As the number of players in the video streaming service sector continued to grow, two big questions during 2023 were whether the market leaders could sustain some of their spectacular growth and whether the smaller players could increase subscriptions to create significant beachheads in the market.
Profitability Challenges Ahead
There is certainly a re-evaluation likely to happen in 2024. Total losses from the traditional media companies—not Netflix and Amazon—on their streaming services were more than $5 billion. These losses bring with them an obvious pressure to reduce costs, to raise revenue for investment by selling old legacy businesses, and to initiate mergers and consolidation to create business models that start to generate actual profit.
All services—but particularly traditional broadcasters, such as Paramount+, Max, and Peacock—faced similar issues, including a weak advertising market, a post-strike rise in production costs, and declining revenues from traditional TV. The Financial Times reported that Shari Redstone, Paramount’s major shareholder, has been shopping the studio around for a sale.
Of the traditional broadcasters, Disney seems to be making the most progress toward profitability, reporting more than 150 million Disney+ subscriptions globally by the end of its fiscal fourth quarter, which is up from 146.7 million in the previous quarter. This broke down as a total of 112.6 million Disney+ subs worldwide, with the India-based Disney+ Hotstar contributing the remaining 37.6 million. This sluggish growth resulted from a move away from low-value subscribers for Hotstar, which saw a loss of 12.5 million subscriptions that was further influenced by the loss of key sports rights in the region.
However, even as the biggest traditional player in the market, Disney continues to lose a significant amount of money, including $387 million in Q4 2023. While this is a large improvement on a loss of $1.4 billion in the company’s Q4 2022, there is still a way to go to get the business into a profitable state.
Licensing and Content Spend
Surprisingly, during Disney’s Q3 earnings call toward the end of 2023, recently reinstalled CEO Bob Iger said the company is in talks to license some of its content to Netflix, heralding a potential strategy for Disney and others to generate more revenue by licensing to third parties. However, Iger says not to expect Disney to license its “core brands” such as Disney Pixar, Marvel, and Star Wars, as they remain fundamental to differentiating the Disney+ brand and in driving and maintaining subscriber revenue.
Production is one of the key areas where all services will look to reduce costs. As part of that same Disney earnings call, interim CFO Kevin Lansberry said Disney now projects that content spend for 2024 will be $25 billion, down from $27 billion in 2023, with the latter representing a $3 billion decrease from 2022. While $25 billion still constitutes a huge budget, the reduction of costs by around $2 billion in 2024 would, with even comparatively modest growth in subscriber numbers, make the business profitable.
Subscription Shortfalls
For other traditional broadcasters, the future looks considerably less rosy simply due to the volume of subscribers they have managed to recruit. Paramount+, while having gained more than 63 million subscribers by the end of the year and having a number of breakout shows such as Yellowjackets, still lacks critical mass and looks to shed non-core businesses such as Simon & Schuster, its real estate business, and Black Entertainment Television (BET). These sales to generate cash for investment will allow the business to focus on its streaming service.
However, a net loss of $238 million in Q3—following Q2’s $424 million loss—does raise the question of how much business growth Paramount Global needs to become profitable and whether subscriptions can sustain this.
Peacock has a bit less than half of Paramount’s subscribers, at roughly 30 million, and was expected to generate a loss of $2.8 billion in 2023’s final tally, a slight improvement on the $3 billion estimate projected at the beginning of the year. Part of Peacock’s sluggish subscription growth is due to the service’s focus on the US; Peacock content is only available in Germany, Austria, Italy, the UK, Switzerland, and Ireland through Sky, giving it a limited pool of potential subscribers. This, combined with a lack of big-name breakthrough shows, is likely to severely limit its ability to grow its subscriber base.
Although Peacock is monetising content through the Sky deal and in other territories via other channels, it remains to be seen whether this can generate enough income along with subscriber growth for the core service to make it sustainable.
Warner Bros. Discovery’s (HBO) Max has managed to reach more than 95 million subscribers, making it the largest of the new platforms outside of Disney+. Max generated $2.44 billion in revenue in Q3 2023, but subscriber numbers have remained flat for almost a year. The service is profitable, however, so it seems that the company can achieve profit at this subscriber base level by making the platform ad-supported and charging a premium price. That other platforms like Peacock could charge such a premium seems unlikely.
