Final act for the streamers

Netflix introduced ads and now Amazon Prime too. It’s your fault.

Screenshot of Amazon Prime home page on 4 January 2024. Prominent at the top is Saltburn

It’s a three-act drama

In act one it’s about growth—extravagent, out-of-control, venture-funded growth—you remember that. Piling on millions—hundreds of millions—of users as quickly as possible. And in this act the product improves. It has to. Features are added with no concern for cost—bigger libraries, 4K and HDR video, better sound. Data centres blossom everywhere, fast caches and CDNs eliminate latency. Distribution partners are falling over themselves to sign up, production budgets are lavish—insane, in fact (how about $58M per episode?). This is how you acquire a big audience and a chunky annuity income fast.

In act two—in the classical model—it’s crisis. Cheap money is over, we’re told, capital is withdrawn, invested elsewhere, exit horizons shorten. Services collapse or are quietly closed. Even the biggest corporations—the heroes of previous eras—admit defeat: their shabby content libraries and derivative branding weren’t up to the job. And the sheer profusion of competing services with impenetrable offers and stupid names was bound to produce a shake-out. Carnage.

Act three brings resolution—consolidation. Services are merged, prices increased and catalogues simplified. And, for users, everything gets worse. Say goodbye to 4K and password sharing. And, worse, ads are inserted. For a CFO or an investor the logic of the last one is absolutely unarguable. A huge library of video files, sitting on expensive, top-tier servers all over the world, begins to look like an under-exploited asset—or, worse, a liability. I mean they’re really not paying their way are they, all those MP4s? Just sat there, earning a bit of subscription income.

In this phase, that precious movie library is redefined as a vast store of unsold advertising inventory. And, as the economics gets nastier, not inserting ads—not sweating your asset properly—begins to look like a mug’s game. Especially when everyone else is doing it. Investors will only have one question—when are we introducing ads? In this world, the audience is also redefined.

And you, the happy punter, originally thought to be literally the ideal customer because you were ready to give Netflix or Amazon or Hulu money every month whether you used the service or not (basically a mug) begin to look a bit ‘low-yield’. Not really working hard enough for a decent return on investment. You are now the problem.

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