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Why you should watch the future of content and streaming
In this episode, we consider how consumer behavior is changing with regards to content consumption and access, and how TMT companies are responding to this change.
In this episode, we discuss how consumer behavior has changed regarding content consumption and access. The rise in streaming bolstered by the COVID-19 pandemic has media companies following the customer by launching new streaming services.
Media companies are watching customers cut the cord and lean toward digital; they realize that streaming solutions can give them a competitive edge. However, the cost of keeping content relevant, marketing to make customers aware of services, and the heavy technology investment required for streaming platforms may mean we see some future consolidation in the market, whether that is through partnering and joint ventures or acquisitions.
We also touch on the overlap with adjacent channels such as e-gaming, e-sports and the metaverse to understand how media companies can scale and expand their revenue models. There is momentum behind the convergence of all these worlds as companies continue to innovate and create other channels of engagement with their end users.
Join us for insights from:
Irene Pipola, EY Italy Leader for Technology, Media and Entertainment, and Telecommunications
John Harrison, EY Americas Media and Entertainment Leader
Along with our EY Tech Connect Moderators:
Christina Winquist, EY TMT go-to-market strategy lead
We will continue to see media companies follow consumers into the streaming space, creating an extremely competitive global marketplace.
To succeed, companies must decide what business they want to be in, run their operations efficiently, reduce expenses and redeploy those savings into the right growth investments to drive streaming.
For additional insights and analysis showing customers’ changing attitudes toward technology, connectivity, content experienced in the home, and the companies that provide these products and services, see the EY Decoding the digital homesurvey.
For your convenience, a full text transcript of this podcast is also available.
Introduction
Announcer
Welcome to the EY Tech Connect podcast where we have candid conversations about the most pressing priorities facing tech, media and entertainment, and telecommunication companies, and provide strategic insights on the key issues that matter to them. As industry ecosystems evolve in new directions, we use these discussions to reflect on how companies can not only take advantage of new opportunities but also tackle emerging challenges.
Christina Winquist
Welcome to the EY Tech Connect. I’m Christina Winquist, global lead for Brand, Marketing and Communications with TMT companies, and here is my host, Martyn.
Martyn Whistler
Thank you very much, Christina. So, hello everybody and welcome to this podcast. Very exciting today. We’re going to be listening in on a conversation about the future of content and streaming, which is a hot topic that affects all of us. So delighted to be joined today by Irene Pipola, who is our leader in Italy for technology, media and entertainment, and telecoms. So welcome, Irene, and also by John Harrison, who is our leader for media and entertainment in the Americas.
Irene Pipola
Thank you, Martyn.
John Harrison
Hi, Martyn. Thank you.
Winquist
Thanks, you guys, so much for being here. Let’s start. How is consumer behavior changing against content, and how are we seeing M&E companies reacting?
Pipola
Let me maybe share a couple of thoughts, Christina, like the question of the question. How is the consumer deciding, and how they are pushing companies? I would look from two different perspectives. From one point of view, what are the different devices? What are the channels that they are actually using? The second aspect is what are the consumption patterns? How much time are they spending? What type of content are they actually looking at? What are the decision drivers that are relevant from their perspective? So starting from the channels, it’s absolutely clear that the digital channels are the ones they are pushing, kind of increasing in terms of content adoption. There is a clear trend that has been reinforced recently over the last couple of years. If we look at TV consumption cross-channel, there are some recent data that shows that 40% of the consumption globally is now on cable, about 25% on broadcast, and the remaining is streaming and some other sources. Cable is still maintaining some advantage, but streaming is increasing fast. We are looking at how customer base of streaming companies, OTT companies, are growing. The leading streaming provider increased almost by 100% from 2017 to 2021. They moved from, I think, more than 100 million customers up to 200 globally. It’s such a big jump. Very last comment, podcasts. This is a totally new channel. I mean that is the one we are using today. I was reading that in 2020, the average time spent daily with podcasts is already up to one hour. I was quite shocked about that. It had a huge jump since last year.
