Streaming Services – Old Problems in a New Form
Streaming has boomed over the past few years. Looking at the second quarter of 2020 in Nielsen’s latest study, streaming accounts for a quarter of America’s viewership. However, streaming services in the future may face the threat that is currently destroying cable television: being replaced by a superior content consumption model. In brief, cable television grew too complicated with bundling and similar programming, causing too much frustration for consumers. Streaming services were supposed to be a simplified and cost-effective solution, as was the initial purpose of Netflix. Paradoxically, the rise in the number of new streaming services brings back the fragmentation and monetization strategies including bundle deals and ads.
As many shows left Netflix and landed on other services, Netflix had to make a life-changing decision: original shows and movies, which Netflix has been producing since 2012. Through this, the giant streaming service expected to: retain subscribers who bring actual revenue to the company; have a reason to raise the subscription price in the future; and hedge against licensing issues (Reuters).
But the entertainment industry has proven to be ruthlessly competitive. Following the success of Netflix, other streaming services have started to build their own library of original shows. Increasingly, many consumers are frustrated with the growing number of paid subscriptions for their favorite content.
But even if an individual must subscribe to more than one streaming service, it seems cheaper than cable television somehow. However, the given price analysis from Allconnect shows that although streaming services provide cheaper solutions for viewers, the price is increasing as more content fragments into different services.
*Average price of broadband internet in the U.S. Pricing per month plus taxes for the length of the contract. Additional fees and terms may apply. Pricing varies by location and availability. All prices subject to change at any time. May or may not be available based on service address. As of 06/12/20.
Analysis was conducted by Allconnect.
Therefore, we are cutting the cord for a cheaper and simpler solution, but then are moving towards a problem that we have just avoided.
Interestingly, the average US and Western Europe household now tends to subscribe to more than 3 services, around 4 in 2020 as shown in the graph by cordcutternews. To date, we notice that many streaming providers bundle up multiple services in affordable packages. It seems that the next step in the evolution of the streaming market is bundle deals, which already happened in the cable television market.
As consumers cautiously put a budget cap on their streaming service expenses, streaming service providers strategically use bundling packages to increase the number of service sales while still making consumers feel their budget is in control.
The Return of Ads in the Form of Ad-based Video-On-Demand (AVOD)
Subscription Video-On-Demand (SVOD) users have increasingly demanded an option for free tiers. The majority of SVOD subscribers are willing to move from paid services to free ad-supported services to save money, which they would do instead of adding another paid service to their budget (Streamingwars). This has been happening, as a Tubi study found that 1 in 5 people in the 18-34 age bracket said they had cancelled their SVOD subscription due to the impact of the ongoing pandemic.
The appearance of advertisers is bringing in more money for streaming services if we compare ad revenues of a popular AVOD - YouTube - and Netflix’s revenues, which typically comes from paid subscriptions.
Data & visuals were created by Erick Mokaya, CFA
It seems consumers are less likely to subscribe for more paid TV services. The new TiVo data shows that while broadband-only consumers increased the number of TV services they use from 4.9 to 6.7 over the last year, pay-TV subscribers at the same time continued to use the same number of services. This shows that creating more streaming platforms will not equal more money earned from consumers. The urge to find another source of revenue should be carefully considered.
For advertisers, the media landscape today creates a challenge for them to reach their target audience due to further viewership fragmentation. Despite this, streaming is still a land of opportunities to reach the audience they desire. Accordingly, it seems that advertisers are waiting for streaming giants like Netflix to open the gate.
With the benefits for both streaming service providers and viewers, it is only a matter of time before we will see an increasing number of ads blasted on our screens. Maybe we will see more hybrid services combining SVOD and AVOD in the future. Interestingly, it sounds just like the complementarity between broadcast and cable television.
Streaming still has a long way to go to become the future of media and entertainment. At the moment, it taps into the cable television problem all over again with fragmented viewership, bundle deals, and ads. Perhaps the future of media and entertainment will await for another revolution of television.