Key Takeaways

• According to a recent Morning Consult survey, 44% of US adults are of the opinion that there are too many ads on streaming services. A further 69% and 64% of them think the ads are repetitive and invasive, respectively. Additionally, the survey found that in every 5 consumers, 4 of them (79%) are annoyed not only by the number of ads but also how often they are replayed on streaming platforms.
• However, out of 2,000 US consumers that participated in a Deloitte survey, 34% of them said they would watch 12 minutes of ads per hour for a free streaming service while 25% of them said they would consume 6 minutes of ads per hour for a $6/month subscription. This is attributed to the rising cost of living.
• In 2022, Reed Hastings, co-chief executive at Netflix, stated, “Those who have followed Netflix know that I have been against the complexity of advertising, and a big fan of the simplicity of subscription. But as much as I am a fan of that, I am a bigger fan of consumer choice. And allowing consumers who would like to have a lower price, and are advertising-tolerant, get what they want makes a lot of sense.”

Introduction

How Consumers Feel About Ads

• According to a recent Morning Consult survey, 44% of US adults are of the opinion that there are too many ads on streaming services. A further 69% and 64% of them think the ads are repetitive and invasive, respectively. Additionally, the survey found that in every 5 consumers, 4 of them (79%) are annoyed not only by the number of ads but also how often they are replayed on streaming platforms.

 

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• Nevertheless, although consumers hate ads, the recent rise in prices has forced them to reconsider their options. According to a survey by The NPD Group, cost moved from the number four reason why users cancel their SVOD services to the number 2 reason between October 2021 and April 2022. As such, most consumers are signing up for services that offer promotional or discount offers.
• The executive director and industry analyst at NPD, John Buffone, said: “For some consumers, ad-supported tiers can be a way to cut costs without losing access to content. As we look to the future – including potential AVOD offerings from Netflix and Disney – understanding the differing consumer value propositions will be key in determining tier structure and pricing strategies.”
• Another survey by YouGov asked consumers across 18 markets whether they would “prefer to interact with ads immediately in exchange for an ad-free viewing experience” and according to the results, 37% of US consumers said they would. However, 61% of the US respondents also stated that they would be turned off by seeing the same ad multiple times.

 

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• A Deloitte report also stated that while people, especially young ones, are normally attracted to SVOD platforms by the content offered, they often leave due to subscription costs. Some of them admit to routinely canceling and resubscribing to manage costs. As such, streaming services are now looking for ways to keep their subscribers around, and offering cheaper plans might be the best path to achieve that. Especially since data shows that subscription plans that allow consumers to watch ads in exchange for lower costs or for free are now the most popular.
• Out of 2,000 US consumers that took part in the Deloitte survey, 34% of them said they would watch 12 minutes of ads per hour for a free streaming service while 25% of them said they would consume 6 minutes of ads per hour for a $6/month subscription.

 

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• Another poll conducted between March 4-6, 2022 by Morning Consult supports the statement that ad-supported streaming services are now becoming popular. Out of the 2,211 US adults surveyed, almost 3 in 5 now lean toward ad-supported streaming services over costlier options.

 

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Shift Towards Ad-Supported Tiers?

