The Streaming Wars Are Over — What’s Next for the Entertainment Industry?
The streaming services are all in on ads, yet Hollywood needs to look both outward and inward to find its future
Unlike the latest Emmy nominations that saw the presumed trio of frontrunners — Shōgun in drama, The Bear in comedy, and Baby Reindeer in limited series — all expectedly landing a big haul of nominations and dominating in their respective categories, the future of the entertainment industry is far from certain.
A Summer of Reorganization
This summer has been one of turmoil and reorganization for Hollywood. Still recovering from the historical double-strikes that put the industry on pause last summer, the entertainment industry is trying to realign its streaming-led business model with the post-streaming-wars market reality. Legacy media companies like Disney and Warner Bros. Discovery continue to chase profits by slashing jobs and content costs while trying various ways ranging from cracking down on password sharing to price hikes to push up the ARPU (average revenue per user).
Of course, more reorganization is yet to come for Paramount, following its pending merger with Skydance, ending monthslong negotiations and the Redstone era. New owner David Ellison talked about his plan to turn Paramount into “a media and tech company,” which means algorithmic engine and ad tech capabilities — and they are important. But as Elaine Low points out in her column for The Ankler, “to be an entertainment company in 2024 is to be a tech company.” All the legacy media companies have been working on updating their backend tech stack, and data and engineering jobs are about the only thing the industry is hiring for right now. Yet, Hollywood still has a tough time trying to compete with Silicon Valley for tech talent.
However, make no mistake, Paramount’s №1 problem was never the technology, which was fine. The key issue, which it shares with most of its non-Netflix competitors, was the limited scale of its distribution hindering it from efficiently monetizing their content.
The root of this scale-and-profitability issue remains the same as two years ago: the streaming model is just not as profitable as the cable bundles. Wall Street clearly sees this problem, which is why shares in Warner Bros. Discovery and Paramount Global recently plunged to new lows.
But consumers are certainly not turning back — linear TV audiences continue to shrink as cord-cutting accelerates. Ratings for the NBA Finals fell from last year, marking one of the least-watched finals on record. In contrast, streaming is still gaining share. According to the latest Nielsen data, streaming services were responsible for over 40% of daily TV viewing in June. It’s a banner result for streaming video, which first overtook cable in Nielsen’s tracking back in 2022 and has continued to grow its share of TV time. For comparison, Cable TV secured 27.2% of viewing time for that month, followed by broadcast TV at 20.5%.
For better or for worse, Hollywood is stuck with a streaming-led distribution model. The most productive way to move forward is to tweak the business model to fit this new market reality. In order to do that, the industry will need to look both outward and inward to find its future
Putting Ads Back on TV
The first thing that Hollywood is looking to revive in the streaming era is the ad-supported viewing experience. After all, TV has always been an ad-driven business, and brand advertisers have been eager to follow the audience to streaming.
The constant subscription price hikes also provided the pain point for some price-sensitive users to either downgrade their services to ad-supported tiers, or more commonly, opt to supplement their existing roster of paid streaming services with free, ad-supported services. Case in point: Fox-owned AVOD service Tubi is now more popular than Disney+ in the US, according to Nielsen data cited by the LA Times, averaging about 1 million daily viewers in May.
Yet, free-to-access also translates into low commitment, and churn is an issue for most streaming services right now. The “sub, binge, churn” cycle has become so common that the people who practice that are dubbed ”nomadic subscribers.” Yet, striking a value balance between ad sales and viewer experience is a tricky line to walk.
This tricky balance is especially important for Netflix, which, despite being the biggest streaming service in the world, barely cracks the top 10 in terms of ad sales.
In the streaming industry, companies are adopting varied advertising strategies. Disney raised prices for its basic plan and introduced an ad-supported tier, offering flexibility while maintaining revenue. In contrast, Netflix has been more cautious, gradually integrating ads and lagging behind in advanced ad capabilities.
Amazon took an even blunter route, deciding to turn on ads for all Prime Video viewers and charging a premium to remove them. As a result, 80% of Prime Video viewers are now watching with ads. Moreover, Amazon has also charged advertisers lower rates, undercutting the competition and forcing its rivals to scramble.
