We’ve been saying it for some time, something in the streaming market simply had to give. Battle lines had already been drawn and the various growth strategies of each platform were ready to go. Netflix focused on acquisitive growth. Disney looked to leverage its back catalogue. Amazon sought to drive engagement with its e-commerce ecosystem. And a bevy of legacy media players launched their own streaming services to try and keep up with the rampant pace of change. The pandemic simply accelerated the seemingly unstoppable growth of streaming, with each passing week heralding a new record. Streaming was on course to overtake cable in terms of total TV consumption. Spending on brand new IP and reliable classics alike reached all time highs. Rampant subscriber growth was the order of the day – and seemingly at any cost.

What comes up…

By early 2022, most mature markets were already teetering on the brink of ‘peak subscription’. With competition between streaming platforms at a fever pitch, despite virtually no profits to speak of, a correction looked inevitable – though few anticipated the trigger. As with so many other post-pandemic digital success stories, the war in Ukraine – and the ensuing slowdown in the global economy. Turned everything on its head. Rising interest rates and skyrocketing costs of living have squeezed streaming platforms at both ends. Consumers are significantly reducing discretionary spending (with almost a third of global consumers regarding a wide variety of streaming options as an unnecessary luxury according to YouGov). Where as, the availability of ‘cheap’ investor finance has evaporated, leaving VCs and institutional investors to jealously guard the purse strings. 

These headwinds have created a brutal set of conditions for the streaming platforms to navigate. Subscriber growth numbers – until recently the metric to end all metrics as far as earnings calls were concerned – are now being reappraised in light of inflated CAC:LTV ratios. Operational functions, once left to their own devices are suddenly under the microscope, pored over to find new efficiencies. Even management teams aren’t safe, with whole divisions stripped out in pursuit of cost savings. Amid all this change, one thing is clear – the new rules of the game are all about profitability. 

Spinners and losers

The market has challenged all of the main streaming platforms, but their responses have varied. The focus has been on short-to-medium-term profit levers. Stabilising customer losses through better retention, finding new ways to monetise existing audiences and eking out internal efficiencies to save cost. 

We can summarise the direction of the market in four major strategic initiatives:

Business model innovation: Both Netflix and Disney have introduced ad-supported subscription tiers aimed at retaining wantaway, price-sensitive users, while simultaneously diversifying their revenue base. Netflix’s free-to-use service is entirely monetised through ads. With current revenue projections of over $560m in 2023 (Statista, 2023) – its first full year of operating. Disney, meanwhile, has launched Disney+ Basic – a $7.99/month sub with around 4 minutes of ads per hour of content viewed. As well as access to the entire content library, a feature Netflix currently lacks.

Doing more with less: Until recently, much had been made of the demise of the ‘watercooler TV moment’, with whole-series drops and bingeing being the order of the day. This created the conditions for the content arms race we saw over the past five years. As major players spent big trying to accelerate the production and release of hallmark IP to stay ahead. But old habits die hard. A new focus on content economics has led Netflix to a reversal of the trend. With blockbuster releases like Stranger Things and You offered in smaller chunks, with 30+ day waiting periods for later episodes to air as an incentive to keep subscribers locked in. Disney has followed suit by spacing out its franchise marketing model, tantalising Marvel fans with releases that are fewer and further between.

Internal cost saving: Across the space, the cost has become a hot-button issue, extending beyond the ballooning price of licensing and production and into operations. Despite adding over 12m new subscribers to Disney+ in Q4 (Statista, 2023), operating losses doubled, wiping out any profits and causing Disney’s share price to nosedive at the start of 2023. The response was consistent with its competitors – job cuts, and lots of them. Returning CEO Bob Iger plans to let go of 7000 employees as part of a wider restructuring process. Aimed at capturing $5.5bn in costs (including, to date, the liquidation Disney’s fledging Metaverse division – news bound to dismay Mark Zuckerberg). Disney is posting the big numbers, but its competitors aren’t far behind. With Amazon laying off 400 employees at Twitch, and Netflix announcing its intention to restructure its leadership team.

Mergers of necessity: As we previously established, not all streaming platforms were created equally. The current headwinds are hitting different traditional media houses disproportionally. With their smaller user bases challenging monetisation, and reduced purchasing power to obtain the content needed to drive differentiation. This has created a fertile ground for mergers to take place, as witnessed in 2022 when HBO Max owner Warner Bros. and Discovery joined forces. Through increased scale and a broader content library, the legacy media groups may get a stay of execution.

2023 – the year streaming grew up?

Evidently, there are no out-and-out winners here. There is, however, a clear path that the streaming platforms need to walk to achieve sustainable profit growth in the longer term. Of course, some are better set up to make it than others. The first step is to create meaningful scale – not an issue for Netflix or Disney. But one which may force legacy media offerings like HBOMax and Peacock to continue aggregating services with other players in the space through partnerships and mergers. From there, the focus needs to switch to growing the value of customer relationships through enhanced propositions and customer experience. By thinking about Average Revenue Per User (ARPU) as a common metric across different user groups, we can benchmark where each streaming platform stands – and what they need to do next. 

While Netflix is having qualified success in acquiring and retaining subscribers, it remains a flat-track SVOD offering – with the opportunity for new products, services and experiences to cross- and up-sell currently crying out for further exploration.

By contrast, Disney has a broad ecosystem of products and services to tap into – including a cornucopia of merch, events and theme park experiences. But hasn’t succeeded in transforming Disney+ into the digital front-end to connect consumers with this wider world of commercial opportunity. Additionally, with the introduction of free and low-cost tiers respectively, both now need to balance the books.  By ensuring that their advertising revenues make up the shortfall – otherwise they risk backsliding down the curve.

Amazon and Apple understood the ecosystem opportunity from the beginning, with ARPU growth a key motive to enter the streaming game to begin with. Their primary challenge lies in keeping their streaming offering relevant enough to ensure consumers stay engaged. With Amazon still searching for a hallmark streaming franchise after The Rings of Power flopped with customers and critics alike.  Additionally, with AppleTV being deemed the “most expendable” of all major SVOD offerings. 

In conclusion, there is still everything to play for, with each platform harbouring distinct strengths and weaknesses. By the market’s reckoning, Netflix remains king of the streamers, but its price reflects its reappraisal as a flat-track media company – more the next Comcast, rather than the next Apple. The only thing that’s certain is that the streaming wars have entered a new phase, and while short-term initiatives will undoubtedly boost operating profits, it’s the long-term focus on growing ARPU that will prove decisive.

We are Manifesto Growth Architects

Manifesto Growth Architects are the UK’s leading independent consultancy, specialising in growth, innovation and new business models. We are experts at optimising recurring revenue models and building successful customer experiences with companies to sustainably grow our clients’ ARPU. We’ve helped some of the world’s most innovative media companies to grow, so if you’re interested in the future of streaming video, or the direction of innovation in the Media industry at large, we would love to hear from you.