Streamflation: Inflation affects streaming too

There’s shrinkflation. And then there’s streamflation. This is inflation applied to streaming subscriptions. Streamflation reflects the change in the streaming business model. We have entered a new era of maturity. This rapid evolution of the streaming market directly results from the inflation we are experiencing. It will lead to a market consolidation after a phase of unbridled expansion.

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Streamflation: customers remain loyal despite rising prices

Since the beginning of Netflix and the creation of streaming, the market has undergone significant competitive shifts. Put simply, Covid has matured the market in record time, making Netflix’s competitors covetous. Since the war in Ukraine, the market has entered a phase of accelerated consolidation. In just 3 years, the market has undergone an evolution that, under normal conditions, would have taken 10 years.

In 3 years, the market has undergone an evolution that, under normal conditions, would have taken 10 years.

Netflix’s competitors first launched a frantic race for customer acquisition, driven by multiplying subscriptions per household. In the United States, each household has an average of 4 subscriptions, and in Europe, this number is set to rise from 1.5 to 3 between 2020 and 2022. The Covid effect is visible.

Subscription prices had already risen by the end of 2022, and we wondered at the time what the risks and growth drivers were. Curiously, the termination rate is quite low. 94% of Disney+ customers have remained loyal despite a 40% rate increase. This echoes our analysis of the dreaded effect of the subscription business model. Subscribers forget about them, and voluntary termination remains marginal. So, it’s a safe bet that Netflix’s profits will hit record highs in 2023. After all, until 2022, it was the only streaming company making a profit.

Consolidation in sight: Disney on the front line

The expansion phase has cost streaming companies huge sums of money. They wanted to recruit a critical mass of customers at all costs by selling subscriptions below cost. The formula worked wonderfully well, with Disney+ winning over 100 million customers in record time. But the moment of truth has arrived. Costs were soaring, profitability was negative, and shareholders wanted results. In the third quarter of 2023, Disney+ reported a loss of $512 million. The Walt Disney Company’s streaming subsidiary had lost $1 billion by 2022.

Walt Disney announced a record $60 billion investment in … theme parks.

Quite logically, Walt Disney announced a record $60 billion investment in … theme parks. This business is profitable, unlike streaming. We wouldn’t be surprised to see a divestment of the streaming subsidiary. Disney has already cut 7,000 jobs, and it’s a safe bet that Disney+ will see minimal changes in content over the next few years. On the other hand, prices will continue to rise as the termination rate remains low.

Streaming: companies in search of economies

One thing is certain: all streaming companies will be looking to save money. We’re already seeing this at Spotify, which has cut 600 jobs, and Netflix, which has made 500 associates redundant. Everything must be streamlined.

Content catalogs, essential for retaining subscribers, are still likely to be the focus of massive investment, but less so than in previous years. Support departments are likely to suffer the most. At Netflix, despite the importance of algorithmic recommendations, we fear that the time has come for intensive development of new functionalities. Indeed, Large Language Models (LLMs) are shaking up the world of recommendation to such an extent that some wonder whether machine learning-based models are still necessary.

By Pierre-Nicolas Schwab Pierre-Nicolas is de directeur van de marketing agentschap IntoTheMinds. Hij heeft speciaal interesse voor e-commerce, retail, HoReCa en supply-chain projecten. Hij is ook een onderzoeker aan de Vrije Universiteit Brussel en werkt ook als coach voor meerde publieke organisaties. Hij verwelkomt Linkedin uitnodigingen : gelieve gewoon een paar woorden toe te voegen en uit te leggen waarom U wilt connecteren.