Odds are you have at least four video streaming services. The average for U.S. households is 4.7. Nearly nine in ten households (85%) have a video subscription service. Cable television cord-cutting and the COVID lockdowns triggered an unprecedented boom in streaming. But will it last?
That question lingers over the streaming industry despite a 14% jump in subscriptions last year, raising total U.S. subs to 353.2 million. That's an astounding figure considering the current U.S. population is 329 million. Obviously, many subscribers pay for multiple streaming services, skewing the data.
During the COVID lockdown of 2020, the industry racked up a record 47 million new subscribers. The next year production of original movies and series shows soared 111% percent from 2020. Streaming services doled out $220 billion on content in 2021 to fuel blazing subscriber growth.
Streaming firms became a stock market darling. Then the dominant market leader Netflix shed more than 200,000 subscribers in the first quarter after projecting it would add 2 million new customers. The shortfall sent shudders throughout Wall Street and the video subscription industry.
In spite of disappointing results, Netflix remains the industry's Goliath with 62% penetration of households and 221.8 million customers, according to 2021 industry data. Amazon Prime Video ranks second with 200 million subs while Disney+ ended the year with 129.8 million.
HBO Max is in fourth place with 73.8 million, followed by Paramount+ with 56 million. Other leaders include Hulu, 45.3 million; Discovery, 22 million; Apple TV+, 21 million; and Peacock, 9 million. Figures cited are yearend 2021 global subscriber data. There are 1.3 billion subs worldwide.
After the Netflix hiccup, Wall Street and industry insiders worry streaming is plateauing. Streaming firms are taking a meat cleaver to production costs and scrapping planned original series and movies. With inflation forcing Americans to cut expenses, the industry is retrenching.
The streaming future likely will look a substantially different than it does today. Surveys find 83% of users want pay streaming services to offer a free version supported by advertising. Peacock is offering a three-tier pricing model that includes advertising within movies and series. But it's not free.
Ad revenue will help support production costs and generate profits. But the industry also must address so-called "streaming nomads" who subscribe to a provider for specific content (think Ted Lasso on Apple+) and then dump the service when the series concludes.
Many of these nomads are aged 18-30 years old and average 11.3 different video subscriptions in a year. These creates customer churn, which drives up subscriber acquisition expense. Holding on to nomads is a programming challenge for streaming providers, already weighed down by new program costs.
When disruption has occurred in similar industries, there is an effort to consolidate the market, build scale and wring efficiencies in costs, such as bloated production budgets. With more than 200 streaming firms, there are ample opportunities for mergers and acquisitions.
Bundling of different content providers will follow. Already, Disney offers a package with Hulu, ESPN+ and Disney+. Disney owns all three services. Customers may also subscribe to each service separately. In the future, expect more bundling, even among different providers.
It is ironic because cord cutters abandoned cable television because they had to pay for too many services they did not want. Will there be a repeat in streaming? Cable customers wanted to pay a la carte but cable companies refused. Streaming bundles may soon bump up against cable prices.
To address costs, new technologies and techniques will be employed to produce original movies and series at less expense. Content is still king in the industry, but providers no longer can afford to shell out billions. Productions will include fewer big Hollywood names to lower the industry's main expense.
Amazon offers programming from other content providers for an additional cost. Others, such as Sling TV, are adopting this approach to increase revenue. More streamers will take their cue from these two services and add sports, concerts or other live programming for additional fees.
Another hot button issue the industry must grapple with is service sharing. Simply put, subscription paying customers provide their password and log-in details with others who access content without paying. By its own estimate, Netflix figures there are 100 million subs sharing passwords with others.
However, policing service "stealing" will be a costly process and may ignite a negative reaction from paying customers. The delicate balancing act will determine how successful streaming firms will be in cleaning out the cheaters.
In this writer's opinion, the winners in the streaming industry will be firms such as Peacock, Amazon and Apple. These firms' streaming services are are small subsidiary of deep pocketed companies who view streaming as a way to increase customer stickiness.
Apple is a great example of this strategy. Devices are Apple's high margin, main business. Streaming is just another add-on in the Apple universe of services, which includes music, apps, audio and more. Streaming does not have to stand on its own as a profit center.
This does not bode well for Netflix, which battles these conglomerate titans without a financial safety net. Streaming services will continue evolving. The industry is in store for more disruption that will whittle down the number of players, eventually leading to higher subscription bills for consumers.
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