The State of Media & Entertainment 2023
According to a range of forecasts from Straits to Grand View Research, the video streaming market is expected to grow 20%–21% year-over-year from 2022 to 2030. This means that the market’s size is projected to increase from US$58–US$59 billion to more than US$300 billion over the next 7 years, which seems like a market significant enough to justify the big bets most platforms in the sectors are placing on it.
While we’re still seeing significant growth in the market at the start of 2023, its pace has slowed compared to the first year of the pandemic. All of the entertainment streaming platforms are looking at a range of different services and approaches for their business models in order to continue to drive growth in subscriber numbers and justify the significant spend on developing content and expanding market share.
Subscriber numbers are at the centre of each platform’s plan, with profitability only achievable after a number of years and a critical mass of subscribers. Any slowing or reduction in subscriber growth tends to directly impact the view of the service and, in turn, its associated share price. With a global downturn looking likely this year, the platforms are exposed when it comes to consumers cutting household budgets. This means that creating lower-cost, ad-funded versions of the services is becoming a default safety measure to try to both retain and grow subscriber numbers.
In more-developed territories, we’ve seen signs of a slowdown in subscriber growth, suggesting that these markets are becoming more saturated. Look for expansion into new territories to drive further growth.
In terms of growth, Disney+ came out of the blocks much faster than even Disney Streaming projected and had reached a total of 164.2 million subscribers by November 2022, 3 years after launch. It also added around 12 million subscribers in the last quarter. These numbers included 56.6 million subscribers outside of North America or India. The service generated around US$7.423 billion in revenue, but given the costs of content creation and expansion, it is still not enough to make the service profitable. That remains the goal for the 2024 financial year.
In 2023, Disney+ will expand into a further 30 countries, a road map likely to ensure that it delivers continued subscriber growth. Disney now has a total of 221 million subscribers, including Hulu and ESPN+, which are US-only services, with a target of 230–260 million subscribers by 2024. This goal seems entirely achievable, but suggests that Disney is expecting steady, not spectacular, growth.
To further expand its subscriber base and grow the overall market, an ad-supported version of the platform launched in the US on Dec. 8. Kantar Research predicts that as many as 1 in 4 users could downgrade to the new service. However, this strategy is about appealing to subscribers who see Disney+ as non-
essential, and thus would either never buy a full subscription or are likely to downgrade when cutting household budgets. The advantage for Disney+ is that it shows very good existing retention rates with churn at only 6% last quarter. Furthermore, 78% of those who subscribe stay beyond an initial 6-month period.
The content roster at Disney+ still looks strong and should help continue to deliver high retention levels with a steady stream of content from major franchises such as Marvel and Star Wars. Disney+ also secured a deal with the BBC to the rights to exclusively distribute Doctor Who outside of the UK from 2024. We will likely see more deals around co-production and distribution of established IP as a cheaper way for Disney and other platforms to acquire content in the coming years.
Disney is also exploring how to expand the service with value-add features similar to Amazon Prime. It’s currently piloting a Disney+ merchandise shop with exclusive and customisable products, as well as offering discounts to Disney+ members for stays in Disney hotels. This could be a key retention mechanism for its hardcore fanbase, adding value at no extra cost to the customer.
Amazon Prime continues to be a big player in the market, reporting more than 200 million subscribers at the end of 2021 and an increase in that number over the last year. But it’s very hard to determine just how high that growth is, given that Amazon has provided no official figures. That 220 million figure also represents all subscribers to Prime, not just users of the video service.
In terms of content, Prime Video had a successful 2022, becoming the exclusive home of the NFL’s Thursday Night Football, with the first game being watched by 13.2 million viewers and generating more sign-ups in a 3-hour period than at any other time in the year, including Black Friday/Cyber Monday. The Rings of Power, based on the Tolkien books, was the most-watched series, with more than 100 million viewers worldwide, and drove more sign-ups during its launch period than any other content in Amazon Prime’s history.
There is, of course, a new raft of content in development at Prime, including God of War, Blade Runner, and the Warhammer 40,000 series, along with a second season of The Rings of Power. However, more intriguingly, the company has a deal with Warner Bros. (WB) in the pipeline, which would include some of WB’s DC content. This is an interesting move, as it would suggest that WB is happy to share some premium IP with a third party, despite having its own platform in HBO Max.
