After the pivotal year of 2022 when the streaming bubble finally exploded and Wall Street hammered the stocks of loss-making streaming companies, 2023 was all about the industry’s battle for bucks and better financial prospects.
That translated into more price hikes, more ad-supported tiers and more emphasis on bundles that would reduce the alarming number of people who were dropping subscriptions or churning in and out of services.
Much of this was not greeted warmly by consumers. During 2023 a host of research companies reported alarming large numbers of consumers cutting their streaming subscriptions and churning in and out of different services. Magid, for example, found that on any given month about 8% of the subscribers at one of the top 20 streaming platforms were dropping the service while a Parks Associates survey reported that churn rates were holding steady, at a whopping 47%.
Price hikes in 2023 by Netflix, Max, Disney+, Apple TV+, YouTube TV, Fubo TV and others were one major factor fueling consumer discontent.
This marked a major change in a medium that only a few years earlier had promised to radically improve the television experience by offering consumers fewer ads, lower prices and content that was easier to access, better produced, and more critically acclaimed.
More Ads, Less Content
Widespread price hikes were also part of an industry-wide push to create new revenue streams from advertising. During the year, analysts noted that streamers like Netflix, Max and Disney+ were strategically using those price hikes to push consumers into their ad supported tiers so they could supercharge their ad business.
This proved particularly successful at Netflix, which had for years vowed to never interrupt content with ads. On the first anniversary of the launch of its ad-supported tier in the fall of 2022, Netflix announced that the service has amassed 15 million global monthly active users, triple the figure the streamer reported in May.
Netflix had launched the ad-supported offering following poor subscriber growth that hammered the value of its stock in 2022. Since then the availability of a less expensive ad-supported tier, a crackdown on password sharing and price hikes, improved both its finances and sub counts, even in the more mature and highly competitive U.S. and Canadian region. Its Q3 2023 results saw the streamer add 1.75 million subs, a vast improvement over the 0.1 million subs it added a year earlier in Q3 2022.
The embrace of advertising by services like Netflix and Disney who had long resisted ads was obviously part of a much larger trend towards ad-supported streaming services, particularly free ad supported TV (FAST) streaming channels. Researchers at Omdia are now predicting that free ad-supported streaming TV (FAST) channels are set to produce revenues of $6.3 billion in 2023, with about 80% of that figure coming from the U.S.
Meanwhile streaming platforms were embracing a much more miserly approach to programming spending. In late 2022 and into 2023, major streaming services like Netflix, Disney+ and Max began cutting back on the library content on their services and some studios started expanding sales of their content to other platforms. Max, for example, took off series like Westworld and reduced its movie catalog by 390 titles or 15% between October of 2022 and 2023 according to Indie Wire.
Streaming Towards Profits
The combination of price hikes, new ad revenue and a more cost-conscious approach to programming may have irritated consumers but they were good for the bottom line. While many of the major streaming players continued to rack up eye-watering losses (the already profitable Netflix being a notable exception), Disney, Warner Bros. Discovery, Comcast’s NBCUniversal and Paramount all reported that they were reducing the red ink faster than expected.
Warner Bros. Discovery, for example, reported that its direct to consumer segment lost 1.8 million subs in Q2 2023 but that it significantly reduced losses, showing an adjusted EBITDA loss of only $3 million, a $555 million year-over-year improvement from Q2 2023 on a pro forma combined basis.
This mix of sluggish sub growth, high churn rates, intense competition and more cautious content investment strategies might be interpreted as confirmation that the streaming industry was becoming a mature industry with limited growth potential.
In fact, however, the industry saw continued significant growth in 2023 in both its share of TV viewing and its revenue.
Nielsen’s monthly rating figures for July showed that linear TV viewing’s share of TV viewing dropped below 50% for the first time as streaming hit record levels.
Hollywood studios-backed Digital Entertainment Group (DEG) recently reported that streaming subscription rose 20.7% from $7.7 in Q3 2022 to $9.3 billion in Q3 2023. For the year to date, consumer spending growth for streaming also hovered at 20%, the group said.
Tectonic TV Trends
All the turmoil in the streaming industry during 2023 over losses, price hikes and disgruntled consumers makes it easy at times to forget how much the streaming industry continues to roil the overall TV industry, as cord-cutting continued wreak havoc on the pay TV industry and the way content is produced.
New forecasts from GlobalData suggest that the decline of traditional pay TV video services is only going to get worse, with only 32% of U.S. homes having one in 2028. That marks a further decline from the 42% penetration rate in 2023 and a steep decline from 2009 and 2010 when pay TV penetration exceeded 85%.
In response, pay TV operators continue to radically revamp their video strategies in ways that are having major financial consequences for broadcasters and programmers.