So, in an ironic twist of fate, we now witness a market where companies that rely on ads for revenues, like YouTube, are now selling subscriptions ranging from YouTube Premium to Sunday Ticket. Meanwhile, companies that were once all about subscribers, like Netflix and HBO, are now all-in on ads. It seems like everyone is trying both to maximize revenue streams.
For what it’s worth, people still appreciated the uninterrupted ad-free viewing experience. A recent survey by Hub Entertainment Research found that consumers report more loyalty to ad-free streaming TV services, while ranking access to recent theatrical releases as the second-top factor adding value to streaming or TV services.
This new competitive landscape among the streamers chasing ad dollars also laid bare the untapped potential of interactive ad formats, whose premium CPR could help make up for the lost excess revenue in this transition from cable bundles to streaming. In this day and age, any digital advertising platform should aspire to capture direct response budgets. Yet, streamers have been slow to roll out the kinds of innovative targeting capabilities and ad formats to boost their ad revenues.
Recent developments suggest that some streamers are ready to tap into that unrealized potential. In May, Netflix announced it will launch its own in-house ad platform later this year. Once that’s up and running, it’d end its partnership with Microsoft for the ad technology that has been powering the streamer’s cheaper ad-supported tiers. Presumably, it’d give Netflix greater control over its advertising ecosystem, from targeting precision to data management. Meanwhile, Disney is reportedly teaming up with Walmart for enhanced targeting and measurement solutions across its streaming properties.
Remaking the Cable Bundle
Another thing that Hollywood is looking to recreate is the dying pay TV bundle itself. Or as Paramount President-To-Be Jeff Shell calls it, a “bundled solution.”
Comcast is leading the charge in the revival of TV bundles with its new “StreamSaver” deal, which combines Peacock, Netflix, and Apple TV+ at a substantial discount. This move clearly aims to offer greater value to consumers and help reduce churn. Meanwhile, Verizon’s newly revamped “myHome” program offers discounted streaming options for its internet customers, including Netflix and Disney+ for just $10 a month on top of their home internet plans. The plan also bundled YouTube TV as a Live TV option (and an alternative to Verizon’s Fios TV) for the cord-cutters.
It’s not just telecom companies that are hip to the times. Disney is also jumping on the bundling trend by teaming up with Warner Bros. Discovery to offer a bundle that includes Disney+, Hulu, and HBO Max. This collaboration allows the companies to merge their extensive content libraries and offer both ad-supported and ad-free options, catering to various viewer preferences.
Disney already integrated Hulu content into Disney+ for customers who have both services. And Hulu already has agreements to sell add-on subscriptions for Max and Paramount+. If this upcoming subscription bundle were to come with a decent discount rate, then it’d be a good way to help combat the high churn rates that the streaming services have been struggling with lately.
Then there’s live sports, which has long been credited as the lynchpin that holds the pay TV bundle together. However, recent moves have been trying to relocate some of the live sports content to streaming destinations as well. The most prominent example, besides Netflix streaming two football games on new Christmas Day as part of a three-year deal it inked with the NFL, is Venu Sports, an upcoming ESPN-Fox-Warner sports super bundle.
Backed by three major media companies, this joint venture will offer ESPN+ alongside streaming feeds from 14 major networks. Slated for a fall 2024 launch, it has already attracted some antitrust scrutiny from regulators.
That aside, the success of these bundles will rest on their pricing. The cost needs to be low enough to attract cord-cutters — those who have moved away from traditional cable — without undercutting the profitability of the individual services. This pricing challenge is especially a concern for Venu, which has yet to reveal its price.
Overall, Hollywood’s renewed focus on bundling reflects the industry’s response to subscription fatigue and intense competition. Whether these strategies will successfully reduce churn and boost profitability remains to be seen, but they underscore a significant shift in how we consume entertainment.
