Since the meteoric success of Netflix, it seems that every month there is a new video streaming service desperately vying for our attention. These include Subscriptions for Video On Demand (SVOD), pay-to-remove ads services and Television “cord-cutting” bundles.
While most people are probably familiar with Netflix, Hulu, Amazon Video and HBO GO, there are far more streaming services out there than it’s possible to count.
For your cable TV replacements you might think of DirectTV Now, Sling TV, Playstation Vue or YouTube TV. Movies only services include Mubi and Filmstruck. Cartoons and Anime are on Funimation, Crunchyroll and Boomerang. Documentaries are on Yaddo and PBS. Then there are the vast number of niche services appealing to specific demographics.
In this article, we’ll mention around 30 streaming services that are available in the US and consider if this mass proliferation in streaming services is sustainable.
Few consumers subscribe to more than 3 services
As we mentioned, most streaming services out there are SVOD. You can only watch the content if you are a paying subscriber. Others use a paywall model, where individual shows or movies can be bought.
A model that seems to be growing in popularity is the pay-to-remove ads option. Here the content is readily available, but supported by adverts, which a user can pay to remove.
So here’s where the question of sustainability comes in. Due to a focus on subscription based models - either SVOD or pay-to-remove-ads - very few households have more than 2 streaming services.
A Nielsen study in 2014 found that about a third (27.8%) of households subscribe to just one streaming video service, while about 10% subscribe to two, and only 2.6% subscribe to three or more. A 2017 study claims that 49% of SVOD users use just one service, while 33% use two services and 18% subscribe to three or more.
In the US, Netflix holds the majority of SVOD users (66%), with Amazon Video in second place at 44% and Hulu in third at 16.5%, according to a 2017 report.
So going back a step, we can safely assume that Netflix dominates the 1-service market, and guess that many consumers have Amazon Video as their 2nd service.
This means that every other streaming service out there is fighting over less than 20% of the entire market.
This requires further study and up-to-date metrics, but the point still stands: if a streaming service isn’t among the most popular elite, then they are in an extremely crowded market.
The recent launch of the new Star Trek series on CBS All Access showed the frustration consumers are having with this proliferation of streaming services.
The show did what it was intended to do: drive new sign-ups for CBS All Access. But, the payment model aggravated and infuriated these new users as many were being asking to subscribe to yet another service ($6 with ads, $10 without ads) to watch this one show that interested them, even though it’s readily available on Canadian Netflix.
“While I really did like the show [Star Trek: Discovery], the process of watching it was a total disaster.” - Paul Tassi, Forbes
This frustration is understandable. As streaming services compete over exclusive content, consumers are being split across a dozen different platforms.
For Stranger Things you need Netflix, Game of Thrones is on HBO GO, The Man in The High Castle is on Amazon Video and now Star Trek is on CBS All Access. If you like more than two of those shows, than you have just signed up to your 3rd streaming service before we’ve even mentioned the new service from Disney, ESPN or Hulu’s collection of TV shows.
In such a crowded space, with limited patience from consumers, how can so many streaming services survive?
Brand Loyalty is an underused resource
We’ve identified that the streaming market is becoming very crowded and consumers are getting frustrated by services lording exclusive shows over them. However, the underlying problem is bigger than that.
Without brand loyalty, any of these streaming services could die in an instant. All a competitor has to do is offer the same content. Preferably exclusively and permanently.
Right now, Filmstruck boasts the Criterion collection of classic cinema. This includes Charlie Chaplin movies, and films by the likes of Akira Kurosawa and Alfred Hitchcock.
Previously, Hulu held the Criterion collection. So if Hulu were able to get the Criterion collection back, do you feel attached enough to the Filmstruck brand to stay subscribed? Would the rest of its movie collection be enough to keep its subscribers?
Acorn is already competing with BritBox over the niche market of British television programmes. Considering BritBox was created by the BBC, I would expect its platform will be the one to come out on top, given its internationally recognised brand.
