What Makes the SVOD Platforms Tick and What’s the Problem?

The streaming platforms (‘SVOD platforms’) are our popular destination for consumption of enjoyable video content. The line taken in the previous blog post was that society desires diverse video content, even if the consumer themselves does not always recognise this desire. If consumers demand the content, supply and demand would suggest that the streaming platforms would offer diverse content, right? This is more complicated than first thought. ‘What makes the platforms tick?’ - that is the question.

The streaming platforms seek to attract subscribers,[1] through original content or wide libraries.[2] Subscriptions are the substantial revenue stream that keeps the platforms afloat (putting aside, for today, licensing original content to other platforms for a fee, which will be considered subsequently). The revenue attached to each subscription is modest,[3] however this revenue scales with the sheer conglomerate of users who connect with these platforms. In June 2022, 59% of Australians used a SVOD platform in the prior seven days.[4] The customer base for the SVOD platforms is strong.

However, the SVOD platforms operate in a complex and dynamic environment. Digital content distribution is ‘so capital intensive’.[5] To make matters worse, ‘sharp deceleration’ is the trend for growth in the SVOD market as consumer spending slows.[6] Additionally, interest rates have risen.[7] Overall, an economic squeeze continues to have implications for the streaming space, so that subscription price increases continue to occur.[8] For an example that illustrates that fluidity of the industry, the ‘initial success’ of the platforms was influenced by the ad-free nature of streaming.[9] Now, advertising is back, for example, on Netflix.[10] The prime strategy for content production is also shifting.[11] From 2020, with the COVID-19 pandemic, the SVOD platforms acquired ‘as much content… as possible’.[12] The platforms are now ‘choosier when it comes to what titles to spend money on’.[13] For platforms, return on investment and ‘content valuation’ are back in the fold.[14] We can see this dynamic play out in 2023 with Warner Brothers writing-off content and restructuring their business,[15] whilst Disney+ is removing content to ‘avoid residual fees and other expenses’.[16]

COVID may have lulled the SVOD platforms into lavish spending on content production and licensing to entertain their captive audience of consumers with mass spare time. However, the world we have returned to has limited disposable income and mental capacity for content consumption. Despite this, the ‘never-ending meal’ of content consumption continues with more content to watch than ever.[17] Content or menu fatigue is rampant – ‘How dare they produce so much content?’[18] However, substantial quantity of content does not equate to diversity of content. My project asks ‘what is being served?’ The public policy of societal access would prefer less content to be produced if it meant that more diverse content would be produced. This economic situation may be for the better. More high-quality content could be produced. However, the range of content could also worsen. Cookie-cutter, predicted blockbuster ‘winners’ could be produced, rather than boundary-pushing content.

The concern of my project is whether older or more niche content is consistent with the economics of the streaming services. Despite demand for more diverse content, the question for the streaming services with generally be simple: will licensing or producing the content bring in more money than it costs? The initial question was ‘what’s the problem?’ Television is heavily regulated: spectrum allocation, licensing, local content regulation.[19] SVOD platforms, on the other hand, decide for themselves to exist and operate on the internet without a key regulator. Without regulated channels like the spectrum on television, it is difficult to regulate the SVOD platforms. As discussed, the SVOD platforms are under no obligation to hold a diverse range of content. So if the consumer base wants diverse content, but the SVOD platforms are not prepared to provide diverse content without incentives, there is a major public issue. The concern with the monopoly of content is that societal outcomes will not be effected. Regulators need to identify which tools are at their disposal to increase the range of content on streaming platforms, whilst ensuring that the platforms remain profitable and financially stable.

References:

[1] Wayne (n 29) 736.

[2] Kim David Greenwood, Kate Kennard and Chris Mowry, ‘Streaming Content Wars: Demand, Expansion, Exclusivity’, PwC (27 July 2022) <https://www.pwc.com.au/digitalpulse/video-value-content-streaming.html> (‘Streaming Content Wars’).

[3] Disney Has a ‘Path to Profitability’ in Streaming, Says BofA’s Jessica Reif Ehrlich (Directed by CNBC Television, 11 August 2022) <https://www.youtube.com/watch?v=KEitemEHDpM>.

[4] Communications and Media in Australia: How We Watch and Listen to Content (n 36) 1. What We are Watching: Viewing Behaviours.

[5] The Problem with Streaming Is It’s So Capital Intensive, Says MoffettNathanson’s Michael Nathanson (Broadcast Excerpt) <https://www.cnbc.com/video/2022/07/18/the-problem-with-streaming-is-its-so-capital-intensive-says-moffettnathansons-michael-nathanson.html>.

[6] ‘Global Entertainment and Media Outlook 2023–2027: Resetting Expectations, Refocusing Inward and Recharging Growth’, PwC (Web Page, 21 June 2023) <https://www.pwc.com/gx/en/industries/tmt/media/outlook/insights-and-perspectives.html>.

[7] Ibid.

[8] Disney Has a ‘Path to Profitability’ in Streaming, Says BofA’s Jessica Reif Ehrlich (n 44).

[9] ‘Consumers Are Embracing Advertising on TV Streaming Services, Report Reveals’, The Drum <https://www.thedrum.com/profile/samsung-ads/news/why-avod-and-fast-services-can-unlock-the-full-potential-of-tv-ads>.

[10] ‘Global Entertainment and Media Outlook 2023–2027: Resetting Expectations, Refocusing Inward and Recharging Growth’ (n 47).

[11] Ibid.

[12] Ibid.

[13] Greenwood, Kennard and Mowry (n 43).

[14] Greenwood, Kennard and Mowry (n 43).

[15] Alex Weprin, ‘Warner Bros. Discovery to Take Additional $800M-$1B in Write-Offs, Says “Westworld,” “The Nevers” Being Licensed to Third-Party Streamers’, The Hollywood Reporter (14 December 2022) <https://www.hollywoodreporter.com/business/business-news/warner-bros-discovery-to-take-additional-800m-in-content-and-development-writeoffs-1235282281/>.

[16] Richard Nebens, ‘Disney+ Just Removed 12 Major Movies In First-Ever Content Purge’, The Direct (29 May 2023) <https://thedirect.com/article/disney-plus-movies-removed>.

[17] Anne Helen Petersen, ‘Overloaded: Is There Simply Too Much Culture?’, The Guardian (online, 20 November 2021) <https://www.theguardian.com/tv-and-radio/2021/nov/20/overloaded-is-there-simply-too-much-culture>.

[18] Ibid.

[19] Convergence Review: Final Report (Report, Government of Australia, 1 May 2012) 59, 88–89 <https://apo.org.au/node/29219> (‘Convergence Review’).