The US streaming video market is arguably the global testing ground for trends and outcomes of pioneering initiatives, which the rest of us in the world of content and distribution, benefit from observing. There are a lot of cross currents and influences at play in this very dynamic space for streamers, advertisers and audiences alike. This is an overview of the influences at play over 2019, grab a coffee and take a seat…
The US streaming market landscape is intensely dynamic and dominated by several giant players, namely Netflix, YouTube, Disney+/Hulu/ESPN+, Amazon Prime Video and Roku. In context, the rest of the field, despite their millions of subscribers are essentially also-rans at this point.
Although Peacock TV from NBCU and HBO Max are to be released in 2020, their entry into a saturated market will just see a reshuffling of the existing viewer base, more pressure on price and the user experience (and therefore the viewers demand/expectation of best practice technical facilities).
The Australian market, by comparison, is far more condensed, a regional outpost if you like with only token participation by comparison. As the production might of Netflix, Disney and Stan take effect, the content creation industry will certainly get a boost, but few of the dynamics and influences that are at play in the US market will be mirrored in the significantly diluted Australian market place.
The bottom line is that market dominance going forward, will come down to consistently delivering on three fronts:
- Pricing as it relates to the region (local or world market), subscription, (annual or monthly), free or ad-supported, pay per view and the flexibility afforded around these options
- UX (user experience) as it relates to ease of access and efficiency in finding desired content, quality of interaction and flexibility to switch between packages and access to content as desired
- Quality content as it relates to exclusivity, locality, range and quality (story, production, talent).
Here’s my big projection: Apple TV, on initial review, is under-performing in terms of its potential given its global market penetration of device, bricks and mortar presence, customer support infrastructure and established database of consumers…, but it may well be biding its time.
IMHO the smart thing for them to do, given their stature and resources, would be to put a tentative toe in the streaming content water to have a presence and wait for all the jostling for position to settle. At some point, the major players and viewers will all be looking for one central access point to a global content market, that has a simple, easy to navigate interface, that will give access to desired content on a subscriber, pay per view or free or ad-supported basis.
Apple has already established a ‘mother-ship’ connection to the global audience, infiltrating the consumer market through music, devices and importantly real human customer support. This market presence and penetration could allow Apple TV to very easily ultimately become the global entrance point for all viewers, for most of the desired content on flexible pricing models.
Given the rate of technological change in the industry, waiting it out to step in when the market has stabilised, will also give Apple the advantage of avoiding investment in transitory technology features. We shall see.
Here are my other observations and assessments of the streaming world as 2019 draws to a close:
CTV Market Penetration: Market penetration and consumer acceptance of CTV and streaming have been achieved. CTV’s have become as common as the traditional TV in households, ISP data packages and streaming technology has improved, facilitating and creating capacity for market growth. As we close 2019, in the US:
- 75% of homes with television have an internet-connected TV device
- 74% of homes have at least one SVOD subscription
- 63% site online as the source of their favourite TV show in 2019
Content: Content at this point is ubiquitous. It’s commissioned, sold, licensed, amalgamated, proliferated and frequently lost online. Since marketing turned to video content, EVERY business is now in the business of creating content and the world’s content library is constantly expanding – just on YouTube 300 hours of video are uploaded every minute (Sept 2019). There is an infinite array of content and a finite amount of money and time for people to consume it.
The omnipresent quest remains to capture eyeballs in volume or specific eyeballs ie. those with shared interest. For content to deliver on commercial objectives, it must be relevant, valuable, timely and easily accessible. Pricing is actually quite subjective but producing that content requires collaboration between creative artists, commercial harbingers and ever-advancing technical facilities. How hard can that be? (I jest.)
Content in long or short form, genre or purpose-specific, and device-centric, can generally be categorised as follows:
- original long-form content for big screen viewing with high production values, produced by streaming giants with large budgets, production resources and distribution, especially Netflix, Disney+, Amazon and to a lesser extent, AppleTV.
- original content film, TV, doco, web, short or long-form produced by independent producers and released through distributors or increasingly self-distributed
- UGC uploaded and largely distributed without structure or fee
- Advertiser/brand/commercial content created for marketing purposes, designed to entertain and/or inform and distributed via their own media channels, third party media channels or co-produced and distributed in a formal distribution arrangement.
For streamers to capture the eyeballs and dollars of people in an extremely competitive market, they need a value proposition that transcends content alone, because the value of an entertainment minute is getting higher every day. If you want to secure an audience, you must deliver on multiple fronts of consumer demand and expectation.
