While streaming is currently booming, smaller competitors may be at a disadvantage. Large players like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) have increased engagement faster than the rest of the industry. Meanwhile, smaller media companies may start finding more value in licensing their content to bigger competitors like Netflix instead of trying to offer it directly to consumers.
But there may be a middle ground for some. Not-quite-direct offerings could be vital to mitigating the expenses of going straight to the audience while keeping the opportunity to offer a service directly down the road if it looks appealing.
AMC Networks (NASDAQ:AMCX) took another step toward such a service with the launch of AMC+ and WE tv+. AMC+ expands on its previous streaming service, AMC Premiere, which offered ad-free episodes of AMC's series. The catch is, that service was only available to AMC's cable network subscribers. But AMC is offering AMC+ and WE tv+ to non-subscribers through Comcast's (NASDAQ:CMCSA) Xfinity Flex platform, which is available for Comcast's broadband-only subscribers.
Xfinity Flex offers a stepping stone to direct-to-consumer offerings for smaller media companies like AMC. Businesses like AMC may also explore distribution through Amazon Channels, premium subscriptions on The Roku (NASDAQ:ROKU) Channel, or Apple TV Channels instead of going directly to consumers.
The benefits of distribution partners
Partnering with a company like Comcast allows AMC to put more focus on its most important product: content.
Comcast will handle distribution, customer service, and billing. It might even help out with marketing, since driving engagement on its platform makes its service look more valuable. Likewise, Roku, Amazon, and Apple are all incentivized to grow engagement through their subscription services. Subscriptions through their respective distribution channels further lock customers into their ecosystems. Roku wants to build engagement in the ad-supported Roku Channel; Amazon wants to keep people subscribed to Prime; Apple wants users to buy its devices.
The distanced approach isn't quite as simple as licensing content to a bigger competitor, but the expanded distribution and marketing should enable competitors to reach a broader audience with a smaller budget than if they went with stand-alone apps.
The strategy isn't entirely new. ViacomCBS has partnered with Amazon and Roku for broader distribution of more niche services. Its Comedy Central streaming service is only available as an Amazon Prime Channel, for example. It recently partnered with Roku to bring Pluto TV's linear-style channels to The Roku Channel.
We could see more cable network owners like AMC and Viacom bundle more of their content into not-quite-direct services like AMC+ or Comedy Central Now. Even Comcast's NBCUniversal is relying heavily on its sister company and other distributors for its Peacock streaming service launching later this year.
What it means for investors
As consumers cut the cord, network owners like AMC are facing a challenging environment. Without broad appeal like Netflix and sufficient scale, operating efficiency will suffer. Look how long it took Netflix to show operating leverage.
Relying on third-party distribution can improve operating leverage, but it cedes some control. That said, cable network owners have historically ceded some control to pay-TV distributors anyway.
Importantly, it could make it easier for AMC and other smaller media companies to transition to a true direct-to-consumer service if the economics make sense. While it would be swifter and easier than if they signed long-term licensing deals for their content with bigger competitors, it will present challenges of its own -- as AT&T is finding out with the launch of HBO Max.
Some of the biggest winners may be the distributors like Comcast, Roku, Amazon, and Apple (assuming companies like AMC expand their services to others). More premium subscriptions available exclusively through their distribution channels could benefit their businesses through greater overall engagement and retention. Moreover, those companies won't have much up-front expense, either, so it's a very high-margin opportunity.