In Q2 2023, PARQOR will be focusing on three trends. This essay focuses on all three.
To remind you, PARQOR identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the media marketplace. Must-read stories or market developments are not always obvious from press reports or research analysis, and often require a deeper dive. PARQOR’s analysis questions established ideas and common wisdom, reassesses the moving pieces, and reveals the potential in the media marketplace in 2023.
A bit that comic Louis CK did on Late Night with Conan O’Brien in the 00s succinctly summarizes the past week of headlines: “Everything is amazing right now, and nobody's happy.” The premise was that technology enables incredible new things, like WiFi access in planes, and it has become easier for consumers to complain when they don't have to these unprecedented amenities.
In streaming, consumers have more choices than ever and yet no one on the supply side or demand side of the streaming marketplace seems happy. On the supply side, Hollywood writers have voted to strike because they are unhappy with how the streaming business model has negatively impacted their compensation. Also, legacy media executives must navigate another earnings season where investors no longer buy into their long-term visions for streaming.
On the demand side, research released by Deloitte Insights found that “Millennials surveyed continue to show signs of subscription fatigue and cost-consciousness.” Research from LG Ads reported that nearly half (45%) of consumers felt there were too many content choices. In selecting content, consumers reported spending an average of 5.7 minutes between the time they turned on the TV and when they started watching content.
Antenna research recently revealed that streaming subscriber churn is growing, up 49% from 2021 while additions of subscribers grew 18%. The Wall Street Journal wrote about how this trend is resulting in Americans becoming “nostalgic for the cable TV experience”, and increasingly streaming content on free ad-supported TV services (FASTs) like Tubi and Pluto TV.
Research from Morning Consult added to this picture of consumer unhappiness, finding of the video streaming service aspects subscribers are least satisfied with, four of them have to do with live programming. Netflix’s recent failed attempt to livestream the “Love is Blind” Season 4 Reunion Special left millions of viewers unable to watch it live (6.5 million ultimately were reported to have watched it).
"Everything is amazing right now, and nobody's happy." Does it all matter? Yes and no.
Key Takeaway
New data tells a story that no one seems to be happy within the streaming marketplace or where it is headed (except for everyone delivering and consuming the free stuff).
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Why it doesn’t matter
None of this data reflects fundamental or existential problems in the streaming marketplace. Everyone is pivoting their model in real-time, with Warner Bros. Discovery’s pivot to the “Max” brand being the most recent. Questions linger at Disney for the futures of Disney+ and Hulu. More importantly, as I wrote last week, streaming is a niche behavior across connected TVs, as broadcast and cable still dominate.
We are witnessing a lot of change. It is too early to buy into the long-term significance of the data.
Why it all matters
But, it does reflect how Netflix currently dominates streaming, accounting for between 70% and 80% of the 10 most-watched shows in the US every week, as Bloomberg’s Lucas Shaw highlighted in his Screentime newsletter last night. People spend more time watching Netflix every month than Hulu, Disney+ and HBO Max combined. But, Nielsen’s data reflects television usage and not smartphone or tablet usage and over 50% of Netflix’s consumption is mobile. So it's dominance could be greater.
That poses two challenges. First, as Charles Slocum, assistant executive director at the Writer's Guild of America (WGA )West, told Deadline: “In streaming, the companies have not agreed to pay residuals at the same level as broadcast, or the same reward-for-success as they have traditionally paid in broadcast.”
In other words, Netflix’s model of upfront payments has become the industry standard. If Netflix is succeeding strongly across all devices — and especially in high average revenue per user markets like the U.S. — any predicted outcome of the looming writer’s strike should reflect a Netflix-dominant future in streaming.
The second is “The Netflix Paradox”, “'The Office' Paradox” or “The YouTube Paradox” that I first identified last August and wrote about last Monday:
Streaming services have invested billions into exclusive IP libraries at a time when the value of IP is fragmenting across platforms;
The best business models for monetizing this IP should be PARQOR Hypothesis businesses because they centralize the value of IP and monetize it in multiple ways; but,
Without a centralized model for the IP, the YouTube ecosystem and algorithm may be more valuable to building fan bases for IP than the exclusivity of a “walled garden”.
