The State of OTT 2021
One of the most-used phrases of 2020 went along the lines of, "COVID-19 accelerated remote/streaming/cloud trends already in play." Far and away the biggest impact on media and entertainment was the rocket that the pandemic put under streaming video and the almost overnight pivots that media organizations made to keep pace.
With nowhere to go but home for large parts of the population for most of the year, coupled with a related stoppage of live events, audience-based TV shows, and virtually all cinema distribution, we escaped to video on demand (VOD). Linear TV viewing also rose, it's true, but the existing fault lines between pay TV/broadcast and streaming services became chasms.
A November 2020 survey by TransUnion found that 71% of U.S. consumers increased their use of paid streaming services since the pandemic began in March. On average, consumers are spending 3–4 hours a day watching streaming media, with 55% choosing this type of entertainment instead of opting for a cable-TV subscription.
"Making Screen Time Family Time," a report published in December 2020 and authored by ad-supported video-on-demand (AVOD) network WildBrain Spark and analyst firm nScreenMedia, revealed that family co-viewing is here to stay. Of the 3,000 U.S. parents surveyed, 75% said they watch video content with their children several times a week or more. This result cuts across gender, children's ages, household income levels, and marital status.
Everybody Is Streaming More
The average 18- to 24-year-old American now spends more than 1 hour and 40 minutes each day watching subscription video-on-demand (SVOD) services, according to Ampere. The 25- to 34-year-old group shows similar behavior. It is well-understood that younger consumers watch more SVOD content, but Ampere's data suggests that the typical 55- to 64-year-old's OTT viewing increased by more than 50% between Q3 2019 and Q3 2020. "At face value, this trend would imply that by 2025, 55- to 64-year-olds will be watching as much SVOD as 18- to 24-year-olds do now," says Richard Broughton, Ampere's research director.
Related data from Futuresource Consulting concludes that, globally, the oldest demographics spend the majority of their time watching linear TV, while SVOD and AVOD services absorb the majority of viewing time of the youngest. "The burning question is whether these younger age groups will adopt the habits of their parents and grandparents as they grow older, or will their current video behaviors remain with them as they age?" asks Futuresource Consulting analyst Tristan Veale.
Despite increased competition among streamers, the number of platforms for which consumers have subscriptions may have hit a plateau. TransUnion found that 44% of U.S. consumers currently subscribe to an average of three to five SVODs, while only 7% are subscribing to as many as seven to 10. And 67% said they don't plan to cancel any of their existing subscriptions.
DTC Explosion: Multiple Successes …
The direct-to-consumer (DTC) explosion that began in 2019 continued apace in 2020, with streaming consumption aided by stay-at-home orders. For The Walt Disney Co., the pandemic was a double-edged sword. The closure of its theme parks contributed to a nearly $5 billion shortfall in revenue in Q3 2020. However, the company's "real bright spot," as identified by CEO Bob Chapek, was Disney+, which exceeded even the most ambitious of targets by amassing 86.8 million paid subscriptions by the end of 2020.
As of Dec. 2, 2020, Disney's entire portfolio of DTC services topped 137 million global paid subscriptions, including 11.5 million ESPN+ subscribers and 38.8 million Hulu subscribers alongside its Disney+ number. Disney bosses expects Disney+ to reach 230–260 million subscribers by 2024, with its total streaming portfolio hitting 300–350 million in the same period.
Disney+ blew past its subscriber goals, reaching 86.8 million paid subscriptions by the end of 2020.
The DTC business is key to the future of the company, said Chapek in a statement outlining Disney's corporate reorganization around DTC. Under the new structure, Disney will focus on developing and producing original content for the company's streaming services, as well as for legacy platforms. In addition, Disney's new international streamer, Star, was scheduled to launch in February 2021 in Europe, Canada, Australia, and New Zealand and will launch as Star+ in Latin America in June. Star will contain content from Disney-owned brands, including Disney Television Studios, FX, and 20th Century Studios, and will deliver originals as well as more than 35 first-run series by the end of its first year. What's more, content will be originated independent of the end distribution platform, clearing the path for feature films that were once destined for theatrical release to be additionally or solely released online.
Market leader Netflix had a stellar Q1 2020, piling on 15.8 million subscribers. It was forecast to hit 34 million paid net adds for 2020, beating its previous annual high-water mark of 28.6 million in 2018. Netflix's latest figures, from September 2020, report 195.15 million paid customers worldwide, up 23.3% year over year, with 73% from the U.S. and Canada.
Netflix told shareholders to expect subscriber growth to return to pre-COVID levels in 2021. In addition, it said, "We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long-run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service."
There were analyst concerns that the long lull in production would negatively impact Netflix down the line. Netflix, however, says it still expects to release more originals in 2021 than in it did 2020.
