Finding the formula for profit in global subscription streaming

The formula for profit in the global subscription streaming business includes finely honed content strategies based on a clear understanding of the cohorts being served, the right release cadence for new content and windowing that enables some exclusivity but keeps costs down.

Customer acquisition costs must be minimised, as a result of sharp marketing backed by econometric analysis to drive effectiveness. Streamers should be ready to join hard bundles where other streamers can complement them. Streaming services should aim high with their viewing experience, including more immersive formats, and platform and operational costs may need to be lowered.

These were some of the takeaways when leading content providers and specialist vendors gathered at Connected TV World Summit recently to review the road to profit for internationally focused subscription VOD services.

Moderator and independent analyst Ben Keen noted that global subscription streamers have pivoted to prioritise profit over customer land grabs, and wanted to know how more global streamers achieve profitability.

Kerry Ball is chief commercial and strategy officer at BritBox International, which claims to offer the biggest collection of British TV in one place for viewers in the US, Canada, Australia and Nordics. Ball said the ad-free streaming service has been profitable since early in its life and has benefited from a robust specialist streaming market, which grew 24% last year.

She is very comfortable with the market position BritBox occupies, offering focused content but “going deep” in its specialism, with an 8,000-strong library. “We have been focused on building that super-fan level of content experience,” Ball told the audience.

BritBox has also focused on understanding its market and ensuring every marketing dollar spent goes to the right consumers, backed by marketing effectiveness studies like econometric analysis — all of which ensures reasonable subscriber acquisition costs.

Attracting and retaining customers

Attention then turned to retention, which relies on a good release cadence for new content. “You don’t need everything to be an exclusive or a premiere, but you do need those tentpoles when people come in, before they find everything else in the wheelhouse,” Ball revealed. “If we can keep a new subscriber for three to four months, we probably have them for a considerable amount of time.”

When it comes to attracting and then retaining customers, Dr Malte Probst, chairman, board of directors, and CEO at Swiss Studios, advised streaming services to focus on what they already know in terms of content, since few viewers arriving for comedy are likely to start watching horror.

Beyond that, he hailed the strength of local stories and suggested streamers look for “talkability” in their content, but are careful not to spend too much on launch content.

Swiss Studios launched last year when five leading production companies joined forces to drive content development for film and TV in the Swiss and international markets. Probst had a very practical tip that is already proving effective in the market.

“When we have a true story [drama], we create a documentary on the back of that — the story behind the drama,” he explained. “If someone joins a subscription service for the first programme and they want more, it is easy to recommend the second for more engagement.”

Asked if the drive to profit among streaming services was depressing prices offered for content, Probst did not think so, although potential clients are more alert to risks.

“It is easier working with streaming services who are clear on their user profile,” he said. “Not all streaming providers know what they need and ask us to show them what we have. I say no — that is inefficient.”

Quality of experience paramount

Thijs Bijleveld, vice-president, head of sales, EMEA and APAC, at Imax, which enables next-generation video and audio experiences for television as well as cinema, highlighted quality of experience as a metric for determining revenue growth potential.

Imax has worked with Disney+ to improve the video and audio experience, as with some films from the Marvel Cinematic Universe (on select devices) during 2023. This included use of Imax’s expanded aspect ratio, which delivers 1:90:1 and offers up to 26% more picture for select sequences.

The company is best known in cinema, where it has a relatively modest number of locations (1,735 by the end of 2024) but punches above its weight in revenue generation: in March 2024, Imax revealed that it had delivered 20% of the global cinema box office takings for Dune: Part Two in its first 12 days of global release.

Bijleveld believes the lesson from cinema can be applied to streaming: viewers can be monetised better — even if there are fewer of them — if you are bold with the viewing experience.

He also used the example of the automotive industry — when car-makers starting installing Bose speakers as a statement about their audio system quality — as a pointer to how streamers could use a brand like Imax to communicate that they care about better viewing quality, as a way to underpin growth.

Exploring windowing

Keen asked if the drive to streaming profit required a closer eye on content costs, leading to greater willingness to share windows, and Ball agreed that a sharing strategy can work for streamers and content creators. For creators, she believes co-windowing removes reliance on a single platform (distribution partner) to grow the show over time.

Detective drama The Jetty was released at the same time on BritBox and Hulu, with Ball adding: “You still need exclusive content and tentpoles, but you can achieve that with other shows that are new to the service. It [non-exclusive windowing] is an opportunity for production companies because a show is more likely to get a second or third season if it is not limited to one platform.”

Ball thinks revenues at international studios [which also run streaming services] will benefit from licensing content to third parties rather than limiting distribution to their own streaming platforms — since there is more chance to monetise the content than if it stays in one place.

She also suggests there are technological factors that will help more leading streaming services to achieve profit. “Platforms will become more efficient to run,” she predicted.

Hard bundles

Studio windowing strategies are one of several hot topics in the subscription streaming market today. Another is bundling of services (with discounts) — whether by streamers with multiple brands, several streamers working together or under the auspices of a pay-TV aggregator.

Vikram Kulkarni, vice-president, strategic initiatives, at Gracenote, Nielsen’s metadata specialist that helps drive content discovery, believes in the value of hard bundles as a way to boost the streaming market and as a value-add function for platform aggregators.

He hailed the efforts to find the right combination of streamers for bundles that can drive incremental consumption.

“Everyone’s IP [intellectual property] and audiences are different, so you have to find the right options and understand consumer thresholds [for what they will pay in a bundle],” Kulkarni observed.

Asked whether pay-TV operators can maintain their position as leading aggregators in a world increasingly populated with direct-to-consumer apps and smart TV operating service providers also competing for attention, Kulkarni said they can.

“As streaming offers become more diverse and also more expensive, and more of them are ad-supported, re-aggregation of content becomes compelling for audiences, and pay-TV is well-placed to meet that need,” he replied.

The need for advertising

Besides windowing and bundling, a third pillar in the drive for global streamer growth (and ultimately profitability) is advertising, via the HVOD (hybrid VOD) model that provides a choice of ad-free at a premium price or ad-supported with a lower subscription fee.

BritBox is not considering an ad tier, Ball told the conference. “Our surveys show customers are reticent to see ads — there is more price elasticity than advertising elasticity,” she revealed.

“We are a specialist service, so we are not focused on acquiring subscribers at all costs but on getting profitable subscribers who stay a long time. We are always evaluating the business proposition, but we would have to be more of a general entertainment play [to pursue the advertising route].

“We still have lots of headroom for our target market as well. In general entertainment, companies usually include advertising when they reach market saturation [with a subscription pure-play] and need to open the funnel wider and accept more churn [from the new ad tier customers].”