Key Takeaways

• Digital TV Research estimates that SVOD subscription rates in the United States will climb from 354 million at the end of 2021 to 458 million in 2027.
• According to PwC executive, Mark Borao, the next phase of growth for the industry will include consolidation. Beyond 2022, the video streaming industry can expect a wave of partnerships, mergers, and acquisitions as the market consolidates.
• One trend that is anticipated to become increasingly prevalent over the next couple of years is the integration of artificial intelligence into video streaming workflows.

Introduction

Slowed, But Sustained Growth

 

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• The COVID-19 pandemic saw video streaming services attain over five years of projected growth during the peak years of the pandemic (2020/2021).
• According to experts, the pandemic surge is over, and the demand for video streaming has stabilized, with conventional levels of growth expected in the future.
• For some video streaming providers, however, this has meant a loss of subscribers. Netflix, for example, recently reported the loss of hundreds of thousands of subscribers.
• While factors such as high inflation, reduced discretionary spending, and subscription fatigue are expected to impact subscription rates negatively, the overall SVOD subscription rate in the United States is still expected to rise in the near future.
• Digital TV Research anticipates gross SVOD subscriptions to increase from 354 million at the end of 2021 to an estimated 458 million in 2027.
• Digital TV Research predicts that the average SVOD household will be paying for 4.37 SVOD platforms in 2027. In terms of market share, the research firm has predicted that Netflix will only gain an estimated two million subscribers between 2021 to 2027 while the newer platforms of the industry such as Paramount+, HBO Max, and Paramount+ are poised to be the biggest gainers.
• Simon Murray, a principal analyst for Digital TV Research, elucidates, "Some claimed recently that the US SVOD market was at a saturation point; although we expect some deceleration for more established players, there is still plenty of growth to be had for the younger platforms".

 

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Industry Consolidation

• According to PwC executive, Mark Borao, the next phase of growth for the industry will include consolidation. In 2022 and beyond, the video streaming industry can expect a wave of partnerships, mergers, and acquisitions as the market consolidates.
• In 2021, for example, NBC Universal folded the WWE Network into Peacock.
• Jeffrey Hirsch, the CEO of Starz, anticipates more consolidation in the industry over the next decade: "As the world starts to become one global video marketplace, I think it is going to shrink and consolidate very quickly." Hirsch anticipates either commercial consolidation on bundles/deals or full consolidation with mergers and acquisitions.
• Hirsch adds, "As you get out in the next four to six years, people are really going to start to pull the best from each territory around the world and consolidate into these four to six global players that own the streaming businesses.".

Artificial Intelligence

• One trend that is forecast to become increasingly prevalent over the next couple of years is the integration of artificial intelligence into video streaming workflows. Content personalization, for example, is one of the more useful practical applications of artificial intelligence that may be used to improve the overall customer experience.
• Beyond content personalization, there are various other use cases for which artificial intelligence-enabled insights can enhance various aspects of the customer journey. For example, artificial intelligence may be utilized to ingest and analyze subscription data to allow for a more in-depth understanding of the needs and wants of the subscriber.
• A deeper understanding of the motivations of the consumer can, in turn, drive for more accurate and efficient personalization of content offerings, dynamic pricing, product and service offers, and more.
• Borao is a proponent of artificial intelligence. According to him, "As the use of artificial intelligence continues to grow, many tasks will become increasingly automated. We think we have a very clear line of sight in that we see lots of innovation, both on pre-production, production, post-production, as well as distribution".

Research Strategy

Key Takeaways

• US audiences have embraced international content. Demand for non-English series has increased by over 50% between 2019 and 2022, reaching a market share of 12.7%. The fast growth can be traced back to Netflix's game-changing approach to international content, cultural changes, the rise of younger consumers, and social media.
• According to Bloomberg, “Netflix’s greatest impact on pop culture will not be allowing us to 'binge watch,' or stream TV on-demand. It will be globalizing the entertainment business, creating a platform for people from more than 190 countries to watch stories from all over the world.”
• International content has become a key investment for streaming services, especially Netflix. According to the company, 97% of US Netflix members have watched at least one non-English language show, and US viewership grew 71% since 2019. Netflix's decentralized content creation model and investment in local markets led to the creation of its biggest hit to date, Squid Game.
• Japanese content leads the pack when it comes to foreign shows in the US. From 2020 to 2022, demand for Japanese content skyrocketed, accounting for 41.2% of the total market for non-English content in December 2021, largely thanks to anime. In Q1 of 2022, Japan's share dropped to nearly 30%, but it is still the number one country of origin, followed by South Korea and Spain.

