S05E02: Game of Streams (Expect the same thing again)
Our Media Solution Specialist, Magnus Svensson, is sharing his reflections on the online streaming industry in this post. This is part of a monthly series so make sure to follow us here if you don’t want to miss an episode.
“If history repeats itself, I should think we can expect the same thing again.” as Terry Venables, an English former football player and manager, once said. In a lot of areas, also in the media industry, we see the same thing again. And it not necessary a bad thing, sometimes “the same thing again” is a proven way.
When households cut their cords, it does not mean that they stop watching television and videos. Virtual options, for example the virtual Multichannel Video Programming Distributors (vMVPDs) with their alternative packages, were seen as a natural alternative.
Cord-cutting has been steep in the US in the last years where the cable and satellite TV operators combined lost around 5.6M pay TV subscribers only last year. Putting that in perspective, the top six pay TV operators in the USA now hold around 70M subscribers.
Also, the vMVPDs see a slowdown, or even decline, during the last year. The so-called skinny bundles have become quite fat and costly. The biggest vMVPDs now cost about $65 per month. We see the same thing again, packages become too big and costly, and the subscribers feel that they don’t get enough value for the money.
Where we still see uptake is the so-called FASTs (Free Ad-Supported Television). Roku, Pluto TV, Tubi and Xumo all have more subscribers than the biggest cable operator. Together these four FAST holds more than 150M subscribers.
The FAST services are free and contain hundreds of linear channels, now also including news and sports. They come pre-installed with your TV set and you get familiar with lean-back TV viewing and channel zapping. We see the same thing again…
The difference with these, compared to other linear packages, are the cost, the services are free, and the fact that the channels and channel packages could easily adapt based on viewing patters and popularity. If a topic or theme gets popular you could adapt the content of specific channels or the package, much easier than with a bundle of channels coming from different networks.
Getting control of the viewer, and the ad money
The real “streaming war” is the fight to get control of the living room device, and by that get the valuable analytics data. Roku with a 38% market share in the U.S. and 31% in Canada have currently a big advantage in this “war”. And by that advertising becomes big business, Roku’s ad platform accounted for 71% of its revenue in 2020.
Roku takes a share of the advertising revenue on all ad-supported apps (excluding YouTube), takes a share of each subscription generated on the platform and takes a share of all transactional revenue. With Roku’s standard distribution agreements, Roku takes 30% of ad inventory on any partner channels. When asked at the latest earnings call Roku admitted that if a brand would like to optimize for reach and frequency and performance, investing with Roku directly is a better deal that through the apps and services that runs on Roku.
It is also clear that these devices and service are attracting younger viewers. As an example, Tubi’s audience is 20 years younger on average than linear TV. So instead of investing in a cable subscription for your first home, you subscribe to a couple of SVOD services and rely on a FAST for their linear experience. If I was a content owner, I would try to get my content on one or several of the FAST services as soon as possible. And get a share of the ad money.
Will device platforms such as Roku and Amazon Fire TV also start to bundle SVOD services? Would these then start to become large bundles similar to the cable bundles and now also the vMVPD bundles? Will we see the same thing again…?
To watch out for the coming months…
How will the subscription funded services react when the competition increases? We already now see an increased churn and I have a feeling that it will become worse. Netflix, Disney and a few more will probably resist the best, but others would either have to find ways to handle churn or find other business models.
A service to keep an eye on is Struum. A monthly subscription for Struum will provide access to a range of services. The consumer is given a number of “credits” they can use to sample and consume content, just like ClassPass for gym classes. If the customer is routinely accessing content from one service, the customer can choose to subscribe to the service from within the Struum app directly.
Magnus Svensson is a Media Solution Specialist and partner at Eyevinn Technology. Eyevinn Technology is the leading independent consulting company specializing in video technology and media distribution.