Streaming Actually Has Higher Costs than Did Linear, Fewer Revenue Sources

The video streaming business, going direct to consumer, has higher costs than the older linear video subscription model for the same reason other retail distribution models come with higher costs than wholesale models. 

Wholesale is a business-to-business transaction with a few customers. Retail is a business-to-consumer transaction with many to millions of customers. Wholesale avoids the costs associated with selling to actual end users, including marketing, stocking, point-of-sale operations and handling of returns, plus lots more customer service and billing and payments processes. 

Cost element	Video streaming	Linear video
Content	Higher	Lower
Marketing	Higher	Lower
Technology	Higher	Lower
Operations	Lower	Higher
Total costs	Higher	Lower
Revenue	Subscriptions	Advertising

Beyond that, revenue sources generally change. Where linear TV has dual revenue streams (advertising and subscription fees), video streaming has generally featured a reliance on subscriptions mostly, though in recent days we have seen a proliferation of ad-supported services as well. 

In addition, linear TV subscription revenue models have included affiliate fee payments to content owners from distributors. Streaming generally has not featured that revenue stream. 

Also, streaming--like any other internet-based business--hinges on scale. For streaming services, that means “going global” rather than remaining a “national” service. 

Still, operating as a “direct to consumer” provider means supporting retail costs in the marketing area that did not exist in the linear format. 

Cost	Linear	DTC
Acquisition marketing	$5-$10 per subscriber	$10-$15 per subscriber
Retention marketing	$1-$2 per subscriber	$2-$3 per subscriber
Avoided expenses	$2-$3 per subscriber	$0
Total marketing costs	$8-$13 per subscriber	$12-$18 per subscriber