Streaming Video Wars: What’s Next

CNN+ is set to launch in the first quarter of this year, marking the arrival of yet another global streamer in an already crowded landscape. In its 2022 Media & Entertainment Industry Outlook report, Deloitte listed the maturation of the streaming video industry as one of five key trends to watch this year (alongside live entertainment, social media reaching a turning point, the rise of NFTs and opportunities in the metaverse).

“Heading into 2022, competition among SVOD providers for the time, attention and bank accounts of viewers will continue, fueled by customers juggling multiple subscriptions, showing more cost sensitivity and savviness, and displaying generational differences in entertainment preferences,” Deloitte said in its report. “With top SVOD players spending billions on content development and global expansion, the business models that got them this far may not provide the future profitability needed for the industry to grow.”

In the U.S., SVOD churn stands at about 35 percent, Deloitte noted. “Providers are under pressure to keep producing hit content, get it in front of the right audiences, figure out how to keep subscription prices low enough for a given market and determine how much advertising is needed to subsidize operating expenses and subscription costs. They should also manage emerging competition across global markets and the required delivery infrastructure and business partnerships. But the real challenge is in finding profitability among all these costs in a business that offers nothing near the margins of cable TV.”

The existing model of focusing on subscription numbers as a metric of success may need to be reconsidered, Deloitte said. “Subscribers are necessary, but providers should increasingly focus on how much revenue they generate. In 2022, more streaming providers may offer pricing tiers, like a premium, all-access tier that includes first-run movies and requires an annual subscription; an ad-free secondary tier that requires additional payment for new movies and top content; a tertiary tier that includes advertising in return for a lower subscription; and finally, free services with limited content and more advertising. Alternatively, some providers could experiment with pay-per-view-style pricing for top content, no subscription required.”

The windowing models for feature films may also need to be reconsidered, Deloitte continued. “In 2022, the windowing system that determines the sequence of releasing a new film exclusively to theaters, then to TV screens and other channels, will likely evolve further as streamers use studio releases to draw more subscribers to their platforms.”

To manage content costs, meanwhile, Deloitte noted that studios could help ease the pressure via “more insightful content choices, cloud and virtual production technologies and predictive modeling of success rates.”

Deloitte went on to note that only some platforms have the scale to compete globally; “2022 will further underscore these winners, some of whom are likely to see more M&A activity from consolidation across multiple markets.” Platforms may also need to evolve their offerings, especially to target younger audiences with social media and gaming options. “By the end of 2022, top providers might look more like digital platform companies, with premium SVOD and AVOD capabilities, user-generated content, gaming properties and social integration. This evolving business model will likely test the willingness of shareholders to underwrite expansion, so pressures on profitability may become even more significant.”