The State of Media & Entertainment Streaming 2020
In the last year, North American pay-TV and subscription video-on-demand (SVOD) markets continued to move in opposite directions, to the point where the number of households with SVOD services has reached near parity with those that subscribe to pay-TV services. In a biennial study conducted by Leichtman Research Group (LRG) in 2019, nearly three-quarters of U.S. households surveyed reported having at least one SVOD service, up from 64% in 2017. That jibes with a Parks Associates research report that found that nearly three-quarters of U.S. broadband households subscribe to an online video service, with the majority of those subscribing to more than one.
Another report, Broadcast Intelligence's "Pay TV's Future in an On-Demand World: U.S. Market Edition," says that the largest drop in pay-TV subscriptions in a decade occurred in 2019. It predicts further decline after the loss of 18 million subscribers in 8 years.
DirecTV is estimated to have lost 14% of its subscribers (around 2.7 million) in Q4 2019, while Comcast lost 700,000 (3%) of its subscribers over the course of the year. The pay-TV decline is set to accelerate by 20% between now and 2023 as consumers are encouraged by increasingly reliable high-speed broadband coverage to switch to streaming services.
The number of homes with broadband subscriptions is on the rise: The biggest U.S. cable and telephone providers acquired an additional 605,000 net broadband subscribers in Q3 2019, surpassing 100 million subscribers for the first time, according to LRG. However, cord-cutting continues. LRG says that the biggest pay-TV providers lost about 1.74 million net subscribers in Q3 2019. Analytics company GlobalData estimates that there were 147 million subscribers to SVODs throughout North America by the end of last year—more than 90% of them from the U.S. market, making it one of the world's most competitive SVOD markets.
"More than 70% of US households subscribe to pay TV, and linear viewing still accounts for the vast majority of TV consumption for the average American," says Broadcast Intelligence analyst Jack Genovese. "However, it is hard to see a way for platform providers to reverse the declining trend that has affected the market in the past decade."
Viewer Fatigue
With the majority of Americans (59%) already unwilling to pay more than $20 a month for streaming TV services, according to a recent survey by ad-tech firm The Trade Desk, there are warnings of subscription fatigue. "With consumers … unwilling to subscribe to more than one or two premium services, broadcasters have to figure out how to continue to fund this new golden age of TV," says Brian Stempeck, chief strategy officer at The Trade Desk.
Content providers are under pressure to produce new premium content that drives membership and viewership, even as more brands dive into the market.
Streaming Disruptors
Compiled before the Disney+ and Apple TV+ launches in 2019, Parks Associates' top 10 SVOD services list showed gains for CBS All Access and Sling TV. "CBS All Access made the biggest move from 2018 to 2019, jumping from eighth place to fifth this year. MLB.TV dropped from sixth to eighth, despite having gained subscribers since 2018. Sling TV has stayed in the top ten with more than 2.5 million subscribers, retaining its position as the top vMVPD service in the US. Other vMVPD services include Hulu + Live TV, YouTube TV, and AT&T Now (previously DIRECTV Now)," according to Parks Associates.
"The entry of Disney+ and Apple TV+ was a major disruptor to the OTT space in 2019 and will require all players from top to bottom to ensure they are delivering unique value to their subscribers in order to retain their base," says Brett Sappington, senior research director and principal analyst at Parks Associates.
Apple TV+: The Hardware Sell
Apple TV+ launched in November 2019 and costs $4.99 per month for access to a variety of original TV shows and movies. Apple bundled a free year of the service with the purchase of a new product such as an iPhone or iPad.
Morgan Stanley analysts predict that Apple TV+ could be a $9 billion-a-year business by 2025, even with conservative sign-up estimates. "With an attractive price point … and wide initial distribution to the Apple installed base via the bundled free year offer, we estimate Apple TV+ can [attain] 136M paid subscribers by [2025], assuming just 1 in every 10 Apple user pays for the service by [then]," says Morgan Stanley analyst Katy Huberty.
Not everyone is convinced. Aside from The Morning Show, "its limited selection of other programs leaves it as the ‘most in question' of the new services," according to Nomura Instinet analyst Mark Kelley, who calls it "luke warm."