Introduction

Netflix's Strategy Changed the Game

• After two years of increased demand fueled by the pandemic, streaming platforms' growth has begun to decline, particularly among US consumers. As such, "streaming heavyweights are putting more of their money into growing their overseas footprints as they look to court international subscribers," Parrot reports. In 2022, Disney+, Amazon, WarnerMedia, Netflix, and others announced they will invest billions in non-English productions.
• For insiders, the rise in international investments is not a new development. In fact, Netflix has been banking on local content for years now, with a strategy that "influenced the entire industry," Axios reports.
• According to Bloomberg, “Netflix’s greatest impact on pop culture will not be allowing us to 'binge watch,' or stream TV on-demand. It will be globalizing the entertainment business, creating a platform for people from more than 190 countries to watch stories from all over the world.”
• Around 2015, Netflix started to invest in international markets to keep revenue flowing as competition in the US created a saturated market. To succeed in local markets, Netflix had to appeal to users who were not necessarily looking for Hollywood's version of entertainment. They wanted to see themselves and their world represented. As such, Netflix invested heavily in local creators and productions.
• Netflix challenged old Hollywood patterns. In the past, studios would buy rights to a foreign movie or show "so they could recreate it in an Americanized version" instead of offering audiences the original content. Netflix's approach was different. Instead of creating Americanized versions, the company gave US viewers access to the original content, maintaining its cultural background and identity, which allowed the streaming giant to reach viewers "who might not have been interested in Netflix otherwise."
• Since 2018, the majority of Netflix’s shows have been in a language other than English. "In 2020 through 2021, that figure hit 55 percent. Seamlessly offering foreign TV shows and films, released simultaneously worldwide, with easily accessible subtitles and dubs, has helped it to skyrocket in popularity."
• Meanwhile, "24% of Disney Plus content is non-English language and Disney plans to spend up to $9 billion a year on content for Disney Plus by 2024, including 50 international projects."
• Netflix’s global head of TV, Bela Bajaria says that the only thing hit foreign shows have in common is being authentic and using local talent. "There's no common thread," she explains. "What we've definitely seen is that if it's great storytelling that is authentically told with a strong vision and the show is great, then it will find an audience." Bajaria also told US News that the streaming service’s "goal for all of our global members is to make local language shows that are authentic to the vision, the country, and the language."
• Notably, Netflix technology made it easier for US audiences to discover the shows. As a result, 97% of US Netflix members have watched at least one non-English language show, and US viewership grew 71% since 2019.
• "You may not be the person that’s going to drive 40 miles to go to an arthouse cinema to see the latest foreign language film, but from your couch, you may click play on 'Money Heist,' once you’ve finished watching 'Ozark,' or 'The Crown,' and right there you have access to this other great show, which happens to be in Spanish. So I think we’ve just made it much easier to give people access to stories from all over the world," Bajaria adds.

US Demand for Global Content is Growing, Driven by Younger Audiences

• Demand for global content has been on the rise across all platforms as US audiences "embrace foreign content and platforms make international series more readily available." The pandemic accelerated the trend, but its origins predate COVID-19.
• "U.S. audiences have demanded a greater share of foreign content than ever before in 2020," a Parrot report stated. "As with many changes we have seen this year, COVID merely strengthened a trend that was already in place. 2019 was actually the year when this shift in viewing behavior took off."
• The share of demand for non-English shows increased by over 50% over the last three years, "from an 8.1% share in March 2019 to 12.7% as of February 2022," with peaks between 20-30% in 2020 and 2021.

 

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• Besides streaming services, cultural changes, generational differences, and social media are driving the demand. According to Brad Grossman, founder and CEO of ZEITGUIDE, as “American exceptionalism has become less of a truth geopolitically, the same goes for entertainment."
• This is particularly true among younger generations. Due to the internet's influence on their upbringing, they don't see culture or geographic borders the same way as their older counterparts. As a result, they prefer their "viewing experience to be explored and consumed in its local context" as opposed to the traditional localized version of foreign media.
• Social media also plays a big part. Viral videos, TikTok challenges, and memes disseminate the cultural references vital to the shows’ identities, perpetuating their positions in pop culture history.

La Casa de Papel

• Originally created for Spain’s Antena 3 and acquired by Netflix in 2017, La Casa de Papel, known as Money Heist in the US, was one of the first international shows on streaming platforms to become a pop phenomenon.
• The show expanded the "idea of what makes for a global story." Creators never shied away from Spanish references but used clever storytelling to make them comprehensible to all viewers. La Casa de Papel also "spurred Netflix to invest hugely in the quality and scope of their alternative-language options, expanding the idea of what a show’s target audience could be."

• According to Diego Avalos, a VP at Netflix, the show’s success "solidifies the fact that great storytelling can come from anywhere," he says. "It’s no longer Hollywood determining what stories can work around the world."
• When its final season premiered on September 2021, it became the most in-demand show in the world. In the US, demand was 32.49 times higher than the average show, the second strongest market globally.

