While I think I've said publicly that the future of linear I don't believe is very bright and, eventually, I think everything will migrate to streaming, we're not quite there yet. So, you have erosion of a traditional platform and its economics, and some growth in the new platform, but not the kind of compelling growth that we’ll all need to be profitable. I think it's just a tricky period of time.
So said Bob Iger, CEO of the Walt Disney Company, at the Morgan Stanley Technology, Media and Telecom Conference earlier this month. Iger was talking in relation to the firm’s Disney+ streaming service, which has enjoyed considerable subscriber growth since it launched in the US in 2019, taking on the likes of Apple and Netflix, as well as the established media players.
But as Iger noted, the space in which Disney+ exists is still an emerging market and a turbulent one at that. Netflix, once the poster child for the streaming industry and all-too-prematurely declared the Holy Grail of operating models for other media companies, now attracts near-hysterical reactions from investors and analysts if its subscriber numbers slow down or, heaven forfend, decline.
During the firm’s set of earnings numbers at the top of the year, Chief Product Officer Greg Peters alluded to the challenges in the space:
We're seeing this big macro shift, and certainly the global pandemic has accelerated that process. And really I think the first bit is just even that big impetus to move is to some degree a tailwind for us, because we have more and more consumers who are around the world, who are aware of these services. We have more and more intention, more activity out there. We are seeking to be innovative and constantly pushing the edges around how we can accelerate our growth, how we can improve our distribution footprint, how do we access members more and more?
And also, and what's really the key engine of our growth, is just how do we satisfy those folks that have signed up for us? Because that really is the ultimate stimulus, when they have a great experience and they talk wildly about how great the service is, how amazing the titles [are] that they're viewing there, to their friends, their family, their colleagues. That's really what motivates that next round of subscribers to sign up. So we'll keep pushing the edges. We seek to be innovative in that way. And we'll come up with many creative ideas as we can to grow.
Against that backdrop, Salesforce Research has just come out with in interesting deep dive into what’s going on in the market. Its Media & Entertainment Industry Insights Report - registration required - is based on the views of 350 media and entertainment professionals, with a job title of director or higher, across Australia, Canada, France, Germany, India, the UK, and the US. Their conclusions support the thesis that those operating in the media and entertainment sector are in the grip of transformative - and challenging - change in a digital platform age. The report notes:
The media and entertainment industry is facing multiple challenges: soaring customer expectations in an increasingly saturated landscape, improving content and the customer experience, and macro-economic headwinds. Leaders in the space cite increased competition as their top concern, followed by increasing costs, such as costs to sell advertising.
It’s a landscape in which market saturation and the cost of living crisis has led to budget-conscious consumers re-evaluating their subscription choices. In a world with so much choice, there literally isn’t enough time to make the most of everything on offer, so decisions are being made to decide what’s the best use of money. Is Netflix watched more than AppleTV in your household? Should you pay to upgrade to an advertisement-free ITVX in the UK when there’s a free version with adverts also on offer?
It’s not just a financial decision. Consumers are inevitably going to be influenced by the nature of the content on offer. You want to watch the last season of Succession legally? Then you need to pay for the streaming service/content provider that’s running it. You want access to all of classic Doctor Who? Then you need to be paying BritBox, because that's where the BBC's put one of its biggest franchises for the moment.
But there’s also the question of the customer experience and earlier Salesforce research throws up some interesting findings here, with 86% of consumer respondents to the State of the Connected Customer report last year saying that the experience a customer provides is as important as its products. On this point, media and entertainment consumers look a particularly demanding breed with 65% of households subscribing to at least one video service, but with 39% of that number saying it’s not worth the money.
Now, to be fair, that does mean that 61% do reckon their video subscriptions are value for money, ahead of audio (54%), digital publications (48%) and gaming (46%). But overall, according to Salesforce data, media and entertainment companies as a whole are looking at an average annual churn rate of 17%.
