Part 23. The OTT War — SVOD vs. AVOD, and What Netflix Built and Broke

Core question: What did Netflix invent, and does it still work?

When Three Payment Habits Were Dying at Once

In 2010, Americans had three payment habits for screen content.

The first was the video-rental store. At its 2004 peak, Blockbuster, founded in 1985, had more than sixty million members across 9,094 US stores. Average daily revenue exceeded $3,000 per store. It earned $800 million a year from late fees alone. Penalties rather than rental charges supplied 16 percent of revenue—an unusual structure.

The second was the cable television bundle. Plans from Comcast and Time Warner Cable averaged more than $100 a month. According to Nielsen, households received an average of 189 channels but regularly watched only seventeen, with no way to select only the desired channels. À la carte service remained a taboo that the cable industry resisted for decades.

The third was the dream of a cinema subscription. In 2017, MoviePass, founded in 2011, attempted a radical experiment: for $9.95 a month, members could watch one theatrical film every day without limit. With an average ticket already above $9, two visits a month covered the subscription. Membership quickly exceeded three million. But the model was designed for bankruptcy. MoviePass paid theaters the full ticket price and sold access to customers at a discount, so every frequent viewer enlarged the deficit. Losses exceeded $300 million when it filed for bankruptcy in 2019.

Shortly before collapse, MoviePass created another controversy. In a 2018 interview, CEO Mitch Lowe revealed the collection of GPS location data, saying, “We know where you drive from and where you go.” Because subscriptions could not cover losses, the company planned to supplement revenue by selling members’ movement routes and consumption patterns to third parties. Consumer groups and the press responded with intense criticism, destroying already fragile trust. The episode proved a rule: when the subscription price is below cost, the business must seek revenue elsewhere. If the target is customer data, the payment habit collapses together with trust.

All three habits shared one problem. People had no reasonably priced way to watch what they wanted when they wanted it.

Netflix Did Not Invent Streaming

Netflix, founded in 1997 by Reed Hastings and Marc Randolph, first sold DVD rentals. Its 1998 service was simply DVD rental by mail. The difference was the absence of late fees. While Blockbuster made $800 million a year from penalties, Netflix differentiated itself with one promise: “No late fees.”

In 2000, Netflix offered to sell itself to Blockbuster for $50 million. Blockbuster CEO John Antioco declined, judging online DVD rental a niche. Twenty-two years later, in 2022, Netflix’s market capitalization reached $150 billion, while Blockbuster had become a museum with exactly one store left in Oregon.

That last store stands in Bend, Oregon. Paradoxically, fans crowded into it during the height of the pandemic in 2020, making pilgrimages to see “the last Blockbuster.” That year Airbnb staged an event offering a night inside the store for $4, surrounded by VHS tapes from 1994. Applications surged. Nostalgia for something lost became a reason to pay: Blockbuster created a payment-habit space even after failure.

Netflix eventually sent its own DVD-by-mail model into history. On September 29, 2023, it ended the service after twenty-five years, and tens of millions of DVDs remained returned through the final day. The company’s first shipped DVD in 1997 had been Beetlejuice (1988). It was the day digital finally displaced analog.

Netflix launched streaming in 2007. Internet speeds and streaming technology were immature, image quality was low, and the library was thin. Technology was not the point. Payment habit was. People already paying $7.99 a month for DVD subscriptions could now stream digitally without paying more. Streaming came inside the existing fee.

That was Netflix’s invention—not streaming technology, but the habit that “a monthly fee means no additional payment for consuming screen content.”

February 1, 2013: The Birth of Binge-Watching

On February 1, 2013, Netflix released all thirteen episodes of its original drama House of Cards at once. Production for its first two seasons cost $100 million, then an exceptional investment.

The release method was decisive. For decades, terrestrial networks such as ABC, CBS, and NBC had released one episode a week. Viewers embodied the rhythm of waiting until the following week, and advertisers bought that waiting time.

Netflix destroyed the rhythm. It released everything together and added “play next episode automatically.” At the end of an episode, a fifteen-second countdown began; do nothing and the next episode played.

