For a decade, the landscape for TV has been gradually shifting, with the dominance of traditional satellite and cable TV eroded by the likes of Netflix and Hulu, pioneers of the streaming SVOD market. The pandemic and its enforced lockdowns delivered a literal captive audience for video-on-demand platforms, and subscriber figures skyrocketed.
However, with a return to pre-pandemic viewing habits and global cost-of-living rises, things suddenly aren’t as rosy.
The last few years have seen the market become ever more saturated, with big hitters like Apple, Amazon and Disney entering the market with their own services. There are more on the way (like Paramount+) and, along with a host of dedicated SVOD channels, there’s a growing chance of ‘subscription fatigue’. In fact, some industry watchers see parallels with the great video game crash of 1983, where an excess of players brought about a lowering of quality and too much customer confusion.
Indeed, the market has looked less than rock solid in 2022, with the premature demise of CNN+, Netflix’s shareholder revolt and a crackdown on password sharing. Later this year Disney will be trialing a more affordable, ad-supported version of Disney+, while the likes of HBO Max and Peacock TV are considering tiers with exclusive premium content. The landscape for video-on-demand continues to change, but the balance of cost of content creation versus revenue remains a tricky one.
Streaming is the new normal
Despite recent industry rumblings, the SVOD market is still growing. Subscriptions in the US alone are set to pass 300 million by 2025, while global subscriptions are estimated to reach 1.7 billion by 2027.
“From a straightforward numbers perspective, it’s been a golden decade,” acknowledges Paul Lee, global head of technology, media and telecoms research at Deloitte. “But growth never lasts forever. And certainly with SVODs, particularly between 2021 and 2021, you also had the boosting impact of the pandemic to artificially pull forward the growth that you would have had in, say, 2022 and 2023. But if you look at the last quarter of results, the number of subscribers to the major platforms globally have gone up. And it’s gone up unambiguously; it’s gone up by millions globally over the last quarter.”
“The fact that we’ve got the emergence of AVODs is just basically kind of nature reasserting itself. And it’s not a surprise.”
While the narrative suggests that things are not going well, Lee believes that what has changed is the overall sentiment. He thinks we’ll see a gradual change to a period of AVODs or ad-supported platforms in the future. “The reason why I expect video-on-demand to be bonded to advertising is because if we were to look at the last 30 years of television you’ve always had the combination of pay TV and advertising-funded television. Those two sources of revenue are absolutely vital.”
Lee suggests that, as the desire for quality content increases – e.g. well written stories, top-level actors, cinema-quality visual effects, all delivered at higher resolutions – so does the funding required to deliver it. “Subscriptions, alone, have never funded it; advertising, alone, historically funded it. But you’ve got to this place now where the consumer is affecting the product that relies on the combination – the aggregate – of advertising and subscription.
“Effectively, not very much is changing,” Lee adds, “except for the way that content is being delivered. So the fact that we’ve got the emergence of AVODs is just basically kind of nature reasserting itself. And it’s not a surprise, I would say.”
Lee comments that Deloitte has researched people’s appetite for advertising, and in most developed markets, found that two-thirds of those polled would make the trade-off between accepting a reduction in the price of content – or even content for free – in exchange for watching adverts.
“What you don’t want is so many tiers that people can’t decide [what they want],” he warns. “You need some simplicity in what’s being offered. But also, what you need is a very clear distinction in what you get in each tier. And there needs to be a reward for moving up to the next tier. In some cases, that reward may be less adverts. In some cases, that reward may be more content.”
Content is still king
“I don’t think the challenge is monetisation. I think the challenge is launching new content,” states Jon Thoday, founder and MD of Avalon Entertainment, which recently launched its own dedicated OTT channel with Taskmaster SuperMax+. “There’s an awful lot of people paid to think about monetisation,” he claims, “but in a world where content truly is king, how do you originate? If you look at Netflix, and you count how many series they launched, to a series which lasts for, let’s say, more than three seasons, the cost of launching a show on Netflix is higher than almost anywhere else.
“Monetisation – the amount of money you get as a streamer per person that subscribes as a percentage – is very, very high. It’s as high as premium cable. But the difficulty is, how on a streaming service do you launch new TV shows on a model where you buy all the rights?”
“I don’t think there’s a crisis in streaming. But I do think that Netflix has caused massive price inflation in local territories.”
Viewers have increasingly become used to binge watching their favourite series. But Thoday suggests that dropping all episodes of a show in one go can quickly kill it. “If you look at something like Seinfeld – which was obviously on network TV and shown many years ago – they did four episodes in the first season. It would have been dead in the water on a streamer. Yet it ended up making billions of dollars for everyone involved in it.”
“Monetisation is easy,” claims Thoday. “[Streaming] is a very, very good way of monetising. It’s a very bad way of launching a new product – the amount of product you have to launch to get a hit. And what happens when you get a sleeper hit? Because you can’t have a sleeper hit on a streamer; it’s removed by the current practice of streamers. It’s the same thing with Taskmaster. If at the beginning we’d dropped all the episodes on Netflix, you would never have heard of it. And it’s become a global phenomenon.”
