Q4 2020: pandemic sets scene for new streaming trends

UK adults spent 40% of their day watching television and online video services in April 2020 — up by almost a third on the previous year, according to Ofcom.¹https://www.ofcom.org.uk/about-ofcom/latest/features-and-news/lockdown-leads-to-surge-in-tv-screen-time-and-streaming The likes of Netflix, Disney+ and Amazon Prime Video represented the lion’s share of viewing channels. Third Bridge Forum spoke to several industry specialists in Q4 2020 to understand the most important shifts in this burgeoning space and the latest in streaming industry trends. 

One unmistakable trend is that the SVOD market is getting increasingly crowded. This is prompting consumers to become savvier when it comes to managing their subscriptions, including creating their own “virtual bundles” — choosing core services and then dipping in and out of others opportunistically. “What you’re seeing right now is a land grab as people fight to position themselves to be in that consideration set,” a former executive at Turner Broadcasting System Inc said. Disney’s approach has been to be aggressive on pricing, while “Warner seems like they’re now starting to move in that same direction.”

Just as consumers’ video wallets are feeling the squeeze, streaming is also under pressure. “Even though there’s a lot of excitement about traditional TV companies transitioning over to streaming, there doesn’t seem to be a broad realisation, certainly not in the press, but I think even to some degree on Wall Street, that the streaming business is structurally a lot less profitable,” the expert said. 

One reason for this is that, by definition, disruption increases competition, which “almost always means lower profits”, with constrained pricing power, higher costs or both. At the same time, television networks have been over-earning for a long time because of forced bundling, where customers pay for a number of services but only wish to watch a fraction of the content available. As streaming is effectively “unbundling the bundle”, it’s “logical that you’re going to see a better alignment of consumption and expenditure”. 

With all these factors at play, a former EVP at ViacomCBS Inc emphasised the importance of consumer “cross-monetisation” to the overall success of streaming. “That’s Amazon’s whole game, and that’s why Apple and other people are also in it, because they view the streaming product as a way to increase stickiness with the customer,” they said. With it becoming increasingly apparent that touchpoints enable “meaningful monetisation away from what could potentially be a low- or no-margin business like streaming”, it will be interesting to see how this warps the competitive landscape. 

Even though more people are watching television during the pandemic, we heard that “the price-value equation of traditional TV is in perpetual decline. It’s never going to get any better for consumers, in the sense that prices are going to keep going up.” Sports is the glue holding the bundle together as networks “bid up” for rights, though this model is contingent on getting paid for them for the whole year. “If someone decides they’re going to churn on for March Madness or churn on for the Super Bowl and then churn right off, that changes the economics of sports rights.” 

Meanwhile, behind the scenes, content production capabilities and timelines have been thrown into disarray and continue to be hampered by lockdowns and social distancing requirements. But this period has also given rise to, or shed light on, some interesting consumer trends, which are likely to shape future content and therefore impact future streaming industry trends. Viewing habits have shown that audiences “don’t necessarily want recycled US-produced content”, with greater local language productions expected as we emerge from the pandemic. Netflix has demonstrated success here with its addition of Spanish crime drama Money Heist. “That’s a new thing, so there is a flywheel of creating really good local-language content.” 

This point was echoed by another expert, who says there’s “much more talk now of shows that can be filmed outside North America. I think the big change, on a permanent level, will probably be looking for more international opportunities.” Eastern Europe, New Zealand and Australia in particular are likely to benefit from this trend. The specialist also noted that what has been interesting to see on Netflix is that there’s a big enough cohort of people who will watch something with subtitles for this to be meaningful. This has a positive impact on churn while also suggesting that “new habits have been born”, the former AMC Networks Inc executive said.

Indeed, Interviews also showed that COVID-19 is accelerating the demise of legacy distribution mechanisms such as pay TV and cinema “faster than anybody really anticipated”. The number of US households subscribing to multi-channel video programming distributors dropped from 90 million in 2018 to under 80 million in 2020, the AMC Networks expert noted. “Those companies are losing 300,000, 400,000, 500,000 viewers a month. I don’t see that changing. I see that rate continuing.” 

The pandemic has also inspired new viewing experiences, with films bypassing the big screen and going direct to streaming, with great success. “You’ll see more and more movies being snatched away from traditional distribution, being put on these streaming platforms, especially the global platforms.” In December, Warner Bros said it would release its 2021 film slate on the big screen and via streaming simultaneously, in “a strategic response to the impact of the ongoing global pandemic”.²https://www.warnerbros.com/news/press-releases/warner-bros-pictures-group-announces-innovative-hybrid-distribution-model This is likely to trigger permanent shifts in product distribution and viewing preferences. 

Last year saw subscriber numbers reach record highs and although there will probably be a steady drop off as people start spending less time at home, the former AMC Networks executive believes there has been permanent growth. 

The pandemic has accelerated trends that were already on the horizon and forced platforms to think outside of the box. Given how relatively easy it is to unsubscribe from SVOD services, and with consumers wising up to the deep-seated imbalances between consumption and expenditure, industry players may have to think a little bit more holistically about where the industry is heading. As one expert noted: “It will be a very healthy time for the television and entertainment industry, it’s just going to keep warping and changing, as it certainly has done over the last five years or so.”