For Streaming Services, Navigating Generational Differences Is Key

The traditional video marketplace is no more. Driven by a combination of technologies including high-speed internet access, billions of mobile devices, and falling prices for high-resolution displays, television as we have known it for decades is undergoing a radical reinvention, one that will reshape the media ecosystem. Just in the last few months, game-changing streaming services have been announced or launched from industry giants including Disney and NBCUniversal, spurred in part by billion-dollar investments from newer entrants such as Netflix, Google, and Apple.

As incumbents scramble to respond to technical, business, and regulatory challenges posed by innovative disruptors, investors and consumers alike are wondering who will win the fight for new media supremacy. The answer, it turns out, may depend on how old you are, the age of your customers, and how each of you define “video content.”

To understand why, let’s start with how markets get upended. In the Big Bang model of disruption, innovation based on better and cheaper technology begins with a period of wild experimentation, where entrepreneurs unleash new offerings and new business models in search of products and services that mainstream consumers will embrace at scale.  When they find them, the mature offerings of incumbents can become suddenly obsolete.

In streaming media, that experimentation has been going on for more than a decade.  Netflix moved to streamed content in 2007, for example, and, in 2013, shifted to originally produced shows. The company’s success spawned dozens of competing services, including from technology giants such as Apple, Amazon, YouTube, and Sony.

In response, producers and distributors of traditional PayTV services, or what is known as “linear” programming, launched streaming alternatives that compete with their own legacy products, such as Sling TV from Dish, and DirecTV Now from AT&T.  One startling statistic is that YouTube viewership is now 1 billion hours a day, which is more than linear TV.

Silicon Valley’s reshaping of Hollywood, however, has suddenly accelerated.  Earlier this month, Apple launched a fully revamped Apple TV+, featuring exclusive content from marquee directors, actors, and producers, including Steven Spielberg, J. J. Abrams, Oprah Winfrey, and the creators of Sesame Street, all for $4.99 a month.

Not to be outdone, Disney, fresh off its acquisition of much of Fox’s content assets, has just launched Disney+, an online service that gives viewers access to much of the Disney film archives as well as original programming featuring licensed properties from the Star Wars, Marvel and Pixar franchises.  At a starting price of $6.99/month, Disney+ poses a serious challenge to an earlier generation of streaming giants, including Netflix, Amazon Video, YouTube, and Hulu, the latter of which Disney now owns outright.

Given these developments, it’s little surprise that PayTV providers are losing subscribers at a dizzying pace. In 2018 alone, according to company reports, linear programming providers lost more than 3 million subscribers, or 4.2% of their total customers, an increase from 2% in 2016.  Another million users cut the cord in the first quarter of 2019, 1.5 million in the second quarter, and nearly 1.7 in the third quarter — almost 4% of all remaining customers every quarter.

Streaming revenue, meanwhile, more than doubled between 2016 and 2018, from $30 to $68 billion.  More than a quarter of all U.S. consumers are now spending over $100 a month for multiple streaming subscriptions.

And while incumbents are rushing to make their own programming available a la carte and on non-TV devices (as with HBO GO and CBS All Access), PayTV providers are held back from full participation in an emerging streaming ecosystem by a vast and confusing tangle of federal, state, and FCC restrictions on what content they can offer and from whom they can license it.  To get around some of the dangerously outdated rules, distributors are pivoting into content and technology businesses, spurring a flurry of high-risk mergers, acquisitions and start-up investments.

In the next phase of the so-called “streaming wars,” those hoping to find a profitable niche — or even just to sort through the dizzying array of options they’re being offered as consumers — need to understand the unique characteristics of the different demographics in play: Baby Boomers, Generation X, Millennials, and Generation Z. Each group has demonstrated its own preferences for how they pay for, search, and consume video and those preferences require providers to delicately balance different offerings for each. Let’s look at some of their differences in more detail.

Baby Boomers: Baby boomers remain the base of traditional PayTV.  Even with the quickening decline of bundled TV services, 80 million U.S. households still subscribe to cable, satellite, and fiber-based video services.

Accelerating subscriber abandonment will likely reach equilibrium, although it’s not clear when.  That will leave a stable group of largely-older legacy customers.  Notably, the core of their linear viewing, according to news site The Big Lead, is already dominated by live sports — the last stronghold of the incumbent video industry.  In the U.S., 89 of the top 100 most watched TV programs in 2018 were live events, of which 64 were NFL broadcasts.

