Technological developments have played a significant role in shaping our society, and continue to challenge the status quo and drive change. Applications like Uber, and platforms like Airbnb not only provide us with new products and services to consume, but also fundamentally change the way we interact with businesses, technology and one another. In the entertainment industry, over-the-top (OTT) media services have transformed the way we watch television and movies, and our expectations around content quality and delivery. OTT services deliver content over the internet, as opposed to cable, broadband or satellite, which are more traditional methods commonly used by competitors. By using internet delivery OTT services have made their content accessible on computers, phones, smart-TVs, streaming devices and gaming consoles - and thus allowing it to be consumed anywhere there is internet available. Since Netflix’s launch in 2007 the OTT market has grown immensely, resulting in the establishment of a number of new platforms and applications, such as Hulu, Amazon Prime Video, Disney+, Apple TV and Quibi, to satisfy the substantial growth in consumer demand for these products and services. As the OTT market has grown both in the number of consumers and competitors, it has transitioned towards a stage of market saturation, which is a situation that arises within a market when the volume of a product or service has been maximized. As competition has become more fierce in the OTT market, competitors have become focused on monetizing the content that they own, and producing captivating original content.
This is a shift from the market’s original model, which saw streaming services mainly offering licensed content from many different producers, as well as some of their original content. The shift from licenced to original content means that consumers must subscribe to an increased number of platforms, at a higher cost, in order to see the content that they want. Additionally, the content and user experience being delivered is of lower quality as the platforms shift their focus to producing a larger volume of content. Based on the changes to convenience, cost, content quality and user experience, consumers may be left asking if this shift has not only changed thel value proposition of OTT services, but also destroyed the high value features that attracted them in the first place.
Fragmented Content and Increased Costs
One of the key differentiators between streaming services and traditional cable television is the shows that they are able to offer. Cable TV offers bundled content, with specific packages containing restricted network content. On the other hand, streaming services have the ability to negotiate contracts for existing content while also offering their own original content, which in turn allows them to offer stronger breadth and quality of content that they offer as compared to traditional cable. This is what allowed Netflix to offer shows such as The Office, Friends, and an array of Disney movies in addition to their original shows. However, the classic content that was once featured on multiple streaming services is being pulled in order to be featured on new platforms created by the content’s owners. One of the most well known examples of this was when Disney removed their content from Netflix’s platform in order to create their own streaming service, Disney+.
This content shift is demonstrated further in Netflix’s budget, as their rate of spending on licenced content has decreased steadily every year since 2016 when they reported an increase of 41%, while in 2019 they reported an increase of just 4% even though their market share had been steadily growing (Savitz, 2020).
On the other hand, the value of Netflix’s original content was up 63% in 2019 (Savitz, 2020). The increased spending on original content is indicative of the shift in focus from licenced to original content. As OTT services begin to move towards offering exclusive content, the market is beginning to look a lot like the fragmented bundled TV subscriptions that consumers left behind when they originally subscribed to streaming services.
The value proposition offered by OTT services was originally their breadth of content and competitive price. However, as the market has become saturated and fragmented, consumers are subscribing to a greater number of streaming services at a greater cost. In 2016, 56% of consumers subscribed to just one SVoD service while in 2019, 76% of consumers were subscribed to two or more services (Guttmann, 2019). As platforms shift away from a model of opportunistic content licensing and towards content exclusivity, consumers are forced to subscribe to more services in order to view the content they are interested in. This problem becomes even more prominent in households with varying age groups and interests, as younger consumers are more likely to subscribe to Disney+ while millennials and Gen X tend towards services that offer a premium on-the-go experience (Westcott, Ciampa, Loucks, & Srivastava, 2019). A 2019 study done by Langston Co. showed that this fragmentation has not gone unnoticed by consumers, who have two main concerns about streaming services: they worry that they are losing the all-encompassing content model that they love, and they are frustrated with the rising costs.
Consumer’s concerns over rising costs are not unwarranted. As consumers subscribe to more services, their monthly costs are becoming much closer to the price of bundled TV. Between 2014 and 2017 the average monthly cost of cable TV stayed relatively stable, around $53 a month (Vermond, 2020). In comparison, consumer’s average monthly expenditure on streaming services increased by over 280% between 2014 and 2018 (Shaulova & Biagi). Although the average consumer spends $37 per month on streaming services in 2019 (Consumers Spend on SVOD, 2020), which is less then the cost of cable, consumers only see a future where this cost increases due to the increasing number services they are subscribing to. The increasing cost associated with subscribing to streaming services goes against the original value that these services offered. 75% of streaming consumers say that they are not willing to spend more than $30 a month on streaming services, which shows that they are looking for streaming services to be the lower cost alternative to cable TV (Consumers Spend on SVOD, 2020).
As a result of the market’s saturation and fragmentation, Analysis has shown an increase in “subscription fatigue” - a term created to describe consumer’s frustrations with the cost and overhead of subscribing to multiple streaming services (Westcott, Ciampa, Loucks, & Srivastava, 2019). This indicates that consumer’s content and pricing needs are not being met by the current streaming solutions.
Disrupting Old Hollywood Traditions
The shift away from opportunistic content licensing and towards content exclusivity is also changing the traditional layout of Hollywood content creation and impacting the quality of content that is delivered to streaming consumers. Movie studios who traditionally developed and sold content to streaming services have now been acquired by the streaming companies themselves. The market has seen aggressive mergers and acquisitions (M&A), which were used to gain access to bigger content libraries. Examples include Disney acquisition of 21st Century Fox and the merger of CBS and ViaCom. Rather than offering a range of content produced by different studios, which is rotated over time, each of the services are now tied to working with the studios within their portfolio which makes it more difficult to quickly pivot to niche subjects without acquiring other businesses. This forces consumers to pick from the data driven style of content that the service offers.
