As we take stock of the Streaming Wars in 2023, the pain of the last few years is obvious. Most plans have been scuttled, with investment amped up, timelines elongated, and losses deepened. Disney is on its second CEO shakeup in three years, as is Time Warner/WarnerMedia/Warner Bros. Peacock replaced its head three weeks after its September 2019 unveiling, while Paramount replaced its chief streaming executive after a year and its chief content officer after two. Hulu is now on its fifth CEO, and its two owners can’t agree on who will buy or sell their stake. Lionsgate wants to unwind its costly Starz acquisition but can’t find a buyer.
More pain is likely to come as the major streamers stare down the end of their five-year forecasts, which end in 2024 or 2025. COVID was a boon for the streaming industry. Unlike categories such as gaming or e-commerce, penetration rates and spend have not drawn back to pre-COVID levels or pre-COVID trendlines.
In 2022, US households added 144MM new subscriptions, 18MM more than in 2021. However, they also cancelled 118MM subscriptions, a year-over-year increase of 36MM. As such, the net number of subscriptions added in the year fell from 45MM to 26MM. Put another way, US households added as many subscriptions in 2022 as they did in the 33 months from January 2018 through September 2020 combined – but cancelled as many as in the 40 months from January 2018 through March 2021. In 2022, the ratio of gross adds to cancellations fell to a record low of 1.2, well below the historical average of 1.6.
Industry-level churn now sits at an average of 5.75% of all subscribers each month, nearly twice the 2019 average of 3.04%. Average customer tenure is now 17 months, down from 33, giving streamers less time than ever to recoup their acquisition investment. In other words, a growing share of new subscriber acquisitions are unprofitable – and the volume of these new subscribers continues to grow.
Certainly, Hollywood giants will have an easier time funding these investments if they’re selling their catalogues, as well as a portion of their originals, to their streaming competitors. But this won’t solve their own streaming problems.
Irrespective of its start date or the duration of entrants forecasts, it’s clear that the Streaming Wars have recently entered a “phase change.” Stock prices certainly tell the tale, as do aggregate customer data and operator timelines. The stated strategy and tactics spin the tale as well. For years, streaming video was driven by hypotheses, but more recently, the market has homogenized as best practices became clarified and then were all but universally adopted. This is one of the reasons I have not written about the streaming business over the past three years in favor of more uncertain topics like gaming, the Metaverse, and so on.
The purpose of this piece is not to pick the winners and losers of the Streaming Wars, nor evaluate any of its players, or litigate who was right or wrong in playing the hands they first held and were ultimate delt. Strategy changes are a question of reality. They change not just because of initial exuberance or exceptionalism, but in response to shareholder support and early traction, good and bad. As an outside observer - even with the company's own public forecasts - analysis is limited. Instead, I want describe the takeaways of the Streaming Wars, then place in context as we look to what will come after 2024/2025. This war may be approaching its end, but the next one is on the horizon.
