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Content is king: Global giants put squeeze on local players’ growth plans

Paying to watch television over the internet was simpler (in Australia at least) when Stan launched in January 2015. Stan bought hundreds of thousands of hours of movies and programs such as Better Call Saul, Billions and Captain America from a range of big US entertainment companies in what is known as an aggregation model. Foxtel was its main competition. Only a small fraction of Foxtel and Stan’s library was original content.

Netflix arrived a few months later and at first operated in a similar way. Over time, Netflix poured more money into developing its own shows such as The Crown, House of Cards and Stranger Things. “Netflix Originals”, as they were marketed, proved to be widely popular and the company is now a major television and movie studio in its own right.

Stan is the biggest local streaming service with 2 million subscribers paying between $10-$14 per month. Stan is worth between $500 million and $700 million according to analysts, contributing a significant amount to Nine’s $2.4 billion market value.

But as Stan grew, the global entertainment giants began to reconsider how to make money from their movies and TV shows. First they forced Stan and Foxtel/Binge to pay eye-watering amounts for content deals – Foxtel/Binge will pay between $100 million-$200 million a year for HBO and Warner Bros shows and films in the coming years.

More recently the likes of Disney and ViacomCBS have realised their US shareholders will give them more credit for growing subscribers. So they launched their own streaming services and stopped doing business with the aggregator so they could take back control of their content. Just 24 hours after The Walt Disney Company launched its own service Disney+ in November 2019, its stock climbed closed at an all-time high.

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This “direct-to-consumer” strategy came at the same time as industry consolidation. In the last few years Disney bought television and movie business 21st Century Fox, Viacom re-merged with CBS and telco giant AT&T acquired Time Warner in a $85 billion deal. A bigger player has the scale to launch and sustain its own streaming service in smaller markets such as Australia. With more consolidation on the cards, other deals that Binge and Stan have in place could be lost.

Australian consumers can now sign up to eight streaming services – Netflix, Amazon Prime, Apple TV, Disney+, Hayu and 10 All Access (which is owned by ViacomCBS) as well as Stan and Foxtel/Binge. In five years’ time Australia could also have WarnerMedia’s service HBO Max and NBC Universal’s Peacock if they decide to move away from existing deals with the two local aggregators.

But it is not the existence of global players that threatens the business models of Stan and Binge – it’s the content they control. Local players have less content to choose from as the entertainment giants take back content and launch their own services. If there is content available, it is more expensive because Binge and Stan have to fight for it.

The reason News Corp launched Binge (and sports streaming service Kayo) as an alternative to Foxtel was because it was already struggling as an expensive aggregator of content (a premium Foxtel package costs between $60-$140 per month). Binge had almost 200,000 paying customers as of August 4 although a portion of these come from Telstra customers who are given discounts.

Foxtel's new streaming service Binge and Nine's Stan face similar challenges.

Foxtel’s new streaming service Binge and Nine’s Stan face similar challenges.Credit:Foxtel

Paying megabucks for content deals from large US media companies is a short-term strategy that delays the inevitable. Stan still has deals with Paramount, Sony and Starz in place and Foxtel has HBO, Discovery and Entertainment One, but as the global entertainment industry consolidates, the two services will be squeezed. There will also be less content available because of production delays caused by the coronavirus pandemic making any new programs or movies that are available more expensive.

Stan identified these challenges years ago and flirted with the idea of merging or selling to a large player. The company discussed various deals with Disney, NBC Universal, Foxtel and even ViacomCBS but nothing has happened.

If Nine can’t sell or merge Stan with another player, one option is to invest more in local programs and movies. Stan chief executive Mike Sneesby said last year that about 10 per cent of Stan’s content was Australian. Some of these include Logie Award winner Bloom and The Commons.

Foxtel and Nine already invest millions of dollars every year in drama because they are required to be law and because audiences want to watch Australian stories. But they have argued for the loosening of local-content rules because there is less appetite for drama that is broken up by advertisements. Allowing Australian media companies to spread their local content across various platforms could be a way forward.

Alternatively, Stan and Binge can keep trying to do deals that buy them more time – Stan is in talks with NBC Universal to buy more content. But the odds of an aggregation model beating increasingly aggressive global giants are growing longer by the day.

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