It is difficult to overstate the scale of the transformation TV viewing has undergone over the last decade, and which accelerated during the pandemic. The content consultancy and show-tracking service provider 3Vision, recently hosted a seminar where it reviewed the silent war being waged by streaming services, and the strategies and dynamics that are emerging as they battle for market share.
Perhaps one of the most significant developments in the D2C streaming war is the move away from content acquisition towards production, and the vertical integration of studio and service pipelines, which will restrict the distribution of content to non-owned services.
According to data collected by 3vision, Amazon Prime still continues to increase its content acquisition, acquiring seven SVOD TV premiers in 2020/21, up from four in 2019/20, and two in 2017/2018. However, Netflix – the current largest global SVOD platform – has decisively shifted away from acquisition to production, with the number of SVOD TV premiers acquired by the service dropping from 17 in 2017/2018 to only one in 2020/2021.
With greater focus on production, studio services are now relying on their own pipelines, selling content to themselves at a much higher rate. In 2020/21, 67% of TV series premiers in Europe were sold by studios to their own services, almost doubling the percentage from the previous year and more than tripling it from 2016/2017. In particular, Disney and Lionsgate have led the charge with regards to selling-to-self – this year, 93% and 100% of their studio content respectively, were sold to their own services.
Another significant leap in the sell-to-self direction was made by NBCUniversal: in 2019/20, it sold 91% of its studio produced content to third party services, but then reversed radically in 2020/2021, selling 64% of content to its own services – over seven times more than the previous year. A portion of this content was sold to its Pay TV and free TV services. With Disney, WarnerMedia, NBCUniversal and Lionsgate all increasing sell-to-self activity, vertical integration of service pipelines clearly represents a rising phenomenon with significant ramifications for the TV ecosphere at large.
The speed at which vertical integration can occur is constrained by pre-existing content deals, as demonstrated by the 3Vision graphic below; however the vertical integration levels for show premieres in many of the largest regional markets are already either well above or close to 50%.
Strategy: cooperation, partnerships and niches
The strategies of smaller SVOD players are now tending towards a greater degree of cooperation, with cross promotion and co-commissioning of content, as well as joint ventures and partnerships. Discovery and WarnerMedia are now heading towards a partnership, which, Jack Davidson, suggests, is a “recognition that they weren’t big enough alone to succeed”.
Similarly, NBCUniversal and ViacomCBS have announced a joint venture in the form of SkyShowtime, the new SVOD service which will leverage Sky’s experience with D2C and ViacomCBS’ content and brands. It is expected to be made available in 22 European territories by 2022, including Albania, Portugal, Bulgaria, Croatia, Spain and Sweden, with Paramount+ streaming services being rolled into the platform across the continent. In core Sky markets (UK, Ireland, Italy and German speaking countries), NBCUniversal will also launch its D2C service, Peacock, on Sky owned platforms.
While Netflix currently leads in terms of content volume for the niche, the merger of WarnerMedia and Discovery will see Netflix relegated to second place, demonstrating how smaller SVOD players can leverage smart distribution agreements to compete with even the largest SVOD platforms in certain niches.
Pre-existing content deals and distribution challenges
Channel owners like ViacomCBS and NBCUniversal are adopting partnerships and distribution deals as strategies, in part, to combat the problems they face when rolling out streaming services across new markets. 3Vision emphasised that a key challenge facing studio SVOD platforms is having to maintain their traditional distribution commitments, while being unable to compete with the heavy spending of larger SVOD platforms – the estimated combined content spend of AMC networks, ViacomCBS, Lionsgate, and Discovery on D2C is still smaller than that of Disney alone for 2021.
Discovery is an instructive example. Jack Davidson, EVP of 3Vision, reckons that, despite Discovery+ reporting significant subscriber growth, the rate of increase is arguably disappointing given that their D2C platform was rolled out in some of the largest markets in the world, including India and the United States. In addition to this, much of its subscriber growth can be attributed to discounting or bundling, which may see Discovery+ experiencing low retention levels and fewer conversions, when the service ends. He remarked: “They’re walking a tight rope between Pay TV partnerships, which are so critical to their existence ‘in bundle’ in many markets, and a D2C launch. And in some markets they have their very considerable Free TV interests to be concerned about.”