Disney +: Perfect Launchpad
Despite a few service glitches on launch, Disney+ has landed exactly how the mouse house would have wished. According to a Sensor Tower report, Disney+ topped 31 million downloads from the Apple App Store and Google Play in Q4 2019, more than double second-place TikTok, and has been downloaded nearly 41 million times across the Apple App Store and Google Play as of this writing. In the Apple App Store, it bumped YouTube from the No. 1 position for the first time in a year. Disney+ also became the download market share leader in Q4 2019, capturing 34% of total U.S. downloads for streaming video apps, surpassing Netflix, YouTube, Hulu, and Amazon Prime Video. So far, it has amassed nearly $100 million in user spending.
A survey by Bank of America analyst Nat Schindler found that of more than 1,000 consumers, 65% said they don't view Disney+ as a substitute for Netflix but rather a complementary service.
Coming Soon: Peacock and HBO Max
NBCUniversal will launch its ad-supported Peacock service in April 2020 with subscription tiers. Peacock Free will offer more than 7,500 hours of programming, including the 2020 Tokyo Olympics, Spanish-language content, and curated Peacock streaming genre channels such as SNL Vault and Family Movie Night. Peacock Premium will be free to 24 million Comcast and Cox subscribers and will include tent-pole series and additional sports, such as the English Premier League, beginning in August 2020, and the Ryder Cup, beginning in September 2020. Customers can pay to upgrade for an ad-free experience (from $5 to $9.99 a month). NBCUniversal expects to reach 30–35 million active accounts by 2024.
AT&T's WarnerMedia will launch HBO Max in May 2020 with 10,000 hours of content, including every episode of Friends and a $250 million production deal with J.J. Abrams, as part of a $1-$2 billion content outlay. At launch, HBO Max will be free for customers who are already subscribed to HBO and $14.99 a month for new subscribers. AT&T customers with some newer unlimited plans will also gain free access to HBO Max.
Netflix Leans on International Growth
Although Netflix boasted more than 61 million customers in the U.S. at the end of 2019, making it still the dominant streaming service, its domestic growth is slowing and is expected to top out at 90 million. In Q4 2019, Netflix gained 420,000 new customers in the U.S., less than the projected 600,000, with CEO Reed Hastings recognizing that the slump may be due to the arrival of Disney+.
Outside of the U.S., Netflix's growth is on fire. It added 8.33 million subscribers in Q4 2019, exceeding a predicted 7 million, and now has 167.1 million global subscriptions. About 90% of Netflix's new business comes from outside of the U.S.
The streamer's refusal to allow advertising on its platform is a calculated risk, since it must generate cash to fund original content. According to Laura Martin, a media analyst at Needham, it could lose 4 million U.S. subscribers in 2020 if it doesn't introduce a lower-priced ad-supported tier to compete with less-expensive rival services.
"There's a fine juggling act in raising revenue through price increases versus retaining subscribers," says Paolo Pescatore, tech, media, and telco analyst at PP Foresight. "This could backfire as many of the new and forthcoming video streaming services are cheaper than Netflix. This makes Netflix vulnerable in its home market where it stands to lose out, quite considerably as underlined by these latest results."
Netflix spent about $15 billion on content in 2019, with BMO Capital Markets thinking this will increase to more than $17 billion in 2020, even while it has more than $14 billion in long-term debt to bondholders and third-party content producers, according to Variety.
Pescatore expects Netflix to increase subscription fees in all key markets during 2020. He says that despite intensifying competition in the U.S. market, Netflix "remains in pole position" and should be able to ride out the storm in the short-term.
AVOD Gold Rush
The future of TV looks a lot like the TV of the past: ad-supported, premium content. Many analysts predict that 2020 will be the year of ad-supported video on demand (AVOD), as free ad models start to build scale and roll out internationally. Digital TV Research suggests that AVOD will grow at 17% through 2024, from revenues of $36 billion in 2018 to $87 billion in 2024.
"The AVOD goldrush is here, and it represents a prime opportunity for service providers, new AVOD entrants and content companies," says Sarah Henschel, senior research analyst for media at IHS Markit Technology. "Ultimately, the winners and losers in the AVOD industry will be determined not only by content, but also by data strategies and user acquisition."
Based on its "AVOD Market Report—US—2019," IHS Markit Technology says, "New AVOD rollouts and improved ad-tech are expected to drive U.S. online video advertising revenue to $27 billion in 2023, growing at a CAGR [compound annual growth rate] of 11 percent during the period of 2018-2023." It adds, "Facebook and YouTube are expected to continue leading the market through 2023, trailed by Hulu, Roku, and Tubi, which are set to increase their market share."
