History was made at the Oscars last month, and I’m not referring to slap heard around the world. The movie CODA took the Oscar for best picture. This is the first time a movie from a streaming service has been awarded that accolade. Not only was this movie from a streaming service, it was from Apple, a relatively new entrant and one of the smaller streaming platforms with only 19 Million global subscribers. Doubtless this win will help spur subscriber growth.
The previous week Amazon completed its purchase of MGM Studios, giving it ownership of 4,000 movies and 17,000 TV episodes. What is interesting about these two events, is that although Amazon is one of the largest streaming services, with an estimated 170 Million global subscribers, for both Amazon and Apple, streaming and content production are by no means their core business. A recent article in the New York Times postulated what would happen, if at some point in the future either or both companies, decided that the returns from this “side business” were not sufficient to justify the investment; naturally, consumers would be the losers.
We’re a long way from that point yet, but what we are seeing is a change in the both the structure of the streaming business, and consumer behavior. Initially streaming meant Netflix, later followed by Hulu and Amazon Prime. Now, as well as those, many of the studios have launched their own streaming services, as they watched their traditional cable, satellite and broadcast customers move to competing streaming services.
Worldwide there are now over 200 streaming platforms, and a US consumer has about 50 to choose from. Given all this choice, coupled with zero exit barriers, it is hardly surprising that churn is now reaching epic proportions. According to the 2022 Technology and Media report from Deloitte, in the US the overall churn rate for streaming services is 38%, globally it’s 30%. A recent article in the Wall Street Journal mentioned, that approximately half of US viewers who signed up within three days of the release of “Hamilton,” “Wonder Woman 1984,” and “Greyhound” canceled their subscription within six months. Generation Z are the lead churners, but they are also the lead “returners,” subscribing to a service to watch a particular show, churning when they have watched all available episodes and returning when a new season becomes available.
Streaming Services to the Fore
When they were first launched the main drivers for the uptake in streaming services were the ability to watch what you wanted, when you
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| Worldwide there are now over 200 streaming platforms, and a US consumer has about 50 to choose from. Given all this choice, coupled with zero exit barriers, it is hardly surprising that churn is now reaching epic proportions. |
wanted, no advertising and price. Streaming on-demand content was, and individual services still are, much cheaper than cable or satellite. However, with the number of streaming services now available, it is common for households to subscribe to multiple services, so moving the monthly spend on streaming, closer to that of cable and satellite. This is particularly true for subscribers to streamed live TV, such as Youtube TV, Philo and Sling. For many viewers this plethora of choice is just too much. A survey conducted by Verizon Media and Publicis in 2021, (“The CTV Growth Opportunity Report”), found that 67% of respondents said it was difficult to know what to watch because there was too much choice and 56% said they were overwhelmed by the number of streaming services available. One reporter went so far as to speculate that this dissatisfaction may harbor a return to cable or satellite. However, this is not borne out by the statistics. A report released by Antenna in February of this this year, showed that in 2021 streaming services added 42.2 million net subscribers in the US, a 57% increase from 2020. This is particularly surprising given that 2020 saw the beginning of the pandemic and lockdowns, which drove significant growth in video consumption. 82% of the growth in 2021 came from four services: Paramount+, Peacock, Discovery+ and Apple TV+ all of which launched in the last few years.
While Traditional TV Continues to Lose Subscribers
Traditional TV (cable, satellite and Over the Air (OTA), continues to lose subscribers, although the pace of this decline varies by country. In the US there are now 72 Million cable households, compared to 100 Million in 2016, and according to Insider Intelligence (formerly known as eMarketer) this is projected to fall to 57 Million by 2026. For satellite direct to home (DTH) in the US, the outlook is equally glum. Dish TV lost 583,000 DTH subscribers in 2021, 57,000 more than in 2020, ending the year with 8.22 Million DTH subscribers. According to Charlie Ergen, Chairman, Echostar (parent company of Dish), a merger between Dish and DirecTV, the competing DTH service, is now “inevitable.”
