Islands in the stream

Getty Images
Getty Images
It’s no secret streaming is taking over the TV industry, but is traditional TV really as dead as we might think? With the likes of Disney and Apple taking on Netflix in the streaming wars, Siena Yates looks into the state of the industry and whether our local players can survive the fray.

While his flatmates were streaming the biggest show on Earth, Nick Jury turned a blind eye in favour of the strangest thing: regular TV.

Nick Jury
Nick Jury
When the 30-year-old moved into his flat, his housemates had never set up their television to receive traditional TV - it was simply there as a conduit for their multiple streaming platforms.

Jury eventually bought a Freeview box so he could watch free-to-air channels while his flatmates sat in their rooms watching Game of Thrones.

A millennial who doesn't stream, Jury is something of an anomaly in 2019, but he finds it a reprieve.

After working long and hard days as an arborist, it's easier to get what he's given, rather than make a conscious effort to find content.

"It's just nice to come home and turn the TV on. It's a little bit of a habit," he says. "It's a chore to turn on your computer, turn on Netflix and then scroll through stuff and then read about it, see if you're interested and start watching it."

He also finds the local news and programmes "more personal" to the average Kiwi.

"I've been watching Maori TV lately and that's quite cool. It's got hunting shows and sports shows and stuff that's more specific to Aotearoa. It's nice. And you don't easily find that on streaming platforms such as Amazon Prime or Netflix that are quite American."

It seems many agree with him.

Although linear TV viewing is declining, it is doing so slowly and is being kept alive by a loyal audience - particularly Kiwis aged 45 and over. While streaming is reaching more Kiwis each year, its growth is slowing.

The main reasons for TV's perseverance are simpler than you might think. Cate Slater, TVNZ's head of programming, says one reason is that people aren't just ditching it when they sign up for a streaming service, they're watching both.

"Certainly what we're seeing is that people are still turning on for the 6pm news each night, they're still watching Shortland Street, but then later in the evening when it comes time to lay back, drop the devices and just focus on your drama that you're watching, that's when you might look to a streaming service."

Familiar shows such as Shortland Street, that you can't get anywhere else, provide a point of...
Familiar shows such as Shortland Street, that you can't get anywhere else, provide a point of difference for local providers. Photo: TVNZ
Slater also says it's a matter of ease; the "tyranny of choice" means people want to turn on the telly and get what they're given, rather than spend longer wondering what to watch than actually watching it.

"There's so much work that's been done to plan those linear schedules and there's a massive viewer benefit in that, that actually the work's just been taken out of there for you. Just like with radio and Spotify. Sometimes you just want all of the choice to be made for you and there's that convenience of just switching to a radio station instead of having to decide exactly what you want to listen to."

There are several major players in New Zealand: Netflix, Lightbox, Neon, Amazon Prime Video, TVNZ OnDemand, ThreeNow, Sky Go and YouTube Premium.

With heavyweights Apple, Disney and Warner looking to launch services in the coming years, will we see a second streaming boom or will the abundance of choice push us back to the comfort of regular TV like it did for Jury?

On any normal day, the average person wouldn't pay too much attention to a corporate launch event.

But the announcement of new streaming service Apple TV+ was a bit more than chief executive Tim Cook on stage banging on about new features. Everyone from Steven Spielberg to Big Bird was on stage for the event.

Jason Momoa, Steve Carell, Kumail Nanjiani, Reese Witherspoon and Oprah Winfrey made appearances - Sara Bareilles gave a live performance.

Two things were clear: one, Apple was coming in hot to the streaming wars and making a massive declaration in the arms race of content. Two, it was throwing all the star power it could muster at Apple TV+ and no expense was being spared.

But they weren't the only ones.

The following month, Disney+ was revealed. It will house not only its extensive catalogue but those of Lucasfilm, Pixar, Marvel and National Geographic. It will also include new productions including four new Marvel TV series (WandaVision, Falcon and Winter Soldier and others based on Loki and Hawkeye), two Star Wars series (The Mandalorian and a spin-off of the film Rogue One), and has US streaming rights to The Simpsons, which Disney acquired when it bought 20th Century Fox the month before launch.

All of the Star Wars films will be on the service - thought to be available later this year - as well as the recent Captain Marvel movie.

All new Disney theatrical releases, including the upcoming Marvel and Star Wars movies, will also appear on the platform.

Then there's WarnerMedia, which is owned by telecom network AT&T - so has a fair amount of reach just like Apple and Disney - and aims to bundle all of its titles from HBO and Cinemax along with all of the Warner Bros TV shows and movies.