At present, subscription offerings are ranked third as a revenue source for media and entertainment firms, coming after advertising in the top slot and commerce in second place. Over two-thirds of respondents (69%) have an established advertising revenue stream implemented, compared to 57% for subscription models. But among those who don’t, 36% of respondents plan to roll out subscription streams, compared to 28% who intend to implement new advertising models.
Here’s where it starts to get confusing. Some 39% of respondents believe that advertising spend is going to decline over the next 18 months, but over half (51%) expect to see major growth in advertising revenue streams. Meanwhile a third (33%) expect major growth from subscription revenue streams, with a further 48% expecting to see growth. The Salesforce report suggests:
Planned revenue diversification may be offsetting any worries about advertising prospects, with growth broadly expected across other lines of business including commerce, subscriptions, live experiences, and licenses and rights management.
Spend, spend, spend
Alongside the need to shore up the customer experience, respondents to the Salesforce study expect to have to spend more to compete, with 64% expecting operating budgets to increase, while over half (51%) anticipate a higher tech spend. Workflow and process automation solutions are likely to be high on most agendas.
Salesforce data suggests that 38% of production processes, and 39% of churn prediction, is currently manual. Process automation benefits are cited as higher employee productivity by 59% of respondents, followed by better employee experience by 52%. Some 49% of respondents regard it as an enabler for better customer experience, while 41% think it will support higher customer retention rates.
And going back to basics, knowing the customer remains a huge challenge. Only 11% of respondents reckon they have a single view of their customer, despite 69% saying that such a capability is critical. Media and entertainment companies are reckoned to use an average estimated 1,005 applications systems to run their businesses. But some 47% of respondents say customer data is completely siloed. Little wonder then that improved data quality and real-time data access top data management priorities. The Salesforce report concludes:
Given that many companies still have much of their data sitting in different systems, solutions to unify the data and segment, activate, and use it to fuel a better customer experience are increasingly important.
Much of this is close to home for me. I currently subscribe to AppleTV, Netflix, Amazon Prime, NOW TV (Sky’s digital service), Disney+ and, most recently, the ad-free version of ITVX. I’ve recently cancelled subscriptions to BritBox and AcornTV. And I pay my mandatory UK TV licence fee which allows me to watch the BBC’s iPlayer legally.
Do I watch content from them all? Yes. Do I watch enough content from them all to make it worth the outlay? Probably not, but how do I choose which one to lose? To be honest, losing Acorn was an easy choice - not enough content that I can’t find elsewhere - while BritBox is now subsumed into the new ITVX platform.
In terms of the customer experience, ITVX is shockingly bad, but better than its horrendous predecessor, ITV Hub. Even so, my irritation level with the user interface and the ongoing technical issues with the app freezing and crashing are not endearing this service to me. Amazon Prime has other issues, largely due to knowing what content is free and what has an additional price tag to be paid.
Meanwhile the BBC iPlayer remains my favorite - a good UI, reliable and tested tech platform and a huge back catalog of content that is a still relatively untapped asset. Everyone wants to be like Netflix. Maybe they should want to be like iPlayer?
As for that Salesforce data, the report appears to reflect well the realities of the new media age. Back to Disney’s Iger for his interpretation of the current landscape:
I'm generally bullish on streaming as a great consumer proposition, as a really robust platform to deliver high quality content under easily-used circumstances. And I am extremely bullish on some of our streaming prospects, notably Disney+, which grew at such a meteoric rate. I think the reason it grew is the strength of the content, those brands that occupy that space. We know in terms of delivering profitability and growth to that platform, that we have to better rationalize our costs.
Obviously, we have to attract more subs, but I think one of the key things that we have to figure out is a pricing strategy that makes sense. I think, in our zeal to grow global subs, I think we were off in terms of that pricing strategy and we're now starting to learn more about it, and to adjust accordingly…[Advertising] is also still very new on that platform. And when you think about a relatively reduced ad load, the purity of those brands, and the specificity of that audience and an audience [that] is not only very engaged, but loyal, it's an advertiser's delight and that's very new for us.
Disruptive transformation in action, in other words.