The term binge-watching became popular during this period. Usage surged each year, and Collins Dictionary named it Word of the Year in 2015.

The episode proved that payment habits attach not to content but to a structure of time. The cycle—watch once a week, wait, watch again—supported broadcast advertising. Netflix removed the cycle itself. Once waiting disappeared, viewers spent four or eight hours at once. This compressed consumption maximized immersion but also produced binge and churn: finish everything, then cancel. Netflix later divided some high-profile seasons into two release blocks in response.

Original Content — The Platform Becomes the Producer

Netflix had roughly forty million subscribers in 2013, about seventy-five million in 2015, 201 million in 2020, and a peak of 222 million at the end of 2021. Original content fueled the growth.

Netflix invested $17 billion in content in 2021, 5.6 times the $3 billion spent in 2013. For comparison, Comcast, the parent of NBC, had a similar total content budget in 2021.

On September 17, 2021, Netflix released the Korean original Squid Game. It cost about ₩25 billion, or $21.4 million. Within seventeen days, 111 million households had watched it; after twenty-eight days, the figure reached 142 million households, making it the most watched title in Netflix history at the time. An internal Netflix estimate valued what the series created at about $900 million, roughly ₩1 trillion.

A ₩25 billion production generating ₩1 trillion in value is a calculation unavailable to traditional broadcasters. They set advertising prices by ratings and recover production costs through ad revenue. For Netflix, viral original content prevents churn and acquires subscribers. When one subscriber pays $13–17 a month, ten million additional subscriptions become the ROI of Squid Game.

Stranger Things (2016) captured payment habits differently. Its 1980s nostalgia created intergenerational content consumed by parents who were teenagers then and their teenage children now. Season four recorded 286 million viewing hours in its first week alone.

2022: Subscriber Decline and the Return of Advertising

On April 19, 2022, Netflix announced its first-quarter results: subscriptions had fallen by 200,000, the first decline since 2011. Its share price plunged 35 percent in one day and stood more than 70 percent below its 2021 peak.

Analysts identified two main causes. First, an estimated one hundred million households worldwide shared passwords—one person paid while several used the account. Second, streaming competition had intensified as Disney+, HBO Max, Peacock, and Apple TV+ launched one after another beginning in 2019.

Netflix responded in two ways.

First, it introduced an advertising plan. In November 2022, Basic with Ads launched at $6.99 a month, less than half the ad-free Standard price of $15.49. Netflix, which had defined itself for decades as a pure subscription platform without ads, entered advertising.

Second, it restricted password sharing. Beginning in April 2023, US account sharing cost an additional $7.99 a month. The industry predicted mass cancellation, but the opposite occurred: Netflix gained 5.89 million subscribers in the second quarter of 2023, almost three times analysts’ forecast of two million.

The episode proved that once a payment habit is attached, convenience defeats price resistance. People who had made Netflix part of everyday life created their own accounts after recognizing that life without shared access was less convenient.

Disney Strikes Back — How IP Defeats a Platform

Disney+ launched on November 12, 2019, and its servers failed on the first day because too many people arrived. Downloads ranked first across the App Store and Google Play. Social media filled with posts saying that even an error screen would not make users cancel. New sign-ups continued during the outage, turning the failure into proof of demand. Disney+ reached ten million subscribers within twenty-four hours, about fifty million after five months, and 164 million by November 2022.

Its initial monthly price was $6.99, about half Netflix’s then-current $12.99.

Its weapon was not price but intellectual property: the Marvel universe, Star Wars, Pixar, National Geographic, and Disney’s classic animation. Payment habits built over decades of fandom migrated to the new platform.

The Mandalorian was Disney+’s killer content. The Baby Yoda meme spread worldwide and recruited even non–Star Wars fans. Within three months of launch, related merchandise generated hundreds of millions of dollars.

