Streaming: after the revolution


Historically, revolutions have often been followed by a period of terror and bloodletting, and then a reaction – the re-establishment of something resembling the status quo ante.  The streaming revolution has in many respects followed a similar course, with the bloodletting (in this case equating to cost-cutting and layoffs) now giving way to the period of reaction.

This week the VOD Professional OTT Question Time Live event at the British Museum in London provided a welcome opportunity to hear from some key players in streaming, as well as broadcasters, industry analysts and others about how things are shaping up.

The most bracing presentation however came from independent industry analyst Ben Keen, who posited a “perfect storm cloud” of macro-trends that has been building up since the pandemic and is now hitting the business with full force.

The crux is that rising interest rates and falling consumer confidence focused the minds of investors who in the immediate post-COVID period had a wildly Panglossian view of the prospects for major media stocks, fuelled by the pandemic-related boom in streaming consumption.

Shift to profitability

A subsequent shift in focus to profitability, said Keen, fed by an awareness of the mounting losses incurred by US studios as they shifted from licensing content to building direct-to-consumer platforms, has seen the market value of the big media players all but collapse.

Among the big five streamers, only Netflix is profitable, and the latter now has a market value greater than Disney, Warner Bros. Discovery and Paramount combined. “It’s over: Netflix has won the streaming wars,” said Keen.

Netflix’s rivals have essentially been undone by the costs of playing catch-up, in Keen’s view, incurring huge costs to unpick and forego existing licensing agreements as well as taking the hit of massive investment costs in technology platforms and direct-to-consumer marketing.

At the same time, streaming content does not generate nearly as much revenue per hour as good old linear TV. Keen, citing MoffettNathanson and company report data, highlighted the fact that linear is still generates a higher gross margin per hour than any streaming service.

The result, as we all know, is cuts in content budgets, layoffs, the pulling of shows, crackdowns on password sharing and the introduction of advertising to top up subscription revenue. And also the return of licensing. One interesting nugget produced by Keen, citing Digital-i, was that four HBO shows sold to Netflix by Warner performed better on the latter platform.

The majors (and others, including national broadcasters) are still wedded to a streaming future – they have no choice, as this is being driven by shifts in consumption. But they are increasingly trying to give a shape to that future that closely resembles the past. Netflix itself – the undisputed winner in the streaming wars – is increasingly leaning on that licensed content. The legacy players meanwhile are pivoting away from pure on-demand streaming to a mixed model combining subscription with advertising, direct-to-consumer with distribution partnerships and third-party licensing, and on-demand with live sports – a big pull for new subscribers.

The evidence of strategic realignment continues to mount. Even in the last week we have seen Comcast president Mike Cavanagh speaking on his Q4 earnings call about aiming to “manage Peacock and our linear TV businesses as one” rather than to focus on “what standalone Peacock losses are doing”. At the OTT Question Time event, Warner Bros. Discovery EMEA streaming chief Leah Hooper Rosa talked about a streaming approach tailored to the characteristics of individual markets rather than a one-size-fits-all rollout of Max.

The difference with big tech

There are a couple of outliers.

Amazon this week followed other streamers by adding advertising to its Amazon Prime Video offering. However, unlike the others, it has simply take the approach of migrating its existing base to its ad tier, forcing them to pay extra if they want it ad-free.

Apple (which, like Amazon, posted Q4 numbers this week), has taken a very different approach. Apple still promotes its Apple TV+ service as “always ad-free”.

While their streaming video strategies clear contrast, the pair have more in common than separates them. As Keen pointed out in his presentation, their content spend accounts for only about 2% of their revenue, unlike the studios, for most of whom content costs equate to over half of revenues.

Amazon CEO Andy Jassy may have spoken on the company’s earnings call about his ambition for Prime Video to become profitable in its own right, but the truth is that profitability for this service would be a cherry on the cake rather than a matter of life and death.

The reactionary movement that follows revolution can never recreate a perfect replica of the ancien regime. Consumption of video continues to evolve. How big media evolves with it in the wake of the streaming boom and bust will be the big story of 2024.

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