Key insights:
- Streamers are experimenting to find the right mix of library and original content, an intuitive interface and an aggressive marketing plan.
- Covid-19 has complicated many of those efforts by shutting down production and thwarting marketing campaigns.
Many businesses have been left reeling by the novel coronavirus, but there’s never been a better time to be in the streaming space.
Once an oddity for the technology-advanced and well-connected, streaming video is now sitting squarely at the center of TV’s future. Consumers are spending nearly one-fifth of their total TV time streaming, according to a February report from Nielsen, a proof point for early entrants like Netflix that their streaming bet was on the nose. For legacy businesses slow to adapt to an on-demand world, the steady growth is evidence that the time to march into the streaming wars is now.
Consider the numbers. Streaming time spent the week of April 13 topped 154.6 billion minutes, nearly double the amount of time U.S. users were spending a year ago, Nielsen said, and Netflix’s most recent earnings reflected 15.7 million more global subscribers, nearly double recent quarterly growth.
“Clearly, streaming services are having a moment,” says Catherine Sullivan, Omnicom’s chief investment officer, North America. “Even though all media is seeing a surge in usage right now, their surge is so much larger than what we’re seeing in other places.”
Streaming’s old guard, including Amazon Prime Video, CBS Access, Hulu and Netflix, are focused on rounding out and perfecting their services to capitalize on a populace ravenous for new content. New kids on the block such as Disney, NBCUniveral and WarnerMedia are working with a truncated timeline to get their own offerings right. Before transitioning from Disney CEO to its executive chairman, Bob Iger called Disney+ “the most important product” from the company in his nearly 15-year tenure, a sentiment that has only intensified in meaning as most of Disney’s other businesses have ground to a halt due to coronavirus lockdowns.
ViacomCBS recently announced that “major changes” were coming to CBS All Access this summer, as streaming properties enjoy record interest. Meanwhile, upstart entrants like WarnerMedia’s HBO Max and NBCU’s Peacock, which will premiere nationally on May 27 and July 15, respectively, are hoping they can cut themselves a big slice of a growing pie.
“These are all noble experiments, and they’re all necessary, because we don’t really know what the future consumer is going to want until we’ve tried out a few and find out what they adopt and embrace,” says James McQuivey, vp, principal analyst, Forrester Research.
While each company’s approach and strategy varies, the goal is strikingly similar: They want to build, perfect and market a service that appeals to as many consumers as possible for years—if not decades—to come. At the same time, each service must remain different enough from the other offerings that it can stand apart. But how does a company actually go about accomplishing all of that? There’s no perfect formula, and streamers old and new are learning that navigating this space is far from easy.
“These are extraordinarily difficult businesses to run,” says Craig Erwich, svp of originals at Hulu. “It’s not just programming. You have to master data, analytics, technology, product, customer service and billing, to name only a few. It’s so much more than just a URL and some content.”
That tall order is made all the more challenging by the fact that the industry is shifting every day—especially since Covid-19 shut down the country in March. “The scaling and the rewriting of rules on the fly is an enormous challenge,” says Kevin Reilly, chief content officer of HBO Max and president of TBS, TNT and truTV. “There’s no SVOD rulebook.”
Leading with the library
Save for Apple TV+ and new mobile streamer Quibi, which is designed primarily for mobile devices, almost every major streaming service available is defined to some degree by its library, the foundation of its offerings.
Subscription streamers like Hulu and Netflix have over the years filled their content library shelves by licensing programs made by television giants; Hulu made its mark by offering next-day episodes of linear TV offerings from its then-parent broadcasters Fox, Disney and Comcast (Disney now has operational control over the service). Those libraries were sometimes built out by pulling in as much programming as possible and seeing what resonated. “In the early days, we had boots on the ground acquiring everything we could across all genres,” says Andrea Clarke-Hall, vp of business development at free streaming service Tubi, which in March was acquired by Fox Corp. and is now getting a boost from Fox programming like The Masked Singer.