YouTube shifted YouTube Originals from its premium subscription tier to its wider, free service in late 2018, and 2019 saw the launch of IMDb Freedrive from Amazon. In a 2019 interview, Tariq Mahmoud, who was, at the time, head of Roku's international sales and strategy, said that the Roku Channel is the fastest-growing channel in the platform's history. The latest Hisense TVs will have Tubi preloaded and placed on their home screens, and Tubi is also expanding internationally into Mexico (with TV Azteca) and the U.K. later this year.
Kia Ling Teoh, senior research analyst for advertising and television media at IHS Markit Technology, says, "With the launch of premium services like Disney+, HBO Max, and Apple TV+, AVOD services can continue to benefit from cord cutting and act as a compliment to paid services. Pure-play AVOD platforms also can expand customer penetration through B2B partnerships with device makers and online linear channels."
In January 2019, Viacom paid $340 million for Los Angeles-based AVOD service Pluto TV. This included 12 million active monthly AVOD users and distribution on more than 30 million devices across the U.S. via the Pluto TV app. In January 2020, Cinedigm and all3media International announced a joint venture to launch two new AVOD-driven services exclusively in the U.S., based around dramatic and reality programming. Comcast's Peacock will be the heavyweight arrival into this space with an offer to advertisers of a combined 52 million NBCUniversal and Sky customers in the U.S. and U.K.
According to Adweek, "[T]he decision of the large SVOD players to shrink their library content and focus on originals has created a gap in the market. And this is perhaps the final point to be made here. While licensing is still very much a cost, it is a cheaper one than creating your own content. Tubi, for example, is spending $100m [in 2019] on licensing deals but now has a catalogue encompassing more than 12,000 movie titles and TV shows which it boasts is ‘more than double in size to Netflix.'"
Operators have enough granular control over the system that they could launch tiered services and give consumers flexibility to balance how much they want to pay versus how many ads they want to see.
There are new opportunities afforded by new technology too. Walmart-owned Vudu plans to introduce shoppable ads, allowing viewers to place the advertised item in question in a Walmart shopping cart so they can buy it online or pick it up in a store.
The appetite for AVOD is being fueled by the overload of SVOD services. A November 2019 survey by The Trade Desk found that "More than half (53 percent) of U.S. consumers would be open to watching ads (every other episode of their favorite show) if it meant lowering the cost of subscription streaming services." In addition, "More than two-thirds (68 percent) of U.S. consumers (with no preference to tailored TV ads) would be willing to watch ads relevant to their interests if it meant watching fewer ads overall."
"[C]onsumers are willing to view ads if it means their subscription costs go down, even more so if those ads are relevant to their interests and are just not the same ads over and over again," says The Trade Desk's Stempeck. "This indicates that ads will fund the future of streaming TV, and that broadcasters and advertisers have an opportunity to improve the advertising experience in a way that simply is not possible with traditional, linear TV."
In January 2020, Netflix poured cold water on rumors that it planned to launch an ad-supported version. Netflix's Hastings told analysts, "We want to be the safe respite where you can enjoy, be stimulated, have fun and relax with none of the controversy around exploiting users with advertising."
Likely Winners
By 2025, five global platforms will control the majority of the video streaming market, reckons Digital TV Research. It projects that Netflix will up its customer count by 70 million to 236 million subscribers, with Amazon Prime Video in second with 135 million. Disney+ will be a distant third despite amassing 101 million subscriptions. HBO Max and Apple TV+ will complete the top five with 30 million and 27 million subscriptions, respectively.
Continuing the industry's ongoing trend toward streaming, American consumers spent 7% more time in 2019 watching Netflix and Hulu than in 2018, increasing to 4 hours and 6 minutes a week, according to the NPD Group. "When people try new services, like Disney Plus or Apple TV Plus, very few are cutting back on the existing major platforms," notes NPD Group analyst Kathi Chandler-Payatt.
"We continue to believe the ‘streaming wars' narrative is false and there will be multiple winners in global streaming," says BMO Capital Markets analyst Dan Salmon in Variety.
Original content is an increasingly key factor for streaming companies, and this is an area in which Netflix leads. According to the NPD Group, in 2019, Netflix's original shows comprised 40% of all content watched on the site (compared to 10% for Hulu originals), and that figure will likely increase to more than 50% in 2020.
