Subscription Model Redux: Loadsa Money for Uncertain Returns

By | October 25, 2019

Last week I wrote about subscription fatigue particularly as it applies to video. Ampere Analysis (I don’t yet have a link to the press release) have just released some data that looks at another angle of this.

Global spend on TV, film and sports content “expanded from $100 billion to $165 bln between 2008 and 2018 – a 65% increase. Nearly $50 billion of this growth was in the last five years alone.” But what’s interesting about this is that while Netflix and others have sunk a significant chunk into this — from $2 bln to $19 bln last year, the vast majority of spending is still done by the traditional networks and broadcasters, accounting for $111 billion in 2018. “It is their reaction to the entrance of the new OTT players,” Ampere concludes, “which has fuelled the global content boom.

This means that these broadcasters are having to dig deep to fend off these new players: in 2013, a typical broadcaster or network spent roughly 41% of its revenue on content rights. Ampere expects that by the end of 2019, this will have increased to 50%. Disney’s spending rose from $10 bln in 2013 to $13 bln in 2018. NBCUniversal’s content expenditure has risen by over $4 bln between 2013 and 2018.

Ampere sees this as a rising tide lifting all boats. As networks shift to what its calls a Direct to Consumer model (and I would call a subscription model) OTT platforms like Netflix will have to spend more on original content, as I mentioned in my blog. But Ampere argues it also represents an opportunity for producers and rights holders (read indie producers) that don’t have any interest in building their own subscription services to replace the content the likes of Disney withhold from Netflix.

I’m not so sure. For one thing the likes of Disney are going to face shrinking margins as they funnel more money into content, and a subscription model isn’t going to bridge the gap, at least for now. And are Netflix users going to be drawn to more indie content on Netflix, and are they going to be willing to pay the same fees as they did for the Hollywood stuff? The good thing, generally speaking, about Netflix-commissioned stuff is that the viewer feels a certain bar has been reached — not always true, but you’re willing to give it a few minutes based on the Netflix logo. Wading through lots of indie content looking for gems might not be quite the experience existing users are looking for.

Which brings me to another problem with video subscription services. It’s not like music, where if you’re a U2 fan you might be up for listening to something the algorithm reckons is similar. But you can only watch so many murder-set-in-rustbelt-town documentaries. The contradiction is simple: Quantity does not equal quality. But quantity is what brings the punter back to the service. Netflix and other streaming services are going to find it hard to maintain their position if their app starts slipping down the list of priorities the user reaches for when they want to watch something. Pretty soon they’re hitting the unsubscribe button.

2 thoughts on “Subscription Model Redux: Loadsa Money for Uncertain Returns

  1. Jon Petersen

    I do miss our bar arguments, always learnt a lot.

    But, for me the quantity argument doesn’t work. At some point quantity reaches saturation, we only have so many hours in the day to watch stuff. For me it’s reached that point already, there’s far more I’d like to watch than is possible in the time I’m willing to allow.

    You could argue the wide variety of content appealing to different audiences works, but then don’t each of those audiences become too small to warrant the investment.

    I love Netflix, but I’m not sure if it disappeared tomorrow I’d miss it, I have more stuff I want to watch on catchup from BBC etc than the can cope with, and then there’s also the Detectorists reruns.

    Cheers

    Jon

    Reply
  2. jeremy Post author

    Hi Jon, I miss ’em too. I agree that quantity in itself is nothing. But a) there needs to be enough for people to come back to an app/service regularly (i.e. to make it their preferred ‘channel’) and b) I think the UK is a bit different. The iPlayer offers so much it’s a platform in itself, which is probably why the BBC is revamping it again to expand, and extend the lifetime, of content (https://www.theguardian.com/media/2019/oct/07/bbc-iplayer-revamp-life-beyond-channels). I don’t think there are that many other countries with a FTA service of that calibre.

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