It can be argued that we are currently living in the golden age of TV. This is largely due to the streaming revolution. With so many award-winning shows being offered across multiple platforms, even A-list movie stars are ditching the silver screen to sink their teeth into juicier roles that allow them to spend more time with a character. But as streaming services begin increasing their subscription prices, households may need to reconsider which companies are their entertainment must-haves.
The rise of streaming services
At the height of the pandemic, TV and video services saw a record rise in subscribers. In 2020, streaming subscribers increased by more than 8 million in the UK alone.
Netflix increased its subscriber count by 37 million in 2020. The newer platform Disney+ gained 100 million subscribers in just over a year. It took Netflix ten years to garner that many patrons. The market values for both companies reached their highest levels by the end of 2021.
All of this success is largely due to global lockdowns which provided a perfect opportunity for meteoric growth. However, these services may no longer be considered household essentials as we move into a post-pandemic era.
Changes to streaming cost structures
Many households currently pay for multiple streaming services alongside their normal pay-tv providers, like Sky and BT in the UK. With increasing inflation and skyrocketing energy prices, they may be forced to choose just one or two. As inflation causes household phone, broadband, and TV packages to increase by up to 10%, consumers may also choose to scrap cable TV altogether. Many have already done so. Viewers who are unwilling to sacrifice sports programmes, critically acclaimed dramas, and blockbuster franchises are likely to increase their monthly payments to £200.
Because streaming has become a global phenomenon, an unprecedented number of companies have emerged in recent years. Some platforms are only available in certain countries, but Netflix, Amazon Prime Video, and Disney+ are among the most popular worldwide. Each company offers a different collection of programmes. They also produce their own original content that is exclusive to them. Because of this, it is becoming increasingly difficult for people to maintain subscriptions to multiple different platforms.
Netflix catalysed the global entertainment model that offers low costs and encourages binge-watching. As more competitors crop up, it is becoming increasingly clear that profitability will be an issue. Netflix has already implemented 22% price increases in the UK and Ireland. Disney+ increased its price by a third last year.
Additionally, many consumers are now dreading the clampdown on Netflix’s previously lax rules around sharing passwords. Until recently, it had not been necessary to regulate password sharing; however, this is no longer economically feasible. They will soon begin charging customers an additional fee for adding members to their account.
What do these changes mean for investors?
It is clear that this success is starting to wane. The question moving forward is: if the pandemic-fuelled streaming revolution has already peaked, what does this mean for investors?
Streaming companies are seeing both more competition and slower growth. This may result in an unsustainable battle over content, especially as consumers reduce their household budgets.
In January of this year, Netflix faced its least successful start to a year in more than a decade. Of course, this dip in subscriber growth is alarming to investors. The dip has consequently decreased the market value of the streaming giant.
Throughout its history, Netflix has acted as an indicator for the rest of the industry. When Netflix sees a slowing down in growth at a time where its recent content is performing incredibly strong (e.g., Squid Game and Don’t Look Up), this elicits questions about the future of streaming.
While its subscriber count may be underperforming, Netflix has no immediate plans to slow down on its content production. They, along with Disney, are increasing content spending. In fact, Netflix attributes its price rises to funding more quality content. The problem they face is that even with an increase in its content budget, many are unsubscribing after they watch the trending hits.
Affluent populations will be able to take on these price increases, but less wealthy nations may be overlooked. India, for example, is a market with huge potential, but consumers there may be unable to pay more for streaming.
One market that has been largely untouched by streamers is gaming. This is soon to change. Netflix has already developed a video game strategy. In November 2021, they launched Netflix Games, a provider of original mobile games available to subscribers. By tapping into a billion-dollar industry, they may appeal to a wider demographic.
The future of streaming
Now, streaming services are finding themselves moving into a space that is reminiscent of how TV has been traditionally consumed over the years. This trend is to release new episodes of their popular shows on a weekly basis, or in batches of a few at a time. The hope is that this will put an end to subscribers cancelling their memberships after they have binged the most popular programmes, while also extending the life of content.
Another way streaming platforms are attempting to increase profitability is by curbing their trial periods. Netflix, for example, no longer offers a free 30-day trial. Apple has also cancelled its offer of free access to Apple TV+ for a year with the purchase of a device.
But just as Amazon, Disney, and Netflix are taking on a more conventional approach, traditional media companies are developing their own streaming platforms and entering the already crowded arena.
What is important to consider is that there is a limit for how much people are willing to pay. Streaming fatigue is a real issue, and the market is becoming congested with virtually unlimited choices. It has been proven that cancellations increase when customers surpass three services.
Fortunately, there is hope for the future. Newer services have exhibited strong early growth. Disney+ even recently beat Wall Street’s expectations and recovered after their disappointing numbers in November.
As always, it is key to consult with an expert before making investment decisions. If you have any questions about how Private Client Consultancy can help with your portfolio, contact us today.