What a year it has been! In my annual predictions blog twelve months ago, I speculated that 2023 would be all about profitability, driven primarily by excessive investments across the industry and unrealistic expectations about market growth. In hindsight, I was clearly correct to a large extent, but I did think that we would see more innovation on the revenue generation side, rather than most of the profitability-enhancing initiatives being related to cutting costs. Instead, revenue driving strategies seem to have been heavily focused on price increases, which is of course hard to argue with as a good stop gap solution to stem losses. Price increases have happened across the board, where even a player like Apple TV+, with a more holistic customer value strategy, chose to substantially increase its subscription fees.
Moving into 2024, I’m seeing an OTT video industry which is leaner and more agile than a year ago, but that is also increasingly doubtful of its long term growth potential. In 2023, the market growth was primarily driven by inflationary increases of subscription prices, while neither advertising markets nor an increase in subscriber numbers contributed much to the overall size of the market. I believe that we’ll see a shift in growth drivers in 2024, with a rebound in the ad markets, which will undoubtedly provide a positive growth contribution to many ad-funded services. In addition, I believe that there will be continued acceleration of the long term trend where consumers keep adding new video services to their household mix. The growth will (for natural reasons) be slower than in many previous years, and we may see increased interest in ad funded free services, but I do think that there will be a continued uptick in the number of active video services per household. I also believe that there is still some pricing power left which will be used by video services to further increase revenues.
All in all, I believe that 2024 will be a good year with decent industry growth, likely in the range of 10-12%. In twelve months from now, it’s likely that many streaming services have managed to hit profitability for the first time, after the strange market aberration over the past 5-6 years. Looking at the coming year, I have identified three specific trends which I believe have a high likelihood of coming to fruition.
In ten years time, we will all look at the emergence of AI in 2023-2024 in the same way as we looked at the Internet explosion in the mid-nineties. It is clear that we have hit an inflexion point, but it’s also obvious that we’re far away from mature technologies, and we will see many stumbles, market bubbles and compliance challenges before we manage to extract great value from AI technologies in our industry.
Saying that, it is also clear that the first contribution we’re seeing from AI solutions is in the form of content generation and enhancement. We are already witnessing interesting possibilities with text and image creation as well as a rapid innovation in the field of video creation. It is obvious to me that while it’s unlikely that core content offerings will be created with AI in the foreseeable future, there are many areas where it will be possible for media companies to run their business more efficiently with the help of AI-powered processes, maybe in the form of enhanced metadata, localisation or in the form of just efficient quality improvements, all contributing to gradual improvement.
The innovation that led to Free Ad-Supported Streaming TV (FAST) was more on the business model than on the technology side. It’s not particularly difficult to create a FAST channel, but without an attractive way for consumers to find a place where many of them are aggregated, the volumes of eyeballs will in most cases be too low to cover the costs of running a service. While the cost of running a FAST channel has declined over the past years, the key to success lies in offering users easier access to these offerings via aggregation platforms, such as Samsung, Pluto, Roku, and more. FAST channels clearly fill a market need for certain consumers and offer a way to efficiently distribute content to the market at a low cost.
Now, my view is that the long term market prospects for FAST channels are significantly overrated. There are two main challenges in my opinion; discoverability and user experience. On the discoverability side, there will simply be a practical limit of FAST channels in each aggregation service. Addition of an extra channel into the mix will add so little extra traffic (and revenues) that it’s not worth the effort. If you anyway have all the responsibility for marketing and driving users to your channel, you might as well spend the same effort in driving people to your own streaming service and create a better long term value and customer relationships. Secondly, from a UX perspective, I believe that the FAST experience is simple and consistent, but in the long term it simply isn’t enough for most consumers, who tend to expect a more interactive and personalized experience. That demand from consumers will grow, not decline, making today’s FAST experience less attractive in the market over time. This is of course an opportunity for new video providers to step in, most likely by offering combinations of more advanced experiences together with owned and operated FAST channels, potentially offering the best of both worlds.
Personalization in OTT continues to be a difficult challenge. I firmly believe that video services are like music - a highly personal experience. People have different tastes, and they’re interested in different types of content when they’re in different moods or in different situations. Also adding to the complexity is the fact that each individual user may be part of a family with different usage patterns and preferences. Over the years, we have all seen a number of efforts to create attractive recommendation engines, but we have also seen many examples where they simply don’t work very well, and we’re being recommended very strange pieces of content. I believe that the challenge stems from the fact that a video viewer is not a consistent being. Just because a person has watched a horror movie every Friday over the past three weeks, that doesn’t mean that the right thing is to recommend a horror movie in the fourth week. While you can probably draw the conclusion that the person likes horror movies, it’s a much bigger endeavor to personalize the experience for that individual viewer in an exact moment.
I don’t think we will solve the personalization challenge in 2024, as we’re moving away from reckless growth investments followed by cost-cutting and restructuring. I do believe, however, that there will be a bigger focus on the user experience to create loyalty and stimulate customer engagement. At Accedo, we’re passionate about supporting video service providers in creating better personalization and supporting those improved user experiences with underlying data insights. I believe that this will be an area of significantly increased investments in the coming year and at Accedo, we’re excited to be contributing in some part to these solutions in the future.
To conclude, moving into 2024, my hope is that we’ve passed the vast majority of right sizing the industry and that we can focus on innovation which ultimately adds value to the end consumers.