As pandemic era restrictions ease worldwide and inflation rates hit record highs in the USA, we see signals that consumers are starting to cut costs on services they leaned on heavily amid the COVID-19 era. Streaming services and major cable companies have seen an uptick in cord-cutting in recent months—with companies like Comcast, Hulu+, Charter, and Dish Network losing hundreds of thousands of subscribers in the last year. One of the largest streaming services worldwide, Netflix reported a loss in subscribers for the first time in around 20 years.
Streaming and entertainment are not the only types of subscription models facing pressure amid changes in consumer spending and habits. Curated subscription and retail subscription models increased subscribers during the pandemic, likely because retail shops and restaurants were closed in many places. However, with restrictions easing, consumers could opt out of retail subscriptions to shop in person. Both Fabletics and Savage X—two clothing retailers that have built their empires on the monthly subscription model—plan to expand their retail storefronts in 2022 to accommodate this shift.
This shift in consumer habits signals turbulence in the subscription space for media and entertainment giants. With so many subscriptions for consumers to choose from, many opt to share accounts with friends and family to cut costs. For example, while Netflix reported a loss in subscribers, it saw a rise in new users—suggesting that many users combine accounts among friends and family.
Subscription Fatigue is Real.
With so many subscriptions to choose from and only so many dollars per month in the budget for those services, many Americans are opting to cancel non-essentials in favor of more affordable options. Sharing accounts is definitely an option for streaming subscriptions—but other, free options are seeing a rise in subscribers.
Disney has started offering park discounts to its Disney Plus subscribers as a way to funnel consumer spending dollars into different sectors of the company. The company could be trying to make up for its losses amid park closures during the pandemic (by the way, $DIS is down 34% YTD, as of time of publishing), or it could be a way to incentivize subscribers to keep their Disney+ subscription after missing growth expectations in Q1. The streaming platform will also implement a lower-cost, ad-supported tier for consumers later this year—a move that Netflix will also likely adopt in the future to combat subscriber losses.
Streaming Giants See New Competition Against Free, Ad-Supported Television
Free, Ad-supported Television (FAST) platforms such as Tubi, the Roku Channel, and Amazon Freevee (formerly IMDB TV) have all seen strong growth in recent months. Many consumers report that they would be willing to watch several minutes of advertisements per hour in exchange for lower subscription fees, or no subscription fees at all. A Deloitte study shows that consumers are increasingly turning toward FAST subscriptions to cut back on monthly spending, showing broadcasters that hope for growth in the future could come from lower consumer spending and higher advertising revenue.
Hulu pioneered the ad-supported streaming platform with its lower fee for ad-supported streaming. Networks have followed suit with low-cost or free platforms to earn revenue. With traditional streaming services such as Netflix, companies are limited to their earnings potential when they come only from subscription fees. Advertising allows streaming services to increase their earnings potential at scale.
What This Means For Broadcasters
With more consumers turning toward FAST subscription models to curb their spending, advertisers are likely to turn increasingly toward streaming. New data rules and regulations in the social media space have also limited advertisers’ abilities to hyper-target consumers with personalized ads.
Meta-owned Facebook announced that it stands to lose up to $10 billion in advertising revenue in 2022 after Apple rolled out an opt-out option on app tracking and other types of data mining in recent years. As targeted advertising on social media becomes more expensive and regulated, many advertisers are turning toward more traditional methods like television advertising and newer methods of advertising such as influencer marketing.
An IAB insights report shows that streaming ad spend grew about 21% in 2021, with continued growth expected as more streaming services adopt an ad-friendly model. Other forecasts predict that global ad revenue among streaming services could double in the next few years—with projections showing an industry valuation of about $32 billion by 2026.
While these changes in data privacy and consumer habits are good news for smaller broadcasters that seek advertisers, it does mean that competition among broadcasters will ramp up once streaming giants like Netflix and Disney begin seeking advertising revenue.
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