The Future of Streaming Monetization: Beyond the SVOD/AVOD Divide
Serving “Must-Have” Content
Another topic the Hub Entertainment Research study looked at is what users regard as “must-have/invaluable” vs. “nice to have/could do without” content sources. They focused on four categories, ranked as follows:
Shapiro attributes the value placed on podcasts to the specificity with which podcasts pinpoint their audiences.
“The more specific a channel is--regardless of where viewers get it,” he says, “the more essential it is to its fans. And the value they place on it points directly to monetization in the creator economy. "People are either on Twitch where they're getting donations or tips, or they're on pods, where fans are often subscribing via Patreon, which is a bespoke subscription platform for creators.”
Being Everything to Someone
It all comes down to the power and implications of influence, Richter contends. “We’re starting to see some really interesting things in this space,” Richter says. “It’s not even micro-transactions; it’s micro-engagement, micro-audience. When you have massive amounts of micro-audiences, those audiences are more likely to be more highly engaged with the content that they're watching, and they're more likely to be influenced by the content they're watching. Some people have figured out that the key to being a successful publisher is not having to be everything to everyone, or even to be something to everyone. You need to be everything to someone. And if you flip that–because everybody tries, especially content owners–and try to diversify your offerings, you start to lose the essence of who you are, and the reason your audience engaged with you in the first place.”
It’s easy enough to see how these lessons apply in the OTT world. Shapiro cites the SVOD service Crunchyroll (Figure 4), “which has very low churn, and very high engagement. They don’t have that many subscribers–maybe 3-4 million paying subscribers and then a ton of free users. But boy, oh boy, you can’t separate that crowd from that content. They’re dedicated to it.”
Figure 4. The three-tier, anime-centric Crunchyroll is one of the lowest-churn services in the SVOD market.
“When Crunchyroll pivoted from trying to be something to everyone to everything to someone,” Richter agrees, “it made a huge difference.”
Going Once, Going Twice…
A bit afield from the creator economy in the livestreamed auction world, monetization opportunities that have nothing to do with subscriptions or ad insertion arise at breakneck speed, with close parallels to the gaming and esports world.
According to Lorincz, in the auction world, "Every minute of video for us that's on air is an opportunity to, to sell something. Automobiles are our primary objective, but surrounding that are all the other things that go with it: the accessories, the merchandise, all those pieces of revenue that can surround a live event. We look at ourselves not much differently than a gaming platform or a live sports platform where you have to engage this digital native in something interesting. They don't want a lean-back experience. They want to be part of it. They want to be in it,” explains Lorincz, a longtime veteran of esports racing.
“Of course, if they’re on the creator side of it, they want to monetize it,” he continues, “and you've got to have those tools embedded in your platform like Twitch does to really let them engage the audience and create revenue for them and for the network that they're on. Those 3 billion-plus gamers that are out there are expecting a lot of different things beyond just watching television.”
Wide World of Sports
In terms of the viewer-professed indispensability of specific SVOD streaming platforms, Netflix ranks first as a “must-have,” coming in at 68% in the Hub survey, with HBO Max at #2 with 58%. And it’s no surprise to see those two marquee services heading the list of must-haves. But readers might be surprised to see ESPN+ tied with HBO Max, which many wouldn’t have expected (Figure 5).
Figure 5. Hub Entertainment Research rankings of must-have (vs. nice-to-have) entertainment subscription platforms
“They only have about 18 million subscribers, and yet obviously they’re just rabid,” Shapiro says. Shapiro references a Parks Associates study that found that 31% of SVOD subscribers have a sports subscription. Why is that number significant? “We know that only 31% of the cable universe watches ESPN, and yet everybody’s paying for it, which seems unfair. Well, guess what? That same percentage shows up in streaming. There’s a depth of passion around sports, not just in college, but even high school. The deeper the connection between the consumer and what they’re watching, the more they’re gonna be willing to pay for it.”
“News flash: Humans act on emotion,” Richter says. “If you can evoke emotion and an action, it's going to make that action even more predictable. ESPN truly doesn't doesn't surprise me. In all of the research done when we were talking about the great wave of cable cancellation, the number one and number two reasons for people not canceling cable yet were access to sports and local content.”
“Sports has always driven demand. I don't care if it's linear, streaming, anything. It's always been at the top along with news because it’s rare,” says Lorincz. “And if you're a fan, you’re gonna go where you need to go to watch what you need to watch, whether it's that niche, local stuff or national or regional or even international. I go back to Red Bull Days. Action sports wasn't the thing. And all of a sudden it popped up and everybody could watch it. It wasn’t on television; it was streamed. The same thing happened with international sports that we're trying to find ex-pats in different parts of the world. They could never watch cricket in San Jose, and all of a sudden WillowTV pops up, and now it's the thing on a global basis. It was scarce at one time and now you can stream anything to anywhere. So I think that's not new. It’s just that people now know how to get to it on any device.”
Lifestyle Bundling
One hard-to-miss development in subscription-based streaming over the last year is the growth of “lifestyle bundles,” that not only combine multiple premium streaming services as the likes of Disney and Hulu have been doing for years, but also making streaming part of a broad array of services as Amazon does under the “Prime” umbrella. In August 2022, Wal-Mart added a Paramount+ Essential subscription as a no-additional-cost benefit for purchasers of a Wal-Mart+ account.
These outside-the-box (and then some) bundles can make it difficult for streaming-only services to compete, especially when they ask subscribers to swallow periodic price hikes. And it arguably makes it considerably easier for these services to reduce churn, and continue to monetize their offerings away from the glare of cost-conscious users looking to trim their streaming budgets. And when sports becomes part of the equation, the “must-have” message becomes stronger still.
“All of the economics we've spent the last decade building–these D2C services that are getting to scale–they seem to be in real trouble,” says Shapiro. “Spotify has never been profitable. Netflix has only had one year of positive cash flow in the last decade. But Amazon Prime, where I can get free delivery of my rakes and my Prilosec, and I can get discounts at Whole Foods, and I get to watch The Boys, and now Thursday Night Football--that's gonna be a really hard bundle to break," he continues. "Apple One: cloud, music, gaming, fitness, news, all rolled into one product” (Figure 6).
Figure 6. Components of the Apple One “lifestyle bundle.”
“Think about the next version of bundles,” Shapiro continues. “HBO Max and Peloton. HBO Max and Sirius. HBO Max and some other vertical that makes them a deeper must-have–maybe a combination with a hotel group or travel group. Imagine if the more ads I watch, the more hotel points I got–how great would that be? This is the track we're on.”