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InContext / An inside look at the business of digital content

Why everyone’s getting into streaming and how they plan to compete for eyeballs

February 7, 2019 | By Erik Martin—Independent Journalist @Martinspired

Want to keep up with the latest plays in the streaming game? You practically need a scorecard and the guidance of a fast-talking play-by-play announcer to keep up. For proof, consider just some of the latest streaming service bombshells to hit the news in the past few weeks:

All of these moves speak, of course, to a larger and evolving trend: Anybody and everybody in the media business seems to be getting in on the OTT act. The idea is to take their product direct to the consumer via an AVOD or SVOD (subscription-supported video on demand) model. And that’s creating an increasingly crowded field of competitors.

It will be fascinating to see who else enters the fray and who will survive and thrive in a crowded OTT world where consumers only have so much viewing time. To help make better sense of all the market chaos—and understand what streaming services will need to do to stand out from the crowd—I spoke with several industry experts.

Why more media players want in on streaming

It’s no big surprise why news and entertainment companies are jumping in and jostling for position in an already congested OTT pool: Consumers crave streaming content.

“They don’t want the same bundle of channels they receive today. And they don’t want the same, scheduled experience they’ve had for decades,” according to Peter Naylor, senior vice president/head of advertising sales for Santa Monica-based Hulu, which now has 25 million subscribers. “Consumers want choice and control in their TV experience. In order to continue to reach consumers, TV must move from a business ruled by cable and satellite gatekeepers and by a traditional schedule to a model where the consumer truly gets to choose.”

Billy Nayden, research analyst for Parks Associates in Dallas, agrees. “Younger consumers are watching traditional television at decreasing rates. In order to reach them with video content, internet video is a necessity. A dedicated streaming service helps facilitate delivery of that video and gives consumers a centralized place to access content,” Nayden says.

Offering a direct-to-consumer streaming service also provides some unique benefits.

“Broadcasters and content companies are able to collect data on consumption and their audience, which is often not available through over-the-air broadcasts or pay-TV providers. Direct offerings also provide a hedge in pay-TV licensing negotiations, allowing networks to reach consumers even when blackouts occur on pay TV,” adds Nayden.

Overcoming multiple challenges

However, experts caution that fragmentation of content sources, changing viewer habits, multiple direct competitors, and rising content costs make competition in streaming extremely difficult.

“The number of streaming services available globally has exploded in the past few years, and they are now competing not just with other streaming services but also pay TV, user-generated content like YouTube, and digital entertainment options like video games for consumer time and eyeballs. Standing out and innovating in a crowded ecosystem is a major challenge,” says Nayden.

Laura Martin, senior media analyst for New York City-headquartered Needham and Company, says discovery and clutter are huge problems. “Roku has nearly 4,000 video apps of free TV and about 1,000 apps of SVOD that the 28 million connected TVs in their network can choose from,” she says. “That’s many more choices than the 200 channels you typically have in a linear pay TV bundle.”

Additionally, to succeed long-term in the streaming space you need deep pockets, says Dan Rayburn, principal analyst at Frost & Sullivan in New York City. “Think about who’s behind the big services today—Sling TV is owned by Dish, Direct Now is owned by AT&T, and Hulu is co-owned by Disney and Comcast” (as well as Fox and AT&T), Rayburn points out. “A lot of these services can’t stand on their own as a profitable platform because the costs to license and create all their content is too high.”

You also need a deep library of content to compete effectively, per Alan Breznick, cable/video practice leader for Light Reading in Toronto. “Although, if you’re a niche player going after a specialized market, like wrestling fans or hobbyists, and no one else has such a channel yet, then you don’t necessarily need a huge library of old content,” says Breznick.

Another huge hurdle? Retention. “You’ve got to worry about churn rates and how to keep your customers as well as keeping the cost of acquiring customers down,” Breznick adds.

Plus, “it’s going to get harder for the smaller companies because so many of the big competitors entering this space—like Sinclair, NBC and Disney—have free marketing opportunities. They have other media outlets with unsold ad inventory they can use to promote their streaming services,” says Martin.

A myriad of models

In the OTT space, there is no such thing as one size fits all. A variety of service models and pricing tiers exist that often make it difficult for analysts and consumers alike to compare apples to apples (see Sidebar for an overview of the major services). Some brands strictly follow a direct-to-consumer formula while others also partner with a pay-TV service (by, for example, offering authenticated streaming apps). And some services run ads while others don’t.

“Ads have always been in the mix for many of these subscription channels because the cost to make and license the content is still too high—you can’t make enough money on subscription alone,” says Rayburn. He notes that ad-free Netflix—despite its 139 million paying subscribers—still expects a negative cash flow of $3 billion in 2019. This is likely a big reason why it recently raised (and will continue to raise) its subscription fee.

“It’s tricky. We’ve had this mentality as consumers that content should be free for a long time, thanks to YouTube and others. Now, we’ve got several channels charging up to $15 or more per month and live services like YouTube TV charging $40 and up monthly,” Rayburn says. “The question is, how much higher can streaming services push their prices before consumers say no?”

Strategies for success

Ian Wishingrad, creative director/founder of BigEyedWish in New York City, says the formula for sustainability and profitability in the streaming market is simple. “Have award-winning content. ‘The Handmaid’s Tale’ legitimized Hulu and ‘House of Cards’ legitimized Netflix. You also need the right price. If you’re good and your price is right, you’ll get hits,” says Wishingrad.

Nayden seconds that sentiment. “To maintain subscribers, services must offer a variety of compelling content exclusive to their particular service,” says Nayden.

That’s why, according to Naylor, “over the last year, we’ve focused a lot on adding more content to the service, including full series runs of shows like ‘ER’ and ‘Lost,’ and new originals like ‘Castle Rock.’”

Content may be king, but so are customers, insists Breznick.“You really have to know your customers and the market you’re going after.”.

Offering your patrons more choices—in programming as well as pricing—can go a long way, too. “Convenience to the consumer is the new service. Giving options makes you flexible and cool, versus ‘this is the rule, take it or leave it,’ Wishingrad adds.

Ask Martin and she’ll tell you that the best way forward for OTT services is to “have at least two revenue streams, such as subscription-supported, ad-supported, eCommerce, micro-payments, etcetera.”

And, as mentioned, partnering with pay-TV providers could bring increased visibility and exposure to your service, “especially among consumers who otherwise would not have known about the service,” suggests Nayden. “Until recently, the operator set-top box has remained one of the few in-home connected devices that OTT video services were unable to penetrate. The pay-TV set-top box is often used daily. Being available on that box is a big boost to user convenience.”

A booming market

Virtually all of the media giants have launched or announced an impending standalone streaming service by now. But there are others poised to make a splash, and legacy video brands are far from the only players looking at the streaming opportunity.

Nayden foresees major print media brands entering the fray eventually, too. “While print media has found it financially difficult to transition to the new digital marketplace, I think the space for news-based OTT services represents a significant opportunity for content creators,” Nayden explains. “Cheddar and Newsy give us an example of what is possible. If a traditional newspaper like The New York Times or Wall Street Journal could partner with a video content creator and build a service that combined access to premium print and video content, I think it would attract a significant amount of paying news junkies.”

Breznick also envisions a day coming soon when college sporting programs—like Notre Dame football—roll out their own streaming service. “And at some point, every single broadcast channel out there is going to have to think about it,” adds Rayburn.

Major Streaming Services and Monthly Costs*

Live services

SVOD (subscription video on demand) services

(*rounded to the nearest dollar)

,

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