The streaming business thus far has performed like the typical new growth industry, luring lots of contenders to the table since Netflix (NFLX -0.63%) got the ball rolling back in 2007. This year marks a major pivot point for the business, though.
The early growth phase is over. The bulk of the low-hanging fruit has been picked. From here, it will be much tougher to drive subscriber growth. Some services won't survive -- at least not as we know them. Indeed, it's increasingly looking like the market's current leaders are best positioned to remain its leaders, leaving all the others fighting -- unprofitably -- for scraps.
Investors can't afford to ignore this paradigm shift.
Most consumers are maxed out on streaming services
Streaming market research outfit Hub Research supplies the latest piece of empirical evidence supporting the idea that streaming is peaking and even jelling. That is, in its most recent survey of over 1,600 consumers residing in the U.S., 43% of them indicate that they "already have as many subscriptions as they can use." Another 35% say there's such a personal limit even if they don't yet know if they've yet reached it.
Image source: Hub Research 2023 "Monetization of Video" Report.
That data jibes with a recent similar finding from Kantar. The consumer research outfit concedes U.S. households are still stacking multiple streaming services on top of one another. But, the average of 5.5 services per household recorded for the first quarter of this year extends a period of significant slowing. Meanwhile, "unless streaming services can sustain significant price inflation," Ampere Analysis predicts per-household spending on video services -- including cable, but not just cable -- within the United States will actually start this year and continue shrinking through 2027.
The backdrop means exactly what it sounds like it means. As Hub's senior consultant Mark Loughney explains, "The video ecosystem is clearly at an inflection point. Gone are the days when providers could reliably count on revenue growth from new subscribers." The comment echoes worries voiced late last year by former WarnerMedia chief Jason Kilar, who cautioned that only three streaming platforms would survive the streaming business's brutal competition. The rest will be acquired or discontinued out of cost-based necessity.
The industry's most likely survivors, however, are starting to become clear.
The usual suspects are winning and growing
TV ratings agency Nielsen keeps tabs on the streaming market, too, regularly publishing each major streaming service's share of total television view time. And its viewership leaders are mostly the familiar names you'd expect. The aforementioned Netflix is the conventional streaming powerhouse, although Alphabet's (GOOG 9.96%) (GOOGL 10.22%) unconventional YouTube actually delivers more hours' worth of video content. While neither Hulu nor Disney+ is nearly as big as Netflix or YouTube on their own, together they make Walt Disney (DIS -0.04%) a streaming leader as well. Meanwhile, Amazon's (AMZN 3.43%) Prime continues to be a major streaming service many people simply forget about.
At the same time, the domestic streaming market's overall growth is slowing, though, we're starting to see a shift in the total share of time people spend watching these top providers' platforms.
Yes, other players are pinching off respectable shares of total viewing time as they enter the streaming fray; Paramount's (PARA -2.22%) Paramount+, Warner Bros. Discovery's (WBD -2.17%) HBO Max, and Comcast's (CMCSA 1.85%) Peacock now boast meaningful-enough viewership for Nielsen to bother monitoring.
The biggest names in the business, however, are actually getting bigger in terms of drawing a crowd. In fact, thanks to a second consecutive great month in June, Netflix's, YouTube's, and Prime's share of total domestic view time has never been stronger. While Hulu is still relatively big, its share of total television-viewing time is dwindling, while Disney+ is stagnating. That's a red flag.
Data source: Nielsen. Chart by author.
At first thought, it's a bit counterintuitive. Smaller newcomers like HBO Max and Peacock are obviously making inroads -- their share of watch time has to be coming from somewhere.
It's not coming from Netflix, YouTube, or Prime, though. It's largely coming from the "other" category of streaming platforms that don't draw a big enough crowd to merit monitoring and reporting. The three single-biggest services are getting bigger because they're taking more market share from these unmentioned streaming services while they're also drawing viewers away from cable and broadcast television.
And that's where their real growth opportunity lies. See, as much as streaming itself has grown, cable and broadcast television still collectively account for half of the country's total television usage.
Data source: Nielsen. Chart by author.
The same trends are taking shape overseas, even if they're lagging behind the evolution underway in the United States.
Two big challenges for smaller streamers
A couple of key challenges stand in the way of smaller streaming services just winning the sort of market share YouTube, Netflix, and Prime are gaining just from the cable cord-cutting movement.
The first of these hurdles is the existing scale of the industry's biggest players.
At 232 million paying subscribers, Netflix is by far the world's single-biggest streaming service and has enough scale to operate profitably. YouTube is likely profitable, too, if only because the ad-revenue-sharing model puts content costs -- and risk -- on the shoulders of content creators/owners themselves. Ditto for Warner Bros. Discovery's direct-to-consumer operation. And Paramount's Paramount+. And Comcast's Peacock. None of them have the scale they need to be fiscally viable, but scaling up will require even more spending. Investors are decreasingly keen on such a strategy. Now, strategic partnerships are increasingly looking like the smarter fiscal option.
But what about Amazon Prime? It's not clear if it's profitable or not, but it likely isn't. On the other hand, the point of Prime isn't to serve as a profit center in and of itself. It's a means to an end. That is, giving consumers an incentive to buy products from Amazon.com. Amazon doesn't need Prime to be profitable. It just needs Prime to be big.
The second challenge that will allow the biggest streaming services to get even bigger is sheer habit. A report Hub Research published last year notes that Netflix itself is the second-most-popular default viewing choice when the TV is turned on, with 23% of U.S. consumers saying they go to the popular platform first. That's a close second to the entirety of cable television, which is the default choice for a surprisingly low 28% of U.S. residents.
The underlying idea applies to Prime and YouTube as well. That is, they're habits.
What investors need to know
None of this is to suggest it will be impossible for the smaller streaming platforms to eventually stand toe-to-toe with the likes of Netflix, Prime, or YouTube. Anything's possible.
If you're counting on game-changing growth from the likes of Paramount+, HBO Max, and Peacock, though, don't. These platforms are fighting for scraps and leftovers while Netflix, Prime, and an underestimated YouTube are taking the lion's share of the streaming industry's organic growth -- growth that's starting to slow down.
