With America at Home, the Streaming War Is Hollywood’s Ultimate Test

By Joe FlintBenjamin Mullin, and Lillian Rizzo | The Wall Street Journal

WarnerMedia hoped to launch its new streaming service HBO Max next month with a reunion special for the hit comedy “Friends.” It won’t be ready.

Also grounded is “The Flight Attendant,” a new drama starring Kaley Cuoco based on a novel about a flight attendant who fears she might have killed someone in a drunken haze, according to people familiar with the situation. HBO Max had also planned that as a centerpiece.

Both are victims of the coronavirus pandemic and shutdown, which has led to canceled movie and TV shoots across Hollywood. “Production is entirely shut down,” said John Stankey, president and chief operating officer of WarnerMedia-parent AT&T Inc.

Many American industries have seen demand for their products collapse while the U.S. economy retracts and the deadly virus rages across the country. The streaming video business has the opposite problem: It faces diminishing supply for a product that is—at least for now—in very high demand.

Millions of Americans who are now at home are craving shared experiences and escapism, or are seeking activities for restless children. For many households, more streaming video is the answer. Americans spent an average of $37 a month on streaming services in March, up from $30 in November, according to a survey of nearly 2,000 people in recent days by The Wall Street Journal and the Harris Poll. New subscriptions were most popular among parents with children or adults working from their homes.

“The reports that we get are jaw-dropping,” said Albert Cheng, chief operating officer and co-head of television at Amazon Studios. “Across the board all the metrics are up significantly.”

Walt Disney Co. ’s Disney+ said Thursday it has surpassed 50 million global subscribers five months after its launch. The company initially told investors it expected Disney+ to have 60 million to 90 million subscribers by the end of fiscal 2024.

Maintaining a pipeline of content to satisfy these users will get harder the longer the pandemic lingers, raising the stakes for many streaming video services that are designed to challenge Netflix Inc. Disney+, Apple Inc.’s TV+ and soon-to-debut services including HBO Max and NBCUniversal’s Peacock are still in building mode. Their cupboards of original content could get bare quickly.

Every major player in the entertainment industry is rethinking its strategy, considering how it can gain market share and keep costs in check. The companies with deep libraries of older programming will be on stronger footing, Hollywood executives say. Programming that doesn’t require big sets in public places—animation, for example—will be easier to produce. Companies that have been spending ever-larger sums to make content will retrench and avoid bidding wars for hot titles, executives say. Pitching a new product also becomes more difficult without big sporting events that advertisers use to reach mass audiences.

“You are going to see a lot of changes in our industry after this,” said Jeff Frost, president of Sony Pictures Television Studios.

Stream Flow
The Wall Street Journal and the Harris Poll recently conducted a survey of 1,993 people to gauge their viewing habits as the new coronavirus isolated Americans in their homes. The survey found that major streaming services, and especially Netflix, benefited from the captive audience.

Share of respondents who said they bought a new subscription in March, by service

Surging demand for streaming is a prime example of the epic shifts under way in the U.S. economy. With restaurants and retail stores closed, consumers in some parts of the country are ordering much more from food-delivery services and e-commerce sales—from goods like hand soap to children’s books—are way up. Likewise, with movie theaters and big events shut down, streaming is the go-to entertainment.

Still, some veteran Hollywood executives warn a recession could make it even tougher to persuade consumers to pay for subscriptions. Some 37% of streaming households would drop a subscription if they lost their job during the pandemic, according to a survey by Kagan, a unit of S&P Global Market Intelligence.

“I do think it will stunt the growth of the new services. People are pretty insecure about their finances,” said Gary Newman, a former president of Twentieth Century Fox Television who is now a consultant.

Entertainment companies are taking a hit in the crisis, with movie theaters and theme parks shut down. That will make it even more important to capitalize on the rising demand for streaming—the future of their businesses, entertainment executives say.

AT&T’s Mr. Stankey acknowledged that the $14.99 a month HBO Max service will be forced to launch without some programming it hoped to have, and that additional productions will be delayed for several months.

NBCUniversal’s Peacock is also going to debut without some of its most-anticipated original programming including the drama “Dr. Death” starring Jamie Dornan, Alec Baldwin and Christian Slater—based on the podcast of the same name about surgeon Christopher Duntsch, who was sentenced to life in prison for gross malpractice. An executive at NBCUniversal, which is a unit of Comcast Corp., said some originals planned for the service’s July national launch will get pushed to next year. Customers of Comcast and some other providers will get Peacock for free, while others will pay $4.99 a month for a version with ads and $9.99 a month for a commercial-free version. One version, with limited content, will also be free to all.

The second season of Apple TV+’s most popular program, “The Morning Show,” starring Jennifer Aniston and Reese Witherspoon, is on hold. So are several other shows for the nascent streaming service that was launched with much fanfare last November.

While HBO Max, Peacock and Disney+ all have large libraries of popular shows, Apple TV+ doesn’t, which could make the production shutdown painful for the service if it drags on.

“If there are no new originals, it’s tough to see where the subscribers would come from,” said Wells Fargo & Co. analyst Steven Cahall of Apple’s $4.99 a month service. Conversely, he added, “even if Disney had no new content for a year, subscribers will come on just for the existing library.” Apple and Disney declined to comment.

Likewise, incumbents such as Netflix and Amazon Prime Video have built up caches of original content and may be better prepared to endure this period. Netflix, which has 167 million global subscribers, has “a content pipeline that probably takes them to the end of the year,” said David George, chief executive of ITV America, the production company which makes “Queer Eye” for the service. Netflix declined to comment.