Competitors entered together. HBO Max launched under the HBO brand in 2020, then changed its name to Max in May 2023. Warner Bros. Discovery, spun out from AT&T, integrated Discovery+ content and closed CNN+, concentrating resources in one platform. Max had about ninety-five million subscribers in 2023. Peacock, launched in 2020, belongs to NBCUniversal; Paramount+, launched in 2021, combines CBS, MTV, and BET. Apple TV+ launched in 2019 at $4.99 a month, then the lowest price among major streamers. It offered only original content, and in 2022 CODA became the first film from a streaming service to win the Academy Award for Best Picture. Apple does not disclose subscriber numbers, a policy widely analyzed as a strategic choice.

By 2022, the average US household subscribed to four OTT services and spent $48 a month. That was less than the $100 cable bundle, but the inconvenience of opening separate apps increased. People had left cable bundles for OTT bundles; bundle consumption itself remained.

The Return of AVOD — Why Advertising Came Back

AVOD, advertising-based video on demand, means free streaming supported by ads. It existed before the subscription era; YouTube has operated on the model since 2005.

AVOD receded during the subscription explosion of the 2010s and returned in the 2020s for one simple reason: subscription fatigue. Households paying $48 for four services began canceling them one at a time, and demand became clear for free or inexpensive viewing with ads.

Tubi, founded in 2014, was one of the leading free AVOD services, with fifty-one million monthly active users in 2021. Fox acquired it in 2020 for $440 million.

Pluto TV, founded in 2013, was acquired by Paramount in 2019 for $340 million. Its channel-based free streaming carried the cable habit directly into digital space, preserving even the interface of changing channels with a remote.

Hulu, founded in 2008, began as a free ad-supported service before adopting a hybrid with subscriptions. In 2023, its ad-supported plan cost $7.99 a month, compared with $17.99 without ads. The price gap is the central lever that induces acceptance of advertising.

Netflix’s entry into ads officially confirmed the direction of the market. Pure SVOD—subscription video on demand without ads—will remain as a premium segment, while the mass market separates into AVOD and low-cost, ad-supported SVOD. History repeated itself. As free ad-supported television dominated for decades after the 1950s, streaming concluded that mass adoption was difficult without advertising.

Korea’s OTT War — Terrestrial Broadcast, Cable, and Commerce

2019 was the first year of Korea’s full OTT market.

Wavve launched as a joint venture between SK Telecom’s Oksusu and terrestrial broadcasters KBS, MBC, and SBS. The logic was clear: build a local platform around terrestrial content before Netflix captured Korea. Wavve had about six million subscribers in 2023, but recorded a ₩121 billion operating loss in 2022. Original-content investment and marketing exceeded revenue.

TVING began as a CJ HelloVision service in 2010. CJ ENM relaunched it as an independent company in 2020, migrating the content assets of cable channels such as tvN, OCN, and Mnet into digital space. It supplemented global content by offering Paramount+ exclusively in Korea. TVING had roughly five million subscribers in 2023 and an operating loss of ₩119.2 billion.

Coupang Play, launched in 2021, took another approach. OTT came bundled with Coupang Rocket Wow membership, then ₩4,990 a month. The service retained loyal commerce customers rather than selling content alone. Sports—especially Tottenham Hotspur and Son Heung-min—stood at the center. Coupang Play streamed Tottenham matches online during the 2021–22 season, while SPOTV affiliates held the EPL rights themselves, and brought Tottenham to Korea for the “Coupang Play Series” in summer 2022. App usage surged around the broadcasts and Korean matches. The “Son effect” directly pulled sports fans into an OTT app. The service had about six million subscribers in 2023. Sports rights became the adhesive that retained subscriptions.

Watcha, launched in 2016 as an independent startup, differentiated itself with algorithmic recommendations and personalized curation. By 2023 it faced a severe management crisis. Without outside investment, it could not independently finance original content at sufficient scale.

Netflix played a different game in Korea. From its 2016 launch through 2023, cumulative investment in Korean content reached about ₩1 trillion. Original production positioned Korea as a base for globally exported content. Squid Game, Hellbound (2021), and The Glory (2022) came from the strategy. On the day part two of The Glory appeared, related keywords occupied all ten top real-time trends on Korean Twitter, now X. Korean viewers and global Korean-wave fans reacted together. Korean content retained both domestic and worldwide subscribers. Netflix invested ₩550 billion in Korean production in 2021 alone.