Harrison
I think great points there, and maybe just building on that with a couple stats, we did some research in the US marketplace around the digital home where we surveyed 5,000 US households on their preferences and attitudes and behaviors toward technologies and services they use in the home, and the numbers were pretty striking. Forty-five percent of our respondents say that streaming is the primary way they watch films and TV shows at home, and 61% say that streaming offers a better value than traditional pay TV subscriptions. Irene, I think building on your points, the pandemic really accelerated this trend and amplified it. Streaming was clearly on a growth trajectory prior to COVID-19, but as we entered 2020 and really throughout 2020 and into early ’21, the growth in streaming has just been tremendous. I think media companies really are reacting to this change in consumer preferences and behaviors, and that reaction is clear. Disney+ launched two years ago this month, and we’ve had major streaming launches from every global media company since then, and these companies are positioning for the long-term growth while trying to protect their businesses on the linear side, which is still really profitable, but the consumer trend is toward streaming and connected devices, and the media companies are certainly following the consumer.
Whistler
John, can I just jump in there on a comment you just made? You talked about all the launches that have happened over the last two years and beyond. How do you see that playing out? Are we going to see a whole lot more launches over the next 18 months, two years, or are we going to see doubling down, we’re going to see consolidation? Have you any sense of how the market is going to behave?
Harrison
Martyn, it’s a good question. I think the streaming game is a global game, and you’ve seen these launches out of the US-based media companies but really pushing in the markets overseas, in Europe and Asia and South America as well. I think that absolutely will continue. Smaller media companies, especially the free-to-air broadcasters both in the US and in Europe and elsewhere are looking at the consumer cutting the cord and looking at the time spent with media, really pivoting toward digital and, frankly, toward mobile, realizing there needs to be a streaming solution for their business to survive over time. So I think there will be continuing pushes from media companies into streaming. Now, it gets really expensive to do that, and you’ve got to spend a boatload of money on content to be relevant. You need to invest heavily in technology to have a streaming platform and in marketing to make consumers aware of the services. So that does lend itself toward consolidation in one form or another, whether it’s acquisitions or whether it’s partnering and joint ventures and the like. So a long-winded way of saying, yes, there will be more streaming and, yes, there most likely will be consolidation in a variety of different forms.
Pipola
I cannot agree more. Even if we look at it from a perspective of cross-businesses, we are now speaking about content, and I do believe that gaming is totally part of the game. John was mentioning how many acquisitions we’ve seen recently. We’ve seen one of the leading streaming providers start acquisition in the gaming industry, and they are also amplifying their internet competencies in this area. We totally see that, given the type of need of the final user, a lot of the companies are moving toward adjacencies, and that, of course, requires some consolidation and some inorganic growth in order to happen fast.
Whistler
Yes. Just picking up on that point, so it’s almost like these streaming services are becoming a bit content agnostic. It’s not about the content so much. It’s about just capturing the eyeballs for the viewer and the consumer. Right? Everyone has a finite amount of time. So how do they capture that time? I want to come back to a point, though. John, we talk about streaming services. Every different streaming service has a different flavor to it. They have different business models behind them. They have different revenue models. They have different targets and aspirations. Some are very much focused on subscriber growth. Some on the top line, some on the bottom line, et cetera. So how do you see that mix evolving over time?
Harrison
It’s a great question. I think streaming companies need to attract and retain subscribers or, if they’re free, users, but essentially subscribers. First and foremost, the way they do that is by putting content on the platform that people want to watch, whether it’s new, exclusive content or sports, or whether it’s library content and old favorites. But content is the fuel that drives streaming just like it’s the fuel that drove media for all the prior iterations of the ecosystem, and now we’ve just pivoted to the streaming model. The streaming companies are also very focused on delivering customer experience that is easy and comfortable for consumers. With the volume of content that’s out there, a lot of it can just get lost in the wash, and so streaming services that keep their users engaged are constantly pushing fresh, new content in front of their subscribers so they can find it and enjoy it. Then, I think, also it’s smart pricing, and there’s a little bit of a tension there, because there’s a finite budget that consumers have. We’re in an inflationary economy where everything’s getting more expensive. The amount of monthly budget available for streaming services at some point will cap out. I don’t think we’ve landed on what that number is yet, but streaming services are going to have to price smartly in order to retain their slot in the consumer’s monthly budget in an environment where everything costs more. These services need to stand out in a crowded field in order to attract and retain subscribers. Now for services that rely on ad-supported revenue either in an AVOD or FAST, which is another acronym, so free ad-supported streaming model, or in a hybrid where it’s a mix of both subscription and advertising, the other area of focus is really showcasing the measurement of the engagement on the platform to the advertisers that are spending money to reach those consumers. There’s a huge focus which is adjacent to revenue, proving the efficacy of the platform for advertisers, and I think there’s an investment going there.