In 2023 pay TV operators who had been offering packages of streaming content over their very profitable broadband offerings pushed further into streaming with Comcast’s and Charters’ joint venture Xumo launching its own streaming box to compete with Roku. In December, Comcast began rolling that box out to its internet subs.
Charter has also been very public about its plans to radically revamp the economics of video distribution. During a recent landmark carriage and retransmission battle with Disney, for example, Charter successfully insisted on getting rights to Disney’s streaming services and was able to drop a number of Disney’s linear networks.
All of this is likely to be hard on both broadcasters and cable networks. S&P Global Market Intelligence is predicting that cord cutting, a tougher TV ad market, competition from streaming services and lower ratings continue to cut into cable TV network ad revenue. It said that ad revenue will drop by 4.9% in 2023 and drop below $20 billion in 2027.
Broadcasters are in a stronger position, but disputes with operators over retransmission fees are getting more contentious and some analysts are beginning to argue that the pay TV golden goose that has allowed stations to replace lost ad revenue with high retransmission fees is becoming an endangered species.
In a provocative note to investors, three analysts at LightShed Partners wondered if higher retransmission fees were going to go the way of regional sports networks. They concluded that it “[f]eels like management and investor expectations for revenue growth are inflated, with serious headwinds growing.”
Disruption and Strikes
Even with the streaming industry’s move to more cost-conscious content strategies, streaming continued to have a major impact on the way content is produced.
One important manifestation of that trend were this year’s massive labor strikes that were prompted in part by the shaky economics of streaming program production and the massive shift in production dollars from traditional TV, where writers and actors once earned the bulk of their money, to streaming, which does not typically pay heft residuals to talent.
Brian Wieser principal at Madison & Wall and a longtime top ad and media analyst estimates that “in 2022, linear networks accounted for 70% of content spend while streaming services saw 30%” and that by 2025 streaming will have around “46% of content spend – presumably with a similar amount of viewing. Needless to say, as network owners look to shift more programming to streaming on a relative basis – top-tier sports content, for example – it’s possible streaming’s share of content spend and thus viewing could go up.”
That dynamic made streaming a major sticking point in the 2023 Hollywood writers’ and actors’ strikes. While the unions were able to wrestle “historic” pay increases and other improvements out of the studios, SAG-AFTRA was unable to secure a much larger cut of streaming revenues for its members.
In 2023, pay TV operators weren’t the only ones revamping their video strategies in response to trends in the streaming industry; many major streaming platforms were also rethinking how they programmed their services and how they packaged and bundled their content.
One major trend has been towards adding more live sports programming, which would not only help them attract subscribers but offer lucrative advertising opportunities.
Warner Bros. Discovery announced that it was adding a CNN live stream to its Max service and that Max and Warner Bros. Discovery Sports launched making live sports offering on the Max streaming service as an add-on tier priced at $9.99 a month. Meanwhile Paramount, Amazon, NBCU and others continued to add more live sports and Disney is reportedly working on a plan to transition its ESPN cable network into a direct-to-consumer streaming service over the next few years.
As Warner Bros. Discovery was bunding news and sports content with Max, 2023 also saw Paramount bundle its Showtime and Paramount+ offering and Disney strengthening its existing bundles by making Disney+ and Hulu in the same app.
Such bundles could address major consumer complaints about managing subscriptions and finding content in a very fragmented streaming landscape.
Faced with rising costs for streaming services, fragmented content offerings and the difficulty of navigating a sea of different apps, streamers seem to be looking for a modern iteration of an old idea—the pay bundle—to improve the user experience.
The Hub’s semi-annual “Battle Royale, survey, for example, revealed that 88% of consumers say streaming video subscription services are raising their prices more often in the past, and that that nearly three out of four consumers said it is too hard to keep track of shows what shows are available and where to watch them.
In response, 59% said they would be willing to pay for a “one-stop shop” app that would allow them to manage, use and pay for all of their subscriptions in one place—even if it meant an additional charge above the cost of their subscriptions, the researcher found.
Those results were confirmed by a 2023 study from Horowitz Research. It found that six in 10 (61%) streamers would be likely to switch to a bundle of subscription streaming services from one provider if this option were available. “The recent announcement of Verizon’s +play bundle with Netflix, Paramount+, and Showtime is an example of where this industry has to go to meet the needs of consumers and help stabilize churn” notes Adriana Waterston, chief revenue officer and insights & strategy lead for Horowitz Research. “But this is just the beginning. We know what consumers really want are universal and integrated menus, programming guides, and recommendation/search functionalities, which will mitigate the challenges of content discovery in today’s fragmented media environment. In short, we are seeing renewed demand for a multichannel, managed services solution in the streaming ecosystem.”
What’s old–the pursuit of profits, consumer gripes about the TV experience and the return of pay TV content bundles–were in many ways what was new about 2023.
