- Cord cutting presents a favourable tailwind for streaming companies; share of TV households without cable TV subscription in US to reach 75% by 2025
- Legacy TV retains stronghold in sports for now but faces increasing pressure from streaming companies; some are shifting sports content towards stand-alone streaming options
- As streaming landscape evolves, investors are shifting focus from pure subscriber growth to profitability
- Streaming players moving away from pure subscription-based revenue towards hybrid model that incorporates advertising revenue
- Advertising revenue is currently immaterial; but scalability of ad-supported tier suggests significant upside ahead for advertisement related revenue
Related insights
Clear cut direction for pure streaming companies while legacy TV players face the innovators’ dilemma. The share of TV households without a cable TV subscription in the US has steadily risen from 19% in 2014 to 53% in 2022. By 2025, this is expected to reach 75%. We believe pure streaming companies are in the right space at the right time with the sole focus of increasing profitability.
On the other hand, the strategy for legacy TV players is less clear cut as they need to strike a balance between forgoing profitable cable TV contracts in a sunset industry vs growing the streaming platforms which are likely to yield losses initially.
This dichotomy underscores the intricate balance traditional media companies must strike as the pivot to streaming involves reshuffling content distribution strategies towards streaming platforms, which is likely detrimental to lucrative cable TV contracts.
Legacy TV’s stronghold in sports and news still stands for now; but streaming will continue to encroach into cable TV’s territory. Legacy TV players currently maintain their advantage in sports. Indeed, the sense of community during live sports events (in addition to exclusive broadcasting rights) acts as a key draw for cable TV viewers.
Streaming companies, on the other hand, continue to struggle to cover the exorbitant costs associated with securing premium sports rights (which have ballooned from USD3.4bn before 2000 to USD15.4bn in 2023 according to Bloomberg) given their comparatively lower subscription fees. The surge in costs raises doubts about the economics of sports streaming ventures.
That said, it is noteworthy that some companies are shifting sports content towards stand-alone streaming offerings. And in response to this challenge, media giants are also leveraging a strategy of co-opetition to manage sports rights costs and capitalise on cord-cutting trends, offering a strategic workaround to navigate the evolving media landscape.
Focus shifts from pure subscriber growth to profitability; hybrid subscription-ad model gaining momentum. As the streaming landscape evolves, investors are shifting their focus from pure subscriber growth to profitability, recognising the need for sustainable business models. Concurrently, streaming players are also adapting their strategies, moving away from relying solely on pure subscription-based revenue towards a hybrid model that incorporates advertising revenue.
This shift is evidenced by the introduction of cheaper ad-supported subscription plans alongside traditional ad-free options, potentially increasing average revenue per user (ARPU) compared to the standard tiers. While advertising revenue may currently be immaterial, scalability of the ad-supported tier suggests significant growth potential in the future for advertisement related revenue.
Figure 1: Consumer spending on subscription streaming in the US (USDbn)
Source: Digital Entertainment Group, Omdia, DBS
Table 2: Peer Comparison Table
Source: Bloomberg, DBS Data as at 18 March 2024
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