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The State of OTT 2022

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The rapid growth we've seen in OTT over the past decade combined with recent major subscription video-on-demand (SVOD) launches may at last have reached peak acceleration. The market is expected to hold some of its COVID-related progression, but subscriber expansion is slowing—especially in the saturated domestic market.

Research firm J.D Power is among those reporting that the mass lockdown of 2020 acted as an impetus through 2021 for a shift in customer behavior that has permanently altered the way content is consumed. Based on a survey, it says that by June 2021, U.S. viewers increased their streaming subscriptions to an average of 4.5 SVOD providers, up from 3.9 providers in December 2020. A United Talent Agency survey from June 2021 notes that 71% of respondents plan to use more than one SVOD post-pandemic. "Pandemic behavior appeared to mostly stick, while the launch of other streamers like Discovery+, Peacock, and a rebranded Paramount+ helped increase both subscription online video homes and services per home," suggests S&P Global Market Intelligence research director Deana Myers.

According to research company Kantar, the number of American homes signing up for a new subscription was 3.9% between April 2021 and June 2021, down from 12.9% in the same period in 2020. Further evidence of slowing market growth includes Netflix's Q2 2021 gain of 1.5 million, which was down dramatically (85%) from the same period in 2020, when the company reported 10.1 million additions. Disney+'s lowly 2.1 million new subscriptions for its fiscal Q4 2021, which ended Oct. 2, 2021, are down from the 12.6 million added the previous quarter.

Disney has earmarked a whopping $33 billion for new content in 2022—about 39% more than WarnerMedia/Discovery, the industry’s second biggest spender.

Blame is attributed to stay-at-home gains petering out and dog-eat-dog competition, with consumers fatigued by choice while needing to manage their budgets. Still, U.S. homes with streaming subscriptions remained constant at 75%, translating to about 95.8 million households, according to Kantar.

The J.D. Power survey shows that average monthly household spend on all streaming services was $55 in August 2021, up 45% from April 2020. Disney, for example, raised the price of Disney+ in March 2021 to $7.99 per month, or $79.99 per year.

As observed in our article "The State of Video Monetization 2022," judging the success of SVODs on subscriber numbers alone can be misleading, since other factors, such as average revenue per unit (ARPU), are at play (and in the case of Amazon Prime Video, growth in the retailer's overall sales).

Although no new major streaming platform is expected to launch in the U.S. this year, the home market is locked in terms of growth. Streamers will have to adopt a variety of tactics just to stay in the game, let alone recoup multibillion-dollar content spends.

Streamers could pay less for content, but this doesn't seem to be happening. Content spend is rampant, with Disney earmarking $33 billion for 2022, nearly double that of Netflix' $17 billion and considerably larger than the combined WarnerMedia/Discovery war chest of $20 billion. Apple, which generated $365 billion in sales last year, has ample finances to blitz the market.

With churn at all-time highs of between 30% and 40%, content origination is one of the chief weapons in the streamer's arsenal. But to maintain growth, a massive increase in non-U.S. subscribers is essential. Other tactics include offering different service tiers, such as ad-supported options, as outlined in this issue's "The State of Monetization"; growing content libraries through M&A; wooing younger demographics with social engagement; and perhaps a more diverse content portfolio than film and TV shows. I'll explore these next.

Go Global

With Netflix and Amazon Prime Video available in most countries worldwide, competition among major streamers is now international. In 2021, Disney launched Disney+ in Hong Kong and South Korea. Peacock began its European rollout, as did HBO Max, albeit hampered by existing licensing deals—notably with Sky in the U.K., which means the U.K. market is off-limits to HBO Max until 2025.

Emerging markets in Latin America, Africa, and Asia tend to generate smaller margins for U.S.-based streamers. The Economist calculates that Disney+ makes less than $1 per month from subscribers in India, while The Hollywood Reporter says that Netflix was forced to slash its Basic plan by 60% in the same country to boost subscription growth and become less of a niche service there.

Even in richer countries, margins are lower than in the U.S. The average U.S. cable bill comes to nearly $100 a month, according to Ampere Analysis. In Britain, it is half that. And whereas Americans are ditching their overpriced cable packages in record numbers, freeing spending power for streaming, Europeans seem to be much more attached to their pay-TV subscriptions.

Increased reliance on international subscribers also means that more content is originating outside of the U.S. This process has been accelerating, with 27% of 2020's most popular titles coming from countries other than the U.S, up from 17% in 2019, Ampere Analysis' Rahul Patel reports in an article on the company's site.

In addition, Patel notes that "from January to October 2021, 37% of the 100 most popular TV shows were produced outside the USA, compared to just 9% of the top 100 movies. Canada, Japan, South Korea, Spain and the UK are emerging as production hubs of globally popular TV shows. The influence of Netflix Originals on this trend is particularly noticeable. Shows like Squid Game, Money Heist and Lupin exemplify the globally popular Netflix [Originals] produced outside the USA. Each became the top title on the platform in over 70 markets (out of the 85 tracked), with Squid Game maintaining the dominant position for at least 14 days in 75 markets."

Shows like Lupin have demonstrated the drawing power of Netflix Originals that were made outside of the U.S.

Patel continues, "This highlights Netflix's ability as a global OTT platform to promote its titles and make them worldwide hits. With more platforms, including HBO Max and Paramount+, expanding internationally, and Disney launching its suite of SVoD products in more markets, we can expect to see an increasing share of the year's most popular content coming from outside the USA."

Go Bigger

Quality, exclusivity, evergreen content, and quantity of content judged against cost are reasons consumers will duck in and out of OTT services—and why streamers are being forced to merge and acquire.

None of the current top five SVODs—Netflix, Amazon Prime Video, Hulu, Disney+, and HBO Max, as ranked in a survey by Whip Media—should be complacent. "Staying in that group will depend on having an abundance of both compelling original content and evergreen library content to satisfy users when certain originals inevitably decline in popularity," the company reports.

Apple TV+ is in the most precarious position, Whip Media suggests. That backs up a January 2021 MoffettNathanson survey that found that 62% of Apple TV+ subscribers are on a free promotional offer for buyers of Apple's hardware devices and are prone to churn. "Given the importance consumers place on having an adequate library, it's clear Apple's deficiency in this area is limiting its appeal," Whip Media asserts.

Apple has so far eschewed buying content catalogs, but that could change in 2022. Potential deals could be made for film collection Criterion, Lionsgate Entertainment, or AMC Networks, although these could also provide cannon fodder for Netflix. The May 2021 $48 billion merger of AT&T's entertainment unit, WarnerMedia, with Discovery has yet to unwind. Combining HBO Max and Discovery+ "may be awkward and possibly alienate either audience as the two have little overlap in terms of interest," suggests S&P Global Market Intelligence's Myers. However, David Zaslav, the head of WarnerMedia/Discovery who engineered the deal with AT&T CEO John Stankey, is bullish about amassing 200–250 million global subscriptions within 5 years.

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