Crystal Ball

As wiser men and women than I have said, Capitalism is the worst economic system, except for all the others... And Capitalism requires constant growth, and maybe more importantly, growth narratives for investors to latch onto.

Launching a streaming platform has been a critical growth vector for media businesses for the last half-decade or so. After the explosive growth of Disney+ + (and now equally explosive price hikes), as well as prominent launches of services like Peacock, Paramount Plus, Apple TV+, and many, many more, investors in every media business are pressuring them to build their own new services.

As these newer services, and the 800-pound papa gorilla of them all, Netflix, ran into a wall with subscriber and revenue growth, they went to their next large growth avenue: lower-cost (sometimes free) ad-supported streaming options. Prime Video even went so far as to essentially downgrade all existing accounts to ad accounts and force you to pay more to remove ads. Wild choice, but since that service already uniquely bolts onto expedited (if increasingly unreliable) shipping times for Amazon ecommerce purchases, we will tolerate this new hidden price increase for customers.

All of this said, even with new markets and diversification of product, another wall is coming for the streaming market. Customers are reaching our limits of new services, and monthly streaming costs, which now routinely add up to more than the cost of the cable packages we originally cancelled to "cut the cord" and switch over to a less expensive, internet-connected, streaming entertainment life at home. And we'd all certainly prefer fewer ads when we can afford to pay for ad-free on our favorite services.

My prediction for how services will counter the next wall is simple. What's old is new... Singular content drop transactions will become the streamer's next way to grow revenue. As in, bonus features for a newly released movie will cost $4.99, or a director's cut of the movie won’t be added to the streaming app, but you can buy it for $19.99 in app. This is how I predict streamers will grow revenue as they tap out both their paid and ad-tier subscriber bases, and revenue and earnings growth go back to single digits in the coming years.

Some of the first streamers to try this with the right types of films will have major success with this strategy. Think fan favorites like a new Star Wars or the new Blade Runner series coming to Max, and then it will become the norm. Just like Avatar with the 3D cash grab of the 2010s that followed in its footsteps, someone will make $100M+ in extra revenue off of a single, well-orchestrated content drop (in addition to box office and normal ancillary revenues), and everyone else will jump on the bandwagon. Tone deaf investors will demand it. "Why didn't you do a content drop with the new Smurfs movie!? Star Wars: Starfighter did it, and it cost $1M to produce and made $100M!" they'll scream on a large media company's earnings call. It will be negligent NOT to produce a drop.

And thus, quality will degrade, the market will oversaturate, and after a year or so, most of the content drops will flop as consumer confidence in the value and quality of the drops wanes. They’ll become maligned, and then Hollywood will continue the practice in alignment with what was always going to work. Fan favorites, cult classics, and very large hits will see these, but middle-of-the-road fare will not.

To be clear, I expect these will be almost entirely digital, differentiating them from Blu-Ray 4K or other physical media of the past. And likely this content will be tied to the apps themselves, so even with a one-off purchase, if you cancel your membership, you may, at least temporarily, while you're not subscribed to that service, lose access to this additional content you paid extra hard cash for. This could lead to lawsuits and all sorts of other issues and questions about what designates "ownership" of media, something that is coming up in all sorts of other places like the video game and music industries.

This will be the next wave of revenue growth for the streamers. You heard it here first folks...

References

Some relevant links that I used for research:

https://pittnews.com/article/5424/opinions/capitalism-the-worst-economic-system-except-for-all-the-others/

https://www.kantar.com/inspiration/technology/vod-growth-accelerates-in-an-unprecedented-q1

https://www.wane.com/news/business/ap-business/ap-netflix-delivers-another-strong-performance-in-second-quarter-while-following-a-familiar-script/