However, original content may not be the most important thing consumers look for in streaming. Limelight Networks, whose CDN supports Disney+ and Amazon Prime Video, claims that the key to keeping subscribers is also about the experience. "It's about providing flawless online experiences and we're starting to see demand for enhanced technological features such as interactivity, social media integration and greater personalization," observes Limelight Networks' VP Steve Miller-Jones in MSN Money.
Data insights company Kantar warns of the impending "digital paradox" in which the sheer number of digital touchpoints will make it increasingly tricky for media owners and advertisers to connect with consumers. "More is not always better," says Kantar's Sushmita Jain. "Overwhelmed consumers will become more discerning and focus their time on services with algorithms that provide the greatest enjoyment."
Cloud Gaming
North America led the emerging cloud gaming market in 2019, according to research by Technavio. What's more, the global market is expected to grow by $2.7 billion from 2020 to 2024, based on the increasing popularity of service-oriented architecture (SOA), 5G technology, and a rising awareness about esports tournaments.
Google's Stadia launch in November 2019 was successful enough for the company to move to Phase 2 and announce that it's on track to introduce more than 120 new games, a 4K service, support for more Android phones (it's currently only available on Google Pixels), and wireless game play on the web via the Stadia controller (you currently have to plug in a cable).
High dynamic range (HDR), 4K, and 5.1 surround sound are currently only supported on Chromecast Ultra and require an active Stadia Pro subscription ($9.99 a month), according to Google. To play in 4K resolution, you'll need network speeds of at least 35Mbps.
Being able to play without lags or interruptions is paramount to gamers, and flawed internet connections could cause frustration. Internet speed will also determine how rich in-game graphics can be. Even if you've signed up for an internet plan of 10Mbps or greater, Google recommends testing your connection on the device.
Google's move forced Sony to halve the price of its PlayStation Now cloud video game service to $10 monthly. Microsoft has been testing Project xCloud and plans to bring it to Windows PCs and other devices this year. Apple released Apple Arcade in September 2019, and there's evidence that Amazon and Walmart are preparing to throw their hats in the ring.
Google is also looking to beef up its live streaming of esports to compete with Amazon's Twitch Prime. This impetus was given legs at the beginning of 2020 when it announced that YouTube would host live broadcasts of Activision Blizzard's esports leagues and events, including the Call of Duty League. According to a Google/Activision Blizzard press release, "Players will benefit by experiencing premium network quality-of-service, including low latency and packet loss when playing high-fidelity games on any device. They will also have optimal personalized interactions, as Activision Blizzard can tap into Google Cloud's AI tools to offer curated recommendations for in-game offers and differentiated gaming experiences."
Sports Streaming Ahead
Overall, investment is rising in OTT. In its "Where the Money Is Going: The Future of Sports Entertainment" report, Deltatre pinpoints 2021 as a "tipping point" by which sports operators will spend more than $6.8 billion on OTT technology in North America. The report summary says, "Investing in new functionality to maximise fan engagement through OTT services results in a 24% uplift in subscriber acquisition." In addition, senior sports executives say that the freemium model or family packages will become important for bringing new consumers in and then converting them to fully paid subscribers.
"That means maximizing engagement on the shoulders of the game itself," says Giampiero Rinaudo, CEO of Deltatre. "Tailoring video and editorial content to different types of fans and reconfiguring the UI [user interface] and UX [user experience] based on time of day, user insights, or the latest developments in the sports world that week is how brands can create a better ecosystem around a sport."
In addition, the Deltatre report summary says, "Demand for content has evolved beyond the living room with 39% of consumers watching four or more hours of sports programming on mobile per week and 1/3 of consumers citing 5G as a technology expected to have the most significant impact on sports content consumption."
Verizon prioritized 13 NFL stadiums, including Super Bowl LIV host Miami's Hard Rock Stadium, with 5G installation for spectator engagement in 2019 and plans to add 5G to all 32 stadiums. AT&T was the first to market, with 5G presence launched at AT&T Stadium in Dallas in February 2019.
The cost for sports media rights in North America is expected to swell from $71 billion in 2018 to more than $83 billion in 2023, according to PwC. The major leagues still seem reluctant to ditch broadcast media for direct-to-consumer entirely. The MLB renewed its deal with FOX until 2028, and the NBA's deal with ESPN and TNT expires after the 2024–2025 season. The NFL's deals with FOX, CBS, and NBC expire after the 2022 season, and its deal with ESPN expires at the end of the 2021 season. With the next negotiations imminent, there will be discussion at the league about taking it all in-house with the NFL Game Pass.
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