Streaming platforms have tough choices in a world of fresh opportunities

Netflix and its 265 million premium subscribers globally exist in an ad-free world; at 4 users per subscription, this is over a billion premium consumers who aren’t easily reached by traditional advertising. The streaming service had a head-start built on content from traditional studios and TV networks. By the time others woke up, it had enough momentum to create original content to feed its global service.

Companies seeking to emulate Netflix struggle with the economics of it: Content is costly, as also customer acquisition and retention of low-paying, high-churn customers. Now with many competitors in the mix, consumers are not paying for every service. Indians have figured how to alternate between services to get the best of all worlds. Since late 2022, with the first ‘fall in subscribers’ quarterly guidance, Wall Street has punished (perhaps irrationally) the entire streaming business. To add to their woes, in 2023, writers and then actors went on strike in the US. Many have deferred expansion plans, cut costs, revised strategies and sought consolidation. While it is the same storm, not all platforms are in the same boat. For some, it is just another business vertical. For others, it’s their only business. Some have deep pockets, others seek prestige, some have momentum, and many need revenue to drive growth. All this can make for curious content strategies. Now what happens to the billions who cannot afford a paid subscription service, the fabled bottom of the pyramid that is unable to buy content but still has an appetite for it? Does a market not exist there?

The subscription video on demand (VOD) model is giving way to advertising VOD. But consumers around the world don’t like ad interruptions—the close/skip ad buttons are the most clicked in our internet universe. The bigger premium a customer pays, the less the interruption. Which means ad-supported streaming caters to people who often can’t afford to buy the products being advertised. Ad- supported services also require transparency of watch-time data and need to compete with the big boys of the internet, Meta and Google, among others. When revenues are difficult, one looks at costs. So costs, both of content and customer acquisition are being cut. Reduced cost often translates to reduced quality. And free does not mean audiences will watch mediocre content.

Another way to reduce costs is to have varied revenue streams. In the world of movies, preserving a longer theatrical window (six months) allows an opportunity to collect physical retail revenue, and the consequent delayed streaming/telecast will reduce the cost of digital rights. The present construct places a huge strain on the already struggling streaming model. Similarly, sub-licensing of content by geography or language could yield gains.

What else does reduced quality mean? Between TV Plus and HBO Minus, there is talk that we must again create content for a mass audience that wants everything free, much like traditional TV. That this content must be ‘masala’ instead of the high quality we have grown accustomed to. This is where the ‘mass of niches’ comes in. Within the giant mass audience exist niches—by age, language, geography, genre, tradition and modernity. In a country like India, some niches can be very large. Often, they overlap, and once in a while, they unite to create massive hits. Audience segmentation allows for creating quality and quantity. In an era of devices and distractions, one can be seduced into thinking that short-form material, snacking and social-media clips will devour everything else. However, the truth is less dramatic. Human beings have moods and consume different content types—movies, series, comedies, tragedies, action, indie, sports, news—in different formats of varying duration for varied moods. Once consumers are used to better quality in one aspect of life, they expect it across all. The same is true of content. Once consumers are used to good content, they won’t go back to bad content because it’s free or the ‘business model’ of incumbents isn’t working.

Then a nimbler player comes along to disrupt the market. The financial model of disruptors often does not make sense and market disruption gives us winners and losers, but all investors contribute towards creating new consumption habits. For example, affordable Smart TVs mean that individual device viewing will coexist with a more settled ‘iPhone on the Wall’ experience.

And what about AI in all of this? Can it replace human creativity? Global storytelling has come of age; will it grow from here or fall prey to the politics of ultra-nationalist protectionist tendencies? Consolidation is underway. But nature abhors a monopoly as much as a vacuum. It fosters diversity. Evolution, innovation and mutation are the way ahead. Too big to fail isn’t really a thing; too big to manage is. One size truly doesn’t fit all. Life always finds a way. And it’s not the big that eat the small, it’s the fast that eat the slow.