Prices are going up. Advertising is coming in. And there are more channels to watch than anyone wants or needs. The streaming business is starting to look like cable TV from 10 years ago.
There are some obvious improvements. We can watch on-demand and cancel with ease. Programming is global. The user interface is generally better. And you don’t have to watch ads, at least if you don’t want.
But it was only a few years ago that streaming pitched itself as the consumer-friendly alternative to the cable bundle. Many of the most recent changes feel as though they are geared towards a different audience (namely Wall Street).
It may have been inevitable that the disruptor (streaming) ended up copying ideas from the disrupted (cable). For all of the innovation that Netflix brought to Hollywood, it was still making TV shows and movies in the same general manner as everyone else. And nothing — not even a monopoly — grows forever.
The biggest difference between cable and streaming (at least for now) is that most streaming services aren’t profitable. Companies have spent billions of dollars to chase subscribers, believing Wall Street would give them a break on profitability. (It did, until it didn’t.)
In the irony of all ironies, Netflix is far and away the most profitable streaming service. This is the company that spent years preaching a growth story and skeptics said would run out of money. Now it’s the company that wants investors to look at its bottom line.
It is not the most profitable media company, of course. That would be Disney. Or Google. Or Apple. It depends on your definition of media. We just finished another cycle of corporate earnings for the biggest media and tech companies in the US, so I thought it would be good to run through a few of the major developments that got us to this point. That starts with…
Streaming services aren’t growing in the US anymore
Netflix lost customers in the US and Canada for the second quarter in a row and has fewer domestic customers today than it did a year ago. (It peaked at about 75 million at the end of last year.)
Disney+ added about 100,000 customers in the US and Canada, which is not growth when your base is 45 million. The major streaming services added only 2.7 million customers in the US this past quarter, according to research firm MoffettNathanson, and most of that came from Paramount+.
“That represents the lowest single quarterly increase in the post-2020 period and.a clear signal that the streaming wars have given way to the reality of financial markets,” Nathanson wrote.
Domestic streaming growth slows
Only one major streaming service added more than 1 million customers in the US and Canada last quarter.
We knew the slowdown was coming for Netflix. While the company still believes it can get to 100 million customers in the US and Canada, the days of adding 5 million people a year at home are long gone.
Disney+ and its peers are the bigger red flag. While Disney+ has added almost 8 million customers domestically over the last year, a quarter of neglibile growth suggests it is reaching some kind of plateau. Disney’s cable networks used to reach about 100 million people, so the company needs to more than double its customer base to get close to that kind of penetration.
HBO has always targeted a smaller section of the audience, but its owner started spending more on streaming because it wanted HBO Max to be as mass market as Netflix.
This slowdown is a big reason that…
Prices are going up, ads are coming in
What do you do when growth in your most lucrative market slows? You raise prices, and/or find a second source of revenue.
Disney is raising prices for almost every major plan and introducing an advertising-supported service in December. Warner Bros Discovery hinted that the combined HBO Max-Discovery+ service will cost more, as it creates three tiers. Netflix and Amazon have been raising prices for years, and both are investing a lot more money into advertising-supported video.
Paramount+ and Peacock don’t have pricing power but they do have ads. Apple TV+ may have ads soon as well.
The total cost of every major streaming service out there now rivals the cost of cable, and that may have an adverse effect on subscriber growth for many of these companies.
The rising cost of streaming
If you want to watch every major streaming service without advertisements, it will soon cost you about $100.
Disney + ”churn will be worse than the rosy scenario implied by management,” Cowen analyst Doug Creutz wrote in a note this week. That’s where advertising comes in. These services can now offer a cheaper, advertising-supported plan when customers threaten to cancel.
The new focus on advertising is one reason for this next trend. Forbes