The recent data reflects the very problem the paradox highlights: not only do consumers seem to not find a clear value proposition for subscription services, there is no lock-in value from these subscription services or the IP they provide.
No service reflects this more than Paramount+. Lucas Shaw reported last night. The service has signed up about 7.5 million new customers in the first three months of this year, according to Antenna, more than Netflix and Hulu combined. Also, 7% of the people who pay for Paramount+ cancel every month, more than its peers. In other words, Paramount+ seems to be an “awesome” service now and few of its customers are happy.
Netflix & Free
So, effectively, the looming question now is what it means for both the consumer and the distributors and studios to be "happy" in a marketplace where streaming is maturing. It is getting harder to imagine the future of a marketplace where everyone is so unhappy with unprecedented scale.
If we go by Nielsen's The Gauge, consumers prefer streaming free content — Tubi (1%) and Pluto TV (0.8%) together have more viewing than each of Peacock (1.1%) and HBO Max (1.2%) , and as much as Disney+ (1.8%) — and of all services they want YouTube (7.8%).
In short, it's getting harder to imagine that streaming is the future of the media business that has been promised for the last decade, except for Netflix and the free stuff.
Must-Read Monday AM Articles
* NBCUniversal CEO Jeff Shell left the company last night after acknowledging an inappropriate relationship with an employee. Joe Flint of The Wall Street Journal had some good background on Shell's tenure ($ - paywalled). Newly installed Comcast President Mike Cavanaugh will take effective control of NBCUniversal. The absence of a regular CEO comes just as NBCU gets ready for upfronts and Peacock is getting momentum.
* Parrot Analytics' Brandon Katz offered a behind-the-scenes of the WGA's negotations with the Alliance of Motion Picture and Television Producers (AMPTP) regarding the collective bargaining agreement that governs the majority of the guild's work
* A user of Netflix’s new ad-supported tier wrote, “My new Netflix plan proved to me that television was perfected in the ’90s, when there were intervals allowing us to leave the couch every eight minutes”.
* Simulmedia’s Dave Morgan believes that Netflix’s ad-supported tier is well-positioned to succeed: “It still has limited inventory as the ad tier just begins to scale.
* The rise of unscripted content and streaming services' now believe it is imperative to appeal to a wider, more generalist audience.
* When it comes to entertainment marketing, TikTok is the new “ground zero.”
* Amazon’s Prime Video debuted a new feature called Dialogue Boost, which lets viewers increase the volume of dialogue relative to background music and effects, available on a limited selection of originals.
* After leaving Microsoft earlier this month, Joseph Staten has announced that he’s joining Netflix as a creative director to help build a brand-new AAA game.
* "HBO had its limits," Patrizio Spagnoletto, Warner Bros. Discovery Streaming's global chief marketing officer, told Insider. "Regardless of how much we tried to push it in different directions, it was going to be really challenging." He also spoke to Variety.
* The latest data from Ampere Games – Analytics shows Electronic Arts (EA) held the largest share of monthly active users (MAUs) across Xbox and PlayStation consoles globally in the opening months of 2023, leading both Epic Games and Activision Blizzard which make up the top three publishers.
* Apple struck a deal with Canal + where Apple TV+ will be available at no extra cost to all Canal+ subs in France, French speaking-Switzerland, Czech Republic and Slovakia.
* Meta is offering advertisers sweeteners, such as discounts of as much as 25% for those willing to spend a certain amount testing different ad products on its TikTok-rival feature, Reels.
* What happens with the next NBA media rights deal is one of the great parlor games in sports media right now. How cable changed sports and what happens when fans cut the cord.
* Roku has a dominant 50% market share in North America, surpassing Samsung and Amazon combined at 34%. Apple’s market share hits a 12-month low (5%).
* With the upfront TV advertising market on the horizon, Roku is offering a “Primetime Reach Guarantee” -- a competitive effort to improve the reach of TV homes versus that of a cable TV network.
* Media industry content spending will be flat in 2023, after a 14% spike in 2022, according to MoffettNathanson