Streaming services cool expectations as people get off the couch

The Future. Streaming services are failing to hit their subscriber targets this year as sky-high subscription rates from last year fall due to the challenges of finding enough new content and keeping viewers’ eyes glued to the screen as the world reopens. Now, streaming companies are trying to explain and temper expectations. But be sure not just to follow the metric of how many new subscribers flock to established services, but also how many subscribers abandon services that are trying to establish themselves.

“Are you still watching?”

After a year of explosive growth, sign-ups for streaming services —including Netflix and Disney+ — are cooling. The slowdown is due to three factors:

• Subscriber pull-forward. Both Netflix and Disney+ over-indexed in subscriber growth over the past year or so (40 million and 95 million, respectively) because of COVID. So those that wanted to sign up or were on the fence already did… including new services like HBO Max, Paramount+, and Peacock.
• Content squeeze. The pandemic delayed production for months, which means less movies and shows to distribute on streamers. At the end of the day, what brings people to a service is a constant re-supply of new content. Luckily, that supply chain is already back up and running.
• Reopenings. People are just watching less TV since they’re not stuck indoors anymore. As a pent-up demand for physical, communal entertainment plays out, there will be less of a desire to subscribe to a new service (and expect some churn as well).

The price of a subscriber

So what’s a multi-billion dollar streaming service to do when Wall Street is breathing growth expectations down their back?

• Get ad-supported. While Netflix and Disney+ haven’t gone that route, HBO Max, Paramount+, and Peacock all did in order to capture more subscribers, but could deliver a lower average revenue per user (ARPU).
• Go international. There are untapped billions of people that could subscribe to services, but also the economics in those regions can again bring in lower ARPU compared to the U.S. and Europe.

For example, both Netflix and Disney reported that subscribers in India, Southeast Asia, and Latin America brought in 30% less ARPU than users in the U.S. and Europe.