Netflix is losing Friends. From 2020, viewers in the US will have to subscribe to the new WarnerMedia streaming service HBO Max to watch the 90s sitcom that until now has been one of the most popular shows on Netflix (the UK and other regions won’t be affected).
It is part of a splintering of the streaming market that will see studios such as Disney as well as technology firms such as Apple launch their own Netflix rivals, dividing up popular content between them. Instead of being able to watch most of your favourite TV shows and films on one or two services, you may have to subscribe to several, or else miss out on content.
Is something similar now likely to happen in other media categories such as music? Our research suggests that proponents and early adopters of streaming services need not panic. In a paper we coauthored with Morgane Evenou (now a manager at Netflix), we found that the streaming business has a “winner-takes-all” dynamic that should eventually produce a small number of players dominating each media category. This means that in the long term, and for most consumers, a few dominant services should provide convenient and reliable access to most content.
However, the long-term situation we envisage has not yet arrived, as we are starkly reminded by the current upheaval in the video streaming market. Netflix is not only losing Friends but subscribers – 130,000 of them in the last quarter in the US, where market fragmentation is at its strongest.
The music model
Convenient and reliable streaming isn’t yet the standard way to access most media content, except for music, as most popular artists are available on most commercial services. This exception reflects the fact that different media industries are in different stages of their digital lifecycle. The music industry was among the first to experience substantial upheaval in the 2000s due to online piracy. This challenge spurred innovative commercial responses that evolved to become the currently dominant streaming model, through services such as Spotify and YouTube. Listeners have benefited, enjoying access to large catalogues, few geographical restrictions and the ability to listen to music offline.
But it took many years for digital music services to offer this combination of features, and to identify ways to create value for subscribers such as personalised music recommendations and community features such as playlists.
Film and TV, meanwhile is in an earlier phase of this digital lifecycle. Books are increasingly distributed digitally but subscription services such as Kindle Unlimited or Scribd still represent a small share of the market. And video game streaming is still in its infancy.
There are also important differences between these media industries. In the case of film, distributors such as Netflix, Amazon and HBO are investing heavily in producing their own content, such as House of Cards, The Vikings and Game of Thrones, in order to grow and retain their subscribers. This makes it harder for consumers to access everything without multiple subscriptions.
In contrast, production and distribution are mostly separated in the music industry. Record labels continue to focus on production while other players such as Spotify and Apple focus on distribution. This separation allows each distributor to offer a deep catalogue of content, which has enabled music streaming services to become a practical alternative to piracy for the average music lover. If record companies were to break this model by requiring consumers to pay for several music service subscriptions to access their favourite artists, it would risk pushing them back to illegal sites.
Instead, music distributors compete mainly on how this catalogue is presented, navigated and consumed. And this is where a large user base is beneficial to the distributor, generating information that improves content navigation and recommendations, as well as valuable social interactions on the service and through integration with social networks such as Facebook. It also increases the distributors’ bargaining power when it comes to securing the content from the record companies.
This gives an advantage to companies with more users, encouraging a winner-takes-all dynamic in which a small number of firms become dominant. In fact, the advantages of a large user base together with a large content catalogue are so strong that we don’t expect the launch of new streaming services by film and TV studios to keep the market fragmented forever. So while Netflix faces significant short-term challenges, it (or one of its rivals) may still eventually emerge as the dominant player.
How this separation between production and distribution will play out for books and video games in the long term is yet uncertain. But if consumers require several services to access their desired content, physical copies will remain attractive. And in these media categories, the physical still retains the upper hand.
While some are enthusiastic about video game streaming services, these have yet to prove they can match the gameplay experiences traditional consoles are capable of. If the stream is slow to register a player’s commands or the video quality suffers or cuts out even for a split second, it could make many fast-paced games less enjoyable or even unplayable.
Meanwhile, physical books still provide an experience many readers appreciate, which may explain why sales have rebounded over the last few years. Physical collections also help consumers build more of a personal relationship with their media, in contrast to the impersonal abundance of choice promoted by digital services. They also have resale value that, in some cases, can be substantial.
So in the long term, we expect the distribution and consumption of media to migrate to a small handful of streaming services, as they already have for music. But in the meantime, catalogues could remain fragmented over several providers. We will have to wait and see if new streaming services are worth it. But if you can’t be bothered with multiple subscriptions or adapting to their current limitations, a shelf of carefully selected Blu-Rays, books and video games remains a safe bet.