 

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• The show lost some steam since the last episodes aired in September, but it is still 10.7 times more in demand than the average TV series, standing among the top 3% of all shows (top 2% for dramas).

Other Game Changers

• In 2021, several foreign shows and movies attracted US audiences, including Lupin, Dark, La Casa de Papel, and Who Killed Sara? However, nothing compares to the success of "Squid Games" The show debuted on Netflix on September 17, quickly grabbing the number one spot in Netflix’s US top 10. By October 6, a Morning Consult survey revealed that nearly 25% of Americans have watched the show.
• A month after its release, the dystopian South Korean drama had become Netflix’s biggest hit of all time, surpassing Stranger Things and Bridgerton. "The speed and scale with which Squid Game has expanded suggest that the platform’s capacity to create its own franchises from content grown anywhere is getting exponentially stronger, vindicating a strategy that execs at the streamer started shaping years ago." The high continued for months after the show debuted.
 
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• Squid Games also underscores the efficiency of Netflix’s decentralized content creation business. "The streamer’s Korean execs didn’t have to convince suits in Los Angeles that it was worth investing huge sums (by Korean TV standards) on this project or get their okay on who should be cast."

• All that being said, Japanese content actually leads the pack when it comes to foreign shows in the US. From 2020 to 2022, demand for Japanese content skyrocketed, accounting for 41.2% of the total market for non-English content in December 2021, largely thanks to anime. In Q1 of 2022, Japan's share dropped, but it is still the number one country of origin.
• The US is currently the country with the highest demand for Japanese anime in the world. The genre has always had a niche audience, but it is becoming mainstream. For example, "Attack on Titan" was the 10th most popular show in the US in early August, 38.9x more popular than the average TV show, and viewership that rivals juggernauts like "Game of Thrones" and "The Walking Dead."
• In April, Netflix revealed that it would launch 40 new anime titles in 2022 alone. Sony acquired US-based anime streaming platform Crunchyroll for $1.2 billion, while Disney+ released its own anime series Star Wars: Vision, and announced it will release four anime originals in 2023.
 
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Consequences and Predictions

• According to WarnerMedia Jason Kilar, investments in "local storytelling, across movies, across series, across documentaries and specials" will grow over the next few years.
• As per Morning Consult, experts say that "the evolution of streaming has changed the game for foreign-language content, making shows and movies available at a speed and scale they’ve never been before." Besides previously mentioned regions, Turkish, Indian and Chinese productions are seeing increased demand, with new productions over-indexing the popularity of the average show.
• The growth of international content is also connected to a large trend shaping the industry, as explained by Aaron Levitz, president of Wattpad Webtoon Studios. “The old way of looking at entertainment was always demographic: this age, this country, this language. And it’s truly a psychographic, and people want to see brilliant stories from all over the world that really speak to those psychographics,” Levitz said. As such, moving forward, intellectual property (IP) is expected "to drive storytelling globally, wherever that IP starts from," he argues.
• Some analysts fear that more global productions will result in shows and movies that try to appeal to as “broad an audience as possible, creating content based on algorithms rather than cultures.” Dialogues and scripts might also end up being oversimplified to make content easier to dub.
• The rise of international content could lead to a devaluation of US productions if the trend continues at the same pace, especially in Europe, some analysts suggest. "As viewers spend more time watching non-English language content, we expect Hollywood and other English-speaking production powerhouses to. begin to lose their dominance when it comes to the global market for content."
• The success of shows like Squid Games also brought attention to the low costs of international productions in comparison to US equivalents. As the US and global audiences embrace these productions, some predict their success will drive investment and jobs away from the US market since streaming platforms allow for shows to be easily distributed globally, regardless of where they are produced.
• “Hollywood studios save millions of dollars by hiring local talent instead of Hollywood stars, collecting tax credits and rebates from hungry nations looking for bumps in tourism and recognition, and avoiding strict American union regulations,” said Ajay Mago, a corporate and technology lawyer and managing partner for EM3.
• Finally, the demand for such shows could be a “boon for creators that have felt stuck in an industry that has relied on superhero movies and reboots of old TV shows for reliable revenue. Tapping the world for new stars and ideas allows for new avenues of growth that can mutually benefit artists and studio executives.”

Research Strategy

Key Takeaways

• The abundance of new streaming services has left audiences feeling overwhelmed. 56% of a survey respondents said they were exhausted by the number of available streaming services. 80% of those that logged on to at least five streaming services wished for a “universal search” feature that enabled the discovery of content across numerous streaming services.
• A sharp decline in the subscription market is anticipated, due to a “subscription apocalypse,” according to the Kearney survey. Consolidation of services has been suggested as a possible solution, as it would simplify the streaming experience. The industry-wide challenge will be solved as super-aggregators of over-the-top (OTT) services offer a financial incentive and provide a superior user experience.
• Due to the fragmented nature of the market, clear guidance is difficult, which has raised the need for more aggregators. Depending on their reputation, OTT players will emerge and vanish in the congested market. Consequently, there will be a demand for agile aggregators who can promptly integrate and collaborate with the right platforms.
•  Verizon +play and Reelgood are streaming hubs that allow users to browse, search, and watch TV and movies from several services.