And all of that is on top of the already massive Netflix, which has reportedly set its content budget for this year at $22.4billion.

With all this star power on board and billions at stake, it all amounts to one undeniable fact: the streaming wars have well and truly started.

Star Wars is one of the many franchises Disney+ has at its disposal. Photo: LucasFilm
Star Wars is one of the many franchises Disney+ has at its disposal. Photo: LucasFilm
These heavyweight studios' highly publicised entry to the market is already seeing some changes go down including Marvel pulling its content from Netflix to go to Disney. Slater predicts more.

"Disney will showcase the majority of its content on Disney+, rather than licensing it to other SVOD [streaming video on demand] services, so if you want Disney shows you subscribe to Disney+. Its edgier content, we understand, will be on Hulu (of which Disney recently became a majority owner). Most of its shows will end up on ABC because that's the network it owns.

"We're seeing the same set to happen with WarnerMedia, which owns HBO and Turner as well as Warner Bros - you'll see the studios' content staying together, but it's because it's going to be controlled by the parent company.

"And the effect of it on something like Netflix or an aggregator service is that content will come off those services unless it's made available on a non-exclusive basis."

Unlikely, given that defeats the whole purpose of launching an individual platform. This is why Netflix and Apple are pouring billions into the creation, and promotion, of original content, according to Kiwi technology commentator Peter Griffin.

Griffin predicts streaming will be used in all Kiwi homes within the next five years, but with all this integration and competition, it's difficult to guess just what that will look like.

"The problem for New Zealanders is that the complicated nature of video streaming rights around the world means that we're not getting the same version that the US gets when it comes to things like Netflix.

"If Disney, as it's perfectly entitled to, just hoards its content on its own services, it's a problem because it could be quite a while before it comes to New Zealand. Then there are things like HBO's streaming service, which isn't available here because HBO has a relationship with Sky."

Indeed Sky TV is in the middle of multi-year deals with both HBO and Disney, but those deals will eventually expire and then those studios could easily take back their content.

Either way, the big issue we'll soon be facing, says Griffin, is the fact that in order to get all the shows you want, you will need to be subscribed to multiple platforms.

"That's only going to intensify as each company tries to claim an audience and its own ecosystem, which is great for competition, but also a little bit frustrating for the consumer to have to make sense of this increasingly complicated landscape."

The solution, according to Griffin, is simple, and it's already starting to happen: the package deal.

That is, bundling your phone bill, internet bill and streaming subscriptions into one. Spark has already done it, offering bundles which include broadband, Spotify, Lightbox and Netflix in various combinations, and Vodafone partnered with Netflix when it first launched in 2015.

"It's all about the billing relationship," says Griffin. "It's incredibly convenient for consumers and it's a necessity for those telecoms providers, because they need to find more valuable ways to reach people and the only way they can do this is by bundling all of these services together in an attractive way and making a margin on there."

That said, Slater says that because of our strong international relationships with these providers, Kiwis may not have to choose just yet.

"At the moment, WarnerMedia is saying its service will be restricted to the US because it absolutely values its international relationships," she says.

"It's a balancing act of being able to monetise or commercialise the content by selling on a territory by territory basis, versus what they can make in making it available on a global basis."

Warner could easily hoard the entire Harry Potter franchise to its own platform. Photo: Supplied
Warner could easily hoard the entire Harry Potter franchise to its own platform. Photo: Supplied
Simply put: they can make more money continuing to honour agreements with networks in individual territories, rather than pulling their content back to one platform and hoping people sign up for it.

"The price of them being in this market versus what they can earn off the local networks and local streaming services here - I think New Zealand will be one of the last markets they'll look to release into, just as we saw with a lot of other products like Amazon merchandise for example. But that's bound to change over time, and I think we'll see that with Disney because I think they'll be the first to hit this market."

Unlike Jury, Mike Roke believes streaming is the only way forward.

On an average day, the 41-year-old heads home from work to watch the telly - whether it be news, sport or murderous thriller Killing Eve.

He's started watching Sky through Vodafone TV, so his kids can stream Nickelodeon while he streams his sports games. And when the kids go to bed, that's when he and his wife get as close as they will to any kind of "appointment viewing", settling down for some Netflix or TV OnDemand.

"I can't even remember the last time we watched [linear] TV but it would be years ago.

"That means you have to sit down in front of a TV at a certain time and we don't have the luxury of that anymore. It's way more convenient to watch when you want, so that's what we do. It's just easy. It's the future. That's the only way to watch TV, if you ask me."

