We don’t need to tell you that streaming services have changed the face of Hollywood. Growing rapidly, seemingly inexorably, and increasingly encroaching on cable tv and cinema alike. The traditional KPI for streaming platforms has been subscription volumes, and for years this produced merrily rising share prices for executives at Netflix and the like. More recently, this growth has increasingly been driven by expanding into new markets. Indeed, Morgan Stanley analysts now estimate that the streaming industry will add half as many subscribers in 2023 as it did in 2021. That KPI doesn’t seem sufficient any more. Share prices are suffering. 

The eye-watering investments made in content make it unlikely that anyone will be backing out soon, but the pie is simply not big enough for all the streamers to keep growing their membership at the same time. Equally, it seems subscription fatigue is real. Indeed, Deloitte has found that 37% of users cancelled a streaming subscription in the last six months to October 2022. We can only assume that the cost of living crisis will add fuel to the fire for cost-conscious consumers.

This impasse raises the question – how will the streamers continue to grow when the traditional full-access subscription runway runs out?What will the winning monetisation models of the future look like? 

Membership businesses will almost always lose money when they acquire a new customer. It is only by keeping them that they have the opportunity to make the relationship profitable. Given that, this all depends on the length of relationships and the business’ ability to monetise it during the customer’s tenure.

When considering revenue generation, we look at the two direct forms of customer revenue. Firstly, charging for Subscriptions and Transactions, and secondly, Advertising and Affiliates. Of course, different types of media businesses lend themselves to different methods of monetisation, and in each case it’s about finding the right balance for their consumer relationships. Media businesses more generally are looking to diversify how they monetise. Especially as different elements of the media universe are converging. With brands seamlessly transcending channels and engaging their audiences beyond traditional industry lines. 

So, is it time for the streamers to look beyond subscriptions? Either way, they need to act. Let’s have a look at some of the models we’re beginning to see as streaming services look to retain consumers in their ecosystems and monetise them in different ways.

Driving advertising revenue to subsidise lower price points

The highest profile example is Netflix who launched a basic package subscription with adverts this year. Peacock (NBC’s streaming platform) does the same, and Amazon also offers streaming channels for free with adverts. Advertising, as part of the entertainment offer is nothing new – just watch Sky Atlantic sponsored by Volvo. Modern adtech, such as Sky’s Adsmart platform, will only make it easier to serve more relevant advertising to soften the blow.

Cross-selling content monetised through transactions

Amazon is leading the way, offering the ability to purchase specific content, or specific channels with or without a prime subscription. The transaction model especially comes into is own when we start to look at different types of content; in live events services like Sky’s Now TV offer a type of PPV model with its day or month ‘membership’; and gaming where free-to-play games actually generate more revenue through micro-transactions than the ones people pay for. This could be one approach to counter the licensing islands that the ‘streaming wars’ have created.

Doubling down on subscriptions through acquisitions or partnerships

In 2019, Disney both acquired Hulu and launched Disney+; combine that with the launch of ESPN+ from Disney’s subsidiary, and you’ve got a heady cocktail of content. Similarly, Warner Brothers who are accelerating the launch of the combined HBO Max-Discovery+ platform this spring. In the UK, the Beeb and ITV partnered to launch Britbox to showcase the best of British TV on one platform. We think that it’s highly likely that we’ll see further market consolidation of content on fewer platforms.

Exploring affiliate programmes as a new revenue stream

Now let’s look at affiliates. This has not been a traditional source of revenue for streamers, however you don’t need to look far to see the potential for monetising scaled and engaged audiences. In a world where commerce is increasingly embedded into the fabric of our lives through platforms like Tiktok. George Lucas saw the potential of merchandising when he sold Star Wars to Disney. More recently ITV have had great success partnering with retailers through Love Island. Yes it will require slick multi-channel digital experiences, but we think there’s an untapped opportunity to commercialise content in an innovative way.

In conclusion, the only thing we do know is that Hollywood should be prepared for a bumpy ride. Hollywood executives might be bracing for a ‘year of turmoil’, but it also might be a year of experimentation and change.

We won’t be surprised if we begin to see more experimentation with monetisation models, and quite possibly market consolidation. There will be winners and losers, but our tip is watch out for the ecosystem players Disney & Amazon (and Apple?). SVOD is not just a significant source of revenue for these behemoths, but an entry point into a much larger ecosystem with varied propositions and monetisation models. This enables them to treat their streaming platform as a cost of acquisition, compensated for by a lifetime value acquired far beyond streaming. There’s hope, but the rest may be fighting for scraps.

You can find out more about our thinking in our ‘Membership Economics & Media’ report here.