Expert Professor Jonathan Knee on the Future of Streaming Platforms
The rise of streaming platforms such as Netflix, Amazon Prime, Disney+, and Apple TV Plus has amounted to a revolution in how we watch television and movies.
But amid the excitement, Jonathan Knee, the Michael T. Fries Professor of Professional Practice of Media and Technology and co-director of the Media and Technology Program, takes a measured view of the strategy of streaming platforms populating their sites with original content.
Knee explains that streaming first mover Netflix was until recently skittish on the idea of producing movies and television shows. “It was only a few years ago that CEO Reed Hastings said that Netflix was ‘better off letting other people take creative risks ’,” Knee points out, “but next year their content bill could approach $20 billion.”
Knee’s view isn’t that Hastings’s opinion has changed but that the competitive environment has. “There is only one good reason for a smart CEO like Reed Hastings to invest big in the creative content business: he has to.”
Knee adds that the push for content “will be great for viewers and terrible for shareholders.”
The following are excerpts from a conversation Knee had with Ideas at Work. It has been edited for length and clarity.
A Q&A Discussion About the Future of Video Streaming
Can companies use content to differentiate their streaming platforms?
The relevant question is not whether content can be differentiated, but whether the cost of differentiation should be expected to yield an attractive return for shareholders. The answer is that this is a long putt.
The sheer number of new streaming services announced in recent months and years suggests that maybe there are few barriers to entry in the market. And at this point, it’s not technologically complicated to create one. There are plenty of businesses out there that offer the technological capability, so that is also not likely to be a differentiator for long.
At the end of the day, the only way of getting content that is more interesting than the other services is to spend more than everyone else. The sure way is to overpay for proven content that everybody knows and has already demonstrated its value. Given the limited stock of such established platinum assets, the increasingly followed path is to go into the business of financing talent to create new hit content. I think history has shown that neither of those is something that over the long term allows a company to differentiate itself strategically because anybody can do either of those things.
You take a critical view of the idea that “content is king.” Does having the best programming make a particular service stand out?
People get confused about the idea that content is king. We all know that Star Wars and the Marvel Universe are incredibly valuable. We all know that the Super Bowl will attract a lot of attention, but the fact that valuable content is valuable is a tautology. It’s like saying, “Money is valuable.” That is different from saying that the creation of content in the hopes that it will become valuable is a good business.
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Is there a relationship between customer loyalty and the success of these platforms?
Customer captivity can be a source of real advantage in the digital realm. In the subscription content business in general, the rate of churn—even for Netflix, which is the gold standard both in terms of how much they’re spending on content as well as in their customer service and their operational excellence—suggests that the level of loyalty is limited. People are both not particularly loyal and always trying new things. They also appear to be happy to be on multiple platforms at the same time.
What is the future of streaming services?
This is still early days for the entire sector. Basic questions about price, product, and usage are still being answered. But the level of capital that has been put behind these ventures suggests that this will remain a vibrant, innovative, and intensely competitive business for some time.
Do the corporate cultures of these companies provide any insight into how successful they will be?
I think a number of the companies who are trying to launch these services don’t realize how different they are from the businesses they are already in. The businesses that look most like these streaming services are cable channels. Like the streaming services, cable channels create some of their own content and then buy content from third parties. So, not surprisingly, facing secular challenges in the channel business, a number of these companies are launching streaming businesses.
But the cable channels made their money by selling to the large cable companies and other distributors. The channels had no relationship with the consumers. The distributors had the relationship with the consumers. Going from being a B2B company to a B2C company is no easy matter. Time Warner learned this the hard way after it spent hundreds of millions on the HBO streaming product only to have to outsource the development to make its announced launch date.
Could there be mergers on the horizon for streaming services?
The bad news for shareholders is that many of the companies who are doing these can afford to lose a lot of money and don’t like to admit defeat. There’s no question that this will be normalized and rationalized, but it might take a long time.
How risky is the streaming business for investors?
If the streaming industry that emerges is just about who makes or buys the best content, it will necessarily remain a very risky business. Even in the age when the major movie studios ruled, they did not make their profits primarily from their films. They did all the marketing and distribution for all the non-majors, and that’s where they made their money.
Read the original piece on Columbia Business School’s Ideas and Insights blog.
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