Peacock's Subscriber Stall: Another 'Streaming Recession' Indicator?

Yes, NBCUniversal’s Peacock added an impressive 4 million paid subscribers in this year’s first quarter. And yes, Comcast chairman-CEO Brian Roberts warned at the time that that growth level, which was largely driven by Peacock’s streaming of Super Bowl LVI and the Beijing Winter Olympics, could not be expected to continue.

But it’s hard to ignore that Comcast’s just-announced Q2 results included zero growth in paid subscriptions, stalled at 13 million.

Or that Peacock was largely responsible for a Q2 pretax media segment loss of $467 million. That’s up from $363 million in 2021, and Comcast expects a total loss of $2.5 billion for the segment in the current fiscal year.

And while Peacock’s business model relies less on paid subs than advertising supported by a larger volume of viewers who sign up for the free tier, Peacock also saw its total monthly active accounts (MAAs) decline by 1 million, to 27 million, in Q2.

According to some reports, many of those counted in Peacock’s free tally are X-finity pay-TV subscribers. NBCU has continued to try to grow paid subscribers, including by testing free-to-paid conversion incentives like free movie tickets.

During Comcast’s earnings call, NBCU CEO Jeff Shell described Peacock as “kind of an extension of our existing business,” based on dual subscription and advertising revenue streams, that’s been “validated” by its adoption by other media companies.

He also emphasized that Peacock complements linear TV and that across the two, the company has over $10 billion in advertising. “So people coming in at the levels they are coming in, we don’t expect it to have any material impact on what we sell and how we do it,” he said. “If anything, our scale gives us an increasing advantage.”

In late June, NBCU reported having sold a record $7-billion for the 2022-2023 upfront season. But it reported a 1.3% dip in ad revenue in Q2, with Shell blaming a "choppy" scatter market.

Comcast’s investments in new ad formats  —  and even whole TV shows  — that integrate advertising and ecommerce in content have helped attract ad spend to Peacock.

Still, other new streamers with primarily paid bases have accumulated far larger subscriber volumes. For instance, Disney+, launched in November 2019, eight months before Peacock, ended its last quarter with 138 million paid subs.

Despite heavy investment in originals and ample sports coverage (the full range of which is available only to paid subscribers), some say Peacock’s content is limiting its growth.

But in his Q2 letter to stockholders, Comcast chairman-CEO Brian Roberts expressed confidence that recent premieres and upcoming content will help drive paid subscriber growth. He cited “Jurassic World: Dominion,” “Minions: The Rise of Gru,” “Nope,” “Sunday Night Football” and The World Cup.

Nevertheless, Peacock now joins Netflix and Disney+ as prominent examples of streaming subscriber slowdowns in North America.

Meanwhile, a new Kantar analysis concludes that high inflation is likely to further accelerate pay-TV churn. In this year’s first quarter, cable operators lost 913,365 traditional video subs — the largest sequential decline since 2006.

It also notes that in Q1, 47% of U.S. cord cutters surveyed said that the cost of pay-TV is too high, and nearly as many — 42% — said that streaming and/or over-the-air TV are now good enough to meet their viewing needs.

That would certainly seem to work in favor of a renewed uptick in streaming services adoption.

But there are also growing indications that paid streamers are no longer considered the cost-saving alternative to pay-TV that they once were — meaning that the main beneficiaries of inflation are indeed likely to be cheaper, ad-supported video-on-demand (AVOD) and free, ad-supported streaming services (FASTs).

For example, new research from the Variety Intelligence Platform and Morning Consult finds 26% of U.S. adults — including 36% of Gen Zers and 35% of Millennials — saying they’ve already made changes to their monthly entertainment subscriptions as a result of inflation.

Among those who express concern about an upcoming recession, 29% have reduced spending on entertainment subscriptions. And while about half of all respondents said they will continue to pay for video and audio subscriptions even if there are price hikes, 39% said they would consider canceling.

Those results mean that streamers need to “prioritize younger-demo-skewing original releases” in the months ahead, said Morning Consult media and entertainment analyst Kevin Tran.

They should also serve to “intensify the sense of urgency that streamers like Disney+ and Netflix feel in launching cheaper, ad-supported tiers, as these new options will soften the blow of younger consumers who are minimizing their subscriptions due to economic concerns,” he stresses.

But with marketers pulling back on TV advertising in anticipation of inflation-driven reduced consumer spend (witness Roku's warning about this during yesterday's Q2 earnings call), and ad-supported streaming platform options proliferating, there's bound to be a dog fight for ad dollars in the months ahead.

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