Streaming Enters a New Era
Originally published in the September 2022 issue of Results Magazine
When streaming first launched, it provided an incredibly compelling alternative to disrupting traditional cable TV. The general feeling was that cable had become too expensive for what it offered. Consumers embraced this new internet-enabled TV ecosystem that promised a wider variety of options on-demand, viewing on multiple devices, all at a significantly reduced price.
Netflix led the way. Their immediate success catalyzed an entire industry of streaming providers to position themselves in the marketplace with their unique content libraries to attract and gain subscribers. Over 200 streaming options are available to consumers today, ranging from the heavy hitters like Netflix, Amazon Prime, and Disney+ to lesser-known options like Acorn TV, BritBox, and FuboTV. Kantar estimates that 85% of US households subscribe to a streaming service, with the average household subscribing to a whopping 4.7 services. Now churn rate is higher than ever, and network and content consolidations are daily news.
What started as a compelling alternative to traditional TV has descended into decision fatigue due to one simple fact – there are too many streaming services.
Finding something to watch across multiple platforms has become a chore, leaving many consumers feeling overwhelmed. Unfortunately for the networks, not in a good way. It’s a proven scientific fact that the more choices we have, the less likely we are to make a decision.
As we enter a possible recession and continue to deal with the current inflationary pressures, network consolidations will become even more prevalent. In the same way consumers started cutting cable, we’re already seeing a consolidation of streaming subscriptions to reduce costs and decision fatigue. The streaming industry has noticed, with many companies already taking massive actions.
Netflix announced they are finally pursuing an ad-supported model. The merger of HBO Max and Discovery+ resulted in approximately 92 million subscribers. It also resulted in sweeping layoffs, pulling the plug on a new streaming service (to the tune of $300 million) and quietly pulling a large amount of content from their catalog. To remain relevant, most streaming services are revisiting their value proposition. They must decide on a strategic path that leans into the current landscape: Maintain their high monthly prices and accept a smaller but more loyal subscriber base, or reduce their prices and accept more advertising to close that gap.
Suppose companies wait too long to enact these changes. In that case, they may find themselves in a position where they don’t command the same subscriber base as they once did, reducing the appeal for advertisers and creating a revenue gap. In addition, they must figure out how to deal with viewers who subscribe for one month to binge content before disappearing once more – having squeezed all they can get out of that period.
This consolidation is likely good news for advertisers because of the unit economics that such a shift can bring. Instead of spreading your marketing budget across various services, you can focus your efforts in fewer places and potentially achieve a better return on that investment. In addition, it will allow for more targeted advertising – leveraging the immense amount of data these streaming services have on their viewers. DTC agencies and their clients who capitalize on this potential will put themselves in a great position by reaching audiences through these consolidated distribution channels.
As streaming services settle into their next iteration, providers must be willing to adjust their business models accordingly. As consumers become more discerning about the number of services and quality of content they are willing to pay for, they will continue to vote with their wallets and force action.
This creates new opportunities for savvy media companies to step in and take advantage of more precise and highly scaled advertising spots that harken back to the days of cable television. For these models to be successful, streaming companies must be sensitive to the general consumer attitude towards ads (which has changed significantly since the early days of cable). Fortunately, there is a compelling way to do this, as Hulu has shown. The future of streaming services is deeper rather than wider, and the advertisers that don’t recognize this will find themselves on the wrong side of history.
