Peacock Enters the Streaming Wars
NBCU wants to bring the broadcast TV model to OTT streaming — will it succeed?
NBCUniversal’s Peacock is getting ready to spread its feathers and dazzle TV viewers, as the network finally revealed some new information about its upcoming direct-to-consumer OTT streaming service. At an investor’s meeting held in New York City on January 16, the network shared details on Peacock’s pricing, release dates, and original content slate at launch, offering an intriguing look at its go-to-market strategy for entering the increasingly crowded OTT arena.
According to our latest proprietary Futurecaster data, which surveyed five thousand U.S. smartphone users aged 16 and up in mid-December, Peacock has one of the lowest consumer awareness levels among the upcoming streaming services, with only 5% of respondents saying they plan to subscribe to Peacock within 12 months. Data from Magna’s recent study on existing streaming viewers also found that Peacock suffered low awareness, with only 23% of those surveyed said they’ve heard of it. Granted, the surveys were done before NBC confirmed that Peacock will have a free tier as well as a big media campaign to promote it at launch. But as the latecomer to the streaming wars, Peacock is no doubt facing an uphill battle.
As a streaming service coming from a “big four” network company owned by Comcast, a leading U.S. telecom conglomerate with a vested interest in the Pay TV business, Peacock, with its hybrid business model and mix of on-demand content and linear TV, reflects a push-and-pull tension between bringing NBCU’s content to the streaming audience and a deep-seated desire to replicate the traditional, “lean-back” TV experience in an OTT service. Will it succeed? Let’s take a closer look to find out.
Covering All Bases with a Tri-Tiered Plan
According to reports, Peacock will come in three tiers: an ad-supported free tier with limited access to content, a $4.99-per-month subscription tier with full access to content but still carries some amount of ads, and an ad-free premium tier that will cost subscribers $9.99 per month. The $4.99-per-month tier will be available for free for all Comcast and Cox cable TV customers starting April 15, while the public will be able to access the service starting July 15, right before the 2020 Summer Olympics kick off.
This hybrid model of ad-supported and ad-free viewing, which stands in stark contrast to the decidedly ad-free streaming services from tech-savvy competitors such as Netflix, Amazon, Apple, and Disney (by way of owning BAMTech), makes sense given NBC’s long legacy in broadcast TV. The only prominent streaming service that also opted for this hybrid model is Hulu, another service created by legacy TV networks trying to bring their content to streaming while expanding the ad inventory, except that Hulu ended its free tier in August 2016. (And given that NBC has ceded its share in Hulu to Disney, whose Disney+ operates on an ad-free subscription model, it is fair to assume that Hulu won’t have a free tier any time soon)
Of course, NBC is not the only one that is experimenting with an ad-supported streaming service that everyone can watch for free. Outside Prime Video, Amazon is hedging their bets with IMDb TV, a free-to-use OTT service showing old movies and TV shows. Meanwhile, the likes of Tubi and Pluto TV have been subsidizing their free services with ads for several years. That being said, none of the existing AVOD (ad-supported video on-demand) services have the breadth of original content and popular IP that NBC will bring to Peacock. There is little doubt that, by the time it launches nationally this summer, Peacock will become a prominent AVOD service in the U.S.
Interestingly, NBC is reportedly planning to cap the commercial time on Peacock’s non-live content at about 5 minutes per hour for both free-tier and paid subscribers. This is about a quarter of the standard ad load for most linear broadcast TV today, which is a significant reduction that reflects growing audience aversion to disruptive ads as ad-free viewing becomes the norm in streaming. Given NBC’s prominence, this could very well set a new standard for ad loads in AVOD services.
With a free tier, Peacock will have an easier time courting casual viewers looking to supplement their existing repertoire of streaming services, which it could later leverage to convert them into paid subscribers. It’s a plan that aims to cover all bases and capture the widest audience possible, which is very much in line with how a broadcast network would operate to monetize their content.
