The Cost of Content: Revenue, Revenue wherefore art thou?

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Publish Date:
7 Sep, 2023

In 2022, Netflix surprised the world as the streaming behemoth announced a drop in subscribers for the first time in over ten years. Inflation, price increases, increased competition, password sharing, and the war in Ukraine were all considered to be factors in this decline.

The media and entertainment industry has pushed growth through content quality. It has enlisted the help of clever algorithms to deliver new user experiences and now, as the novelty wanes and new players enter the market, it’s clear that the economics of streaming are still not working.

The industry needs to play smarter for the long-term stability it desperately needs. 

The changing video-on-demand (VOD) subscription market

Leichtman Research reported that Q4 of 2022 saw the largest TV providers in the US record a loss of 785,000 subscribers – 135,000 more than the previous year. With consumers switching to mobile devices, the market should be in favor of on-demand subscription services.

But as we know, even the major players have seen an increase in churn among viewers. Antenna reported 32 million cancellations among ten premium streaming service providers in Q3 of 2022, an increase of 4 million on the previous quarter.

It seems the current VOD model is not economically viable. But now the genie is out of the bottle, it’s not likely to go back in. Consumers enjoy the freedom, choice, quality, and convenience provided by streaming services.

Streaming services themselves are increasing in popularity, with many households opting for more than one streaming service at a time. Data from the Convergence Research Group shows there were 89 million US streaming subscriptions added in 2021.

Nonetheless, VOD services are still struggling to hold onto subscribers beyond the short term. According to an article in Mediapost, the number one reason for canceling or ceasing use of an app is the cost. 

Redefining the product 

VOD providers have started to make some changes. Disney+ and Netflix have announced the arrival of ad-supported tiers, and Warner Bros. CEO David Zaslav has mentioned similar plans at his company.

Deloitte predicts that by the end of 2023, two-thirds of consumers in developed markets will use at least one ad-supported streaming service. Deloitte hinted at more uninterrupted streaming services, with half of all providers offering a free, ad-supported option by the end of 2024.

In pursuit of profit, providers are trying many different models. In the US, Netflix has launched new features, such as giving subscribers the option of adding up to two users outside of their household for an additional cost.

Streaming platforms are also trying the sale of programs to cable and broadcast channels, while others mimic the traditional approach of a series being released over time. Prolonging the viewing experience gives a series the chance to build momentum with audiences and create a buzz on social media – today’s ‘word of mouth.' Product placement into existing programs can also help producers mitigate losses.

The aim is to reverse the increasing trend of viewers binge-watching a series, and then cancelling the subscription.

The criticality of content quality

To attract and retain subscribers, production companies can’t afford to scrimp on content quality. A recent US Samsung Ads study found that 31% of streaming subscribers reference the availability of original content as a key factor for trying a new app, second only to the availability of free content.

But producing high-quality, original content isn’t cheap. Last year, Netflix spent $18 billion, and Walt Disney Co. committed $11 billion to the production of streaming content as part of its $26 billion budget for TV and film production. 

Transforming the content production industry

As new models emerge, and more players enter the market, media and entertainment organizations are under increasing pressure to balance costs with consistent consumer engagement.

Content production has long faced the complexities of cost management. Despite the modern streaming landscape, backend content production processes persist as manual and disjointed systems, muddling cost visibility and forecasting precision. These challenges hamper the ability to govern production expenditure and manage the content lifecycle efficiently.

For production companies to take the reins of their profit margins, moving away from manual tools and fragmented systems is imperative. The need of the hour is real-time, full visibility spanning every department, offering a holistic view.

The antidote lies in adopting a comprehensive system that ingrains analytics into content production and financial management processes. As production companies harness the power of technology to control costs and enhance efficiency, they will also propel a more resilient, dynamic industry.

Watch this video to understand how we can help your organization to streamline cost management and unlock the capacity for innovation and sustainable growth with Content Financials.

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