Introduction

Customer Demand

• Many US viewers subscribe to a minimum of four SVOD services and access a diversity of ad-supported on-demand services. Subscription fatigue is inevitable, as there is a limit to the number of streaming services a viewer can realistically take advantage of. Virtual multichannel video programming distributors (vMVPDs) such as YouTube TV, which pools content from live broadcast TV, cable, and streaming services, have filled in the gap for some. However, since 2019, adoption of these services has only grown from 7.1% to 12.5%.
• The abundance of new streaming services has left audiences feeling overwhelmed. Results of a survey by Verizon Media and Publicis Media reveals that 56% of the respondents were exhausted by the number of available streaming services to choose from. 80% of the survey participants that logged on to at least five streaming services wished for a “universal search” feature that enabled the discovery of content across numerous streaming services.
•  Bundled content, which many cord-cutters tried to get away from previously, has become desirable due to the wealth of services currently available. Regardless of the prominent increase in streaming adoption, viewers have always wanted convenience — more today than ever — the premise in which bundled content is rooted. According to the State of Play report by Nielsen, 64% of viewers wish there was a bundled video streaming service that enabled them to choose how many services they wanted, more like channels.
•  Convenience remains the highest desire among viewers, particularly among many who find it difficult to navigate the vastness of platform variety. 46% of viewers say it’s tougher finding the video streaming content that they want to watch since there are so many streaming services available to consumers.

Opportunities

• The Kearney survey anticipates a sharp decline in the subscription market, forecasting a “subscription apocalypse.” According to the survey, over 50% of consumers want to reduce the number of subscriptions they have, while 40% think they have too many subscriptions, a number that is expected to increase. Consolidation of services has been suggested as a possible solution, as it would simplify the streaming experience. The survey group believes that the probable wave of strategic M&A will resolve some conflict as there will be a “re-bundling” across, instead of within, categories.
• According to the Better Software Group, the disintegration of the market is reaching a tipping point, and super-aggregation might be the solution. As super-aggregators of over-the-top (OTT) services offer a financial incentive and provide superior user experience, an industry-wide challenge will be solved by contending subscription fatigue.
• Alex Wilkinson (Head of Sales and Marketing, EMEA & LatAm, Accedo), stated that “having access to more viewers’ data and their interactions with various video services in the bundle will be beneficial to operators, and subscribers who will get the content of their choice. The control shift to the pay-tv provider, with more elaborate data, can be leveraged to reduce churn.”
• A successful aggregation of content and services will yield a better, more engaging experience for the audience, and provide opportunities for subscriptions and ad returns. This will be of particular benefit to smaller and midsize streaming services that cannot rival big international and regional mass streaming operations.

 

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Barriers

• Because the market is fragmented, clear guidance is difficult, which has raised the demand for more aggregators. Depending on their reputation, OTT players will emerge and vanish in the congested market. Consequently, there will be a demand for aggregators to be agile to promptly integrate and collaborate with the right platforms. A significant differentiator for aggregators will be selecting and adapting to partners — a difficult feat, as OTT platforms have highly unpredictable content and brands.
• The progress in aggregation may not be as fast as it should be because content providers are struggling to keep their hold on their own portions of the content journey, the data set, and the advertising opportunities associated with it. A strategy that supports cross content provider integration and partnership is necessary for curation of content in a super-aggregation situation. However, some level of intra-platform competition is also needed to be in compliance with national and competition laws.
• The key aspects of value creation processes for marketers, producers, and license traders will be affected since existing media licensing contracts and rights definitions were conducted under exclusive deliberation of current TV broadcasters and patented VOD platform value chains and exploitation strategies. To adjust to these changes, new terms of trade will have to be established. A high level of regulatory maturity will be needed to manage the blend of national and global content, as well as the various approaches to data consumption and user content.

Current Solutions

• In March 2022, Verizon announced the launch of +play, an exclusive platform to its customers that allows the discovery, buying, and management of users’ favorite subscriptions across audio, entertainment, fitness, gaming, music, lifestyle etc., in a single hub. Verizon +play syndicates services like Netflix, Disney+, Peloton, A+E Networks, Duolingo, Calm, Discovery+, AMC Plus, Hulu, The Athletic, and others.
•  Reelgood is a streaming hub that allows users to browse, search, and watch TV and movies from more than 150 services. Streaming services such as Netflix, Hulu, Disney+, HBO, Prime Video, Showtime, Crunchyroll, are all available in one app, for free.

Research Strategy