Streaming Firms Must Address Lost Revenue Issues

Content Insider #684 –  Crossing Borders

By Andy Marken – andy@markencom.com

“This is the best bad idea we have, sir. By far.” – Jack O’Donnell, “Argo,” Warner Bros., 2012

Back in 2017, the company that is synonymous with streaming video entertainment had this stupid idea of putting up the full season of shows at one time and people stayed up round the clock to binge/watch it all– BAM!

It was the ultimate proof of the benefit of VOD entertainment – watch what you want, where you want, when you want, how you want.  

Reed Hastings, Netflix’s CEO, proudly proclaimed to shareholders – and anyone else who would listen – that their only competition was sleep.

The company’s then 58.4M subscribers in 190 countries (182.8M subscribers today) who gave the company $6.7B ($20B+ in 2019) agreed.

More importantly, so did his shareholders and a growing list of competitors around the globe who could see a big, beautiful market emerging:

• 1.250B+ broadband subscribers globally
• 5B+/- mobile subscribers WW
• 1B+ pay TV subscribers WW

All of them were obviously ready to take advantage of everything Netflix had to offer … all at once.

Shifting Tastes – Pay TV won’t disappear completely because people of “a certain age” like things they can count on like a certain show on a certain day, at a certain time.  But the younger crowds like what they want, when they want it and they’re more than willing to pick and choose their content.  

Many millennials and boomers cited the high/rising cost of cable as the prime reason they were dropping/shaving their multichannel TV service (pay TV) for OTT viewing.

At the same time, Gen Z and Alpha folks didn’t have to make this decision because many never had a pay TV service. 

But there was a more important reason.

Back when folks were in the office without masks and hollering at each other from six feet away, they talked about the great stuff they watched – depending on their country – on Netflix, Mubi, Acorn.tv, Britbox, Canal+, Hikari, Rakuten, Viu, Baidu, Alibaba, Tencent, Hotstar, Zee 5, Amazon Prime, Salto, MovieStar and the list goes on.

But none of that content was on their cable service, and they wanted it too.  

The second reason was they had kids who really wanted the “new stuff.”

Power Switch – With more time spent viewing content, people have become more selective on what they watch rather than simply staring at whatever is on the screen.  

The younger group has grown up with a screen in their hands so, using their smartphone and/or tablet to stay connected on social media and to their entertainment was natural.

Change was happening!

“The M&E industry has been going through growing pains over the past few years,” Allan McLennan, CEO of PADEM Media Group, said regarding the shift.  “Broadband, both fixed and wireless, has become an integral part of our personal and professional connected lives while always on, always available content distribution has been testing the boundaries of local, regional and international business models.

“Then the pandemic hit, forcing a hiatus in production of new TV shows and movies around the globe,” McLennan continued. “So, studios/content owners with projects in post couldn’t afford to wait for people to return to the cinema.  They began releasing the work to networks, broadcasters or OTT providers to maintain their product exposer and distribution supply chain as well as their cashflow while weighing the pros and cons regarding how future theatrical releases would play out.”

With the uncertainty of a vaccine, production and post are proceeding cautiously and differently from last year to refill the pipeline.

At the same time, the perfect storm – streaming content, people staying at home and acceptable economics – paved the way for a dramatic and what looks like a permanent change of the entire M&E ecosystem.

The industry is gaining a greater understanding and appreciation of how the Internet can perform when delivering content at scale to an ever-increasing audience.

Akamai and other CDNs have done an excellent job of managing the existing Internet capacity for fast, reliable delivery of games, video on demand and increasingly, sports and concert live streams.

But the Internet capacity and speed are not universal.  

As Europeans sheltered in place, the EU asked Netflix, Amazon and YouTube to lower their streaming quality (reducing bandwidth requirements) which was done even though Netflix, which was focused on global growth, had been developing an advanced transmission network for years.  

Viewer Retention – Netflix learned early on that if you want to capture and retain viewers, you need to give them great content; but more importantly, you need to give them a flawless entertainment experience which means leveraging your technology and putting content servers closer to the customer.

Netflix has deployed more than 4,700 dedicated servers around the globe and especially in areas such as Africa where internet speeds are terribly slow and expensive.  These and CDN partner servers help relieve the Internet strain.

In addition, they used their own video compression technology to reduce data consumption without diluting the viewing experience. 

With their focus on long-term growth they – as well as Amazon and Google – have been intent on removing the economic and content quality barriers in international markets.  

That portion is “relatively” easy…all it requires is financial commitment and technology.

The second issue, which neither streamers nor consumers can agree upon, is whether to provide binge vs. weekly installments.  

True, TV and movie marathons have been around for decades with VHS, DVD and holiday/weekend blocks.  But Netflix, Hulu, BritBox and others transformed bingefests into special events to help create viewer growth and loyalty.   

Hulu, Disney+, Amazon and Apple TV+ have gone the traditional route with weekly episode releases to retain long-term interest (and subscriptions).  

Even Netflix has waffled on what is best, having released weekly episodes of The Great British Baking Show in the US.  

Kick Back, Enjoy – To relieve the stress and break the monotony of constantly being at home, people used the escape machine – the TV screen.  A few hours of happy entertainment a day helped people feel less isolated.  

Not that they seem to care, but we become numb after two hours, even when watching the best movie ever!

The major irritations for most consumers is global availability and quality of the internet along with spotty availability of services and shows.

In some cases, this is a holdover of governments’ control over what local citizens can read/watch as well as the retention of yesteryear’s time-constrained licensing arrangements.

Netflix, Amazon Prime, Apple TV+, Disney +, Hulu and even the ad-supported services develop or license content for worldwide or regional distribution.

