Finally, the Hollywood actors’ strike is over. If the SAG-AFTRA national board approves the tentative agreement tomorrow, members will receive (among other benefits) a “streaming participation bonus” for go-forward projects. The holistic deal has been described as “extraordinary” for actors and, in part, is a step toward reconciling compensation models appropriate for the inevitable all-streaming future. As this happens, it’s not only a signal that streaming is coming full circle to traditional TV norms. We’re observing:
1. Advertising Becomes A Mainstay
Yes, advertising is cool again. But it’s out of necessity. Consumers are getting forced into choosing ad-supported tiers — by design: Streaming services keep raising the prices of their ad-free tiers in order to drive up ad-supported subscriptions. Why? It’s better for their margins, and they need scale to attract and sustain ad spend. As a result (last quarter), 50% of new subscribers to Disney+ chose its ad tier and 30% do the same on Netflix, according to both companies’ recent earnings reports.
2. Appointment Viewing Is Back
Netflix created the binge-watch culture, and unlike its long stance against advertising, it has yet to deviate from it. But other major streamers have broken away from full series drops in favor of weekly episodic releases. Some, including Disney+, are now premiering episodes at particular primetime hours. (Yes, I’m eager for 9 p.m. ET tonight so that I can watch the latest episode of “Loki.”) This not only keeps users hooked (and thus subscribed), but it also mitigates against untimely social media-induced spoilers.
3. Live Sports Swings The Pendulum
Following the lead of Apple TV+ and Prime Video, streamers are jockeying for live sports rights: YouTube won NFL Sunday Ticket, and Peacock landed an NFL wild card playoff game. Even Netflix, which had been bearish about the economics of sports rights, is hosting its first ever live sports event next week. And it’s not just about sports: Max recently incorporated live news programming via CNN. Why all the fuss? It’s once again about … advertising. Amazon attributed its 26% growth in ad sales to, in part, “Thursday Night Football” on Prime Video.
4. Bundles Deliver Value
Remember when we all hated the cable TV “bundle”? Bundles are back, baby … for streaming services — and they’re widely popular. As prices continue to increase, bundles such as Hulu/Disney+/ESPN+ are one way to offer consumers some value. Beyond bundles, market consolidation to achieve scale will continue in 2024. Disney is acquiring the remainder of Hulu from Comcast and, next month, will beta-launch a combined Hulu-Disney+ “one app” experience. This will reduce the company’s acquisition and marketing costs while upselling to existing and new users.
As the streaming business becomes more like the TV business, we’re at an inflection point where profitability is at play. Outside of Netflix, most other major streaming platforms still face operating losses. Disney+ remains steadfast in turning a profit by the end of 2024. But this comes at a cost to users. The outcome of the Hollywood strike will inevitably lead to higher costs for studios and streaming platforms. This means less content gets produced and that more price increases are in store. Ultimately, consumers will get less value out of their streaming subscriptions — unless, of course, they’re willing to tolerate ads until such a point when streamers raise the prices on their ad tiers, too.
Forrester clients: Let’s chat more about this via a Forrester guidance session.
