April was a turning point for the streaming industry. For the first time in a decade, Netflix lost subscribers, while the service that CNN had launched with fanfare a month ago, CNN+, spending $350 million, simply shut down. These two milestones set off the alarm bells, not only for both companies but for all platforms.
Some analyzes are alarmist, but the scenario must be seen in context. Streaming had exploded during the lockdowns, and now, thanks to vaccines, its growth curve is going back to pre-Covid times.
But the business is indeed in transition to a new model.
The merger of Warner and Discovery explains the cancelation of CNN +. Discovery CEO David Zaslav was left in charge. After analyzing CNN + (which had fewer than ten thousand active users), he decided to cancel the service as it was an unnecessary distraction to the new company’s big goal: to join forces behind HBO Max. According to the New York Times, Zaslav learned working on Discovery that niche streaming platforms are expensive and prone to failure.
Netflix lives tough times. It lost 200 thousand subscribers in the first three months of the year, and the company projects that the second quarter will be worse: two million will leave the platform. The company blames inflation and users sharing their passwords. The war in Ukraine also affected it: it lost 700,000 subscribers in Russia by suspending its service there.
Despite these things, Netflix continues to lead comfortably worldwide, with 221.8 million subscribers. They are followed by Amazon Prime Video, with 200 million; Disney+ with 129.8 million; HBO Max with 73.8 million; Paramount+ with 56 million; Hulu with 45.3 million; Discovery+ with 22 million and Apple TV+ with 20 million.
To tackle the use of borrowed passwords, Netflix is conducting a pilot plan in Peru, Chile, and Costa Rica, charging an additional approximately US$3 for sharing the account with people who live outside the home. This strategy (which is also being probed by Disney+) will be under evaluation for a year. If it works, the company says it will roll out globally, but people in those countries have protested. Under the hashtag #ChaoNetflix, they threaten to cancel their subscriptions.
Netflix has also been raising its prices: it recently raised its rates by two dollars in the US, and in Great Britain, the premium plan already reaches US$22.6 a month, to give two examples.
Significant increases and avoiding account sharing are new strategies: given the stagnation of subscribers, particularly in the US and Canada, the business model is turning towards making the current users profitable and capturing part of those 100 million people who the company has estimated that they watch Netflix without paying, with borrowed accounts. Thus, the emphasis now is on increasing profits with users who already use the service. If it works, the number of subscribers will be less critical in the future.
However, that financial logic could collide with the current scenario. Today, all streaming services have cheaper monthly payments than Netflix and sometimes aggressive discounts, seeking to increase their market share at the cost of losing money for some time.
Latin America: a lot to grow
While streaming is experiencing a minor crisis in the US, in LatAm, the outlook looks more auspicious. There is a lot to grow: it is estimated that streaming penetration in the region is 10%, with 93.7 million subscribers.
As in the world, Netflix also leads here, with 41 million subscribers. They are followed by Disney +, with 12 million; Amazon Prime Video, with 7.2 million; Claro Video, with 2.9 million; HBO Max, with 1.3 million and Apple +, with 815 thousand subscribers. In terms of streaming revenue, Brazil is ahead.
The pandemic marked a milestone for the regional television industry in 2020: for the first time, the platforms surpassed cable TV: 62.2 million subscribers versus 57 million subscribers. This break has caused the eyes to turn to the business on the rise. TelevisaUnivisión, the media giant, launched its ViX platform on March 31st, promising to be the go-to Spanish-speaking platform. With telenovelas such as “María, la del barrio” or “La rosa de Guadalupe” as spearheads (many of them ceased to belong to the Netflix catalog in the region) and, to a much lesser extent, American and European productions.
The launch, which took them a year, has been for Mexico, the US, and 19 Latin American countries. Its beta version is free, with ads at the end of each episode or movie and a friendly but rudimentary interface. In the second part of the year, they will launch ViX+, with paid premium content that will include original shows and exclusive soccer broadcasts. With a strong focus on Mexico and the Latino market in the US, they announced two novelties: Salma Hayek signed a two-year contract with ViX+ to produce films, while the new movie by Yalitza Aparicio (“Roma”) will be released exclusively on that streaming service.
“We are going to be an essential product among Spanish-speaking people, and we are going to have an outstanding market share,” said Wade Davis, executive director of TelevisaUnivisión, while giving clues as to how they intend to compete: with a price “much lower” than of the competition, together with launch promotions and offer packages.
If TelevisaUnivisión manages to be a strong competitor, that remains to be seen, considering that, on average, each country in LatAm has 35 streaming platforms. For instance, on April 18, Anime Onegai debuted throughout the region. Founded in Mexico, being the first Latin American Japanese animation platform, it distributes directly from Japan without intermediaries. It has 120 productions, which can be watched for free with advertising. The plan with no ads costs US$2.7 per month.
