The US streaming video market tops $29 billion, but there are still many challenges ahead

The OTT video streaming business continued to thrive in 2021 after a breakthrough in 2020, but sees the United States in the next five years, by far the sector’s largest global market, according to PwC’s Global Entertainment & Media Outlook faced with moderate growth.

That has major implications for investors, whose enthusiasm for the sector has waned dramatically since NetflixNFLX
reported its first drop in subscribers in ten years in April. The world’s largest streaming service has since announced layoffs, spending cuts, production cancellations and new ventures like an ad-supported tier.

Although most of Netflix’s major competitors continued to add subscribers in the first quarter of 2022, analysts have lowered forecasts for the overall addressable market, especially in an increasingly saturated U.S. market. They’ve also raised concerns that the new Hollywood business won’t be quite as lucrative as previously thought, or even as lucrative as its previous pay-TV and cinema businesses have been for decades.

PwC’s 59-page annual outlook, which examines five-year growth prospects for numerous sectors from book publishing to internet service providers to trade shows, details increasing competition for online video customers, side effects on related industries and even suggests eroding bundles of cables could make a comeback, albeit in a more developed form.

According to the report, OTT video revenue grew 22.8% to $79.1 billion in 2021. In the future, this growth rate will weaken to 7.6%. The big opportunity driver will be a near-industry shift to hybrid streaming models that offer ad-only FAST/AVOD services combined with subscription services that offer tiers with and without ads.

“In the mid-term, shifts towards hybrid monetization methods, connected TV and free ad-supported TV channels (FAST) will solidify video’s role as the key revenue driver between 2021 and 2026,” the report states.

But the path ahead is much more complex than it has been in recent years, both for customers and for the companies trying to serve them. This could pave the way for the return of the cable TV bundle in a substantially new form after years of cable cutting, the report suggests.

“Our findings and projections suggest that more evolved packages that focus on a broader definition of entertainment are in the future,” wrote PwC’s CJ Bangah, Advisory Lead for TMT Customer Transformation, in an email interview from the Cannes Lions Conference. “How we get from where we are today to this future is still being written. The pace at which new pricing models and packages are deployed will likely correlate to a number of factors, including the broader economic environment.”

The focus will be on broadband connectivity, which has been a major growth opportunity for cable operators in recent years. In fact, companies like ComcastCMCSA
offer more broadband than traditional TV bundle subscribers. This minimal relationship gives the company the opportunity to upsell, especially for premium channels, live sports, 24-hour news providers and similar content.

The broadband customer relationship thus creates a beachhead that is “important because it allows cable to weather the storm of cable cutting and shortening as users move towards using more standalone TV providers. Keeping these now lower-paying subs means cable TV can make up for those losses by rebundling third-party services. Additionally, this strategy keeps cable able to serve premium subscribers who use more expensive services such as access to sports content.”

Consumers are increasingly frustrated by the challenges and rising costs of managing multiple streaming bundles with different billing and subscriptions, and the difficulty of figuring out where a particular show might be available. Done right, the report says, cable providers could help solve some of these problems with new types of integrated offerings that the report says are “increasingly likely.”

It could also be a boon for the services, as navigating between so many competing offerings “takes a toll on everyone’s performance. In order to increase sales for all of these competing companies, it is necessary for a neutral aggregator to play the role of consumer gatekeeper.”

The new bundles also provide access to new types of services, notably cloud-based video games, which can be played using standard Bluetooth-compatible controllers or mobile phones.

Apple, for example, has offered access to 200 games to play on its Apple TV streaming device as part of its arcade service. More recently, Netflix started offering some mobile games tied to big franchises, such as stranger things, and AmazonAMZN
started his LunaLUNA
Cloud gaming service about six months.

But none of this will be easy for cable providers or their multiplying competitors/partners, Bangah warned.

“There is no clear dominant winner for the future of entertainment and media,” writes Bangah. “We see fault lines and opportunities for innovation in most segments, and while there are strengths for traditional TV players to leverage to protect and grow market share, there are also very strong headwinds to compete against.”

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