Friday, December 13, 2024
HomeFinanceStreaming nirvana is about to become more expensive — and offer less...

Streaming nirvana is about to become more expensive — and offer less content


When Apple Inc. and Walt Disney Co. plunged into video streaming in late 2019, shortly before the pandemic hit, content-gobbling consumers were in hog heaven: The entrance of the two media giants into the fledgling market, coupled with a ramp-up in programming from market leader Netflix Inc., had spawned an all-you-could-eat buffet of movies, series and documentaries.

But binge-watching nirvana may be giving way to market realities. And consumers, who have seen it all before with rising costs for cable TV and other digital services, are gritting their teeth in reluctant acceptance of the streaming industry’s evolution.

“We have gone from a golden age of a lot of content to one where we are paying more for less content,” said Nan Palmero, a marketing executive in San Antonio who subscribes to Apple TV+
AAPL,
-0.53%
,
the Disney-Hulu-ESPN bundle
DIS,
+0.02%
,
HBO Max
WBD,
+1.40%

and Netflix
NFLX,
-1.18%
.
“These are media companies trying to retread and return to more lucrative models, the way that cable and noncable did before.”

Aaron Goldman, chief marketing officer at advertising-software provider Mediaocean, describes it as a saturation point in streaming. “The platforms have to find new sources of growth while being responsible about expenditures,” he said. “Raising prices is one strategy, but that’s hard to justify to consumers while cutting back on content at the same time.”

On Wednesday, Disney disclosed that it will raise prices on its ad-free service while at the same time removing some shows and producing less content in order to stem losses in its streaming business.

Read more: Disney to increase price of ad-free streaming again, add Hulu to Disney+ and remove some content

Disney’s intention to take a content impairment charge of $1.5 billion to $1.8 billion — akin to what most media companies have done over the last few quarters — “highlights the extent to which the content investment euphoria has faded across the industry,” Barclays analyst Kannan Venkateshwar said in a note last week.

Advertising is emerging as a “critical lever” in navigating the equation of maintaining revenue while scaling back pricey content, Goldman said in an interview. By increasing adoption of ad-supported tiers and increasing ad load within those tiers, platforms can “better monetize without significant outlays for new content,” he said.

“The silver lining for consumers is that, if streamers put more emphasis on advertising, they can offer subsidized pricing options. Plus there’s the point about ads on streaming being more relevant to consumers compared to linear TV, thanks to the ability to use data like watch history as part of the targeting,” he said.

Slowing content spending

Growth in content spending is expected to fall from 6% in 2022 to 2% this year, marking the second-lowest rate in more than a decade, after 2020, according to Ampere Analysis.

Netflix’s content outlays — payments for the acquisition, licensing and production of content over multiyear periods — declined 6% last year, from $23.16 billion to $21.83 billion.

“As we improve our member experience with more must-watch stories, we also need to improve our monetization,” Netflix executives acknowledged in a letter to shareholders in April. “This will not only help reaccelerate revenue growth and increase operating margin, it will also enable us to invest more in great entertainment. We want to be more sophisticated around pricing so that we offer a range of price points and feature sets to suit consumers’ differing needs.”

They added: “For 2024, we still expect our cash content spend to be in the range of roughly $17 billion.”

David Trainer, CEO of investment research firm New Constructs, called streaming “a very bad standalone business.” That “is why we are very bearish on Netflix, which has burned over $1 billion in cash every year on average over the past five years,” he said in an email. “Netflix can burn billions in cash for only so long before investors demand changes to the business model which force it to act more rationally with its spending.”

Why stick around?

Consumers are eventually going to have to pay more to get less content. So why should they stick around? It might take adding videogaming and live sporting events, and digital companies are considering their options for both. Netflix has started a videogame service, and Comcast Corp.
CMCSA,
-0.07%

reportedly considered acquiring game publisher Electronic Arts Inc.
EA,
-0.29%

last year.

Also read: Disney shows streaming wars are destroying all that was good about streaming

Disney continues to field questions about the future of ESPN, which it owns, and about live sporting events on Disney+. With broadcast rights for World Wrestling Entertainment Inc.
WWE,
+3.24%

— currently on Peacock — expiring in 2026, that will be an extremely attractive get for a video-streaming service. 

Disney has said it will add Hulu content to Disney+, which could offset a reduction of movies and TV shows on Disney. But such a strategy “could take some time” to catch on with subscribers, meaning “rough waters over the quarter” for Disney, said Mark Vena, principal analyst at SmartTech Research.

“Disney is going to take a meat cleaver to remove poorly viewed titles from its services, [which] would presumably increase views of its more popular content,” Vena said in an interview. “This could backfire a bit if subscribers begin to feel that the breadth of Disney content is contracting.”

It is a risk Disney is willing to take in order to rein in streaming costs. Disney’s average revenue per user for U.S. and Canadian subscribers improved 20% in its recently completed quarter after another price increase was announced last year.

“With enviable brands and franchises, Disney remains in a prime position, operating in the upper echelon of streaming media for the long haul,” Ashwin Navin, CEO of television-technology company Samba TV, said in an interview. “The streamer’s diverse catalog allows the service to remain a staple in households even as competition is at an all-time high. In fact, two out of three streaming parents subscribe to a streaming service just for their kids, and Disney+ is the most popular choice.”

For now, Katya Kermlin, a tech executive in Los Angeles who subscribes to Disney+, Netflix and AMC, plans to continue to “dance around packages based on interesting titles or drop them when there is nothing good.”



This story originally appeared on Marketwatch

RELATED ARTICLES
- Advertisment -

Most Popular

Recent Comments