The Future of Content: The Everything Bundle?



The Future of Content: The Everything Bundle?

By Ayal Shmilovich
August, 29, 2018

Today, ‘cutting the cord’ of cable and going ‘over the top’ with our media consumption is becoming increasingly prevalent. The main driver of this phenomenon is Netflix, the current king of the content playground, with a tremendous rise over the last five years and now tallying over 125 million users worldwide. They have surpassed Disney as the largest media company by market capitalization because they continue to offer an enormous amount of content for such a low relative price. Trying to outspend Netflix is difficult, as they will spend close to $13 billion in 2018. The only way to challenge Netflix is to offer more than just television content.

Additionally, as cord-cutting and mobility become ubiquitous, we are faced with a new problem: too many apps and providers to deal with. The new media landscape is starting to look a lot like the old one again - just instead of one cable provider with many channels, we now have a series of devices delivering different digital ‘channels.’ As a personal cord-cutter, I have many options, but it feels like there are too many add-ons now. I wish I could just use any of my devices to access a large amount of content from various providers without costing me an arm and a leg. As of now, here is my monthly breakdown of payments to different entertainment service providers:



So, let’s take a look at the three largest companies in the world and how they can use their enormously deep pockets and ecosystems to challenge Netflix’s reign:

Google/Youtube
According to TechCrunch.com, Youtube has 1.5 billion monthly active users (MAUs), each watching over an hour of content per day, most of it on mobile devices. Early last year, Youtube launched Youtube TV, which allows users to sign up for a “skinny bundle” of channels as well as original content by Google delivered over a broadband internet connection. It is a happy medium for the cord cutting generation that simply does not want to pay the cable companies a high dollar amount for many unnecessary channels, but still includes live sports and some necessary channels. According to Google, the TV screen is their fastest growing medium of consumption.

If you’re an Android user for mobile, as most of the world is, you get access to the Google Play store, which gives you access to movies, television shows, apps, books, etc., thereby furthering Google’s reach into your life and giving you access to pay as you go, much like Apple’s iTunes and App Store.

Amazon
Amazon Prime has been a huge success, crossing the 100 million active users worldwide. Started in 2005, Prime has evolved from a service that gives free two-day shipping to a full-service delivery and media center with access to many movies and television shows, music, apps, groceries, etc. They also have a music addition a la Spotify and Apple Music.
The main advantage Amazon has in their business is that they are willing to lose money to gain users. Of the three companies, Amazon has a head start in content and has already committed the most capital to original programing of the three tech titans, with a projected $5 billion-dollar budget in 2018.

Apple
Apple was the original tech turned entertainment company when they debuted the iPod and iTunes in 2002. Apple made deals with music companies in order to be able to download music, one at a time. They also allowed you to download movies and television shows soon after. In 2008, they debuted the App Store, which allowed people to download apps onto their iPhones; and finally, in 2014, they added Apple Music, moving most of their online music business from pay-as-you-go to a streaming service, in order to fend of competition from Spotify, Pandora, and others.

iTunes already has a complete library of movies, television shows, music, podcasts, and links to the news with Apple Newsstand. According to an Apple press release, they have over 1.3 billion active devices registered currently, most with credit card information stored ready for purchase.

Original content, a hallmark of the Netflix’s meteoric rise, is the key to success with television/movie consumption. Apple has dabbled in original content in the past few years but is now making a major push into the space. According the to the Hollywood Reporter, Apple will be spending $1 billion in content and has made deals with major stars like Reese Witherspoon, Jennifer Anniston, and Oprah Winfrey.

And the winner is…?

Each company has its advantages and disadvantages in this potential race. Google has the largest base of users to draw from on their ecosystem, with over 2 billion users worldwide and over 1.5 billion users already watching on Youtube, so they have the most eyeballs to convert to paying customers. They also are the first to have the “skinny bundle” television subscription service already, so content consumption and its transition will be more seamless.

Amazon has a head start in the content game with scripted, original content production, which is considered the holy grail of television distribution. Amazon has also proven that their business model doesn’t need to show a profit in order for investors to be satisfied, so they can undercut the competition on pricing (Amazon Music is $7.99 vs. Spotify and Apple Music at $9.99 as well as their movies being cheaper by a dollar or two). However, Amazon is lacking in its global footprint, monthly active users and the cash hoards that Google and Apple have. Amazon’s users just hit 100 million and they have about $25 billion in cash according to their latest earnings, and both numbers are dwarfed by Apple and Google.

Apple is best poised for the “everything bundle” as they have long been considered an entertainment hub for our lives, going back over 15 years. They have the user numbers with credit cards on file, the international exposure, iTunes, Music, News, Payments, original content, and seamless integration between all of their hardware and software. They also have an extremely loyal user base and they have the deepest pockets, with over $240 billion in cash on hand. With their help and if Tim Cook really wants to innovate the “next big thing,” I hope that I can, one day, turn on the Apple TV/iPhone/iPad and simply search for any movie or show available for a $50 or $60 monthly subscription. If this happens, this will truly be the cord-cutting revolution as it was meant to be.


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Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor. Gerber Kawasaki and Gerber Kawasaki Wealth and Investment Management are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.

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