The Great Correction of 2022 saw the share prices of streamers plunge after market leader Netflix reported a slowdown/fall in subscriber growth.
Having formerly been seduced by hectic subscriber growth rates, investors quickly refocused, this time on fundamental metrics such as revenue, margins, profits and cashflow.
Since then, streamers have continued to take a steadily greater share of viewing while linear TV continues to decline. But growth in streaming subscribers in the US and UK is now a fraction of what it was, reflecting pressure on consumer incomes and intensified competition in content.
The slowdown in growth of subscribers has led to a revision of business models. Netflix is broadening its offer to subscribers by investing in areas such as sport, gaming and gambling, aiming to become an entertainment hub. The business is scalable, with pricing power, so margins are rising.
Disney has dealt with management issues and with attempts by outside investors to gain a seat on the board. Based on its enormous content assets, it is set to move into profit on its streaming offering this year and, like Netflix, it will be an entertainment hub.
Streamers see advertising as an attractive source of revenue and are offering advertising-supported tiers at low prices. If their content delivers audiences that advertisers want, streamers will have a slice of high-margin revenue. Plus, streamers view the lower prices as a way of reeling in new subscribers, rather than encouraging trading down.
In the UK, competition for viewers is intense with the US-based streamers up against the Public Service Broadcasters. ITV and STV have adopted three-legged strategies: linear broadcasting, programme making and streaming, but, currently, they are still too dependent on linear advertising revenue for investors’ liking.
Streaming is now a global business. Netflix identifies 700m connected TVs worldwide and compares this with its subscriber numbers of 260m. Even in the domestic US market, streaming accounts for only 10% of TV time, so plenty of growth to go for.
In the US, loss-making streamers (Warner Brothers Discovery, Paramount) are considering merging. Outside of Netflix, only Disney looks like making profits from streaming, but Amazon Prime may be on the path to profit too, in view of its strong growth in subscribers.
Streaming is a disruptive, content-led, subscription-based technology. Challenging all video distribution business models, it opens up global opportunities for a growing variety of content, including gaming and sport. Successful use of content to engage and retain subscribers in a scalable business will lead to strong profit growth. The old saying that “content is king” has never been truer.