The Cinema Strikes Back — The Collapse and Restoration of Windowing

The COVID-19 pandemic of 2020–2021 struck theaters directly. AMC Entertainment approached bankruptcy, and global cinema attendance fell more than 70 percent from 2019.

Studios experimented with bypassing the theatrical window. Warner Bros. declared that its entire 2021 theatrical slate would appear simultaneously on HBO Max. Director Christopher Nolan publicly denounced it as “the worst streaming service” even compared with Netflix, while cinema chains considered refusing the films.

Disney introduced Premier Access, releasing Mulan (2020) on Disney+ for $29.99 premium VOD at the same time as its theatrical plans. It was experimental, but lockdowns left few options.

The market reversed as the pandemic eased in 2022. Top Gun: Maverick preserved a theater-first release and grossed about $1.48 billion worldwide. After its May premiere, streaming was delayed about seven months until it reached Paramount+ in December—a nearly traditional window. It was credited with helping US attendance recover to 80 percent of pre-pandemic levels. Particularly notable was the return of audiences aged sixty-five and over, the group most reluctant to revisit theaters after the pandemic. They returned for Top Gun: Maverick, demonstrating to the most conservative audience the proposition that only cinemas provide a certain experience.

Avatar: The Way of Water (2022) also chose theater-exclusive distribution and earned $2.3 billion worldwide, the third-highest gross in history. Together, the two films proved that “an experience only the theater can provide” still existed.

The traditional sequence—cinema for ninety days, home video, cable, terrestrial television, SVOD—shook during the pandemic and then partially returned. The present industry norm is a shortened window of about forty-five days before OTT release. The old system did not fully return, but the payment-habit space of “theater first” survived.

A Specialized Field — Art-House Cinemas, a Space OTT Cannot Replace

One space remains beyond the reach of even Netflix and Disney+: the art-house cinema.

MUBI, founded in 2007, specializes in independent and art films. Founder Efe Cakarel foregrounded the philosophy that “humans choose, not algorithms”—the opposite of Netflix. For many years, MUBI added one new film daily and removed it after thirty days, maintaining exactly thirty titles. A permanent library introduced in 2020 relaxed the rule, but a curator-selected “film of the day” remains central. The monthly subscription is $10.99, with service in 175 countries as of 2023. Scarcity—“miss today’s film and it will disappear in thirty days”—created a reason to pay opposite to Netflix’s abundance and permanent availability.

In Korea, the Jeonju International Film Festival and Busan International Film Festival serve as hubs for the independent-film ecosystem. Works unavailable on mainstream OTT premiere there, and fans visit theaters for them. Dedicated venues such as Arthouse Momo in Seoul and Oo Cinema in Daegu provide curated spaces and a sense of community that streaming cannot reproduce.

Art-house cinemas survive in the OTT era for a paradoxical reason: they offer discovery unavailable in content selected by mainstream algorithms. People pay not for Netflix’s ten most watched films today, but for one film chosen by a curator. Spotify cannot replace a classical concert hall for the same reason. Netflix’s abundance creates payment motivation in the mass market; in the taste market, scarcity creates a motivation abundance cannot provide.

Essential Failure Case 1 — Quibi: Why $1.7 Billion Vanished in 239 Days

Quibi attracted attention before its 2020 launch. Former Disney CEO Jeffrey Katzenberg and former HP CEO Meg Whitman cofounded it and raised $1.75 billion before release. Hollywood figures including Steven Spielberg and Kiefer Sutherland joined its productions.

Its concept was clear: a subscription short-form OTT service viewed only on smartphones. Episodes lasted no more than ten minutes. “Quick Bites” technology changed framing when a phone rotated between portrait and landscape. It targeted the habit of consuming short content on a commute.

The result: launch on April 6, 2020; closure announced October 21; service fully ended December 1. It lasted about eight months, or 239 days.