Still, these users, along with their cord-cutting peers, are actively replacing or supplementing linear programming with of the best of newer streaming options, including original content from YouTube and Netflix, skinny bundles from Sling TV and DirecTV Now, and single-network services such as HBO Go.  Well over half of all older consumers are already subscribing to at least one streaming service, with a quarter of Americans over age 50 having cut the cord to linear services by the end of 2018.

Generation X : Adults between the ages of 45-54 integrate linear and streaming content natively, as well as the devices on which they consume it.  They expect programming to be available wherever they are, and are more comfortable than their parents are at picking and choosing from an explosion of fast-evolving options, customizing their own experiences based on peer recommendations from social networks.

Critically, this middle demographic sees less difference all the time between scripted content produced by incumbent media giants, original content from tech-based streaming services, and “amateur” productions from YouTube and other content hosting platforms.

In part, that’s because technology has dramatically reduced production costs. For less than $10,000 worth of equipment (a digital camera, lights, and editing software) and a high-speed internet connection, YouTube stars can produce high-quality programming and reach audiences in the millions.  More than 2,000 YouTube channels had more than 1 million subscribers in 2016; a number that doubled by 2018.  Some YouTube stars are now making well over $10 million a year, a combination of shared ad revenue, sponsorships, and a return to the days of patronage, where fans pledge monthly support through platforms such as Patreon.

Millennials and Generation Z: The youngest video consumers likely never had a cord to cut, and aren’t expected ever to subscribe to a linear TV bundle.  Like Gen Xers, they’re perfectly comfortable mixing and matching professional and amateur, incumbent and startup.  They don’t distinguish one screen from another, and are more likely to watch video on devices other than a TV.

For these consumers, user-generated content is taking on strange new forms. Instagram users under the age of 35, most of whom live outside the U.S., now spend more than 32 minutes a day producing and watching each other’s videos.  Snapchat, where “stories” disappear after 24 hours, boasts more than 14 billion video views per day, 70% from and by users under the age of 25.

Interaction is a key component of video consumption for the youngest audiences.  Amazon-owned Twitch, a social media platform for gamers, has more than 15 million daily users, who subscribe to watch broadcasts of experts playing popular video games such as Fortnite, exchanging messages with the player and other viewers. The most popular stars on the service earn close to $1 million a month just from their share of monthly subscriptions.

Little surprise, then, that Google’s major entry into the streaming maelstrom isn’t a video service at all, but instead a first-of-its-kind gaming platform called Stadia, launching later this month.  Stadia will allow users to play seamlessly from one device to another without the need for a separate game console. Powered by Google’s data centers and hundreds of millions of miles of fiber optic cable, the service will stream the latest games at 60 frames per second and support 4K resolution, with both doubling in the near future.

A dramatic reshaping of consumer consumption

Regardless of demographic group, consumers are already overwhelmed by abundance, with more options and original content choices than they can possibly consume.  Incumbent creators and distributors are trying not to cannibalize any more of what’s left of their linear customer base than they have to, but most are erring on the side of low prices for new streaming services, essential to competing with the likes of Netflix and Amazon.

With many if not most of the new services unlikely to be making any profits at their current prices, it’s a golden age for media users, as developers look to build audiences and brand loyalty ahead of sustainable revenue. Cord cutters have more options than they can sort through, or even sample.

Venture-financed experimentation, of course, won’t last forever. At some point, perhaps soon, many of the services launched in the last few years will evolve, merge, or disappear altogether. (One such streaming service, Sony’s PlayStation Vue, has already announced it’s throwing in the towel.) Consumers with limited viewing hours and ability to pay will focus their attention on a few surviving models, technology platforms, and services, perhaps including some not yet launched.

For now, content creators, distributors, and consumers are deeply in the Big Bang stage of disruption. But the next stage, the catastrophic reckoning known as the Big Crunch, is coming, probably sooner than later. As the true winners emerge from today’s primordial soup of innovation, the remaining streaming services may finally see profits.

To reach the finish line, incumbent producers and distributors, along with new entrants large and small, need to understand who their real audience is, and shape their offerings to the specific demands of each demographic group as best they can.  The sooner they embrace that reality, the more likely they’ll survive the dramatic consolidation that’s already begun.