“Make no mistake, we’re going into a recessionary environment. We’re going into an environment where consumers are risk-averse and trying to get more for less,” warned Tim Mulligan, Executive Vice President and Research Director at MIDiA Research. Addressing streaming services at Connected TV World Summit last month, he remarked that the digital subscription trade in developed economies has never had to contend with an inflationary environment – an environment which could see inflation rise to 9% in the UK and the U.S.
He said: “When we think about that, what that means is that if someone has ten digital subscriptions, at the end of the year they’re going to have to lose one of those if they want to maintain the same earning power and discretionary income that they had at the start of the year.”
As well as facing the impact of a cost-of-living crisis, Mulligan argued that digital entertainment propositions are also experiencing an ‘attention recession’. He commented: “Reed Hastings – CEO and Founder of Netflix – talked about the company’s main competitor no longer being Fortnite but actually sleep. What he means is the organic constraint of time – there is just no more free time for users to be able to spend engaging with digital propositions.”
MIDiA survey data from eight markets (UK, U.S., Canada, Australia, France, Germany, South Korea, and Brazil) shows that – between Q1 2021 and Q1 2022 – the average weekly viewing time on TV sets declined by 4.9%, as did time spent streaming TV shows and movies, by 3.2%.
Mulligan noted that the pandemic represented a reversal of the ‘attention recession trend’. According to MIDiA research, available entertainment time rose by 12% in the UK during the 2020 and 2021 lockdowns. But as lockdowns eased and in-real-life (IRL) entertainment alternatives suddenly became available again, the real available time for entertainment decreased. Mulligan believes this reflects a continuation of the long term trend of people deprioritising spending time with digital entertainment.
Mulligan also argued that another long term trend is engagement with video services plateauing. MIDiA consumer survey data gathered from four markets (U.S., UK, Australia and Canada) shows that, while the percentage of consumers who pay a monthly subscription for more than one video service has steadily risen – from 30% in Q1 2020 to 36% in Q1 2022 – the percentage of consumers who pay a monthly subscription for one or more video services has remained stable (46% in Q1 2020 to 48% in 2022).
Mulligan commented: “Looking at the long term trends, there seems to be an upper ceiling for video service subscriptions. This closely aligns with traditional TV where the subscription model only ever served a minority of consumers. The majority of consumers engaged with free-to-air broadcast TV, and the same thing applies with streaming.
“There’s an upper limit and the upper limit looks like the half of the population [half of the consumers aged 16+] who are willing to pay for access to a video service.”
Mulligan remarked that one potential way streaming services can position themselves to be able navigate the cost-of-living crisis and attention recession, is to attempt to replicate Pay TV’s offering. This involves creating a ‘substitutive’ rather than an ‘additive’ video experience, i.e. a service users have instead of a Pay TV subscription rather than in addition to one.
He deployed the acronym GOLF – Genres, Originals, Libraries, and Formats – to outline how streaming services could replicate Pay TV’s content offering. ‘Genres’ involves replicating the range of traditional Pay-TV content types (entertainment, news, sports, etc.) ‘Originals’ involves streamers producing “Zeitgeisty” originals that drive service engagement. ‘Library’ entails services deepening their content proposition to optimise retention, by including well-known titles and fandom franchises. Finally for ‘Formats’, services should replicate the range of Pay TV formats, from episodic to feature film, and from entertainment to reality.
According to Mulligan, Paramount+ and HBO Max represent examples of ‘substitutive’ services, while Netflix represents an instance of an ‘additive’ service. He said: “If you think about it, Netflix is an entertainment-first proposition that doesn’t have a lot of key ingredients of traditional Pay TV – the glaring example is sports. Amazon Prime Video has sports. Disney+ is also growing out sports propositions in markets where it can do so, bundling with ESPN+ in the U.S.”
Mulligan thinks Netflix’s decision to stick with a specific genre and content format may put its attention share at risk from other services who are trying to be substitutive. He said: “The potential warning signs for Netflix’s dominance of attention share at the moment, in this case in the UK, is the fact that Netlfix subscribers over-index for its two leading competitors, who are desperately trying to disrupt Netflix’s dominance.”
MIDiA consumer survey data shows that, in the UK, 49% of Amazon Prime Video subscribers and 31% of Disney+ subscribers are also subscribed to Netflix.
