The Backlash to OTT Streaming is Here
The rising subscription prices, the incoming flux of ads, and the studios second-guessing their release strategy are turning some consumers against streaming
We’ve officially passed the peak of “Peak TV” (at least in the U.S. market) this summer, and it seems that a consumer backlash against streaming that has brewing under the surface is bubbling up to the top, as evidenced by the increasing churn rates.
Looking at the big picture, streaming seems to be having a great summer, at least numbers-wise. In July, TV watchers in the U.S. spent more time streaming than they did watching cable or broadcast TV. According to the latest data from Nielsen, viewers spent 34.8% of their total TV time streaming, marking the first time that streaming has beat out cable viewing time since Nielsen started tracking streaming viewing.
In contrast, viewership for linear TV dropped to a yearly low in the second quarter of 2022, according to a report by connected TV measurement firm Samba TV, and took linear ads down the drain with them. “The proportion of viewers who were regularly reached via linear ads shrunk to just 50% of U.S. households in Q2 2022,” Samba TV found. The drop is even more severe for younger consumers, as Samba notes that viewers under age 35 watched nearly 25% less linear TV per week than those over age 35.
Yet, as streaming officially surpassed linear TV as the primary content distribution for at-home viewing, the market is also hitting a saturation point that tips the balance of market power to the viewers. In response to the tougher competitive landscape, many streaming services started exploring cheaper, ad-supported models to expand their customer base, as well as hiking up their subscription prices for better profitability. Naturally, these measures have rubbed some subscribers the wrong way, leading to an inevitable backlash and causing wider industry discussion around the viability of the direct-to-consumer streaming model.
Price Hikes All Around, and Up Goes the Churn Rates
The streaming industry now has a churn problem, and it is a problem born out of the competitive landscape to which there is no easy solution.
Facing a more competitive landscape with slowing subscriber growth and a thinner profit margin than traditional content distribution channels, the streamers have been hiking up their prices as a way to make the shareholders happy. Netflix has increased its prices three times since 2019, boosting its most expensive plan to $20 per month to much dismay and some calls for cancelation in protest.
Meanwhile, Disney recently announced pricing tiers for Disney+ and Hulu. Curiously, instead of introducing a cheaper ad-supported tier, the ad-free tier of Disney+ will go up from $7.99 to $10.99 per month, with the ad-supported tier coming in at the original price of the ad-free tier at
Disney’s streaming services are still going strong.
According to its latest quarterly earnings report, its suite of OTT services, including Dinsey+, Hulu, and ESPN+, hit a combined 221.1 million global streaming subscribers in Q3, surpassing Netflix’s 220.7 million. Judging by the numbers, Disney certainly has the confidence to raise prices at the moment. For many, $20 for an ad-free Disney+, Hulu, and ESPN+ bundle would still seem like a good deal, considering the price point of Netflix at this point.
For advertisers, this pricing plan would likely ensure a significant portion of current Disney+ subscribers would opt to stay at the $7.99 per month price point, therefore making them reachable by ad spots on the most family-friendly and brand-safe streaming platforms with a global scale. Pricing hikes for Hulu will have a similar effect, creating more addressable audiences for brands wishing to explore streaming ads.
Yet, this move of adding ad-supported tiers while increasing the price of the ad-free tiers that most streaming audiences have grown accustomed to has a downside too — it is making consumers reconsider how much they are willing to pay for streaming content, and if they need to keep all the content subscriptions all year around.
As prices continue to increase, many cost-conscious consumers have started to regularly rotate through the major streaming services, canceling one and signing up for another depending on which is carrying the shows they want at a given time. There is a prevailing sentiment that the amount of quality content that a streaming service offers is not congruent with the rising subscription fees.
As a result, the churn rates for streaming services are also rising. 37% of U.S. consumers canceled a paid streaming video service over the past six months, according to Deloitte’s annual Digital Media Trends report. Both Gen Z and millennials had churn rates of over 50% over the past six months. But many viewers are simply rotating through the major subscriptions, as the report also found that 33% of U.S. consumers said they had both added and canceled a subscription over the same timeframe.
This high churn rate is corroborated by a recent report by measurement firm Antenna, as cited by a Wall Street Journal article on the subject: About 19% of subscribers to streaming services canceled three or more subscriptions in the two years up to June, up from 6% in the two-year period ended in June 2020.
As a result, it is becoming harder for streaming services to hold on to their subscribers and project long-term confidence. Switching to a subscription-based model was supposed to bring some stability into the riskier, hit-based business model that Hollywood has been operating under, but it turns out, consumers are more than willing to jump through some hoops to subscribe, binge, and cancel.
The churn problem seems especially pronounced for Netflix, as the percentage of Netflix subscribers who signed up in January and were still subscribers six months later fell to 55% in 2022, compared with 71% in the same period of 2020, per Antenna data. This, combined with stagnant new subscriber acquisition in mature markets like the U.S. and western Europe, has led to Netflix losing 200,000 subscribers worldwide in the first quarter of 2022. Facing increasing pressure from Wall Street, Netflix reconsidered its long-held ad-free, premium positioning and decided to team up with Microsoft to create an ad-supported tier that will be priced at a lower price, which is reportedly launching in early 2023.