Whistler
That’s interesting. Picking up on some of those points, Irene, you mentioned e-sports and gaming as new revenue streams and engaging the customer. But is there a danger that some of these streaming services, they’re moving into a very competitive space when they get into gaming and e-sports? Are they going to have to rely on some of those core competencies like pricing and customer service in order to be successful?
Pipola
As you said, it’s going to be quite a crowded arena. What I see is that e-sports is actually going to be reinforcing a new way of experiencing content. We’ve been speaking about streaming content without touching the point of the so-called immersive experience. When we speak about the interest of the end user, we’re probably considering the status quo. What’s going to happen when this experience might get into the virtual reality, what is now very popular, is called the metaverse? What’s going to be at that point the willingness to expand the budget and the experience and the type of investment that will be considered as affordable for the end user? That will open up a totally, totally new battlefield. I brought up e-sports because I feel that actually this is one of the content that might be one of the opener of this type of experience. I was looking at some numbers. During 2020 we had almost 80 tournaments that were digitally experienced out of slightly more than 100, while the year before it was only five tournaments digitally experienced out of more than 100 total tournaments. What’s going to happen now? I do expect some “phy-gital.” That was a word that was used a couple of years ago. Now it finally makes sense, but I do expect some type of phy-gital experience, and I’m really looking forward to see what are some of the technology releases that we will see next year.
Harrison
I think just building on that, gaming is a $200 billion market that rides alongside the media industry. There’s so much overlap in terms of, it’s content-driven. It’s highly reliant on user engagement. Now you're seeing media activities being inserted into games, and clearly there’s a huge amount of hype right now for the metaverse, and we’ll see how that plays out, but it does feel like there’s momentum behind the convergence of all these worlds. Martyn, back to your question on expanding the revenue model, I think media companies are going to play on this, and we started to see some signs of it even in areas like NFTs, which has got a crypto element, sort of a digital IP component where media companies are saying, I have this huge library of characters and content. Can I translate that into a blockchain-based world where I can create another channel of engagement with my end user, with my consumer? Potentially make a little play on the crypto world and all the excitement around digital currencies and essentially open up a new channel at a minimum of marketing engagement that may ultimately turn into a revenue stream. I view NFTs as adjacent to traditional physical consumer products, which have been a long-running adjacent revenue stream for media companies. So, I think there’s a play there as well for revenue.
Whistler
Given what we’ve talked about, there’s a lot of scope for further development. There’s the metaverse. There are virtual worlds, et cetera. There are adjacent revenue streams. All of this is going to require a lot of investment, and we’ve heard some of the big tech companies that they’re putting literally tens of billions of dollars behind this over the next few years. So what does that mean for the streaming companies that are out there? Does it mean that you need to be big? You need to have scale in order to compete? Or can you find niches within this in order to play?
Harrison
If your ambition is to attack the market at its biggest level, which is global, then you have to have scale. You have to invest in the content that’s going to drive engagement on the platforms. I think you have to invest in content globally, and we’re seeing more and more of the major media companies buy production, buy studios to have the capability to have original production in locations around the world where the content is being generated in the local language, aligned with local customs and flavors and preferences and really appealing to that local streaming audience. What’s also very interesting is how much some of that international local content is flowing globally in its natural form. So even in the local language with subtitles, you’ve got programming that is proving to be incredibly popular to a global audience in its local form. So, I think that that’s just an output of the scale investment that these companies are making. Now funding that, your point, Martyn, is exactly right. You’re competing against technology behemoths that have equity market capitalizations measured in the trillions. These are seven, eight, nine times the size of the biggest media companies today, which are big companies in their own right. That’s requiring hard decisions from media companies around what businesses they want to be in and what businesses may not be core. Do those businesses need to get monetized in a sale transaction so that capital can get redeployed into content and streaming investment? Then also within their own operations, are there opportunities to run their companies more efficiently to reduce expenses and redeploy those savings into the growth investment needed to drive streaming. We’ve seen that over the last couple years, and I think that trend is absolutely going to continue.
Whistler
Irene, is there anything you’d like to add maybe from a European perspective where we don’t have so many of those big technology behemoths?
Winquist
Exactly.