WarnerMedia launched HBO Max in May 2020 to build on the existing market share of HBO NOW and HBO GO. With a $14.99 per month fee, HBO Max is one of the most expensive SVOD offerings. By the end of 2020, it had attracted more than 12.6 million subscribers and is apparently still on track to hit 75–90 million subscribers globally by 2025. HBO Max has yet to expand internationally, but is scheduled for a European debut in the second half of 2021.
Although it's one of the most expensive SVOD services on the market, HBO Max drew more than 12.6 million subscribers in less than a year after its launch.
The decision to stream Warner Bros.' entire slate of 2021 movies, including The Matrix 4 and Dune, on HBO Max alongside a theatrical release seems designed to light a rocket under that plan. AT&T CEO John Stankey suggests that the future of movie distribution has changed fundamentally and that the ultimate window is DTC. (AT&T owns Warner Bros.) "It's really important that we have a direct relationship with consumers," he says. With the pandemic closing theaters and interrupting the production of TV shows, "it's important that these new distribution platforms scale faster for fear of being left behind."
Apple hasn't yet released 2020 figures for Apple TV+, but according to Ampere, it could have had around 40 million subscribers as of December 2020, based on estimates that it had 34 million subscribers as of January 2020. Some believe it is on track to hit 100 million subscriptions by 2025. "As most Apple TV+ subscribers are non-paying and the service continues to have a relatively limited catalogue, … customer retention will be a challenge," says Fateha Begum, principal analyst at Omdia.
Apple TV+ has struggled, even with surprise hits like Ted Lasso.
In October 2020, Apple announced the extension of its 1-year free trial to February 2021, as well as the launch of Apple One, which bundles a number of Apple services, including Apple TV+, at a discount price.
… and One Fail
The out and out fail of 2020 had the most unique business model. Quibi lasted just 6 months and attracted a fraction of its 7.4 million target subscriptions before founder Jeffrey Katzenberg pulled the plug. Arguably, the premium, short-form, mobile-only streaming service never stood a chance, as so many members of the young working population it targeted were stuck at home on Zoom. But critics picked up on other reasons for its flop. Its $1 billion of funding failed to buy any radical watercooler content, and users were unable to watch on anything other than a mobile and couldn't share clips on social media, which is a disaster for trying to score a youth audience. Katzenberg and CEO Meg Whitman blamed the "changed industry landscape and ongoing challenges" and acknowledged that "the idea itself wasn't strong enough to justify a standalone streaming service. …"
On the technology side, Quibi's Turnstyle screen feature, which allows viewers to switch between landscape and portrait viewing on mobile, is the subject of a patent infringement claim by interactive-video company Eko. Although Quibi is in the process of shutting down its business, the suit is ongoing.
AVOD Rises Above the Pack
NBCUniversal is pinning its hopes for Peacock's market traction on a business model that differentiates it from its studio-backed VOD competitors. It offers an ad-supported free tier alongside a premium ad-supported tier ($4.99 per month) and an ad-free ($9.99 per month) tier.
In December 2020, 6 months after its launch, Peacock notched 26 million subscribers. It's widely considered that, unlike AT&T or Disney, NBCUniversal owner Comcast doesn't view its streaming service's success as a zero-sum game (yet).
NBCUniversal's Peacock, which offers both ad-supported and ad-free tiers, racked up 26 million subscribers in its first 6 months.
Interestingly, HBO Max plans to launch an ad-supported tier this year to attract subscription-fatigued and financially pinched consumers.
Fox Corp. (owned by the Murdoch family and separate from 21st Century Fox) jumped on the bandwagon in March 2020 by purchasing AVOD service Tubi for $440 million. Tubi has one of the largest catalogs of film and TV shows around, including titles from the Star Trek, The Fast and the Furious, and Stargate franchises.
"Tubi will immediately expand our direct-to-consumer audience and capabilities and will provide our advertising partners with more opportunities to reach audiences at scale," said Lachlan Murdoch, Fox's executive chairman and CEO, following the purchase. "Importantly, coupled with the combined power of [Fox's] existing networks, Tubi provides a substantial base from which we will drive long-term growth in the direct-to-consumer arena."
According to Ampere's Broughton, Tubi "offers Fox a new opportunity to diversify its now-diminished content distribution portfolio and reach some of those consumers it may have lost from its broadcast channels." He adds, "Library size matters more for AVOD than for SVOD providers. … AVOD services, in order to make money, require their users to view content and the accompanying commercials. Tubi's large and genre-diverse catalogue is therefore well suited to ongoing monetisation of users."
If the story of 2020 and 2021 was largely of pandemic-propelled streamer growth, then 2022 and beyond is shaping up to be a period in which the industry has to adapt to a more complex ecosystem.
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