The State of Video Monetization 2020
As we talk about monetization in 2020, only one thing is clear: The video-on-demand (VOD) and live linear market has room for every business model, from pure subscription to ad-supported to a combination of the two. Here's an insider summary of what experts are predicting for the coming year.
The number of streaming services is only getting more overhwelming. Last year, new services like Disney+ and Apple TV+ joined incumbents such as Netflix, Amazon Prime, and Hulu. 2020 will bring NBCU's Peacock, HBO Max, and an expanded service from CBS All Access that will incorporate more ViacomCBS content. All told, at the end of 2019, there were already more than 270 streaming services in the market, according Parks Associates.
"Size and pace of growth are both increasing. Viewership overall is up 72% year-over-year, and the rate of consumption has increased, growing 49% faster in Q1 2019 than in Q1 2018," according to Conviva's "State of the Streaming TV Industry" Q1 2019 report. Conviva analyzes a trillion real-time transactions per day. "The largest growth segments are virtual MVPDs with viewership up 108% and connected TVs, which grew the fastest of any device at 74% year-over-year."
According to Conviva, overall TV viewership in Q1 2019 was up 72% year-over-year, with virtual MVPDs being the largest growth segment at 108%. (Source: Conviva’s “State of the Streaming TV Industry” Q1 2019 report)
Does It Matter Where Revenue Comes From?
The subscription versus advertising dilemma is as much a philosophical one as a business one. Traditional thinking is that you want that relationship with your customer, but more traditional thinking (and technologies) didn't invent streaming. Maybe we should forget this old premise.
"It's important to figure out what you're trying to prove and build off of that," says Gabriel Berger, CEO of ThinkAnalytics, which does 5 billion recommendations a day in more than 40 different languages. "[All services] are going to have to make money.
"Disney+ talks about being cash flow positive in 5 years. How much money you have certainly matters [for] how long you stay in the game," says Berger. "At this point, the life expectancy of all these services may be a bit murky. The underpinnings of their success will be about how much they know about their audience and how effectively they communicate with them."
So, finding eyeballs for all of these services is the first task. The era of à la carte is here, and now consumers need to figure out how to buy their viewing experience. While some people question how nearly 300 services can stay in business, the capacity for viewers to seek niche content is still increasing.
"As more and more of these services come online, consumer spending continues to grow. Our consumer research at CTA for 2020 is that we're approaching $17 billion U.S. dollars in consumer spending for streaming services," said Steve Koenig, VP of research for the Consumer Technology Association (CTA), at a CES 2020 presentation.
"There are some extremely successful and tangible examples, such as WWE and Hallmark Channel, that are fostering viewership, subscription revenue, and brand loyalty. They are trying to grow their audience while learning more about their audience through data and analytics," Koenig said. By data, we usually are talking about what specific groups of viewers like, but let's first look at bigger data trends about how much viewers want to spend.
According to Deloitte's 2019 "Digital Media Trends Survey," viewers have an average of three streaming subscription services. A Hollywood Reporter/Morning Consult poll showed that OTT customers want to spend $17–$27 for all of their services.
FreeWheel's "U.S. Video Marketplace Report" for Q3 2019 shows that pricing ranges from free for Pluto TV and Tubi to $6.99 a month for Disney+ to a high of $66.24 a month for fuboTV. The chart mixes subscription video-on-demand (SVOD) and ad-supported video-on-demand (AVOD) services, so it's not apples to apples, but it shows that consumers can put together a combination of three services and stay in that $17–$27 price range if they are willing to limit their choices and exclude live TV.
A sampling of streaming services and their pricing, from FreeWheel’s “U.S. Video Marketplace Report” (Q3 2019)
"Already 80% of the public have an SVOD subscription of some kind," said Marc DeBevoise, ViacomCBS's chief digital officer, at a CES 2020 presentation. ViacomCBS's research in the U.S. shows an even larger number than some of the other research studies. "That's three and a half services [per customer], and we already see that number growing.
"[In] the research that we've done, we see about 200 million subscriptions up for grabs over the next three to five years," said DeBevoise. "There's about 180 million out in the marketplace today, and we see that effectively doubling." Netflix can't double because it already has deep market penetration. Amazon Prime is going to have trouble doubling, so that leaves the other services to pick up viewers.
