The last 12 months have been a wake-up call for subscription-based video providers, some of which saw significant leaps in interest and user base over the first months of the pandemic. However, the segment faces significant disruption, according to an expert panel, which will require dynamic adjustment to business models, writes Andrew Williams.
Lockdowns made streaming video an even more central part of millions of people’s home entertainment. However, the second half of 2022 saw a drop of two quarters in the use of subscription video-on-demand (SVOD) services.
This effect is widely seen as the catalyst for Netflix’s adoption of its ad-supported subscription model in November 2022, despite CEO Reed Hastings reinforcing his lack of interest in an advertising model for SVOD back in 2020.
The outlook is changing, as VOD services’ customer base looks at ways to reduce their monthly outgoings. But what should other companies look for when judging whether their business model is in need or a fresh approach, and what metrics should be used to judge success in this changing landscape? An expert panel of Ashley Horne, CEO, Simplestream, Gilles Domartini, CEO Cleeng and Manish Sinha, Vice President of To the New came together to discuss the future of SVOD, and plot the most likely business model changes that result from this highly competitive environment.
The current shift in thinking is most pressing for SVOD providers. “The big subscription-only models are getting to the end of their time,” said Horne.
“Signing up to Netflix for £8.99 and that being the end of it is no longer something everyone can deal with.”
He suggested providers should look at additional ways they can repurpose their content. “Re-utilising your content is a fantastic way of picking up more and more revenue from content you’ve already got,” he said.
“Diversifying and using the flexibility available to you to have different monetisation and business models,” is the key to a resilient business model, he claims. FAST channels and ad-supported VOD are clearest ways to diversify outwards from an SVOD business model.
Domartini suggested that the mindset of platform holders needs to move away from that of the binary customer — either they are or are not. In this more diversified world of content delivery, the same content can end up serving multiple kinds of customer.
“We used to have “hard” moments,” said Domartini. “You were a free user and you’d become a paid user, that’s a hard moment. You stop paying, become a churner, that’s a hard moment. We were in a 0 and 1 situation.
“Now we realise that thanks to technology and advertising, we are able to have a medium position. A churner that engages with your platform for quite some time, and generates 2 or 3 dollars, euros or pounds, of revenue, remains a very loyal and good user you should continue to pay attention to,” he said.
He suggested it is also important to realise this move to a more granular, hybrid thinking is something that is only a paradigm shift in the minds of platform holders, not the consumer.
“We like to think in the industry, wow, there’s something massive happening. And everyone’s caught by surprise. But this is such a B2B notion, to be honest. The end user has always been hybrid. It was TV and Web. That was the hybrid from a consumer standpoint”, he said.
“The only thing we see now is that the TV is a little bit gone. Most of the young generation don’t consume TV. But also a lot of people want to have the lean-back attitude… that I just want to switch on and enjoy it, and don’t necessarily want to pay for it.”
The simplest transition from SVOD to ad-supported VOD or FAST is, in theory at least, quite simple according to Horne.
“You’re taking your pieces of content, doing an ad marker insertion and sending that to your provider… and we’re back in the world of linear broadcasting,” he said, in regard to repurposing content as part of a FAST channel.
This naturally brings up concerns over a drop in the quality of the end user’s experience. Horne suggested personalisation is the key to avoiding the low-quality, repetitious ads that can at times seem to define the online UX at times.
“We can build a picture of you so those adverts get better and better. You’re not seeing the repeats. Instead you’re seeing content that’s new, and that’s targeted to you specifically as a segmentation group,” he said.
Sinha suggested advanced personalisation needs to go beyond targeted advertising, though, to be used in almost every respect possible, while employing more advanced techniques he calls micro-personalisation.
“Most of the analytics solutions that are available, very few are using AI in a real way. And they rely on content metadata, and simple algorithmic content filtering,” he said.
“Micro-personalisation looks at a level beyond the metadata of content, it has to look at when the viewer drops off, at what point they are dropping off. So there has to be a temporal metadata aspect to it in terms of getting to know the user’s preferences and behaviour. Micro-personalisation is based on these data points.”
For example, a movie could be populated with scene information, which could note whether each represents a bank robbery, a sex scene, a murder or contains bad language. If a viewer drops off at that point, this information can be used to inform their personal profile of likes and dislikes. The platform holder can discover not just whether a user likes or dislikes content of a certain style, but rather clues as to what specifically they find a turn-off, or simply boring.
This profile can then be used to inform the ads that person will see, the content that is suggested, and even the marketing promotions they are shown over, for example, email newsletters. Sinha suggested that a “free” or ad-supported accompaniment to an SVOD done right can be much more than just a concession to those unwilling to pay.
“We give them an entry into the subscription world, so they get a feeler the premium content, and they get used to it,” said Sinha. Mindful use of ad-supported tiers used to augment a traditional SVOD offering can eventually “upsell” customers to the next tier of service.
Such concerns of user retention are the daily domain of Domartini. His company uses machine learning models to predict, to 92% accuracy, when a platform’s users are likely to become part of its natural churn.
“On average we are able to win back around 36% of churners - on a paid subscription,” said Dolmartini. “To win these one third of users is typically to target properly the triggers — are they price, content or service sensitive? Once you’ve been able to model this… the cost is closer to zero. It’s a case of sending an email and generating the right report,” he said.
When the biggest player in SVOD, Netflix, has been persuaded to alter its business model thanks to changes in market conditions, it’s wise for platform holders to at least consider their own position seriously.
Simplestream CEO Ashley Horne, Cleeng CEO Gilles Domartini and Vice President of To the New, Manish Sinha took part in a panel discussion titled “From SVOD to multi-dimensional business models” as part of IBC 2022. It was chaired by Colin Dixon, Founder & Chief Analyst of nScreenMedia.