June 30, 2024
In April 1993, 'Wax' or 'The Discovery of Television Among the Bees' was the first film by the independent filmmaker David Blair to be streamed online. The streaming was done using a VHS tape player and a Silicon Graphics machine that connected to the internet's multicast backbone using a T-1 dedicated phone line. Only four years prior to this, Tim Berners-Lee had invented the World Wide Web. The picture was broadcast at a rate of 15 frames per second, about half the standard broadcast rate, with the sound quality of a bad phone call.
RealNetworks founder Rob Glaser launched the RealAudio Player in 1995 with a broadcast of National Public Radio's morning and evening news programs. Mark Cuban and Todd Wagner came up with an idea to broadcast sports events using the Internet. They would hook a VCR to a radio station's audio board and when the VCR was full (every eight hours), they would encode it and broadcast it on AudioNet.com. In 1998 it went public, was rechristened Broadcast.com, and was broadcasting live events like Super Bowl.
Jonathan Taplin began his career as a tour manager for Bob Dylan and the Band. In 1996, he launched Intertainer, a service that would deliver movies through the Internet. It amassed the largest library of movies at the time. But in 2002, the studios decided to pull back all the rights from Intertainer, which led to its shut down. The studios decided to control the internet distribution themselves through a Sony-led venture called Moviefly which would later become Movielink.
Movielink was initially conceived of as a movie download service intended to face the threat of internet piracy. Movielink was launched in 2002 and provided online movie rentals. But it struggled because it offered titles after thirty to sixty days of its availability on DVD. And a year later, it was sold to Blockbuster. Blockbuster lost out to its rivals and filed for bankruptcy in 2010 and the last of its stores were closed in 2014.
The de facto U.S. headquarters of Netflix called "Icon" is situated in a building at 5808 Sunset Boulevard, California. It has expanded to a new building across the street called "Epic". And it has also leased several floors of office space in a nearby building called "Cue". The New York Times has labelled the lobby of Icon "Hollywood's Town Hall".
Reed Hastings was CEO of a software company called Pure Attria which bought Integrity QA, where Marc Randolph was a co-founder. Hastings and Randolph both lived in Santa Cruz, and got into the habit of spitballing ideas while carpooling along Highway 17.
They came up with an idea of movies on video. With an initial startup capital of $1.9 million provided by Hastings, Randolph, and some angel investors, the company hired around a dozen people. In its first six months, its goal was to set up a website dedicated to disc sales and rentals. The first Netflix office was a former bank branch and they used to put its initial supply of DVDs in the bank's vault. When Netflix launched its website on April 14, 1998, it received around 150 orders which crashed its servers. Even though Netflix was selling plenty of DVDs, its costs were too high and therefore it wasn't making any money and struggled in its first year.
Netflix started shipping its customers three DVDs a month for a fixed monthly subscription. But they had hundreds of thousands of DVDs in their warehouse. So the co-founders came up with an idea to ship a DVD to its customers and the customers could keep the DVD for as long as they wanted. And when they needed a new DVD, they would have to send it back to Netflix to get a new one. The service that they started in 1999, changed the company's fortunes and attracted 239,0000 subscribers. Netflix did what most other rentals companies failed to do. It allowed its subscribers to rate each movie which it displayed on its site, it allowed its subscribers to share reviews of the movies and allowed its subscribers to build "queues" of desired rental titles.
But it wasn't only the subscribers that were excited by Netflix. Silicon Valley injected $100 million into Netflix which helped it grow to more than 350 employees. But in March 2000, after the tech bubble burst, Netflix was on track to lose $57 million. The co-founders, Hastings and Randolph, unsuccessfully tried to convince Blockbuster CEO John Antioco to buy Netflix for $50 million. This led Hastings to fire one-third of the company's employees and keep only the highest performers, the "keepers".
In Netflix, coworkers gives one another candid feedback frequently without regard to hierarchy. Radical honesty is appreciated. And in a practice called "sunshining", an employee that has made a mistake will explain publicly what he has learned from his mistakes. It is a way of encouraging the employees to accept that failure can be an outcome of risk-taking. A "360 review" policy allows employees to submit performance reviews of other employees regardless of the organizational hierarchy.
