Making Sense of DTC Streaming Business Trends

It almost feels like there is a major headline about one or more content streaming services every so often these days. Some of the more prominent news in the past include Disney acquiring 20th Century Fox in 2019, sale of WarnerMedia LLC, along with its flagship HBO brand, by AT&T to Discovery in 2022, and Amazon Studios acquiring MGM Studios also in 2022. Rest assured, major decisions such these undergo considerable analysis, modeling, and due diligence. However, what are the underlying market or business drivers that are causing this disruption?

We know that subscription businesses mainly focus on subscriber acquisition and consolidation as a metric of growth. This growth occurs both organically through marketing promotions, and inorganically through acquisitions. These high acquisition costs coupled with high churn rates and competitive ARPUs (see table below) have compelled subscription businesses, such as DTC streaming services, to not only explore multiple revenue streams but also employ strategies to increase retention.

Some DTC businesses have been looking at Advertisement revenue as an adjacent revenue stream to subscription revenue. WBD’s MAX and Paramount offer a lower priced subscription plan for advertisement-supported streaming. While the portion of DTC revenue from digital ad sales is considerably lower than subscription revenue (see table below), this portion will only grow over time because of the advent of AI and ML and sophistication in AdTech solutions, and the growing popularity of Ad-supported pricing options among consumers.

DTC businesses have relied on premium content, experiences, and services to combat churn. By acquiring MGM Studios, Amazon Studios obtained the rights to over 4000 film titles and over 17,000 TV episodes (James Bond, Rocky, The Silence of the Lamb, etc.). By adding this rich catalog of content to its own library Prime Studios not only has the potential to attract and retain subscribers, but also can monetize the content through licensing.

In conclusion, DTC businesses will continue to look for ways to increase their subscriber base but won’t stop there. They will look at digital advertising and content licensing as ways to further increase revenue, and benefit from technological advances in AdTech, media supply chain and ML to maximize monetization.