Ignore the calendar for a moment, will you? You’re about to read my annual, “The Most Important Question of 2022”. And it’s March. What took so long?
I said ignore the calendar! Better late than never.
The idea for a “question of the year” struck me two years ago, going into 2020, before a novel coronavirus had swept the globe. As I debated topics for the year—and before I had fully committed to a weekly streaming ratings report—a thought kept occurring to me. A lot of the discussion about streaming, especially between Netflix bears and bulls—really the confusion about what was changing and how everyone should respond—stemmed from this core question:
In streaming TV, what will be the same and what will be different?
That question—and its answers—explains a lot of the disagreements over the future of streaming. If streaming is a revolution, then you’ll make a lot different strategic decisions than if it’s simply a replacement for the cable/linear bundle. To go further, you can’t really know your strategy for the 2020s until you’ve answered that question!
We’ve learned a lot since I posed that question. As for things that are the same:
– Legal shows and dramas do well on both streaming and linear TV.
– So do cheap reality TV shows.
– Kids drive a lot of viewing and are important to parents’ decisions.
– Meanwhile, spacing episodes out at least somewhat seems to be better than binge releasing 13+ episodes.
– U.S. customers vastly prefer English language content to foreign language content.
Other things are different:
– Big fantasy and superhero series seems to do better on streaming.
– Sitcoms don’t seem to do well.
– U.S. customers enjoy U.K. and Australian content at the same rate as American content.
– Streaming is a global enterprise, while the linear TV was mostly country-by-country.
– Churn is much higher in streaming than cable bundles of old.
And then we have the things that haven’t been decided yet. For example, so far, streaming hasn’t replaced lives news or sports. Will it? Can it? For another example, I still think that releasing films as “streaming only” won’t generate the same financial upside as the old theaters to home entertainment to Pay-1 series of windows. Obviously others—like Netflix—vehemently disagree.
Overall, I’d say things are more the same than different, but as a lens to explain the streaming wars, it’s been super useful!
So has my question from last year. As we got more and more data on who is doing will in the Streaming Wars, the question I asked was…
Are the streaming wars getting more or less competitive?
In the 2000s and 2010s, a few industries turned into winner-take-all markets. Search. Social. Online commerce. User generated video. If streaming is indeed winner take all, you can’t price Netflix’s share price high enough. (And yeah, traditional studios are screwed.) If it isn’t, then we have ourselves a streaming war!
Of course, I had a hypothesis in mind when I asked the question. My working theory—which I still hold—was that things would get more competitive as the studios launched their streamers. And sure enough:
And this is a topic to keep monitoring, both in the U.S. and globally. (Which I’ll keep doing.)
The Question of the Year For 2022
So enough stalling. My question for this year—if you somehow missed the headline—is…
What will the next generation of cord cutters look like?
Let’s start with this factoid:
Most Netflix subscribers have cable (or satellite) TV.
If you’re thinking, “What?!?!?!” like a Minion, yeah that’s what I’m going for.
But it’s true.
While it’s hard to prove definitively, whether via survey research or basic math, most folks in America still have cable TV. For basic math, consider that there are about 120 million households in the U.S. At its peak, about 100 million people subscribed to cable, satellite or other pay-TV. (Which means that some 20 million folks never had cable to start. Using, in some cases, literally over-the-air broadcasts. Meaning they aren’t getting Netflix anyways!) Right now, Leichtmann Research group says about 81 million have Pay TV, with another 8 million having a virtual MVPD, like Youtube TV or Hulu Live TV.
Meaning that of “true cord cutters”, we’re still only talking about 10% of previous Pay TV subscribers. (Or 75% of American households.)
Survey research backs this up.
In this survey from 2019, 51% of Netflix subscribers pay for cable. In this one, 62% of streamers subscribe to cable. In this one, 60% pay for both Netflix and cable. While I don’t trust many surveys out there on this topic—if you only survey internet users, guess which way your survey is skewed?—in this case they align: a majority of streamers have cable TV.
(And yes, I rabbit holed on this topic, meaning I pulled a bunch of links. I’ll save them for a future visual/deep dive.)
Last point, people just ages 20-29 only make up like 14% of the population (but like 90% of journalists), so just by math most Netflix subscribers aren’t young people.
