Business focus: Streaming wars shows life is tough for BBC and ITV

Lucy Tobin
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Netflix’s growth warning over competition from Apple and Disney shows how tough life is for the BBC and ITV, writes Lucy Tobin.

They’d tuned in for bronzed buttocks and deeply intellectual chat-up lines, but would-be Love Island viewers were left wanting after ITV’s Hub streaming service suffered a string of technical issues. Streaming fans were delayed from tuning in to the broadcaster’s hit show almost every night of last week. And while snobs might argue they were lucky to do so, it’s no laughing matter for ITV. A typical Twitter response read, “ITV Hub going down as soon as #loveisland starts?? Disappointed but not surprised!!”.

The broadcaster is already a minnow in the burgeoning streaming war, losing viewers to existing US leviathans Netflix, which has some 167 million global subscribers, and Amazon’s Prime, with 100 million, as live TV declines in favour of on-demand services.

ITV suffered a 6% fall in viewing hours last year. But 2020 is where competition in the UK’s streaming services intensifies. After the launch of Apple’s TV+ late last year, the House of Mouse is rolling out Disney+ in the UK on March 24, a week earlier than originally scheduled. Its US debut in November saw 10 million people sign up on launch day.

Also in the US, WarnerMedia is splurging on HBO Max, while NBCUniversal is rolling out an ad-funded service, Peacock, next year.

More than 11 million Britons subscribe to a streaming service and more are set to join. The newcomers, late to the party, “have chosen the ‘pile ’em high, sell ’em cheap’ option to gain scale”, says Tom Harrington, at Enders Analysis. “Apple and Disney are rolling out high-profile, expensive, new content at launch to stand out and get noticed.”

Netflix, which last night warned the coming financial quarter would be tougher than the market had predicted, is set to splash out $15 billion on content this year, Amazon is thought to have budgeted more than $7 billion. To keep up, Apple TV+ has signed stars like Steven Spielberg, Steve Carell and Oprah Winfrey.

Disney+ will screen its stable of shows from Pixar, Marvel, National Geographic, Star Wars and Fox, as well as its own family-friendly hits, and is being highly strategic. It’s pulled more than half of its TV box sets from Sky, including Grey’s Anatomy and Scandal, ahead of the launch of its UK platform, according to analysis by Ampere.

Sky’s contract negotiations with Disney this year are crucial: Disney films accounted for almost a third of the premium movies aired on Sky’s main pay-TV service in the third quarter.

While spending is high, viewers’ deals are cheap. Monthly subscriptions are being cut or given away as the new firms try to build scale.

Disney’s UK price hasn’t been announced, but in the US it launched at $6.99 a month, almost half that of Netflix. Apple then undercut it with a $4.99 launch price tag, or “free” annual subscriptions for anyone who buys an iPhone or Mac. CEO Tim Cook dubbed his pricing “a gift to our users” but Apple knows the maths: even if only some of the 200 million iPhone buyers each year join TV+, it would still be a major player in the streaming market.

At Amazon, Prime video is subsidised by its ecommerce business, and a way to woo more customers to enter its ecosystem. The free licensed and original content, plus free home delivery, lures them to spend more at the temple of Amazon.

Britons watch almost seven hours of streaming TV each week but it’s almost 10 hours for millennials, according to OpenX research. The better the content, the more will sign up. “But huge demand from streaming services means the cost of making shows, especially scripted drama, has skyrocketed,” says Harrington. “There’s soaring demand for talent, behind-the-camera skills, plus everything from sound stages to sets — it’s all shot up because so many programmes are being made.”

That’s good news for London’s independent producers: the UK’s production industry saw revenues surge more than 10% to £3 billion last year, partly thanks to far more work from streaming giants, according to industry body Pact.

But it’s clearly a big problem for the likes of the BBC, with its major income tied to the licence fee, and ITV and Channel 4, which are reliant on a tough advertising market.

The content cost is less of an issue for Disney, which is inverting its entire business model like a Frozen snowstorm. Where traditionally it made and created films and TV shows, for Disney channels but also widely licensed elsewhere, the launch of Disney+ sees the US giant aim to turn its decades of back catalogue exclusive.

It’s a big financial gamble. Analysts reckon Disney would previously be getting some £1 billion a year across Sky’s territories for Disney and Fox content. Now it may have to recoup that forgone revenue directly from consumers.

British broadcasters know they’ve fallen behind. With a far smaller budget, ITV and BBC launched their subscription video service, BritBox, late last year.

For £5.99 per month, viewers can access series like Gavin & Stacey and Broadchurch, plus new made-for-Britbox programmes this year. But ITV, which owns 90% of the venture, is budgeting only £65 million for 2019 and 2020. Apple is thought to have spent about $250 million on two seasons of just The Morning Show.

In the US, there’s a trend for “stacking”, signing up to multiple screening services, reports David Elms, head of media at KPMG. “Consumers have gravitated towards ‘skinny bundles’ and cherry-picking programmes so streaming services are playing into a very open market, where consumers are looking for the right content available when they want it.”

Who’ll win the battle of the streaming services? That will depend on consumer behaviour: so far, UK viewers haven’t been willing to splash out on multiple subscriptions. That’s created a super competitive, “winner takes all” market.

Netflix is spending far more on content and is distributed more widely than any other new services. Although questions remain over how long it can continue to splurge, “the newcomers are fighting for a second or third position, realistically”, predicts Harrington at Enders. “In such a competitive market, you’d rather be the company with 160 million subscribers than the ones starting now, with zero.”

As for number two, Disney is reckoned to be the next most-likely success story. On top of its huge vault of existing hits, it has kids’ pester power in its armoury. The promise that a Disney subscription could closely correlate with a parental weekend lie-in — for those picking their 2020 screening subscriptions, it’s a powerful combination.

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