The Race for Content: The Global Streaming Landscape in 2018

When you’re the world’s largest subscription video on demand service, it may be tempting to just get comfortable on the couch and count the cash coming in each month. But not Netflix. The competitive landscape for streaming and video-on-demand players is a global race, and there are cultural, economic and infrastructure barriers that need to be taken into consideration.

It’s been over 20 years since Netflix came onto the scene as the start-up taking on the brick and mortar behemoth that was Blockbuster. During that time, the company’s business has shifted from stuffing DVDs into envelopes to transforming the way entertainment is produced and consumed.

And not just in North America, but all around the world. Starting in 2010, the company branched out into international markets and now has 130 million paying subscribers across 190 countries and offers products and services available in over two dozen languages. In some markets, Netflix boasts a penetration rate as high as 64.5%.

However, that does not mean the company can just chill because regional competitors are popping up around the world and looking to grab a piece of the streaming pie. As explored in this recent Trends article, using the Canadian market as an example, there are currently 25 available online TV services from which Canadians can choose. Among these, there are the major US-based players, some of which provide readily available services in Canada, whereas others can only be accessed using workaround systems that exist in legal grey areas.

Sizing Up the Competition

The biggest competitor for Netflix’s content budget, which currently sits at between $6 billion and $8 billion annually, is Amazon, with $4.5 billion earmarked for content creation and licensing. Even though one of those numbers is clearly larger than the other, may it be pointed out that Amazon’s premium streaming service is bundled into a one price ‘all you can ship’ deal—Amazon Prime. That means that growing subscribers for one brings along viewers for the other. It’s a very different proposition than the ones Netflix or other competitors are banking on.

Also in a unique category is Hulu, a kind of hybrid broadcast and streaming company with a complicated ownership structure that has stakes held by Disney, 21st Century Fox, Comcast (via NBC) and AT&T (via Time Warner). Another way Hulu is different from its streaming rivals is that it combines premium on-demand content with live programming, library titles and originals. Hulu today counts 20 million subscribers and has an annual content budget of $2.5 billion.

Apple and Facebook are also getting into the original content game, but with considerably lower budgets of about $1 billion each, while YouTube, the world’s video hub for user-generated content, is investing a relatively paltry few hundred million in original content production for the year.

Moving beyond its base as a telco, AT&T (which owns HBO since the acquisition of Time Warner (HBO’s parent company) by AT&T) has been talking about upping HBO’s programming budget which currently stands at $2.5 billion.

In addition to the big tech companies’ offerings, there are also standalone SVOD services being added to the mix, such as Disney’s forthcoming branded channel. The family entertainment giant pulled its programming from Netflix to make way for its own subscription-based streaming channel slated to launch in 2019. It also has SVOD offerings planned for its other media assets such as sports network ESPN and a variety of 21st Century Fox properties that will fall under the Disney umbrella once the $70 billion plus Disney–Fox merger deal is complete. The retail giant Walmart is also exploring its own streaming service that would be available at a more accessible price point than its main competitor Netflix.

All of this means that the competition is keen for the company that was once the only one with its eye on the global streaming market. While Netflix reported record profits in the first quarter of 2018, it was faced with disappointing numbers for the second quarter, as its growth levelled off for the first time.

The biggest slowdown was recorded in the US market, where analysts projected 1.23 million new subscribers for the second quarter of 2018, whereas only 670,000 were added. Though still falling short of expectations, the picture was rosier for new international subscribers: 4.47 million were added during the second quarter of 2018 whereas 5.1 million were expected.

But there’s a long game here for Netflix as well as for its streaming competitors. It’s not the approximately 500 million people around the world currently using SVOD or AVOD (advertising-supported video on demand) services, but the potential VOD market made up of the billions not yet using them. Of course, the 3 billion smartphone users in emerging markets are among this segment.

Both Netflix and Amazon are already thinking in global terms, with high proportions of international content on the menus of subscribers around the world. Of Netflix’s 1,257 hours of original first-run content released last year, 402—or 32%—of them had been produced outside of the US. By comparison, Amazon launched considerably less original content last year—only 285 hours—with 40% of it produced internationally.

Global Production Activity

In India, a country with a population of 1.3 billion, both Amazon and Netflix are spending heavily on content that is tailored to local audience preferences. However, the race may go to neither of them, as Indian audiences have over 40 streaming and video-on-demand options to choose from and these homegrown services are able to cater to the cultural and linguistic specificities of the Indian market in a way that has western streaming giants playing catch-up.

Nevertheless, in the Amazon vs. Netflix slice of the Indian battle, Amazon is in the lead. Its Prime Video user numbers significantly outflank Netflix on the Indian subcontinent, though neither comes anywhere near the number of subscribers boasted by Hotstar, which has about 75 million subscribers, compared to western streaming giants Netflix and Amazon with about 5 million and 10 million subscribers respectively.

Amazon is also besting Netflix in the Japanese and German markets, and recently set up shop with Amazon Studios Europe, where its director of original programming Georgia Brown sees a lot of upside:

“In Europe, we have an incredible opportunity to change the creative conversation and define what we believe to be truly original and distinctive television. We are able to engage with the production community in a way the terrestrials haven’t been able to, because of their attitude to risk, restrictive remits and budgets.”

Netflix’s return volley is a record 100 projects in production for the Europe, Middle East Asia (EMEA) market in 2018 and the establishment of dedicated European production facilities in Madrid.

In an interview conducted earlier this year, Netflix’s Chief Content Officer Ted Sarandos explained the company’s global programming strategy in the following terms:

“We’re now making local language original shows in 19 countries, and the mandate of those shows is that they’re incredibly authentically local […] You think about Godzilla and karate movies and very bad lip syncing and all those things. They really could never get very mainstream […] You present a show like 3%, which is a show we make in Brazil, all in Portuguese, with an all-Brazilian cast, and the watching on Netflix in the US would be equivalent to a pretty good-sized cable hit. What we’re trying to do is tell those stories that are authentically local and then the win for us is that they actually travel more the more authentic they are […] and we’ll use technology to overcome the hurdles like language.”

The Brazilian sci-fi thriller is one of Netflix’s most binge-watched shows globally and is also being credited with having opened up the US market to subtitled foreign language productions—something that has long been a significant barrier for international producers. To cite one industry analyst:

“Now, both Amazon and Netflix are originating programming in order to capture a global audience, releasing their originals on the same day and date in multiple territories. This also means that non-US programming has the potential to find an audience in the world’s largest entertainment market — one where subtitled or dubbed programming has been almost unheard of outside the art-house cinema circuit.”

For a longer read on international streaming video markets, refer to the CMF Research Report titled Adjust your Thinking: The New Realities of Competing in the Global Media Market.

Leora Kornfeld
So far in life, Leora has been a record store clerk, a CBC radio host, a Harvard Business School case writer, a blogger and a crossword puzzle clue. Currently she’s a media and technology consultant, working with clients in the US and Canada.
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