In the span of about a week, AT&T's (NYSE:T) WarnerMedia shut down three niche video streaming sites. It shut down Korean drama hub DramaFever on October 16, comedy focused Super Deluxe on October 19, and classic film service FilmStruck on October 26.
The rapid culling of smaller streaming services at WarnerMedia follows AT&T's announced plans of offering one big streaming service encompassing HBO and other WarnerMedia properties. Shutting down the niche streaming services to focus on more broad-based services could create some efficiencies in operating expenses, but AT&T may open the door for competitors like Disney (NYSE:DIS), Netflix (NASDAQ:NFLX) or smaller start-ups to win market share.
Riches in the niches
Services like DramaFever or FilmStruck attracted millions of viewers. DramaFever said it had over 20 million viewers before it shut down. FilmStruck was meant to appeal to a group of about 10 million to 15 million cinephiles.
Those numbers are nothing to sneeze at. Hulu, one of the most well-established streaming video services in the U.S. with broad appeal, has just 20 million subscribers. Hulu is going to be a key part of Disney's multipronged direct-to-consumer strategy.
Not every streaming service will be able to attract over 100 million subscribers like Netflix. But there's no reason a service with millions of subscribers (and growing) doesn't represent a valuable opportunity.
So, why is WarnerMedia shutting things down?
In a statement announcing the closure of DramaFever, management wrote that it's shutting down the service "due to business reasons and in light of the rapidly changing marketplace for K-drama content."
Korean drama, or K-Drama, has seen an increase in popularity since DramaFever launched. That's led to an increase in licensing expenses as more competitors, including Netflix, bid on the rights. The cost to license the same content has gone up by about 25%, according to reports. The same may be true for the classic film library of FilmStruck or its production costs at Super Deluxe.
The increased interest represents a significant opportunity to grow subscribers. That's why mainstream services like Netflix are interested in the niche content to begin with. Even if a streaming service has to take a short-term loss to pay for content and grow its subscriber base, it could be worth it. Disney could end up losing $1 billion in the first year it owns a majority of Hulu.
But AT&T seemingly thinks one single streaming service will be more efficient. WarnerMedia plans to take its learnings from its niche services and apply them to AT&T's planned service next year, which will include content from all three WarnerMedia companies -- HBO, Turner, and Warner Bros.
While it might be easier to market the service, it could, ironically, have a harder time finding an audience among other broad competitors. AT&T intends to price its service above Netflix's and Disney's forthcoming branded service, which could reduce its appeal. All three of the now-shuttered niche services were priced below Netflix. They were appealing as complements to a core streaming service.
AT&T won't settle for anything less than being the center of a consumer's entertainment experience, but AT&T's strategy with WarnerMedia's niche services is still confounding.