US Video Spend Up 2.0% in 3Q23 With $ Shifting From Pay TV To Streaming
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On Friday, new data from the Digital Entertainment Group (a trade group capturing spending in the US on various video services, including streaming spending data from Omdia) was released. In combination with data from Amazon’s Box Office Mojo along with my own estimates for spending on pay TV services, I calculate that total spending by consumers on video services at home and in the theaters rose 2.0% in the third quarter of 2023.
Source: Madison and Wall, DEG, Company Reports
While an increase in spending can be viewed positively for the industry, the data could be viewed as highlighting a bigger risk around the consequences of rising prices aggressively for streaming services: consumers may be cutting spending on traditional pay TV in order to fund spending on streaming. Although spending on streaming services grew by 20.7% year-over-year - aided at least in part by price increases – spending on traditional and virtual MVPDs fell around 6% year-over-year. In absolute terms, spending on pay TV fell by around $1.4 billion while increased spending on streaming grew by $1.6 billion.
Growth in revenues from streaming services is positive for the owners of those services, of course, and it’s the right thing to focus on for their overall businesses. At the same time, it’s also important to consider that the profitability of streaming services will almost certainly never be comparable to traditional offerings (because of higher costs to physically transmit content, higher marketing costs, churn and the need to provide some customer service). Even accounting for the fees that distributors take, I’m doubtful that a dollar of revenue gained via streaming will ever produce the same amount of profit as a dollar paid to a distributor first.
With enough scale, a streaming service can produce more absolute profit than the traditional operations of a TV network, largely because it can be easier to expand globally. However, most of the US network groups have retrenched from those efforts to at least some degree as they look to reduce near-term financial losses, leaving the field much more open for Netflix, Amazon and Apple to benefit from scale with less intensive competition – and more long-term profitability - than might otherwise have been the case.