Reinventing the “Lean Back” TV Experience
Besides its free tier, Peacock will also notably include clever design choice that aims to mimic the “lean back” viewing experience that many TV viewers, especially the late adopters who have yet to cut the cord, are used to. According to our Futurecaster data, over 55% of U.S. consumers still watch live TV every day, and the “just-on” nature of live TV is the antithesis of one of the consumer pain points in the streaming age — wasting time on deciding what to watch when faced with a myriad of options to browse through. A 2019 Nielsen study found that SVOD users would spend seven minutes on average browsing a streaming service before settling on something to watch, with 21% of them saying they simply give up watching if they are not able to make up their minds.
To address this unique user pain point, Peacock users will be treated to an auto-play feed whenever they select a content category, which will feature in-category content from Peacock’s library, such as episodes of popular classic shows, recent news segments, or Saturday Night Live clips. Packaging an auto-play feature as a sort of live-TV substitute is a smart move that not only removes the friction of content discovery in the age of Peak TV while also offering an experience for that makes sense for the late adopters that Comcast is trying to capture. After all, the primarily ad-supported model also means it is in NBC’s best interest to get people to start watching the moment they open the app, rather than wasting seven minutes scrolling through the menu. In fact, Comcast is already in the process of adding more 24/7 streaming channels to its Xfinity connected TV platform for the same reason.
Just like the hybrid model, this semi-live design is not original to Peacock either. Viacom-owned Pluto TV, which has been around for 7 years, is an ad-supported free streaming service that features over 100 channels showing old movies and TV shows around the clock in a linear fashion. In China, Baidu’s SVOD service iQIYI also released a spin-off smart TV app that features over hundreds of channels, each showing non-stop re-runs of a popular TV show from iQIYI’s library, for users to channel surf until they find something they like. The company recently added a special “AI senior mode” to the app, which supposedly leverage machine learning and special UI designs to cater to the viewing behavior and interests of elderly users.
Whereas the on-demand model works well for the kind of content we consume with high intent, this “lean back” mode of consumption works perfectly for the kind of “TV-as-a-companion” type casual viewing. There’s a reason that classic sitcoms Friends and The Office have been the most-watched shows on Netflix. And if NBC is smart, there will be a dedicated auto-playing channel once they get the rights to The Office back from Netflix by the end of 2020.
Assessing Peacock’s Odds
Unlike their competitor Netflix, which benefits from its single-minded focus on growing and keeping subscribers by developing original content, or the likes of Apple or Disney, who largely treat their streaming services as a loss leader to drive consideration and capture user value elsewhere in their respective ecosystem, Comcast is playing with different set of assets. At the end of the day, the success of Peacock will be evaluated against the loss it could inflict on Comcast’s existing Pay TV services.
It is worth noting that Peacock’s $9.99 per month ad-free tier is priced significantly higher than that of Disney+ ($6.99/mo), while the ad-supported full-access tier is priced competitively at $4.99 per month against comparable tiers of Hulu and CBS All Access (both at $5.99/mo). This deliberate pricing scheme is indicative of the balancing act that Comcast is trying to achieve in capturing the streaming audience who are increasingly moving away from linear TV to ad-free services without disrupting its ad operations too much or undermining its existing pay TV business, which has been in continuous decline thanks to accelerated cord-cutting. In its latest quarterly revenue report released last week, Comcast’s quarterly video revenue went down 1.2% compared to Q4 of last year, while its advertising revenues decreased 19.1%.
In a sense, NBC’s advertising-based business and Comcast’s vested interest in linear TV is holding Peacock back from going all-in with the dominant ad-free model of OTT services. However, holding fast to its linear TV legacy is exactly how Peacock ended up with a free tier and a collection of live feeds, both of which could help it stand out in the escalating streaming wars. In other words, Peacock’s weakness also becomes its biggest strength. The launch strategy for Peacock makes good sense in theory, but its success will rely heavily on NBC’s execution on the viewer experience, and, in the long run, on Comcast having the gusto to set Peacock free, allowing it to spread its feathers and take over its pay TV business as main ad-revenue generator, when the timing is right.
