Paramount Global’s OTT streaming service Paramount+ will launch in the U.K. and Ireland in late June, to be followed by launches in other markets including South Korea[i]. Further launches are planned in Italy, Germany, France, and Austria in the second half of the year. In India, Paramount+ will launch in 2023 in partnership with Viacom18 as part of a recently announced agreement. Paramount+’s expansion plans come at the heels of strong results in the US.
Paramount Plus’s subscriber base grew to 40 million with the service with 6.8 million added in the first quarter of 2022. Its direct-to-consumer revenue, which includes Paramount Plus and its free TV streaming service, Pluto TV, increased 82 percent year over year. While revenue from subscriptions for both Pluto TV and Paramount Plus grew 95 percent year over year, advertising revenue increased 59 percent. The company says Paramount Plus subscribers watched more shows for longer periods of time as well. This, along with a higher subscriber count, was mostly driven by the service strengthening its roster of shows. Paramount Plus already offers an affordable ad-supported $4.99 / month plan or a $9.99 / month ad-free option[ii]. ViacomCBS, which rolled out Paramount+ less than a year ago, is projected by Wells Fargo to spend $3.8 billion in cash on DTC content in 2022, a figure up roughly 25% year-over-year.[iii]
Streaming video comes of age
The expansion will come with its challenges however with the consumer appetite for new streaming services waning, as was evident in the latest results from Netflix. The growth experienced in the last two years turned out to be an exception for the industry. Pandemic-induced lockdowns led to a spike in the consumption of OTT video content – habits some observers say are here to stay. Long before the onset of COVID-19, the OTT segment was already witnessing robust growth. The OTT segment is expected to grow at an average rate of 16.7% to become a US$332.5 billion industry by 2025.[iv]
As a segment within the much larger umbrella of video-on-demand (VOD) services, OTT video comprises a variety of sub-types characterized by revenue models. The American platform Hulu, for example, is a popular VOD service that uses a subscription-based revenue model that gives users access to the original content and live television channels. Netflix is streaming-only, while transactional video-on-demand (TVOD) services such as Amazon Instant Video allow users to pay for individual pieces of content.[v]
Hardware-led platform Roku stands in stark comparison with these digital-first services. Roku is what’s known as a VOD aggregator whose smart devices and software allow users to watch free and paid content via the internet. Free content is made available thanks to advertising, but users can also access on-demand content by downloading apps to the device. Meanwhile, Amazon is focused on its subscription video-on-demand (SVOD) service, Amazon Prime. However, it also has a free, ad-supported FreeVee (earlier known as IMDB TV), a service to drive traction with non-subscribers.
To ad or not to ad
Figuring out pricing remains a significant challenge for OTT platforms as they navigate different content needs and disposable income, depending on which territory they’re in. Netflix, HOOQ, iFlix, and Viu have introduced low price tiers in emerging economies to reel in new users. For instance, in 2018, Netflix introduced a US$4 mobile-only plan in Malaysia – almost half the cost of its “Basic” tier (US$7.90).[v] Netflix only recently announced it may finally consider an ad-supported lower price tier in global markets by 2025.
Disney+ announced the launch of an ad-supported tier in the US in early March to continue growing its subscriber base. To cost lesser than the ads-free tier currently priced at US$8, this tier may help Disney grow the subscriber base from the current 200 million to 230 million by 2024. According to a recent interview with Axios, a Disney executive mentioned that more than 40% of Disney’s ad inventory comes from Hulu and ESPN+. Similarly, Peacock, Paramount+, HBO Max, and Discovery+ offer ad-supported video tiers.
Content is a demanding king
According to Wells Fargo, content spending among the nine leading media companies will reach a whopping $140.5 billion in 2022, a 10% jump year-over-year. [vi] However, such spending on differentiated content may not be sustainable. Services like Paramount+ will have to rely on partnerships with mobile carriers to offer compelling bundles to grow in the new markets they are slated to enter. And with the pricing pressures that are a norm in emerging markets, services will need to offer multiple tiers of ad-supported or limited period free tiers to entice new users. With mobile tariff bundling set to be the growth driver for the entire direct carrier billing industry, we expect mobile carriers to be more receptive to partnerships with new streaming video services beyond the established incumbents. However, to make these bundling partnerships successful, mobile carriers and streaming video services will need to invest in co-marketing efforts. And the upside in terms of new users and the resulting revenue growth should be compelling reasons enough, we can hope.