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Experts have long charted the convergence of traditional linear TV with streaming video and that moment has as good as happened. The streaming business model has gone from predominantly subscription to a mix of pay TV, free and ad-supported, much like the TV landscape of old with the principal difference being in the internet delivery infrastructure. The result is that streamers and networks are in a fight to the death to avoid fragmentation, reduce churn and turn a profit. There’s plenty of research pointing media streamers towards what audiences want, but no-one, except perhaps Netflix, has cracked open the path to profitability.
“We’re amid a linear to streaming transition, and it’s being accelerated by a pending content drought from the Hollywood strikes,” Mike Proulx, VP and research director at Forrester, told Adweek. “Just like many of us are experiencing hybrid work, we are also experiencing hybrid television.”
According to Adweek’s Bill Bradley, hybrid TV is leaving consumers “confused and increasingly penny-pinched” as networks and streamers fight for ad dollars and attention through rebrands, bundles, ad tiers and content cross-pollination.
“It’s kind of this messy middle right now,” Proulx added.
The American market is saturated, with 123 million households subscribing to at least one streaming service, according to recent data from Kantar. Its study highlighted what has been apparent for many months now that customers prize ‘value for money’ above all else before signing-up to a new video streaming service. For the first time the eagerness to watch a specific title is not the most important factor to acquire new viewers.
Another key takeaway from Kantar’s report, conducted from October to December 2023, is that over half of US households now use a Free Ad-Supported Streaming Television (FAST) service. “FAST continues to be the fastest growing streaming type,” advised the researcher.
Diversifying content is another way to provide additional value. Prime Video, AppleTV, Peacock, and Max offer live content such as news and sports. Per Kantar, sports helped drive the growth of both Prime Video and ESPN+, which saw the largest jump in paid streaming market share in the last quarter of 2023. It is also the reason Netflix has spent $5 billion on rights to WWE over the next decade in what is unlikely to be its only grab of live sports rights.
One practical approach to enhance value is allowing the creation of multiple profiles within a single account. This feature, aimed at engaging multiple household members, has led to a 13% increase in paid subscriptions compared to the previous quarter, per Kantar.
Another recent study indicated that 90% of consumers seek greater control over their streaming experience. This includes a preference for customized packages, allowing them to pay only for content that interests them, rather than having access to an entire library that they may not fully explore. The report, commissioned by Amdocs, found that 82% of Americans wanted a single app to access all their streaming subscriptions, thereby simplifying the search for content across various platforms.
The Battle for Ad Dollars
Arguably the biggest battle in the drive to profitability is over advertising spend.
Linear TV fell below 50% of viewing for the first time in 2023, and according to market research company Insider Intelligence, retail media spend will soon pass traditional TV and double it by 2027.
“The proliferation of ad-supported streaming such as AVOD and FAST channels has shaken up the streaming landscape,” Dina Roman, SVP of global ad sales at Fubo, told Adweek.
Paul Verna, principal analyst at Insider Intelligence, told Adweek the number of streamers making more than a billion in advertising will jump from four in 2023 to seven in 2024. Pluto, Tubi and Peacock are set to join Hulu, YouTube, Roku and Amazon. Disney and Netflix aren’t far behind.
The Amdocs study found that younger generations (Gen Z and Millennials) are actually more receptive to ads than older demos. Some 38% of consumers are opposed to seeing more ads, while 45% are open to the idea.
Prepare to Bundle Up
In addition, experts expect more consolidation, bundling and licensing.
“What’s really interesting is some of the recent alliances or bundling between competitors in digital. That’s something that hadn’t happened much before,” Insider Intelligence’s Verna noted to Adweek. “Under pressure from consumer sentiment and consumer behavior, these rival streaming services are going to have to work together.”
Marianne Gambelli, president of ad sales, marketing and brand partnerships at Fox Corporation, expects to see further blurring of the lines between linear, digital and streaming.
“[This] will lead to an active period of creative ways of bundling and re-bundling premium video, which will transform the TV industry,” she said.
Back To the Future
It is transparent that the rising cost of living in North America as in Europe is forcing consumers to be more judicious in their TV spend. Streamers have it in their gift to offer economies of scale that consumers crave, potentially with access to move content at more favorable pricing.
But as several commentators note, this is another swing back to the cable delivered pay TV of yesteryear.
Jeremy Haft, CRO of Digital Remedy, told Brad Adgate at Forbes that the trend is, “Ironically, similar to how cable packages operate. In addition, these platforms are finding ad supported tiers offer potentially better margins and also an additional way to create cost-effective experiences for customers.”
Dan Goman, streaming and entertainment expert and founder of Ateliere Creative Technologies, told Consumer Affairs, “The only way forward is the bundle, which might not bode well for consumers as it in its mature form inevitably reduces choice and access to only the content we love most.”
While we are still in the early stages of the reinvention, industry veterans understand where this is headed. He warned, “The bloated bundle with three of the channels you actually want to watch and 300 channels you don’t really care about.”
Striking such deals is also complex at corporate level. Companies see less revenue per user when adding customers through promotions and bundles compared to direct sales, the Wall Street Journal reported in October 2022. Netflix and Warner Bros for example will have to share revenue with Verizon.
Verizon SVP Erin McPherson, per the WSJ, says streaming bundles are happening “faster than we thought” and are “here to stay.” Verizon also has a separate bundling deal with Disney.
Verizon CEO Hans Vestberg has said that creating new types of bundles is a company priority. Another telco could act as the third party for the bundle between AppleTV+ and Paramount+
Another proposed tie-up is between Amazon and Roku.
As Hunter Terry, Head of CTV at Lotame, noted to Forbes, “Why spend $10-30 a month for three or more streaming services, to see movies and shows that you will never watch? Now is a time consumers are reevaluating what makes the cut in their lives. Streaming services are constantly focused on churn reduction. Bundling is one way to overcome this challenge by making it more accessible and more affordable for consumers to sign up to multiple platforms.”
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