According to Bloomberg, since acquiring MGM in March 2022, Amazon may also begin to launch movies theatrically, spending more than US$1 billion a year to produce 12–15 films that will premiere in theatres before debuting on Prime Video. This would be an expensive gamble for the company, as it has generally avoided direct investment in movies, but it may yet garner both additional revenue and critical plaudits.
When it comes to content investment, Freevee, Amazon’s rebranded ad-supported service, which launched in both Germany and the UK in 2022, committed to growing its original slate by 70% last year. This included the resurrection of Neighbours, the popular Australian soap opera, which was cancelled earlier in the year before being picked up by Freevee in November. The service will feature an archive of old episodes as well as create new episodes from summer 2023.
As more streaming services develop AVOD options, it will be interesting to see if this entirely different offering remains Amazon’s sole play in the market outside of the US, or if it will consider launching a cheaper, ad-supported, tier of Prime. While more AVOD choices could prove to be a significant revenue generator for Amazon, this would complicate the overall Prime offering.
After a bumpy year, the Netflix subscriber base rebounded in Q4 2022, increasing by 7.66 million subscribers, overturning the subscriber losses in Q1 and Q2, and bringing the platform’s total number of subscribers to 231 million. The total subscriber base in Europe has now reached 76.73 million, including 3.2 million subscribers added in Q4.
Netflix subscriber growth came off the back of the launch of the platform’s new ad-supported tier, which performed “better than what we had expected,” according to a Netflix statement. While this new service will help drive subscriber numbers, questions remain as to how much revenue it will generate: driving subscriber growth in this way is only effective as long as those subscribers continue to regularly watch the service.
Netflix expects Q1 2023 revenue to grow by 4%, allowing for currency variations. That would reflect a modest increase in subscribers at all levels compared to the 200,000-subscriber loss in the same quarter last year. This does suggest that the AVOD model will add value, but it is difficult to understand how much, as these figures are not broken out.
Netflix is also looking to increase the number of paying subscribers by clamping down on account sharing. Its Extra Members service will debut this year after a number of pilots and prompts account members to pay an extra fee to add a sub-account for people sharing the streaming service.
Also coming to Netflix in 2023 is a live-streaming capability, similar to that used by Amazon to broadcast sports, with an upcoming Chris Rock stand-up comedy special being the first on the service. Additional live content may help the streamer attract new subs, but it will not include sports content, unlike Amazon. At the UBS Global TMT Conference, Netflix co-CEO Ted Sarandos said, “We’ve not seen a profit path to renting big sports.”
Netflix is also innovating with its continued direct investment in gaming. Amazon has various offerings based around Prime and Twitch but not directly tied into the Prime Video service. Having already built a well-reviewed slate of mobile games, the next step for Netflix is likely to be cloud gaming, as revealed by Netflix VP of gaming, Mike Verdu, at TechCrunch Disrupt 2022. Further down the line, we may also see the service move into PC gaming, as Netflix has been looking to hire a game director to be in charge of launching an AAA PC game. These steps in differentiation are important, as a range of services and price points are likely to prove critical to furthering market expansion.
The main incumbents in the market remain strong and continue to grow. So, what does that mean for newer, less established platforms?
NBCUniversal’s Peacock showed significant (70%) growth in subscribers in 2022, but this is building on a very low base. By the end of December, the platform had reached only 18 million paid subscribers, along with a further 12 million ad-supported users.
A deal with JetBlue in the US to become the airline’s exclusive in-flight streaming partner demonstrated a different approach by Peacock, not only in delivering new revenue but also in showcasing the service to 24 million passengers each year.
However, outside of the US, the Peacock platform is only available through Sky, also owned by Comcast, in Austria, Germany, Ireland, Italy, Switzerland, and the UK. Denmark, Finland, Norway, Sweden, the Netherlands, and Portugal can only access some original Peacock content through the Sky Showtime service.
Further expansion into new territories in Europe is planned for 2023. With the service still being of relatively small scale when compared to the big three services and showing a loss, it will be interesting to see whether this European expansion will simply leverage Sky or whether NBC will develop the service in its own right. It is likely to deploy a different methodology for each market in order to generate the biggest return.
