The Streaming Wars — why now?

“The Streaming Wars” have been raging for several years now — but why are they so interesting? What about highly competitive, fast growing industries is exciting (outside of the obvious)? Today I’ll answer that question from a metrics perspective.

And while we’ll focus on US SVOD today, this paradigm shift is so much bigger than that: virtually all consumer goods & services are making a transition from a retail distribution ecosystem (malls, theaters, and grocery stores) to a direct-to-consumer one (subscription boxes, streaming, and so on).

The US SVOD market opportunity

This one is the most obvious but, anytime you have a massive market opportunity that is currently very under penetrated, you’re going to have a lot of competition on the way up. By one (admittedly flawed) approach, you can see that the market opportunity is $105B in the US alone, and we’re not even 20% of the way there. And this is just SVOD, just in the US (i.e. it doesn’t include the rest of the consumer subscription economy).

Competitive pressures on both sides of the coin

Here’s where it gets interesting. With the number of new entrants (Disney+, Apple TV+, HBO Max, Peacock, Discovery+, Paramount+, and several others have all launched in the past 18 months), “legacy” SVODs like Netflix can no longer ignore how their consumers behave when they’re not on Netflix.

There are two compounding trends that result from more competition:

1. First, given the increased consumer choice, users are encouraged to be less loyal to any one service, so they switch in & out. With no change other than more competition, an SVOD service today can expect to have a lower Customer Lifetime Value.

2. Second, more SVODs mean increased demand for new content and Subscribers. There are only so many movies & shows available for license, and only so many “Sign Up Now” advertisements a consumer can take in a day. Again, with no other change, increased competition increases a Streamer’s two biggest costs: marketing and programming.

Bottom line: Any subscription business’s holy grail is their CLTV / CAC ratio. Increased competition is putting negative pressure on this holy grail in both directions. Things didn’t just get a little harder – they got a lot harder. But, given the addressable market, someone has to “win,” right? Result: fierce competition.

Sophistication grows but competition doesn’t relent

While much of the press focuses on “who will win the Streaming Wars” with an inferred end game in the next couple years, I don’t think that’s right. Rather than competition slowing down, I’d argue it’s likely to continue at a relentless pace, as services “build their arsenals” by continuously getting more & more sophisticated.

In 2021, the industry still describes Churn as “a phenomenon”, indicating a lack of sophistication, relative to what’s possible. In just a few years, SVODs will follow a predictable journey, leveling up their skill set until they’re asking “how can we predict & prevent users from churning” — a long way from “what is Churn”.

So, while we may not hear nearly as much about the war for new Sign-ups in a few years, we can expect to hear a whole lot more about prevented Churns. Competition isn’t going anywhere; it’s the new normal.