What a harrowing few months for the streaming business.
As “South Park'' satirizes the streaming wars as self-defeating and Forbes designates Netflix as the worst performing S&P 500 stock of 2022, we’re far from the Halcyon Days of 2021. But the idea of a saturated streaming market also greatly overstates the situation. As we all heard from Nielsen this month, streaming video viewing time continues to increase and has already surpassed cable viewing. According to ComScore’s recent State of Streaming analysis, AVOD viewing was up 29% this year vs. 2021 while SVOD viewing was up 21%. Not bad.
Of course, Wall Street gets paid to worry… about adoption, customer acquisition costs, churn rates, cash burn, and other scary metrics even as overall viewing hours increase. It’s concerned about an advertising slowdown amid some of the best Upfronts in recent memories where even Peacock secured $1 billion in commitments. Wall Street’s fears largely derive from the industry’s reliance on subscription growth for the last several years - and even more so during the pandemic. It may be time to think about new ways to measure success.
And the Street, with its short-term focus on quarterly performance, has struggled to find its footing in an era in which traditional video churn is accelerating even as DTC subscription growth slows. The eyeballs must be going somewhere, and it’s clear that many of them are landing on AVOD or FAST-live channels where it’s more about monthly active users and less about paying subscribers. And with Disney+ and Netflix launching ad-supported tiers in Q4 and early 2023, respectively, it’s a nuanced change that deserves study before everyone starts trying to place bets on the future. Then again, the future often lives in the shadows.
You may recall an early episode of HBO’s comedy series “Silicon Valley” in which billionaire investor Peter Gregory (loosely based on real-life venture capitalist Peter Thiel) finds a connection between Burger King’s buns, cicadas, and sesame futures. Through a bizarre thought process, he figures out that sesame seed prices will go up and makes $70 million overnight. The streaming business is similar in the sense that everyone is focused on subscriber growth and short-term average revenue per user (APRU) while the more cerebral (and weird) Peter Gregorys of the world find inspiration in fast food.
Just for fun, let’s pretend we could trade “Bandwidth Futures.” If a glut of cicadas devouring sesame plants creates scarcity and higher commodity prices, then the federal government’s plan to inject $42.5 billion into broadband infrastructure through the Broadband Equity, Access, and Deployment (BEAD) program creates broadband abundance and, ultimately, lower broadband prices for consumers.
The Affordable Connectivity Program, meanwhile, will add billions more in subsidies that further lower the cost of broadband for eligible consumers. More capacity means more streaming. More FAST channels. More virtual MVPD usage. More gaming integration with video. Even more virtual reality and “metaverse”-fueled content all living side by side with video. We’re at the beginning of the “Roaring ‘20s” of broadband boom times, as outlined in One Touch Intelligence’s recent “Fiber Frenzy” special report, and this has major implications for how linear and streaming TV will evolve in the coming months and years.
According to PricewaterhouseCoopers’ Global Entertainment & Media Outlook 2022-2026 report, SVOD services in the U.S. will generate $25.3 billion in revenue this year, up 13% from 2021, and will reach $33.6 billion by 2026. While those impressive numbers are down during peak COVID when SVOD usage increased by 27% in 2020 and 19.5% in 2021, they suggest an ever-accelerating hunger for streaming that relies on big broadband pipes. But consider the cicada factor - which, in this case, involves an unprecedented injection of federal dollars into the broadband system - and consumers may end up with extra money in their pockets to spend on video entertainment, despite broader inflationary pressures, as competition from multiple local broadband players significantly lowers what consumers pay per megabit.
Add in the federal subsidies for some households, along with marketing and bundling offers, and free access to certain services (at least on a trial basis) from mobile providers, and the picture gets even better. That doesn’t mean that some consumers - especially those who want to avoid commercials - won’t pay more than they ever did for the same amount of content they used to access through traditional cable. But many could find themselves in a heavenly cycle of offers, promos, and desperate retention tactics that exceed even the insane height of the long-distance telephone wars of the early 1990s when people switched providers constantly to cash in.
Ultimately, the coming broadband bonanza underwritten by Uncle Sam will find uses for multi-gigabit bandwidth beyond video, including 8K gaming, the metaverse, and scores of high-octane applications used in telemedicine, high-tech simulations and training, remote manufacturing, and other commercial uses. But until then, this Peak-TV-meets-Peak-Broadband moment could help ensure that consumers pay less for video content per hour of viewing than they ever thought possible as they dance their way through the Roaring ‘20s. Let’s hope the hangover never comes. But if it does, there’s always Burger King.
(More details on the “Fiber Frenzy” are available in this free STREAMTRAK report).
Michael Grebb is Vice President and Lead Analyst for One Touch Intelligence, which provides market intelligence and industry analysis services for leading companies in the media and telecommunications space. The One Touch Intelligence STREAMTRAK series is a complimentary service offering industry professionals insights and context around developments in the digital media sphere.
Industry Voices are opinion columns written by outside contributors — often industry experts or analysts — who are invited to the conversation by Fierce Video staff. They do not necessarily represent the opinions of Fierce Video.