Streaming TV service providers find themselves at a turning point, confronting increased user pushback and a turbulent consumer economy. A few short years ago — when Covid kept everyone home — the industry was in growth mode. Today, users are looking to cut costs. And providers are rethinking their approach.
As the pandemic took hold, keeping consumers more or less housebound, paying for multiple streaming services sounded like a great idea to content executives. However, their reading of the marketplace was skewed; they had a false sense of their own success.
Today, not only has the pandemic passed, but inflation — and a decline in consumer confidence — have arrived. The entire streaming sector is feeling the pinch from customers looking to save, as many reduce the number of subscriptions they pay for.
The reality is, streaming is not a necessary service, which means it is not positioned well in its present form to battle the pressures from the economic turmoil we are experiencing. And the entire streaming sector is impacted, including large players like Netflix ( NFLX ), Amazon Prime Video ( AMZN ), Disney+ ( DIS ), Hulu (HULU), HBO Max (HBO), Peacock (NBC.BK), Paramount+ ( PARA ), Apple TV+ ( AAPL ) and DirectTV Stream (privately held).
So what do providers do? Apart from restructuring or pulling back — as news channel CNN (a unit of Warner Brothers Discovery [symbol link=WBD]) did with planned premium service CNN Plus — streaming TV providers have two main levers: price and advertising.
Traditional streaming services with no advertising will increase in price. They will also introduce lower-cost versions by bringing advertising into the mix. This gives the user a choice, and most critically avoids subscriber cancelations.
Regular readers will recall that this is what I expected as the streaming category was emerging. It can take a new business sector a long time — and plenty of changes and shifts — before it settles on a model that works. This happened with wireless data services when the Apple iPhone and Google Android first hit the scene.
Thanks for The Angst
The current level of angst will also force many customers to go back to more traditional television options, including linear cable, which may be good news for that sector for a while (though even then, there’s cause for concern).
So how can streaming TV create loyal users? They may want to eliminate users’ sharing access among friends and family. But in a time of economic uncertainty, this likely won’t have the desired effect. Companies must give the user a reason to love them and stick with them — not confirm their negative impressions.
This raises another issue. The current path of locking in certain events like Amazon Prime Video is doing with NFL and Thursday Night Football, does not cultivate a loyal customer. Rather, forcing customers to sign up just to watch this event is cutting against the grain. Again: This does not create a loyal customer. It creates a limited-value customer who will cancel after the season.
The bottom line is that reach and retention drive subscription-service valuations. Streaming television companies must give users a reason to fall in love and stick around. Long-term.
Jeff Kagan, a telecom, technology and wireless industry analyst and consultant, is an Equities.com columnist. He covers 5G, AI, IoT, the metaverse, autonomous driving, healthcare, telehealth, pay TV and more. Follow him at JeffKagan.com, and on Twitter @jeffkagan and LinkedIn.
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