The Great Streaming Pullback Will Have Consequences

Does responsible spending lead to increased churn? More ads?

Losing billions is out. But will fiscal responsibility in streaming lead to more consumers to bail?

That’s a big question facing the TV industry, which is suddenly touting its restraint. Consider that:

·       Warner Discovery boss David Zaslav, who appears to enjoy Knick games about as much as a trip to the DMV, recently talked up that HBO Max/Max will be profitable this year, and is “no longer bleeding” cash. That reality has surely been helped by the fact that Zaz has spent the past few years severely cutting back on Max’s output

·       Paramount’s stock got hammered last week as the company unveiled a $1.1 billion short term streaming loss. But CEO Bob Bakish spoke about this year representing “peak streaming investment” while predicting that Paramount+ will make money next year

·       Peacock is bleeding cash for NBCU, but this year is it! “As we have said before, we believe 2023 will be peak losses for Peacock, and from there [they will] steadily improve,” said Comcast president Michael Cavanagh recently.

·       Even Netflix has even kept its spending flat for several years

·       And of course, Disney said yesterday it is looking to curtail losses for Disney+ by pulling a bunch of shows from the service. Under CEO Bob Chapek, the company has already said it plans to making fewer programming bets for streaming.

• Alex Sherman @sherman4949 Disney will be removing content from its streaming services and will take a $1.5b-$1.8b impairment charge. Disney will produce "lower volumes of content," CFO says. It's the David Zaslav playbook!

Translation- these companies are all going to spend less, and therefore make less stuff, while expecting you to keep paying the same – or more likely higher – prices.

Throw in the fact that Max, Disney and even Netflix are said to reconsidering their strategy of stockpiling/hoarding content for their streaming services. After actively looking to pull back from syndication as the streaming wars heated up, most are now considering it. Plus, Disney and Max are planning to pull back on streaming-only franchises to reemphasize theatricals. Even Amazon is taking a whole bunch of its Prime originals and dumping them on the free streaming platform FreeVee.

So those streaming services you pay for are about to become both less robust and less special.

• CNBC: The streaming wars are over, and it’s time for media to figure out what’s next

What’s next is tricky. My question is, when do consumers start to recognize the fact that the streamers they signed up to pay for are not only giving them fewer shows, the shows and movies they are offering are less exclusive (e.g. it’s cool to have all the Star Wars movies on Disney+ -yet it kinda feels like Star Wars is on TV all the time). Think of it this way - if you’ve signed up to pay for this newsletter, which I generally put out once a week – how would you feel about me randomly switching to posting something once a month but still charging you the same rate? (wait seriously, would you be cool with that?)

Jordan Levin, General Manager of the gamer-focused media company Rooster Teeth, offered something of a cautionary tale for the streaming giants. Rooster Teeth - which was once part of Otter Media, and was then acquired by Fullscreen and ultimately ended up inside of WarnerMedia, went all in on subscription content in the late 2010s.
Now it’s all out.

“The SVOD phase of the company proved we could produce great content,” he told me this week’s episode of my Next in Media podcast. “But the SVOD model in and of itself wasn’t a viable model.”

Levin knows the media business. He ran the WB network back in the early 2000s, and even had a stint running content at Microsoft’s failed Xbox-as-a-streaming-platform experiment. He wonders if Rooster Teeth’s expereince serves as a “canary in the coal mine” moment for the streaming wars.

“The streaming business is experiencing overall a recognition that keeping everything in a sealed ecosystem can get very costly,” he said. “The economies of scale didn’t allow that to become a viable business model.”

Let’s point out the obvious - there is a significant scale gap between a Paramount+ and a service that caters to gamers, animation fans and the like. Rooster Teeth was always likely going to be a big niche.

Still, there are lessons to be made when you start taking things from consumers. They notice and care. “We’re adjusting to post SVOD world,” Levin said. “That requires recognizing the reality that you are taking something fundamentally away. You are not providing the volume of premium content that you used to. To fans, that feels like a pull back.”

What remains to be seen is whether fans of Peacock, Max, Paramount, etc. start feeling evidence of a pull back, and start looking for reasons to pull back on subscriptions? Most consumers are already at a breaking point with the number of services they can stomach paying for. You could argue in the case of a Rooster Teeth, its fans may be even more forgiving, given that this is such a passion-driven community. Which streamers have anything that resembles a community? (maybe Netflix?

My prediction – as the spending pullbacks take effect - not to mention the writer’s strike - we’ll see lots more people dumping services altogether, or downgrading to ad-supported options. Or maybe people will start watching FASTs even more. All of which could be a win for brands, who want more CTV inventory. It may even help some of these media giants improve their average revenue-per-user.

But that number only really matters if you have a lot of users to begin with. With fewer shows and higher prices, something’s got to give.