In February 2020, Netflix launched its first recommendation engine called Cinematch. Six years later, it launched a contest to boost the accuracy of its engine by ten percent and offered a $1 million prize money. A group of engineers from AT&T calling themselves BellKor's Pragmatic Chaos won the prize in 2009. Netflix implemented a stripped down version of their algorithm. Netflix used customer ratings to recommend movies when its business was centered around DVDs. But streaming provided much more data about its customers' viewing habits.
Access to broadband increased from 1 percent of U.S. households in 2001 to 51 percent in 2007. It became obvious to Netflix that the future is streaming. In January 2007, Netflix launched a service called 'Watch Now'. Its viewing was restricted to computers running Microsoft's Windows Media Player. Hastings wanted to grow the DVD business until Netflix could overcome the barriers that were preventing its streaming service from being embraced by its consumers.
Netflix offered streaming as a perquisite for its DVD subscribers. There were around one thousand movies and TV shows available for streaming, as opposed to the seventy thousand DVDs available for rental. In October 2008, Ted Sarandos, the co-CEO, made a $90 million three-year deal with Starz for the streaming rights of Disney and Sony movies.
Netflix added around three million subscribers in 2009 which it attributed to its streaming service. It added new ways for its subscribers to watch movies and TV shows on Sony PlayStation 3, Microsoft XBox, Nintendo Wii, and Apple TV which led to a sixty-three percent increase in its subscribers. In addition to that, it made a five year $1 billion deal with Epix which allowed Netflix to stream movies from Paramount, Metro-Goldwyn-Mayer Studios, and Lions Gate Entertainment Corporation.
In 2011, the company decided to separate its DVD rental business into a new service called Qwikster. It was a disaster because Netflix lost millions of subscribers and its stock value dropped by seventy-five percent. Disney came to Netflix's rescue in 2012 with a deal that gave the company access to new Disney, Pixar, Marvel, and Star Wars films starting in 2016. It resulted in seventy-six million new subscribers and billions in market valuation. The stock was at $12 when the deal was announced, and by 2017 the stock price had risen to $178.
The streaming service offered $100 million to David Fincher and company for a brand new TV series called 'House of Cards'. It was for two seasons consisting of twenty-six episodes. 'House of Cards' was a platform-defining show that redefined internet content. Netflix dropped all thirteen episodes of the show at the same time allowing its subscribers to watch the show at their own pace.
Some popular Netflix shows that followed House of Cards include Narcos, The Crown, and Stranger Things.
AT&T first proposed to acquire Time Warner in October 2016. And in the fall of 2017, the antitrust regulators decided to file suit against AT&T. The regulators thought the merger would harm both the consumers and the competitors. In February 2019, an appeals court unanimously rejected the DOJ's appeal of a June 2018 federal court ruling that allowed the merger to happen.
John Stankey, the head of Time Warner portfolio, thought that there was a need for a corporate restructuring. He wanted to get rid of the silos that separated Turner (CNN, TNT and TBS), Warner Bros., and HBO. Instead of selling popular shows to other streaming platforms, the company wanted to create its own streaming service. HBO Max, the new streaming service would include the HBO portfolio, Warner Bros., and new original shows. It was launched in 2020, months after Disney+, Apple TV+, and Peacock.
In January 2006, Jonathan Miller, chairman and CEO of AOL pitched the purchase of YouTube to the board of Time Warner which they refused. A few months later Miller reached an agreement with Mark Zuckerberg to buy Facebook for $1.4 billion, but when he took the offer to Time Warner, he got rejected again. Other missed opportunities included Hulu and Netflix.
When Bob Iger became CEO of Disney in 2005, he made two big decisions. The first was to enable customers to watch popular ABC shows on their iPods and the second was to acquire Pixar for $7.4 billion. Steve Jobs met Anne Sweeney, ABC's network chief, and gave a demonstration of how to download the 'Lost' TV show from iTunes and watch it on iPod. After this demonstration, Disney and Apple reached an agreement in which Lost, Desperate Housewives, Night Stalker and two Disney Channel shows would be uploaded to iTunes.
