When I was a kid, Friday nights meant gathering around our rusty old TV set, which was a bulky CRT monitor that had faithfully served us for years. It was a weekly ritual - my family and I sat together, snacks in hand, eagerly waiting to watch our favorite movies.
The joy of watching 'live' television was fkn amazing, despite the commercials and the occasional scramble to fix the antennas during poor reception. 😂 The remote control was our magic wand, flipping through cable channels in search of our favorite shows. Then came the dish TVs and things pretty much stayed the same. Only more movies & shows, more ads, and but limited mostly to local content.
Then came the streaming services which completely revolutionized the world of entertainment. A touch of a button and bam! It felt unreal like being handed the keys to an endless library. Thousands of TV shows & Movies are at our fingertips now.
In this blog, I am sharing a small business case study to understand how the industry of streaming services works and what we can expect from it in 2023. So grab your popcorn and settle in because it's all about binge-worthy content, cliffhanger endings, and yes, your increasingly complicated relationship with that subscription bill. 🤑🤑
For this blog, we will take the example of Netflix, the most popular & "chill" streaming service on the planet. It makes money majorly through subscriptions, partnerships, and ad revenue. Subscription has been the top driving force then partnerships and now ad revenue. Let's not talk about profits because there might not be much to say on that front.
The streaming service is expected to have over 251 million subscribers by the end of 2023 which is only an 8% increase from the previous year. They have a hunch that ads could start to bring in a pretty penny, making up "at least 10%" of their whopping $30 billion (and counting!) annual earnings.
There's even a prediction floating around that says Netflix could be raking in a cool seven billion USD from ads alone by the year 2027. But will the prediction become a reality? Let's find out.
2022 was quite a rollercoaster ride for the streaming industry. After Netflix launched a monthly subscription with ads things were not the same as before. Disney+ followed the move and released a similar ad-supported tier. The streaming landscape changed more rapidly than one could hit the 'skip intro' button 😂 We are 5 months into 2023 and industry experts are predicting a challenging year for streaming services again.
Mike Proulx, research director at Forrester, warns that content quality might take a hit this year, as the crazy production and licensing fees are simply unsustainable in the long run. So, if you've been noticing an uptick in cheesy rom-coms and less high-quality content, there's an explanation! As per him, users will follow where the content is.
And what about the ads? Ah, those pesky little interruptions that remind us there's a world beyond our favorite shows. As Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, points out, many platforms have introduced ads, but it remains to be seen how successful they will be given the current economic climate.
Retaining subscribers is expected to be a significant challenge. There's an irresponsible amount of options out there. With the crackdown on account sharing and the need to perfect advertising formulas, we might see a winnowing of services. Some of them will lose customers and the hit has been seen already in the subscriber count of several platforms.
The ultimate question remains - how much advertising interruption will consumers tolerate?
In the face of these challenges, our beloved platforms are not sitting idle. Obviously, they cannot see numbers going down. Industry experts predict consolidation, with smaller platforms like Paramount+, Peacock, and AMC+ potentially merging to survive.
We might also see a shift towards vertical integration. Imagine a single player that owns the studio, the distribution, the ad-tech stack, the data that powers the ad-tech stack, and the device. That's a fundamentally different model than a studio working through a cable or broadcast, or satellite telecom distribution model to an open marketplace of devices.
So, who are the big players likely to be in this brave new world? Netflix and Disney+ will continue to dominate, but new tech platforms like Amazon Prime are gaining popularity. The burning question is what the future of ESPN+ will be and whether it will become the destination sports streaming platform with Disney biting the bullet and abandoning traditional TV distribution. Talk about a game-changer! Equally important will be Warner Bros. Discovery's launch of its new streaming product and how well it executes. Streaming wars have just begun.
Now, let's talk numbers because, as we all know, money makes the streaming world go round. As of 2023, the average number of streaming apps per household is about 7, which is only a fraction of the number available. That's seven different login credentials to remember, folks! But despite this, advertising has become increasingly important to streaming as media companies seek to maximize their average revenue per user to offset higher production costs. And it's not just the traditional players getting in on the game – Apple TV+ recently hired a head of sales, indicating its entry into ad-supported streaming.
Netflix still holds the crown with 230.8 million global subscribers. In comparison, Disney+ has 161.8 million international subscriptions. 48 million Hulu and 24.9 to ESPN+. Paramount reports 56 million for its titular service (bumped to 77 million when adding Showtime's and BET's services), and NBC Universal's Peacock has 20 million. Warner Bros. Discovery reported 96.1 million subscribers across its direct-to-consumer platforms HBO Max and Discovery+. This data is taken from Adage.com.
While Netflix and Disney+ may be leading in terms of subscriptions, the leader in terms of share of streaming eyeballs is YouTube, with a 7.9% share, surpassing Netflix's 7.3%. Digital and social video platforms, such as YouTube and TikTok, have become juggernauts in reach and engagement, posing a threat to the traditional streaming services.
As we navigate this increasingly complex streaming landscape, it's clear that the stakes are higher than ever. Whether it's through consolidation, improved advertising strategies, or better content, these platforms are fighting to stay relevant in an ever-changing market. So, as we settle in for another night of binge-watching, we can rest assured that the real drama is unfolding behind the scenes.
I hope you found the business of entertainment entertaining enough. If you did, please comment below and upvote to support me.
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Not financial advice. For infotainment purposes only.