The major issue with this M&A strategy is that traditional film and streaming platforms have two fundamentally different logics around how content should be organized and produced. Streaming services are not producing major franchise films, which typically feel too expensive for a laptop screen. Instead, they focus on producing lower budget films, and release more frequently than a traditional movie studio would.
For example, films by independent studios such as Marvel’s Avengers: Endgame had a production budget of $356 million (Rubin, 2019), while Netflix's first film with a budget greater than $100 million was released in 2017. This demonstrates that the streaming market is taking over the lower and middle chunks of the film business and leaving the upper range alone (Fritz, 2018). The differentiating factor between tackling the middle market vs the upper end of the market is the logic and mindset that the studios use. Traditional film companies focus on commitment logic, whereas streaming services emphasize convenience logic. Convenience logic focuses on producing a broad range of content, which means that streaming platforms rely heavily on consumer data to produce a broad content library and present users with recommendations. In 2019 Netflix released 371 new, original shows and movies, which is more content then the entire U.S TV industry released in 2005 (Bridge, 2019).
On the other hand, traditional studios use commitment logic to spend time developing and implementing ideas in order to commit to a single artistic vision. The committed, focused approach used by traditional studios usually involves a higher budget, and subsequently higher quality films. The leading cable TV series in 2019 was Game of Thrones, which had a budget of 15 million dollars per episode and an 89% rating on Rotten Tomatoes (Watson, 2019). In comparison, Amazon Prime’s series The Man in the High Castle had a budget of $9 million per episode and a rating of 82% on Rotten Tomatoes (Watson, 2017). Although the difference in ratings between these two series is not astounding, there is a consistent trend where content produced by independent studios have higher ratings. This trend of lower quality content is also seen in the award nominations and wins. In 2020 Netflix’s myriad of content received 24 Oscar nominations, but only won 2 awards (Whitten, 2020). In contrast, Warner Studios received 11 nominations for their film Joker, and won 2 awards (Whitten, 2020). This means that although OTT consumers are given a long list of recommendations, the content is not the high quality television shows and pay per view movies that were originally promised by streaming services.
Placing User Experience on the Black Burner
Although content is at the forefront of streaming services’ value proposition, the platforms themselves also offer consumers unique tools and experiences that are not offered with traditional cable television.
These tools and experiences fall under the concept of ‘user experience’. User experience describes all aspects of a user’s interaction with a product, which includes all of the possible user touch points from marketing and graphics to the service’s engineering and design (Norman & Nielsen). Most consumers don’t think about their experience when using a product unless it is frustrating or cumbersome, as their expectations are a flawless, pleasant experience. Although most user’s don’t explicitly evaluate user experience when deciding to subscribe to a streaming service, consumers weigh user experience to be just as important as content (Langston, 2019).
Netflix has two main features that have changed the game for consumers. The first feature is their sophisticated recommendation algorithm which not only tracks what you watch, but the time of day, how long you watch for, your click interactions within the platform, and on what devices you watch (Netflix, 2020). The accurate recommendations that Netflix makes provides users with a personalized service which is hard to replicate with traditional television. The second feature is their automatic play and bookmarking feature. By automatically playing the next episode and saving your spot when you leave part way through, Netflix provides an experience that requires little thought and action, which is exactly what users expect when they kick back to watch a show. In comparison, Hulu and Prime both launched with poor designs, which felt cumbersome next to Netflix (Levenson, 2020). Although Hulu and Prime are continuously improving their user experience, Netflix continues to trump both of them in number of users, and user retention (Rieck, 2020).
As the battle for quality content heats up, new services are focusing more on content, and less on user experience. Quibi, a streaming service that launched in April of 2020, promises its users micro content that is 5 to 10 minutes in length. This value proposition appeals to users who are looking to consume content while commuting or waiting in line. However, Quibi’s platform failed to think about the user experience that their customers want. The platform only allowed users to watch content on their mobile devices. The backlash they received prompted a fix to be released to allow for Chromecast and Airplay integration. User’s found that the Quibi experience didn’t match their need to watch content at home and on the go, and a month after launching the Quibi app had fallen out of the 50 most downloaded free iPhone apps, leaving the platform with only 1.3 million active users (Sperling, 2020).
Users have voiced that the user experience on a streaming platform is just as important as the content quality, and these claims have been displayed in Netflix’s success and Quibi’s lackluster launch. The fragmentation of the streaming market is pushing streaming services to focus on content production, as shown by the increase in the amount of original content on streaming platforms in recent years (Langston, 2019). However, this has come at a price for the user, as new platforms are focusing less on the user experience, and existing platforms seem to be maintaining existing features, but are not making drastic improvements.
It only takes a quick Google search to reveal the vast amount of options that users have available to them in the OTT market. With the launch of five new major streaming platforms in the past 12 months (Reilly, 2019), market saturation is becoming more apparent as consumers are forced to pick and choose which services they subscribe to in order to access the content they want. Ultimately, the fragmentation that is forcing users to subscribe to multiple services at a greater cost is causing the streaming market to look similar to the bundled cable TV market that streaming services originally set out to challenge. The result is that streaming platforms no longer offer the range of content and low cost that they once did, and consumers are impacted as they pay more for lower quality content and a customer experience that is not continuously innovating. Moving forward, streaming services will need to take a holistic approach in order to retain and win consumers. Having captivating content is not enough to win in the streaming market, rather the services need to offer an experience to their consumers which involves the cost savings and breadth that they originally promised, as well as quality content and an immersive user experience.