People are Getting to Like Really Free Content

Content Insider #899 – Fast Time

By Andy Marken – andy@markencom.com

“They say, ‘We’ve got nothing!’ But they have! They have everything! Dig under the floors! Or search the barns! You’ll find plenty! Look in the valleys, they’ve got hidden warehouses!” – Kikuchivo, “Seven Samurai,” Toho, 1954

The streaming video content industry has been inventing, testing, revising itself for years. The goal is to find the best route for maximum subscription numbers and profit.  At the same time, the consumer is trying to determine which service(s) they can do without to balance their entertainment budget.  

It’s almost impossible to wrap your head around the fact that according to Nielsen last year, North Americans streamed more than 25M years of shows and movies.

Sometimes you have to wonder if Reed Hastings had the foggiest idea how he was going to s***w up the home entertainment industry when he decided to switch from mailing folks red envelopes to simply letting them sign into their account, go online and watch any movie/show in his library – any time they wanted, on any screen.

Probably not.

And you can be pretty sure that five plus years ago Bob Iger probably saw streaming as just another very profitable line extension for Disney and a business they would quickly dominate.

Surprise Guys!!!

Global Focus – Netflix signed up the majority of US households interested in subscription streaming early in the game. Acquiring more would be expensive and time consuming so the firm turned their focus on reaching global consumers in 190 countries. This gave them a strong worldwide audience as well as a significant increase in international economic content.

In the ensuing years, Netflix got smarter (big data helps), more aggressive ($17B content budget last year), more agile (adding/dropping international shows/movies at just the right time), more global (edging toward 300M subscribers) and yes, profitable (estimated $44B in revenue this year).  

As for Disney, everything else at the Mouse House is very profitable; but Disney + is marginally healthy with slightly more than 185M subscribers worldwide and Iger is determined to leave his job next year with a healthy balance sheet.

Hastings passed the boss job to Ted Sarandos in 2023 and then moved Greg Peters to co-CEO to help run the global movie/show/game development, production, distribution behemoth. 

They don’t exactly finish each other’s sentences, but they make good things happen.

And over the past years, the two firms have attracted their share of competitors – an estimated 200 streamers in the Americas, 900 in APAC and others in countries, regions all hellbent on one thing – acquiring and retaining customers – with their own version of subscription and/or ad-supported home/personal entertainment.  

Slow Increases – As Netflix grew its global audience, they also made a subtle shift from an emphasis on subscription numbers to profitability with incremental fee increases.  Ultimately, they decided a multi-tier subscription-only model wasn’t profitable and shifted to a low-cost, ad-supported tier to continue profit growth.

Netflix set the baseline low – real low – with a modest $7/mo. subscription fee.

The other streaming services (Disney, WBD, Parmount, Amazon, Apple, Peacock and others) had to introduce their services at a low/reasonable monthly charge that was low enough to convince folks to …”give ’em a try, you’ll be happy you did.”

All of the services have the same objective — get as many of the 1.2B global streaming viewers as possible to spend most or all of their 21 hrs. of entertainment with them as opposed to the other guys.

In most countries, that amount of time would be considered a part-time job and because trying to find out which of your services has the show/movie you want, it does feel like a job.

Netflix & Others – Netflix has continued to listen to subscribers since their red envelope days. This has given them an increasingly rich database of consumer interest on what they want to watch in the future–a decided edge on surprising, satisfying and retaining subscriber.

It was great.  So much fantastic content.  All at a reasonable price.

Until it wasn’t.

Everyone, almost all at once, decided their content was more valuable to consumers (especially after looking at their balance sheets) and decided they needed to raise…and raise…and raise their subscription fee.

Option Embarrassment – It didn’t take long for tech firms, networks and studios to jump on the direct-to-consumer bandwagon with a confusing array of content silos and prices.

Compared to the high cost of the pay TV bundles they left behind, the services were cheap, fast, convenient and as our friends love to point out … free of ads.

But when people started adding up their total home entertainment bills – internet plus services, they found they were right back at their old cable bundle price … plus.

