Do video business economics work with subscription revenue of just $20 a year? Discovery and CuriosityStream founder John Hendricks thinks so and here’s how he says it will work.
John Hendricks, Discovery Channel Founder, and Founder and Chairman of CuriosityStream, recently talked with CTAM on the Thinking Out Loud podcast. In the discussion, he spoke about the opportunity to reach viewers online:
“There are some four growing to 5 billion users of the Internet, which is a stunning number. Today, it’s about 1 to 1.5 billion, which can stream video. But that’s going to grow. There will be 2 to 3 three billion. So, if you look at a service like Netflix, it’s penetrated at 13% of the addressable marketplace with about 150 million subscribers. So, even if they just stay at that level, they’ll be over 400 or 500 million households when that addressable market is at 3 billion.”
The opportunity, according to his estimates, is enormous for an online provider like Netflix or CuriosityStream. Are his views reasonable, and what is it worth to Netflix and CuriosityStream if he is right?
The number of Internet users
Mr. Hendricks could be a little ahead of the market with his statement that there are 4 to 5 billion internet users. Cisco forecasts that the number of Internet users will grow from 3.4 billion (45% of the global population) in 2017 to 4.8 billion (60% of the global population) in 2022.
Point topic estimates there are 1 billion fixed broadband connections today. The company says by 2025 there will be 1.2 billion. However, most Internet users are using mobile links. The World Advertising Research Center (WARC) estimates that 2 billion people access the Internet solely via their smartphone.
The country with the most internet users is China, with over 800 million. India is second, with 500 million. Virtually all Chinese and Indian users access the Internet on mobile.
The number of video-capable Internet users
The number of users that can stream video is harder to corroborate. Mr. Hendricks says that 1-1.5 billion of the Internet users can stream video and that there will be two to three billion video capable connections, though he doesn’t specify a time-frame. His current estimate seems to be based mostly on the one billion fixed broadband subscriptions. Indeed, most wired broadband users can stream video.
The balance likely comes from mobile, where 4G services are already widely available in urban and suburban regions. Over the next decade, 5G services will roll out broadly across the globe, replacing and upgrading 4G and 3G deployments. Mr. Hendricks is expecting the higher capacity and faster speeds to deliver a doubling of the video-capable Internet connections.
Mr. Hendricks estimates for the growth in the addressable Internet video audience seem at least possible. If 5G rolls out as expected, 2 to 3 billion video-capable Internet users within ten years seem probable.
Netflix and CuriosityStream growth
Is Mr. Hendricks right, that even if Netflix maintains its market share, it will reach 500 million subscribers? The streaming giant is not available in China and is doing very poorly in India, the two biggest markets. Without success in either market, Netflix will have to grow penetration to achieve half-a-billion subscribers. Today, the company certainly seems on track to do that.
CuriosityStream seems better positioned here than Netflix. Mr. Hendicks says about 40% of the company’s catalog is originals with rights cleared for worldwide distribution, including China and India. He says he expects the catalog to be 60% originals within a few years.
The future value of Netflix and CuriosityStream’s businesses
Mr. Hendricks sees the economics of CuriosityStream’s business this way:
“If you got 50 cents from 500 million global households – which is what some of the big services like Discovery Channel have achieved – that’s a huge revenue stream. That’s $3 billion which can be matched by advertising. If CuriosityStream over time can get 80 cents to a dollar, that’s more than enough for us to build a huge business and it’s very economical for the consumer.”
CuriosityStream currently charges $2.99 per month or $19.99 a year. If it can reach 500 million subscribers at those rates, it would earn $10 billion per year in subscription revenue alone. Were Netflix to get to 500 million subscribers, at $12 a month it would make $72 billion a year.
Why it matters
John Hendricks, Discovery Channel founder, thinks it is possible to create a $10 billion video business that is also a terrific deal for consumers.
Internet-video capable users could reach 3 billion within ten years.
If Netflix were to maintain its current penetration of Internet video-capable users, it would be earning close to $100 billion a year within ten years.
If CuriosityStream can achieve the same penetration as Netflix, it would earn $10 billion in license revenue.