Is Curiosity Stream Doomed? Why They Pay Dividends Despite Losing Money

Curiosity Stream’s IPO and Content Offerings

In 2020, a video streaming company called Curiosity Stream went public by merging with a SPAC. They created thousands of non-fiction documentaries about nature, science, and technology. It appealed to science geeks who, for the low price of just $20 per year, could gain access to a nearly unlimited number of documentaries.

In their SPAC presentation, Curiosity Stream pointed to the massive success of BBC’s “Planet Earth II” to show that there is strong demand for nature documentaries among the younger generations.

Financial Appeal and Production Costs

From a financial perspective, non-fiction content is also much cheaper to produce than scripted dramas. It costs Curiosity Stream about $100,000 to produce one hour of content. For comparison, “Game of Thrones” cost more than $10 million per hour to produce.

Almost four years later, things aren’t looking great for the non-fiction streaming service. Their revenue has been steadily declining since 2021, and they have never reported a positive operating profit. Given the disastrous financial performance, you probably won’t be surprised to see that their stock price has declined by almost 90% since going public, putting the company within striking distance of penny stock status.

Recent Stock Price Surge

What perhaps is surprising is that their share price has more than doubled over the past few months. In March, they unexpectedly announced a quarterly dividend of 2.5 cents per share. While 2.5 cents might not sound like a lot, their stock price was only 58 cents at the time, so the 2.5 cent quarterly dividend represented an annual yield of almost 20%.

Many investors love dividends. The initiation of the dividend at such a high yield attracted new investors and likely explains a doubling of the stock price. But it’s important to remember that Curiosity Stream is still losing money. How can they even afford to pay a dividend?

In this article, we’ll look at the story of Curiosity Stream, why they’ve struggled with profitability, and finally, we’ll analyze the possible motives behind their dividend strategy.

Background and Founding of Curiosity Stream

Curiosity Stream was founded in 2015, John Hendricks, best known for founding Discovery Communications in 1982, established Curiosity Stream. Discovery’s namesake, the Discovery Channel, is the host for non-fiction documentary content such as “Shark Week,” “Deadliest Catch,” “Man vs. Wild,” etc. To understand Curiosity Stream, we first need to understand the Discovery Channel.

While Curiosity Stream and Discovery are not affiliated with each other in any way, Curiosity Stream represents a continuation of Hendricks’ involvement in the realm of documentary programming. Hendricks first had the idea for the Discovery Channel when he was attending the University of Alabama in the 1970s. Some of his professors would rent 16 mm film cartridges from production companies like the BBC. The professor would project the short film to the class.

These films were educational. For example, in a history class, the professor might rent a historical documentary to play for the class. Some classes also showed documentaries about wild animals in nature. Hendricks realized that, in addition to being educational tools, these documentaries could serve as entertainment for the general public. Even if you’re not studying for a biology degree, you might still want to watch a documentary about wildlife just for fun.

At the time, not a single broadcast network had a dedicated channel for educational documentaries. Instead, they all focused on live news and sports as well as scripted dramas, which are far more expensive to produce.

The Launch of Discovery Communications

In 1982, Hendricks was finally able to raise a few million dollars from investors to launch what would become Discovery Communications. At first, they licensed documentaries created by third-party production companies. They aggregated this content and sold it as a television channel to cable distributors. Eventually, they started creating their own original productions.

The production costs for non-fiction documentaries are generally far less than scripted television dramas. For a television drama, you need to write a script, hire a director, hire big-name actors, and spend huge amounts of money on film sets and visual effects. This can easily cost millions of dollars per episode. For comparison, think of Discovery’s hit show “Deadliest Catch.” All they have to do is put some camera crews on fishing boats. They pay the fishermen to appear on the show, but this is a tiny fraction of what Hollywood actors get paid.

As it turns out, a significant proportion of television viewers are indeed interested in this type of content. During the 1990s and 2000s, Discovery Communications was a huge success. Hendricks took the company public, and it grew into a multi-billion dollar business. Discovery’s revenue relied almost exclusively on selling its content to cable television distributors.