Eyeballs will be captured less on a democratised basis and more on an idiosyncratic basis, capturing viewers with flexibility in the time of viewing, range of content, show or event only access, subscription or pay per view, and even rewarding the audience for their attention. Payment options will be more flexible (see comment below) and user experience will be paramount.
Mobile – Content On The Go: Key among the trends in user demand will be the ability to download to mobile, which is where Quibi, the well funded mobile video startup, that’s rolling out a paid subscription model in April 2020 to 18-34 year-olds, in an effort to own this segment. A recent survey TV-in-Your-Pocket-final of a variety of 80 streamers in the US revealed only 35% offered mobile download while 80% of customers want to download to mobile.
Quibi (Quick Bites) has strong resources, both financial (US$1.4 billion) and talent (Steven Speilberg, Reese Witherspoon, Jennifer Lopez, Idris Elba) to create short-form, largely episodic content designed for content ‘snacking’. Call it ‘while you wait’ content designed to fill the odd five to 10 minutes here and there we have spare during the day.
Due for release in April 2020, it’s a mobile-only service, with a strategy I suggest is premised on quality, exclusive content made by tent pole talent that can create hyperbole to drive awareness and desire for content that will ultimately create new content consumption behaviours. Its competitors in that space are all social media content, especially YouTube.
At the time of the report, ZERO MVPD’s offered mobile download and Netflix was leading the UX. The Netflix system has the ability to not just download, but to automatically replenish the next episode and delete the previous watched episode, minimising storage required on the viewing device. Amazon is best case providing four download alternatives and an explanation for each, describing data download demands and storage demands.
While people are ready to download content to their mobile, keeping pace with technology and market demand is a delicate balancing act for any business, large or small. Amazon and Netflix are leading in this area. Disney has done an adequate job with some download features and Apple TV has a decidedly basic offering in this regard. Hmm…
Pricing: All streaming market participants entered the market initially on a pricing structure that considered the time to market and the origins of their service eg. existing subscribers, content catalogue and technical capabilities as it pertained to user experience (UX).
Over time, as competitors jostled for position amid new entrants, the declining value of ageing content, new technology, takeovers/amalgamations and competitor offerings, services increasingly came to rely on original content and pricing as their key distinction.
As a result the US consumer has been presented with a dazzling array of streaming service alternatives, with a multitude of cross-pollinated content, structured and flexible packages, exclusive and niche interest content, and an endless barrage of promotion from all participants to anyone with an email.
When the onslaught of email promotion from streaming services alone, is added to the flood of irrelevant and undesired email we’re all barraged with daily, little wonder the number of people declining to provide their email to suppliers in increasing – but that’s another blog story…
As services disappear or are acquired and absorbed by, and amalgamated with larger players, and viewers switch from one offering to another to explore and experiment, the streaming video landscape presents an ever-changing array of business models and a constant moveable feast for viewers. Advancing technology provides some fleeting competitive advantage, but nothing really that sustains an ongoing buffer – unless you’re Netflix, which has been a distribution and technology company for a long time.
Business performance (read profit) has dictated price rises for most of the streaming services and the introduction of a variety of new pricing models:
- Curiosity Stream uses a global pricing strategy of a very affordable subscription of US$2.99 p/month and collaboration with like-minded advertisers eg. Toyota’s Theatre, to capture and entertain a global audience of 10 million viewers, who like the availability of their factual based content, and the entertainment features the advertisers provide. Volume achieved through low price, global market.
- AVOD & FAST – Advertisers are playing an increasingly important role in the streaming arena as their budgets are transferred into supporting channels and creating content. The incentive for audiences to tune into AVOD offerings is increasing. Zoomo and Pluto TV have 20 million subscribers each and Roku has essentially transitioned from hardware for a content company, to an advertising channel with five of their top channels being on the AVOD platform. An Advertiser funded content creation and presentation model.
- Disney+/Hulu and Roku (through content partnerships) offer a range of subscription packages with amalgamated content, designed to lure subscribers on a combination of content quality and range, and price value. A market penetration strategy of reach, range and price.
- Bundling – Combining packages or content from various sources or providing access to content as an incentive to purchase eg. telco owned streamers or Apple+ TV, bundling continues to offer people an entry-level experience or cost value proposition. A price-value proposition.
