When IPTV services entered the market nearly 20 years ago, there was considerable excitement around the possibility to “personalize” your television service or perhaps even have à la carte options for channels. However, we quickly learned the evil ways of content packaging, which rendered the à la carte option moot.
However, with the rise of streaming services – most notably Netflix – the industry began to experience a shift in how consumers viewed (or chose to view) their content. This initially led to the first wave of cord-cutters, followed by cord-shavers (switching to a cheaper package of channels) and eventually to cord-nevers (young people who have grown accustomed to watching shows only online and will likely never subscribe to pay television services).
Of course, the success of Netflix has led to a plethora of streaming services which, in turn, has resulted in an OTT market that is both oversaturated and fragmented. In a case of “be careful what you wish for” – consumers are getting their desire for à la carte channels – but perhaps maybe not in the way they want them.
In addition to Disney+, Peacock from NBCUniversal, and WarnerMedia Entertainment’s HBO Max, at least 10 other streaming services are launching over the next 12 months. As such, many of these studios are pulling back their content from services such as Netflix, resulting in the need for consumers to subscribe to multiple channels in order to replicate their desired content choices.
The question now is how many different streaming subscriptions are subscribers willing to pay for?
According to a recent survey conducted by OpenX and The Harris Poll regarding streaming video services, 88% of consumers in the UK only have one or two subscription services, with just 12% subscribing to three or more. In the US, the numbers were slightly different, with 71% having only one or two, while 29% have three or more.
The main appeal of streaming services from providers such as Netflix was lower cost; variety of content and lack of commercials. However, as streaming services become more mainstream, the factors that made these services attractive are starting to lose their appeal.
Cost of streaming services continue to rise as original content dominates
Original content has been a key differentiator in the success of streaming services and one of the main reasons why consumers are willing to pay for multiple services. However, original content requires A LOT of money to create. On the other hand, paying for multi-year licensing rights to content also costs a lot of money. As the costs to produce/acquire content increases, so will the cost of the service to the consumer.
As such, streaming services are using a variety of pricing models to attract subscribers. From basic packages, to those supporting 4K or multiple devices, live-TV, ad-supported as well as ad-free; the cost of services range anywhere from $4.99 per month (Apple TV) to $55 (fuboTV). In other words, there is something to match everybody’s budget depending on the type of content and services a consumer is willing to pay for.
Ad-free vs. ad-supported
One of the most attractive features of streaming services at their initial launch was lack of commercials.
Anyone who continues to watch linear TV is well aware of the increasing amount of time dedicated to advertising. In the US, the number of minutes dedicated to advertising per hour has reached 16, which translates into as many as 32 commercials per hour (in 30 second spots). In fact, in some cases – they pack so many ads together that you tend to forget that you are even watching a show.
However, in an effort to encourage more subscribers to try new streaming services (or to entice them to subscriber to multiple services) – many of the services are launching ad-supported options that offer a much lower entry cost than their ad-free option. It gives the consumer the option to decide how much they want to tolerate commercials to save a few dollars per month.
Enter the marketplace
Netflix has first mover advantage as a streaming service, while both Netflix and Amazon were early entrants into original content. However, where Amazon (and Roku for that matter) separates itself from Netflix is with its marketplace.
The marketplace allows users of Amazon Prime Video to access other streaming services via its media player. By joining the marketplace, other services are able to leverage the viewing eyeballs of Amazon Prime Video to promote their services and hopefully capture new subscribers. But that convenience has a price, as Amazon get a cut of their subscription revenue. Nonetheless, it’s a small price to pay to have access to a significantly wider base of potential subscribers. And the ease of being able to access the service from Amazon increases the likelihood that a consumer will subscribe.
Who will win the streaming video race? (Or does anyone really have to?)
Going forward, the challenge for streaming services – much like the network prime time schedule – is the ability to continually offer enough content (both original and licensed) of sufficient quality to not only attract but retain subscribers. If these services start to fill their plates with lower-cost programming such as game show and reality TV just to fill hours of content then they will likely suffer the same fate as the networks and be rewarded with declining subscribers.
Another area of differentiation will be the user experience. From the variety of platforms that can support the services to the user interface which makes discovery and recommendations a seamless experience for the user.
Finally, consideration should be given to mobile only packages. Not only to attract subscribers in mobile-first markets, such as India, but to attract those subscribers that primarily watch content on their mobile device.
Streaming services are here to stay. And the variety of services will only continue to grow. But unfortunately, it’s starting to feel a lot like the services it has tried to replace, in terms of content, advertising and price.
Which really just tells us – the more things change, the more they stay the same …