Impact of Streaming Services on Discovery

With the rise of streaming services like Netflix, more and more households were ditching cable television. While cable television was highly profitable, it eventually became clear that this business model was a melting ice cube. Every year, more and more households cut the cord and switched to streaming.

In 2014, John Hendricks stepped down as chairman of Discovery. One year later, he founded Curiosity Stream. At its core, Curiosity Stream is supposed to be an online streaming version of the Discovery Channel. They create original documentaries about nature, science, technology, and society.

Between 2015 and 2019, John Hendricks put in $140 million of his own money to create a library of documentary content. Because the cost of the content is much cheaper to produce than scripted dramas, Curiosity Stream also charged a far lower price to consumers. Initially, the service only cost $3 per month or $20 per year.

Some of their most popular shows include documentaries about the Wild West, “Inside the Mind of a Con Artist,” which looks at the psychological vulnerabilities con artists exploit, documentaries about the rise of artificial intelligence, historical documentaries about World War II, and of course, they have numerous nature documentaries about everything from endangered tigers to animals living in urban areas.

Curiosity Stream’s Content and Pricing

By the time of the SPAC transaction in 2020, they had grown to about 800,000 paying subscribers. They also had 12 million so-called bundled subscribers. Curiosity Stream provides access to its content to third-party media distributors to be used as part of a larger bundle. These distribution partners included Fubo TV, the Indian media company Tata Sky, and many others. In some cases, internet service providers would even provide complimentary access to Curiosity Stream to their broadband customers.

These bundled deals are typically negotiated at a massively discounted rate, so Curiosity Stream’s average revenue per user is miniscule. At various times, Curiosity Stream has advertised the fact that they had over 20 million subscribers, but the vast majority of these have access to Curiosity Stream via bundled service and may have never even watched it.

In the first year after Curiosity Stream went public, things seemed to be going pretty well. In the fourth quarter of 2021, revenue peaked at $27 million. Due to their low content production costs, their gross profit margins were quite high. They spent heavily on advertising, mostly on social media platforms like YouTube. The high advertising expense caused the company to report operating losses, but so long as this translated to revenue growth, investors were satisfied.

The Nebula Partnership

In September of 2021, Curiosity Stream paid $6 million to buy a 12% stake in the video subscription service Nebula. Nebula was founded by the YouTuber behind the Wendover Productions channel. Dozens of large YouTubers have signed up to Nebula, posting their videos ad-free and occasionally creating videos exclusively for Nebula. Viewers pay a subscription fee to access content on Nebula.

As part of the investment, they also signed a marketing partnership. They offered a bundled package including both Curiosity Stream and Nebula for $20 a year, the same price as subscribing to Curiosity Stream as a standalone service, effectively giving Nebula for free. Sometimes, they would even run promotions dropping the price to $15 per year.

YouTubers on the Nebula platform started advertising the Curiosity Stream bundle in their videos. In aggregate, the bundle was advertised to tens of millions of viewers per month. The subscription revenue from the bundle was split between Curiosity Stream and Nebula, though the exact terms of the revenue share were not publicly disclosed.

Additionally, every time one of the Nebula YouTubers advertised the bundle in a video, Curiosity Stream paid them in cash. This cost Curiosity Stream millions of dollars per quarter. While the business appeared to be going well for Curiosity Stream in 2021, this success would prove short-lived. Over the following two years, their revenue declined by more than 50%.

So, what went wrong? If we look at the revenue by segment in 2021, most of the growth came from content licensing. In addition to running its own streaming service, Curiosity Stream also licenses some of its shows to other media companies. For example, back in 2020, HBO Max paid Curiosity Stream millions of dollars for access to a number of their shows. This licensing deal has since ended.

Impact of Streaming Industry Changes

If you think back to 2021, that was at the peak of the streaming investment boom. Legacy media companies like Warner Media, NBC Universal, Disney, etc., were all trying to catch up to Netflix. Many of these traditional media companies lacked non-fiction documentary content. Instead of creating it themselves, which would have been expensive and time-consuming, they paid to license Curiosity Stream’s documentaries.