• Netflix ended 2020 with approximately 200 million subscribers for the first time, with 37 million of them having been added in 2020. According to The Drum, while the pandemic definitely played a role in this surge of subscribers, Netflix also cited its ad-free model as one of the contributing factors. However, while the company has been adamant about adding commercials to its platform for years, it is now planning to move to ad-supported tiers.
• Following a hard first quarter in 2022, where Netflix lost 200,000 subscribers for the first time in a decade, one of its co-chief executives, Reed Hastings, stated that the company is now considering a lower-priced tier supported by ads in the next year or two. He said, “Those who have followed Netflix know that I have been against the complexity of advertising, and a big fan of the simplicity of subscription. But as much as I am a fan of that, I am a bigger fan of consumer choice. And allowing consumers who would like to have a lower price, and are advertising-tolerant, get what they want makes a lot of sense.”
• The company lost a further 970,000 subscribers in the second quarter of 2022 and its head of product and chief operating officer, Greg Peters, revealed that by gaining more subscribers who will be lured by lower price points, Netflix will prosper. Peters further said that they expect the tiers to be up and running by 2023 and that over the next coming years, the company “will be able to develop an ad offering that is fundamentally different from traditional linear TV.”
• While someone might argue and say Peters' words were just meant to calm investors, ad-supported tiers might indeed be good for Netflix. Other streaming services that offer ad-supported tiers at a lower cost such as Hulu are doing well.
• According to Statista, Hulu’s subscribers increased to 45.6 million in the second quarter of 2022 from 41.6 million during the same period last year. Moreover, Hulu’s growth has been constant over the last few years, and its success can be attributed to the fact that it offers a variety of pricing plans that cater to different customer needs. Its most basic plan costs $6.99/month.

 

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Research Strategy

Key Takeaways

• Disney plans to raise its monthly subscription fee by $3 to $10.99 for U.S. consumers this December (2022).
• In 2020, Amazon Prime Video spent $1.42 billion on original content. In 2021, it increased the spending to $2.71 billion.
• In January 2022, Netflix announced a $1-$2 subscription price increase in Canada and the United States to fund more original content.

Introduction

Streaming Platforms Rising Subscription Prices

• In January 2022, Netflix announced a $1-$2 subscription price increase in Canada and the United States to fund more original content. In addition, the company's non-HD basic subscription package that supports one stream rose from $8.99 to $9.99. According to a Netflix spokesperson, the price updates would help the company broaden its quality entertainment options.
• Amazon Prime also bumped its streaming prices, citing many reasons for the increase, including covering the costs of producing new content like sports broadcasting, inflation, and price wars, following Netflix's decision to increase its pricing. Its Prime membership jumped by $20 a year to $139 from $119, while the monthly charge increased to $14.99 from $12.99.
• Disney plans to raise its monthly subscription fee by $3 to $10.99 for U.S. consumers this December (2022). However, it is also building an ad-supported tier priced at $7.99. The increase results from many factors, including producing new content and competitive pricing strategies. The streaming platform is leveraging the price/value relationship to justify its price increases while also moving in the direction of other streaming platforms that have already increased subscription fees.
• In 2021, Hulu increased the prices of its two on-demand plans, i.e., Hulu (with ads), from $5.99 to $6.99 and Hulu without ads, from $11.99 to $12.99. The company claims the increases aim to push its viewers toward the "three-way Disney Bundle and Hulu’s live TV packages."

Factors Driving the Increase in Pricing

• Streaming platforms rely on a similar pricing model, whereby if one platform increases its streaming fees, the whole industry raises prices, which mitigates the risk of subscription churn rates for all players.
•  Market saturation has also caused streaming factors to increase their subscription fees.
• Likewise, rising costs of content production and keeping viewers satisfied and subscribed are other reasons streaming platforms have increased prices.

Spending on Original Content

• Research findings indicate that Netflix's spending on content will plateau at $17 billion through 2023. In 2021, the streaming giant spent $14 billion on content. In 2020, Netflix spent $4.56 billion on original content and $6.08 billion in 2021.
• In 2020, Amazon Prime Video spent $1.42 billion on original content and increased the spending to $2.71 billion in 2021.
• In 2020, Apple TV+ spent $1.21 billion on original content and increased the spending to $2.15 billion in 2021. All these figures are included in the attached Google Document with a screenshot of the data from Statista.

 

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• The image shows spending on content in general, which includes original content, production costs, licensing, etc.

