For much of the past 15 years, it seemed the growth of streaming video was unstoppable. Even after the pandemic-induced streaming boom, many of the major streaming platforms continued to generate growth -- albeit at a slower pace.

Yet the combination of high inflation, rising interest rates, and economic uncertainty may have finally slowed this runaway train, and recent data suggests there could be tough times ahead for the major streaming services. Not only are some consumers reducing the number of streaming services they subscribe to, but others are also dropping paid streaming services altogether.

Is this trend a canary in the coal mine for the streaming industry in general, or merely a temporary situation resulting from ongoing economic challenges? Let's take a look to see what the data reveals and what it means for investors.

Two people relaxing on a couch watching television.

Image source: Getty Images.

The downward trend

A recent report by Hub Entertainment Research suggests that demand for streaming video is undergoing a dramatic shift. In early April, the company concluded a week-long survey of more than 1,600 U.S. television viewers with broadband, and the results were stunning. 

The survey found that the average number of programming sources -- including cable TV, satellite, and streaming video services -- used by viewers slipped year-over-year, falling from 7.4, on average, to 6.4, marking the first such decline ever.

Furthermore, those with a Multichannel Video Programming Distributor (MVPD) -- which includes cable and satellite -- continued to feel the effects of cord-cutting, as the number of viewers declined to 55% of respondents, down from 62%. The data further revealed that viewers with at least one streaming video subscription fell to 82%, down from 89% in the prior-year survey.

Hub identified the "Big 5" streaming providers as Netflix (NFLX -1.03%), Hulu, Amazon's (AMZN 1.16%) Prime Video, Walt Disney's (DIS 1.23%) Disney+, and Warner Bros. Discovery's (WBD -0.27%) Max (formerly HBO Max). 

The news wasn't all bad, as the number of viewers that only use streaming to get their entertainment fix actually increased to 27% of respondents, while those using traditional sources, including cable and broadcast television (10%), and those using traditional and streaming (63%) each declined to their lowest levels yet.

The data would seem to suggest there could be tough times ahead for all media companies, but it isn't quite so cut and dried. As with many things, it's complicated.

Strategic advantages

It turns out that the biggest driver of these decisions is financial, according to David Tice, a senior consultant at Hub. "Most people are doing that for economic reasons, because of inflation or they're worried about the economy," Tice said. 

Furthermore, some streaming video platforms are stickier than others, with priorities varying by the consumer.

For many, though, Netflix is the one service most viewers can't do without. "Netflix is still the 800-pound gorilla in the room, and it takes a lot to get people to walk away from that," Tice said. The streaming pioneer's large and growing library of content likely makes it the best value for the money.

Tice also noted that the combination of other benefits afforded by Amazon Prime -- including free expedited delivery of products purchased from its e-commerce site -- keeps customers coming back for more.

The same holds true for Disney+, which boasts fan-favorite content from high-profile franchises, including Marvel and Star Wars, but also owns a large library of children's programming viewers simply can't get anywhere else.

Not all streaming services inspire that degree of loyalty. Some consumers game the system due to the ease of subscribing to -- and canceling -- the various services. "People have gotten much savvier about how to juggle the different services," Tice said. "One of the great things about the streaming services is that they're very frictionless. You can start and stop them when you want to."

Tice provided an example. "There's a subset of people out there who will subscribe to Apple TV+ for a month or two and watch everything they want to watch on that," Tice noted, "then cut that subscription and subscribe to [Comcast's] Peacock or something else for the next two months and catch up on that."

A view from the top

As the streaming industry matures, the landscape is bound to change, with the tough economic conditions merely hastening the inevitable. We've already witnessed the first phase of this evolution, as investors turned their focus to the bottom line and streamers pivoted to generate profits.

The streaming platforms with the greatest competitive advantages will leverage their audience and accelerate the move to generate consistent profitability. Those without the resources to be one of the top-tier providers will likely shift their business model and license content to their rivals. In fact, just last week, a report suggested that Warner Bros. Discovery was in negotiations with Netflix to license programming from HBO, according to Deadline Hollywood. 

This all suggests that the long-awaited industry consolidation may begin sooner than expected -- though it isn't here yet. Furthermore, as a longtime investor in Netflix, Amazon, Disney, and Apple, I don't plan on letting go of any of my shares, at least not anytime soon.