Founder: Turnaround Talk
In today’s first featured article, we read about the world’s second biggest cinema company’s (Cineworld) battle to come to terms with the external pressures that are being placed onto the company by the external environment. In an interview with CNN, the company said that while despite a gradual recovery of demand since last spring, admissions were below expectations. This puts the future of the cinema industry in a bit of doubt and gives the advantage to streaming services.
What does the future hold for cinema houses? Movie production companies are reluctant to release major blockbusters until they are certain that they can recover the capital investment that they made into the movie. Consumers are reluctant to part with their hard-earned money in an environment where outings to the cinema are becoming sparse. This makes for a potent external environment where cinema companies are facing possible financial distress.
Science tells us that for every action, there is an equal and opposite reaction. One of the biggest winners of the Covid-19 lockdown measures was streaming services such as Netflix, Amazon Prime and Disney+. I recently read an interesting article which discusses the five key trends that will shape the future of streaming services. Subheadings and the last section were supplied by Turnaround Talk.
Paid vs unpaid
The article points out that Free streaming’s audience will grow larger than paid streaming by mid-2022. In 2022, we project that the current estimated 5% gap in market penetration will close, with the number of Ad-supported video on demand (AVOD) users surpassing subscription video on demand (SVOD).
This is attributable to a variety of factors, including subscription fatigue, ubiquitous hardware, content search discovery, cord cutting and increased broadband access.
Rapid expansion
The article adds that Free streaming viewership is expanding rapidly among educated and higher-income earners. This means it’s becoming more reflective of national audience averages.
AVOD adoption has been led by the young (who still over-index versus the general population), but mature, educated and affluent audiences are growing rapidly. Tubi has seen double-digit growth in all audience segments over the past year, with the most growth observed among college-educated and affluent demos—defined as $100 000 plus in household income. This now places Tubi on par with US national averages.
Photo By: Canva
Building loyal supporters
The article points out that free streaming platforms are garnering distinct, loyal audiences, while maintaining audience overlap with SVOD.
Streamers continue to gravitate to specific AVOD services as their “television of choice,” while being selective about which services they pay a premium for. Factors that determine AVOD selection in a crowded marketplace include ease of use, content, personalization and user experience. Currently, over a quarter (27%) of Tubi streamers can’t be reached on any other major AVOD service: 78% aren’t on Peacock and 62% aren’t on Hulu. Although 71% do subscribe to Netflix, they’re currently unreachable by ads.
Fastest growing format
The article adds that streaming will become the fastest growing video format in both viewership and media investment.
Connected TV and over-the-top (CTV/OTT) ad spend grew 34% in 2021, compared with 7.4% for national broadcast and cable. The Stream projects that half of all internet users will use free streaming services by 2024, and by 2026 revenue from ad-supported video on demand will triple 2021 levels, reaching $31.5 billion.
Streaming services are more receptive to change
The article points out that streaming viewers are becoming more receptive to ads.
Tubi has some of the lightest ad load in the AVOD space, only 4-6 minutes per hour of viewing. This gives advertisers increased brand recognition and recall in an environment where viewers are most receptive.
As such, it’s not surprising that Tubi streamers are 10% more likely than the general population to state, “I like to look at advertising.”
Photo By: IMDB
Streaming services are facing their own disruption
As we have seen, while there is an increasing demand for streaming services, these companies are facing their own disruption. However, it may be a case of streaming services being able to address their challenges better because they are more agile and adaptable to change.
Despite Netflix’s reports that it is starting to see a decline in subscribers, the future of these streaming services is still positive. Like with cinema companies, content will drive the growth of streaming services. We are increasingly seeing more and more movies that could have been box office hits be released straight on streaming services. The live action version of Mulan and Red Notice are pertinent examples.
The challenge for streaming services will be balancing AVOD and SVOD. The attraction to streaming services is:
- customers can watch the content that they want without being dictated to by television media companies; and
- customers can watch this content without the ad breaks that are typically included in a television media company broadcast which is how they fund securing the content. Purchasing the rights to screen a movie like Mulan or Red Notice costs money.
Possible solutions for streaming services
What happens when one of these two factors gets taken away?
Netflix has pointed out that a major challenge for the company is the practice of password sharing where one customer holds the licence for five consumers (the current number of smart devices that one Netflix subscriber can stream on per subscription). Netflix has already asked consumers to pay more for this option, what is the next step? Netflix has warned its subscribers that advertising would be included in the future which opens the door for paid clients and free clients. This could increase the company’s subscriber base significantly and could address the revenue lost to password sharing. While the streaming service has been reluctant to pull the trigger on including advertising, I feel that Netflix may be surprised at how receptive consumers would be to this; provided it doesn’t take eight hours to finish a Lord of the Rings movie.
