The State of Media and Entertainment 2019

The solution Fondulas sees coming combines the best of aggregation services and universal search. It’s a way for households to get all of the streaming options they want in one package and manage their accounts in one place. But such an aggregator must also let viewers see all their movie and TV show options in one place as well, so they understand that they have the content that’s important to them and don’t feel they’re missing out.

Roku is moving fast on creating such a solution, but it’s hardly the only one. Traditional pay TV services see a combination of pay TV and streaming as the future, so they’re busy creating cable boxes that put all content on an even field and stay agnostic about sources.

“Comcast Xfinity in particular has been the pioneer when it comes to that because they were the first cable company that allowed you to access Netflix right through your Comcast box. So that’s a response to people’s wish for aggregation. Since then they’ve added Amazon and YouTube, as well. So if you sit down with your Comcast cable box, you can watch NBC through your cable box, but you can also watch Netflix and you can also watch YouTube videos,” Fondulas says. “They’re catching on to this fact that it’s gone too far in this diffusion direction and people now are craving aggregation.”

Look for channel aggregators modeled after Amazon Prime Channels—which let you easily add channels like HBO, Showtime, and Cinemax to your Prime Video subscription—to grow in 2019.

While aggregation can solve the problem of juggling apps and platforms to get all the content a viewer enjoys, it doesn’t solve the problem of bills being too large. What’s needed is a combination of aggregation and efficiency, Fondulas says. Viewers hate the feeling that they’re paying for a lot of content they don’t watch, which is one reason they’re unhappy with the cable bundle. An ideal solution has to keep efficiency in mind, letting people select the entertainment options they want but not saddling them with a lot of things they’ll never watch. A la carte programming is on no company’s short-term roadmap, but offering smaller, more focused bundles can provide the same kind of satisfaction at a reasonable price.

“Right now, a lot of the individual Amazon channels you get are things like Shudder, which is an online service that focuses on horror content. To me, that is where we could ultimately be headed. We’re going to continue to see people moving away from the traditional cable model, the MVPD model, and cutting the cord. We’re going to see increasingly fewer and fewer people are subscribing to that cable bundle. Over the past two, three years, there’s been a big drop. I think that’s going to continue. For the immediate future, the alternative is creating your own package, subscribing to things individually and doing the best you can in trying to manage it in a way that is not overwhelming,” Fondulas says. Creating platforms to manage those choice is the next step.

The End of the Original Content Boom?

One area where streaming services have gotten too good is in creating original content. People feel they need multiple services just to get the shows everyone is talking about. Hub research says the majority of people need at least four services to feel their needs are getting met. As more must-watch services launch, that model isn’t sustainable. Cord-cutters want to pay less than they were paying for cable, or at least no more. As services keep expanding, people are going to have to learn to choose.

“People are going to start dropping things,” Fondulas says. “They’re going to start prioritizing because there is not an unlimited amount of money that people are willing to spend on television service, and our research backs that up. As more services are introduced, we ask people are you likely to add on or replace? And people are more likely to say they’re going to replace. So in the future as these services come on board, people are going to start having to make hard choices about what they’re going to keep and what they’re going to drop. And they’re not going to be happy about it because they do not want to miss shows that their friends are talking about.”

That will lead to more frustration, he believes. Solving that might have to wait until 2020.

As streaming services distinguish themselves with original content, they create their own spending problems. Original content budgets are measured in the billions, but will that be sustainable in the long run? When households have to be selective about their streaming options, will there be enough subscription fees to pay for all that content?

The model may well break over time, believes Erik Brannon, an associate director with IHS Markit Technology, but it’s going to continue for the next few years, at least. However, if streaming services are going to keep up that level of production, he thinks they’ll need to increase their average revenue per user (ARPU). Nearly 3% of pay TV subscribers ended their subscriptions in 2018, removing a lot of licensee revenue from the ecosystem. Streaming services, with their vast original content budgets, pick up some of the slack, but not enough of it. Sometime in the next several years, he predicts, the streaming ecosystem will see a price shift that puts more production costs on consumers.

“We as Americans have been the key in media formation, content creation, distribution modeling, et cetera. We have led the way for the last 100 years, globally. We still supply a huge amount of content that’s watched around the world. We have a certain prominence that no other country enjoys. And we have jobs here that are a result of this business and being developed,” Brannon says. “What I’m worried about is that streaming media isn’t going to take up the slack fast enough or with sufficient quantity to solidify these jobs.

“I’m really worried for the American media workers —producers, staffers, caterers, set designers, gaffers— all of these folks, in my opinion, their jobs are now under pressure because we’re losing pay TV licensee revenue. This is where I’m really worried. And this is why I feel like the $15 high-end Netflix model isn’t really sustainable for the long run. Because there just isn’t enough money flowing in the ecosystem to sustain all these jobs. That’s where I worry at night. I really feel for those down in Hollywood who are going to feel pressure as the number of pay TV subscribers declines and the amount of licensee revenue in the ecosystem dwindles off.”

While larger players will continue to invest heavily in original content and that will sustain them, small and midsize players will have a problem generating enough new material, and that will lead to high consumer churn. There are hundreds of OTT services clamoring for an audience today, Brannon points out. He believes most won’t succeed, and that will result from the lack of constant new content.

Viewers will have a lot of difficult choices to make in 2019, and they won’t all be from choose-your-own adventure episodes of Black Mirror. Viewers will need to decide how many services they want to take and how much viewing they want to do. Because as the new year begins, it feels like people are already at their limit.

[This article appears in the March 2019 issue of Streaming Media Magazine as "The State of Media and Entertainment."]

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