Video Streaming: Growing Mismatch Between Buyer and Seller Expectations

At least in the U.S. market, consumers are showing an apparently conflicting set of views about the value of their video subscription services. On one hand, use of streaming services, including cases where customers buy multiple subscriptions, is increasing.

Use of linear services is decreasing. On the other hand, the remaining customers of the linear services seem to report growing satisfaction and value over the past four years, according to TiVo survey data.

There is a simple explanation for that reported satisfaction and perception of value: as unhappy customers defect for streaming alternatives, a growing percentage of the remaining customers are those who see higher value in their linear choices. That is why, in fact, they do not defect.

Between 2014 and 2017, the percentage of “very satisfied” linear video customers actually has risen from 20 percent to 30 percent, while the percentage of “unsatisfied” customers has dropped from 24 percent or so to 18 percent or so.

That does not mean the erosion of linear accounts will stop. We can see the same trend in satisfaction scores of landline telephone service. As the unhappy customers (or customers who find mobile is a functional substitute)  leave, the remaining customers--who value the service more--will tend to raise satisfaction scores.

Of course, suppliers might still be unhappy about the apparently-growing “satisfaction” scores, as one reason more survey respondents are satisfied is that they are able to buy skinny bundles that cost less. In other words, the value proposition (fewer channels but lower price) is better with a skinny bundle than a full bundle of channels.

But it also is possible to see a mismatch between consumer expectations and supplier beliefs about the value of any single channel and its corresponding expected price.

Over the past couple of decades, one fact has stood out: consumers generally rate the value of any single TV channel as being worth less than those TV channels believe they are worth.

A recent survey by TiVo confirmed--again--that U.S. consumers generally believe a subscription to a single TV channel “should” cost about $2 a month, with a few channels perhaps having a “fair” price up to $3 a month.

But no single TV channel contemplating a streaming service (at least so far) will price its service at that rate. Instead, prices are generally an order of magnitude higher ($11 a month or so).

That is a big disconnect.

For any product purchased by any consumer, both value and price matter. Up to this point the price of popular streaming products has not been a particular issue, as value (some amount of popular content) has a far-lower recurring cost (perhaps $11 a month compared to a linear package that offers more content, but also can cost $80 a month or more).

Once consumers start buying multiple streaming channels, the total cost obviously grows. For many consumers, a reasonable benchmark might be $40 a month, the pricing level for skinny bundles.

A consumer buying three streaming services at $15 a month spends more than single skinny bundle linear subscription. If, as some predict, every present channel will be offered on a direct streaming basis, the “value versus cost” evaluation is going to change radically.

In that scenario, buying just three services costs more than a skinny bundle would cost. It is not hard to predict that few channels will gain scale, at that pricing level. Nor is it hard to predict that new forms of bundling are going to become more popular.

But change will come. As more consumers find they are buying multiple streaming subscriptions, at some point, a customer winds up spending just as much money as they might if they bought a single linear subscription.

To the extent that the value of a streaming subscription is that it “costs less” than a linear subscription, suppliers then will face a new problem, namely that buyers will start to compare not the cost of a single streaming subscription against the cost of a single linear service, but the total cost of all purchased streaming subscriptions against the cost of linear.

At that point, perceptions of value could change, as will buying behavior. Bundles are going to look better, again.


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