The streaming giants have been bleeding money on content but so long as they were growing, investors didn’t seem to care. With subscriptions starting to level off, the deep pockets of advertisers are looking mighty fine to the streamers. Disney+ is the first to jump but will others soon follow? Ben Willee has some thoughts on what this means for the streaming landscape.
I am not surprised that Disney+ is set to introduce an ad-supported offering.
Streaming companies have been haemorrhaging cash for a long time and the financial markets have been letting them, provided they continued to grow.
The market is usually ferocious in takedowns of companies that don’t deliver cash profits. However, there has been a collective ‘free pass’ because audience growth has long been considered the most important metric in the streaming sector.
But all good things come to an end. And when Netflix reported slowing growth earlier this year – in January, the business announced that it expected only 2.5 million more subscribers in the first quarter of 2022 compared to earlier guidance of 8.5 million – things began to change. The stock took a significant hit for the first time. At the time of writing, it was down to $341.76 a share, a fall of 51% from its peak.
The streamers know they need to invest in content to attract and engage new and existing subscribers but the market is no longer giving them a free pass to spend, spend, spend and lose money in the process.
Additionally, research shows post-pandemic consumers are re-prioritising spending reducing the number of streaming services they pay for. This year, Deloitte reckons around 150 million Streaming Video-On-Demand subscriptions will be cancelled globally.
So how do the streamers continue to grow and invest in content without getting ditched by investors? Why not do something novel and get advertising to pay for the content?
It’s interesting that Disney has jumped first given they were so late to the streaming party. Unlike other streamers, the business has multiple streams of revenue including a theme park business that is an absolute cash cow.
But something worth considering is Disney’s majority ownership of Hulu. The US platform offers hybrid subscriptions with ads giving viewers the option to subscribe for less. In recent months, Disney-owned programs have been moving across from Hulu to Disney+ so it would make sense for the ads to follow. And given Disney’s relationship with advertisers on the Hulu platform, it’s going to be an easy transition for brands as well.
Elsewhere in the landscape, Netflix has experimented with linear TV in France and more recently when asked about the possibility of an ad-funded Netflix option, CFO Spencer Neumann said, “Never say never”.
My take is that common sense must prevail. Just like the dot com bust in the early naughties, we might be seeing the beginning of the streaming bust.
Ad-supported streamers could be very good news for advertisers because these companies know a lot about their customers. We could potentially activate mass personalisation at scale in high engagement environments.
Video is arguably the most powerful medium (sight, sound, motion = emotion).
There is a huge amount of money going into YouTube – an estimated $2 billion in Australia alone – and advertisers would prefer a more premium, brand-safe environment.
Is this a danger for TV stations? Probably not given all ships float on the rising tide and the continued growth of BVOD advertising investment which was up 68 per cent last year.
Earlier this year, Netflix CEO and co-founder Reed Hastings told the Herald that we haven’t reached peak streaming. He said: “No one’s dropped out yet. Eventually…number four buys number seven, number three buys number six…those kinds of things have yet to happen.”
With the look towards letting advertisers in the door, we might just be approaching the summit. Either way, as Warren Buffet once said, “The first rule of investment is don’t lose money”.
Stay tuned because just like the Netflix series Byron Baes, there’s plenty more drama to come.