Can SVOD survive the future of media?

A new generation of streaming audiences

The streaming revolution didn’t just disrupt the delivery of TV and movies. It turned the entire industry upside down. As the glory days of cable TV fade and the behaviors of younger generations spread their attention across myriad options, streamers and studios should consider that pay TV business models may never recapture the profitability enjoyed in the past. 

Streaming audiences are fragmented and appear increasingly cost-sensitive, and many reduce their spending by moving on and off subscriptions that are easy to cancel. Persistent churn—when people cancel a subscription—makes it harder for subscription revenues to drive profits over high costs of operation. 

Streamers are familiar with these challenges. But the evolving behaviors of younger generations show that TV and movies are no longer the dominant form of media and entertainment. These younger generations also seek community and meaning in digital media, having spent much of their lives connected through technology. This is a different world than it was when the streaming revolution began. 

As the world churns

Studios and broadcast networks may find themselves between a rock and hard place. They’ve been forced to scale back on their cable and theatrical business but have a hard time unlocking similar profits on large streaming audiences. Subscription growth in the US has slowed and there are challenges of entering and cultivating new and foreign markets—markets that may demand cheaper subscriptions that can lower the average revenue per user (ARPU).

Worse, churn is persistent, with 44% of those in the United States having cancelled a paid streaming service in the past six months. When subscribers churn, not only do streamers lose subscription revenues, but they can fail to recoup their acquisitions costs for subscribers that cancel too soon. While many streamers want to raise the cost of premium subscriptions, opportunistic audiences are churning and returning. This is especially true for Gen Z and millennials who carry the most subscriptions, who are most likely to churn, and who churn and return at the highest rates. 

Can advertising unlock profits?

More streamers may hope that cheaper ad-supported tiers can help meet the growing cost sensitivity of audiences. If the monthly fee is low enough, the reasoning goes, then maybe consumers won’t be so quick to cancel their subscriptions. Cheaper tiers may even grow subscriber counts, expanding the value of an ad model.  

Embracing advertising has become more of a necessity for streamers, but it may not deliver the revenues it did for cable. Ad-supported subscriptions are cheaper by nature, meaning that direct revenues from subscriptions could go down while the dependency on revenues from advertisers goes up. 

Acquiring content librarires and audiences through acquisition is one path, with considerable costs. As broadcast rights come under renegotiation, more streamers are looking to live sports streaming as another path to aggregating and retaining addressable audiences. But these deals are very expensive and could further extend the runway to profitability. In each of these cases, more spending is necessary to enable better economics of their ad-supported business. 

Capturing pay TV subscribers may not be enough

The emerging generational shift presents a different world for streamers. Hopes that the profits of the cable TV era can be rebuilt in streaming often rest on the notion that, over time, more cable subscribers would migrate fully onto streaming, driving up SVOD subscriptions and offering more eyes to eager advertisers. But the most ardent audiences for TV, movies, and streaming are getting older. Most are age 40 or older, and many are still on pay TV with few SVOD subscriptions. For younger generations, TV, movies, and streaming are not the dominant destination.

Gen Z and millennials have grown up with smartphones, social media, and popular multiplayer game worlds. We’ve found that half of them spend more time interacting with others on social media than in the physical world, and 40% do so more often in games. For these younger generations, TV and movies are part of a larger tapestry of connected experiences that offer different kinds of value. They aren’t just watching shows—they are using media for interaction and immersion, and to build community and meaning.

This generational shift from TV to tapestry presents a more complex challenge for streamers. SVOD may have disrupted the delivery of video, but social UGC and gaming disrupted the medium. In this context, migrating cable viewers to streaming subscriptions and unlocking advertising revenues may not be enough to rebuild the heyday of profits.

Becoming bigger than TV

To recover profitability, more streamers may need to move beyond the pay TV model and embrace a new world of media convergence. They should focus on the value of their content, how each piece performs, and which titles can be grown into broader franchise offerings, within TV and film but also in gaming and UGC.

Success may demand greater spending before profits grow, and a more holistic view across the dominant digital aggregators of our time and attention. This could also require more partnerships to forge a stronger ecosystem of media that adds more value to all players. But by focusing on their customers and the kinds of value they seek, those with the vision and willingness to execute can develop a more durable and contemporary business.