An additional potential future growth area for Max is UK subscriptions. Currently, the subscriber base has been somewhat limited by the lack of launch in the UK, where existing subscriptions deals with Sky make such a launch unlikely until at least 2025. When the service does debut in the UK, we can expect growth of perhaps 2%–3% in the overall subscriber numbers from opening the UK market, which may help offset the stagnant growth from this past year.
Non-traditional broadcasters Netflix and Amazon continue to show solid growth and are now looking to increase their subscriber bases as well as their ARPU, Netflix gained 8.8 million subscribers in its latest reported quarter, growing its subscriber base to 247.2 million by the end of Q3 2023.
Two drivers of Netflix’s latest round of subscriber growth are its recent crackdown on password sharing and the addition of the cheaper, ad-funded tier of the service. The password-sharing crackdown allowed it to implement a paid sharing option where users could pay extra for accounts they share with others, what CFO Spencer Neumann called a “primary revenue accelerator in the year.” However, the crackdown boost is likely a one-time event.
Netflix lost subscribers in the first half of the year, but more recently, it has managed to reverse the declines and has gained ground overall. With further price increases announced at the end of 2023, Netflix will look to grow its revenue beyond the $8.5 billion generated in Q3 2023. This continued subscriber and revenue growth will be essential in 2024 if Netflix hopes to avoid pressure to cut costs like the traditional broadcasters.
Netflix’s ‘What We Watched’ and What It Tells Us
For the first time, Netflix released viewer data for the first half of 2023, providing some insight into which shows and genres are working for the service in terms of viewership. “What We Watched: A Netflix Engagement Report” will be published every 6 months and cover the previous 6-month period featuring any show watched for 50,000 hours or more within that period.
The data itself is difficult to analyse, as it gives total number of hours watched per piece of content
regardless of whether it is a 2-hour film or an 8-hour series. In the absence of “number of completed views” data, a 2-hour film watched for 200 million hours could equate to 100 million completed views or a huge number of fragmented auto-played views.
The stats did prove interesting in terms of the types of content most popular with the audience, with The Night Agent emerging as the most-watched show in that January-to-June 2023 period. In line with The Night Agent, a number of action/thriller titles also appear prominently in the stats, including the first seasons of FUBAR and The Diplomat and Kaleidoscope, a limited series.
Other shows, such as Wednesday, which were perceived as big hits, are confirmed as such. A number of YA shows also appeared at the top of the stats, including Outer Banks and Ginny & Georgia.
Viewers watched a wide range of genres, on average more than six a month. Netflix films and series accounted for 55% of viewing, compared with 45% from licensed content. These numbers certainly seem to justify the significant production budgets the service is committed to in that original content seems to both attract and retain subscribers.
Amazon’s Ascendancy
Amazon’s Prime Video has now overtaken Netflix as the most-subscribed-to streaming service in the United States, according to data from the research firm Parks Associates.
One of the key issues all the services will be looking at is how to make viewers watch the service for longer to both boost retention and, where available, ad revenue. Prime Video has championed the strategy of releasing one episode per week of a series, pulling in viewers more regularly. This has impacted viewing figures, as this regular audience appears to be staying to watch more content. Other platforms now seem to be emulating this approach.
The total number of global subscribers to Prime now tops the 200 million mark, and with increased per-
user revenue a key consideration for each service, it will be interesting to watch two developments: whether audiences will start to pay extra to eliminate ads when Prime Video adds commercials to the default subscription this year and/or if this causes any churn in the subscriber numbers.
It is also difficult to judge how big series commissions such as The Lord of the Rings: The Rings of Power have substantially benefited Prime’s subscription growth and whether the production budgets at Amazon will come under pressure.
Freevee, Amazon’s free, ad-funded TV service, also benefits from Prime’s production budget, as it has begun to show some Prime Video films as well as original commissions such as Neighbours. The service delivered an 11% increase in viewership in the first half of 2023, and with an increase in programming commissions, it will be interesting to see if it can continue to grow in the coming year.