Disney + revealed a few weeks ago that it will launch a cheaper subscription version with ads, which will be released in the US at the end of the year and in the rest of the world in 2023. Paramount +, Hulu, and HBO Max already have options with advertising at lower costs for its users in that country, a trend that Netflix plans to join beginning next year.
This model is one of the strongest trends to come and breaks with this idea of being an ad-free space that streaming services once embodied, something that differentiated them from traditional television. Given the stagnation of subscribers, it is the necessary way to survive. This new reality could be called “the end of the honeymoon phase” between these services and the people. The current model does not resist as it is, and this once ad-free heaven is coming to an end.
Content, the other battle
According to Organización de Telecomunicaciones de Iberoamérica, the LatAm countries that consume this content the most are Mexico, Brazil, Argentina, Colombia, Peru, and Chile. For the same reason, they are the markets where companies are betting the strongest, and in all of them, they have bought or produced local content in alliance with producers. Original content is the greatest tool to stand out from the pack in an increasingly competitive environment. It is estimated that the region already produces more than 150 series or movies a year for streaming platforms. And that number will continue to grow.
When reviewing the ten most-watched productions in the countries with the most subscribers on Netflix in LatAm, half are regional fictions. Raging from “Yo soy Betty, la fea” and “Café con aroma de mujer” to “Pasión de Gavilanes ” and “La reina del Flow”. The same company premieres this month the fourth and final season of the Argentine series “El Marginal” and has announced the debut of its first Chilean series and its first Uruguayan film.
Star+, a new competitor in LatAm, launched the Argentine “Terapia alternativa” last year, although its significant edge—and what makes it a platform with great potential— is in sports. It has many soccer matches (focusing on the Argentine tournament) and exclusive events with a global reach, such as Formula 1 or the UFC.
A recent example of the impact of streaming in the region is the series “La jauría,” which has just released its second season on Amazon, featuring Daniela Vega (“A Fantastic Woman”). This show, made by the Chilean production company Fábula, the Argentine Kapow, and the influential British company Fremantle, was bought and exhibited in the US by HBO Max. More than 70 countries in Asia, Europe, and Oceania have acquired the broadcast rights. Its profits have not been disclosed, but in the industry, they calculate that it is one of the most profitable productions of recent times, with a turnover that is light years away from what it would have had if it had only been broadcast locally.
There is also room for smaller platforms. Riivi, for example, is a free streaming service born at the end of last year in Chile and is already in Peru and Colombia, with exclusively Latin American productions (it will arrive in Mexico in 2023). It has 100 thousand active users and a catalog of 500 movies and series from 17 countries. It is financed with advertising, but only at the beginning of each production.
Another streaming model that has grown in the region is the one that has government financing, as is the case with Ondamedia in Chile or CINE.AR Play in Argentina, which offer local productions freely. In Mexico, the Ministry of Culture and The Mexican Film Institute allied with the Spanish company Filmin to have, on that platform, a free catalog of Mexican cinema called GratisMx. Also free, although financed by Itaú bank, is the Brazilian platform Itaú Cultural Play, with a catalog of 135 titles from Brazil.
But the analyzes are not optimistic in the long term for smaller-scale streaming because they cannot match the multimillion-dollar sums invested by large companies since they have a smaller scale and a model that does not support such expense.
One calculation for investing in original content remains that as platforms expand globally, investments in original content scale well. In addition, investing in original production is a way to increase your catalog without spending on licenses and acquisitions.
Strategic Alliances
One of the challenges of streaming is not so much in the quality of its catalog as in what is called “user decision fatigue”: faced with an immense variety of options, people do not know what to watch and get overwhelmed, a complaint made for years to cable TV operators, with people having more than 100 channels and little knowledge about what was being broadcast.
Given this, artificial intelligence and big data have become vital, with recommendation algorithms based on what users have watched before. A feature that, for now, is a work in progress for most platforms. Netflix, in that regard, is the better one, which could partially explain its success. This point will be crucial to the survival of each service: the idea that you don’t need another platform, that there is always something new to watch.
As part of the strategies to add subscribers, the streamings use special measures, such as alliances. Rappi has just launched a partnership with HBO Max, delivering the streaming service alongside Rappi Prime Plus for $8.5 a month. It is available in Argentina, Brazil, Chile, Colombia, Costa Rica, Peru, Uruguay, Mexico, and Ecuador. HBO Max has also allied with Claro Video: access to the HBO Max is free if you have the latter.
Other collaborations are being made with celebrities. Amazon Prime Video, for instance, signed a contract with the production company Three Amigos, owned by Diego Boneta (Netflix’s “Luis Miguel, the series”), to create content for the LatAm audience. Netflix, meanwhile, bought the new film by Oscar-winner Alejandro González Iñárritu to premiere it on its platform.
But the alliance that can bear the most fruit is the one that Netflix is making with video game developers. The industry with the highest turnover globally, associated with a streaming platform, could turn the tables if the result is compelling.
For now, the company has carried out tests with a reduced catalog of games, but one that they promise to expand towards the end of this year—another example of how the business model is changing and far from stagnating.
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