Netflix, Disney, and What’s Next for Streaming

How live sports, consolidation, and a lot of money will reshape the streaming landscape in 2023.

Call 2022 a year of reckoning for the streaming industry. Netflix (NFLX) – Get Free Report hit a wall when it came to growth and Walt Disney (DIS) – Get Free Report spent so much money on its Disney+ streaming service that those losses were at least partially responsible for Bob Chapek losing his job as CEO of the company.

At least Disney and Netflix have managed to build a massive audience. No other player in the crowded space has emerged as a clear winner and that suggests we may see some consolidation in 2023. We may also have seen the end of growth-at-all-cost spending, but some company always seems willing to try that strategy.

Josh Wepman, Managing Director, Technology Investment Banking at Houlihan Lokey and Prosek Partners Vice President Aidan O’Connor, who leads Prosek’s offering for media, intellectual property, sports, and entertainment businesses (MISE) answered questions from TheStreet on what to expect in the streaming space in the coming year.


Are there too many streaming services?

Wepman: We are certainly approaching the point of critical mass for the number of platforms to which a consumer can subscribe. At some point, it will become uneconomical relative to other options and, at that point, we may see some pullback from “point solutions” in favor of “bundled solutions.”

Aidan: The answer to this varies depending on the type of content and target audience. The music and podcasting spaces, for instance, are quite different to the live sports and scripted on-demand broadcast verticals.

If we use the enthusiastic football (soccer) fan as an example, the answer is yes. A fragmented streaming service market for sports media rights distribution means that avid consumers are now paying fees comparable with the cable bundles that streaming platforms were designed as alternatives for. The impact of this fragmented landscape is compounded by the impact of macroeconomic contraction and high inflation on discretionary consumer spending, which forces more people to be more selective when deciding which platforms to adopt or retain.

Outside of live sports, the consolidation within Warner Bros. Discovery (WBD) – Get Free Report alone suggests there are too many services; most notably its plans to combine HBO Max and Discovery+, as well as the shutdown of CNN+ within weeks of its launch. We will likely see further consolidation of streaming services in 2023 and beyond, as these companies endeavor to maintain subscriber growth. Acquiring another platform’s viewers and content portfolio is a means to that end

TheStreet: Are ad-supported tiers missing the point for why consumers buy premium services?

Wepman: No, I think ad-supported tiers may be the solution to the proliferation of platforms. If providers can lower the price of their services, consumers will be more comfortable signing up for a greater number of platforms. In the end, consumers look first at the content when signing up for an OTT platform. The experience is second. While most consumers prefer ad-free to ad-supported, they’re willing to sacrifice this if it gives them access to the content.

Aidan: No, the primary incentives for subscribing to a streaming service are a) its lower price point compared to traditional linear cable TV distribution and b) the flexibility of having content available on demand. Those benefits are still in place, regardless of tier.

Ad-supported tiers are a necessity for a profitable or cash-flow-positive streaming business model. They also typically have lower price points, which may appeal to segments of the audience with less spending power. No-ad tiers are still available at a markup for those with sufficient interest or liquidity. Expect ad-supported streaming tiers to become even more common in 2023, as this vital revenue stream will help some providers maintain or even lower monthly subscriber fees while continuing to expand their content portfolios.

TheStreet: Are live sports the next growth area for streaming?

Wepman: Absolutely. Live sports are one of the big money engines of TV. As consumers move further and further into streaming for non-sports content, it is only logical that they’d follow sports programming to streaming as well. Live sports will be a major economic driver of streaming in the not-too-distant future

Aidan: Streaming services specialized in sports are already in place. The likes of DAZN, ESPN+, and FuboTV provide comprehensive cross-sport offerings and arsenals of live sports media rights that give them a head start over any platforms looking to pivot to this space for growth.

With that said, it will be interesting to follow (Amazon (AMZN) – Get Free Report) Prime Video and Apple (AAPL) – Get Free Report TV+ in 2023, as their respective investments in Thursday Night Football (NFL) and Major League Soccer rights could indicate further exploration of the live sports rights space in the future. As part of larger companies with significant mark capitalizations, these platforms have the financial resources to forge ahead, irrespective of the recent slide on technology stock prices.

Inversely, streaming is a growth area for live sports. The rise of social media platforms and sportsbooks as alternative content destinations will be equally interesting to watch. Sports rights holders are leaning into TikTok and Instagram to attract the next generation of fans, providing event previews and offering storytelling context to supplement interest in live events. Meanwhile, Caesars Sportsbook recently streamed “Sunday Night Football,” providing an augmented “Watch & Bet” experience for sports betting enthusiasts.

TheStreet: What else do consumers and investors need to know?

Aidan: As streaming services look to cut costs in the current economic climate, we can also expect a retrenchment from vertical expansion strategies. For example, we will see fewer platforms producing their own ‘original’ series in-house. They will look externally to specialists who can provide ready-baked content at a more efficient cost.

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