As the viewers turned towards streaming services, the television industry came up with its own app called 'TV Everywhere' which allowed the consumers to watch TV shows on any Internet connected device. The initiative was spearheaded by Comcast and Time Warner in an attempt to retain viewers who were contemplating to cut the cord. Disney decided to join the app in 2013 but it continued selling its movies and TV shows to Netflix. The same year Disney struck a $300 million a year deal with Netflix. Pay-TV subscriptions declined for the first time in its entire history by more than a quarter of a million to 100.8 million subscribers in the year 2013. By the end of 2020, its subscribers would drop to 81 million.
Michael Eisner, CEO of Disney helped create the Go Network. It was a web portal that was created as a result of a joint venture between Disney and Infoseek. It turned out to be a disaster and Disney shut it down in 2001. In 2007, Disney spent $351 million to buy Club Penguin, an online social network for kids. And it acquired Playdom, a social gaming startup for $763 million in 2010. Both of these investments also ended up being disasters.
Disney launched DisneyLife in the UK which included movies like Bambi, Toy Story, Pirates of the Caribbean, a catalog of five thousand songs, and digitized versions of Disney books. It ended up being a dud but Disney decided to keep it going as a real-time, large-scale focus group. Executives at Disney knew that building a streaming platform from scratch would take years and cost hundreds of millions. That's why the executives decided to make a deal with BAMTech which will help it with its streaming services.
Disney made a $71.3 billion deal to acquire most of 21st Century Fox which also included control of Hulu. It helped Disney fill its streaming pipeline with The Simpsons, Avatar, and National Geographic.
Apple poached two former Sony Pictures Television executives who were behind hits such as Breaking Bad, The Shield, and The Crown. It was an attempt to transform its original programming. Over the next two year, the duo struck deals with Steven Spielberg, Oprah Winfrey, and Octavia Spencer.
Steve Jobs wanted an Apple TV set that could be controlled through voice and touch. The problem was that the cost of the TV set was going to be very high and people only replaced their TV sets once every seven years. After Steve's death in 2011, Tim Cook took over as CEO. He was left wondering as to how Apple would be able to build a business around a piece of glass in the living room. It didn't align with his vision for building Apple's ecosystem.
It was very important for Apple to launch its streaming service because Apple's service business had brought more revenue than the sales of Mac computers and iPads combined by the year 2019. And iPhones sales were also slowing down. It provided one more reason for consumers to hang on to their Apple devices.
According to some executives, Apple was playing the long game. It would spend a couple billion dollars on eye-catching shows to draw attention to the Apple TV app. Once that is done, it would use the app to stream other services and take a cut of the new subscriptions accessed through its app. Apple is trying to do what cable operators did, to aggregate content.
During the streaming service's unveiling in Cupertino, California, the stage lights came up to reveal one celebrity after another. The line up included Steven Spielberg, Reese Witherspoon, Jennifer Aniston, Jason Momoa, and several other prominent figures. The event lasted almost two hours but left many unanswered questions - how much would Apple TV+ cost or when would it launch.
Jerry Katzenberg launched Quibi (short for quick bites) on April 6, 2020. His goal was to revolutionize entertainment on mobile phones. Quibi would deliver movies and television shows in seven to ten minute chunks designed to fill those moments spent in the waiting room at the doctor's office, standing in the supermarket checkout lines, or waiting for the barista to hand over your coffee at Starbucks.
In 2012, consumers spent six minutes a day watching videos on the go. Five years later, that figure rose to forty minutes a day. HBO was launched at a time when free broadcast television ruled people's living rooms. It began producing expensive original programming when shows like Friends and ER had huge audiences. What Katzenberg wanted to do was create an online equivalent of HBO.
The technology which Quibi had dubbed Turnstyle allowed its viewers to switch fluidly between full-screen portrait and landscape video when they rotated their phones. Every film was shot in portrait and landscape and delivered in a single package to the user.
The challenge was that the millennial users weren't interested in Quibi. They could easily connect with celebrities through TikTok or Instagram.
As a kid, NBCUniversal streaming service Peacock's head, Matt Strauss, wanted to watch cartoons on demand. But in the era of broadcast television, if you missed a show then there was no way to summon it another time. After graduating from NYU with a business degree, Strauss took a job at ABC where Bob Iger was running the network. Strauss cold-called Steve Burke, head of Comcast Cable, and arranged a meeting. He told Burke about his vision for on-demand programming. And two weeks later, he was hired without a job description.