Price And – Cost is often the first thing consumers list when asked about their streaming service selections; but the combination of the other features/capabilities will weigh heavily in the services they sign up for and keep.  

Yes, they offered great streaming quality, super content available, able to stream to any of their screens, and good film/show recommendations which got better and better as the service learned your viewing tastes.

And they were free of those mind-numbing ads.

But … finding a specific movie/show you wanted to watch was like playing 3-D chess … moving from one space/one level to another.

Content was king and content exclusivity is what differentiated services and kept you connected to all of your services until you looked at your home/personal entertainment budget at the end of the month and made some hard decisions.

Studio streaming services were at a crossroad because they still weren’t showing Wall Street a positive return and they didn’t want to admit their content wasn’t that valuable to folks at home so they made the tough management call and said ad-free exclusivity would cost you.

Or, you can have a “slightly” restricted library along with “a few” ads at a lower cost.

Plenty of Growth – Adding more subscribers in the Americas is becoming a challenge with more than 80 percent of the households having at least one streaming service; but globally, there are more than 2.5B TV households with the market growing to an estimated 5.5B by 2029. There are still plenty of streaming service opportunities.

Unlike our friends in the heart of the SF Bay Area headlands and the high desert of Southern CA, we rather enjoyed ads … just not a waterboarding of the same ads again … and again … and …

Three to four minutes of ads an hour was tolerable.

More importantly, they were “a little” different and almost inviting/interesting.  

We don’t know about you, but we immediately went to the Netflix, Disney, Paramount + AVOD options.

Apple TV+ still hasn’t been bitten by the ad-supported, added profit bug but their cost is already reasonable, the content quality is high, and our daughter would quit speaking to us if we eliminated her Apple apps from our budget.

We also kept Amazon Prime but that’s for the wife’s free delivery service, not the content.

Jaffe – Amazon’s CEO – had a great idea when he launched their idea of becoming a mini-bundle service provider by adding discounted platforms with ads.

But then they got greedy like the old pay TV bundles … the volume of dumb ads swelled.

And folks noticed.  

One of our friends went on a tirade…” We tried watching one of their ‘new’ series and it looked like cable TV.  A stupid show with as many stupid ads as they could squeeze in.”

He couldn’t be consoled with the fact that you can mute the sound and watch the ad clock in the upper left corner to see when the pain was going to end.

Nope! Gone.  He’d keep his free deliveries, but the bad TV was deleted.

The ad-supported service and the bundle idea were the right move, but the old volume ad viewing days were gone.

Ads OK – While the most common response to liking ads with their entertainment, people universally reject them until they find out how much they save by having a limited number of ads with their streaming content.

People expected a better experience with their streaming service(s).  

Disney, Paramount, WBD (HBO, Max, Discovery) and the other studio streamers determined that having a subscriber – even at a lower subscription – was better than not having them or having them constantly add/drop their service.

Instead, they made the decision to give folks a choice – ad free or just a few ads (3-4 min/hr.) to supplement their bottom lines.

Even Netflix, which has been profitable for years, reluctantly determined they could increase their audience numbers without hurting their profits.

According to Parks Associates, its working even though 57 percent of the users are like our Prime rejection friend who went back to his SVOD service because the services and advertisers are still trying to refine and improve their ad mix and delivery approach.  

Yes, the ad-supported services boost the streamer’s long-term profits, but the ad experience still sucks.  

Streamers – and advertisers – have a helluva lot of work to do to improve how/when they are serving up the ads as well as enhancing the ad messages, so they are shown only to their target prospects and “appeal” to them.  

That requires a helluva lot of work and an understanding/appreciation that a viewer isn’t just a product the streamer is selling to the marketer but a partner in the complete transaction – entertainment and product/service interest and satisfaction.

Streaming services have a strong vested interest in improving that relationship because consumers have options … lots of options.

Totally free services are finally coming to the forefront as a real consideration for the budget-driven streaming user as well as for folks who miss their old pay TV channels but not the old bundle cost.

We click on one of our FAST services – Pluto, Tubi, FreeVee – almost daily because frankly, we miss the local news shows we tuned into back in the pay TV bundle days.

