The next phase of the streaming wars
The direct-to-consumer streaming market is hyper-competitive and its shifting regulatory terrain poses both compliance challenges and strategic opportunities
Traditional TV output has remained relatively strong during 2021. In the UK, scripted series such as "Line of Duty" drew big audiences, as did the return of reality favourites like "Love Island". Linear viewing figures were also bolstered by the 2020 Euros – the competition's final was one of the most-watched television events on record in Britain.
Nonetheless, over-the-top (OTT) media services have continued to gain ground on traditional broadcasters in terms of share of overall viewing, whether that is live or on-demand video. This trend is set to continue. Deloitte forecasts that 2022 will be the final year that traditional TV makes up more than 50% of video viewing on all screens.
The streaming wars intensify
While the shift from traditional TV to OTT is not new, the number of major global video-on-demand services vying for audiences and increasing vertical integration of studios will heighten the so-called streaming wars.
This may be good news for some producers and others in the content ecosystem. On the other hand, customer retention may be an uphill battle as a proliferation of choice almost inevitably leads to an increased risk of subscriber churn. To mitigate the risk of losing hard-won subscribers, providers are adopting a variety of strategies, including diversifying their services (for example, integrating games, e-commerce, augmented reality, virtual reality and other interactive features), using innovative pricing tiers, and fully exploiting partnership and bundling opportunities.
Investing in content
To try and outdo competitors, many providers are allocating huge sums to secure a bumper content slate for 2022. This spells good news for the UK production industry. Productions bounced back strongly in 2021 following a slight pandemic slump, buoyed by tax relief schemes, European content quotas and the release of timely guidelines on how to return to production safely during Covid-19.
This pipeline has led to a spike in real estate activity, as production groups look to expand their studio portfolios to accommodate the growing demand. Innovation in post-production, extended reality and virtual studio technologies looks set to continue in order to service this demand, with an increasing attention on how to produce and deliver content in a more environmentally sustainable way.
New business models
Alongside investment in new content, OTT providers are trialling various new business models in order to entice different user types. There are, however, regulatory challenges to overcome.
For most providers, the high production and acquisition cost of premium film, TV and sport makes it difficult to reduce the price of ad-free subscription tiers. So, to provide a cheaper alternative, some are now looking at lower-priced hybrid offers, with limited advertising to bolster subscription payments. Providers are also looking at free advertising-based video-on-demand (AVoD) tiers as a way of opening the door to users who may already have a number of paid subscriptions.
Another option is to lock customers into extended contracts, for example, minimum 12-month billing periods. However, long-term subscription models with high upfront payments present greater commercial risk in the event a refund becomes due and make it difficult for providers to quickly implement pricing and feature changes.
Shifting regulatory terrain
Just as the streaming wars intensify, the regulatory terrain that underpins direct-to-consumer services (particularly in the UK and EU) is shifting.
Restrictions on maximum contract length exist in a number of key markets, including the Nordics, the Netherlands and (soon) Germany under the upcoming Fair Consumer Contracts Act. This makes it near impossible to offer annual auto-renewing subscriptions in a universal manner across Europe.
In the UK, the Competition and Markets Authority is considering how to strengthen rules on auto-renewing subscription offers, including renewal reminders and regular "sweeps" for inactive subscribers. Such moves would increase the pressure on providers to ensure subscribers are engaged and not tempted to switch off auto-renew.
In addition, when launching or operating an OTT service in EU markets, providers will need to take into account the Digital Content Directive and Consumer Omnibus Directive. Amongst other things, these new laws: (i) introduce the concept of "digital services", which will include most OTT services and means they will have to apply the same cancellation rights that currently apply to "services" and not "digital content"; (ii) extend consumer laws to free services provided in return for personal data (such as AVoD); and (iii) amend existing rules on pre-contractual information provided on the user interface. Breaches of certain consumer laws could result in General Data Protection Regulation-style fines of up to 4% of turnover, which drastically alters the calculation of risk associated with OTT as compared to traditional broadcast media.
These regulatory shifts present both a challenge and an opportunity in the context of the streaming wars. Compliance often takes time, can be costly and makes it difficult to achieve a unified user experience in all markets. On the other hand, taking a proactive approach (implementing ratings or parental controls, for example) can offer a useful strategic advantage in a hyper-competitive market.
Connect with one of our experts
Jamie Heatly, Lead author Associate Director, UK jamie.heatly@osborneclarke.com +44 20 7105 7352
John Davidson-Kelly Partner, International Head of Media & Entertainment, UK john.davidson-kelly@osborneclarke.com +44 20 7105 7024
Konstantin Ewald Partner, Germany konstantin.ewald@osborneclarke.com +49 221 5108 4160
Philipp Sümmermann, LL.M. Associate, Maître en Droit, Germany philipp.summermann@osborneclarke.com +49 221 5108 4504
Claire Bouchenard Partner, France claire.bouchenard@osborneclarke.com +33 1 84 82 45 30
Henrik Bergström Partner, Sweden henrik.bergstrom@osborneclarke.com +46 72383 5301
Gianluigi Marino Partner, Italy gianluigi.marino@osborneclarke.com +39 02 5413 1769