Services Beats Retail; Streaming Bundles And Ad-Supported Penetration Rates

Madison and Wall: Saturday Summary for May 25, 2024

In a quiet week that included a holiday in some countries and came ahead of a holiday in others, we did get new news around many large retailers’ results, including Target and Macy’s as well as an investor day from Netherlands-based grocer Ahold Delhaize, who each talked up their retail media businesses.  Although retail media is clearly expanding rapidly and helping retailers where it operates, this growth has not been enough to offset declines in the core business for many retailers in the most recent quarter even if economy-wide retail revenue was up slightly year-over-year during 1Q24.  

However, as I pointed out in my note on these results, I think there’s often too much attention paid to retail sales rather than services, which are substantially more important to the economy and the advertising industry, too.  The US Census Bureau released new data on relevant trends for those industries for 1Q24 during the past week, and unsurprisingly showed much more robust growth for services relative to retail sales.  

There was some news relevant to the streaming world as Comcast announced that it would launch “StreamSaver,” a bundle of  ad-supported Peacock, ad-supported Netflix and Apple for a discounted price.   In context of the pending launch of the joint venture from Warner Bros. Discovery / Fox / Disney offering ClownCo 2.0 Venu, it’s clear that bundles are back for consumers who want them, at least.  

Putting aside that many consumers may prefer to avoid locking in the higher price targets associated with bundles, how many consumers will ultimately choose ad-supported tiers of streaming services?   I looked closely at historical data from Antenna on customer churn and gross additions for ad-supported and ad-free editions of stand-alone streaming offerings and extrapolated that data to the end of 2024, presuming constant levels of spend on marketing and content.    Although I do expect the share of ad-supported versions of streaming services to generally rise (with the exception of Amazon Prime Video, which initially made ad-supported the default option earlier this year, and therefore should see falling penetration of this tier), I still expect ad-supported tiers to continue to account for a minority of subscribers at each of Netflix, Disney+ and Max by the end of next year.