Subscription Video On Demand; does it hold investment opportunities as two of the biggest entertainment releases in history approach release.

Article updated: 16 April 2019 2:00pm Author: Michael Baxter

A long time ago, in a living room with electronics, far far away from what we have today, there was: video wars.

We didn’t buy videos of course, we went to video libraries, and on the one side of the store there were VHS videos, on the other side it was Betamax. VHS famously won the battle, we are told, because it had more titles from the adult entertainment industry. But there is an important point about that battle, there was only ever going to be one winner. We also used our video player to tape stuff and we lent our videos. Having two main formats that were incompatible with each other was just downright inconvenient.

It is not like that now. You can subscribe to more than one video on demand service, or SVOD — subscription video on demand — with little inconvenience other than to your wallet.

Actually, the damage to our wallets is not that great. Back in the days of video libraries we often used to pay £3.99 to rent out a video for one night, and sometimes we rented out two or three at a time. Maybe we did this twice a month. We would fork out fines too. It was expensive.

Today, we can subscribe to three or four or even five services for less than many of us paid to the local video library 20 years ago.

There is no natural monopoly in this one, it is not like social media, when it is problematic if we wish to communicate with someone but they use different social media platforms. If I use Netflix and you use Amazon Prime, it does not reduce our enjoyment — except in the sense we can’t talk about the same shows.

No, I think the market can sustain several SVOD services, in much the same way there are lots of newspapers.

I used to think that individual studios would sell direct — cutting out the middleman, namely the TV broadcasters. But I was wrong. I had assumed that the old video library would be translated into video on demand, we would just pay for what we watch. I had not appreciated the economics of subscription models.

SVOD is quite simply taking over. The old free advertising model is not dead, but it really does feel like it is chasing the lower end of the market.

And as I write these words, the most hyped TV series, probably ever, is airing its final season — Game of Thrones. And one of the most hyped movies in history is about to hit cinemas — Avengers Endgame.

This is no coincidence, this business is becoming a bigger business and the key players are jostling for position.

Investors might ask whether the market has peaked? Whether the markets have already valued in the long term potential?

I would disagree. Technologies such as virtual and augmented reality will create a new impetus. And by the way, returning to the lesson of VHS, I am uncomfortable with the ramifications for adult entertainment implicit in virtual and augmented reality. Within five years, these technologies will lead us to ask the most profound questions on sex and love. Mary Whitehouse will no doubt be looking down from on high with horror.

Who will win?

Not all the players will pull it off.

Netflix with its 139 million subscribers is not exactly invulnerable, but pretty close. With the Bandersnatch edition of the Black Mirror series earlier this year, it showed that it is willing to experiment too. There is something else about Netflix, the quality of its in-house shows are exceptional. When I was a kid I watched US shows: The Six Million Dollar Man, the Incredible Hulk, Dukes of Hazzard, Dallas, the list goes on. These shows would not get a look in today. If just one of a half dozen shows released on Netflix this year, had been released in the early 1980s, they would have been one of the most talked about shows in history.

Amazon Prime seems almost as invulnerable.

What both have in common is speciality — they have been making original content long enough to become good at it. Can Netflix survive the exodus of Disney content? It has been aware that one day it would lose Disney content for a long time and has been spending billions in preparation.

Can Disney carve itself out significant market share? I would say that so far, the Disney franchises have not transferred well to TV. Most Marvel TV shows have been disappointing. As for Star Wars, Disney has already been doing its best to devalue this brand, a TV series would finish it off. Does that mean Disney, which will also have the Fox assets to call upon, is out of the loop? No, I don’t think so. Disney has too much to offer to not become a key player in SVOD, but it has got to throw more original content at the challenge.

Then there is Apple, it is creating a TV series based on the Asimov Foundation series, one of the greatest science fiction book series ever. I also understand that there will be a regular series directed by M. Night Shyamalan (the man behind Sixth Sense) and a series from Stephen Spielberg. Of equal interest is Apple’s plan to market a video games subscription service. I don’t see Apple failing. I will return to Apple later this week, but I don’t believe we have yet seen the best from this company.

Then there are the others — HBO, owned by Time Warner, owned by AT&T, is a very valuable asset, at least it will be if it can follow-up Game of Thrones with another hit. I suspect, though, that Game of Thrones has created a massive money making machine, just as Star Wars once did for George Lucas.

There are other players too: Viacom, for example, or an advertising model for YouTube, I understand that Alphabet has dropped the idea of YouTube in the SVOD market.

Then there is the elephant sitting behind the TV; the British triumvirate of BBC, ITV and Channel Four. So far, this threesome has let a massive opportunity slip through their fingers, I hope they can pull this off, and take on Netflix and co, but not even Poirot may be enough to create a winning plan.

What can investors do? I would say, don’t ignore.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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