The Journal-Harris Poll survey found Netflix was the biggest streaming beneficiary in the crisis, with some 30% of respondents saying they added a Netflix subscription in March. Since subscription services also lose customers each month, the survey doesn’t reflect their net gain.

Although content production is halted, development of story ideas and scripts continues at a brisk place through Zoom videoconferences. Basketball star LeBron James is benched due to the suspension of the NBA season but the production companies working on his show “Becoming” for the Disney+ streaming service are charging ahead.

“It’s one of the few shows on our entire slate that we’re actually able to finish,” said Brent Montgomery, chief executive of Wheelhouse Entertainment, whose Spoke Studios is one of the “Becoming” producers. The documentary series about artists and athletes doesn’t have a premier date yet but will be ready if other Disney+ shows are delayed, because primary shooting was done and it’s being edited.

Postproduction houses where editing is done after filming is complete have retooled to adapt to the situation. Atlas Digital, which works with a range of networks, studios and streaming services, has set up 200 remote systems for producers and editors to work from home. “It was an overnight change,” said Chief Executive Shawn Sanbar.

Children’s programming, which has enjoyed a jump in viewership during the crisis, could be a go-to genre as companies look to fill out their offerings. Animation is insulated from production delays, since artists and modelers can work at home, said Michael Hirsh, chief executive of Wow! Unlimited Media Inc., a Toronto-based animation company that has created content for Netflix and AT&T’s Cartoon Network.

ox’s “The Simpsons” continues to produce original episodes during the crisis. Table reads where cast and writers and producers go over scripts are happening on Zoom as are meetings among writers. Animators are working from home and the actors record their voice parts usually from home studios.

“Animation is something you can order and actually count on getting delivered today,” Mr. Hirsh said. He said he is in talks with several major streaming services and if some of those deals come to fruition he would need to increase the company’s animation staff by about 50% within a few months.

Unscripted programming—reality TV and documentaries—may fill the original content void after production resumes because it is often quicker to turn around. “We are by nature the scrappiest people in the food chain of entertainment,” Mr. Montgomery said.

Parents with children at home are spending $60 a month, on average, for streaming subscriptions—well above the general population—and have 3.8 services, compared with 1.7 for households with no children, according to the Journal-Harris Poll survey. A fifth of homes with children are watching more than four additional hours of streaming content a day. “Parents have hired streaming services as nannies to keep their kids occupied,” said John Gerzema, chief executive of the Harris Poll.

Couch Time
The Journal-Harris Poll survey found that hours spent streaming went up as the pandemic spread across the country.

How much more entertainment programming people said they are watching than before the coronavirus crisis

Adults working from home also are driving usage, with nearly two-fifths paying $100 or more a month, the survey found.

Ian Bass, 23, who lives in Dallas and will leave for Marines boot camp in coming weeks, said he didn’t watch much TV before being forced to stay at home, but quickly found refuge in streaming. “Disney+ is getting me through this time. I’ve been watching it a lot in the evenings,” he said. Mr. Bass has been watching Marvel Studios movies in chronological order.

Roland Heusser, 30, a software engineer who’s been working from home in Daly City, Calif.the Bay Area, has been cycling through the Star Trek Voyager series on Netflix and said he’s considering adding Disney+ to watch the Star Wars offshoot “The Mandalorian.” He enjoyed Apple TV +, but canceled his subscription earlier this year because there weren’t enough shows.

One attraction of the streaming services is they will be home to some major movie releases that studios can’t launch in theaters. But the new programming services still face unanticipated marketing challenges. Quibi, which was founded by Hollywood veteran Jeffrey Katzenberg and has raised $1.75 billion, billed itself as a service that could entertain on-the-go commuters or lunchtime viewers during their brief snatches of free time.

Now it is launching at a moment when millions of Americans are quarantined in their homes. Mr. Katzenberg said homebound Quibi viewers still have plenty of time between tasks.

“You’ve got kids, you’re home schooling them, you’re trying to keep them occupied and entertained and you’re answering FaceTimes and emails and doing Zoom calls,” Mr. Katzenberg said. “But you absolutely have in-between times. Nobody can sit at a desk from eight in the morning until six in the evening.”

Quibi executives said the streaming service will be free for 90 days for early subscribers. In place of a planned splashy red carpet promotion featuring talent who made content for Quibi, including Chrissy Tiegen, Chance the Rapper and Jennifer Lopez, executives organized a marketing campaign with social media posts from some of its biggest stars.

While most Americans are stuck at home in front of their TVs, many big events advertisers use to reach consumers have been canceled. HBO Max was planning to bombard the March Madness college basketball tournament with promotional spots.

“Suddenly there are no social and iconic events in society,” said AT&T’s Mr. Stankey.

For its part, ViacomCBS Inc. will strive to reposition its existing CBS All Access service into a broader offering with additional programming from its cable networks. The company is targeting 16 million subscribers by the end of the year.

NBCUniversal’s Peacock was banking on the 2020 Summer Olympics in Japan to promote the service, but the games are being delayed until 2021. The virus is causing Peacock to rethink some of its strategy. News content was originally supposed to have a strong presence on the platform, but now executives are reassessing.

“People are turning to streaming services as a distraction or an escape” from the virus, the NBCUniversal executive said.

Read the full article at The Wall Street Journal