Pipola
I totally agree even from the European perspective. We have seen some of the larger US company recently acquire also European companies and changing completely the paradigm in terms of force and ability to enter in the market, kind of enjoy return on investment that is, at least on paper, much, much wider. So I totally agree that if you roll the front end toward customer, scale is super relevant, and the global game is still going to be the more important in this arena anyway. There are a lot of different rules that are more kind of played by niche companies, more in the supply chain, but I do see the opportunity for many companies to develop new technologies and become strong in a specific niche market and become part of an ecosystem. One thing we learned over the previous year is that the concept of Plat-Firm form meant as an ecosystem of different companies was the winning way of doing business. I do still believe that there are some companies that it will keep in a reasonable size that can play a very significant role but more as part of the ecosystem maybe behind the curtain in order to make the operating model work.
Harrison
I think one last thing, Martyn, and it’s somewhat related. To access streaming, you need to have an internet connection. I think it’s important not to forget the cable companies are the legacy pay TV providers. As consumers cut the video cord and move their relationship to streaming companies, the cable companies have also pivoted. Rather than selling the video service with an internet connection bolted on, their positioning now with consumers is solely focused on being the connectivity provider. The de-emphasis of that legacy video subscription is taking place, and connectivity is absolutely broadband and, increasingly, certainly in the States but I think also across much of Europe, it’s a converged offering that includes mobile. The cable companies have recognized that streaming is the future. They’ve positioned themselves as essential providers of connectivity. Also, their traditional role as an aggregator of content — that is, the traditional pay TV bundle; it’s an aggregation of content — the cable companies are now saying, listen, we are the pipe into the house, and we also have the ability to have an aggregation layer within our technology that is the home for all of your streaming apps, and we can serve through our connection as your kind of one-stop content station, so to speak, to access all the apps. Along with the content companies, there are changes taking place within the cable companies, too, and how they frame their go-to-market.
Whistler
So Irene, just to pick up on that point from John, if we look at the European model where in each market you’ve got some traditionally very strong pay TV companies that have owned the customer relationship — some have got broadband access, some haven’t — how is their relationship to the streaming services evolving and changing over time?
Pipola
So let me actually first share a couple of important data points that are really relevant if you look at the total market. Over the last couple of years, we enjoyed a pie that was really expanding. If we think of the number of paid video and streaming platform users in Italy, they increased by 25% in two years. Even if we think about, kind of, advertising video on-demand users, which was already pretty big numbers, still we’ve seen a 10% increase. So, first of all, the pie was significantly bigger over the last couple of years, which, of course, made for all the players very relevant to be there to invest. What we are seeing is, first of all, convergency is absolutely a clear trend in Italy. Media companies expanded toward, kind of, a telco game, and the telco companies are already trying to move from the commodity service toward the high-end content provider. We’ve also seen this trend about expanding their bundle, trying to aggregate as much as possible streaming content and make it simple the experience for the end user in order to really have one single access point where to have most of the content even from different streaming providers. We’ve seen in Europe there was a launch a few weeks ago from a pay TV provider with a TV that embeds all the different apps and allows also, kind of, physically in a simple way access to all this content. So, I do agree that one of the potential goals that some of the companies are trying to build is the one we probably have called it kind of gatekeeper. Is that going to be a relevant way of winning the market? I’m not sure that it’s the only way to have access to it. You still need to keep a competitive advantage. If you’re only the gatekeeper, it’s very simple to lose your position at some point. What do you think, John?
Harrison
I think that’s right. It’s got to be married up with that essential broadband connection. That’s really the value. If you can then enhance the consumer experience in terms of their ability to access our various streaming apps in a more seamless way, then I think that’s value add for the consumer.
Whistler
Irene, John, thank you. Fantastic insights, fantastic conversation about the future of content and streaming in terms of what is going to be successful, how the future is going to look and not just in terms of the importance of scale and backing the investments that are going to happen over the next few years, even accelerating, perhaps, where we’ve already got to, which has felt like pretty breakneck speed as it is, but also thinking about some of those other buzzwords that have been coming along like metaverse, which is one we’re all familiar with, figital, which I think is a new one, but I quite like it.
Harrison
That was new to me, by the way.
Whistler
Yes, I think that’s great.
Winquist:
Figital.
Harrison
I liked it. I’m going to try and use that three times today.
Whistler
We’re very much looking at a brave new digital world coming up over the next few years, and content is going to play an integral role in that. So, thank you very much for the conversation. Really enjoyed it.
Harrison
Thank you very much.
Pipola
Thank you.
Winquist
Thank you guys so much for your time, and thanks for everybody joining at EY Tech Connect. For more thought-leading perspectives and insights, visit ey.com/TMT. You can also follow us on Twitter @EY_TMT and don’t forget to subscribe. Thanks, everybody.
