Fifty percent of the world’s population is now under quarantine. This situation translates into three billion people forced to stay home for an indeterminate amount of time, choosing online videos as their main source of entertainment. With the recent launch of Disney+ and the imminent arrival of Warner’s video platform, streaming services are thriving. The equation seems perfect and the media is talking about the growth in streaming consumption over the past few weeks, with an increment of even a 60% of streaming traffic. But what seems to be an excellent opportunity to consolidate this business model may soon turn into its worst nightmare (at least to the services that are already online).
How many times did you pay for a year-long subscription to the gym only to use it a few times? Getting videos from their gigantic data center to our devices has a cost. A user who consumes little content and pays his Netflix membership each month is an ideal user. A clear example of how unnecessary streaming is avoided, is the way Netflix tries to stop the streaming if the user stops interacting with the platform (“Are you still watching?” it asks). Instead, services like Youtube, which base their business model in advertisement, don’t worry and continue the flow of videos without interruption, one after the other, because they earn for each second that is consumed and don’t depend on the fixed price of a subscription.
Although “logistic” costs are relatively low (Netflix assigns a thousand million dollars each year for distribution, against the 13 thousand million they spend on new productions and content acquisition) a sensitive increment in the average consumption of content can affect the company finances, which are already fragile. That is why, secretly, they must be celebrating the demand to lower the streaming quality in order to prevent collapsing the internet service in Europe.
The ones who benefit from this increment in traffic on the internet are the companies providing the infrastructures on the Cloud, like Amazon Web Services (AWS), which is responsible for the traffic of most streaming services including its own Amazon Prime Video (will Amazon be the winner in this context?).
Numbers seem to support the idea of a streaming services boom. Netflix shares weren’t affected by the drop in the stock market and holds its pre-pandemic value. At the same time, downloads of the Netflix app experienced a rise in the areas that were more affected by the pandemic (a 33% rise from February to March in South Korea, a 50% in Hong Kong, with similar numbers in Italy and Spain). But it is still unclear whether this will translate into new subscriptions or if the subscribers will decrease in a context of economic recession.
The second problem of having an average user who consumes more content is that the content has a finite supply. And the production of content has been basically put on hold, both for brand new content as well as for new seasons of established series that would work as a hook to keep the subscribers. In the end, subscribers may start to wonder why they should keep their subscription to a service that, eventually, will no longer be able to satisfy their needs of entertainment. These users, in the search for new content, are likely to migrate to other services or start consuming content relying on a model more convenient for a time of economic recession, such as AVOD services (Youtube, Pluto.tv, Flixxo, Tubi, Peacock…).
AVOD services will need to face the reality in a world in quarantine and economic recession, which, beyond basic services, doesn’t have much products to promote. But that is a different story.
Adrian J. Garelik
CEO at Flixxo
Flixxo is a video platform for mobile consumption, focused on short form series (microseries), with a disruptive monetisation model based on Gamification schemes and cryptocurrencies’ rewards. Flixxo is planned to launch in LATAM on Q2 2020.
Learn more at flixxo.com