Apple TV+’s Value as a Value-Add
Apple TV+ continues to show very modest growth, with around 25 million regular paying subscribers; an additional 50 million users access the service through promotions. At this point, the growth from Apple is pretty small.
But as I have previously argued, if you view it as a value-add premium product for Apple users, given that more than half of the 75 million viewers are watching through a subscription bundled with an Apple device, Apple TV is doing its job of delivering curated, high-quality content to a clearly defined audience to aid retention to the overall Apple hardware and software offerings.
The Barb, the Beeb, and the UK Media Market
Outside of the global platforms, the video streaming market in the UK remains hotly contested, partially due to the nature of the market. The publicly funded BBC and publicly owned Channel 4 distort the market by being able to offer services that have to break even (in the case of Channel 4) or can operate at a loss subsidised by the licence fee (in the case of the BBC).
One of the key strategies for BBC iPlayer, which had a record period with 177 million streams delivered in the Christmas week, is to attract younger audiences by expanding its overall content provision. There is some evidence to indicate pockets of success. Broadcasters’ Audience Research Board (Barb) data indicates that across 2022–23, 23% of the adult audience for BBC iPlayer was between 16–34, compared to 6% for BBC TV broadcast channels. In turn, the BBC’s data shows marginal growth in usage among younger people, with average weekly active accounts for under-35-year-olds increasing by 5% from the previous year.
When it comes to BBC iPlayer’s dominance of the UK’s viewing, it is quite significant. According to BBC figures, people in the UK spent 6 hours on average watching BBC TV/iPlayer per person per week. This is more than Netflix, Disney+, and Amazon’s Prime Video combined.
According to BBC figures, people in the UK spent 6 hours on average watching BBC iPlayer per person per week.
Barb data indicates that across 2022–23, the iPlayer adult audience (16–34) was 23% compared
to 6% for BBC.
Channel 4’s streaming views are up 24% year on year, with a total of 53.5 billion minutes of content viewed. Channel 4 has a similar aim to the BBC in terms of attracting a younger audience. It now has more than 28 million registered users, but in contrast to the BBC and in line with its content being aimed at a narrower younger audience, 85% of the UK’s young people are registered users on the service.
ITVX, the new revised platform launched by ITV last year and the UK’s main commercial offering, delivered 2.7 billion streams in the year up to December, showing growth on 2022’s 1.9 billion streams, with user numbers up by 29% year on year. Viewers are also staying on the revamped service longer, with streaming hours up 33% to 737 million hours, and a 22% increase in dwell time in the same period.
The stickiness of the platform is strong, with 86% of those viewers who came into ITVX to watch an exclusive going on to watch other content on the platform.
The slightly distorted nature of the UK terrestrial market, with only one main player that is working within normal funding parameters, makes it much harder for the traditional broadcasters to gain headway. Hence, Paramount’s strategy of bundling its service with Sky.
All Eyes on ARPU
In 2024, there will be a continued focus in growing revenue per viewer as well as overall subscriber/viewer numbers from all the platforms. This could potentially expose chinks in the armour of the big two, with Amazon inserting advertising into Prime unless users pay an additional fee and Netflix cracking down on password-sharing.
However, given that Prime is a series of bundled services and Netflix is offering low-cost additional user options, how many people will cancel the service rather than put up with additional advertising costs remains to be seen. For both, their ARPU is likely to rise. And, in the case of advertising insertion, Amazon may be helping to normalise a model of subscription-plus-advertising, which not only takes us back to the traditional broadcast model, but also justifies the traditional broadcasters using that model for their services. With costs running high and profitability only just on the horizon, outside of the top two, Netflix and Amazon, it is difficult to see all of these broadcaster services surviving as standalone entities based only on subscription models.
After a year of some growth, 2024 could well see the widespread adoption of the subscription-plus-advertising model, with some of the smaller players looking to reduce costs or consolidate their operations in the hope of getting to profitability.
Jake Ward (jake@groovygecko.com) is the business development director at Groovy Gecko and a longtime online video industry observer.
Comments? Email us at letters@streamingmedia.com or check the masthead for other ways to contact us.