Content licensing revenue all but collapsed in 2023. While it’s hard to pinpoint the exact reason for this, there are likely a few contributing factors. Facing rising interest rates and declining stock market valuations, the large streaming services became more selective about content acquisition. With Curiosity Stream being a niche content provider, they were probably one of the first items on the chopping block.

Consolidation is also bad for content licensing. For example, in 2022, Warner Media merged with Discovery. Warner Media used to pay Curiosity Stream to license content for its HBO Max streaming service. Discovery had more than enough non-fiction documentaries, so there was no longer any reason to pay for Curiosity Stream’s content.

In an attempt to increase revenue, Curiosity Stream doubled its subscription price in March of 2023. The annual subscription now costs $40 per year. Despite doubling the price, their direct subscription revenue stayed roughly flat throughout 2023. Not very many people were willing to sign up at the higher price.

The next problem came with their Nebula bundle. While this bundle was a successful marketing plan, it was also very expensive. Remember that whenever one of the Nebula YouTubers advertised the bundle in a video, Curiosity Stream had to pay them thousands, and in some cases, tens of thousands of dollars. Immediately following the SPAC transaction, Curiosity Stream had over $100 million of cash on hand. As they incurred operating losses, their cash balance steadily declined, falling to about $40 million by the end of 2023.

With cash running low, Curiosity Stream informed Nebula that they couldn’t afford to pay for as many YouTube sponsorships. Sponsorships were the main way Nebula’s YouTubers made money.

Subscriber Retention Issues

With Curiosity Stream tightening its purse strings, Nebula decided that the partnership was no longer worth their while. From a marketing perspective, the Nebula portion of the bundle was far more valuable than Curiosity Stream. For example, if you see the bundle being advertised in a Wendover Productions video, you are, by definition, a Wendover Productions viewer and you likely enjoy his content. Thus, you are likely to be interested in Nebula, which has exclusive videos created by Wendover Productions and similar content creators.

Many of the people who signed up for the bundle probably never even watched Curiosity Stream. Curiosity Stream was taking a significant portion of the revenue but not really adding that much value. In November of 2023, Nebula announced they were terminating the bundle at the end of the year. This was a disaster for Curiosity Stream, as they would now be losing one of their main ways of acquiring customers.

In a desperate attempt to lock in more subscribers, Curiosity Stream started sending out marketing emails implying that if you subscribed to the bundle for a two-year subscription before the year end, you would retain access to Nebula for the entire duration of the subscription. This was not true. Nebula put out a statement calling out Curiosity Stream for misleading its customers. People who subscribed to the bundle had their subscriptions automatically renewed by default starting in 2024. Renewals did not include access to Nebula.

This upset many subscribers who primarily watched Nebula instead of Curiosity Stream. They were charged for a year of Curiosity Stream, which they didn’t want. This has caused a lot of resentment among subscribers. Currently, almost half of Curiosity Stream reviews on Trustpilot are one star.

In Curiosity Stream’s SEC filings, they disclosed that following the termination of the Nebula bundle, they have experienced a decline in their number of subscribers. They are also at risk of further churn from subscribers who only wish to access Nebula directly. Despite losing subscribers, Curiosity Stream’s direct subscription revenue actually increased slightly in the first quarter of 2024.

The vast majority of subscribers choose to pay annually, as this is cheaper than paying monthly. Because people are locked into annual subscriptions, it can take a long time for changes in subscriber flow to impact reported revenue. Also, remember that they doubled their prices in the first quarter of 2023.

For existing subscribers, the price increases only realize when their annual plan renews. So, between the first quarter of 2023 and the first quarter of 2024, a steady stream of existing subscribers were renewed at the higher price. Curiosity Stream does not disclose their number of subscribers, which makes analysis difficult.

Challenges with Subscriber Base

Starting in the second quarter of 2024, revenue is likely to decline as the benefit from the price increase has already been realized. Curiosity Stream’s business appears to be imploding. In the first quarter of 2024, they generated $9.5 million of direct subscription revenue. This excludes bundled subscriptions and content licensing. Based on the current subscription price, this translates to about 1 million subscribers, with that number likely to decrease going forward.