After the merger of NBC with Universal Entertainment in 2004, it was called NBCUniversal. Comcast took full ownership of NBCUniversal in 2013. NBCUniversal wasn't as interested in streaming as its rivals, Time Warner and Disney. In 2019, when it announced that it would start its own streaming service, it ruled out the possibility of taking down its contents from other platforms. For example, The Office was one of the most streamed shows on Netflix. Now NBCUniversal could reclaim it, but doing so would cost it $500 million.
The person in-charge of spear-heading the streaming initiative at NBCUniversal was its CEO, Steve Burke. He was groomed by Bob Iger, then ABC's president, to succeed him at the network. But he chose to run Comcast instead.
NBCUniversal reaped around $12 billion a year from linear, digital, and streaming worldwide. The 2016 Rio Olympics was the most profitable in the company's history. Broadcast television accounted for NBCUniversal's 75 percent profits. Despite the popular belief that TV spot was dying out as a result of home entertainment innovation, CBS All Access and Hulu had shown that large-scale streaming services with ads were viable. Pluto TV and Tubi are two examples of free, ad-supported outlets where viewership was increasing. Instead of choosing Matt Strauss, Steve Burke chose Bonnie Hammer, to run the day-to-day operations of the advertising-oriented strategy.
Comcast had made a hostile bid for Disney in 2004. In 2018, these two companies dueled for the ownership of the 21st Century Fox, which Comcast lost. Then it decided to acquire the European satellite TV giant Sky. It won this bidding war with Disney with a $40 billion offer. After the deal was signed, Burke announced that the streaming service would launch in early 2020.
Amazon, YouTube, Facebook, and Twitter all started streaming live games in the 2010s. Amazon carries Premier League football and some major tennis tournaments. Peacock and ESPN+ have sports streaming at their core. HBO Max added NHL hockey rights in 2021 and Paramount+ has successfully added football, college sports, and NFL a central part of its game.
Bob Iger has mentioned that ESPN is fated to become "far more of a direct-to-consumer product", though that transition is expected to take many years. The games and programming that actually matter can be seen only on regular ESPN, via a pay-TV subscription. ESPN+, which is a complimentary service, was launched in 2018 and has managed to gain around fifteen million subscribers.
From plastering their brand names on shows, to running commercials, and having the talent do the on-air "reads" of sponsors, advertisers had called the shots on American television. But Netflix changed all that with its ad-free subscription service. Even though earlier digital video efforts of the 2000s, such as YouTube and Hulu, had advertising at their center, the essence of the internet-delivered video experience soon asserted itself, and it was about the viewer taking control.
Amazon's investment in streaming platforms like Twitch, Fire TV, and IMDb TV, and its recent push into sports, is motivated by advertising. It is projected to exceed $20 billion a year in revenue.
The future of video experience will be defined by the reconciliation of ad-free subscription video-on-demand services (SVOD) with a sophisticated group of ad-supported ones (AVOD). The feasibility of AVOD is being tested by HBO Max and Peacock. And the TimeWarner service is attempting to add commercials after it started commercial free.
In October 2006, Google bought YouTube for $1.65 billion. The content that appeared on YouTube in its first few months didn't seem to threaten television juggernauts such as American Idol, CSI, or Grey's Anatomy. But that changed quickly.
NBC and News Corp wanted to create something of their own to counter YouTube. Their response was called Hulu and the person they chose to run it was Jason Kilar, an executive at Amazon who had written the original business plan for the online retailer's entry into the video and DVD business.
Hulu was launched in March 2008 and by March 2009 it was pulled into the top three video streaming sites. The following month, it enlisted another network participant, the Walt Disney Company's ABC. And 2010 saw the launch of a paid "premium" version of Hulu.
Subscriptions reached thirty million by January 2020. And it has proven to be an effective springboard for Disney to launch its new services, such as Disney+ and ESPN+. After the success of Disney+, how long would Hulu remain a stand-alone service remains a big question.
AT&T executives had talked about launching their streaming service in the last quarter of 2019. The final offering had a three-tier structure with distinct price points and levels of programming. The cheapest tier would offer movies, the middle tier would offer original programming and more film titles, and the most expensive tier would include classic films, comedy, and children's programming. There was no mention of news and sports. The stand-alone service offered by Time Warner since 2015 was HBO Now.