Newer services coming from longtime television and entertainment brands, like Disney+, rely less on licensing and more on their owned-and-operated IP coffers. That backlog of programming is useful for offering a hefty and hopefully enticing service. CBS All Access’ first offering came from CBS’ owned-and-operated stations plus 5,000 library episodes; the company has since tripled that catalog. “We knew we had to launch with less than we wanted to get the service out there and running,” says Marc DeBevoise, chief digital officer, ViacomCBS, and CEO and president, ViacomCBS Digital.
While 79% of people told Nielsen this year that the depth and breadth of content are main factors when considering new services to subscribe to, some streamers are resisting the urge to go for pure scale with their library catalog. HBO Max intentionally turned down some programming from the WarnerMedia television and film library to instead offer a more selective programming lineup.
“There are a lot of superstores out there, and at times, the experience can be kind of an assault,” Reilly says. “We want to help the audience make choices about what they should watch, and so, we will only get behind things we believe are important.”
No matter the size, streamers’ content libraries have given those companies a valuable tool: lots of data about the kinds of programming that their customers watch. That allows services to fine-tune their libraries over time using data-driven decisions. “It’s the content that leads to the audience, which leads to the algorithm, and the algorithm leads to the content, which leads to the audience, which leads back to the algorithm,” McQuivey says. “If you’ve only got one piece of content people want, there’s no relationship, and there’s no data.”
Tubi has learned over time that family titles and black cinema perform particularly well and is acquiring more programming to serve those tastes, Tubi chief content officer Adam Lewinson says; the service will also get a boost from some Fox titles like The Masked Singer. Other streamers are using library data to help inform their originals strategy, too: CBS All Access’ first original scripted series, The Good Fight, a spinoff of The Good Wife, was greenlit in part because that CBS drama had been performing so well on the service, DeBevoise says.
The power of the library is evident in some of the eye-popping licensing deals of late. HBO Max, notably, grabbed the streaming rights for the sitcom Friends in a five-year deal worth north of $400 million, while NBCUniversal’s upcoming streamer, Peacock, has secured the rights to The Office starting in 2021, paying $500 million for five years.
However, as Reilly points out, “There’s no specific computation where you plug property X into this formula and it spits out how it will perform in an SVOD setting. You have to use a number of different inputs that we use to try to intuit their value. But we’re also not leaving it all up to an algorithm.”
Investing in originals
While licensed and library programming makes up the bulk of streamers’ libraries, it can mean headaches both for companies juggling deals to maintain consistent libraries and for customers who see programming appear and disappear from streamers’ catalogs. In a Covid-19 world, it also means that the content pipeline from linear will fast dry up as production comes to a standstill. Original content helps solve for both, which is one reason why Netflix first jumped into the originals game more than seven years ago, with dramas like Orange Is the New Black and House of Cards.
Now originals are more important than ever to those platforms: More than a third of people in the U.S. sign up for additional streaming services because they want to access original content, according to a recent Nielsen report. Companies that first defined themselves by their tech and delivery methods have pivoted to developing programming that helps them stand out in a saturated market.
“At this point in our lifespan, we are fully an entertainment company,” Cindy Holland, Netflix’s head of original programming, told Adweek last fall. “We are artist-first and we offer a lot of creative freedom, and that is more like the traditional business than people realize.”
Many services spend big on their first lineup of originals to make a splash: Apple TV+, which debuted in November with only originals, is investing a reported $6 billion on its programming. As budgets increase even more, services are often branching out from a few prestige dramas to comedies, reality series, adult animation or subgenres like anime, arthouse and horror. Kids programming has grown in importance as companies seek to woo heads of households looking for a family service. Documentary films and docuseries, if done right, are also appealing,
Adaptations or reboots of programs with a proven fan base are also popular for services like CBS All Access, Disney+ and HBO Max to leverage. But that programming strategy requires a careful approach so it doesn’t backfire and alienate fans.
