We have survived the slow exodus of 1990s linear TV into today’s bushel of disappointing niche channels over-stuffed with adverts.  We were not careful when we said yes to 500 channels.  For most consumers, less than a dozen channels from our set top box are welcomed enough to be part of a “Pay TV” subscription.

In the next stage of evolution, we see over-the-top (OTT) positions already pioneered by Netflix, Amazon Prime, YouTube and HULU.  In the coming land rush of OTT entertainment and news, hopeful latecomers (Disney, AT&T, Verizon, YouTube, Facebook and Comcast) bring deep saddle bags to buy fresh content to distinguish their video lineup from the pioneers.  Although the latecomers have relevant strengths and assets, nine giants are probably too many, so there will be carcasses along the trail to success in streaming.

In 2016, streaming video market shares stood at 52% for Netflix, 25% for Amazon Prime, 10% for HULU, 5% for HBO and 3% for YouTube Red.  Netflix had 109 million subscribers worldwide at the end of 2016 and produced $8.8 billion in revenue for 2016.

Google and Facebook have libraries that appeal to some “social media” subscribers.  Both plan to inject news and sports into their lineup.  Facebook has had difficulty arranging for reliably genuine news.  To be successful in the streaming marketplace, Facebook will need more than leftovers from their clients’ promotional campaigns.  Some of YouTube’s lineup is amateur contributions of uneven quality and some contributions await editing to meet community standards.  Regardless, Facebook and YouTube (Google) have deep experience in the mechanics of video content databasing and distribution.  They also have very deep pockets and massive subscriber bases.  If they decide to be in the entertainment streaming market, they can develop what it takes.

After years of pondering the public’s call for a la carte content (aka cable cutting), Disney, AT&T, Verizon and perhaps Comcast are now treating OTT as the obvious next step in their survival strategy.  Each has a strong balance sheet and a strong position in a related marketplace.  Disney has a regal position in content creation, and until its purchase of Fox components, it had plenty of cash.

AT&T has 25 million pay TV subscribers (20 million from its purchase of Dish Satellite), and Comcast has 22 million.  Verizon had 4.6 million pay TV subscribers in the 3rd quarter of 2017.  These giants presume that “Pay TV” customers can be easily converted into streaming video customers, provided the new lineup contains some sports and news.

The Disney and Fox merger concentrates all their entertainment into Disney.  Disney already controls the ABC channels. Through the merger, Disney will acquire FX and National Geographic channels plus Fox’s stakes in Hulu and Sky, the European pay TV provider.  In Spring 2016, The Disney Channel and Disney Junior Channel each had #1 viewership in the Kids and Tweens demographic (less than 700,000 total viewers).  ESPN (a Disney channel) is the dominant TV source for sports with 62 million viewers during the “last week” of spring 2017.  Fox will collect regional sports networks, Fox News, and Fox Business into a Fox “spinoff.”  Disney had placed a few of its movies on the Netflix site, but has discontinued that practice, opting to reserve its new content for its streaming venture.  ESPN plans to spend $7 billion during 2018 to keep ESPN popular.  With spending at that level, an ESPN streaming business should be able to prosper.

Amazon Prime includes Video streaming and special pricing discounts for merchandise and delivery.  Total retail subscription revenue (from 80 million Prime subscribers) was $6.3 billion in 2016, but it may have stalled a bit in 2017.  Amazon’s reporting does not distinguish Prime video subscription revenue from revenue attributed to Prime merchandise and delivery.  Despite an aggressive expansion in its lines of business, Amazon Prime Video plans to spend heavily.  In 2016, Amazon Prime Video spent $3.2 billion on fresh content.  In 2017 and 2018, it will spend $4.5 billion and $6 billion.  Even for Amazon, that pace may be hard to justify since viewership growth will be shared with eight other aggressive competitors.

In the 3rd quarter of 2016, Verizon had 142 million wireless customers, and AT&T had 131 million.  Verizon and AT&T also offer Internet access in major parts of the US.  As mobile network speed (therefore picture quality) has increased, both wireless carriers have offered nationwide networks with video-capable (4G) wireless, and many mobile wireless customers already take advantage of streaming video via their smartphones.  Alongside Verizon’s 142 million mobile phone customers Yahoo brings another 225 million worldwide Yahoo email users (81 million in the US), and 600 million unique mobile viewers.  Yahoo provides Verizon with a deep well of somewhat familiarized, prospective customers.

Both Verizon and AT&T will support 5G wireless starting in 2018.  Their picture quality and range of content choices should improve dramatically if they follow through with higher spending for streaming content.  AT&T’s DirecTV Now mobile product offers 100 channels.  Verizon’s Go90 mobile TV product is being reworked for Verizon’s streaming service launch.  With outstanding picture quality and wide distribution through 5G, plus a vast swath of retail outlets, AT&T and Verizon seem equipped to enter the streaming marketplace.  They just need to acquire fresh content and avoid being sidelined by regulators.

Disney will acquire Fox’s stake in HULU.  That will leave Comcast one-handed trying to offset two Disney hands in HULU’s governance pot, so it is likely that HULU will undergo radical changes.  Perhaps Comcast will buy-out Disney’s HULU stake, improving the odds that the Fox-Disney merger can bypass regulatory meddling.  HULU had 12 million subscribers in May 2016 and was spending $2.5 billion per year for new content.  HULU could be a useful platform for a Comcast-controlled streaming venture. Comcast already invests massively in content contracts to keep NBC Universal interesting to major cable networks.  Those content contracts might be stretched to cover some of the expense associated with a content lineup for the new streaming venture.

The nine streaming candidates are so strong that it is difficult to know which unpublicized baggage can lead to failure.  HULU is likely to be acquired by either Comcast or Disney (that’s not a failure).  Amazon may conclude that Prime Video underperforms compared with Amazon’s other lines of business (such as food, Web Services, and transportation).  If Amazon chooses to emphasize a different type of investment (e.g. pharmaceutical benefit management), Amazon Prime Video might be attractive to Verizon or AT&T or Facebook.  Again, there is no failure there.

Disney’s ESPN popularity may take a knee or Disney’s motion picture factories may overspend on blockbusters.  Disney lacks its own platform for streaming distribution.  Of the nine giants, HULU, Amazon, and Disney are candidates most likely to reconsider their commitment to streaming.

It will be absorbing to watch the evolution of the new streaming industry.