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PUBLISHED ON HBR.ORG
NOVEMBER 29, 2019

ARTICLE
COMPETITIVE STRATEGY
For Streaming
Services, Navigating
Generational
Differences Is Key
by Larry Downes

This document is authorized for use only in Sujit Kumar's PGP II (Term 4) : Reimagining Telecom & Next Generation Businesses (RTNGB) 2020-21 at Indian Institute of Management -
Ahmedabad from Jun 2020 to Oct 2020.
COMPETITIVE STRATEGY

For Streaming Services,


Navigating Generational
Differences Is Key
by Larry Downes
NOVEMBER 29, 2019

HBR STAFF/PIXABAY

The traditional video marketplace is no more. Driven by a combination of technologies including


high-speed internet access, billions of mobile devices, and falling prices for high-resolution displays,
television as we have known it for decades is undergoing a radical reinvention, one that will reshape
the media ecosystem. Just in the last few months, game-changing streaming services have been
announced or launched from industry giants including Disney and NBCUniversal, spurred in part by
billion-dollar investments from newer entrants such as Netflix, Google, and Apple.

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This document is authorized for use only in Sujit Kumar's PGP II (Term 4) : Reimagining Telecom & Next Generation Businesses (RTNGB) 2020-21 at Indian Institute of Management -
Ahmedabad from Jun 2020 to Oct 2020.
As incumbents scramble to respond to technical, business, and regulatory challenges posed by
innovative disruptors, investors and consumers alike are wondering who will win the fight for new
media supremacy. The answer, it turns out, may depend on how old you are, the age of your
customers, and how each of you define “video content.”

To understand why, let’s start with how markets get upended. In the Big Bang model of disruption,
innovation based on better and cheaper technology begins with a period of wild experimentation,
where entrepreneurs unleash new offerings and new business models in search of products and
services that mainstream consumers will embrace at scale. When they find them, the mature
offerings of incumbents can become suddenly obsolete.

In streaming media, that experimentation has been going on for more than a decade. Netflix moved
to streamed content in 2007, for example, and, in 2013, shifted to originally produced shows. The
company’s success spawned dozens of competing services, including from technology giants such as
Apple, Amazon, YouTube, and Sony.

In response, producers and distributors of traditional PayTV services, or what is known as “linear”
programming, launched streaming alternatives that compete with their own legacy products, such as
Sling TV from Dish, and DirecTV Now from AT&T. One startling statistic is that YouTube viewership
is now 1 billion hours a day, which is more than linear TV.

Silicon Valley’s reshaping of Hollywood, however, has suddenly accelerated. Earlier this month,
Apple launched a fully revamped Apple TV+, featuring exclusive content from marquee directors,
actors, and producers, including Steven Spielberg, J. J. Abrams, Oprah Winfrey, and the creators of
Sesame Street, all for $4.99 a month.

Not to be outdone, Disney, fresh off its acquisition of much of Fox’s content assets, has just launched
Disney+, an online service that gives viewers access to much of the Disney film archives as well as
original programming featuring licensed properties from the Star Wars, Marvel and Pixar franchises.
At a starting price of $6.99/month, Disney+ poses a serious challenge to an earlier generation of
streaming giants, including Netflix, Amazon Video, YouTube, and Hulu, the latter of which Disney
now owns outright.

Given these developments, it’s little surprise that PayTV providers are losing subscribers at a dizzying
pace. In 2018 alone, according to company reports, linear programming providers lost more than 3
million subscribers, or 4.2% of their total customers, an increase from 2% in 2016. Another million
users cut the cord in the first quarter of 2019, 1.5 million in the second quarter, and nearly 1.7 in the
third quarter — almost 4% of all remaining customers every quarter.

Streaming revenue, meanwhile, more than doubled between 2016 and 2018, from $30 to $68 billion.
More than a quarter of all U.S. consumers are now spending over $100 a month for multiple
streaming subscriptions.

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This document is authorized for use only in Sujit Kumar's PGP II (Term 4) : Reimagining Telecom & Next Generation Businesses (RTNGB) 2020-21 at Indian Institute of Management -
Ahmedabad from Jun 2020 to Oct 2020.
And while incumbents are rushing to make their own programming available a la carte and on non-
TV devices (as with HBO GO and CBS All Access), PayTV providers are held back from full
participation in an emerging streaming ecosystem by a vast and confusing tangle of federal, state,
and FCC restrictions on what content they can offer and from whom they can license it. To get
around some of the dangerously outdated rules, distributors are pivoting into content and
technology businesses, spurring a flurry of high-risk mergers, acquisitions and start-up investments.

In the next phase of the so-called “streaming wars,” those hoping to find a profitable niche — or even
just to sort through the dizzying array of options they’re being offered as consumers — need to
understand the unique characteristics of the different demographics in play: Baby Boomers,
Generation X, Millennials, and Generation Z. Each group has demonstrated its own preferences for
how they pay for, search, and consume video and those preferences require providers to delicately
balance different offerings for each. Let’s look at some of their differences in more detail.

Baby Boomers: Baby boomers remain the base of traditional PayTV. Even with the quickening
decline of bundled TV services, 80 million U.S. households still subscribe to cable, satellite, and fiber-
based video services.

Accelerating subscriber abandonment will likely reach equilibrium, although it’s not clear when.
That will leave a stable group of largely-older legacy customers. Notably, the core of their linear
viewing, according to news site The Big Lead, is already dominated by live sports — the last
stronghold of the incumbent video industry. In the U.S., 89 of the top 100 most watched TV
programs in 2018 were live events, of which 64 were NFL broadcasts.

