Big media companies’ strategic adjustments and course changes are playing out in public as they strive to preserve profits from their legacy assets while seeking the surest course through streaming’s uncharted waters.
The transition’s difficulty is being magnified by ongoing consumer behavior shifts in response to the pandemic’s massive, still-in-progress disruption of economics, workplace-versus-home dynamics, the educational system and other foundational societal touchstones.
Assumptions, successful models and “settled” conclusions tend to have short lifespans these days.
Hence, for example, the decisions by both Disney and Netflix to add cheaper, ad-supported versions of their streamers, as they conclude that premium subscription-driven video-on-demand (SVOD) alone is not a viable model going forward.
Another interesting "nuance" that's of major importance to the bottom lines of legacy media groups: While cord-cutting actually accelerated in recent quarters, “We are seeing indications that the mass shedding of subscribers might slow down somewhat, because the people who were most vulnerable to cord-cutting have already done so,” says Adriana Waterston, chief revenue officer and insights & strategy lead, Horowitz Research.
Waterston used the firm’s recent surveys to summarize the state of pay TV, OTT and SVOD in a Cable and Telecommunications Association for Marketing (CTAM) presentation.
Between 2000 and 2022, U.S. adults with no multichannel video programming distributor/MVPD subscriptions increased from 5% to 13%, streaming-only subscribers jumped from 14% to 37%, and those with both an MVPD and streaming dropped from 58% to 37%.
But those who have only an MVPD dipped by just two percentage points, from 23% to 21%. In addition, 26% of MVPD-only subscribers say they plan to upgrade their current MVPD service (such as by adding set-top boxes or upgrading their packages), versus 21% planning to downgrade, and more plan to switch service providers (12%) than cut the cord outright.
Further, inflation-challenged consumers are increasingly grasping that it’s not so easy to achieve meaningful savings by abandoning pay-TV in favor of various SVOD-plus-FAST configurations.
The average TV content viewer uses about seven services a month, including over four paid, and three free — and the cost of OTT overall is approaching the cost of MVPD video.
In 2020, consumers estimated that they were paying about $43 total for OTT services, including all streaming services and any virtual MPVDs (vMVPDs) they had. This year, they estimate they’re spending $76 on those services — not much below the $91 that those with cable or satellite estimate that they’re paying.
Because of this, fewer cord cutters now feel that they’re saving a “really good amount of money” (39%).
The narrowing cost advantage — along with increasing rates of short-term subscribing behaviors that drive churn (like subscribing to watch one series or movie, then canceling, or canceling when a trial-offer price expires) — are certainly key drivers of the slump in premium SVOD subscriptions growth in developed markets, as exemplified by Netflix and Disney+.
Already, roughly half of U.S. adults admit occasionally or frequently engaging in some short-term subscribing behaviors:
Another, of course, is the expansion of free, ad-supported streaming services (FASTs) and cheaper, ad-supported video-on-demand versions of the big subscription-based VODs (SVODs).
Piracy, as well as password sharing, are also significant contributors to limiting premium SVOD growth. Nearly four in 10 consumers admitted pirating content — most frequently using a jailbroken set-top box, visiting a pirating website, or using peer-to-peer BitTorrenting.
“The benefits of streaming are real: People love the recommendations, their ability to access so much top-notch content, the portability of the content, the platform usability of many of the streaming platforms, the ability to have their own profiles on the streaming platforms, and so many of the advantages that make streaming a superior experience than the cable or satellite experience that many people remember,” says Waterston.
“But there are also downsides beyond the increasing costs, like how challenging it is to find content sometimes because you have to navigate across so many services. The fact that it’s hard to manage so many subscriptions. The fact that usability and features are inconsistent across services, and some are better than others.”
Consumers want universal searchability and the ability to manage and monitor all their spending and pay bills to one provider, as well as other innovations, the research confirms. (See chart top of page.)
“In other words, they really want a ‘new MVPD’ service,” Waterston sums up. “There will be increased demand for more streamlined, managed experiences, and a new opportunity for these new MVPDs to deliver value. Consolidation of services is coming. The new managed services offering will be much broader than merely video. They will be a suite of entertainment, shopping, social and interactive experiences.
“The question is, who will disrupt the disruptors? We missed the boat the first time around. We failed to work together to realize the full potential of streaming and instead willingly handed the opportunity over to Netflix to disrupt the MVPD business. Let’s not do that this time. This time, we need to be the disruptor. We need to be brave and nimble, not allow ourselves to get mired in our own bureaucracies, and work together to get in front of the opportunities on the horizon.”
Two examples of the consolidation of services momentum were highlighted this past week.
One was the news that Paramount may be the next media group to merge existing streamers, as the company considers discontinuing Showtime’s streaming service and folding its content into Paramount+.
Another was provided by Disney CEO Bob Chapek, when he was asked about the company reportedly developing a membership services program spanning Disney+, its theme parks, shopping and other offerings.
Disney+ will become “a platform for consumer engagement with The Walt Disney Company, not just a movie service platform,” Chapek said during a Goldman Sachs event.
“If we can have a universal guest experience — recognize that a person who spent seven days in the park... and we know all that information about them, is the same person who watches ‘XYZ’ on Disney+, and they give us the ability to use the data that way, we can customize and personalize an experience way beyond anything we’ve ever been able to do before, bringing the two pieces of The Walt Disney Company into one for one common guest experience,” he said. “Disney+ will be conscious of what you do in a park and will then feed you information [and recommendations based] specifically on what you did during your seven days. And vice-versa: What you watch on Disney+ will have an impact on your guest experience at the park. And I think that’s going to put us in a tremendous position of competitive advantage.”