Streaming Wars: The Battle Intensifies

Over the past few years, the entertainment industry has seen a significant shift in the way we consume content. With Netflix, Amazon Prime Video, Disney+, and more at their fingertips, viewers now have more choices than ever when it comes to watching their favorite movies and TV shows. In this interview we spoke with  Sai Vuppalapati, who is leading a Data and Analytics Product Management team at Tubi TV, to explore the evolving landscape of streaming. The discussion covers novel content formats, the influence of COVID-19, and the battle for viewer attention. 

Interviewer: Dmitry Grishin, Founding Partner at Grishin Robotics

Dmitry: Let’s start with the trend of supporting video streaming with ads. When did this trend begin, and what is its current state? 

Sai: I think this trend began during COVID or rather, COVID accelerated it. Most of the big streaming companies such as Warner Bros, Paramount and Disney Plus were aware that they owned a considerable amount of own studio content in their inventory that could be easily monetized by starting a SVOD business like players Netflix  But compared to Netflix, apps like HBO and Hulu still have some issues, like bugs in their video player, and other technical glitches. These companies initially did not prioritize recommendation engines or user experience, but instead focused on monetizing their content. Despite investing heavily in a streaming platform, it did not turn out to be as profitable due to market dilution with a lot of streaming app players in the market As a result, they turned to Advertising Video On Demand, or AVOD, discounted pricing, and bundling with other providers to increase revenue. 

Dmitry: Is this way of thinking a reaction to overinvesting in content production and a means to improve economics?

Sai: Yes, I think this shift in thinking is largely a response to the high costs associated with producing original content. Netflix, for instance, spent $19 to $20 billion dollars on it last year, which is a significant expense for most players. So AVOD was initiated as a solution to improve economics and make the stakeholders happy.

Dmitry: And who do you think are the main players in this landscape? I know Roku, but who else?

Sai: I think that the head-to-head competition is mainly between Netflix, HBO and Disney. Recently, Apple TV has been slowly entering the game because of their significant cash flow and ability to produce high-quality content. For the top tier, companies like Disney, Netflix, and Apple TV are trying to gain market share even with their AVOD versions. There are only a few players in the free streaming platform space that are competing (Tubi, Pluto TV, Roku TV, etc). 

Dmitry: What do you think about Roku in this space? 

Sai: It's interesting that Roku has been investing a lot of money in producing their own original content. They have an advantage because they also own a hardware device, making it easy for them to pre-install their app and promote their content. If Roku offers a paid subscription service, it might be difficult for them to capture a significant market share at this time. But if they offer an ad-supported platform, they may be able to provide strong competition. Ultimately, the success of an AVOD platform depends on how many marketers/advertisers are interested in advertising on it. However, I haven't seen any creative content or significant lift in viewership numbers from their streaming platform 

Dmitry: By the way, when you mentioned the big players you didn't mention Amazon, and they now have a special section called “Free With Ads”.

Sai: Yes, Amazon has another offering called Freevee, which was previously known as IMDb TV. It's somewhat weird that Amazon has two video platforms, Prime TV and Freevee. And there is also some content within Prime Video that you can watch for free, but with ads.

Dmitry: What do you think about the monetization spectrum between free, ad-supported streaming, and paid streaming, and what kind of players will be in the market? Do you think there will be a universal solution where everything is available under one roof, or will there be many different players using different tactics?

Sai: At the end of the day, it's all about which tactics are able to acquire and retain more users. I've seen some data  that many users come to these platforms through bundling services and stick to the platform due to the building perk. For example, if you have an AmEx card, you can get Hulu, ESPN, and Disney+ as a bundle, T Mobile does the same, etc. This is one way they are trying to acquire and retain users. It will be interesting to see how the market evolves over the next year or two, and how many players remain in the market. Different countries have different offerings and price structures for platforms like Netflix and Prime TV. For example, in India, they have a completely different content library and offer different bundling services to users. It's challenging for them to monetize the ad business in countries outside of the US due to the lack of full baked tech stack like programmatic ads, ad server, ad marketplace concepts, etc,. It will be interesting to see how they acquire users and  monetize and produce new content to retain the users.