It's only been four years since Netflix launched here, but it's already difficult to think of a time without it.

According to New Zealand on Air's biennial "Where Are The Audiences?" research, streaming is reaching 62% of Kiwis each week, an increase from 12% in 2015.

While streaming platforms tend not to release viewership numbers, internet providers noted a 70% increase in people signing up for unlimited data plans in 2016 - right after Netflix launched in New Zealand - attributing much of that to online streaming.

Now, 49% of Kiwi homes have Netflix and 27% of us consume content from the streaming platform every day.

Before Netflix arrived, our main player was Quickflix, which started out as a DVD home rental and delivery service and morphed into a bare-bones streaming platform. An Australian company, Quickflix, in the end, lacked the cash to create its own content and the content relationships to make it work.

That was likely because our focus was still on linear TV. Traditional TV is still king in New Zealand, reaching 82% of Kiwis each week, but that reach is on a decline and has been for five years.

In 2014, it was reaching 95% of Kiwis each week. That dropped to 86% in 2016 and 82% in 2018 when NZ On Air's last report was published.

Streaming growth is slowing dramatically, from 283% between 2014 and 2016, to 61% between 2016 and 2018.

The difference is merely that there have been few new developments in streaming. The 2014-16 period marked a boom as we introduced Netflix, Lightbox, Neon, Chromecast, WatchMe and more, but there were far fewer new developments in the next two-year block.

TV, meanwhile, launched channels such as Duke, Jones, The Zone and Freeview Plus in those two years, then doubled down with Bravo, HGTV, Viceland, Kidzone and more in the following two years.

TV appears to be being kept alive by a loyal audience of Kiwis aged 45 or over, reaching 80% of that audience, as opposed to 49% of those aged between 15 and 39.

But it's not simply a case of older people watching traditional content.

The numbers suggest the decline of TV is largely due to a decline in pay TV specifically as people swap their Sky subscriptions for cheaper streaming options.

Slater says linear TV may be declining, but it's "still the biggest show in town". Another major drawcard is it is - and for the foreseeable future, will stay - free.

"Free content available online is always going to be a really compelling proposition. You know, even though the cost of a Netflix subscription to some of us is not significant, to others it is, and to be able to consume a great library of content online for free, I think, is massively compelling."

With all this change, local providers Three and TVNZ have spotted an opportunity in the market to provide a local service which aggregates international content with the "best of local" content.

Slater says that's "absolutely where we're looking at heading directionally with TVNZ OnDemand".

"Obviously we've got our local TV slate all available on OnDemand, as well as commissioning exclusive content for that service specifically, and then buying the best of the international stuff like Killing Eve and Catch-22. And a lot of them, from the more independent producers now, rather than the big global studios."

Three's chief content officer Andrew Szusterman goes so far as to call local content "our saving grace".

"It'll be a long time before the Netflixes of the world will start getting in on that market so it's one area we can live in and live in well. There's so much going on in the local space that only New Zealanders can do for themselves and those are getting great audiences," he says.

Similarly, he says with 500 scripted series having come out of the US this year alone, there will come a point where consumers will simply become overwhelmed by the "tyranny of choice" Slater mentioned, and balk at having to pay for more and more services.

"But that also opens an avenue for services such as ThreeNow, which are ad-driven, where we offer quality content free of charge. Just because the services will be available doesn't mean people are going to come to them. I don't think it's going to be smooth sailing for new services launching in markets of this size."

Sky was unavailable to give comment at the time of writing, but Sky's new TV boss Martin Stewart, who took the reins earlier this year, said in a previous interview that there were plans to create more content and change the way it uses that content online.

"I'm looking at the balance of investment and this time I want the team focused on how we do much more, much more quickly on the streaming side. We have to put more effort into that and how we utilise what we've got."

While local providers scramble to find their place in the changing media landscape, linear TV's real salvation may lie in new territory, according to Griffin, who says live events will be key.

"That will always continue to be the biggest audience - when there's a State of the Nation [report] or a Budget or election or something like that - that will be the future of linear TV."

Netflix is spending three times more on content than it receives through its subscriber base....
Netflix is spending three times more on content than it receives through its subscriber base. Photo: Getty Images
The obvious obstacle to that though is the rise of live streaming, but Griffin is adamant it's not real competition - at least not yet.

"It's obviously massive on Facebook and YouTube because it's such a great engagement tool, but it's not going to replace the way the news is broadcast. There's a high level of production quality required for that sort of live linear TV that we're doing and I don't think that will migrate to live streaming."

