By: Jon Kircher, CEO of Xperi
Dramatic shifts in consumer behavior, driven by concerns about inflation and recession, will create a dramatically different market for Pay TV and over-the-top (OTT) streaming service providers as 2023 unfolds.
Subscribers are revisiting digital entertainment budgets that ballooned in the aftermath of the global pandemic and are developing strategies to better control investments in content, online gaming and other digital experiences.
Spending on video services increased in 2022. Xperi research indicates average spending on entertainment rose to $189.38 per month — a $20 increase over 2021. As a result, the year ahead holds great promise for consumers — and the overall ecosystem — despite disruptions that are sure to come.
This is true for established and emerging players in the market. The same Xperi research suggests that 75% of households continue to subscribe to Pay TV services, with over a third (34%) of those who cut the cord reconnecting.
That said, consumers today are engaged in behaviors that are causing no small amount of concern for both OTT and Pay TV leaders.
A growing number of subscribers are figuring out how to cost-effectively binge content to their hearts’ delight by dynamically churning in and out of streaming services. The result: while consumers in the United States are still subscribing to just under a half-dozen streaming services over the course of a year, many are now more likely to do it serially rather than in parallel.
With churn rates rising, content service providers — especially those with subscription video on demand (SVOD) business models — have taken a hit on margins as they allocate resources to win back customers they had once engaged. In response, industry executives are bolstering their offerings by improving their ability to put the right content in front of the right viewers at the right time.
As service providers learn more about subscribers’ viewing preferences, they are building dynamic algorithms — leveraging artificial intelligence and machine learning — to keep customers on their platforms.
Others are hedging their bets by developing advertising-supported video-on-demand (AVOD) and free ad-supported television (FAST) business models to generate new revenues while maintaining relationships with their viewers.
Many are aggressively pursuing both strategies. That is why 2023 should continue providing more viewers with increased access to a rich array of content offerings. The only threat to this outcome is if there is a dramatic shift in the locus of control.
The past decade has seen the industry move away from centrally controlled “walled gardens” that often forced consumers to buy content they didn’t need while raising barriers to desired experiences. It is what caused so many subscribers to enthusiastically drop archaic bundles in favor of picking and choosing from the new OTT offerings delivered by a growing range of players.
Back to the Future?
There are, however, forces that would recreate the silos that so many consumers abandoned with the rise of the streaming industry. The argument for returning to this unsatisfactory past is often presented as a way to help consumers manage the complexity created by an intimidating deluge of content.
While it is true that content fragmentation has led to some frustration, it would be a mistake to succumb to the ‘easy fix’ of centralization. Re-consolidation inevitably leads to reduced competition, which rarely benefits consumers — or the overall ecosystem.
The better option is to leverage independent media platforms, enabling open environments that integrate devices, services, and content while ensuring consumers can set the course for their own digital destiny.
Properly implemented, open, integrated environments will lead to more choices and reduced costs for consumers while creating new opportunities for the sector — even in a stressed economic environment.