To be fair, streaming services have long tried different ways to reduce churns and improve retention. Hulu has a feature that allows subscribers to pause a subscription for up to 12 weeks to deter outright cancellation. More are turning against the binge model that Netflix champions and going back to the weekly release strategy to prolong the release cycle of a marquee title and build buzz gradually. For some, this wave of adding ad-supported tiers to previously ad-free services is meant to expand the addressable audience base while maintaining the profitability of the streaming services. Yet, in the long run, solving the increasing churn issue may take some broader strategic reconsideration.
NoShortly after Netflix was dragged through the public discourse for losing subscribers amid hiking prices, which caused its stock price to crash and undid nearly all of its pandemic-era growth, a new streaming service became the villain of the month in the media world. Enters HBO Max.
Rethinking the Streaming Business Model
If Netflix’s first-ever quarterly loss of subscribers made Wall Street question its financial prospects, the recent backlash against HBO Max points to a larger industry-level confusion and self-doubt about the push towards streaming subscriptions as the primary distribution channel.
Following the competition of its merger with Discovery, HBO Max made several unpopular moves under the reign of new CEO David Zaslav as part of his cost-saving plan, including:
- canceling an upcoming Batgirl movie that DC fans anticipate, allegedly for tax write-offs,
- removing a number of “low-performing” HBO Max Original shows and movies off the platform to outcry from fans and film conservationists,
- and laying off staff members in charge of developing Max Original content, including “at least 13 people of color” previously in charge of developing shows centering PoC characters and narratives, as a report by The Daily Beast claims, in favor of middle-of-the-road content that caters to white middle-American audiences,
In addition, some leaked slides from an earnings call presentation also made rounds on Twitter and received much mockery for the ill-worded audience insights, putting more fuel on the backlash against HBO Max.
The backlash to these questionable moves has been swift and damaging. As writer-director Aaron Stewart-Ahn sums it up in a recent tweet:
Yet, for all its reputational turmoil, Warner-Discovery can still bank on its franchise IP to reel in the viewers. The Game of Thrones spin-off show, House of the Dragon, just debuted to nearly 10 million viewers across live and streaming channels, making it the biggest-ever series debut for HBO. It is also eager to capitalize on the eyeballs this new spin-off is bringing in to encourage people to sign up for an annual subscription, as it rushed out a new promotional deal
for new and returning customers, offering 30% off in the first year for those who prepay for a yearly plan. In addition, it is also working with Roku to make a heavy push for House of the Dragon in what is described as Roku’s biggest subscription VOD promo deal to date.
Yes, franchise IP rules in today’s content industry, and there is no doubt that the likes of Disney and Warner-Discovery will continue to profit off its deep bench of beloved characters and stories. Yet, those franchise releases may still be hit or miss — just check the receptions of the recent Marvel series on Disney+ — and to fend off churns, what HBO Max needs may just be the type of low-cost, companion TV content that Discovery has in spades.
In contrast to HBO’s rather prestigious content library of appointment TV, Discovery specializes in reality TV shows that are relatively cheap to produce, often centered around a lifestyle category, and usually consumed as easy-viewing content for viewers that just want to watch something mindless and relax. The zeitgeist-y hits from HBO may attract new subscribers, but it’s the type of “comfort food” filler content that keeps households subscribed. By merging these two types of content into one service, the thinking goes, then it just might create an attractive bundle that makes it a must-have service.
This certainly mirrors the content strategy that Netflix is pursuing as well. The global streamer has not only been investing in more non-scripted filler content, it is also making an effort to bundle mobile games into its service as well. Granted, it is still early days, and reportedly only 7 million people are engaging with the games on Netflix’s mobile apps, accounting for less than 1% of Netflix’s 221 million subscribers. But one could see the company’s vision of increasing the overall offer value to justify its high subscription fee and, hopefully, dissuade consumers from binging and churning.
Another recent example of streaming services rethinking their go-to-market strategy is the news that Paramount has struck a deal with Walmart to include its ad-supported tier of Paramount+ in the retailer’s premium customer bundle, Walmart+. Some may recall that Walmart previously owned Vudu, but sold it to Fandango, a Comcast subsidiary, shortly before the launch of Walmart+. Given how Amazon positions Prime Video as a loss-leader for customer acquisition and retention for its Prime membership, it should come as no surprise that Walmart would enter a bundling deal with Paramount to keep up with Amazon.
Looking ahead, we are only seeing the first stage of the backlash against streaming services. The content market remains rather fragmented. As the leading streaming service, Netflix claimed 8% of all TV time last month, a Samba TV report found, while Hulu trails with 3.6% of TV time spent. Linear TV still accounts for nearly 44% of the TV time, propped up largely by live sports content. In fact, the report found 80% of the top 50 reaching linear programs were related to sports.
Yet, even sports are starting to move to streaming services. Apple launched its live MLB content earlier this summer, while Amazon is doubling down on its “Thursday Night Football” live streams and aiming to usher in a new era of sports viewing. In the long run, Sports fans will likely end up paying more than they are paying in the cable TV era, and even sports bars are grappling with the rising costs for streaming sports content. Judging by the current trends, it would almost seem like the most likely future for streaming is simply a remake of the ad-supported cable TV bundle — but no one in the content business is really for that backlash.