Yes, there are a few network-scripted programs we find interestin,g despite the 20-minutes of ads per hour.

 Still Alive – While streaming diehards would like you to believe that pay TV is in its death throes, the established networks/services are still alive and profitable … just not as profitable as before.  But don’t expect to see any new networks enter the market.

No, the pay TV bundle isn’t dead.

There are still a lot of people who tune in every day/evening because they are happy with the breadth, depth and predictability of their home entertainment.

For that crowd, entertainment/ads as usual and in familiar surroundings will continue to exist.

They’ll watch their shows and live sporting events at the predetermined time rather than searching around. 

According to Parks Associates, they’ll also subscribe with Netflix and usually one of the other streamers because…

 Modest Growth – While most of Europe already has free TV service, growth has been modest in these countries as opposed to the Americas and Australia where people pay to watch ads/content.  British households, however, want a strong dose of variety and streaming has grown accordingly.

FAST service usage has been a huge well-kept secret—frankly, because there was little to no rating service tracking and the dramatic diversity of channel offerings.

FAST is most easily explained by Chris Anderson’s 2006 book The Long Tail.

Streaming Tail – Chris Anderson’s long tail business example is a perfect description of the streaming content industry where people go from mass interest entertainment to very selective content interest

SVOD, AVOD services focus on the 10-20 percent of the movies/shows 90 percent of the viewing population want to view for entertainment – that’s lots of viewing eyeballs, lots of ad sales opportunities.

The second 20-30 percent of the channels include the studios/streamers “older” libraries and projects that had just okay/modest viewership that have an appeal to 40-70 percent of the viewing audience.

The longest portion of the video tale are genre-specific shows/movies – horror, romcom, documentary, sci-fi, etc.; specific sports such as fencing, men’s/women’s gymnastics, extreme marathons; and projects/activities that appeal to the unique audiences.  

Personalized Recommendations – FAST streaming services will improve their subscriber recommendations as they accumulate more data on the viewer habits/desires that make them increasingly popular with viewers.  

The increased use of viewer and project metadata and AI have made it increasingly easy for FAST services – and advertisers – to effectively reach viewers who have “prequalified” themselves by their interests.  

The “new” services provide content owners and marketers to “fish where the fish are” because FAST offers linear channels and on-demand content.

As a result, the number of channel viewing opportunities on FAST services are steadily growing.

Channel Growth – The number of FAST channels will only continue to grow as content owners/creators learn how they can monetize their movie/show projects with free (ad-supported) services and marketers learn how to develop newer and better ads for specific viewers.  

Officials at last year’s MIPCOM noted that the leading FAST markets would be in the US, UK and Canada followed by Germany and Brazil.

AI-powered editorial and schedule-generation advancements as well as automated dubbing will reduce overhead to pave the way for enabling FAST channels to reach nearly $12B by 2027 as people shift their viewing habits in favor of free, ad-supported content.  

This will enable content creators, owners and marketers to effectively connect with diverse demographics– especially cord-cutters and Millennials.

Management consulting firm Arthur D. Little noted that while Europe has traditionally offered free TV content, growth in the area as well as Middle East and Africa is outpacing the US as content providers increase their focus on monetization/profitability and reduced churn.  

In other words, while our ad-adverse friends and others may continue using their subscription services there are still a lot of folks out there who want to rummage through the massive on-demand libraries to discover viewing gems.

As Kambei Shimada explained, “This is the nature of war: By protecting others, you save yourselves.”

And before you decide that creating content for the FAST services and marketing to the pre-qualified audience, he was quick to add, “I know what you’re going to say. I was once your age, you know.”

We suppose the same can be said of us.

Andy Marken – andy@markencom.com – is an author of more than 800 articles on management, marketing, communications, industry trends in media & entertainment, consumer electronics, software and applications. Internationally recognized marketing/communications consultant with a broad range of technical and industry expertise, especially in storage, storage management and film/video production fields. Extended range of relationships with business, industry trade press, online media and industry analysts/consultants.