Dmitry: We didn’t mention two elephants in the room - TikTok and YouTube. What do you think about them, are they from a completely different universe? We all remember that YouTube attempted to move into professional content but later abandoned that direction. What is your opinion on their business prospects and impact on the overall market?

Sai: I believe TikTok has been impressive in gaining a large number of active users in a short period of time compared to other platforms. They have faced compliance and regulatory issues in the US and there is talk of a potential ban. It's interesting to see how TikTok will survive US politics and remain in the market. It has been banned in India, one of the biggest markets, and is having a hard time penetrating other countries' government bodies in general. I think those are major challenges for TikTok.

YouTube, on the other hand, has claimed that they have more active users watching short videos than long format ones. It's interesting to see how the short video format has evolved and become so popular. 

Dmitry: Speaking about your personal perspective, how do you assess this market and what is your vision or direction for it?

Sai: In my opinion, the market has become significantly more crowded over the past two to three years. I believe that the key to success lies in producing compelling content that captivates users and makes it difficult for them to abandon platforms like Netflix. Consider the Head, Torso, and Tail analogy for content. People come for the Head, which represents super high quality, expensive content such as Game of Thrones. The Library represents the Torso, and the Tail represents the checkout process. To retain users, streaming platforms must offer a great Torso and Tail; otherwise, users may only binge watch the Head content and then leave, resulting in churn.

Many small players are entering the market, offering niche content such as platforms focused solely on anime or on comedy and action within the black entertainment scene. It will be interesting to see which companies will survive in the next two to three years, given the number of players in the streaming business.

Dmitry: Let’s talk about the evolution of content. First, we had movies, and then TV series became extremely popular. It's important to note that 20 years ago, TV series weren't as significant as they are today. Now, there seems to be a new competition for the live sports market. Do you believe that live sports will be the new frontier in this fight, or will it be something else?
Sai: You made a good point. Prime TV invested billions of dollars solely in Thursday Night Football in the US. However, live sports have a short shelf life, making it difficult for people to re-watch a recorded game. They may only watch it once, either live or on the same day, and then move on. As a result, sports content is expensive and can serve as a good Head to acquire users, but it's crucial to have a strong Torso and Tail to keep them retained. I believe that users are more likely to stick to series-type content which has a huge rewatch rate, like Breaking Bad. I hear from surveys  how users come back and watch those series again. I believe that series have a big anchor that keeps people on the platform, compared to live sports. I am more bullish on series than live sports. Sports content comes with a heavy price tag due to licensing and other expenses, at least in the US market.

Dmitry: When it comes to different content types, do you see any other opportunities? Game shows like "Who Wants to Be a Millionaire?" or shows like "Saturday Night Live"? Or do you think these types of content are too niche and the market is not ready for them?

Sai: I believe the trend is shifting away from old-school shows like "Who Wants to Be a Millionaire?" because they are more suited for traditional TV. Series and sports content might have a bigger footprint moving forward compared to these types of interview shows. I'm not sure if they will find their own audience group in the future. Personally, I don't watch them, so it might be a generational thing.

Dmitry: And what about the news? Keeping in mind all these trends, do you think there is an opportunity for a new CNN to be created?

Sai: News is a good hook for users, but advertisers may avoid placing ads next to it due to brand safety concerns. However, as a product guy, I believe news/live content can help in achieving habit formation for users and enable retention  . It may not be as popular as other offerings or monetization, but it can be part of a complete TV package, including video on demand, series, and live channels. The key is to offer a seamless cross-platform experience for users. How fast and smooth is their experience? Can they watch it on their TV, then switch to their mobile devices or web without any interruption?

Dmitry: And if we look at startups, do you think there is still an opportunity for startups in this market or is it already overcrowded and a big money fight?

Sai: I think it's interesting. Some startups are trying to enter this space, but ultimately, it's a game of content, studio contacts to license content and creative industry relationships, etc. You need to have connections in the industry to obtain licensing for content. So it can be difficult to scale rapidly or exit for these startups. However, they may have some creative ideas, such as independent movie producers who want their movies on these platforms. But even then, they may still go to YouTube, where they have a larger following and better monetization opportunities for creators. So startups may struggle to enter and survive in the market. It's not a very lucrative deal at this time and requires a lot of cash burn.