May of last year felt like a particularly transformative month. Discovery and WarnerMedia announced their surprise mega-merger, intended to accelerate their direct-to-consumer ambitions. That same week, TF1 and M6 said they had entered into exclusive negotiations to merge in order to deliver a “French response to the challenges from global platforms.” And Amazon sealed its deal to take control of MGM, with Mike Hopkins, senior VP of Prime Video and Amazon Studios, citing the importance of the studio’s “treasure trove of IP.” In the same month, per Nielsen, U.S. consumers spent 26 percent of their viewing time on streaming platforms, just ahead of the 25 percent on broadcast.
The streaming wars are indeed set to go into overdrive this year as global, regional and local players engage in the stiff fight for consumers’ time and expenditure. According to a raft of studies last year, platforms were mainly able to retain the huge gains they saw amid the first rounds of Covid-19-induced lockdowns. And while broadcast television adspend slipped amid the pandemic, by Q3 last year, most media companies were citing strong financials, powered by AVOD and subscription streaming gains. Not that there weren’t causes for concern, as subscriber growth slowed at Netflix and Disney+ and Deloitte warned of higher churn rates as the market gets more crowded. Kevin Westcott, vice chairman of Deloitte LLP and U.S. technology, media and telecom leader, noted in the company’s latest Digital Media Trends survey: “We’re seeing an important shift in what consumers are paying attention to and how they are choosing to engage and be entertained. While streaming video will continue to gain momentum, especially with leading services now pursuing global markets, these companies will also need to address churn and retention among diverse segments in different markets and shift from merely measuring subscribers to understanding how to unlock the lifetime value within their customer bases.”
HBO Max, Netflix, Hulu and Disney+ lost a combined $80.2 million in April 2021 due to subscriber churn, according to Wurl Analytics. Monthly churn rates for Disney+, HBO Max and ViacomCBS ranged from 2 percent to 7 percent, Wurl Analytics found. Between 2021 and 2024, Disney+ will churn 333.1 million subscribers, Wurl Analytics predicted. To reach its stated growth target of between 230 million and 260 million global subscribers by the end of 2024, it would need to attract 472.5 million new subscribers. Similarly, for HBO Max to hit 150 million subs, it needs to add 302.6 million customers. ViacomCBS would need 210.4 million new customers to its services to reach 150 million subscribers by 2025.
“For streaming video providers, keeping subscribers is harder than ever as people—especially younger generations—are managing costs by adopting ad-supported options, looking for discounts and bundles, and moving on and off services to satisfy their content needs,” Deloitte’s Digital Media Trends report said. “But Covid-19 could be ushering in a permanent shift in entertainment, where it’s not just about streaming or the number of subscribers, but also importantly about how platform providers are responding to subscriber churn by providing enhanced experiences and the ability to connect with others on their platforms.”
Deloitte projects at least 150 million SVOD paid streaming subscriptions will be canceled worldwide this year, with churn rates rising to 30 percent per market. However, Deloitte noted that more subscriptions would be added than canceled, and the average number of subs per person would increase. Further, in markets with the highest churn, many of those canceling may resubscribe to a service that they had previously left. “These are all signs of a competitive and maturing SVOD market,” the report noted. “As SVOD matures, growth across global regions that may have different cost sensitivities will likely require different business model innovation and pathways to profitability.”
With competition intensifying, subscriber acquisition costs for SVODs will rise, Deloitte explained, with some spending up to $200 to acquire each new customer. And content costs are not going down either. Ampere Analysis projected that global spend on content would top $220 billion in 2021, a 14 percent gain on 2020, led by SVOD investments. “In 2022, we expect content investment to exceed $230 billion, primarily driven by subscription streaming services, as the battle in the original content arena intensifies—both in the U.S., but also in the global markets which are increasingly key for growth,” said Hannah Walsh, research manager at Ampere Analysis.
As such, the chase for scale—and valuable IP—will only continue after what was a busy M&A year in 2021. South Korean internet giant Naver, which owns the global digital comics platform WEBTOON, acquired Wattpad. Canadian pay-TV, mobile and broadband provider Rogers Communications bought Shaw Communications. ViacomCBS Networks International (VCNI) acquired Chilevisión as well as FoxTelecolombia & Estudios TeleMexico. Televisa sold its media and content assets to Univision for $4.8 billion, with SoftBank Latin America Fund, Google, The Raine Group and ForgeLight among those participating in the financing of the transaction. (The global Spanish-language streaming opportunity was cited as the key rationale for that transaction.) RTL Group signed an agreement to merge RTL Nederland with John de Mol’s Talpa Network to create an entity with “the scale, resources and creativity to compete with global tech platforms in the Netherlands.” Sony Pictures Networks India completed a deal to merge with Zee Entertainment Enterprises, combining their linear networks, digital platforms, production capabilities and content libraries. Netflix acquired the Roald Dahl Story Company (RDSC), home to iconic IP such as Charlie and the Chocolate Factory. Korea’s CJ ENM clinched a $775 million deal to acquire an 80 percent stake in the scripted business of Endeavor Content. FOX Entertainment acquired MarVista Entertainment. Sony’s Funimation Global Group completed its $1.2 billion acquisition of the Crunchyroll anime business from AT&T. Sony Pictures Television sold its portfolio of channels and OTT services in 12 Central and Eastern European territories to Antenna Group. Reed MIDEM and Reed Expositions France, French subsidiaries of RX (previously known as Reed Exhibitions), merged—and successfully staged a MIPCOM in Cannes. Indeed, several events managed physical editions in that small window between Delta beginning to fade and Omicron arriving. As for the events landscape this year, NATPE is set to proceed in Miami this month, and Series Mania is scheduled for Lille in March. MIPTV is committed to staging a streamlined event in Cannes in April. The jury is still out as to whether Omicron will disrupt those plans.
Before this latest Covid-19 surge, PwC issued a bullish report on the state of the global entertainment and media (E&M) business. According to PwC’s Global Entertainment & Media Outlook 2021-2025, E&M revenues will rise by a compound annual growth rate (CAGR) of 5 percent between 2021 and 2025, topping $2.6 trillion. This comes following a 3.8 percent drop in 2020, the biggest year-on-year decrease in the 22 years PwC has been producing its five-year outlooks. Traditional TV/home video will remain the largest E&M consumer segment, with revenues of $219 billion, but it will contract by a 1.2 percent CAGR from 2021 to 2025. Video streaming, meanwhile, is booming, with SVOD projected to grow at a CAGR of 10.6 percent to $81.3 billion in 2025.
“The pandemic slowed the entertainment and media industry last year, but it also accelerated and amplified power shifts that were already transforming the industry,” said Werner Ballhaus, global entertainment and media industry leader and partner at PwC Germany. “Whether it’s box office revenues shifting to streaming platforms, content moving to mobile devices, or the increasingly complex relationships among content creators, producers and distributors, the dynamics and power within the industry continue to shift. Our Outlook shows that the hunger for content, continued advances in technology and new business models and ways of creating value will drive the industry’s growth for the next five years and beyond.”