Surprisingly, only a minority of subscribers to streaming services are cord-cutters. In the US 60% of viewers are paying for traditional TV in addition to streaming services. And according to Nielsen, only 28% of US consumers’ viewing minutes are spent on streaming services. This doesn’t mean that streaming subscribers watch less TV, it means that for many streaming services are an addition not a substitution to their viewing habits. To put these figures in perspective: whilst globally revenue from pay TV (excluding online video) fell US$4.6 billion to US$228.5 billion last year, it is still over 12x larger than global online video subscription revenue, which generated $17.9 billion in 2021 according to the Motion Pictures Association Theme Report.
New Business Models
As mentioned above, some streaming providers, are trying new business models. Advertising is one of these: Crackle, Peacock and Roku for example, are now offering low-cost or free services supported by advertising, but, at least for now, significantly less advertising that would be seen on broadcast TV. In total only 5% of all TV advertising appears on streaming services, 95% remains with traditional TV in spite of the continued reduction in subscribers.
Netflix is also trialing a new subscription model. A recent survey from Leichtman Research Group found that 36% of US subscribers to Netflix share the service with someone from another household. Obviously, this has a significant impact on Netflix’s revenue. In the next few weeks it is planning to test new features for subscribers in Peru, Costa Rica and Chile. Subscribers in those countries will be prompted to add accounts for up to two people that they don’t live with. These people will have their own login, recommendations and password. In Costa Rica this will cost US$2.99. Netflix has said it will “work on understanding the utility” of these changes, before trying them anywhere else in the world.
It must also be borne in mind, that like broadcast, cable and Direct to Home (DTH), the streaming services need to get content to the distribution points. Even in the US, which is heavily fibered, satellite is still the delivery mechanism for many locations.
In Europe and the rest of the world, satellite for content delivery is even more relevant. SES CEO, Steve Collar remains bullish regarding video for satellite. In spite of a 4.6% year-on-year decline in video revenue in 2021. In March at Satellite 2022 in Washington DC, he commented: “Actually, we’ve seen a number of DTH platforms grow over this period (2020-21), which is super encouraging.” Eva Berneke, the new CEO of Eutelsat was a little more cautious, adding that he underlying maturity of the DTH market hadn’t changed: “You’re at a crossroads where you still have a video broadcasting business that’s important and will exist for a lot of years….but it’s not going to see the same growth cycles as we’ve seen when you go back five or ten years.”
SES has recently ordered three new satellites, all of which will carry some video content. SES-26 will replace SES-12 at 57 degrees East. It will be used to expand content delivery and connectivity to broadcasters as well as serving telco operators and government operators, across Europe, Africa, the Middle East and Asia-Pacific.
The other two satellites, Astra 1P and 1Q will be located at 19.2 degrees East and will serve 118 million TV households across Europe. Astra 1P will be a traditional wide-beam satellite delivering content to private and public broadcasters in Germany, France and Spain. Astra 1Q is a digital satellite, customizable on-orbit and will have high throughput spot (HTS) beams as well wide-beams. Like Astra 1P it will also support DTH services, but as a more advanced satellite, it will be more able to adapt to changing customer needs in the future.
“Our prime TV neighborhood at 19.2 degrees East is one of our most valuable assets and has been key to enabling renowned European broadcasters to grow their TV audiences in the last 30 years. These two satellites will have the resiliency, reliability and redundancy that our video customers need, and will be able to deliver continued premium services well into 2040,” said Steve Collar, CEO of SES. “Additionally, thanks to advanced satellite technology, we will be future-proofing our investment and injecting a high degree of flexibility into ASTRA 1Q to ensure we are meeting the evolving needs of all the markets we serve.”
Conclusion
So, as we’ve all known for many years, the market for traditional TV is declining and the market for streaming services is growing. In the US broadband speeds are no longer the limiting factor for streaming that they were a few years ago, but there are still unserved rural areas that rely on satellite for both broadband and video. Elsewhere the situation varies, with some countries being on a par or having superior terrestrial broadband, and others being very far behind. Either way, it’s still too soon to say that video is dead as far as satellite is concerned.
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Elisabeth Tweedie has over 20 years experience at the cutting edge of new communications entertainment technologies. She is the founder and President of Definitive Direction (www.definitivedirection.com), a consultancy that focuses on researching and evaluating the long-term potential for new ventures, initiating their development, and identifying and developing appropriate alliances. During her 10 years at Hughes Electronics, she worked on every acquisition and new business that the company considered during her time there. She can be reached at etweedie@definitivedirection.com
