1. Both Linear And Streaming See Losses And Layoffs

The holiday season has unfortunately brought news of large scale layoffs at companies ranging from CNN to AMC to Roku, along with a dawning recognition that perhaps the path from linear to streaming is not going to be strewn with rainbows and unicorns and that good old Jeff Zucker was onto something all those years ago when he issued his famous comment about trading linear dollars for digital dimes.

There’s also the thing that nobody seems to want to talk about, the industry’s own Voldemort.

Which is that streaming is not, in and of itself, a bad or unprofitable business. It’s that without all those billions (with a “b”) that media companies made from carriage and retrans fees, it’s never going to be anywhere near as profitable as traditional broadcast and cable.

Ever.

Why It Matters

For those of you unfamiliar with the business, retransmission (retrans) and carriage fees are what MVPDs and vMVPDs pay to the broadcast and cable networks (local stations too) for the right to retransmit or carry their signals.

These fees are why Dish always seems to be feuding with one network or another—they are often outrageously high because they can be passed on to consumers in the form of higher bills, so many MVPDs didn’t bother to do a whole lot of negotiating.

That is, of course, a problem now, because all those media companies came to rely on those billions which allowed them to pay fat salaries, fat production fees and otherwise avoid fiscal responsibility.

Sort of like one of those thousand-dollar-a-day-for-life lottery jackpots, only even more lucrative.

The industry has been telling itself for years that streaming will usher in a period where revenue comes from fewer, better-targeted ads that brands will pay more money for and that viewers won’t mind watching.

Which is true to a point.

Some brands—DTC brands, for instance—will pay more money for better targeted ads because their goal is to use the ad to sell a product.

But the big brands, the ones who spend hundreds of millions on TV each year?

Not so much.

Their attitude is that TV is a reach vehicle and the demo they want to reach is “everyone with a mouth” or “everyone who wears shoes” and so the precise targeting offered by streaming is of little interest to them.

They’re interested in branding and burnishing their image, maintaining a positive impression among people who have been aware of their products and services since birth. For those brands, the main goal of the advertising is to ensure that they continue to remain in the consumer’s consideration set.

Hence the growing popularity of contextual-based targeting on streaming, something we explore in detail in our upcoming Special Report on Advertising on the FASTs.

Back to retrans and carriage fees though.

There is a chance—an outside chance, but a chance nonetheless—that they will come back to life.

In this scenario, the more popular streaming services put the screws to the various connected device OEMs and tell them that if they want to have their service on their device, they need to pay up.

That scenario is, however, highly unlikely in that (a) the streaming services need the device OEMs more than the device OEMs need the streaming services, especially in a time of massive churn (more on that in a moment) and so the payments are more likely to go in the opposite direction, with streamers paying for placement and promotion on the OEM’s home screen and (b) the existence of dongles and casting provides viewers with an easy workaround should their smart TV not have a particular service they want.

So there’s all that.

What You Need To Do About It

If you are a media company, you need to plan for a future where you are profitable, just not wildly profitable.

That will involve a decent amount of belt tightening which will make you unpopular in the other corners of the industry as those other corners have come to see you as a source of unlimited funds, aka The Money Tree.

Ignore them and continue to retrench for the days when ad and subscription revenue will be your only sources of income.

If you’re everyone else, stop being so surprised by the way this is all shaking out. 

Ad revenue was never going to replace all those billions. 

Ditto subscriptions, even if you do somehow manage to get rid of all those shared accounts.

2. Churn Picks Up

In unsurprising development #2 this week, streaming services are experiencing a record amount of churn.

I say “unsurprising” because what exactly did anyone think was going to happen when there are so many fairly similar options out there all vying for a limited amount of time and money.

At some point it was going to dawn on viewers that “hey, I have not watched this streaming service in three months so why am I paying them ten dollars a month?”

Which is not to say that they won’t resubscribe at some point.

Just that people are becoming more judicious about their subscription dollars, especially as fears of a recession swirl.

Still, it presents a major problem, especially for the ad-supported subscription services, e.g. all of them.

Why It Matters

If you are selling advertising, you want to be able to sell it in advance, which means that if you have 12 million subscribers in February, you want to be able to guarantee advertisers that number won’t drop to 8 million come July.

Similarly, acquiring new subscribers is expensive. 

Sometimes it happens because you have the hot new show of the moment. But mostly it happens because you’ve invested in marketing and other promotions. Which is not cheap and and if you’re spending money on re-acquiring subscribers, that’s money you’re not spending on other things.

The two-steps-forward, one-step-back approach also messes with subscriber growth numbers. Services do not break down how many new subscribers are actually old subscribers coming back versus people who’ve never subscribed before. 

So yes, a streaming service may add two million subscribers in a quarter, but if only 200 thousand of them are net new, that’s nothing to brag about.

There’s also “Internal Churn” where subscribers drop down to the ad-supported tier for periods where they don’t want to fully drop the service, but then they barely watch it, meaning there’s not much ad revenue coming in either.

So there’s all that and it’s why we are likely to soon see The Great Rebundling, given that bundling is the most surefire way to reduce churn. 

At least for a while, anyway.

Streaming service bundlers are likely to include the MVPDs who have zero allegiance to their current broadcast and cable bundles, which are merely loss leaders by now anyway.

They can easily bundle broadband and streaming, using the potential “strain” of the additional streaming services as a reason to upgrade consumers to a more expensive broadband speed, while throwing in some broadcast and cable options or even a full-on vMVPD for anyone who is interested.

We might also see the TV OEMs doing some form of bundling, including streaming subscriptions included in the price of the TV

The industry might also take a page from Sky Glass handbook and we’ll see OEMs partnering with an MVPD to offer a streaming+broadband bundle, where the TV is thrown in as part of the monthly fees, essentially leased like a cell phone and replaced every four years.

The possibilities are endless, but the net result—viewers locked into streaming subscriptions for a year or two in exchange for a lower price, is finite and likely where we are heading.

What You Need To Do About It

If you are a streaming service, bundling is indeed going to be how you keep audiences from churning as it will lock them in for a full year and whatever discount you offer is likely going to cost you less than the money you’d have to spend to reacquire them.

Something to think about.

If you’re a consumer, there are pros and cons to bundling—lower prices for sure, but you are locked into a service for a full year. Best gauge is that if you’re someone who thinks about unsubscribing from services you no longer watch but never actually bothers to do anything about it, then the new bundles may be for you.

If you’re a smaller MVPD and you’re interested in pulling together a streaming bundle, then MyBundle.TV is a good place to start. Similarly, if you are a streaming service and you want in on some bundle action, then Paket.TV are your guys.