Whilst Netflix first opened its doors in 1997, it was not until 2007 that it entered the world of streaming, permanently changing the entertainment landscape as we know it. Fast forward to today and there are now over 200 entertainment streaming services across music, video, or gaming globally in what is now a hotly contested market.
Boasting 220 million subscribers, Netflix is still the largest streaming service but despite its success, it is not immune to disruption and competitive pressures.
In the first quarter of 2022, Netflix reported its first technical loss of subscribers since 2011 shedding 200,000 subscribers. Whilst the headline was catchy – the subscriber decline was driven by its exit of the Russian market where it discontinued service. However Netflix isn't writing off the decline as a once off blip - the streaming giant knows the rise of gaming subscriptions to the economic downturn are likely to re-shape the streaming entertainment market over the coming years and they and others are evolving as a result of it.
More ads, slower releases, and a return to theatres
As video streaming services face plateauing revenue, the once unattractive ad supported model is having its time in the sun. Over the past few years, it seems every major video streaming service is looking to diversify its revenue streams, stem subscription fatigue and retain customers through the introduction of a more affordable ad supported subscription model. HBO Max and Paramount+ in the US both launched their ad supported models in 2021 and it seems Disney+ is also set to launch its ads supported model by years end which has driven Netflix to pull forward the date of its launch of an ad-free model.
Research from Ampere suggests Netflix alone will earn $5.5 billion in annual advertising income by 2027 of which $1bn is anticipated to be generated from APAC due to the high tolerance of advertising in the region.
Whilst ad supported models are one key shift we are seeing in the streaming space to stem the loss of subscribers, it is not the only one being deployed. One of the defining characteristics of subscription video-on-demand has been the idea of making a whole new series of a show available to watch (or ‘binge’) straightaway. This was an important USP, but one that is increasingly uncommon as it has heightened the subscribe and cancel culture. Paramount+, Disney+ and Prime Video now regularly use weekly release strategies for their flagship originals, with new episodes dropped on a designated day. This enables the platforms to create greater buzz overtime and keeps subscribers for longer.
Live stream of shows is also on the agenda, so too is launching content in theatres first before dropping shows on the platforms. Disney+ launched its first trial of livestreaming in February this year which saw it live stream the academy award nominations whilst Netflix also confirmed its intention to experiment in the livestream space which will see the service stream comedy events, reunions and other content.
Netflix has also confirmed it will launch the new Knives Out sequel in theatres a month before the content drops on the platform. With the first in the series achieving $311m in box office sales – it is easy to see why Netflix is turning to the theatre to maximise its return from investment after securing the rights to the franchise, extending its reach beyond its subscription audience.
A new kid in town - gaming subscriptions on the up and up
In the battle for attention, it isn’t just the rise of niche offerings that are cause for concern for the major players. In the world of digital entertainment, we are seeing a demonstrable shift of eyeballs to gaming and the rise of subscription-based gaming which isn’t going unnoticed by some of the major platforms. There are now 3.2bn gamers worldwide who are increasingly spending their free time gaming online.
In fact, according to Activision Blizzard Media’s report, gaming consumption consistently exceeds that of live television, and streaming TV only exceeds gaming by a relatively small margin.
Subscription gaming whilst small today is one of the fastest growing segments of the gaming market, outpacing video game purchases and in-game purchases in terms of annual growth rate.
The global subscription-based gaming market was estimated at $17.16 billion in 2021 and is predicted to amass $55.94 billion in revenue by 2031, registering a CAGR of 12.9% from 2022 to 2031.
According to Statista, in 2021 PlayStation Plus was the most popular gaming subscription service worldwide with over 46 million subscribers worldwide. Microsofts’ GamePass amassed 25 million subscribers and Nintendo Switch Online had 26 million subscribers.
In its bid to own a greater slice of the pie, Microsoft is working on bringing Xbox Cloud Gaming to TVs enabling consumers to access it on-demand like other streaming services to build reach and scale.
It is therefore little surprise that subscription services are diversifying their content offering to subscribers to gain a slice of the action. Netflix began dabbling in the gaming arena in 2021 with a focus on mobile devices. More recently Netflix has opened its first internal game development studio in Helsinki – building it from the ground up. It is the fourth studio owed by Netflix which indicates this is an area of strong focus for the streaming service. Disney+'s approach today is more subtle having signed deals with major gaming console providers to feature their services within the platforms for ease of access.
A look at streaming behaviours down under
The latest data from Telsyte shows digital entertainment subscription adoption is alive and well down under and the push for subscribers from local and international giants is working. Over the past 12 months subscription video on demand (SVOD) subscriptions grew 22 per cent in Australia, with Netflix and Amazon Prime Video leading the pack. Whilst audio subscriptions and gaming were also on the rise.
The Telsyte study suggested that when it comes to gaming, cloud gaming is beginning to take shape in Australia and it is estimated around half a million gamers have adopted services such as xCloud (part of Xbox Game Pass’ Ultimate plan) and Geforce Now. Hardcore gamers are most likely to have the subscription services and are playing in excess of 3 hours a day. Telsyte estimates games-related subscriptions could grow to over 14 million by June 2026 which is demonstrable growth over a short period of time.
The key outtakes
Whilst the market is still evolving – it is clear to see there is much change that will occur in the SVOD and the digital subscription entertainment space more broadly.
As ad-supported models grow, brands have new avenues to reach vast audiences that have largely been inaccessible over the past 5 years. With the average Netflix users watching three hours or more a day in 2020, the shift to ad supported models could create the largest single influx of ad inventory in the history of television advertising. This is likely to have significant implications on free linear TV publishers as brands shift spend.
Gaming culture will flourish in the coming years, as SVOD platforms diversify and evolve their offerings to win the battle for attention. As gaming platforms shift to subscription-based offerings and gaming adoption continues to rise, we are likely to see new power players in the world of digital entertainment that present new opportunities and challenges for brands – making this a very important space to watch.
If you are grappling with the impact of digital and eCommerce on your market and need to re-shape your strategy, get in touch or find out how we can help.