The Netflix Effect: Can Rivals Compete By Bulking Up On Content?

WarnerMedia's library of 7,000 films and 5,000 shows may not alone be enough to face off against a streaming giant that is spending up to $13 billion annually, so an NBCUniversal team-up could make sense.

The list of content assets controlled by WarnerMedia is massive — from the Harry Potter and DC Comics universes to classic movies and TV shows like Gone With the Wind and Friends — but those might not be enough to compete in the streaming wars, especially when Disney launches its Disney+ service next year.

Hence, Wall Street wasn't too surprised to read that WarnerMedia CEO John Stankey and NBCUniversal CEO Steve Burke recently held preliminary talks about licensing titles for WarnerMedia's forthcoming streaming service, according to a report published by tech site The Information.

Such a partnership makes sense, considering that the AT&T property could add popular franchises like Fast & Furious, Sherlock Holmes, Back to the Future and Jurassic Park to WarnerMedia's already impressive arsenal of 7,000 movies and 5,000 TV series. And NBCUniversal, which, outside of a 30 percent stake in Hulu, is aiming to avoid becoming the laggard in the industry pioneered by Netflix and copied by Amazon and others.

"AT&T recognizes that its best chance to compete with Netflix, Disney and Amazon is to build a large, one-stop streaming shop that contains its rich repository of content brands, anchored by HBO," says Ben Weiss, chief investment officer at 8th & Jackson Capital Management. This strategy was the motivation for shuttering DramaFever, which, for nine years, had been streaming Korean, Chinese and Japanese dramas on demand, and niche site FilmStruck, which will close Nov. 29 after three years of providing Turner Classic Movies to streamers, says Weiss.

On the other hand, Stankey has said that HBO Now, at $14.99 a month, will live as a separate home for shows like Game of Thrones, Westworld and older titles like The Sopranos. Plus, insiders tell THR, he wants to build a streaming platform that will feature content from multiple production companies, and he also wants to license WarnerMedia content to streaming competitors.

The stakes couldn't be higher, given how Wall Street perceives AT&T as a stodgy telecom company compared to Netflix, a rapidly growing disrupter. The proof is in the stock: AT&T shares have sunk 15 percent in five years compared to a 480 percent rise for Netflix. "Netflix seems to have proved that a model of all types of content, all genres for all people, can be successful — at least if success is measured by subscribers," says Steven Birenberg, founder of Northlake Capital Management.

HBO inked a deal with Universal in 2013 giving the premium cabler rights to show movies on its service through 2020. But if WarnerMedia had greater access to NBCU's content, it could launch a streaming service with 12,000 combined movies, 5,000 TV shows from WarnerMedia and 100,000 episodes of old and new shows from NBCU, all of which would dwarf Netflix's offering of fewer than 6,000 combined movies and TV shows.

On paper, it could be a formidable Netflix competitor, except that the latter has an 11-year head start, with 137 million worldwide subscribers and a reputation for satisfying customers: Netflix ranked tops among video services by the American Customer Satisfaction Index, way ahead of DirecTV, for example. Like WarnerMedia, DirecTV is owned by AT&T.

WarnerMedia and Disney have one advantage over Netflix in that they both are creating content for cable and broadcast TV and theatrical release already, so the cost of throwing it all on their own streaming services is minimal, while Netflix will spend up to an estimated $13 billion this year alone creating original content and licensing from others.

"AT&T bringing NBCU content aboard indicates that it believes that a broad offering is the key to success," says Birenberg. Plus, AT&T, as a provider of telephone and internet services on top of DirecTV, has experience with managing churn, an essential ingredient if WarnerMedia is to launch a successful streaming product. WarnerMedia and NBCU declined to comment.

WarnerMedia also needs a gigantic offering of content to better compete with Disney, since the latter can easily sign up households based on its more powerful brand-name recognition. Disney CEO Bob Iger said Nov. 8 that Disney+ will be for its family fare, while it places more adult content on Hulu, of which it will own 60 percent after it pays $71 billion for most of 21st Century Fox.

"This goes to Disney's uniquely valuable corporate and operating brands whereas Warners is not a brand, and its operating brands like DC are less valuable or well developed," says Birenberg. "So, the difference in strategy is partially driven by reality and partially by each company's view of what the market wants."

A version of this story appears in the Nov. 19 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.