Discovery+ and HBO Max
Discovery+ and HBO Max will be combining into one service in 2023, in the US at least, but will not launch in the UK until 2024. HBO Max has, up to this point, had a limited launch in Europe due to deals which place HBO content on Sky Atlantic in some territories.
The combined service will have just fewer than 95 million subscribers at launch, catapulting it into the realm of the bigger players in the space, offering both ad-supported free and premium options in Europe.
David Zaslav, who will lead the combined company as CEO, has said that, based on estimates, fewer than 50% of the two platforms’ consumers subscribe to both Discovery+ and HBO/Max, so there is likely to be a good retention of audience.
The UK launch will be promoted by Sky, which will offer its streaming customers the service for no additional cost, and it will also be available as a bolt-on through Amazon.
Back in September, BT Sports’ deal with Warner Bros. Discovery, the platforms’ parent company, created a major player in terms of European live sports rights. At the moment, the brands remain separate, but this could become a significant driver of revenue and subscriber growth once the content is folded into the one service.
Another challenger, Paramount+, ended 2022 with 46 million global subscribers, which was mainly driven by a new partnership with Walmart+ in the US, as well as offering its premium subscription on the Roku Channel and YouTube.
The Paramount+ plans are ambitious, with the aim to reach 100 million subs by 2024, a revision up from the previous 65–75 million. The strategy will include a tripling of the spend on content to US$6 billion from US$2 billion in 2021. This growth will be fuelled by an expansion into international markets, with 150 international original titles being developed by 2025.
Paramount is obviously looking at the size of the market and is going all in on the service, with a diverse range of content for all family members, but without quite the brand recognition of the other players.
Apple TV+ remains a different proposition to the other platforms, which offers it some protection against the economic environment and from the pressure for subscriber growth. The general strategy seems to be a service that increases loyalty and retention of users. This means that acting as a piece of a bundle with Apple Arcade, Music, and News as part of Apple One makes it a good tool in the retention strategy, similar to Amazon Prime. This is, of course, tied to the inclusion of a free 3-month subscription with the purchase of new Apple devices.
Currently, based on estimates from several organisations, the total number of paying subscribers globally is around 25 million. This represents growth of around 20% and shows that the strategy can also generate revenue. A further 25 million users are accessing the service through the free subscriptions included with the purchase of new Apple devices.
The biggest breakthrough for Apple is in the recognition of its content as high-quality, with an Oscar win for best picture, best screenplay, and best supporting actor for the film CODA. There is also the continued success of Ted Lasso, with the third season launching in spring 2023. This aligns Apple TV+ to some degree with HBO Max in terms of acclaimed quality at a fraction of the cost and should continue to drive retention and further subscriber growth.
In terms of expanding its appeal through its range of content, in March 2022, Apple TV+ signed a deal with Major League Baseball, bringing Friday night baseball games live to its audience as well as a live show called MLB Big Inning. A specific subscription service for Major League Soccer fans, MLS Season Pass, is scheduled to launch in February 2023.
All in all, this strategy seems to be making steady progress for Apple TV+, but don’t expect any spectacular growth in the coming year—just the same slow accumulation of subscribers.
What Does 2023 Hold?
With a number of new services looking to grab a share of the expanding market, what does the next year hold, and what will be the key areas of development?
First of all, content is still king. Key shows will attract subscribers, but a continued stream of content is required to retain and grow a subscriber base. The primary danger for all platforms is the sheer cost of content generation. Keeping costs under control by either getting content to generate more revenue through theatrical releases or more distribution/co-production deals will help drive down these costs and increase profitability as subscriber numbers continue to steadily grow.
However, with a worsening global economic outlook, subscribers are likely to start rethinking which services are essential. Without critical mass in terms of content and subscriber numbers, some of the smaller players could find that their subscription base hasn’t grown but has simply opted for a different distribution model, with the audience paying the same subscriptions levels to view over IP rather than satellite. With the cost of content creation rising significantly for the streaming model, some of the small players may find that despite the investment, they are generating similar revenue, while the cost of content creation slowly erodes profits.
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