The Deep Dive
Streaming wars: Stan CEO Mike Sneesby repeats 'no ads'; 5 million customer target; daily user time up 40 percent
If he's worried about the rush of looming new streaming competitors, Stan CEO Mike Sneesby sounds rather relaxed. The ad market, however, should be worried. Sneesby says ad models don't stack up for Stan as its users spent 40% more time each day on the platform streaming ad-free content in the past year. That viewing time is coming from somewhere....
"Advertising is not something we have stuck our heads in the sand and said ‘we shouldn’t consider this’. We’ve run the numbers but consumers are telling us that they prefer to pay a dollar or two more for the service than accept ads - that is the reality.”
This abridged version of the Mi3 Audio Edition can only do so much. Hear Mike Sneesby talk in detail about the near-existential changes underway in television consumption, why he's relaxed about a new wave of streaming competitors and what it is about advertising models that don't gel with customers of subscription services like Stan. For good measure, Sneesby says online advertising infrastructure is too complex. Listen to it here in a smart 20 minutes.
The SVOD market is set to get crowded, as big studios and networks gear up for international launches. If they set up shop locally, that could disrupt Australian business models – particularly when it comes to licensing content.
Yet despite Disney, owner of Hulu, preparing to launch Disney+, Amazon Prime pushing out internationally, HBO eyeing expansion, Time Warner and AT&T, Apple TV+, and CBS all joining the fray in the next couple of years, Stan CEO Mike Sneesby is not too worried. He thinks many won’t make it to Australia, preferring to strike partnerships – and those that choose to go it alone will find it tough.
“I don’t think we’ll see the same market make-up in international markets that we see in the US from the major players,” says Sneesby. “Every market is different and the opportunity for those major players is different.”
Disney, in one format or another, looks set to land first. But Sneesby says other players may question the economics of a standalone venture in an increasingly crowded and relatively small market.
“Some players will chose to have a crack,” he accepts. “The reality is, to launch a [streaming] service, you are giving up significant licensing revenues. Even in the Australian market, those licensing revenues can quickly translate to a £100m+ annualised opportunity cost,” he suggests.
“So any player that wants to launch internationally will have to consider: Is it a better option to take a huge hit on opportunity cost of licensing, roll out a platform, add marketing expenditure and international teams and technology to that and have a crack at potentially getting back to the sort of returns that they have today?”
Each to their own strategy, says Sneesby, but he suggests the licensing deals being made available to Stan by the big studios “is a fairly good indication that their intent for Australian markets is some way off yet – if it will occur at all.”
With Stan at 1.6m subscribers as of February (Sneesby can’t update the number ahead of Nine’s results on 22 August), and turning Ebitda (i.e. profit) positive in March, he says the dynamics in that economic equation continue to shift.
He drops a hint on where the numbers are headed – and its effect on competition.
“As this business starts to scale up beyond 2 million to the 3 million-plus subscriber numbers, it becomes a really meaningful business – not just as revenue but its positioning as a partner for major Hollywood studios and as a producer of content here locally. I think that’s one of the key things that differentiates us from Netflix,” Sneesby suggests.
The Netflix by-blow
“We’ve created a scale business in this market that continues to grow.” He continues. “We have created a home for Hollywood studios and an opportunity for them to distribute directly to consumer at a scale level with guaranteed licensing dollars - and that’s our proposition.”
Sneesby reiterates that Netflix’s continued push towards original content puts it in direct competition with studios – which may work in Stan’s favour.
“I don’t say these things without getting a read on how our Hollywood studio partners feel in the market today,” claims Sneesby. “We feel like the partnerships that we have in place are working well for us – and they’re delivering strong commercial returns for our Hollywood studio partners. So it’s fair to say there will be some [incoming competition] but we feel confident about the strength of our partnerships and what we bring to the market.”
"One of the most common gripes in ad-funded video on demand is not just the ads served, but how they are served – their relevance, the way they are inserted, at which points in programming. That technology challenge is not a simple one to solve"
Scale or bust
Sneesby points out that it took topping 1.5m subscribers to turn profitable. He thinks any new entrants will need similar numbers to survive. Meanwhile, further consolidation in the US – Disney-Fox-Hulu and AT&T-Time Warner-HBO movements - could reduce the volume of potential new entrants locally.
“Those M&A activities will determine what the future looks like. The outcome most certainly will be some level of consolidation,” he says. “If the content is there, more services will be able to exist. But if the content is not there, those services simply won’t manage to get themselves to a level of scale - which means they won’t stick around for too long.”
What’s driving subscriptions?
Big first run productions drive subscriptions for all streaming services, says Sneesby.
“We’ve had an extremely strong 12 months of programming and that’s been a big driver in subscriptions and the acceleration of our business,” he says.