A service’s show may be streamed in the US but in England it’s on BBC, in France on Canal and in Australia on Network10–even when the service is subscribed to by locals.

When organizations decide they are going to roll out their own service (Disney, Warner, etc.) they pull the show so it’s only available on their subscription channel. 

If the channel isn’t available in your country?

Tough!

Refresh – While the new streaming entrants are relying on the traditional favorites to attract subscribers, the industry’s major leaders continue to focus on developing new content based on viewer and market profiles.  

Sure, folks “hear” about the great new content on the Internet…just not where they live.

And if that isn’t bad enough, try traveling with your subscription service.

When visiting certain countries and crossing their borders, some streaming services don’t have a content passport so, it’s unavailable in Mexico, Taiwan or other country (or vice versa) even when your account is current.

Old habits die hard.

One of the key reasons is that the studio/distributor can make money again and again by making the show available on a country-by-country basis.  

The solution frequent travelers often use is a VPN (Virtual Private Network) which allows you to connect your system to your home network (and yes, it’s more secure if you also decide to do a little work).

It’s a “good” solution if you’re spending an extended period in another country.  

And if you do a little planning, you can download your favorites and view those titles wherever you would like.

Okay, it doesn’t work in certain countries such as China but then, they have a different description of privacy and security so … tread lightly.

Of course, the jigsaw puzzle of when, where and how the volumes of fantastic IP-based content will be available has also increased piracy–dramatically.

Hastings’ biggest competition wasn’t sleep, it was mooching – loaning, borrowing, using someone’s paid access to watch a show…at the expense of the main subscriber.

McLennan estimates that Netflix loses as much as $192 million every month due to password sharing.

In addition, the shift to digital and Internet production/distribution have negatively impacted the entire M&E ecosystem.  

While DRM (digital rights management) has proven to be modestly successful, it is still ineffective in stopping piracy that is surging…everywhere.   

Pirates Rising – While they still offer added benefits like malware, pirate sites have also polished up their act with a clean, easy-to-navigate user experiences that makes “borrowed” content almost feel legitimate.  

“In 2018 and 2019 there were signs that piracy was slowing in many parts of EMEA and APAC,” McLennan noted. “But with people confined during the pandemic, piracy surged over 40 percent. That viewing habit shift could become a new behavior and certainly runs the risk of becoming more accepted around the globe.”

“The more services overlook password sharing, the more people think it’s O.K. to download or stream a show now and the more it will become an acceptable viewing option,” McLennan said.  

“Very few people think of it as actually stealing and the industry has done almost nothing to bring this to their attention through education,” he noted.

Obviously, streaming services can’t address the issue as the RIAA did years ago and sue people because we all know how that turned out. The industry got a very blackeye.

However, ‘friendly’ reminders or thoughtful discussion will certainly help minimize the problem because it’s not going away.

Missed Revenue – While content services put on a brave face and tell the world, ”see how popular our stuff is,” everyone is stealing it. But at the end of the year, when the earnings report is published, what the numbers really mean are lost sales, lost opportunities.  

Being in TorrentFreak’s top ten list doesn’t prove how popular you are but rather how much you lost:

• 130.5B viewings worth of US-produced TV episodes were pirated.
• TV shows remain the most-popular content among pirates with more than 110B visits to pirate sites last year.
• Illegal downloading of copyrighted materials consumes 24 percent of global bandwidth.
• Annual global movie industry revenue losses are about $97B.
• The proportion of global Internet users who are borrowing account credentials has increased from 8 per cent in Q1 2019 to 11 per cent in Q1 2020.
• Ampere estimates that there are 70 million households borrowing one or more OTT accounts across 22 markets worldwide.
• The trend is highest in India, followed by the Netherlands and France. The lowest is in Japan
• Account borrowing is growing fastest in the UK, China and Indonesia.

Dedicated Fans – Regardless of the country they live in, there are certain people who just have to watch their teams compete.  They say they are willing to pay for streaming the event to their screen; but then they tell themselves heck, it’s only one game.  They’re not really pirates, just weekend warriors.  

“A great proportion of pirating is sports related – soccer, rugby, basketball, baseball, football – because sports are seasonal,” said McLennan. “Since people don’t feel they watch enough to justify a subscription, borrowing credentials and pirating are perceived to be ‘reasonable’ solutions.”  

He cited a recent Synamedia report that found loyal stalwarts (26 percent of respondents) live football-focused lives using pay TV.  

While almost all of the respondents felt it was wrong to watch pirate sports content, more than 35 percent do it at least weekly, more than 50 percent at least once a month.  

In addition to “educating” sports fans and general entertainment viewers, McLennan suggested that a better solution to “one price fits all” approaches would be for for content owners and streaming services to offer viewing packages that have varied ranges of sports/entertainment options as well as multiscreen and multiviewer options.  

“People have become accustomed to visiting websites and streaming their entertainment regardless of its origin,” McLennan emphasized.  “If they;re already paying for three or four established streaming services, adding the cost of another service for a few shows would be challenging–especially when a more user-friendly pirate site can meet their occasional needs,” he added.

Producers, actors and the filmmaking crews agree with Argo’s Lester Siegel who said, “If I’m doing a fake movie, it’s gonna be a fake hit.”

However, today’s streaming services have to take the long-term view…what appeals to consumers.

Andy Marken – andy@markencom.com – is an author of more than 600 articles on management, marketing, communications and industry trends in media & entertainment as well as consumer electronics, software and applications. An internationally recognized marketing/communications consultant with a broad range of technical and industry expertise in storage, storage management and film/video production fields; he has an extended range of relationships with business, industry trade press, online media and industry analysts/consultants.