Building Your Personalized Bundle
"We absolutely take the position it's not a zero-sum game. Netflix, or Disney+ for that matter, doesn't get all the subscribers, and nobody else gets any," said DeBevoise.
"I think that the really fascinating puzzle we're going to see come together over the next 5, 6, 7, 8 years is what collection of services consumers end up assembling," said Andy Forssell, EVP and general manager for WarnerMedia Direct-to-Consumer, at a CES 2020 panel. "We're not going head-to-head with Disney or Netflix. We're not trying to convince someone to leave those services. I mean, we are competing for viewing hours and for discretionary income, and we're competing on the talent side. So I wouldn't say it's not competitive, but it is oddly not directly competitive.
"I think part of that pattern is we'll see people with one or two services that they consider a base service that they're subscribed to all the time, and they may have one or two or four that are part of [the mix]," said Forssell.
Mixing It Up
This mix will still be a combination of subscriptions and AVOD. According to the "TiVo Q4 2019 Video Trends Report," AVOD dominates consumers' top service bundles. Regardless of whether you agree with its chart, AVOD makes sense if there's a limited amount of subscriptions consumers are willing to have. Viewers don't think about ad-supported services that are free in the same way they think about subscriptions. Free means no commitment, and according to TiVo's research, a lot of consumers surveyed like free.
According to the “TiVo Q4 2019 Video Trends Report,” AVOD dominates consumers’ top service bundles, showing that they still prefer online video they don’t have to pay for.
"There was some research that said people don't want to watch ads," says Matt Smith, executive director of business development and strategy at Comcast Technology Solutions. "I don't think that's true. We've all been conditioned to, in our traditional or digital viewing platforms, either sit and watch something in a linear fashion and have the ads, or if you have a DVR, you might zap through and skip through some. Or if you have a premium channel, you're used to that channel not having any ads other than promos for their own content. But today, things are evolving, things are changing. I think we are discovering as an industry, that people are okay with watching ads."
Until recently, the monetization question was either/or. "A couple of ways that publishers look at skinning that cat is the simple A or B, am I going to charge a subscription or am I going to support it with advertising?" says Smith. "I think both strategies have been successful. Now you're seeing some publishers, content rights holders, decide to charge maybe a smaller subscription fee and offer a limited ad payload," he says. "Where maybe in a pod you used to have five, six, or seven ad units, maybe now it's four and that is being subsidized by the subscription fee."
Personalization, Of Course
So that's the lay of the land. Now let's take a look at the trends to watch over the rest of 2020.
"I think the industry is getting better about delivering ad payload with relevant data so that you're seeing ads that are more relevant to you," says Smith. "I also think that many in the industry would tell you that the shining north star is absolutely personalized ads."
Personalization based on location, age, economic strata, and other data means you might be delivering different ads to different viewers. "All viewers aren't going to get the same Coke ad and then the same floor ad, they may all be getting different ads within a pod," says Smith.
While this is the nirvana, many companies are not there yet. In addition to knowing the personalized, privacy-compliant data about viewers, the ad creative then has to be available.
Trend for 2020: Identifying the best technologies to support delivering different versions of ad creative to different viewers.
The latest State of Streaming report shows that in addition to increased viewing, the pandemic has hastened streaming publishers' moves to the cloud and software-defined infrastructures.
How has the streaming industry changed in the last 6 months, and what's in store for the future? Take our Fall 2020 State of the Streaming Industry survey and get a copy of the exclusive report before anyone else.
The move to online viewing will give a large boost to the connected TV advertising market, which will grow to $10.81 billion in 2021.
Comcast Executive Director, Business Development & Strategy Matt Smith discusses the role of analytics in VOD revenue models in conversation with Streaming Media Senior Associate Editor Troy Dreier at Streaming Media East 2019.
Crunchyroll/Ellation EVP, Media & Entertainment Michael Dale discusses how to convert Ad-Supported OTT viewers to subscribers in this clip from OTT Leadership Summit at Streaming Media West 2018.