Cost of living eating into video-on-demand profits

28 September 2023 Consultancy.uk 4 min. read
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With spikes in pricing and the removal of many popular properties, subscription-video-on-demand providers appear to be pushing their luck with many consumers – with subscriber growth slowing and the number of those ending their contracts rising. Roughly a quarter of subscribers felt fees for the services had become too expensive, while a similar number said rising costs elsewhere had led them to discontinue a service many felt had little to offer them anymore.

For over a decade, video-on-demand has been billed as the future of films and television. After subscription-video-on-demand (SVOD) giant Netflix enjoyed early success with a model freed from distributing physical media to cinemas or homes, established entertainment entities like Disney and Warner Brothers also decided they wanted a slice of the pie, launching their own SVOD services.

With the advent of lockdown, and the forced closure of any physical venues screening new films, many thought the SVOD revolution was about to become a golden goose. Indeed, as people sought out digital means of entertainment while trapped within their own homes in the pandemic, there was a boom in SVOD subscriptions – which many providers took as an indicator that they could bump up their prices. One study suggested customers would be five times as likely as before Covid-19 to tolerate a 10% hike, as long as the breadth of a streaming service’s content was improved.

Cost of living eating into video-on-demand profits

But in the years since, customers have grown increasingly weary of SVOD providers, according to new research from Deloitte. And in a world where inflation has driven up the prices of essential goods – while the outside world has once again become an option for people to escape into – a growing number of customers are deciding to cut expenditure by severing their connections with SVOD.

Subscriber churn has long been a factor SVOD suppliers have had to deal with. But as long as more new customers arrive than old ones leave, they have been able to keep investors – who they generally do not report actual viewership figures to – onside. There is now uncertainty that this is a sustainable business model though – as the number of those subscribing to services draws closer to those cancelling.

In 2021, Deloitte found that 25% of households it surveyed had subscribed to paid SVOD services in the last year, and 11% had resubscribed to one they previously cancelled. In 2023, however, just 17% of households say they have added a SVOD service, and the same number have resubscribed. Over the same period, the number of households which have cancelled a service in the last year has risen from 15% to 21% - around 11% of whom do not intend to resubscribe at any point in the future.  

Cost of living eating into video-on-demand profits

Inflation in the UK is presently easing from a four-decade high. The core consumer price index sank to 5.9% in August of 2023 – down 6.4% in July. However, that does not mean prices are falling, only that they are increasing less drastically – and with the cost of living having dramatically outpaced the growth of wages in the UK for the best part of 18 months, the average household finds itself more than £2,000 worse off. Where better to find savings and make ends meet, in that case, than a SVOD service which took advantage of their inability to leave the house during a pandemic, and which many have no time to use anyway?

Deloitte found that those were the most commonly cited causes for households cancelling a SVOD service. A 27% portion said that the subscription had become too expensive to keep, while 24% added they were contending with rising costs in other areas. At the same time, 28% said they did not use SVOD services enough to justify the expense. Like the all-you-can-eat buffet, SVOD services rely on customers having bigger eyes than their stomachs, and consuming less than they actually pay for. Many seem to be realising that technically, a SVOD account is cheaper than going to the cinema – but only if they were to regularly visit either.

To combat the ‘subscriber churn’ threatening profit margins, Paul Lee, global head of technology, media and telecommunications research at Deloitte, predicts that SVOD providers may seek to partner with other media operators. He added that in order to reduce levels of churn, “we may see more SVOD platforms teaming up with other media, telecoms, or financial providers to offer bundled deals; securing new and existing users in longer-term contracts.”