Netflix, Disney+, Hulu, Amazon Prime Video, HBO Max, Apple TV+, CBS All Access, Peacock… it’s fair to say the streaming market is heating up. As viewers cut cable subscriptions and stop visiting movie theaters, they’re turning to online video libraries instead. Investors, meanwhile, just want to settle down in front of something good – easier said than done, because success looks completely different depending on the platform.

The current leader is Netflix, which kickstarted a revolution when it launched online video in 2007. That first-mover advantage helped it build a massive, stable revenue base of 158 million subscribers. And that, in turn, allowed Netflix to borrow billions, which it spends building a library of exclusive original content in the hope of keeping you glued to the platform.

Times have changed, however. Netflix is no longer the only player in town – and some think its once-innovative business model could prove to be a distinct disadvantage. Netflix is a pretty simple media company, really: it makes content and then sells it. The drivers of that are correspondingly simple: profit is a function of how many subscribers it has, how much it charges them, and how much it spends on getting content out.

The other streaming players work differently, however. Amazon openly admits that its goal with Prime Video is simply to keep you subscribed to Prime so you spend more shopping – Prime subscribers spend an average $800 more on Amazon each year than regular e-shoppers do. Disney, meanwhile, is selling its streaming services at a cut-price rate, in part because it can later monetize that by upselling users cruises, theme park tickets, and merchandise. And Apple, for its part, hopes that star-studded shows will entice you to buy a bundled subscription that includes its much more profitable iCloud services – and perhaps a new iPhone every year.

“I’m pretty sure we’re the first company to have figured out how to make winning a Golden Globe pay off in increased sales of power tools and baby wipes!”

Jeff Bezos

Others are betting big on advertising. Hulu offers a cheaper subscription than Netflix but attempts to make up the difference with ad revenue. And NBC’s hoping its new (free!) Peacock service will allow it to make more from traditional TV ads: it’s investing heavily in technology that will let it run synchronized ad campaigns across both TV and streaming, hoping to charge a premium for more targeted tat-touting.

In other words, streaming is a “loss-leader” for many of Netflix’s competitors: it exists to lure users in who can then be monetized in other ways. For them, profits are a function of how many subscribers they have, how much they’re charged, how much content costs, and how much they can make from subscribers in other areas. Those extra revenue streams mean they can charge less for subscriptions or invest more in content and still, potentially, make the same profit. That presents a major problem for Netflix, which might find itself outspent or undercut by its revenue-mixing rivals.

These different business models also mean investors have to value streaming products differently. For Netflix, it’s fair to focus on cash flow and profit (our Pack How Netflix Works goes into more detail here). But with the others, streaming can only be understood in the context of the wider company. It’s early days for all these platforms, so financial reporting is murky – but the best metric to keep an eye on is probably “average revenue per user”, or ARPU. When calculated comprehensively, that should include the revenue generated from adverts and related product sales. It’s perhaps impossible to fully figure out how effective a streaming business is here – you’ll never know if you would have gone to Disney World even if you weren’t a Disney+ subscriber. But ARPU goes some way towards estimating this 🐭

There’s a lot of money at stake. Combined global revenue from streaming subscriptions alone is likely worth around $40 billion already, and that’s forecast to grow. Still, compared to the$150 billion video games industry, it’s small fry…

The takeaway: Many new streaming services use content as a loss-leader to sell other products. That could pose a threat to Netflix, which relies solely on its content business.