Through the end of 2021, the streaming video industry was on fire. The introductions of Disney+ from Walt Disney (DIS 0.18%) and HBO Max from then-AT&T subsidiary Warner Media were embraced by a crowd of entertainment-starved consumers who had already been warmed up by Netflix (NFLX -3.92%). Pandemic-prompted lockdowns, of course, helped usher in this on-demand revolution.
If you think the industry's future is going to look anything like its recent past, however, think again. Data trickling in from several sources collectively says this high-growth phase is coming to a screeching halt. Investors may want to adjust their expectations accordingly, and double check that their on-demand video play is actually ready for what's starting to happen in earnest.
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4 budding problems for Disney, Netflix, and peers
As of their latest reported tallies, Disney, Netflix, Discovery (DISCA) -- the new owner of Warner Media and therefore HBO Max -- and Amazon Prime are collectively servicing around 630 million streaming subscriptions. Smaller and newer streaming services from Comcast, AMC Network (AMCX -0.60%), and Paramount (PARA -0.47%) ratchet that total up closer to 700 million. Certainly, there's overlap among those consumers, although not as much as you might think.
No matter how you count them, that still leaves more than six billion people on the planet who are not yet customers. Surely, these companies have a viable plan to bring at least some of them into their fold.
Don't count on net subscriber growth being easy to come by from here, however. Adding paying customers going forward could prove shockingly tough. A quartet of recently posted data nuggets helps flesh this idea out.
The first of these nuggets is a new number from Nielsen. In its recently published State of Play report, the television ratings aggregator says despite the deluge of paid streaming services out there (on the order of 200, according to some counts), consumers are capping their streaming subscriptions. Two-thirds of U.S. streaming customers spend less than $30 per month, which adds up to four or fewer paid services. It's a number that seems to be stagnating following the swell during the early days of the pandemic.
Note that more than half of the consumers Nielsen surveyed explicitly said cost was the reason they didn't subscribe to more services.
The second piece of information to consider comes from accounting and consulting firm Deloitte. The company estimates that, on a global basis, 150 million streaming subscriptions will be cancelled this year with subscribers migrating to a competing streaming service. That could result in churn rates as high as 30% in some markets, a huge problem as it's cheaper to keep a customer than it is to win a new one. Deloitte suggests the cost of acquiring a new subscriber could be as high as $200 for some providers.
Third, in a survey of consumers who had cancelled a streaming service last year, S&P Global's media research arm Kagan determined that budgets weren't the top motivation for unsubscribing. Rather, the top complaint was a lack of total content on a particular platform, including Netflix and HBO Max, both of which sport massive content libraries. Curiously, these consumers' assessments follow the streaming industry's phase that saw most providers lose licensed third-party content to media companies looking to build their own direct-to-consumer platforms around their own shows and movies.
That strategy seems to have spread programming a little too thin across too many options, crimping perceived value for viewers.
Finally, both Nielsen and Deloitte agree that streaming customers are feeling overwhelmed by the sheer number of choices out there with Nielsen reporting that 46% of viewers are struggling to find the programming they want in a sea of so many streaming platforms.
Don't shed your streaming-related stocks just yet, but ...
None of these data points are terribly alarming when viewed individually. But when you put them together, they paint a concerning picture. That picture says people are not only starting to question the price and value of their streaming services but feeling overwhelmed by too much choice. It's the sort of dynamic that sets the stage for customers to cancel their subscriptions en masse as Deloitte predicts will happen in 2022.
It's not an existential crisis just yet, to be clear. And for the record, nascent international expansion efforts will help most of these services grow in the foreseeable future.
However, it would be naive to ignore just how crowded this arena has become in the past few years and how that's starting to adversely impact it. Or as Nielsen succinctly put it, "The video streaming industry has reached a tipping point."
