Netflix announces it’s losing money. Discovery’s management vows to cut HBO’s spiraling budget. There have to be half a dozen other stories about similar things going on in the streaming world right now. Is this the day of reckoning for streaming? If it follows similar consumer technologies, I would have to say yes. Here’s why.
The 1980s: Video games circle the drain
Between video game consoles and home computers (in some cases made by the same company) the whole electronic entertainment industry practically dissolved itself in 1983, in what has become known as “the crash of ’83.” Manufacturers like Apple, Coleco, Atari, and others enjoyed so much success in the 1970s that they seemed unstoppable. The world wanted entertainment, and they provide it. But, there were two big problems that almost sank the industry.
First, IBM entered the small computing market, a market which is now called “the PC market” because of the IBM PC. By focusing attention on small business and away from fun, it made people wonder what if anything those other computer companies were doing with their blinking lights and chipper sounds. Business ruled in the 1980s. IBM knew it, and it seems like no one else in the space did.
Second, and equally as important, games began… to stink. After some really impressive gains in graphics and gameplay, the market was flooded with cheaply made and poorly conceived products. A video game cartridge at the time cost about as much as a low-end apartment rental. Many of them weren’t worth it.
A lot of companies went out of business. A lot of them took what seemed like dumb steps. Atari famously buried nearly the entire production run of its ET video game so they could take the loss on paper. In the end, most of the companies that made video games and home computers then didn’t make it.
The 1990s: Death of the arcade
High end video gaming in the 1980s was defined by the arcade, not by the home. Home devices didn’t have the horsepower to create beautiful graphics. So, companies that provided video arcade games were at the top of the heap. The world wanted entertainment, and they provide it. But, there were two big problems that almost sank the industry.
First, many folks who lived through the 1980s and the recession of the early 1990s began to look at the value equation of a video arcade. Assuming you weren’t part of that high-end Gordon Gekko Wall Street group, a lot of folks had a tough time making ends meet at that time. A coin-op video game might last you 5 minutes unless you were a top gamer. That means you’d pay up to $4 an hour in a video arcade. This was on par with what you would pay for a movie, and more importantly it was more than you would get in a minimum wage job after taxes. Dropping your quarters in the slot didn’t seem like it was as worthwhile as it once was.
Second, and equally as important, malls began… to stink. And by comparison, so did arcades. Malls and teens may have been completely entwined in 1990, but by 2000 they just weren’t. Teens found other places to hang out, often at home. And they played increasingly high-quality video games made by the same companies that made arcade games. It became harder and harder to figure out why you would leave the house to play something that just wasn’t any better than you could get at home.
A lot of companies went out of business. A lot of them took what seemed like dumb steps. Williams, once known for its pinball machines and video games, cut and run. They moved into the world of casino gaming, a much tougher industry. Others, like Atari and Sega just sold their withering assets off.
The 2000s: The Internet stumbles
Most folks who were around in the early ’00s got on the internet for the first time between 1995 and 1999. The internet was an amazing playground limited only by the time you had to spend waiting on slow dialup connections. Practically anything with a “.com” at the end or an “i-” at the beginning seemed like a sure winner. But, there were two big problems that almost sank the internet.
First, Internet companies broke out big time around 2001. They started spending huge sums not just on buying each other but also on things like Super Bowl ads. This time, though, it was Microsoft that killed off the competition. The post-9/11 recession didn’t help either. Microsoft had so much money that they could start giving away things that other companies charged for. Things like web browsers and lots of data. The real boom was e-commerce, and for a moment it seemed like no one could do it like Microsoft.
Second, and equally as important, the internet began… to stink. There were low-quality web pages, overwhelmingly annoying ads, and all of a sudden you started having to worry about identity theft. People started to think twice before putting their private information into one more web site.
A lot of companies went out of business. A lot of them took what seemed like dumb steps. The founders of Netscape, once the most popular browser in the world, took the money and ran. Other companies tried giving things away for free but couldn’t afford to do it. The companies that really thrived were the ones that did one thing so well that they could own the market they were in. You might have heard of the two big success stories of the day: Amazon and Google. They each made so much money that they could give away even more free stuff than Microsoft.
The 2010s: “I’m not an app guy”
Modern smartphones actually came on the scene in the mid-2000s. But, it was the coming of fairly fast mobile internet in the 2010s that made them indispensable. Another thing that drove the smartphone revolution was the coming of literally millions of free apps that could make your phone do practically anything. But, there were two big problems that made people start to say “I’m not an app guy.”
First, the app pricing model was broken from the start. Apple created a “walled garden” approach where if you wanted to be on their phone, you paid a percentage of your sales. Both Apple’s and Google’s stores offered free apps and low priced apps that were never going to make business sense. All of a sudden your phone could take pictures that would rival a DSLR, if you were willing to pay $1.99 for the app. Anyone who thought that was sustainable really wasn’t paying attention.
Second, and equally as important, the app stores began… to stink. A lot of malware got through. A lot of identity theft moved from PCs to phones. Poor quality games subsidized their costs with so many apps that people just stopped playing them. Apple and Google themselves started creating apps that competed with their customers, and giving them away for free with the operating system. This was hard on manufacturers but it probably saved the entire concept of the smartphone.
A lot of companies went out of business. A lot of them took what seemed like dumb steps. Some started hiding disallowed apps inside games. Some manufacturers moved to “alternate” app stores where anything could be offered. Regular folks intentionally put malware on their phones to “jailbreak” them, so they could get the apps and services they wanted. This made the phones even less secure. Eventually things settled down when Apple and Google, being as rich as they were, built even more security features into their own app stores. At the same time, governments around the world started suing them as if they were old-time robber barons, which got both companies to take a little more sensible stance.
And now… can you guess where this is headed?
By the late 2010s, traditional pay-TV companies were on the ropes. Streaming giants like Netflix made it really easy to cut out cable companies and just get all your entertainment from the internet. For one low price, often under $10 a month, you could get millions of hours of entertainment. But, the boom didn’t last long. As I write this, there are two things which threaten the entire streaming ecosystem.
First, it’s ridiculous to think that any of these companies could afford to give away such expensive content forever. “Tentpole” releases from Netflix, HBO, Apple, and Amazon cost their companies hundreds of millions to produce, but it was never clear whether or not they made that money back. The pandemic made it harder to see whether streaming was bleeding cash for a while, but now it’s clear: they were.
Second, and equally as important, the content began… to stink. Netflix may have a dozen good shows, but it has roughly 40,000 poorly produced pieces of garbage. Discovery+ and Prime Video have the same problem — viewers have to wade, hip deep, through a ton of crap to get to those few worthwhile releases. This led people to wonder why they were paying $100 a month or more for apps that couldn’t deliver the goods.
In the coming few years, a lot of companies will go out of business. A lot of them will take dumb steps, like Warner Bros. Discovery canceling Batgirl when it was almost finished. If you think that’s the last time you’ll be shaking your head at a major streamer’s decision, you’re in for a surprise. I don’t know how bad it’s going to get, but if even a blogger like me can see the pattern at work here, it’s not going to be good.