Still, these users, along with their cord-cutting peers, are actively replacing or supplementing linear
programming with of the best of newer streaming options, including original content from YouTube
and Netflix, skinny bundles from Sling TV and DirecTV Now, and single-network services such as
HBO Go. Well over half of all older consumers are already subscribing to at least one streaming
service, with a quarter of Americans over age 50 having cut the cord to linear services by the end of
2018.

Generation X : Adults between the ages of 45-54 integrate linear and streaming content natively, as
well as the devices on which they consume it. They expect programming to be available wherever
they are, and are more comfortable than their parents are at picking and choosing from an explosion
of fast-evolving options, customizing their own experiences based on peer recommendations from
social networks.

Critically, this middle demographic sees less difference all the time between scripted content
produced by incumbent media giants, original content from tech-based streaming services, and
“amateur” productions from YouTube and other content hosting platforms.

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This document is authorized for use only in Sujit Kumar's PGP II (Term 4) : Reimagining Telecom & Next Generation Businesses (RTNGB) 2020-21 at Indian Institute of Management -
Ahmedabad from Jun 2020 to Oct 2020.
In part, that’s because technology has dramatically reduced production costs. For less than $10,000
worth of equipment (a digital camera, lights, and editing software) and a high-speed internet
connection, YouTube stars can produce high-quality programming and reach audiences in the
millions. More than 2,000 YouTube channels had more than 1 million subscribers in 2016; a number
that doubled by 2018. Some YouTube stars are now making well over $10 million a year, a
combination of shared ad revenue, sponsorships, and a return to the days of patronage, where fans
pledge monthly support through platforms such as Patreon.

Millennials and Generation Z: The youngest video consumers likely never had a cord to cut, and
aren’t expected ever to subscribe to a linear TV bundle. Like Gen Xers, they’re perfectly comfortable
mixing and matching professional and amateur, incumbent and startup. They don’t distinguish one
screen from another, and are more likely to watch video on devices other than a TV.

For these consumers, user-generated content is taking on strange new forms. Instagram users under
the age of 35, most of whom live outside the U.S., now spend more than 32 minutes a day producing
and watching each other’s videos. Snapchat, where “stories” disappear after 24 hours, boasts more
than 14 billion video views per day, 70% from and by users under the age of 25.

Interaction is a key component of video consumption for the youngest audiences. Amazon-owned
Twitch, a social media platform for gamers, has more than 15 million daily users, who subscribe to
watch broadcasts of experts playing popular video games such as Fortnite, exchanging messages
with the player and other viewers. The most popular stars on the service earn close to $1 million a
month just from their share of monthly subscriptions.

Little surprise, then, that Google’s major entry into the streaming maelstrom isn’t a video service at
all, but instead a first-of-its-kind gaming platform called Stadia, launching later this month. Stadia
will allow users to play seamlessly from one device to another without the need for a separate game
console. Powered by Google’s data centers and hundreds of millions of miles of fiber optic cable, the
service will stream the latest games at 60 frames per second and support 4K resolution, with both
doubling in the near future.

A dramatic reshaping of consumer consumption

Regardless of demographic group, consumers are already overwhelmed by abundance, with more
options and original content choices than they can possibly consume. Incumbent creators and
distributors are trying not to cannibalize any more of what’s left of their linear customer base than
they have to, but most are erring on the side of low prices for new streaming services, essential to
competing with the likes of Netflix and Amazon.

With many if not most of the new services unlikely to be making any profits at their current prices,
it’s a golden age for media users, as developers look to build audiences and brand loyalty ahead of
sustainable revenue. Cord cutters have more options than they can sort through, or even sample.

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This document is authorized for use only in Sujit Kumar's PGP II (Term 4) : Reimagining Telecom & Next Generation Businesses (RTNGB) 2020-21 at Indian Institute of Management -
Ahmedabad from Jun 2020 to Oct 2020.
Venture-financed experimentation, of course, won’t last forever. At some point, perhaps soon, many
of the services launched in the last few years will evolve, merge, or disappear altogether. (One such
streaming service, Sony’s PlayStation Vue, has already announced it’s throwing in the towel.)
Consumers with limited viewing hours and ability to pay will focus their attention on a few surviving
models, technology platforms, and services, perhaps including some not yet launched.

For now, content creators, distributors, and consumers are deeply in the Big Bang stage of disruption.
But the next stage, the catastrophic reckoning known as the Big Crunch, is coming, probably sooner
than later. As the true winners emerge from today’s primordial soup of innovation, the remaining
streaming services may finally see profits.

To reach the finish line, incumbent producers and distributors, along with new entrants large and
small, need to understand who their real audience is, and shape their offerings to the specific
demands of each demographic group as best they can. The sooner they embrace that reality, the
more likely they’ll survive the dramatic consolidation that’s already begun.

Larry Downes is a co-author of Pivot to the Future: Discovering Value and Creating Growth in a Disrupted
World (PublicAffairs 2019). His earlier books include Big Bang Disruption, The Laws of Disruption, and Unleashing the
Killer App.

COPYRIGHT © 2019 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. 6

This document is authorized for use only in Sujit Kumar's PGP II (Term 4) : Reimagining Telecom & Next Generation Businesses (RTNGB) 2020-21 at Indian Institute of Management -
Ahmedabad from Jun 2020 to Oct 2020.