Do the Timehop
- Mary M Brinkopf
- Aug 18, 2019
- 5 min read
Over the summer my sister introduced me to timehop - the app that allows you to take a period of time, say an hour, and pare it down to less than thirty seconds - and I'm obsessed with it.
I love watching the passage of time on fast forward. You can take the most mundane item - i.e. a plane taking off or a yoga class and suddenly it becomes something fascinating. It's truly a blink and you'll miss it type of experience. Each time I watch a timehop I take away something new, something that I missed before - the movement of waves from a sea plane, the uniformity or lack thereof of that yoga class.
It's incredibly similar to the world we live in today where we are inundated with information - fake news, real news, irrelevant news and . It can be challenging in the moment to sort through the noise or understand why something may be considered "newsworthy."
But then you look back, perhaps a few days, weeks, months or even a year later and see something you missed. Something at that point in time seemed completely unrelated but upon review is incredibly relevant. I compare it to finding that final puzzle piece - the image suddenly materializes.
This week the subject of streaming deserves its own timehop. You may recall I wrote about the landscape back in early February when Netflix announced a price increase across all packages. Even though it's only been six months, there's been a steady amount of "breadcrumbs" dropped that convince me streaming is reaching a critical point.
What is that critical point you may ask - well, I speculate streaming has hit a plateau in its growth and is moving to a mature product.
Three years ago when I first learned what SVOD, AVOD and vMVPD meant, I could count on one hand the number of services with over ~500K customers.
Today, it's impossible (and that's partly because not all services report on subscriber numbers). There's a streaming service for nearly every genre - Hulu/Netflix (old tv shows), VRV (anime, video games), DC Universe (superheroes), Passionflix (romance), BritBox (British television). The list goes on and on. One blog attempted to document every streaming service out there and found over 100. But I believe those days are over.
Why? Much of it comes down to money. Running a streaming service is not a cheap expense - in fact, it's a cash vacuum to deliver high quality shows on mobile and broadband devices. Look no further than Netflix with their projected $15B spend in 2019 but their incredibly cheap price tag of ~$12.99 monthly subscriber service. The company (and many others) have adopted the concept of "blitzscale" where a company grows so fast it (usually through subscriber acquisition) that it compensates for low margins among its user base. Not so much anymore….
Breadcrumb #1 - Average Number of Streaming Subscriptions
That number would be 3.4. That's correct, the number of services that a consumer pays money towards on a monthly basis is 3.4.
Surprisingly, I am an outlier in this category as I currently only pay for:
Netflix
Amazon Video (through my Prime membership)
I get my other services through password sharing (thanks fam) and I'm forced to have cable through my apartment complex.
Besides my outlier status, what is most intriguing is the average. It has not changed over the past year. Even with more selection (as I mentioned above), Americans are holding steadfast in the number of services they are willing to pay for. Which means there's increased barriers to entry into this market and a maximum that consumers are willing to pay.
Breadcrumb #2 - Netflix 2Q19 Results
Most investors were caught off-guard when Netflix announced in mid-July it had missed its projected subscriber numbers - falling 2.3M below guidance. The cause? Per Netflix - the slowdown coincided with a weak content slate and some price hike defectors.
Yet, there was little attention paid to recent, massive tidal waves that hit Netflix - specifically:
NBCUniversal reclaiming the rights for The Office, one of their most popular shows
WarnerMedia announced that Friends and The Fresh Prince of Bel-Air will be move from Netflix to be the anchor shows of HBO MAX
Granted neither of those shows have left the platform yet. Yet, Netflix is the perfect example of how streaming is hitting a maturation point. There's no longer a massive pool of potential subscribers to target (at least not in first world nations) and old content is no longer being leased out as easily.
In the comings months, I predict Netflix will shift their focus to retaining customers. And they will use rely on their in-house or non-licensed content. Remember that Netflix used to be a distributor of old content. It's only in the past five to six years that they started producing their own content. Which brings us to breadcrumb #3.
Breadcrumb #3 - The Giants Enter
It's important to note that many of the early streaming services were small companies (yes, even Netflix met that designation). Yet over the last six to twelve months, there's been a significant consolidation in the industry.
An ad-supported live TV service that was purchased in 2019 by Viacom.
Originally a partnership between the major networks, Disney gained majority ownership in May 2019.
The service announced it was shutting down on August 20, 2019 after its parent company, Fox, was purchased by Disney.
Two casualties of the AT&T merger with Time Warner and the upcoming launch of the HBO MAX streaming service.
Did you notice a trend? Who purchased or shut down the services listed above? Yup, the giants aka the broadcasters or distributors with deep pockets. Through acquisition or launching their own products, the broadcasting and cable networks have entered the streaming arena.
Some companies like Disney have been more overt with their intentions - $12.99 bundle for Disney+, Hulu and ESPN+ and others like CBS and Viacom remain coy.
As an aside - current comments made by CBS and Viacom suggest they intend to keep their streaming services separate - Showtime, CBS All Access and Pluto TV. I view this is a short term solution. Viacom, in particular, was late to the streaming business, heavily reliant upon revenue from traditional cable subscriptions. In fact, over 60% of ViacomCBS' profits come from their traditional TV networks. They will need to diversity in the future.
Regardless, it's becoming increasingly clear that in order to compete in the streaming business - it's going to take wells of money and highly desirable content. I project that the number of AVODs, SVODs and vMVPDs will decrease dramatically in the next year due to this consolidation of power and content.
What remains to see is how consumers fare in this industry maturation process. Currently, consumers have reaped the benefits of cheaper content costs. But that may not be the case much longer.
Indeed, I'm already seeing articles and blogs sprout up about the increased costs of streaming. And recall the statistic cited earlier - if Americans subscribe to 3.4 services that are <$12.00, it is cheaper than cable. If those prices change in the future - even by $10, cable may be the better option. Wouldn't that be an interesting timehop?
Always changing markets and choices! Agree the Giants have the deep pockets to buy off the competition!
@Benjamin Brinkopf
That's an excellent question and a continuing problem. Giving customers the flexibility to self-cancel causes a significant number of challenges on the business side - this is not unique to OTT by the way. I'm planning to write about the growth of service fees in the coming weeks.
Agree with your assessment that consolidation is coming and the wrangling of explosive growth may be over.
I do wonder on the stickiness of customers and the typical churn rate for those in trials, less than 1 yr and more than 1 yr.
Also wondering how much the user data is worth and whether streaming will go back to ads to supplement income. I’d gladly pay less (or the same) and have ads, but maybe that’s just me.