By contrast, Netflix’s most recent subscriber numbers disappointed analysts and the streaming giant’s shares were punished as a result. Sneesby says it is “swings and roundabouts”.
“In that period, Netflix didn’t have such a great period of programming to underpin its business. But you’ve seen plenty of quarters where it has been the opposite – over-performance versus forecast. But they – and we – say this consistently: when you have a great quarter or half of programming, it’s reflected in subscriber numbers. For us, those big premium shows continue to drive subscription take up,” he says. “Obviously, marketing knows…”
The choice paradox
With about 50 incoming first run shows per year, the challenge for Stan’s marketing department is choosing which shows to push hardest.
“If you lay out that schedule, it’s one every week – either a returning season of an existing show or a brand new launch. With that depth of slate, the challenge for us is how do you choose, position and target as you roll out show after show?”
Sometimes two or three shows are launching “right on top of each other … but overall, you need to smooth your ability to promote those shows and acquire subscribers. So that is the challenge for our marketing team,” says Sneesby. “We are ‘always on’ marketing now. You’ll see Stan in every media channel.”
That includes McDonald’s wrappers.
“There’s not much we haven’t put an ad on, if it is fit for advertising,” Sneesby admits. “We don’t run ads ourselves, but we’re pretty happy to buy a few.”
He says the McDonald’s deal was part of a tie-up “outside of our traditional paid advertising model” and that, as evidenced by its deal with Qantas, Stan is keen on partnerships.
“It’s all about working with big brands whose values and proposition align to what we do.”
“From the time Foxtel indicated it will open up its platform to third party services, we’ve said we’re happy to have a discussion around that. I look forward to speaking with Patrick [Delany, Foxtel CEO] and his team about partnering with Stan around that as well. I think that would make sense.”
Advertising on Stan?
Those brand partnerships may ultimately see off questions about an ad-funded (AVOD) Stan. In the meantime, Sneesby scotches any talk of advertising on the platform.
“Just because you can make money out of selling something, it doesn’t necessarily mean you should,” he says. “It’s not something we have stuck our heads in the sand and said ‘we shouldn’t consider this’, we’ve run the numbers. But consumers are telling us that they prefer to pay a dollar or two more for the service than accept ads - and I think that is the reality.”
He says creating an ad-funded product muddies the water and confuses the proposition.
“We are a pure-play internet business and a lot of [our success] hinges on a simple sign-up process and a simple choice for consumers. It’s amazing how the simplest modification … can do much more damage to your subscription sign-ups than the value you get in return,” say Sneesby.
Moreover, says Sneesby, subscription yields are high relative to advertising yields “in terms of being able to create incremental inventory in market”.
“The reality is our opportunity is to continue to build a subscriber base that values paying for content,” he says. “We’ve proven year-on-year that the business model is successful.”
Sneesby says Stan’s capabilities could be harnessed by Nine to pursue AVOD models, but that the ad-serving and ad-delivery technology to support those models “is extremely complex”.
“One of the most common gripes in ad-funded video on demand is not just the ads served, but how they are served – their relevance, the way they are inserted, at which points in programming. That technology challenge is not a simple one to solve.”
Joining the Foxtel Netflix alliance?
Sneesby is surprisingly soft on the Foxtel-Netflix alliance announced last month, suggesting it is the opposite of Foxtel accepting defeat.
“I don’t see that as [waving] the white flag. I think’s it’s a natural progression in this marketplace,” he suggests.
“Foxtel, from its hardware platform standpoint, is really the only platform positioned to be able to aggregate all of the services in market, so it makes sense that they would go down that path.”
It’s a path Stan may ultimately follow, Sneesby suggests.
“From the time Foxtel indicated it will open up its platform to third party services, we’ve said we’re happy to have a discussion around that. I look forward to speaking with Patrick [Delany, Foxtel CEO] and his team about partnering with Stan around that as well,” he says. “I think that would make sense.”
Existential crisis for advertising?
According to February’s update, Stan platform usage was up 40 per cent per subscriber year on year and Sneesby says audiences are watching between a million and 1.5m hours every day of the week on platform.
Alongside Netflix’s growth and incoming ad-free competition, should ad-funded TV – and advertising itself – be worried?
Sneesby says not.
“I think we get a little bit fixated on Stan and Netflix because our growth trajectory has been so big. But there is plenty of opportunity out there for engaging with consumers. There is space for ad-funded content. It’s a different proposition with a different aspect of programming and it will be targeted at consumers who value that proposition,” he says.
“So that is absolutely not a world we should be concerned about. Ad-funded content will continue to have its place.”
The CEO of a company owned by an ad-funded media network would say that.
"I honestly don’t say it [for that reason] because Nine is a 100 per cent shareholder of Stan. I say it as somebody who has been in digital media a long time. It’s a changing landscape, but in terms of the fundamental desire or value for ad-funded content, I think it’s still there.”