“There’s no doubt that IP can get attention, and getting attention is an element that we all need to think about in this marketplace,” says Julie McNamara, evp and head of programming at CBS All Access, which boasts multiple Star Trek series and a reboot of The Twilight Zone. “But it’s not worth doing if the underlying conception of the why and the what for that extension doesn’t have creative integrity. I’ve heard many pitches for rebooting Twilight Zone, and I rejected so many. Unless there is really a clear vision, it’s going to be more detrimental than it is going to be an asset.”
Building out an originals slate means that streamers have more end-to-end control on production, which has already helped some of those platforms during the production shutdown. Netflix, which will spend an estimated $17 billion on content this year, works so far ahead in production that the company doesn’t expect any changes to its 2020 original programming lineup as a result of Covid-19, chief content officer Ted Sarandos told investors last month. That’s a claim no other linear network or streaming service has been able to make.0
But original programming requires high levels of investment and comes with a greater level of risk. Companies do their best to greenlight shows that will have a long shelf life and tap into culturally resonant stories. DeBevoise says originals’ success is evaluated on various metrics. “First, does it drive subscribers into the service?” he explains. “Second, does it engage those new or existing subscribers in a new way? And third, what do we think it does for the overall awareness of the service and the brand?”
Because there’s no perfect model to predict what show might be a hit, executives also have to rely on their gut. “There was no information that would have told us that Orange Is the New Black would be one of the most successful shows we’ve ever had, or that Marie Kondo would spark joy for so many people around the world and around the holidays, or that When They See Us would have such resonance all over the world and not just in the United States,” Holland says.
While there’s an effort to build out a broad slate of offerings, streamers say they rarely think of meeting certain content quotas. Instead, the evaluation happens project by project. “I am not typically going into our library of titles and saying, ‘We need to do X title because we need more of that kind of show,’” McNamara says. “Generally speaking, it’s evaluated from a creative point of view.”
The focus on originals has had broader implications across the streaming landscape, particularly for companies that primarily acquire content—including free, ad-supported (AVOD) services like Tubi and Pluto TV.
“[Tubi has] really benefited immensely as Netflix and Amazon have focused more and more on originals and stopped licensing the library favorites,” Clarke-Hall says. “Over the last two years, we’ve seen it help our content acquisition efforts considerably.”
Designing the ideal interface
The best content isn’t worth much if no one on its service can find it, which is why streamers have to perfect an interface that recommends the right shows and gives users an intuitive viewing experience. Eighty-one percent of Americans say ease of use is extremely or very important when deciding whether to use a streaming service. And yet, the average American spends 7.4 minutes searching for the right show or movie to watch, according to Nielsen.
Netflix has invested heavily in recommendation algorithms since the company’s inception to automatically serve up the most interesting programming to its viewers; other subscription and ad-supported streamers are following suit. The recommendation engine is especially important for AVOD streamers. “If you go onto Netflix and spend a half-hour scrolling and looking for a title, they still get paid,” Clarke-Hall says. “But as an AVOD service, if you come in and scroll and you don’t find anything you want to watch, you don’t view any commercials.”
Hulu has tried to balance an algorithmic recommendation with an interface designed to encourage users to explore, which helps the service better understand what viewers are interested in at the outset. “The better we know the people that are consuming the content, the more likely we are to recommend it to the right people,” says Ryan Crosby, vp of brand and content marketing at Hulu. “The No. 1 goal for us is not to drive consumption of a particular show or a particular piece of content, but to get the right piece of content in front of the right people.”
There’s been something of a backlash to the endless algorithm, though, which is why HBO Max is taking a different tack. The service will include a recommendation algorithm, but the company says it’s also laser-focused on curation and human-generated lists. “At the end of the day, the content is our product, but getting consumers to it quickly without overwhelming them is what I believe is ultimately the win,” says Tony Goncalves, CEO of Otter Media, who’s leading HBO Max’s development and general management team.