Where next for Netflix?
Thoday clearly has a lot of admiration for Netflix, which he says has done an amazing job in building a base of hundreds of millions of subscribers. However he isn’t sure what the company’s next step needs to be. “For me, the biggest thing [Netflix] does is to only think about subscribers, and how many people are going to watch. I think when they start talking about how they’re going to have a lower-cost subscription with advertisers – I’m not convinced that’s the right route to go.”
Thoday’s argument is that when people know they can get the bulk – if not all – of Netflix’s output on a low-cost or zero-cost platform with ads, will anyone be prepared to pay a high subscription price? “They might,” he suggests. “But then you start having to look at buying the sports rights to make sure you have something exclusive that people really want, and then it’ll just look like it should have gone on Sky.”
However, Thoday is convinced that Netflix isn’t going anywhere anytime soon. “My feeling is that they’ll end up selling their shows off, after they’ve been on Netflix for a while, to someone else. And they’ll have to ease up their rights model, because in the end, there’s a marketplace for that. I don’t think there’s a crisis in streaming. But I do think that Netflix has caused massive price inflation in local territories.”
The challenges of monetisation
One of the big questions for content providers, remarks Paul Lee of Deloitte, is whether it’s more profitable to wholesale your content, or to retail your content. “D2C sounds great until you have to build the infrastructure to be able to deliver it. A few providers will be able to do that, but not tens, and certainly not hundreds.”
Matt Smith, senior vice president of product at Vimeo, agrees: “There’s a spectrum of content monetisers,” he says. “There’s individual monetisation at maybe the social media level, versus the large-scale, full-on TV platforms that are actually looking to get into this. The hardest part, I think, across all of those is the tech platform, which is why we’re focused on being the best enabler in the world, to let anyone, whether they’re individuals who won’t have the means and the ability to monetise content, all the way up to the largest, who shouldn’t have to focus their time and energy on the platform side of things.”
Smith suggests that the current industry trend is that there’s a lot of content in the world – an ever-growing ‘long tail’ – and the issue is trying to get that long tail in front of the right people. “You will inevitably see some businesses like Netflix look towards advertising, in my opinion, as another way to monetise that content.”
“I think as you look towards the long tail, you continue to find more subscription-based businesses that need to leverage other companies to help run their infrastructure, where they can then focus on content – content curation and content monetisation. And so I don’t think there are too many channels; I think what we’re experiencing is the ability to find the right type of content in this long tail, and the change of how one searches and discovers.”
Smith describes the market as having shifted from the traditional ‘sit back and watch’ to a more actively participatory style. “It’s a little more engaging. And as you continue to make that shift with this long tail, there’s even more content to find, and more content to get in. So from a product and technology perspective, the next evolution of this becomes about: ‘How do we curate that? How do we understand interests? And how do we do that across platforms and across channels?”
Find out more about how the OTT market is changing. Watch: Restructuring Business Models for VOD, AVOD and SVOD.
How Taskmaster went SVOD
In something of a pioneering move, Avalon recently launched a dedicated subscription channel for its BAFTA award-winning TV show, Taskmaster. Dubbed Taskmaster SuperMax+, the channel, which is hosted by Vimeo, provides global streaming access to every episode from seasons 1 to 9 for £5.99 a month.
“The motivation was failure in America,“ claims Jon Thoday, the show’s executive producer. “Basically, we made a version of Taskmaster for Comedy Central. And for various reasons, not least the fact that the regime that bought it all got fired, it didn’t do that well – it got cancelled after one season. So, we’re thinking, ‘Oh, God, we’re never going to make any traction in America’.”
The show already had ad-supported episodes up on YouTube, and they noticed more and more people were watching the UK version in the US. So they decided to put it on electronics sell-through and it started selling, even without any marketing.
Thoday was thinking about a way forward, when he received an email from Vimeo. “It was a cold call, so to speak, which I would normally delete,” he admits. “But I noticed the line in the subject saying ‘Have your own SVOD channel.’ And I thought, ‘That’s interesting. I’ll call the guy.’”
He discovered that for $50,000 a year, Taskmaster could have its own premium SVOD channel. “We thought, ‘Maybe it’d be a laugh to buy our own SVOD,’ because it didn’t seem to cost very much. So it’s partly for PR, and it’s partly because we thought superfans might like a place where you can get everything Taskmaster-related with no adverts, and they might be prepared to pay for it. So we felt it was sort of a no-brainer. That’s why we did it, and it seems to be working, as well.”
Thoday reveals they are adding a hundred subscribers a day, with a decent churn rate of just 25%. “Vimeo told us that we’re doing incredibly well, when you look across all the micro SVODs,” he adds. “There are quite a lot of micro SVODs, and I think we’re sort of the top of that league.
“We thought: maybe there’s a market for something people really like. I mean, not a massive one. We’re not thinking we’re ever going to have millions of subscribers. But, frankly, 10,000 to 20,000 is profitable for us.”
Get up to date on the changing face of OTT delivery and monetisation. Watch: Restructuring Business Models for VOD, AVOD and SVOD
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