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This story is part of a Prospect series called Rollups, looking at obscure markets that have been rolled up by under-the-radar monopolies. If you know of a rollup like this, contact us at rollups(at)prospect.org.
Last month, Nielsen data revealed that Americans spent more time watching streaming video than they did cable television. In reality, that number was probably reached even earlier, if you factor in YouTube videos and streaming media on big content sites like Facebook, Instagram, Twitter, and TikTok. But crossing that threshold was a big moment for professionalized streaming content, which already dominates awards shows and cultural mindshare.
But at the same time that streaming as a service hit that milestone, individual streaming companies are in a more uncertain position than ever before. The churn of inflation makes a specific streaming service an easy disposable expense for cash-strapped households to shed, and they are doing so in significant numbers. And the opening up of more in-person entertainment as people shrug off the pandemic is generating cancellations too. This creates significant volatility for streamers.
There are only two options for executives to counteract this and make streaming services vital. They could capture more live programming, particularly live sports, which have fan bases that must see the games. Or they could essentially revert back to the cable format, through consolidation and bundling. The first risks backlash from fans having to pay for what they used to get for free. The second risks layoffs, acquisition of market power, and likely lower earnings for producers, writers, and frontline talent. Both are likely part of the future.
The latest numbers from market analyst Antenna show that 19 percent of all subscribers to premium services like Netflix, Hulu, AppleTV+, HBO Max, and Disney+ have canceled three or more of these apps over the past two years. That’s more than triple the measurement at this time in 2020. Last quarter, Netflix lost nearly one million subscribers, the largest loss in its history.
It’s easy to see why. There are many more established apps—to the above list you can add Amazon Prime Video, Paramount+, Peacock, Discovery+, ESPN+, and several more. And while peak TV means that practically all of them have something people want to see, viewers have the option of signing up, bingeing their favorites, and leaving, without getting caught with a bunch of subscriptions that in total end up being more pricey than cable. It’s the flip side of the appeal of à la carte programming: Viewers can turn it off as easily as they can turn it on.
Streaming has simply not solved the live-programming element that keeps people on the service. The one channel that attempted to rely on live news, CNN+, failed miserably.
Just about the only content that some segment of the population wants to watch live rather than at their leisure is sports, and that’s why you’re seeing streaming companies bid high to attract those contracts. Amazon Prime Video signed an 11-year deal for exclusive Thursday night NFL games starting this year, and for the first time those will be monitored with Nielsen ratings. The Big Ten conference just signed a massive contract worth at least $7 billion with Fox, CBS, and NBC, and the deal includes sweeteners for CBS and NBC’s companion streamers, including eight exclusive college football and dozens more men’s and women’s basketball games only on Peacock.
This is a variation on the exclusive Olympics coverage put on Peacock, but NFL and NCAA games happen every year. That could anger longtime fans, who will now have to effectively pay for these giant contracts in the form of monthly subscriptions. Sports leagues have been reticent to paywall their games. Last year, a seemingly meaningless Notre Dame football game against Toledo ran on Peacock, only to infuriate fans when the game became close and they realized they didn’t have the subscription to watch it. Those who did had to contend with balky internet connections and bug-laden software to get it to work.
The other option is to create a “something-for-everyone” service that is harder to spin up and spin down. That’s the impetus behind HBO Max’s combination with Discovery+, after the two parent companies merged earlier this year. “The more people you have in a household using the service, the stickier it is,” Warner Bros. Discovery’s head of streaming told The Wall Street Journal.
The new service is slated for next year, but viewers are already feeling the effects. That’s because, given the continued volatility, HBO Max and Discovery+ can’t afford to just combine everything and be done with it. The “efficiencies” gained by the team-up are a net loss for subscribers, and workers: HBO Max laid off 14 percent of its staff last week, part of the $3 billion in “synergies” promised by the Discovery+ deal.
Already, HBO Max has pulled 36 shows from its service, most of it reality or children’s programming, to make way for Discovery’s similarly situated content. That reduces royalties the app would have to pay to content creators, and is an immediate boost to corporate pocketbooks.
When HBO Max removed over 200 old Sesame Street episodes, viewers raged online. Only a handful of Sesame Street episodes are on PBS Kids, meaning that the vast majority of the show may not be available in the U.S. Streaming executives sometimes call pulling old shows “decluttering,” making it easier to find programs on the service, but the corporate bottom line benefit is unquestioned, and the harm to viewers obvious. Though viewers aren’t weeping as much about the shuttering of the presumably terrible Batgirl movie, it’s being done because of a tax write-off for projects still in production after a merger, depriving the large crew on the film of weeks of work.
Netflix has also laid off hundreds of staff this summer to cut costs, while pulling content and trimming episode counts for new seasons of its shows. Streamlining content, whether through smaller archives or fewer episodes of active shows, allows services to pay writers and actors and directors less. It also lets a relative few executives determine what most Americans get to watch—with less competition from older content.
Over half of the top streaming services are now ad-supported, with Disney+ and Netflix moving in that direction. Viewers voted with their wallets for streaming services without ads, but that’s increasingly becoming a vanishing option unless you want to pay a premium. It’s unclear whether viewers will put up with streaming looking like the broadcast and cable options they abandoned, with more and more ads.
Other options like adding in streaming subscriptions with retail memberships or phone contracts could bring more eyeballs and stability, but that cuts the share of streaming revenue from the deal and may not be enough to make the services sustainable.
Ultimately, there’s really only one option for streaming that doesn’t piss off a nontrivial number of people, either by holding formerly free programming hostage, ripping out archives, or sullying the viewing experience. That’s the bundle, the inevitable return-to-cable format that we’ve all been expecting, with a high price but lots of options. YouTube is considering a “channel store” where multiple services could be streamed for one price. Disney effectively has a bundle, where it offers Disney+, Hulu, and ESPN+ for a discount; so does Paramount+ and Showtime. The HBO Max/Discovery+ deal is a bundle.
The worst version of this would end up with just a few winners consolidating control over the streaming market. That’s bad for viewers, Hollywood professionals, culture, and information. The fact that streaming has never been more popular while its economics have never been more precarious could lead to a narrowed series of walled gardens for entertainment.