So why has Curiosity Stream failed to garner more subscribers even after the 2023 price increase? It’s still cheaper than any of the other major streaming services, so why are so few people willing to pay even such a small amount? While Curiosity Stream’s price is low, the quality of its content is also quite low. If you compare Curiosity Stream documentaries to those produced by National Geographic or Netflix, for example, the difference in production budget is obvious.

Most people who would consider buying any streaming service already subscribe to one of the big ones like Netflix, Disney Plus, or Max. Disney has National Geographic, Max has Discovery’s non-fiction content, and Netflix has tons of non-fiction documentaries as well, all of which have much higher production budgets than Curiosity Stream. The only benefit of Curiosity Stream is its quantity. While Netflix has a few hundred high-budget documentaries, Curiosity Stream has thousands of low-budget documentaries.

However, if your goal is to watch an endless quantity of science content, there are tens of thousands of science videos on YouTube that you can watch for free, many of which are of similar, if not better, quality than Curiosity Stream. Curiosity Stream finds itself in an awkward position where its content is too expensive to be monetized through an ad-supported platform like YouTube, but the quality is too low to compete with the streaming giants like Netflix, Disney Plus, and Max.

If you watched our previous video about Vice Media, they fell into a similar trap. Their production costs were way too high to be covered by ad revenue alone, but the quality was too low to be effectively monetized on pay TV. With the rise of ad-supported media platforms like YouTube and TikTok, most people aren’t willing to pay for content unless it’s very high quality.

Curiosity Stream thought it was competing against Netflix and Disney Plus. In reality, they were competing with YouTube, and it’s very difficult to compete when your competitor’s product is free. As Curiosity Stream’s revenue has declined over the past couple of years, they’ve also cut down their advertising and general administrative expenses. This has allowed them to reduce their operating losses, although they’re still losing money.

The Introduction of Dividends

Starting in the second quarter of 2024, Curiosity Stream anticipates a decline in revenue following the realization of benefits from its 2023 price increase. In the first quarter of 2024, they generated $9.5 million in direct subscription revenue, excluding bundled subscriptions and content licensing. This suggests they have approximately 1 million subscribers currently, a number expected to decrease moving forward.

Despite remaining cheaper than major streaming services, Curiosity Stream has struggled to attract more subscribers. The low price point contrasts with the perceived lower quality of its content compared to offerings from National Geographic or Netflix. While Netflix, Disney Plus, and Max boast high-budget documentaries, Curiosity Stream focuses on quantity with thousands of low-budget documentaries.

For viewers seeking science content, YouTube offers tens of thousands of free videos, often comparable or superior in quality to Curiosity Stream. This leaves Curiosity Stream in a challenging position: its content is too costly for ad-supported platforms like YouTube yet lacks the high quality to compete with Netflix and others.

Similar to Vice Media, Curiosity Stream faces a dilemma where production costs are too high for ad revenue alone and content quality struggles to justify subscription costs. The rise of free platforms like YouTube and TikTok further complicates their market position, as consumers increasingly expect high-quality content for paid subscriptions.

Initially seen as a competitor to Netflix and Disney Plus, Curiosity Stream finds itself competing with free platforms where quality content thrives without subscription fees. Despite cutting advertising and administrative expenses to reduce operating losses, Curiosity Stream continues to face declining revenue amid its struggle to retain and attract subscribers.

Positive Cash Flow Claims

In their first quarter earnings release, Curiosity Stream proudly bragged about the fact that they achieved positive cash flow from operations for the first time ever. They claim that this positive cash flow gives them the funds to pay dividends. However, this is ultimately unsustainable. Their low content spending means their library of shows will quickly grow stale. As their existing subscribers run out of interesting shows to watch, they are likely to cancel their subscriptions in droves.

When a company initiates a dividend, it is usually viewed as a sign of confidence. In my opinion, Curiosity Stream is the opposite. Senior management can likely see that the business has failed. Investing in more content would just be throwing good money after bad. So instead, they will let the business die and distribute what little cash they have left as dividends.

Conclusion

All right, guys, that wraps it up for this article. What do you think about Curiosity Stream? Let us know in the comments section below.