S05E01: Game of Streams (Reaching scale)
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.
Needless to state, streaming through the public internet will be the dominant distribution method for video and television for the foreseeable future. The latest earnings reports restate that cord-cutting continues and the streaming services continue to attract viewers. But what business models will sustain?
When WWE launched a 24/7 streaming service in February 2014 it was one of the pioneers going direct to consumer. The service reached one million subscribers in less than one year of its launch. Since then we have seen numerous content owners leaving a distribution model going direct to consumer, new services have regularly seen the light over the last years.
Just recently WWE and Peacock announced a multi-year agreement giving Peacock exclusive streaming rights to WWE Network for American viewers. And by this, the direct-to-consumer service will no longer be available in the USA. With an average paid subscriber base of 1.6 million, it was not a small service after all. The deal has been claimed to be worth over $1 billion.
This hints that it’s hard to get the number together for a direct-to-consumer streaming service. In the same way, as WWE was leading when starting their own service, it might be that they now will be leading a reduction of the same.
Bundling and unbundling
So, have we seen the end of the unbundling trend and a start of a re-bundling movement with distribution deals? I don’t think that it is black or white, but the latest development from WWE proves that it’s hard to reach enough scale to motivate a separate service.
We also see that the so-called skinny bundle services tend to get thicker which in turn leads to higher fees for the subscribers. Hulu, YouTube, and others have been forced to raise the prices and now seems more like classical cable bundles with a different distribution technology. As with the cable bundles, the content owners and networks push more channels and content into the packages.
Some global services will be able to reach enough scale for a stand-alone service. The Netflix numbers prove that they don’t need to adapt anytime soon. Disney+, HBO Max, and a few others will also be able to stand on their own feet.
What about the rest?
For most other content owners and content aggregators, two things will be important moving forward. Cooperation and flexibility. Cooperation when it comes to technology platform and distribution, and flexibility when it comes to business models.
Running a streaming service comes with costs. You need to handle acquisition marketing, handle billing and payments processing, provide customer support, pay for cloud storage and streaming delivery, employ many software engineers, license video players, perform usage or operational analytics, etc. According to a calculation by Doug Shapiro, Former CSO Turner, in an article published in The Startup (Oct 2020) Netflix spent about $4 per sub monthly on these costs and Netflix is probably as scaled as you can get as a stand-alone service.
Most services will not differentiate themselves on technology and very few will have the scale, and skills, enough to justify their own in-house technology stack. They would instead benefit to share a platform or leveraging a managed service. This will ensure enough volume to get the distribution cost down to a level where it would be economically possible to run a streaming service.
Apart from lowering the operational cost, you also need to be flexible in your business model and packaging. A tiered pricing model that in different levels mix subscription fees with advertising could be a way to reach scale and reach. To distribute your content on one or more of the Free Ad-Supported Streaming Television (FAST) services could be a very good way for many content owners.
Finally, to become profitable as a content distributor outside of the FASTs you need to bundle video with broadband delivery, either fixed or mobile.
To watch out for the coming months…
Streaming Media Connect 2021will take place between February 16 and 19. Four days filled with practical advice, inspiring thought leadership, and in-depth training. I will participate in a panel that will discuss the ways OTT platforms, sports and esports leagues, and social media-based sports content creators can leverage new technologies and strategies to deliver the complete fan experience.
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.