Throughout 2023 and now 2024, we have seen how competitive the climate is for streaming services. Netflix still leads the pack, while many production companies that threw their hat into the ring have now capitulated or merged with larger entities.

Paramount may be the latest, but it’s just one of four other streamers battling for profitability this year. After a tumultuous few years, profitability may be on the horizon for those left standing.

How Streaming Services Compete

First, it helps to understand the climate around video-on-demand streaming. After Netflix proved the business model viable in the 2010s, many big-name competitors have stepped up to compete with them. This picked up steam after 2019, as seemingly every major production company set up its own service.

Typical marketing tactics followed. The newcomers to the industry doubled down on things that Netflix had used but since abandoned, like free trials. The best example of that is Amazon, which threw its video service in with a Prime subscription. Offering something for free is commonly used in e-commerce or iGaming to drum up interest in a product/service.

For services, it could mean users deposit £10, get free spins of an online game of their choice, or other permutations using a similar formula. At its core, it gets users to try the service and if they like it, they’ll stick around. For the streamers, the price of admission was just signing up and then users would get a month of free access, where they could do the same.

Those kinds of offers are great at bringing new people in, but streaming services live or die by their premium subscription numbers. That’s where exclusives come in – something also pioneered by Netflix after they started producing original movies and TV shows that could only be found on their platform. Competitors like Amazon, Apple, Paramount, Peacock and Warner Bros Discovery steadily did the same, building a library of exclusive content that couldn’t be found anywhere else.

While that makes each service more appealing on an individual level, it forces the audience at large to choose one or two services and stick with them. This is because getting them all would amount to a hefty price tag, much more than any cable bill, as consumers pay for each channel individually instead. Immediately, it became clear that these new services couldn’t stand alone as the next Netflix, after which point we saw bundle deals and mergers. Many analysts have noted that through this approach, streaming services are accidentally recreating cable TV. When the dust clears and the mergers stop, only the biggest, most profitable streamers will likely remain.

Streaming is Becoming Profitable

Despite the major shake-ups seen in streaming, Netflix still has a handy lead over all of its competitors. It remains the most-subscribed business on the planet with nearly 280 million paying customers as of their Q2 2024 report. Per those same numbers, they made $2.15 billion (£1.6 billion) profit in the second quarter. Throw in the first quarter’s figures and that’s $4.5 billion (£3.5) for the first half of 2024. Compared to last year, they’ve made a 44 per cent increase in profit. As you’d expect, these numbers dwarf any of the other streaming services in the business right now.

As Netflix continues to enjoy a decades-long first-mover advantage, the other streaming services have been restructuring to move toward profitability. Losses have been trimmed and deals have been struck, all with the goal of making each service its own profitable business.

For some competitors, their services are buoyed by larger, more successful business models that have served them well. For example, Warner Bros Discovery has a lot of ammo to throw at making Max profitable, because their HBO cable packages are big earners. An even better example is Amazon, whose video production house is attached to the world’s largest and most successful retail site.

Companies like Warner Bros Discovery and NBCUniversal, owners of Peacock, do have to contend with cord-cutting as audiences move away from linear TV and toward on-demand content. Their challenge right now is to reach profitability with their newer ventures before their older ones can no longer support them. Elsewhere, interest in a different kind of linear TV is picking up through free ad-supported television.

The Streaming Service Life Cycle

It’s easy to dismiss Netflix’s competitors based on their recent spree of bundling, merging and otherwise refining their services. However, we should remember that Netflix took almost a decade to bring in substantial profit after its streaming pivot. Throughout the 2010s, a lot of its success was based on user figures without much focus on profitability. That lasted until 2019 when they axed free trials and later brought in the password crackdown to move toward profit.

With that context, streaming services may be going through a similar life cycle that goes something like this:
1. Launch, and build a library of content.
2. Draw in a lot of users (not necessarily subscribers).
3. Attract investment based on user growth.
4. Start producing popular exclusive content.
5. Drill down on subscriptions.
6. Achieve profitability.

That is, in six steps, the journey Netflix made to get to where it is today. However, back then, step 2 was a lot easier as they were the first to do it. Any act that follows is now compared, unfavourably, to Netflix’s gargantuan numbers. They also can’t gather a big library due to every competitor guarding their own content. So, smaller competitors have arrived on the scene with exclusives and a focus on profitability, without building a sizable base of users and cultural prominence like Netflix had on the way up.

Nevertheless, those competitors are racing toward profitability. Sooner rather than later, we’ll see how much room there is for multiple profitable services in streaming. While Netflix will probably take the top spot on the streaming podium, there are still billions in potential profits up for grabs, for those who come in second and third place.

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Categories: Articles, VOD

Tags: netflix, paramount, streaming