The Rise of Streaming Aggregators

Most of your favorite TV series are probably on Netflix or Prime Video. Maybe a few more are on HBO. If this sounds familiar, you likely are in the situation of most U.S. streaming customers who, on average, subscribe to three video streaming services, spending about $10 per month on each. Now what will you do if you would also like to watch a show on YouTube Premium, a Hulu original, and subscribe to the upcoming streaming services of Disney and Apple? There are already more than 300 different streaming services. Facing this tremendous oversupply, how will customers make decisions and how will they find the content they like the most? Will they choose wisely which services matter most to them? Will they end up paying $100 per month for ten subscriptions? Will they fall back on piracy? Willingness to pay is low, and roughly 35% of all young consumers share their passwords. The current streaming market is not economically efficient and has several disadvantages for both, customers and streaming companies. Earlier this month, at Variety‘s Entertainment and Technology Summit in Los Angeles, one of the key takeaways was that the streaming world has to be bundled and aggregated into larger, more convenient ways of buying in order to achieve scale. Would it not be great to pay a single, more affordable subscription fee and have access to all those services in one place? It would bring economic gains to both parties. Streaming aggregators such as Reelgood are working on making exactly this possible.

(Inspired by articles on Forbes and Variety.)

Reelgood

In 2015, David Sanderson identified the problem before many others did and founded San Francisco-based Reelgood, the best positioned streaming aggregator so far. I had the chance to meet David and discuss with him about the future of the streaming market and his company. Reelgood is free and allows you to access all of your streaming services in a single application. You are, however, required to pay for subscription services like Netflix, Prime Video, or Hulu separately. With over 336 different streaming sources, Reelgood managed to maintain the lead in the streaming aggregator market. The service is so far only available in the United States, but the startup aims at expanding internationally within the next year.

The Business Model of Streaming Aggregators

The business model of a streaming aggregator is based on two major revenue streams: advertising and data. How does advertising work in the case of Reelgood? After everything you watch, Reelgood takes you back to their platform. For example, after finishing an episode of Narcos you will be redirected to the Reelgood platform and might see the suggestion to watch the The Sopranos. Thereby, Reelgood offers more opportunities to advertise than, for example, its competitor Roku, which only allows for advertising before you enter a specific streaming application. Targeting is still a big issue for studios. With the help of Reelgood, studios can understand the watching behavior of consumers better and target more effectively. How does data work in the case of Reelgood? Nielsen makes a lot of money by licensing data on linear viewing. However, they are not yet set up for the streaming world and there is no accurate way for them to collect this information. Reelgood will be able to package up the data their users generate across streaming platforms and offer more accurate information.

Reducing Transactional Friction Increases Consumption

Transaction cost is the cost incurred for paying multiple subscription fees to a number of companies and for finding the streaming platforms you like the best. Streaming aggregators already serve as search engines across different streaming services. However, their greatest potential might lie in the reduction of transaction costs by bundling multiple subscription fees into a single, more affordable one. In the oversupplied market of streaming platforms, consumers feel the anxiety of having to make a decision and choose one streaming service over another. By offering a single subscription fee for (hypothetically) the entire supply of streaming platforms, aggregators would liberate consumers from the stress of having to make a decision and would give them, without added cost, access to streaming services, which they would otherwise never have used. Platforms like Reelgood have the power to reduce transactional friction and to thereby increase consumption and economic efficiency.

Transactional Aggregation: The Skinny Bundle

Reelgood already offers one place to search for and watch the content of nearly all existing streaming services. However, the company is not yet aggregating streaming services on the transactional level. This idea of a single monthly subscription fee, which includes access to multiple streaming services is also referred to as "skinny bundle". David Sanderson sees such transactional aggregation as inevitable at some point and believes that it might be just about 2-3 years away from becoming the norm. Skinny bundles offer benefits to both, streaming companies and customers. For platforms, one of the big advantages is driving subscribers without having to spend money on new customer acquisition. Streaming services might therefore give Reelgood better rates when the company starts to build its skinny bundles. For customers, in turn, the big advantages are reduced transaction costs and a likely more affordable bundle price.

Network Externalities and Critical Mass

Streaming aggregators like Reelgood face an important challenge. For the platform to become viable in the market of skinny bundles, it needs to reach critical mass. This refers to having significant numbers of both, streaming sources and customers using their service. Indirect network effects function like economies of scale on the demand side, tending to make larger platforms more attractive to potential customers. In order to reach critical mass, streaming aggregators might therefore first subsidize the most price-sensitive group, streaming customers, with an underpriced subscription bundle and then use their participation to attract members of the other group, video streaming services. Membership externalities then make the platform more valuable to customers the more different streaming services the skinny bundle includes.

A Few Words About Competition

Many of the industries in which indirect network effects are important do not seem to be tending toward monopoly. Product differentiation is a key reason why such industries consist of multiple competitors. By specializing, services presumably increase matching efficiency. Therefore, various streaming aggregators are likely to emerge. The key question for consumers will be which platforms aggregate the streaming services they care most about. Competition will likely range from very broad skinny bundles to more specialized ones.

Direct-To-Customer Model of Streaming Services in Jeopardy

A huge worry for streaming services is how such aggregator will promote their content. Will Netflix originals be promoted stronger than Hulu series? This will most likely be a question of money. Even more, streaming companies worry about customer usage of their platforms. Google Play Movies & TV, for example, organizes content from Prime Video, Hulu, HBO, and several other streaming services. As these apps become more sophisticated and include voice activation, it is more and more likely that consumers will skip, for instance, the Netflix interface. That greatly reduces Netflix's ability to rely on their algorithms and forces them to market their content via external media, a much more expensive and difficult task. We might then need to ask ourselves a new set of questions: Will the brand of the streaming services still matter? Or will the big direct-to-consumer platforms, such as Netflix slip back to a tier-two production company making distribution deals with the new aggregator? We might not be able to imagine that yet. But we see the first signs.

The Next Step for Streaming Is Coming

Business models in the digital age are about internalizing and reducing transaction cost. Skinny bundles are one of them and will increase economic efficiency. Customers and streaming companies will be better off in aggregate because additional transactions will occur without wasting resources on search and transaction costs. While most consumers might be able to afford a Netflix or Prime Video subscription, price sensitivity increases with every incremental subscription they get. Streaming aggregators might therefore be especially beneficial to the many small and niche services that people would not normally take a chance on. This will be a big win for the streaming economy.

(Inspired by Casey Woolfolk: Transaction Costs and the Future of Commerce, David Evans & Richard Schmalensee: Multi-sided Platforms, and Mitch Lowe: The Culture of Disruption.)

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