This is a CTV summer blog series discussing the Streaming Business Model, CTV Programmatic Buying, and CTV Frequency management. Every month, one new article is released. Follow along and join the discussion!
The advantage of endless entertainment once defined streaming services. Now, a paradox grips the industry: content saturation amidst consumer fatigue. Millions of viewers have cut the cord, flocking to streaming platforms for diverse, high-quality shows. Yet, these very platforms struggle to turn subscribers into profit.
Fueled by relentless subscriber growth, the current model is reaching its limit. Each service – subscription video on demand (SVOD), advertising-based video on demand (AVOD), and free advertising-supported streaming television (FAST) – caters to an audience, but the sheer volume of content across all platforms is overwhelming. However, the recent Digital Media Trends study by Deloitte reveals a telling truth – American households feel a pinch despite subscribing to multiple streaming services (an average of four in 2024), and many didn’t think the expense was worth it. Inflation, at a staggering rate of 27% over the past five years (according to Bureau of Labor Statistics data), has eroded buying power, making entertainment a luxury many can’t afford.
This content overload isn’t just about money. David Lewis, a psychologist, warns of “information fatigue syndrome,” a mental state caused by the constant bombardment of stimuli. We skim articles, fast-forward shows (60% of viewers admit to doing this, according to a recent Netflix survey), and rely on AI summaries for books. With millions of songs (Spotify boasts over 100 million In 2024), movies (Hollywood churns out an estimated 800+ films annually), and podcasts (over 2 million exist worldwide) vying for our attention, true engagement becomes a casualty.
Locked in a subscriber war, streaming services have responded with a relentless pursuit of “tentpole” content – mega-budget productions designed to attract the masses. Yet, this strategy drives production costs through the roof. The recent NBA broadcasting rights deal, valued at a record-breaking $76 billion, exemplifies this trend, further squeezing profit margins.
A Turning Point: Redefining Success
The traditional metric of subscriber count is no longer enough. Nielsen’s data demonstrates a fragmented audience—more content (over 2.7 million video titles available in the U.S., UK, Canada, Mexico, and Germany alone as of June 2023), but fewer viewers per platform. A new definition of success is needed, considering not just subscriber numbers but engagement, quality, and long-term value.
- Customer Retention and Loyalty: Churn rate and lifetime value become crucial for understanding user satisfaction and building a sustainable business.
- User Experience: User-friendly interfaces and personalization features, powered by AI that analyze viewing habits and recommend content, can significantly enhance user engagement and satisfaction.
- Social and Cultural Impact: Streaming’s ability to influence pop culture, spark social media buzz, and build communities becomes another metric.
- Content Quality and Diversity: Awards and critical acclaim become benchmarks, ensuring content resonates with viewers and fosters loyalty.
The Future: A Long-Haul Flight with Tech as the Co-Pilot?
Streaming services are like airplanes constantly adjusting their flight path for optimal fuel efficiency. The answer to profitability likely won’t be higher subscription fees. Advertising will (and has already) become more prominent. This, however, creates two new tension points. First, mass-appeal content to attract advertisers versus niche, critically acclaimed shows. Second, spending on network programming has been reduced, creating a vicious cycle: less original programming means less subscription, which leads to less investment.
The streaming landscape will evolve through some turbulence. Platforms must balance content investment with profitability, perhaps exploring co-productions, global expansion, and strategic mergers. On top of it, the emerging streaming bundling trend has come to stay. The Disney+ Hulu-ESPN+ bundle has been available for a while. More recently, Netflix, Peacock, Apple TV+, and more have joined together in various groupings (which somehow recreates the same dynamic we saw in the early days of cable – what’s old is new again). Consumers, meanwhile, will seek value for money with flexible pricing models and ad-supported options.
The future of streaming is uncertain, but far from weak. By understanding the challenges and embracing new metrics of success, both consumers and businesses can navigate this evolving entertainment landscape. The golden age of choice may come with compromises, but with careful curation, innovative solutions, and technology as a co-pilot, streaming services can ensure quality content continues to thrive. Imagine AI-powered recommendations that unearth hidden gems or create personalized playlists, or technology that tailors content delivery based on screen or bandwidth limitations. As technology evolves, so will the streaming experience.
When we consider the tension between mass-appeal content (attracting advertisers who crave large audiences) and niche shows (attracting advertisers who want to bet on contextual), programmatic advertising can be an impactful and scalable solution. In the August blog post, we will explore how advertising can use programmatic to address this tension and the innovation happening in this space.
