In a recent report, Wells Fargo analyst Steven Cahall suggests smaller-scale streaming VOD services such as Starz and AMC+ “might be better off folded into larger platforms.”
Nearly every traditional media company has joined the “streaming wars” now and the analyst’s research finds that scale matters and in the field of streaming “the bigger, the better” in terms of user base yielding sustainable gross and operating profit margins.
The report says: “Many video DTC services will never get to 100 million or even 50 million subscribers, and our work shows that profitability will be a future challenge at smaller scale – especially with such fierce competition.”
He also says Netflix has defined consumer expectations with a ‘golden ratio’ of more than $1 billion in annual content spend for every $1 of monthly customer average revenue per user – the only other service that could match it at first glance is Disney+. However, he adds that Discovery+ and Paramount+ “could if the price is right.”
For now, both Netflix and Disney with their trio of brands (Disney+, Hulu and ESPN+) are the ones they’re most bullish on for the long term. The ones who have the most downside are the smaller ones like Lionsgate with Starz and AMC with their own service which “may not be sustainable given stiff competition.”
He suggests those smaller-scale services “might be better off folded into larger platforms a la WWE Network into Peacock.” He also suggests the upcoming Paramount+ needs a minimum of 55 million and preferably around 75-100 million subscribers to be sustainable and a serious player.
Source: THR
