Everyone Wants to Sell You Streaming Video
Many media companies may be in for a rude awakening as the industry continues to shift to direct-to-consumer streaming subscriptions. Media companies not named Netflix aren't in the business of selling subscriptions and billing customers; they're in the business of producing great content.
As more media companies announce plans to offer streaming, more and more companies are coming forward with plans to help them sell those services. They range from Amazon (NASDAQ: AMZN), which already offers over 150 "Channels" through its Prime Video service, to T-Mobile (NASDAQ: TMUS), which wants to bring its subscriber relationships, customer service, and billing capabilities to the table.
Here's a rundown of all the outsiders positioning themselves to provide a much-needed service to these new streamers.
Streaming platforms are a natural fit for a streaming service distribution service. Amazon has thus far led the way with its Fire TV platform combined with its Prime Video service. As mentioned, Amazon Channels includes over 150 different services customers can subscribe to, some of which are exclusively available through Amazon. Those exclusive channels show there's a need for help with sales and distribution, particularly among smaller media companies.
Amazon Channels generated gross revenue of $1.7 billion last year, and it will grow to $3.6 billion next year, according to an estimate from BMO Capital Markets analysts. That may explain why both Roku (NASDAQ: ROKU) and Apple (NASDAQ: AAPL) are eyeing the space.
Roku added premium subscriptions to the Roku Channel at the start of the year. Apple introduced Apple TV Channels at its event in March. Both accomplish similar things: They allow media companies to focus on content, and the platforms take care of the rest -- hosting, distribution, selling, billing, etc.
Amazon Fire TV and Roku have nearly equal presences in broadband households in the U.S. Apple TV is less popular, reaching about one-third as many homes. But Apple also has devices in "a billion pockets, y'all," as Oprah Winfrey declared at Apple's March event.
All three have existing billing relationships with at least some of their customers, but both Amazon and Apple are more likely to have payment information on file thanks to the Amazon marketplace and the Apple App Store. That could help reduce the friction in signing up viewers for new services.
A more interesting approach that's surfaced recently is utility companies like phone or internet providers might be willing to provide billing and promotional services for some streaming services. T-Mobile and Comcast (NASDAQ: CMCSA), for example, bundle a Netflix subscription with some of their plans. Customers receive a monthly bill from these companies already, so the marginal cost of billing and processing payments is minimal.
T-Mobile thinks it can play a critical role for media companies and their streaming services. "It's subscription-palooza out there. Every single media brand either has or is developing an OTT [over-the-top] solution," exclaimed T-Mobile COO Mike Sievert on the company's fourth-quarter earnings call. "We think there's a more nuanced role for us to play in helping you get access to the great media brands out there that you love. And to be able to put together your own media subscription in smaller pieces, $5, $6, $7, $8 at a time. It's an exciting future for us."
T-Mobile also launched its own in-home television service earlier this year. It's a premium video service that integrates select streaming options. That could be another platform for T-Mobile to sell other streaming services.
Comcast, meanwhile, is trying to embrace streaming as much as any legacy pay-TV company can. As mentioned, it offers Netflix in some subscription bundles, and customers without Netflix in their bundle can subscribe directly through the company's X1 set-top box and see the subscription as part of their Comcast bill. Comcast has also integrated Amazon Prime Video, YouTube, and Tubi content on the X1 platform, but doesn't have billing relationships with any of those services.
Earlier this year, Comcast launched Flex, a streaming video box that also acts as a hub for smart-home devices. While the device doesn't appear to provide much value (especially considering its monthly $5 fee), it shows Comcast's interest in becoming a bigger part of the streaming video ecosystem.
Importantly, Comcast's NBCUniversal will launch its own streaming service next year, and it still owns one-third of Hulu. So Comcast has a vested interest in supporting streaming.
It's likely that more companies will enter the market as streaming service distributors as the number of streaming services per household grows over the next few years. The companies acting as facilitators are going to produce outsize value for their shareholders, but determining which company consumers will favor as the best way to subscribe to all those services may be just as difficult as determining which media companies will succeed in streaming.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Amazon, Apple, and Netflix. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Comcast, Roku, and T-Mobile US. The Motley Fool has a disclosure policy.