Biggest challenge for Hulu, Netflix and HBO? Getting millennials to pay
Chief executive Bob Iger of Walt Disney is facing a challenge that will make his recent victory over Comcast in the battle for 21st Century Fox’s entertainment assets seem like a walk in the park.
I am not talking about the difficulty Iger will experience in integrating the storied 20th Century Fox studio and other assets of Rupert Murdoch’s media empire into his company. Nor I am I talking about the pressure Iger is under to boost the financial performance of ESPN in the age of cord cutters. No, the issue I am talking about is more basic — how to get millennials to pay for video content.
This is particularly relevant to the 67-year-old Iger, who has made streaming a priority for the Burbank, Calif.-based company. He launched the ESPN+ service in April and will debut Disney’s family-friendly answer to Netflix next year.
One of the reasons Disney is paying $71.3 billion for the Fox properties is to gain a controlling interest in Hulu, the third-largest streaming service. Hulu reportedly loses $1.5 billion annually, a number that is bound to climb as the company boosts its spending on content in the coming years.
A recent survey from media research firm Magid found roughly 35% of all young consumers share their passwords, well above the 19% of Generation Xers and 13% of Baby Boomers who partake in this practice.
According to Magid, post-millennials aged 21 and younger share passwords at an alarming rate of 42%.
“The cat is out of the bag,” Jill Rosengard Hill, executive president at Magid, said in an interview with CNBC. “I wish I had a solution because it’s really hurting the business model and monetization of these premium high-value services.”
Magid’s numbers don’t surprise me because many of the 20-somethings I know use their parents’, relatives’ or friends’ passwords for Hulu, HBO, Netflix and other pay TV services. I don’t blame millennials for making the best of the situation that was presented to them. However, it makes paying customers like me feel like a sucker.
The services are under increasing pressure from Wall Street to boost their financial performance, making it harder for them to justify allowing millions of freeloaders. For media companies, however, this is a challenge since getting someone to pay for something that they have gotten for free is among the hardest things that any business can do.
The cliché about the pointlessness of buying a cow if you can get the milk for free is certainly apt. Newspapers and magazines learned this lesson the hard way. Ditto for the recording industry during its battle in the 1990s against sharing services such as Napster.
In the past, Netflix and HBO have downplayed the importance of password sharing. Both companies, however, will find themselves in the same predicament as Disney sooner than many people expect. Shares of Netflix got hammered recently after it reported disappointing subscriber growth. HBO is under pressure from its new owners at AT&T to be more like Netflix and release programs at a faster rate. It’s not a matter of the companies’ cracking down on moochers but when and how hard the whip is cracked.
Netflix is reportedly testing commercials to promote other shows that will be displayed between episodes. Some consumers are furious because one of the reasons they subscribed to the streaming service was to escape annoying ads. I wonder how many of them are footing the bill for Netflix.