Looking Beyond the TV Screen
As Hollywood tries to realign its business model with the market reality, one more thing they need to look out for is the competition beyond the TV screen. To thrive in this new era, the industry must recognize that its rivals extend well beyond the realm of tech-backed streamers, A whole host of other players in the attention economy, especially YouTube, which is fast eroding TV viewing time, video games and game-streaming sites like Twitch, which is like live TV for the younger generations, and the likes of TikTok videos and Instagram Reel, are all part of the broader entertainment ecosystem. To effectively compete in such a crowded market, entertainment brands should continue to expand their footprint, both online and offline, with truly engaging content and seamless user experience.
Let’s start with YouTube. With a staggering valuation of $455 billion (more than 50% above Netflix market cap), YouTube’s dominance in digital video and the resulting ad revenue is self-evident (see the Bloomberg chart cited above). Ad revenue from the platform is expected to grow by nearly 17% to $37 billion in 2024 and by another 14% to $42 billion in 2025, according to estimates compiled by Bloomberg. But its impact goes beyond mere numbers; it represents a shift in viewing habits. Nielsen reports that YouTube accounted for nearly 10% of all TV watch time in March 2024, highlighting its growing influence. Moreover, YouTube’s extensive reach on mobile devices and its recent rollout of Playables, a mobile gaming feature integrated into its app, could further solidify its role as a major player in the entertainment industry.
Speaking of video games, Amazon-owned Twitch has been a powerful force in live streaming, particularly among younger audiences looking for live video content. Branching out from the usual gaming-related livestreams it’s known for, the platform recently set a new record with 3.85 million concurrent viewers for a boxing event in Madrid featuring top gaming influencers and Will Smith, underscoring its significance as a modern entertainment hub. Twitch’s success illustrates how game-streaming and live interactive content are reshaping entertainment preferences, serving as a live TV alternative for younger generations who value interactivity and real-time engagement.
The rise of AI-driven platforms further emphasizes the need for the entertainment industry to innovate. As emerging AI platforms like Fable Studio’s “Showrunner” demonstrate, AI has the potential to transform content creation by enabling users to generate and customize their own media. This shift signifies a new era in personalized entertainment but also raises critical questions about the role of AI in traditional media production. The entertainment industry must approach this technological revolution with caution.
To counter these emerging competitors and address the evolving consumer landscape, the entertainment industry must adopt a dual strategy of expanding both offline and online. Netflix is a leading example of this approach, as it plans to open two “Netflix House” entertainment complexes in 2025, blending immersive experiences with dining and shopping. These physical locations are designed to extend the brand’s presence beyond the digital realm, offering fans a tangible connection to their favorite shows and characters. Similarly, Netflix’s collaboration with Roblox to create a digital theme park based on its IP further underlines its willingness to integrate its content into virtual worlds and interactive platforms, so as to position itself at the forefront of digital engagement.
Look Inward to Stop Platform Decay
Across digital services, platform decay has become an alarming trend, driven by the relentless pursuit of profit at the expense of user satisfaction. This phenomenon, also known as “enshittification,” highlights the decline of online platforms from initially serving users well to eventually prioritizing business interests over user experience. While it has been mostly applied to social media platforms like Twitter or Facebook, it extends to streaming services as well, typically manifesting in rising prices, shrinking content libraries, and a general deterioration of service quality.
For example, despite its success and substantial market share, Netflix faces growing criticism for a perceived decline in content quality and user satisfaction. Critics argue that Netflix’s aggressive content cuts and focus on cost control over creative excellence have led to a less appealing user experience. This has resulted in increased churn and a shift in viewer loyalty, even as Netflix continues to grow its subscriber base and stock value.
To counteract platform decay and enhance user loyalty, streaming services must prioritize improving the user experience rather than focusing solely on financial gains. This includes investing in a more robust and user-friendly interface, expanding content libraries thoughtfully, and avoiding the pitfalls of hasty cost-cutting measures.
Boosting engagement, at the end of the day, is the best thing that a streamer can do to earn consumer loyalty and keep them subscribed. Content is king, of course. But the user experience also matters in the streaming age, since different streaming services come with various user interfaces that provide different user experiences.
To that end, streamers have been experimenting with their UI design. Disney, for example, has been reportedly working on new features designed to increase the hours viewers spend on streaming, such as pop-up live channels and more-tailored recommendations. Whatever the tactics, the goal is the same: mitigate customer defections and generate more revenue from ads.
