Smaller SVODs risk failure if they don’t partner up says Moody’s analyst

Smaller SVODs must partner up or set themselves up for acquisition in order to survive, an analyst at Moody’s has said.

Neil Begley, senior VP, corporate finance group at credit ratings agency Moody’s has argued that longer term success will be difficult for smaller players in SVOD and that they are “probably going to need to partner up in some fashion or be acquired … to achieve the girth necessary.”

Begley, Moody’s top media analyst, was speaking at Goldman Sachs’ Annual Communacopia conference and outlined how SVODs are splitting into two tiers. Tier 1 SVODs, he said, are global players with large subscriber bases and “a regular cadence of original exclusive content released across all genres and territories and backed up by a deep and broad library for consumers.”

These players include the likes of Netflix and Amazon, while Begley said that Disney+ “appears to have all the makings and markings” and that  HBO Max “also appears to be there” but that “they made an error in their pricing that could stall their growth.”

Tier 2 by contrast are much smaller players which are arguably designed to complement, rather than replace, the larger players. This category includes streamers that are smaller in scope like Starz and Apple TV+.

While Apple will have the financial clout to support a service which is a lower priority than its main hardware and software businesses, Begley said that less cash-rich operators will see high churn and that “it will be hard to get the attention of folks as an SVOD platform on a standalone basis without having consistently superior content that attracts people in their own right.”

He said: “What that means is that everybody else is either way too small in terms of how much they spend on content and they’re still heavily reliant on linear programming.”

Of ViacomCBS’s upcoming Paramount+ streamer – a rebrand of CBS All Access which aims to turn it from a Tier 2 to a Tier 1 – Begley said that “I really like what I am hearing out of the company and their efforts to consolidate the rebrand,” and that he thinks the company is “heading in the right direction.”

While the idea that smaller SVODs should partner may just be the opinion of one individual, Begley’s comments do hold significant clout in the industry as Moody’s is one of only a few agencies that rate corporate debt and guide fixed income investors on the risks involved in buying company bonds.