Amazon 'One to Beat' Among Streaming Video Tech Players: Needham

To ignore what Amazon, Apple, Facebook and Google are doing in the premium streaming space is “at your peril,” keynoted Needham analyst Laura Martin at the virtual StreamTV Show Wednesday. The tech giants have “unlimited funds” and different objectives from media companies because “streaming is a rook, a pawn or a bishop, which means their moves look different than Disney, where streaming is the queen or king,” said the analyst. Apple and Facebook are willing to “give up the bishop to play a bigger game: Disney can’t.”

If tech companies decide they want to disrupt the streaming video ecosystem, “they can’t be stopped,” said Martin, due to “deep pockets,” free cash flow, lower cost of capital, strong consumer brands and bundling options they have by leveraging other parts of their businesses. Streaming is “a piece in their chess board and not their end goal: That creates potential strategic difficulties in responding to them.”

Amazon is “the one to beat,” said Martin, pegging Prime Video’s chance of disrupting the market at 90%. She sees Amazon Prime Video as the winner of the premium video streaming service space and Roku as the winner of ad-supported video. For Amazon, winning and keeping Prime members, now at over 200 million worldwide, is the driver behind the video streaming service, said Martin. Prime members buy three times as much on Amazon as nonmembers: The company is using streaming as “glue” to sell more on its e-commerce site, she noted. Amazon is disruptive to the market because its goal is different from just creating great content for consumers. Amazon didn't comment Friday.

To stay at the top of the pack, Netflix, currently with more than 200 million subscribers, will have to expand content beyond entertainment to include news, sports, entertainment and video games. “You’re not going to be able to be a pure play entertainment vertical the way Netflix is,” Martin said. Having video games as part of a video streaming service will be “an onboarding process for younger consumers and especially young men, who are a really valuable audience.” Netflix didn’t comment.

YouTube could have a meaningful impact on the streaming video service market, said Martin, though much of its content is user-generated, and content costs are currently very low. Google could decide that the video streaming market is too small, too expensive and has too many headaches, she said.

YouTube is also facing competition from rapidly growing TikTok. Martin’s view is that user-generated content will never be seen in the same light by consumers and advertisers as premium content in 30-, 60-, 90- and 120-minute chunks. But user-generated content was the fastest-growing portion of YouTube last year, and viewers are increasingly watching it on the big screen, she said. Google didn’t comment. There's a “fight for attention from consumers,” and the streaming video industry has to pay attention to user-generated content on Facebook and TikTok “that's taking eye share from video streaming services,” Martin said.

Breaking the streaming video ecosystem into subscription VOD and ad-based VOD, is “too narrow” a view of the market for the future, said Martin: “We need to look at videogames and user-generated content, especially for younger demographics, under 35, who grow up to be 45 and 55, the most valuable consumers.” Social media sites and online video games had “huge growth” during the pandemic, “bleeding” the streaming ecosystem of the desirable 15-to-35-year-old male demographic, she said.

Apple continues to raise its content spend, from $8 billion in 2019, to $11 billion last year; Needham estimates this year’s investment at $13 billion. “They have unlimited deep pockets” for content that helps sell Apple hardware, Martin said, saying its investment in content to date has been “half-hearted.” With $60 billion a year in free cash flow, Apple is a “sleeping giant,” she said. "The day it wakes up and decides to care about streaming, basically it’s like the Panzer tank at the beginning of World War II. They cannot be defeated.”

Content helps differentiate the iOS streaming ecosystem, said Martin. Apple can also create bundles around devices and its streaming services. The company is a strong threat to the streaming video ecosystem but could decide that steep content costs aren’t having enough impact on the bottom line and leave the market, she said. Apple didn’t comment.

Facebook and YouTube aren't used to paying a lot for content because “their creators do all the work” and the companies share in revenues, said Martin. “And you’re hedged against fads,” she said. “If somebody comes unpopular, you don’t care because the next 18-year-old has something cool that you rev-share on.” She compared that scenario against the risk of having bet a lot on a particular show in the premium-content space: “If suddenly the guy who’s the star of House of Cards becomes canceled, suddenly the value of that asset just dissipated.”

Streaming content budgets will continue to rise, said Martin, saying, “If you’re not at $15 billion of streaming content spend, you’re not in the game; you’re just dabbling.” Needham expects content spending to grow to $20 billion-$30 billion with genre expansion, she said.