Final subscriptions numbered roughly 500,000, only 7 percent of the 7.4 million target. Plans cost $4.99 a month with ads or $7.99 without.

Analysts offered several explanations, but the core was one fact: YouTube and TikTok already owned the habit of watching short content on smartphones, and both were free. There was no reason to pay for short video. A powerful free incumbent already occupied the habit-space of consumption on the move. Quibi’s attempt to enter with a fee failed to transfer the payment habit.

Katzenberg blamed the pandemic, arguing that commuting—and therefore consumption on the move—had vanished. Yet TikTok and YouTube Shorts exploded after the pandemic. The failure was not COVID-19, but a payment model that never landed.

Essential Failure Case 2 — CNN+: A Thirty-Day Experiment

CNN+ was even shorter: launch on March 29, 2022; closure on April 28. Thirty days.

CNN, the twenty-four-hour news channel, symbolized the cable era. It experimented with a specialist news subscription for streaming, investing $300 million, recruiting star anchors, and charging $5.99 a month.

It gained about 100,000 subscribers. Estimates placed break-even in the millions.

When WarnerMedia and Discovery merged to form Warner Bros. Discovery in 2022, new CEO David Zaslav reviewed the strategy and chose to absorb CNN+ into a unified streaming platform rather than maintain it independently. The launch of Max in May 2023 extended that decision: HBO Max, Discovery+ content, and CNN+ resources converged in one place. CNN+’s $300 million ended in thirty days.

The episode proved that news is a field where the free-payment habit is already exceptionally strong. CNN.com, YouTube news, and social-media news feeds overflow with free CNN coverage. Users did not transfer into paying for a premium version of the same brand. Giving news away from the beginning became an obstacle to its OTT transition.

OTT Bundling — Back to the Age of the Bundle

A paradox emerged. People chose OTT to escape cable bundles. As OTT services multiplied, they began returning to bundles.

Apple One, launched in 2020, combined Apple Music, Apple TV+, Apple Arcade, and iCloud storage for $14.95 a month, below the separate total. Consumers already tied to Apple’s ecosystem became tied once more.

Amazon Prime connected Prime Video, Prime Music, and Prime Gaming to Prime Shipping for $14.99 a month. Even customers who do not watch video subscribe for delivery and then use the video service. Amazon acquired OTT subscribers through a shopping habit, not content.

Korean telecommunications companies followed the same logic. KT offered plans including YouTube Premium, SKT linked plans to Wavve, and LG U+ partnered with Netflix to combine it with mobile billing. Bundle discounts defended against churn.

A bundle feels like a discount to the consumer, but it is a retention tool for the business. Cancel one video service and other benefits disappear. The logic is identical to the cable era. Tools change; payment-habit structures repeat.

Hint Points

What patterns of payment habit emerge from this chapter?

First, convenience creates loyalty. Blockbuster made money from late fees. Netflix stole customers by eliminating them. Quibi entered a space where YouTube and TikTok already supplied convenience for free. Entering a solved space with a paid product is difficult.

Second, a platform is a habit-space, not a content warehouse. Disney+ gathered ten million people on day one not because of service quality, but because decades of Disney-fandom payment habits transferred. CNN+ closed in thirty days because news consumption was already anchored to free access.

Third, bundles are the adhesive of payment habits. Amazon Prime converts delivery subscribers into video viewers, while Coupang Play offers sports to Rocket Wow members. Both connect different habit-spaces under one fee. This is not a new invention; cable-bundle logic migrated into a digital bundle.

Anyone building a screen platform should begin with this question: Who already occupies the payment-habit space I want to enter, and what greater convenience can I offer?

The balance between exclusive content and price can be found only after answering it. No matter how powerful the exclusive, customers leave when price crosses the payment-habit threshold. No matter how low the price, a strong free incumbent makes payment difficult.

Netflix did not invent streaming. It invented the payment habit that “at this price, I no longer need to think about paying extra whenever I consume screen content.” Once that habit reached critical mass, the opening for competitors had already disappeared.

Kim Dongeun · WhtDrgon@MEJE.kr · 2026