A growing number of people seek freedom from the limitations of cable television, leading to an inevitable epidemic – cord cutting. In 2018, nearly 2.9 million cable subscribers “cut their cord.” As more and more people cancel their cable television subscriptions, the growth of streaming services allows a recently discovered freedom to customize the personal viewer experience. As the want to subscribe to streaming service as the primary source of digital entertainment increases in popularity, media conglomerates are encouraged to explore the possibility of developing their own online service, perhaps eventually leading to an oversaturated market. With so many services to subscribe to, consumers re-evaluate their television needs and customize their watching experience by choosing to subscribe only to the services that offer the content they enjoy most. With this newly found freedom in viewership experience comes a growing sense of responsibility. As consumers piece together their own media and entertainment experience from a variety of options, they face unavoidable frustrations.
The initial release of Netflix’s online platform, which allowed the streaming of movies and TV shows online, felt like a gift from our favorite media conglomerates. Netflix replaced the discomfort of driving to a nearby Blockbuster, spending too long figuring out what to rent, and the eventual need to drive back to drop off the movie after your allotted number of rental days. Consumers were infatuated with online streaming, which allowed Netflix to rapidly grow and eventually begin to release original content. Just a few years later, the consumption of online streaming has massively grown but with it comes a series of consequences that may not make the streaming as convenient as it was during Netflix’s early online days.
The convenience of a la carte subscriptions carries with it a multitude of potential issues for the consumer, the most prevalent one being cost. For all cable companies, the high-end options that have hundreds of channels and premium stations, cost over $100 per month. This monthly bill can add up quite quickly. This cost for cable may seem high, until compared to the cost of streaming. If one family chooses to subscribe to every streaming service (Netflix, Hulu, Prime Video, Disney+, Apple TV+, HBO Max, Peacock, Discovery Streaming, and Quibi) soon to be offered, it would total close to $360 per month. Customers not only question whether to keep their cable subscriptions, but also which streaming services to keep, cancel and add. The combination of the costs of cable and streaming understandably leads to consumers choosing one over the other, the choice often being a combination of some of the streaming options. The creation of online streaming eliminates a need for cable as it offers almost all the content that might make cable feel like necessity. Streaming has completely disrupted the media and television market by creating platforms that prioritize ease of use and acquiring consumer-wanted content. It is not uncommon that people choose to pay for both TV and a streaming service. For live TV news, sports, and TV shows, many still turn to traditional pay TV networks. Forty three percent of US households currently subscribe to both cable and streaming video services, with this number expected to drop as more streaming services are launched. Without the availability of tons of streaming services, many see a need for both. In coming months many more streaming services will be launched and the integration of live entertainment into these streaming services can entirely eliminate the need for any cable service, lowering the percentage of households that subscribe to both. As households begin to eliminate their cable use, they must make decisions based on which streaming services offer the content they see value in. To subscribe to every streaming service, and therefore have access to all original and already aired content created by those networks, is financially infeasible for many households. This then pushes away many viewers from enjoying certain offerings because it becomes an unaffordable reality. To piece together an individual experience through streaming subscriptions seems exciting at first, but when considering the profound costs that come with this, it becomes more problematic. Just like cable, a consumer subscribes to a streaming service with thousands of options and they will never even crack the surface of what is offered on each platform. The consumer is still not getting the ultimate personalized experience. Cable and streaming both face a similar issue of charging a set price, even if you want just one channel or just one show. Simply put, streaming services do not eliminate the costliness of getting to the few shows or movies that a consumer may be seeking out. The continual development of streaming services by many of the large media conglomerates may lead to financial strain on households who seek out the diverse offered content from a variety of streaming services but do not have the monetary means to do so.
Cost of subscribing to multiple streaming services is not the only frustration consumers face when deciding where to invest their money in subscriptions. The freedom to choose between services comes with friction. As shown in the figure, the top two frustrations with streaming services are the disappearance of shows and the need to subscribe to multiple services to watch all the content they want. Streaming services often cycle through shows and movies, eliminating a few and adding another few per month. Media conglomerates recognize that Netflix became their only buyer, so they began to claw back content and will hold them exclusively on their streaming service. Die-hard fans and binge watchers of shows like The Office won’t be super happy to hear that once NBCUniversal launches their streaming service, Peacock, The Office will no longer be available to watch on Netflix. TV networks are pulling content from major streaming services so that they have more exclusive content on their soon-to-be streaming platforms. Twenty percent of Netflix content is provided by NBCUniversal, Warner, Disney and Fox. Once these respective companies launch their streaming services, Netflix would have lost a fifth of its online content. This forces customers to add other services or to live without some of their longtime favorite shows and movies. While many opt for several services instead of sticking to cable alone, nearly a half of subscribers are frustrated by the growing number of services they need to put together to get the content they want to watch. After subscribing to multiple services, consumers have access to so much content that they struggle to discover what they may enjoy. Forty three percent of consumers report that they give up searching for content if they can’t find it within a few minutes. Despite having so many options, consumers still feel finding a good show is hard.
The growing number of streaming services not only presents a challenge to household budgets, but also the ability of these streaming services to produce original content to entice viewers to subscribe. In 2018, 57 percent of paid streaming video users said they subscribed to access original content. Among millennials, this number is even higher, at 71 percent. Streaming services are spending billions to produce award-winning entertainment and many niche channels do not have the capital to compete. Powerhouse companies push out the less financially able through production of original content. But do these powerhouse companies themselves even have the capital to produce the content they continually release?
Let’s take a look at Netflix, currently the most popular streaming service in the world. The streaming service operates on a subscription-based model with over 125 million subscribers in over 190 countries. It’s only source of revenue is subscription fees and the site alone takes up about a third of all broadband in North America. It would seem reasonable to assume Netflix is making tons of money until hearing they announced they had 88% more original content on the site in just one year. Netflix has not had any positive cash flow since 2011. The cost of creating original content far outpaces the revenue being generated from the subscriptions of the hundreds of millions of viewers. The company continues to borrow more money than it is making with the hopes of future growth. The desperation to stay relevant and competitive in the market leads to growing costs in billions, leading to negative cash flow. An even larger issue for Netflix is the threat of non-loyal subscribers who will cancel their Netflix subscriptions and choose a few of their many other streaming options instead, which sparks this over-the-top spending on original content. Again, for many homes it is not financially feasible to subscribe to every streaming service, so households will become even pickier with the original content they want to watch, potentially leaving Netflix behind. To combat this issue, Netflix will continue to create content, spending even more, possibly leading to even more money lost because of the loss of some subscribers. So even the supposed powerhouse in the industry is struggling to compete with the soon to be streaming underdogs.
In order to maintain relevancy in the market, streaming platforms turn to massive spending in original content resulting in a booming need for creatives in the industry. This ultimately results in negative cash flow as these services hope this spending may encourage more people to subscribe. Consumers are then challenged to strategically choose which services to subscribe to based on the content they seek, potentially proving to be problematic for their wallets. Streaming services compete for consumer attention as cable becomes less relevant and less of a desire in the household. The creation of online streaming shifted the entire entertainment industry to suit it, but is too many options of a good thing just too much inconvenience for the consumer?
Sources:
https://www.vox.com/2018/12/5/18124117/netflix-media-companies-remove-content-charts
https://fortune.com/2018/04/29/viewers-cable-streaming/
https://www.investopedia.com/insights/how-netflix-makes-money/
https://www.techwalla.com/articles/what-is-the-difference-between-cable-direct-tv
https://www.techwalla.com/articles/what-is-the-average-cost-of-cable-tv-per-month