Streaming services, also known as over-the-top (OTT) services, recorded huge popularity, growth, and possible saturation during Covid-19, as people spent more time at home on the sofa than ever before. However, heading into 2023, there is a new frontier in the streaming wars as consumers become pickier about the services they subscribe to. A global recession is looming, consumers are feeling the pinch, and many will look to cut down on expenses, which includes additional streaming services.
According to GlobalData forecasts, subscription video-on-demand (SVoD) subscriptions in the UK will increase from 43.5 million at the end of 2022 to 46.8 million at the end of 2023. This will increase to over 57 million subscribers by 2027. The average number of SVoD subscriptions per household will also increase from 2.23 in 2022 to 2.3 in 2023.
However, these numbers are moderate and suggest that many households will choose a single streaming service to commit to, or will jump around based on content, only paying for one or two streaming services every month. To tackle this, ad-supported cheaper tiers and interoperable and bundled services will be key strategies to maintain market share and raise subscription numbers.
Ad-supported tiers will become more popular
Ad-supported video-on-demand (AVoD) is the latest trend in OTT services. Any company not offering a cheaper, ad-supported model will miss out on a key portion of the market, especially as customers look to save costs during the economic downturn.
Netflix launched an ad-supported tier in 2022 for $6.99 (GBP4.99) a month. This followed its disappointing H1 2022 results, where it lost 1.2 million subscribers globally. However, subscribers rallied in Q3 2022, increasing by 2.4 million subscribers. Q4 results have not been announced yet, but with the release of the ad-supported tier in November 2022, subscribers are likely to continue to moderately increase, while the revenues from ads will boost the company’s results and market position.
Major Netflix competitor Disney+, which overtook Netflix’s subscriber numbers in August 2022, also launched an ad-supported tier in the US in 2022, with a UK release expected in 2023. Other streaming services are likely to consider launching an ad-supported tier in 2023, using ad revenues to reduce customer drop-off and entice more subscribers at lower rates.
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Bundled platforms will cement streaming customer loyalty
If streaming services can partner and bundle services together, this will cement customer loyalty. Subscribers with a group contract with four or five OTT services are likely to always have fresh content, meaning that they would be less likely to cancel the entire contract.
Several services are already doing this, for example, Disney+ offers a bundle with Hulu and ESPN+. In 2022, Discovery acquired Warner Media, forming the new Warner Bros. Discovery (WBD). The company is expected to launch a streaming service in 2023 merging content from HBO originals, Warner Bros. films, and Discovery+’s programs. More strategic partnerships between OTT players are likely to emerge in 2023.
Eventually, streaming services will become interoperable, creating a seamless user journey between bundled services. A customer will be able to access content from bundled services seamlessly, instead of going in and out of apps.
Packages with essential services could increase subscribers
As customers search for the best deals, partnerships with streaming services could help clinch deals—for example, if a bank offered a free Netflix subscription when a customer opened an account. This will also increase subscriber numbers, as customers are somewhat ‘locked-in’ and are unlikely to change bank or other essential services as frequently as streaming platform subscriptions.
Some services are already offering this. In the US, retail group Walmart is partnering with Paramount Global to offer the streaming service Paramount+ to members of the Walmart free shipping program, a competitor to Amazon Prime. In the UK, TSB customers can claim up to 31% off Sky TV and Netflix. While this is not a package, it does leverage subscription services to make essential services look more attractive. Deals like this will be key as customers become savvier during the economic downturn.
Strategies like bundles, ad-supported tiers, and essential services packages are important to make subscribers stick, rather than jump ship for the next big content release. Loyal subscribers will be key for revenues and share prices, as OTT companies weather the economic downturn in 2023.