I think many pundits don’t truly understand this. Driven by a pinch of stereotyping, ignoring the base rate fallacy, some availability bias, and some “conjunction error”, most observers do the math: most young people are cord cutters, therefore most cord cutters are young people! Most cord cutters have Netflix, therefore, most Netflix subscribers are young people!
Is this right? No! But that’s your mental image (read stereotype) of a Netflix user, isn’t it?
We need to break out of stereotypes and focus on the customers. And we’ll need one of my favorite tools to do that.
The Key Is Segmentation
The world is messy. Lots of individuals are out there making economic choices. On the one hand, if we tried to treat every individual individually, we’d run out of time. On the other, treating an entire country as a monolithic block doesn’t make sense. So we need a middle ground.
The middle ground is customer segmentation, one of the core pillars in Harvard’s Marketing Framework I was taught in school.
That framework is the “3Cs-STP-4Ps”. The center—the STP—stands for Segmentation, Targeting and Positioning. It’s where you decide, among all the people in America/the world, who you’re going to actively target. I love frameworks—and created a few too—but this is still my favorite.
With a problem like cord cutting, I think segmentation will provide our answers.
My working theory is that the first generation of cord cutters is a different segment of the population than the next generation of cord cutters. If you’ve read me for a pinch, you know I hate using personal examples as evidence of a new trend. Instead, I like using them as initiators of hypotheses. And thinking of this, I’ve come across a few examples recently that I think utterly break the “cord cutters” paradigm:
– I know a few people who’ve actually resubscribed to cable TV, especially as they tend to gain financial stability in life.
– I know a lot of young people who basically share their parents’ cable passwords.
– I know a few retired folks who are cutting the cord or shifting to vMVPDs.
Though it seems weird to say, cord cutting is complex. And using one word is probably too broad to do it justice.
Some folks stop using cable, move to streaming-only, and are true “cord cutters”. But others shift to Youtube Live TV, which is more like “cord shifting”, since you’re still paying for a bundle. Other folks never start with cable, and you could call them “cord nevers”. Alternatively, a lot of folks keep their cable, but shift to a smaller package (or use a broadcast antenna), so are “cord trimmers”. (For reference, I believe I first encountered these different terms via GfK MFI, and I’ve liked them ever since.)
Those are all different customer segmentations, with their own needs and wants. And the demographics of all those groups are super different. Instead of using demographics as an answer (young people are poor!), I lean towards the different roles TV serves for different types of people. For some, that’s access to lots of movies. For others, it’s prestige or in-depth TV series. For others, its casual TV. But for a lot of folks, it’s live news and sports. And honestly, for everyone it’s probably a combination.
Whatever drove/enabled the first round of cord cutting likely won’t look like the next round of cord cutting. And I could see the next generation having different needs/wants:
– They could subscribe to even more streaming channels to watch their broadcast shows.
– They could need sports, so they’ll subscribe to AVOD or vMVPDs.
– If they need news or local channels, Youtube or again vMVPDs could benefit.
– They could have lower churn, if they’re wealthier adults who were fine paying for a cable bill. Or they could have higher churn, if they aren’t loyal to any one service.
– Or it could be a technological problem, where some folks just don’t have the devices or internet necessary to cut the cord. Something like 10% of the U.S. population still doesn’t have high speed cable.
The implications of this question will determine the strategies of the next decade. Are bundles bigger or smaller? Is churn higher or lower? Does the proliferation of content/streamers help drive true cord cutters? Do vMVPDs and AVODs benefit from this shift? Do streamers need the same content or new content?
At this point, you’d expect a strong answer from me. Well, spoiler I don’t have it. If I did, it wouldn’t be my question of the year! For something this complicated, I don’t even know that I know what my metrics would be to answer it!
But if you want to know what I’m thinking about, this is it. The question isn’t why Netflix has 65-70 million households subscribed in the U.S., it’s why do a whopping 70 million Americans still have cable? And who’s cutting the cord next?
(Normally, this is where I’d put my usual round up of stories. My last “most important story” column came out about a month ago. I’ve been working on a big project—announcement coming soon—and need to get that finished before the column returns.)