AT&T insisted that existing customer relationships gave the new streaming service an unusually solid foundation. Unlike Apple and Disney, they wouldn't have to start from scratch. They already had ten million subscribers paying for the premium network.
According to some estimates, Disney reaped $5 billion to $8 billion from licensing its movies and TV shows to third parties. But Iger wanted to be a retailer of its content, not a wholesaler. So Disney's response to a rise in direct-to-consumer streaming was to invest in BAMTech.
ESPN had nearly one hundred million subscribers in 2011, but by 2018, its subscribers had fallen down to eighty-eight million. It was in August 2017 that Iger made public that Disney wanted to create an entertainment-based service and another built around ESPN.
They decided on the name Disney+ for its streaming platform. In its first year, Disney+ would feature more than 7,500 episodes of television, 400 library titles, and 100 recent theatrical film releases. ESPN+ would continue to focus on live events, which included soccer, cricket, rugby, pay-per-view UFC matches and college sports.
Disney announced that their subscription service would cost $6.99 a month, which undercut Netflix's most popular subscription plan by half. Disney planned to spend $1 billion on original content in 2020 and another $1.5 billion to license movies and series.
Following the announcement, Disney's stock hit a record high, adding as much as $25 billion in market value, for a total of about $235 billion. Netflix, on the other hand, lost as much as $8 billion in market capitalization on news of Disney's cheaper service.
Apple TV+ launched on November 1, 2019, in more than one hundred countries and cost $4.99 a month. In addition to the cheap price, Cook announced that anyone who purchased an iPhone, an iPad, a Mac, or an Apple TV, would receive the first year free.
The plan was for Apple TV+ to launch with a handful of original series but no library of familiar movies and TV shows. In its initial days, there were a lot of stories about Apple's excessive meddling with projects and copious notes providing feedback on scripts. According to a writer-producer involved in the process, there was pressure to deliver excellence, which would be difficult to hit in the absence of any Apple TV+ shows to watch prior to launch.
Quibi debuted on April 6, 2020, when the COVID-19 virus was spreading across the globe. Launching a service like Quibi when the whole nation was sheltering in place had its downsides but Katzenberg decided to ignore it.
The service launched by offering a 90-day free trial. Downloads of the app peaked at 1.5 million during the first week of the launch and then fell off by 57 percent the following week. When launched, Quibi had fifty titles, and enough celebrities to fill the Vanity Fair Hollywood Issue. But it was the quality of the shows that received some harsh criticism.
Once the trial period ended, many of the users decided to end their subscription. Within the three months of its launch, many Hollywood insiders had written off Quibi for dead. In September 2020, Katzenberg and Whitman started looking for someone to buy the company. They announced that the service would shut down on December 1, 2020 and return as much of its remaining cash as possible to its investors.
Peacock was supposed to premiere in 2020. The goal was to use the Summer Olympics for a massive promotional push. The plan was to launch a twenty-first century broadcast network delivered on the Internet.
The 250 linear TV networks selling ads comprised 92 percent of all viewers, with ad-free network like HBO and Showtime left to the remaining 8 percent. NBC, CBS, and ABC had all minted money for decades with an ad-based model. So why change the model now?
Seven thousand and five hundred hours of film and TV titles was included in the basic tier which was offered for free. The Premium package would boost that number to fifteen thousand hours. It was offered for free to the existing Comcast customers and $5 a month for others. And those who wanted a completely ad-free experience had to pay another $5 on top of that.
Peacock failed to reach a deal with Roku and Amazon Fire TV, which together reach more than one hundred million U.S. households.
The executive kept the name HBO because focus-group research repeatedly showed the benefits of leading with HBO. HBO Max would not be able to launch in the UK, Italy, and Germany until at least 2025. And since Disney+ had launched first and had set a high bar, there was immense pressure on Warner Media to catch up. Not to mention, Apple TV+ offered a first year free subscription for anyone who bought a new Apple device and Disney+ offered a six-month free trial for Verizon customers.
HBO Max was launched in May 2020 at the price of $14.99 a month which was $2 more than the most popular version of Netflix.
