Deloitte’s 18th annual Digital Media Trends Report for 2024 does not specifically call out U.S. media consumers as unsentimental for the older library titles of Disney or other legacy media brands (as I argued in last Thursday’s essay). But, the story is there in the data.
On average, US subscribing households spend $61 per month on four SVOD services. However, consumers are expressing a growing resistance to price hikes. Over one-third (36%) of those surveyed said the content available on streaming video services is not worth the price. And nearly half (48%) of respondents say they would cancel their favorite subscription VOD service if monthly prices went up by $5 per month.
Deloitte’s key takeaway was that the TV and film industry should consider that “going direct-to-consumer with SVOD services demands more than just repackaging the pay TV experience.” User experience and user interface matter: Almost 50% of respondents say they would spend more time on streaming video services if it was easier to find content. Also, around 75% of Gen Zs and millennials would like a bundle that lets them search for content across all their streaming video services.
In short, libraries matter to customers, but not always in the format of movies or TV series (as I highlighted in 2022's "'The Office' Is Succeeding On YouTube, Less So on Peacock"). Customization and personalization matter most in exchange for a monthly subscription fee.
This means for the supply side, expensive investments in intellectual property—like the billions of dollars Disney has invested in Marvel and Star Wars, to date—may no longer deliver the returns once imagined by management teams. The economics of streaming do not help: Current recurring revenues value TV series and movies at a fraction of what past pay windows delivered (as investors of Paramount Global are learning).
Consumers seem increasingly more sentimental for the intellectual property of media companies more than they are the formats. That presents a many-headed problem for management and shareholders, alike.
Key Takeaway
There seems to be a risk aversion or disinterest in public markets to media investments that, counterintuitively, incentivizes the worst outcomes for consumers. But, Deloitte's research shows consumers who are clearer on what they need—and do not need—from media companies that own their favorite IP.
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Dotdash & Sentimentality
Dotdash Meredith CEO Neil Vogel hit on the challenges of sentimentality on the supply side in a recent interview with the People vs. Algorithms podcast:
“I'm convinced your job as a leader of these organizations is to beat the sentimentality out of them. Because people who are creatives fall in love with what they’re doing, particularly when it's successful. But you have to be really, really willing to not do something that worked because you need to do something different that might work.”
I wrote about Dotdash in last week’s “A Theoretical Physicist Walks Into A Media Company…” and how “understanding user intent has been the difference between success and extraordinary success in legacy media and streaming.” Dotdash Meredith offers a story for investors that is as science-based as it is creative: In-house technology solutions like page load time and intent-based targeted advertising have been as integral, if not more, than its content.
In this light, Vogel's basic point seems to be that user intent outweighs user sentimentality or nostalgia on the internet. Content does not always need to be in familiar formats to succeed with target customers.
Beloved Characters & Worlds
Vogel’s insight does not apply to subscription models. Dotdash’s digital models are ad-supported, only, with a mix of premium digital advertising, performance marketing and programmatic digital ads. It inherited a print subscription businesses with its acquisition of Meredith which is 50% of its business.
An arguably more relevant insight into the challenges of sentimentality in subscription models came from former WarnerMedia CEO Jason Kilar in an interview with Peter Kafka back in December 2021: “...if you’re going to invest a lot of upfront capital in creating beloved characters in worlds, I think it’s only natural if you have the capabilities and if you have the skillset in terms of leadership and talent to be able to lean into telling those stories, both in a linear fashion with narrative storytelling but also an interactive fashion with gaming.”
At the time he was making the business case for upcoming games including “Hogwarts Legacy”—an immersive, open-world action RPG set in the world of the Harry Potter books—and, “Multiversus”, a free-to-play crossover fighting game featuring 22 playable characters from the intellectual properties of Warner Bros. Discovery. As I wrote in “The ARPU of Storytelling”, in the model:
streaming would be a recurring revenue story but gaming could offer multiples of revenues as high as 30x HBO Max monthly revenues on top of that. It is a story of marginal ARPU from a small percentage of HBO Max subscribers — 8% if we go by Apple store math — gaming with maximal impact on revenues.
His point was that a business that focused on streaming, alone, missed what consumers were willing to pay for. Kilar expanded on this point in a Twitter exchange with me a few months after in March 2022:
Beloved characters and worlds matter. So too does community. I believe those who have the ability to seamlessly deliver both (which requires storytelling chops, community-building/nurturing chops and tech/product/design chops) have a big opportunity in digital collectibles.
He added that in addition to digital collectibles, streaming (“but only for those that can achieve scale…many won’t”), FAST channels, and gaming were the only growth engines available to media companies. At the root of this vision was a core insight: Consumers are more nostalgic for the characters and worlds than they are for familiar formats.
But, Shareholders
As I argued last Thursday, a media company must map creative to consumer intent. Both Vogel and Kilar perceive consumer intent has fragmented beyond the traditional formats of video and news articles, and therefore the job to be done of a media is to build businesses that map the intellectual property to formats that map to that intent. Deloitte reaches a similar conclusion that management teams may be balancing costs and content with ad-supported tiers, contracts, and more bundles, "but these may be short-term solutions to preserving profitability."
That raises the question of whether shareholders actually care for or even understand the needs of new customers. Warner Bros. Discovery’s stock is now down 65% since the merger, suggesting that shareholders no longer buy into that vision. IAC's Dotdash remains a subsidiary and IAC's share price is down 27% over the past five years, dragged down primarily by a weak advertising marketplace.
In one sense they do: The stock price of Warner Bros. Discovery is being punished for a muddled strategy that started with a bullish vision for linear and now is a less compelling sales pitch for gaming and streaming (as I argued in "Iger, Zaslav Answer For “A Generational Disruption”). Shareholders see limited upside in sentimentality. In another sense they do not: Dotdash Meredith may have the most forward-looking, consumer-savvy media vision out there but IAC's stock price remains flat.
So, in one sense this is a weird market moment where public markets clearly do not value business models sentimental for theatrical and linear distribution models. But, if IAC is our proxy, they do not seem ready to imagine a different consumer relationship with intellectual property. There seems to be a risk aversion or disinterest in public markets to media investments that, counterintuitively, incentivizes the worst outcomes for consumers. But, Deloitte's research shows consumers who are clearer on what they need—and do not need—from media companies that own their favorite IP.