Subscription wars: The future of VOD amidst rising inflation and subscriber abandonment

With the intensifying VOD competition and inflation’s effect on players in the industry and their subscriber base, Mumbrella's Emma Shepherd speaks to Ori Gold, CEO, and co-founder of Bench Media to share insights on what will impact the future of VOD in Australia, as well as the implications of the rising popularity of AVOD on SVOD’s growth in Australia.

For the Video-On-Demand (VOD) industry, the future has become uncertain, as industry players face fierce competition and rising subscriber abandonment, with consumers ditching their subscriptions amidst rising inflation.

Netflix’s recent disclosure of its first quarterly drop in subscribers in more than a decade has thrust the industry into turmoil as the streaming giant warned that subscriber losses would continue in the near term.

With consumers increasingly likely to cancel their subscriptions or turn to less expensive ads-based options, how then, can Streaming Video-on-Demand (SVOD) providers such as Netflix, Disney Plus, Stan, and Foxtel position themselves against advertising-supported video-on-demand (AVOD) providers? How will the current VOD landscape affect brands’ marketing and advertising campaigns on these platforms?

Speaking to Mumbrella, Bench Media’s Ori Gold says, “We already see a slowdown in all the regions and players in terms of subscription growth,” adding, “It’s so easy today to do so and this is the main driver for all large players looking at ad-supported models. This is definitely a sign of maturity after many years of disruption.”

While this competition remains to increase at a rapid rate, Gold says this also makes it harder to monetise these platforms while keeping up with the increasing cost of content production and technology development.

“Without sponsors or advertisements, the company’s profitability will keep eroding,” Gold admits. “This means that large streaming platforms, with their huge investment in tech and content, will have to continue to raise prices on their subscription plans, continue to crack down on different users sharing one plan, and as we see happening on all global platforms besides Apple TV, introducing ad-supported tiers as a gateway for these users.”

In April, this year, Netflix said it was set to introduce an advertising-supported subscription offering. During the company’s quarterly earnings call in the US, the CEO said the company was open to an advertising-supported subscription model in the near future after years of rejecting calls for an ad-supported streaming tier.

Bench Media, CEO Ori Gold. (Pictured)

As for the future of VOD in Australia, since Netflix entered the Australian market in 2015, VOD services have become more and more popular.

The 2021 Media Consumption Survey by the Department of Communications, reported in January that SVOD services had overtaken commercial free-to-air television as the most popular way to consume screen content, with 62% of respondents using SVOD services compared to 58% using commercial free-to-air TV.

But this led to a significant drop in viewership of Australian content and productions. Gold thinks the entry of local players into the streaming marketplace improved it slightly, but not near what it was before.

“The Australian government is working on Streaming Services Reporting & Investment scheme to promote local content more effectively,” says Gold. “This will probably end with enforcing minimum investment into local productions and ensuring that Aussie content is being promoted better on the platforms. This is great for the Australian economy and the local players.”

The implications of the rising popularity of AVOD on SVOD’s growth in Australia, with high inflation and high-interest rates, Gold adds that many Australians will opt into ad-supported streaming services introduced by all big platforms.

“By the end of this year, the only large platforms without ads will be Apple TV. So the ad-supported content and experience will make a big comeback in the next two to three years and will become the new norm, with probably half of all viewers using it,” he says. “I think it’s great for both consumers- who will need to pay less for great content and hopefully more Australian-made content.”

Moreover, the effect of VOD competition on brands’ marketing and advertising strategies is unlike that of the music streaming industry, according to Gold.

“Unlike the streaming music industry, where each platform has almost all labels and artists on it, the VOD market is split by the content of each service provider,” explains Gold. “This is also true of the ad market with its closed gardens of audiences and popular websites such as Facebook, YouTube, and Amazon.”

The new paid ad-supported services (AVOD) will bring mega deals and groups together. Google and Disney have already made a deal allowing Disney content to be viewed on-demand through YouTube and Google TV, so more might come from this partnership. And, of course, the well-publicised partnership of Netflix with Microsoft to support their AVOD model.

Netflix COO, Greg Peters said at the time: “In April we announced that we would introduce a new lower-priced ad-supported subscription plan for consumers, in addition to our existing ads-free basic, standard, and premium plans. Today we are pleased to announce that we have selected Microsoft as our global advertising technology and sales partner.

“Microsoft has the proven ability to support all our advertising needs as we build a new ad-supported offering together. More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members.

“It’s very early days and we have much to work through. But our long-term goal is clear: More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life.”

HBO Max introduced its AVOD tier one year ago and already has 30% of subscribers registered to this tier, with Gold noting, “If we expect the same for Netflix, and Disney+ by next year, we’re looking at an amazing opportunity for brands and agencies to reach audiences in a highly engaging premium environment.”

He adds: “If you add to this the advanced learning capabilities of Netflix’s recommendation engine, you can expect super-targeted ad experiences for millions of people every day.

“This is a huge opportunity for brands to connect with their audience. I’m super excited for this to unfold. Brands and agencies that will be nimble enough to tap into this opportunity will gain lots of traction and momentum.”

So, have we hit an SVOD saturated market in Australia, and what’s next? A recent report from ACMA highlighted that for the first time, more Australians were watching SVOD services than free-to-air television, a key tipping point in how audiences watch content.

“This shift was highlighted in a recent report from ACMA, which showed that more Australians were watching SVOD services for the first time than free-to-air television, yet the drop in free-to-air TV audiences is faster than the growth of SVOD services which is slowing down,” he says.

“Like in other advanced markets, most Australians are now connected to at least one SVOD and starting to stack up several different subscription services. This is slowing subscriber growth and increasing churn and will be intensified with high inflation.”

So, what can Gold predict will happen next with the market here in Australia?

“The SVOD market will become saturated here in one to two years’ time,” explains Gold. “So we can expect to see three main trends – raising prices, so each platform can have more revenue for each subscriber, more specialised subscriptions services like kayo and alike, and ad-supported tiers.”

But what remains the biggest question is how do BVOD services remain competitors to SVOD platforms?

“Both BVOD and SVOD are still the main growth driver for TV and video formats in most markets,” Gold notes. “There’s been a slowdown in both the US and UK SVOD markets in terms of number of subscriptions.”

This trend will continue as the cost of living continues to rise and the VOD market is getting more competitive. Many users are finding that they prefer free ad-supported services (FAST) such as BVOD over traditional subscription-based SVOD options.

Gold notes that “FAST and AVOD services saw a growth of 0.9% and 2.2%, respectively, while SVOD experienced a shrink in subscribers of 0.2% in the US last quarter.”

“In Australia, SVOD is still growing, but slowing down, while BVOD is still growing and strong. This trend will continue with rising inflation and consumers becoming more price-conscious. It’ll also make this market ripe for paid ad-supported service (AVOD) in about a year’s time,” he concludes.


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