Without a strong brand presence and a personal association with that brand, a streaming service is entirely dependant on the content it offers, for as long as it can hold onto it. Once that runs out, what else do they have?
There are only two ways for a streaming service to stay competitive: have exclusive content, or cater to a niche market.
Exclusive content requires either a lot of capital to bid on intellectual property, or a comparable amount of money to produce your own content.
It’s not surprising then that the greatest proliferation in streaming services is in the niche genre market as this is the easier option. This content is usually cheaper, has less competitive bidding and has the advantage of appealing to specific demographics.
There’s Shudder for your horrors needs. Spuul for Bollywood movies and shows. Section II caters to lesbian audiences, Brown Sugar focuses on African-American audiences, and Dekkoo is principally aimed at a gay men.
In our modern on-demand culture, this model can easily survive as long as it has a dedicated fanbase. But, it can only be maintained by holding rights to content, or through the creation of brand loyalty.
Another strategy to secure a corner of the market is to focus on exclusive content that no other platform has, naturally making yours appealing. We can see how CBS recently used this strategy successfully with Star Trek, but their experience also showed us how it can backfire.
The never ending bidding war over content is still raging, with prices that are completely pushing out smaller competitors, and if it’s not the price that’s concerning, it’s the increasing trend for companies to build their own platform.
Disney has already announced it’s pulling all its content from Netflix in favour of building its own Disney streaming platform. This will presumably not only cover their classic animations, but also anything released by Pixar, Touchstone Pictures, Marvel Studios and everything Star Wars.
It’s not surprising then that Netflix has had enough, and previously announced its intention to fill half of its library with original content.
This makes perfect sense. Why spend huge amounts of money on someone else’s content when you could instead wholly own a brand new show?
Stranger Things resoundingly proved this strategy. Its widespread pop culture impact was alarmingly fast and certainly not restrained to a niche sci-fi fanbase. They not only created a good original show, but a popular new franchise.
Overall, Netflix Originals have certainly established themselves as “reliably decent”. Much like the Marvel cinematic universe, Netflix Originals are not all superstars, but there are a few Guardians of the Galaxy hits in there. They’re certainly doing well enough to warrant controversy at the Cannes Film Festival, because nothing says success like the old guard getting scared.
“Sometimes the establishment is clumsy when it tries to shut out the insurgent” - Reed Hastings, Netflix CEO
This is great for creatives, as more original and innovative ideas will be given a chance to show the world what they’re made of. Hopefully streaming services will save us from the endless remakes, reboots, and re-sequels of Hollywood.
However, for a streaming service to produce its own original content, there are huge costs and risks involved. Netflix has the money, critical acclaim and big data to pursue this strategy.
Hulu has experimented with hiring YouTubers, teaming up with RocketJump to first create RocketJump: The Show and then an original sci-fi called Dimension 404. Now Crunchyroll is giving it a try, getting RocketJump and voice-actor/influencer ProZD to create a meta self-referential mini-series, poking fun at anime shows and their fandoms.
This innovative strategy of utilising YouTubers is smart. They are talented, skilled, have a pre-existing following and are probably much cheaper than likes of Tina Fey. But for most streaming services, original content is out of their financial reach or just doesn’t fit into their business strategy.
Innovation: Where is it?
If utilising YouTube talent for original content is an innovative idea from Hulu, that’s where the great ideas stop. For the ever expanding number of streaming services in the world, there are very few unique ideas to distinguish them from the competition.
One innovative service is VRV (Verve) from Ellation (also owners of Crunchyroll) that follows the established “pay-to-remove-ads” model. What’s unique about its subscription is that it’s a bunch of other services bundled together - a simple solution to the problem of consumers not wanting to subscribe to more than 3 services.
These “channels” include Crunchyroll, Funimation, Rooster Teeth, Seeso (before it shutdown), and certain YouTube channels such as Geek & Sundry. Recently, it added Mubi and Curiosity Stream for all your movie and documentary needs. As an added feature, you can also pay for just the channels you’re watching if you prefer (although the bundle price quickly becomes the best deal).