OTT platforms with ad-supported tiers are looking for ways to build out an ad experience that isn’t off-putting to customers. The good news is that some streaming customers like ads: Both CBS All Access and Hulu say two-thirds of their customers subscribe to their ad-supported offerings. But services have to keep the ad experience tolerable. Unlike traditional TV, customers are just a few dollars a month away from opting out—and that’s putting pressure on other streamers to keep their ad loads low and the formats interesting. Both NBCUniversal’s Peacock and the upcoming HBO Max plan on very limited ad loads, while Hulu is pushing into uninterrupted ad formats.
“Premium content is where it starts, but the environment is also really important,” says Sullivan, who stresses that consumers are being trained not to watch ads. “You cannot have 14, 16, 18 minutes of commercials an hour. … It has to be [uninterrupted], it has to be additive, or people will not want to watch.”
Marketing it all
Getting the right content out in front of the right people isn’t limited to the walls of services themselves. Marketers for streamers have a tough task of balancing individual show programming alongside broader brand-building efforts, which only gets harder as originals and library offerings get larger.
“How do you show all of what we believe are the amazing things about the service in 30 seconds or less?” says Domenic DiMeglio, evp, marketing, distribution and operations at CBS Interactive.
CBS All Access first focused its marketing efforts on its slate of originals but has recently added a brand-building layer to its marketing with brand campaign “It’s On,” aimed at highlighting the service’s range of offerings. Hulu has pursued a similar strategy: After spending big on Super Bowl spots and other major efforts for its originals, the company has more recently returned to broader brand-building efforts.
Jackie Lee-Joe, Netflix’s CMO, says promoting individual films and series “both within our service and through all of our marketing levers” is crucial, but that the company also has to focus on overall brand connection. “If we do both, that will lead to member love and affinity for Netflix,” she told Adweek earlier this year.
For some services, their approach to marketing originals doubles as a pitch to creatives. The hope is that creators will feel like their shows will get top-tier placement in the service and will get marketing dollars to drive viewership. “[Hulu is] out there as sellers as much as we are as buyers,” Erwich says. “We want creatives to know: Here’s what we will do to support your show in terms of marketing; here’s how we will bring it to market. When we select something, we know going in that we’re going to put a commitment behind it.”
That task has become harder during Covid-19, as traditional marketing vehicles like live sports have gone away and splashy billboards become less effective for a sheltered-in-place populace. It’s affecting new streamers the most: Peacock was planning a big push around the now-delayed Summer Olympics, and HBO Max had scheduled major efforts around canceled sports events like March Madness.
“We’ve had to manufacture our own cultural moments with a massive roadblock of media to create that big event feel,” says Chris Spadaccini, WarnerMedia Entertainment’s chief marketing officer. “We also had to think about all of our tactics for out of home, which were either canceled or significantly scaled back.”
The marketing has gained new importance for housebound viewers looking for something new to watch. Streamers are pursuing a variety of efforts and have upped promotional efforts on social and digital in March, according to BrandTotal; several, including CBS All Access and sister streamer Showtime, are also increasing free trial offers to bring new customers in the door.
“It’s just smart marketing,” says DeBevoise, who oversaw an extended 30-day free trial to All Access timed to the March season finale of Star Trek: Picard. “We garner more users if they get to see what’s in the service first. Getting people into the service is key because once they get into it, they get to see how much is there.”
A marathon, not a sprint
The various services are juggling all those balls as they try to perfect their platforms, and the stakes get higher every day. More competition means companies have to fight harder for top talent in front of and behind the camera. Talk of a recession accelerated by Covid-19 may mean a tough market for ad-supported streamers looking for advertisers; it may also mean less discretionary spending from customers. “I think these companies all know what [former Apple CEO] Steve Jobs said in the last few years of his life, which is that this industry is going to be a tough nut to crack, and it’s going to take a while,” McQuivey says.
Despite the challenges, there’s also plenty of optimism. Customers are already paying for several services and have indicated a willingness to sign up for more, meaning there will be room for multiple success stories. That’s especially true as more consumers turn to streaming during the pandemic.
“Remember the subscription fatigue argument a year ago?” DeBevoise says. “I’m not hearing that right now, and I think that’s just because it’s not true yet. That makes a lot of us on the business side feel like there’s a great opportunity.”
