In their race to catch up on Netflix and Prime Video and achieve scale in the US and fast international footprint, the 5 top challengers are taking very different paths: HBO Max and Apple TV+ are going at it the hard way, while Paramount+ and Peacock seem ready to compromise quite a lot to achieve fast subscriber growth or at least deliver a steady stream of announcements to their shareholders. Who's right?
The Long Road
HBO Max is getting ready to lose 5 million subscribers by terminating its channel agreement with Amazon in the US. It came late to Fire and Roku partly because of that reluctance to enter into channel agreements. Andy Forsell mentioned to Bloomberg that his desire to get away from channel was driven by a desire to "own the customer, tailor the home page to them, and tailor what they show them next".
Internationally, WarnerMedia has mostly waited for their legacy output deals to expire, on both the movie side (Warner) and series side (HBO series blocks) before launching HBO Max, with Spain and Scandinavia announced for this fall, while major markets such as the UK and Japan probably will not happen before 2025.
Apple TV+ has also taken a very paced approach: while AppleTV is making an aggressive push as a channel aggregator and benefits from their legacy iTunes TVOD library, when it comes to their own SVOD service Apple has resided licensing outside content and focused on producing a few marquis shows and series.
The Path of Least resistance
When ViacomCBS rebranded its SVOD service to Paramount+ in March, it already had near-full distribution in the US, because it had agreed to a channel deal with all major aggregators including Roku, Amazon/Fire, AppleTV, and GoogleTV/Chromecast.
Earlier this month, after rumors of a broader merger with ComcastNBCU subsided, the 2 companies made 2 subsequent announcements: first, CNBCU's Sky would launch ViacomCBS's Paramount+ service on its Sky pay TV platforms in the U.K, Italy and Germany in 2022. Second, Comcast and ViacomCBS are partnering on SkyShowtime, a new subscription streaming service that will launch in 20 (mostly small) European countries in 2022.
Risk #1: Profitability Damage
By entering into a long term agreement with an OTT aggregator, a traditional carrier or a JV partner, the likes of ViacomCBS and ComcastNBCU might seriously compromise their future profitability. Not mentioned by Forsell, a key reason for terminating the HBO Max channel deal with Amazon is the difference in economics between direct (App) and indirect (Channel): it is widely believed that channels give 30% of their revenue to Amazon as the carrier, while apps only pay a 10% fee on subscription revenue. The Sky / Paramount+ deal is most probably using similar 30% economics.
Risk #2: Brand Damage
Netflix is a global brand with a single product proposition, it means the same to its 200+ million worldwide subscribers. Out of its competitors, Disney+ and HBO Max are the next best things in terms of brand unity.
Disney was able to quickly globalize Disney+ with a single brand and product proposition, but its growth will be limited by the narrow definition of the servie that excludes anything not fitting in the restricted Disney / Pixar / Marvel / Lucas universe. In the US Disney can expand the + offer by bundling Hulu and ESPN. Internationally, Disney decided eventually to opt out of the Hulu brand and launched Star+ as a "non-Disney" area within the service (Europe) or as a standalone - but bundled - service (Canada and Latam). It remains to be seen whether they will eventually merge the Hulu and Star brands.
Picking the Paramount name as the brand for its SVOD product enabled ViacomCBS to leverage the global built-in awareness and luster of the venerable studio since CBS had not presence outside the US. But it did not diminish the challenge of globalizing a hybrid US product offer mixing "news, sports & entertainment". Nor did it resolve the fate of Showtime, Viacom's legacy "micro HBO".
The rationale for Comcast NBCU to select Peacock as its OTT banner is much less clear, though a source at Siegel+Gale, the branding agency hired by Comcast on the project, told me in no uncertain terms that Peacock was not their recommendation. A stance choice given that CNBCU already owned 2 brands outside of the US with Sky and NowTV (rebranded simply Now since then).
By launching their OTT service under the SkyShowtime name in 20 territories, both CNBCU and ViacomCBS might be seriously compromising their ability to exist over-the-top as a global brand.
In Conclusion
At the end of the day, Wall Street is obsessed with a single quarterly KPI ie net subscriber growth. The ViacomCBS move with CNBCU is a smart deal in that regards. If the 2 companies are still betting on a future merger, they could be right to march forward now and figure out branding later.
But they might be underestimating the power of a global brand with a well-defined product. in today's media landscape. What's acceptable to consumers for an ad-supported service such as Peacock-basic or PlutoTV might becomes a real issue to market a premium SVOD service with globally relevant original film and series.