- Spinning Between Services – One effect of amalgamation in the market is the introduction of ‘spinning’, which is the practice of streamers allowing subscribers the flexibility to switch out of the range of content afforded by their existing package, to other packages to give access to other content in the short term eg. to watch a sports game or series, or binge on a new TV series. Spinning can be facilitated by companies who have access to multiple tiers of content and packages. It’s a great way for viewers to experience other areas of content and can lead to client acquisition for partner services or customer loyalty through adjusted packages. A bait and switch to lock and load strategy.
Pricing models will have to evolve further to deliver on consumer demands of flexibility and security. Divulging personal information in the process of opening a subscription is off-putting and some 25% of Americans don’t own a credit card so more alternatives such as pre-paid, pay as you go, top up and debit card will emerge as payment options.
Growth: It’s fair to say the streaming market in the US is close to saturation. The big players are heavily vested in attaining and maintaining a dominant position as one of the top three choices of the potential US viewing audience, with niche streamers picking up their market share through global audience interest in their topic of interest, be it WWE, Surfing or Knitting.
For the main players, growth will definitely come from global expansion, by taking their offering to international audiences and broadening their content to appeal to and come from, their respective regions. In this respect, Netflix has a definitive head-start. Amazon and Disney have distinct advantages and Apple TV has the largest latent potential of all.
Netflix may have had some audience consolidation in its homeland due to competitive forces (down 130,000 subs in Q3), but only 42% of their audience is US based, 30% is now in Europe with the balance in Asia and elsewhere. Note to self: ‘Asia and elsewhere’ is a big potential market!
It’s important to remember that Netflix has comparatively recently embarked on its international expansion, but has roughly 11% (165 million) of the global market of people with streaming Internet connectivity (around 1.5 billion). As the number of people with access to adequate streaming quality Internet connectivity rises (estimates 2-3 billion by 2025), if Netflix maintains that 11% market share, that’s a potential subscriber base of around 330 million (multiply MONTHLY subscription revenue and add advertiser participation…..) Content production costs of $15 billion p/a are less concerning.
Disney’s current content catalogue is largely ‘aged’ and they will need to ensure a steady stream of new, desirable content to keep the position, which they can produce, license or buy. As a predominantly family-oriented service, they will ultimately reach a saturation point where the natural attrition of growing families will be offset by new families subscribing, but at a point (a few years from now), substantial growth will need to come from a content diversification strategy.
Gaming: There’s no doubt gaming holds strong appeal on a global basis but this is a complicated market-place. The bulk of the game time is spent on games that have a powerhouse of marketing muscle afforded by developers with deep pockets (Tencent, Epic, Nintendo et al).
Games are expensive and time-consuming to create and while advertisers are targeted increasingly as the source of their commercial success, building an audience, securing repeat gameplay and keeping pace with technology development are more dominant factors in their success. Extreme caution and expert guidance is advised if making a commercial commitment in this zone.
Advertisers: CTV ad share totalled US$7 billion in 2019 and is expected to build to $20 billion in 2020. This shift is driven by:
- Advertisers increasing understanding of the medium
- The increased use of storytelling in marketing
- The dissolving delineation between advertisers and content creators
- The increased use and variety of social media channels to cross-pollinate advertiser content
- The propensity for audiences to follow, relate and interact with brands they support and value through their content
- The desire for streaming companies to secure partnerships with advertisers to bolster channel features and appeal
Advertisers are shifting their budgets from traditional broadcast TV where audiences are waning to CTV and social media content. They will be the driving force of content production funding and will increasingly monetise their own content through license and distribution – once they know how or find the people who do!
Advertisers have channels of their own in the real world that are often overlooked in the discussion of their ability to reach and promote. The power of point of sale distribution for a product like nail polish, detergent or beverages, will be revalued and resurrected as a key element in content promotion and audience participation. Something old is new!
People: Consumers have gone along the journey of discovering streaming content with the providers, cord-cutting, trialling new offerings and establishing new viewing habits. In the short term, they will continue to evaluate the comparative offerings in terms of price and content range. However as they discover content they like on the big screen, they will want to be able to transition their viewing to which-ever time-slot or the device they prefer, so the mobile download will increasingly become a competitive essential.
Cord-cutting will continue, FTA audiences will continue their decline and I anticipate pricing will level to a total household spend of between $20-65 p/month with the top end to include live sports, news and very substantial access to quality content eg. Netflix, Disney+ and Amazon or Roku. The model will have to deliver on volume and margin to make the streaming business sustainable and how that is arrived at will take some more time and a range of stages.
If you would like more insights into what’s going on the streaming video industry moving forward and find your place in it, contact Wanted Consulting – Reward Offered.