Apple, Disney and Your Strained TV Budget

SMITH BRAIN TRUST – You already pay for Netflix, Amazon Prime and maybe Hulu, Sling, YouTube TV and HBO Now. Soon you will need to add Apple TV+ and Disney Plus to your growing list of must-have video streaming services.

Marketing professor P.K. Kannan at the University of Maryland's Robert H. Smith School of Business says the newest entrants into the crowded arena will fuel rising consumer costs and help push the video streaming market to a familiar place — where cable cord-cutting consumers will subscribe and pay for their viewing entertainment in the structure and at the price level approaching that of the old days of cable television.

Apple reportedly plans to launch in November with five original shows at $9.99 per month following a free trial period. Disney Plus will launch in the same month at $6.99 per month.

"Interestingly, Apple’s launch ahead of Disney Plus may highlight Apple as thin on content compared to Disney,” says Kannan, the Dean’s Chair in Marketing Science at Maryland Smith. “At the price point they are contemplating, Apple will suffer in comparison to the value that the streaming customers may get from Disney Plus.”

More broadly, he says the success or failure of these streaming services will ultimately depend on the exclusive content they procure for their service.

Disney is expected to produce and roll out shows based on characters from the likes of Star Wars and Marvel, plus National Geographic content. Apple’s original lineup includes “The Morning Show” with Jennifer Aniston and Reese Witherspoon and a Steven Spielberg revival of Amazing Stories. But new content would be added every month after the service launches in more than 100 countries.

The programming teased by Apple and Disney, Kannan says, reflects a demand from multiple streaming services that is increasing the price for content. Netflix, which is paying $100 million for Friends, will lose the right to stream the sitcom effective December 2019, with Warner Bros intending to stream it in their own service.

“Increasing prices for content makes it difficult to put a lid on prices for streaming, and it is very difficult to visualize a scenario where customers are subscribing to multiple streaming services at $15 to $20 per month,” Kannan says. “This will lead customers to choose a few services they really want to watch and make the prices of such content go up even more.”

This leads Kannan to reiterate a point he has previously made: “Ultimately, this will lead to a market where content aggregators emerge with a cable-like model, where they bundle several streaming services at reasonable prices," he says. "In fact, Amazon already is doing this through their Prime service, with content from other services like HBO available.”

He says Apple's ultimate play could be that of an aggregator. "They really do not have content inventory or access like the other services,” he says. “In this role, they will come up against Amazon, whose Prime service is bundled with lots of other options and services, like free shipping, which makes it easier for Amazon to sell subscriptions.”

Kannan says Apple may have to use similar bundling strategies via Apple News and Apple Music to successfully compete against the other aggregators.

A Video Streaming Bubble? Not So Much

A late fall 2018 Netflix stock dip in the midst of news of forthcoming video streaming debuts from the likes of Apple, Walmart and AT&T fueled media discussion around a “video streaming bubble” and whether this bubble is about to burst. The speculation returned in July 2019 when Netflix shares plunged 10% after a reported loss of 126,000 U.S. paid subscribers.

Maryland Smith professor David Kirsch, co-author with faculty colleague Brent Goldfarb of “Bubbles and Crashes: The Boom and Bust of Technological Innovation,” adds context to this particular bubble.

“The video streaming market is in the midst of a transition from rapid growth to saturation, and there isn't much systemic uncertainty left,” Kirsch says. 

He and Goldfarb found tech bubbles were likely when the given industry exhibited a great deal of uncertainty about how inventions might be monetized, combined with conflicting narratives about the future value of those inventions and the infusion of novice investors ready to buy stock in a power play company closely associated with the technology.

“Video streaming is a relatively taken-for-granted service, a set of competing offerings that people either subscribe to or not,” Kirsch says. “Now it comes down to which service offers the unique bundle of programming that appeals to particular consumers. That's unpredictable — in any given season, no one can predict that "The Marvelous Mrs. Maisel" will outperform "Glow" or vice-versa — but it doesn't lead to fundamental uncertainty. Is Netflix stock overpriced? Probably, but I wouldn't call it a bubble from the perspective of our model because we don't observe the narrative amplification that we see, for instance, with Tesla.”