This might not sound like innovation to the world of TV streaming Bundles (DirectTV Now, YouTube TV, Philo, Sling TV, etc.), but VRV is the only bundle of other streaming-only services that I’m aware of. This is shocking. If consumers are reluctant to have 3 or more streaming services, bundle packages are an obvious alternative.
Perhaps the more unique idea to come out of Ellation is the Crunchyroll + Funimation partnership deal. Both offer Anime shows from Japan, Funimation being the more traditional distributor of Japanese releases in the US, while Crunchyroll is a streaming-only service born out of turning a piracy site legitimate.
As both specialise in Anime there is a huge amount of overlap between their users, based on which shows are exclusive to which platform. But, rather than engage in a content bidding war, Funimation and Crunchyroll agreed to a partnership where a member of one is a member of both. This allows their platforms to be distinct, but to have a shared user base.
It’s difficult to imagine Netflix and Amazon, or Hulu and HBO agreeing to a similar kind of partnership, but perhaps in the future we’ll see more multi-services platforms using a model like VRV.
The Technical Issues
Gaining a foothold in the crowded world of live streaming, and remaining competitive enough to hold on to it would be hurdles more than challenging enough, before we get into actually building a streaming service.
There are three critical pieces: the encoder, the network and the player. The network being the crucial infrastructure to a quality service.
A Content Delivery Network (CDN) allows a user to access the necessary files for playing a video from a “local” server, instead of having to access the files from a server half the world/country away. This is a service provided by the likes of Akamai, Level 3 and Fastly.
Netflix has grown to the size where it is favourable, and financially reasonable, to create their own CDN. Since 2011, Netflix’s OpenConnect network has been working in parallel with established CDNs, and it has become one of the largest private CDNs in the world, carrying approximately 30-40% of North America’s internet traffic.
Building your own CDN is not an option for most companies, but because Netflix has set the standard by which all other streaming services are measured, this level of quality is something consumers have come to expect.
One option is to use a service like Peer5, which creates ad-hoc peer-to-peer networks to lighten the load on servers. This can’t entirely replace a traditional CDN, but it can cost-effectively augment and enhance your delivery capacity, giving you all the benefits of a program like OpenConnect without any of the hassle and cost, to keep you in the game.
Building a streaming service is hard. Making last is even harder.
Glossing over some 30+ streaming services, most of which cover niche topics, I again wonder if this is sustainable.
In theory, yes. Our on-demand culture and desire for personalisation calls for such a diversity of content. However, all it takes for a niche streaming platform to die is for a bigger competitor to buy out all of their content. A small company simply can’t compete with the costs of bidding for intellectual property, producing original content and managing tech costs. To survive, niche platforms need to explore innovative ideas and be savvy brand-marketers.
The bidding war now seems to be moving towards an original content arms race. This focus may be the saving grace of many niche services, as buying out their content may become less of a priority. This however, is still an effort on the part of streaming services to differentiate themselves from one another and similar effects could be achieved through strong branding and innovation.
We have seen these streaming services do little to distinguish themselves through technology, payment models or branding. There is a lot more that could be explored in the underlying system of how video is delivered over the internet, and this is an area many smaller services should begin to investigate, while the giants fight it out over who has the next Game of Thrones/Stranger Things hit.
Streaming video over the internet is hard. The underlying technology is complex and fickle, and to do it right is expensive. Perhaps as expensive as buying or creating content.
To be sustainable, a streaming service needs several pieces. It needs to handle high loads and deliver high quality streams. It needs great exclusive IP or popular original content. And it also needs to be innovative and to develop a strong brand to stand out in the crowd.
It’s a big ask, but it is doable.
If you’d like to hear more about Peer5 and the advantages of P2P video streaming, you can reach out to us for a demo!