In the first half of 2020, Netflix added as many users as it did in the entire year of 2019, but by the summer of 2020, that explosive growth pace had leveled off. In response to investments from other streaming services, Netflix signed ABC's most prolific showrunner, Shonda Rhimes, the creator of hit shows like Grey's Anatomy and Scandal to a multiyear, nine-figure deal. In 2018, Netflix struck a five-year, $300 million deal with Ryan Murphy, the producer of such hits as American Horror Story, Pose, and Glee.
There is a focus on shows that will make the kids and family excited because the more members of a household that use a service like Netflix, the less likely they would be to cancel. And the new unscripted shows on Netflix were dropped one at a time, not following its binge model. By autumn of 2021, Netflix shares had passed $600, establishing yet another all-time high.
In its first year, Disney+ managed to gain 73.7 million subscribers.
Apple struggled in its first year and got around 10 million subscribers. Uncertainty about whether theatres would open or not during Covid lockdowns led Sony Pictures' to sell 'Greyhound', a World War II epic starring Tom Hanks for $70 million (it cost $30 million to finance the movie). This led to a 10 to 15 percent increase in subscribers for Apple TV+. Another show that made Apple TV+ very popular was 'Ted Lasso' which debuted in the summer of 2020 and won seven Emmy Awards.
Peacock's ad-supported streaming service gained ten million subscribers in its first three months but signups weren't the same as active users. And for months, there was a significant gap between how many users had signed up to the service and who was actually watching.
In July 2020, AT&T announced that HBO Max had signed up around 4.1 million customers in the month since launch, an inauspicious start. One of the reasons HBO Max suffered was because of its confusing brand identity. It had four different products called HBO in the market.
Disney+ used a new strategy for Mulan dubbed "Premium Access" which made the movie available for $29.99 only to its subscribers.
In 2014, Sarandos offered Adam Sandler the first film production deal in Netflix's history. Netflix would finance and release four of his movies, costing around $40 to $80 million. There would be no theatrical release and Netflix would own the rights in perpetuity. In 2020, Netflix announced 'The Gray Man' which was the most expensive movie ever green-lit by Netlix at that point, at more than $200 million.
Amazon used a different strategy compared to its rivals. The company's initial game plan was to acquire movies and collaborate with other distributors to release them.
In January 2021, Disneyland converted its massive parking lot in Anaheim into a coronavirus vaccine site. The Walt Disney Company postponed release of highly anticipated movies like Black Widow, West Side Story, and Death on the Nile. ESPN eliminated five hundred jobs - about ten percent of its workforce. The company also revised its forecasts, projecting it would get 230 to 260 million subscribers by 2024. The strong demand emboldened Disney to increase its price from $6.99 to $7.99.
HBO Max, on the other hand, had mustered 8.6 million activations by September of 2020. However, in November of the same year, HBO Max reached a deal with Amazon Fire TV which gave the service access to fifty million households. And by December, with the help of the Amazon Fire TV deal, activations of HBO Max had risen to 12.6 million. The company also announced that it would release the entire Warner Bros. movie slate for 2021 on HBO Max at the same time as its theatrical release. This resulted in WarnerMedia paying out hundreds of millions in compensation, on top of forgoing billions in box office. It was an enormous bet to increase the subscriptions of HBO Max.
Roku acquired all of Quibi's content, whose chapter breaks provided the space for advertising. It was rebranded as "Roku Originals" and offered for free on the Roku Channel. It set the stage for another Silicon valley player to begin making its own movies and TV shows.
The Amazon founder doubled the company's spending on Amazon Prime Video from an estimated $2 billion in 2014 to $4.5 billion by 2017. The MGM acquisition - for a price tag of slightly less than $10 billion - made Amazon Prime Video even more substantial.
After more than a decade apart, Viacom and CBS reunited at the end of 2019, and poured their collective entertainment resources into Paramount+. Paramount+ is a rebranded version of CBS All Access which was launched in March 2021. Discovery launched a direct-to-consumer service called Discovery+ just before starting its secret merger talks with WarnerMedia. NBCUniversal paid $1 billion to create a separate stand-alone streaming service WWE Network, a part of Peacock.
Disney has enjoyed significant success with its $14-a-month streaming bundle. Apple's giant vast portfolio of services, spanning cloud storage, music, apps, news, video games, and TV, was arranged in bundles in 2020. In March 2021, it had amassed a grand total of 660 million subscribers across its portfolio of services.
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