The future of VOD amid rising inflation and subscriber churn

For the Video-On-Demand (VOD) industry, the future has become uncertain, as industry players face fierce competition and growing subscriber churn, with consumers abandoning their subscriptions amid a rising inflation.

Netflix’s recent disclosure of its first quarterly subscriber drop in over a decade has thrown the industry into turmoil as the streaming giant warned that subscriber losses would continue in the near term.

Given that consumers are increasingly likely to cancel their subscriptions or turn to less expensive ad-based options, then how can Streaming Video-on-Demand (SVOD) providers such as Netflix, Disney Plus, Stan and Foxtel position themselves in against ad-supported video? -on-demand (AVOD) providers? How will the current VOD landscape affect the marketing and advertising campaigns of brands on these platforms?

Speaking to Mumbrella, Bench Media’s Ori Gold says, “We already see a slowdown across all regions and players in terms of subscription growth,” adding, “Today it’s very easy to do and this is the main driver for all the big players.” they look for in models with advertising. This is definitely a sign of maturity after many years of disruption.”

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While this competition continues to increase at a rapid rate, Gold says this also makes it difficult to monetize these platforms while keeping up with the rising cost of content production and technology development.

“Without sponsors and ads, the company’s profitability will continue to deteriorate,” admits Gold. “This means that the big streaming platforms, with their huge investment in technology and content, will have to continue to increase the prices of their subscription plans, continue to crack down on different users sharing a plan, and as we see happening in all global platforms plus Apple TV, featuring ad-supported tiers as a gateway for these users.”

In April of this year, Netflix said it was ready to introduce an ad-supported subscription offer. During the company’s US quarterly earnings call, the CEO said the company was open to an ad-supported subscription model in the near future after years of rejecting calls for an ad-supported streaming tier. .

Bench Media, CEO Ori Gold. (In the photo)

As for the future of VOD in Australia, ever since Netflix entered the Australian market in 2015, VOD services have become increasingly popular.

The Department of Communications’ 2021 Media Consumption Survey reported in January that SVOD services had overtaken commercial broadcast television as the most popular way to consume screen content, with 62% of respondents using SVOD services compared with 58% using commercials. open television.

But this led to a significant drop in viewership for Australian content and productions. Gold believes the entry of local players into the streaming market improved it slightly, but nowhere near what it was before.

“The Australian government is working on the streaming services reporting and investment scheme to promote local content more effectively,” says Gold. “This will likely end up imposing minimal investment on local productions and ensuring that Australian content is better promoted on platforms. This is great for the Australian economy and local players.”

The implications of the growing popularity of AVOD on the growth of SVOD in Australia, with high inflation and high interest rates, Gold adds that many Australians will opt for the ad-supported streaming services featured by all the big platforms.

“At the end of this year, the only big platforms without ads will be Apple TV. So ad-supported content and experience will make a big comeback in the next two to three years and become the new norm, with probably half of all viewers using it,” he says. “I think it’s great for both consumers, who will have to pay less for great content and hopefully more Australian-made content.”

In addition, the effect of VOD competition on brands’ advertising and marketing strategies is different from that of the music streaming industry, according to Gold.

“Unlike in the music streaming industry, where each platform has almost every record label and artist, the VOD market is divided by the content of each service provider,” explains Gold. “This also applies to the advertising market with its closed gardens of audiences and popular websites like Facebook, YouTube and Amazon.”

New ad-supported paid services (AVOD) will bring together mega deals and groups. Google and Disney have already struck a deal that allows Disney content to be viewed on demand across YouTube and Google TV, so more could come from this partnership. And of course Netflix’s well-publicized partnership with Microsoft to support its AVOD model.

Netflix COO Greg Peters said at the time: “In April, we announced that we would be introducing a new, lower-priced ad-supported subscription plan to consumers, in addition to our existing basic, standard, and premium ad-free plans. Today we are pleased to announce that we have selected Microsoft as our global ad sales and technology partner.

“Microsoft has the proven ability to support all of our advertising needs as we build a new ad-supported offering together. More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales sides, as well as strong privacy protections for our members.

“It is very early and we have a lot to solve. But our long-term goal is clear: more choice for consumers and a better-than-linear premium TV brand experience for advertisers. We are excited to work with Microsoft as we bring this new service to life.”

HBO Max introduced its AVOD tier a year ago and already has 30% of registered subscribers at this tier. Gold noted, “If we expect the same for Netflix and Disney+ next year, we’re looking at an incredible opportunity for brands. and agencies to reach the public in a highly attractive premium environment”.

He adds: “Add to this the advanced learning capabilities of Netflix’s recommendation engine, and you can expect super-targeted ad experiences for millions of people every day.

“This is a great opportunity for brands to connect with their audience. I’m super excited for this to play out. Brands and agencies that are agile enough to seize this opportunity will gain a lot of traction and momentum.”

So, have we reached a saturated SVOD market in Australia and what’s next? A recent ACMA report highlighted that, for the first time, more Australians were watching SVOD services than broadcast television, a key turning point in the way audiences watch content.

“This change was highlighted in a recent ACMA report, which showed that more Australians were watching SVOD services for the first time than free-to-air television, yet the decline in free-to-air TV audiences is faster than the growth of SVOD services being watched. slowing down,” he says.

“As in other advanced markets, the majority of Australians are now connected to at least one SVOD and starting to amass several different subscription services. This is slowing subscriber growth and increasing churn and will intensify with high inflation.”

So what can Gold predict will happen next with the market here in Australia?

“The SVOD market will be saturated here in a year or two,” explains Gold. “So we can expect to see three main trends: increasing prices, so that each platform can have more revenue for each subscriber, more specialized subscription services like kayo and the like, and ad-supported tiers.”

But what remains the biggest question is how BVOD services remain competitive with SVOD platforms.

“Both BVOD and SVOD continue to be the main growth drivers for television and video formats in most markets,” says Gold. “There has been a slowdown in the US and UK SVOD markets in terms of number of subscriptions.”

This trend will continue as the cost of living continues to rise and the VOD market becomes more competitive. Many users are finding that they prefer free ad-supported services (FAST), such as BVOD, to traditional subscription-based SVOD options.

Gold notes that “FAST and AVOD services saw growth of 0.9% and 2.2%, respectively, while SVOD saw a 0.2% drop in subscribers in the US last quarter.”

“In Australia, SVOD is still growing but slowing down, while BVOD is still growing and going strong. This trend will continue with rising inflation and consumers becoming more price conscious. It will also make this market ripe for ad-supported pay service (AVOD) within a year or so,” he concludes.

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