There's also a push in the US, he says, to migrate the connectivity aspect of live streaming to linear TV.

"There are really interesting combinations in the States. ESPN, for instance, will do these streaming parties where they'll offer a premium show - maybe an NFL game - and then everyone can participate in the same interface.

"Imagine if you could watch Game of Thrones with a virtual audience at the same time. Yeah, you can do that on YouTube, but to officially build that into an interface ... there's lots of experimenting and potential."

The big test will be the Rugby World Cup, which is live streaming exclusively via Spark Sport and which Griffin says will be a "defining moment" for video streaming in New Zealand.

"It's one thing to have a high-quality show like Game of Thrones ready to go when it screens in the US but to have video cameras in Japan getting all that content and putting it out across our broadband network using software they've just developed in the last year - and having a reliable experience - that is a huge test of infrastructure and our capability to do video streaming in New Zealand."

The Rugby World Cup will be the big test for live streaming in New Zealand. Photo: Getty Images
The Rugby World Cup will be the big test for live streaming in New Zealand. Photo: Getty Images
We all know each studio is throwing billions of dollars into production and acquisition in a race to lock down the best and brightest titles to attract subscribers, but are they actually making any money?

It's no secret Netflix is heavily in debt - nearing $19billion, according to media - as it focuses on growth.

Its core business model to generate revenue is the sum of the number of subscribers times the price per month, but that's not lining up with its content obligations. In other words, the costs of licensing, acquiring and producing content, which, at the end of the first quarter, added up to about $26billion.

Things took another downward turn for Netflix when Disney threw its hat in the streaming wars ring in April, causing Netflix's shares to drop by 4.5% (more than $10billion in market value).

Disney is doing well. It's one of the biggest studios in the world with decades' worth of content and franchising that's near impossible to compete with. Similarly, Apple has the cash behind its streaming services and the user base to market to.

In the past six months, Apple's core free cash flow was more than $47billion. In that time alone, Disney generated about $3.8billion in core free cash flow.

Meanwhile, Netflix's goal is to begin approaching positive free cash flow in 2020.

It's not all doom and gloom for Netflix though. Stock watchers aren't concerned about the drop in shares as tech stocks in general - and the entire US stock market - have been on something of a roller coaster all year.

Besides, Netflix has 150million subscribers and its obligations per member have been declining since 2017, so it's now making a profit every quarter.

It's going to be slow-going; even if obligations decline by another 20% per member in the next year, Netflix will still be spending more than three-times as much on content as it receives per paid subscriber.

The trick will be roping in more subscribers, and investors are confident Netflix's new and upcoming content will make that happen.

Yes, Disney has a wealth of content and can draw on the Marvel and Star Wars franchises, but with a low price point of $10.50 a month, people are likely to supplement Netflix with Disney+, not replace it.

Besides, it's not even clear yet when Disney+ will make its way to other markets outside the US.

Apple, meanwhile, has committed to spending billions, roping in huge-name celebrities to launch a whole slew of brand-new content. It will be expensive, and fans will have no frame of reference as to whether it's worth the switch.

At your service 

The main players: 

Netflix: Basic membership costs $11.49 a month. Standard costs $14.99 and lets you stream in HD across two devices at a time. Premium costs $18.49 to stream in ultra-HD across four screens.

Neon: A TV-only package costs $11.99 a month, while a TV and movies package costs $20 a month.

Lightbox: A Standard membership costs $12.99 a month and will stream across two devices, while Premium costs $15.99 a month across four screens and includes the option to download content. Lightbox has a bundle deal where select Spark customers can get the Standard membership free, or Premium for $3.

TVNZ OnDemand: All content is free but has ads.

Three Now: All content is free but has ads, you can also access content from Bravo.

Sky Go: Content is free for Sky domestic customers with the minimum of the starter package, or Vodafone customers with the minimum of the Sky starter and entertainment packages.

Amazon Prime Video: Costs $4.50 for the first six months and $9 a month thereafter. That lets you view across three devices and download content.

YouTube Premium: $15.99 a month which gets you ad-free access to YouTube, YouTube Music and YouTube Plus’ Originals.

The Disrupters:

Disney+: Launches in the US on November 12 starting at $US6.99 ($NZ10.50) a month or $US69.99 ($NZ105) a year.

Apple TV+: Launch tipped to be between September and November. Cost is yet to be announced.

WarnerMedia: Expected to launch next year. It’s tipped to cost around $US16-$US17 ($NZ23-$NZ25) a month, with a cheaper option possibly following, subsidised by ads.

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