While Strikers Walk, The Issues They’re Fighting Are Only Getting Bigger
Data points, data points, data points. A lot of data points have been popping up lately that together, piece in an admittedly pointillist portrait of the state of streaming and related entertainment. That the picture is emerging while most of Hollywood is stuck on the sidelines or walking picket lines because of two intransigent strikes only suggests that solving issues that led to those strikes is only getting more difficult. To put it bluntly, all the problems that actors and writers are concerned about are just getting bigger and more intractable.
Legacy broadcast and cable now attracts less than half of all “TV” viewing, for the first time, while streaming is up to 38%, according to Nielsen. But you probably knew this bit, because it’s been getting a lot of attention. It is some sort of Rubicon, a notable marker on a much larger journey to perdition. But It’s also worth noting how much of the business remains in legacy TV, with perhaps 60 million households still getting traditional cable, and the virtual MVPDs getting another 8 million to 10 million subscribers. The old cable business may be falling apart, but it’s still generating plenty of money for someone. Meanwhile, it’s also clear that while people dislike many bits of the cable experience, the bundle still has benefits for lots of people. One of those may end up being that it’s becoming more price competitive as each streaming service turns to substantial price hikes to get closer to profitability by next year.
Good news for all those owners of aging libraries. Perhaps just a summer thing, or a middle-of-two-strikes thing, but the most-watched English-language series on Netflix was NBCU’s Suits, a 12-year-old series that ran on USA Network for seemingly ever. Perhaps many people didn’t realize they had USA Network back then, or that one of the stars would marry a prince later, but Netflix did what Netflix does. It took an old show with a small but ardent fan base from somewhere else and blew it into a big deal that millions of new fans had never seen. It’s a sign of returning sanity that media companies are ending their self-immolating refusal to license library product outside their own streaming operations. The self-dealing was going to become a lawsuit magnet if it continued, and now the mediacos are making real money on shows they paid for a long time ago, and that no one was watching. How soon before companies stop trying to run their own services and just get back to what they know: making popular programming for a variety of distributors?
Speaking of pricing, subscription services have hiked prices a whopping 25% in a year, the Wall Street Journal reported. By comparison, that sort of naked cash grab makes cable providers in the early days of cord-cutting look positively demure. Consumers will put up with some of that for a while, but higher churn seems inevitable, especially as audiences look for ways to economize in a weak economy. At some point soon, the strikes will start impacting the pipeline of new shows and episodes in a way that will further sharpen the value equation. Even Netflix may be vulnerable if strikes continue to year’s end. The more important detail, however, is that both Netflix and Warner Bros. Discovery are making more revenue per user off subscribers to their ad-supported tiers than they are off the top-end ad-free ones.
The Financial Times suggested that, because of those price hikes, streaming is more expensive than cable. That assessment was all kinds of goofy, especially for an august publication such as the FT. Among other things, it totaled only the top-end, ad-free tiers of the big streamers to come up with its numbers. In fact, again, many subscribers are opting for ad-supported services, and maybe not all of the services as they do BYOTV bundles of streaming services. And unlike cable, the makeup of those self-created bundles can shift from month to month.
To further hammer home this point, ad-supported services now have, combined, 100 million subscribers, led by the lower-value Hulu, Peacock and Paramount+, according to data from Ampere. The analyst also projects those ad-supported tiers will generate more than $10 billion in ad revenue by 2027, three and a half years from now. Remember, the ad revenue comes on top of the subscription revenue. You’ll see even more migration to these tiers if the economy continues to worsen (and companies keep hiking prices). And who gets that ad revenue under existing labor deals?
Home entertainment spending is way up for the first half of 2023, compared to last year, according to numbers compiled by the trade organization Digital Entertainment Group. While sales of physical product, electronic sell-through, and VOD are all down double digits, one corner of the industry is still booming: subscription streaming. Revenues were up 14.7%, from $14.6 billion to $17.5 billion. That’s all but $2.7 billion of the entire home entertainment take. Not bad for a streaming sector that says it’s losing money, cutting programming, raising prices, and stiff-arming strikers while poor-mouthing itself.
We’re about to see whether Alphabet’s big bet on the NFL (Sunday Ticket for $2.5 billion a year) pays off with a migration of fans to the virtual MVPD. The smart folks at LightShed Partners speculate that Alphabet is willing to lose money on Sunday Ticket if it drives overall migration to YouTube TV, where Sunday Ticket will be available for an extra few hundred dollars a year. That price, with or without YouTube TV, is being sharply discounted right now. The most interesting thing here, however, is whether adding Sunday Ticket pulls in a much broader audience than DirecTV ever managed. It’s entirely possible that YouTube TV will benefit from a bunch of fans who, for instance, didn’t want to put a satellite antenna on their house or apartment. Now, they can easily sign up, pony up, and get access to basically whatever games they want to watch. If that shift to YouTube TV becomes substantive, it’s very bad news for legacy cable and broadcast, whose most popular programming in recent years has overwhelmingly been the NFL (and some college football games).
All of which is to say, SAF-AFTRA President Fran Drescher, was right to rant about the shifts in the industry for which her actor-union members were not getting compensated. But with both sides dug in, it’s difficult to see glimmers of possible settlement anytime soon. Meanwhile, as these glittering data points suggest, the shift to a new world of streaming mostly is barging forward, with or without a labor deal. Whenever the actors, writers and everyone else return to work, they’ll see a very different business in front of them.