Are Consumers Looking for Cheaper Alternatives

• Some consumers have expressed concerns that they would eventually start dropping one or two subscriptions if the price increases continue. While there is no quantitative data available on how many of them consider going back to cable, anecdotal evidence suggests that cord-cutters are still firmly against cable.
• Data collected from October 2021 to April 2022 shows that cost jumped up two spots (from number 4 to 2) as a factor in considering canceling a streaming subscription. Part of this motive links to inflation that has increased prices across various services.
• It is worth noting that even with the price increases, subscription services are perceived as more affordable. According to a survey by MoffettNathanson, cost savings are still the top reason for cord-cutting, for around 30% of video streaming subscribers. However, content is gaining importance as the primary reason for switching. It is now cited by approximately 23% of Hulu subscribers compared to 15% in 2019.

Research Strategy

Key Takeaways

• Due to the pandemic-induced lockdowns, TV/video streaming increased among US online adults, with 48% subscribing to at least one streaming service.
• As of August 2020, the collective time spent watching television rose to 25% in streaming-capable homes in the US.
•  23% of those who canceled their subscriptions in October 2020 attributed it to the ability to access free content on other services, compared to 14% in May.
• Based on the streams initiated through ReelGood's aggregator, feel-good genres became more in demand during the lockdowns, with animation (21.66% more streams initiated) and family (around 17% more) gaining the most streaming share.

Introduction

Subscriptions

• According to Forrester, following the pandemic-induced lockdowns, TV/video streaming increased among US online adults, with 48% subscribing to at least one streaming service. Forrester's multimodal consumer analysis, published in June 2021, showed that this rise in content consumption was expected to continue over the next 12 to 18 months.

 

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•  76% of US consumers in Deloitte's October 2020 survey said they were subscribed to at least one paid video streaming service, representing a 21% increase from 2018. Compared to pre-pandemic times when consumers had an average of three paid streaming video service subscriptions, consumers had an average of five subscriptions in 2020.
• As of December 2021, 85% of US households (109.4 million households) had a video subscription service, representing a 2 percentage point year-on-year increase. Fueled mainly by “Free Ad-Supported TV (FAST) and Advertising-based Video On Demand (AVoD) tiers,” video streaming penetration saw a quarter-to-quarter growth in Q4 2021. FAST grew by 4.9 percentage points, AVoD by 3.6 percentage points, and Subscription Video on Demand (SVoD) by 1.8 percentage points.

Streaming Time

•  The Nielsen Total Audience Report, published in August 2020, showed that the pandemic made streaming the present and future of content creation in US homes. The collective time spent watching television rose to 25% in streaming-capable homes. Netflix accounted for 34% of the television streaming time, YouTube took 20%, and Disney+ accounted for more than 4%.

 

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• However, overall streaming screen time was expected to reduce in the US as the pandemic subsides. Just 15 months into the COVID-19 pandemic, 28% of online adults in the US had started experiencing diminishing returns from streaming TV and film, with 21% saying they would spend less time doing so as the pandemic declines.

Cost Considerations

• Although content still matters, access to free content may have played a significant role in the rise in streaming time among US consumers during the pandemic. The number of US consumers who subscribed to at least one free ad-supported service in 2020 grew from 40-60% between January and October. However, 23% of those who canceled their subscriptions in October 2020 attributed it to the ability to access free content on other services, compared to 14% in May.

 

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• FAST service subscriptions are the fastest growing streaming tier, with 18% of US households having at least one service as of December 2021, compared to 8% the previous year. FAST platforms are keeping customers satisfied through original content and show quality, in addition to ease of use and value.

Genre and TV Show Preferences

• Based on the streams initiated through ReelGood's aggregator, feel-good genres became more in demand during the lockdowns, with animation (21.66% more streams initiated) and family (around 17% more) gaining the most streaming share.
• Conversely, as seen in the chart below, crime, horror, and history saw the sharpest declines in popularity.

 

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• While drama and action/adventure remained the most popular genres, comedy moved to the third spot, surpassing thriller and mystery.
• The five most in-demand feel-good shows during the lockdowns were Rick and Morty (13% of streams for "light" shows), Feel Good (7%), Brooklyn Nine-Nine (6%), Schitt's Creek (6%), and Community (6%).

Research Strategy