Is being a newcomer in the subscription streaming service market worth the struggle?

Introduction

As streaming service powerhouses such as Netflix and Amazon Prime Video dominate the Subscription Video-on-demand (SVOD) market, breaking into the industry has become as arduous as ever. This article aims to examine the key factors that drive the desire to enter this market and the strategies that have put the leading companies at the frontier of the SVOD market. To further the analysis of these factors, this article shines a light on a newcomer, Disney+, and the actions it took to propel its entry into this market, alongside its ongoing hardships as it struggles to stay at the top.

Incentives for Subscription Video on Demand (SVOD) Expansion

In recent years, there has been a surge in incentives for media and entertainment enterprises such as Disney and Paramount to launch their own subscription streaming services. This drive for new development stems from Netflix’s domination of the SVOD market for the last decade. So why is the SVOD market so sought after? There are three key reasons to become an important player in this market: high consumer interest in on-demand viewing, customer acquisition through hybrid and exclusive releases, and direct-to-consumer marketing.

First, consumer interest in on-demand viewing has driven this market since the late 20th century and was the first step Netflix took to undermine Blockbuster. Initially, Netflix started as a DVD movie rental service allowing customers to place orders online for at-home delivery. As technology further developed, consumers could purchase Netflix subscriptions through service providers such as Apple TV, providing access to a variety of movies without the downside of shipping costs and wait times. This convenience of ordering movies, rather than having to walk down to your local Blockbuster, is exactly what makes the notion of on-demand so powerful.

Second, the idea of hybrid releases, which allows films to be released simultaneously on platforms and in theatres, became highly popular throughout the COVID-19 pandemic. This enabled the synergy between the movie studio and the streaming platform, as the hype of a new movie created by cinema-goers resulted in home viewers’ interest in catching up by watching the same movie. Nevertheless, there have been some controversies surrounding diluted box office revenue by having cinemas compete with the premature availability of a film on home video. In some instances, major cinema chains require films to have an exclusive theatrical window of a minimum length. Another equally salient movie launch approach, stemming from hybrid releases, is that of revenue generation through exclusive releases, which involves creating video content only accessible through a select platform.

Lastly, the largest stimulus to become an SVOD provider is direct-to-consumer marketing, as it provides a powerful method to market to captive consumers. Since streaming services generate significant revenue from advertisements, this in turn allows for cheaper or free subscriptions for consumers. For example, Netflix offers a monthly subscription at a discount rate compared to its typical monthly rate with significantly fewer advertisements, and Crackle popularized free streaming including significant advertising.

The flip side of the coin is that companies in the traditional media distribution business that lagged entering the SVOD market saw significant revenue loss in their main, traditional business. For example, ViacomCBS (now Paramount Global), owner of Paramount+, saw a greater than 40% stock drop in March 2021 due to new share offerings sending jitters into the analyst community, signalling that the company was struggling to compete with established streaming companies. Similarly, AMC Networks experienced a significant share drop at about the same time, also due to a lack of market confidence in its business growth.

Let’s Talk Disney+ — Background and Rise as a Streaming Service

In late 2019, family entertainment and media enterprise powerhouse Disney launched its highly anticipated streaming platform, Disney+. This initial move to a new market was signalled in 2016 after Disney acquired a minority 33% stake in BAMTech, an SVOD company with a strong presence in sports streaming platforms. A year later, Disney acquired a majority 75% stake in BAMTech, allowing it to begin TV series production of the highly anticipated Star Wars spin-off, The Mandalorian.

To further promote the release of The Mandalorian, Disney strategically leveraged the hype of the soon-to-be-released ninth Star Wars episode, Star Wars: The Rise of Skywalker. This strategy proved successful, as within 24 hours of launch, Disney+ attracted 10 million subscribers, rising to 50 million within 2020.

It is essential to note that the cost of running a streaming service is immense but necessary to enable platform scaling for customer acquisition. Disney+’s costs were approximately $8 billion in 2023, whereas Netflix spent over $17 billion during the same period. These investments, if properly timed, can enable future growth while also creating formidable barriers to entry for competitors.

Disney+ Subscriber Issues

Disney+’s early success story was short-lived as it now struggles to grow market share, holding approximately 11%, roughly half that of Netflix and Amazon Prime. This challenge stems from stagnant and slightly declining subscriber counts in 2023 and 2024.

The first major competitor is Amazon Prime Video, which emerged from its parent company, Amazon. Unlike Disney+, Amazon Prime Video benefited from being bundled with the widely adopted Amazon Prime subscription. At launch in late 2016, Amazon Prime already had over 65 million subscribers, providing instant scale and market share.

Netflix, the most experienced competitor, continues to dominate through consistent releases of Emmy-winning original content and major film acquisitions. While expensive — with episodes of Stranger Things costing up to $30 million each — this strategy remains profitable. In Q2 2024, Netflix reported $6.6 billion in revenue with projected year-over-year growth of 6.6%.

Netflix’s maturity has allowed it to shift focus from subscriber growth to profitability.

The final competitor, HBO Max, benefits from decades of premium content experience. HBO pioneered subscription television and retains dominance through high-quality exclusive programming and weekly episode releases, which improve retention by discouraging binge-watching.

Conclusion

As Disney+ became profitable in the second quarter of 2024, it continues to show promise, but growth remains challenging. To increase market share, Disney+ is expanding exclusive content. Pixar’s Win or Lose targets younger viewers, while new Marvel and Star Wars series aim to leverage established franchises. These releases are projected to add approximately $5 million in revenue in the next quarter of 2024.

As the SVOD market matures under its dominant players, new entrants face significant risks and barriers. Disney+’s experience demonstrates that even well-capitalized newcomers must innovate aggressively to remain competitive.

References

Business of Apps. (2020, May 13). Disney Plus Statistics
Starburst. (2021, September 24). The Rise of Streaming Services
Parrot Analytics. (2019, May 5). Global SVOD Market Share Trends
ProfileTree. (2024, May 22). HBO Max: Quality Over Quantity
Statista. (2024, May 15). Most Expensive Netflix Series 2023