Streaming services, and large media companies who own one, have gotten significant media coverage recently.  Most of the headlines have been tied to quarterly earnings or the introduction of ad supported services from Disney and Netflix, but virtually all coverage made references to slowing subscriber growth and accelerating programming costs.

Focusing on subscriber growth:  It is not surprising year over year growth rates have slowed.  For one thing, many YoY comparisons are to COVID elevated growth numbers.  But more fundamentally streaming penetration is reaching a limit. 

According to a report by Kantar, 85% of all US household subscribe to at least one streaming service, and while 100% penetration is theoretically possible, 85% is probably at, or near, the top end. 

Further, Kantar estimates the average US households uses 4.7 services – which also seems high.  The high category penetration and “stack” of 5 services suggests that future subscriber gains will not come from category growth but rather from switching -- which we are starting to see. 

Recent studies from both Nielsen and Kantar suggests that consumes are capping monthly spending on streaming and beginning to switch between services for either new content or for promotional pricing. 

Which leads us to programming:  Economic theory suggests that when demand increases and supply is fixed, price will rise – which is exactly what is happening to the cost of programming. 

More and more streaming services are competing for a limited supply of high-quality content – pushing programming costs higher.  Today, according to Kagan, the cost of entertainment programming has almost double in the past few years (and that does not include sports programming which are growing faster).  This has streaming company CFOs scrambling to close a gap between slowing subscription revenue growth and rising costs – hence Netflix and Disney decisions to offer an ad supported service.

Which ends with advertising:  Most media are subsidized by advertising and while advertising is a complicated business, its business model is simple:  total advertising revenue is a function of inventory, sell through and price.  All streaming services will be under pressure to have and sell ad inventory. 

No one is rushing to create 12-14 commercial minutes per hour of linear TV programming, as that would deprecate the streaming experience, but there is pressure for ad opportunities and for advertising revenue. 

One innovative idea is technology-driven product placement. i.e. technology that both creates post-production product placement opportunities in streaming content, and technology to place products into those placement opportunities. 

One company doing this is Mirriad.  While product placement has been around for a while, the mainstreaming of IP delivered TV opens opportunities for digital ad technologies to advance in streaming services.   This idea has potential for 3 reasons:

1. It puts brands in front of consumers when they are engaged with content (not running to bathroom)

2. It helps streaming services close the ad revenue gap

3. It does not deprecate the consumer experience with more ad breaks.

 Streaming services have given consumers control of not only what they watch but also when, where, and how they watch video content – and is winning consumer’s hearts and minds (and time) – that Jeanie is not going back into the bottle – if the industry wants linear-like TV ad revenue it needs to develop creative ways to generate it – Mirriad might be on to something.

BTW: I was originally against ad supported streaming services because I thought I was paying to eliminate the ads – but have come to accept the monthly subscription fees and the lighter ad loads. These services tend to let you know where the ad breaks will occur and precisely how long they will last.  When the commercial break starts, I see the clock and know I have 60 or 90 seconds – at which time I ask myself, do I have enough time to run to the kitchen and grab a snack – in short “do I feel lucky”.