The revolution in media and entertainment

The media and entertainment industry is in a very crucial period of flux. In just the last decade, the number of cable network subscriptions have gone down by nearly half, as streaming media providers take over. Rising digital literacy, the rollout of superfast broadband and the launch of mainstream direct-to-consumer (DTC) services from major networks have driven a major transformation in consumption habits.

While streaming media providers have seen unprecedented growth, taking over from linear, profits have been hard to come by. This is because the economic model of distributing content has fundamentally changed with moving from cable to streaming.

Linear cable had a subscription based model which basically delivered a buffet to eat-all-you-want, live or on-demand, all from the same cable provider, and capitalized on the fact that there is just one cable provider per household. This model has gone for a toss as households prefer multiple OTT channels. Today, nine out of 10 households in the United States have a subscription to an OTT channel, and the average number of OTT providers per household is 6.8. The same entertainment dollar that was spent on a single cable provider yesterday is now being distributed across multiple OTT providers.

How do OTT providers make money? There seems to be three primary ways:

1. Subscription: where original content seems to be king, increasing cost of operations to be so high that churn needs to be at about 3-5% to be profitable. The industry norm seems to be closer to 35% So most subscription based businesses seem to be losing money.
2. Ads based revenues: FAST channels seem to be the route where users willingly trade their time for money as they see scheduled programs with ads (as against AVOD which is video on demand interspersed with ads). The churn rate is closer to 65% and interestingly FAST channels seem to be profitable despite the high churn. The competition is fierce here as all providers including the big names in subscription such as Netflix and Disney are diversifying in FAST.
3. Sponsorships: This one is a strange beast. Regional Sports Networks (RSNs) are losing money as royalties are high and churn increases if these costs are pushed on to the consumers. These are seasonal events typically being live streamed to specific audiences. There is not a clear way to profitability and are being dropped by the larger players. A new economic model is emerging that requires a lot more experimentation on what would encourage longer periods of engagement from users.

In all three cases, churn seems to be the leading indicator of profitability. And a strong 360 degree perspective on consumers is a necessity for rapid experimentation to improve engagement.

Here at CuVo we doubled down on understanding churn in media products and have come up with a unique consumer engagement platform that runs on any smart device, can layer on top of a media product with the same look and feel as the base product, providing valuable insight into consumers. To learn more about CuVo read the next blog in our series and get started today.