Another factor slowing regional roll outs of newer D2C services is pre-existing content deals, which act as a constraint on their rollout timelines. Jack Davidson highlights the obstacles facing WarnerMedia in this regard, complicating its efforts to quickly penetrate key European markets. “In this case, the problem is the pre-existing content deals in markets that make the roll-out a great deal more complicated. Everyone faces challenges with content…but some are aggressively buying their way out of deals, others are waiting for them to expire, and some are tailoring their rollout and their product strategy to suit. With Warner there remain pre-existing deals in key valuable markets, most notably in Sky territories.”
Despite WarnerMedia announcing the roll out of HBO and HBO Max across 60 countries by the end of 2021 in March – including 21 in Europe – it has scaled back its timeline ambitions, with the D2C service launching only in six new European territories this year and expecting to launch in 14 more countries where it already has a streaming presence (mostly in Eastern European territories) in 2022. 3Vision expects that WarnerMedia has found Europe a complicated market to navigate, and believes the media owner intends to focus its efforts on Latin America by improving the services that are already in place, and which are set to be converted to HBO Max. WarnerMedia’s plans with regards to Africa and the MENA region are unclear at present time.
The move of media owners towards streaming services is also reflected in the commissioning of U.S. scripted TV premieres. Figures presented by 3Vision (acquired from their show-tracking research) reveal that U.S. scripted premieres that were broadcast (either on Pay TV or free TV) have shown a pattern of decline over the last five years, while U.S. SVOD scripted premieres have generally risen – notwithstanding a small drop experienced in 2020. Netflix has led the commissioning spree, with 44 new scripted premieres gained for its platform in 2021, vastly outstripping its D2C competitors; Disney+ has commissioned ten new scripted seasons this year, while Hulu and Amazon Prime Video have commissioned nine each, and HBO Max, six.
How the SVOD platforms are performing
SVOD platforms have seen an extraordinary subscriber growth in the last two years, with Netflix boasting 209 million total global paid subscribers in Q2 2021, up from their 167 million pre-pandemic figure. Disney has also experienced startling SVOD success within the same timeframe, with 116 million total viewers subscribed to Disney+ and an increase of 93 million globally.
The degree to which media groups with a Pay TV and free TV heritage have succeeded in capturing streaming market share has been varied. ViacomCBS has recently revised its investor KPIs to reflect global subscriptions, showing impressive growth from 29.9M in Q4 2020 to 42M subscribers in Q2 2021. During the same period, global HBO and HBO Max subscribers have risen by 7 million, to 68 million total. Smaller players in the D2C streaming wars include Discovery and Lionsgate, with 18M and 17M total streaming subscribers respectively each, and AMC networks, which has racked up an approximate 6-9M streaming subscribers across its OTT services.
The performance of other SVOD platforms is more difficult to gauge, or compare directly, in the absence of a standardised set of KPIs reported by all streaming platforms – the most straightforward indicator being the number of paid subscribers. Amazon, for example, reported 175M global Prime Video users in 2020; however, its SVOD service is bundled with its Prime package delivery, making a direct KPI comparison with other SVOD platforms less meaningful. Similarly, NBCUniversal is only reporting its Monthly Active Users (MAU) – claiming a global reach of 100M in 2021 – while AppleTV reports 40M global users, but a high percentage of that figure will receive the service for free, as part of a bundled package.
In the United Kingdom, BARB – an audience measurement company – estimates that 18.8 million UK homes currently subscribe to an SVOD platform, up from 17.4 million at the end of 2020. U.S. consumer spending on traditional TV services fell by 8% to $90.7B in 2020 alone, according to a report published by U.S. Subscription TV Forecast, while spending on streaming services soared, growing by 34% and reaching $39.5B. Digital TV Research estimates that 2020 represented the biggest boom for SVOD platforms, with 201 million new subscribers added globally. It further forecast that the total number of TV streaming subscribers will cross the 1B mark this year and climb to 1.64B by 2026.