Why Streamers Should Be Thinking About the Metaverse

Turns out the launch of new streaming services wasn’t the hard part. Having exceeded targets for attracting subscribers, propelled by pandemic lockdowns, the film and TV content providers must contend with keeping them.

It’s no easy task, with a new survey from Deloitte charting the rate of churn at 37%. While media giants like Hulu, HBO Max, Peacock, CBS All Access can deploy strategies to keep this in check, an existential threat is looming which may not be in their control.

Deloitte’s latest Digital Media Trends survey reveals a world being reshaped by the COVID-19 pandemic and generational trends.

From October 2020 to February 2021, the churn rate for streaming video services was 37% and the reasons are many. Cost not content is now the most pressing issue.

“Media companies should be prepared to evolve and take a diversified approach, starting with gaming. They should spend time and resources getting to know the fluid and multifaceted entertainment habits of Gen Z and designing experiences to attract them.”

— Deloitte Digital media trends, 15th edition

Nearly half of respondents to Deloitte’s survey said low price was the most important factor in deciding to subscribe to a new paid streaming video service. This represents a significantly greater number than those who listed content as their main consideration.

Consumers are facing growing pressure to manage and pay for so many entertainment services, the report says. As they chase niche content and trending entertainment, people are showing strong interest in ad-supported options that subsidize or remove subscription costs.

But this is not universal. 40% of respondents said they’d prefer to pay $12 a month for a service with no ads versus 39% preferring a free service with 12 minutes of ads an hour. The desire for no ads was even higher for younger generations.

At the same time, subscription fatigue and sub-optimal user experiences are creating friction, which is causing some audiences to jump to competitors or other forms of entertainment. COVID-19 has further impacted streamers’ ability to deliver new content, a factor in Netflix’s less than expected new subscriber tally for the last quarter.

All of this is driving subscriber churn and posing challenges for media companies vying to retain audiences.

“Providers understand that keeping audiences around after they’ve binged the latest hits may require more than just good content,” Deloitte conclude. “And given what they spend on marketing, advertising, discounts, free trials, and new content to acquire subscribers, it may make more sense for providers to retain subscribers at a lower price than lose them, at least right now.”

But this may not be enough in the long term. There is evidence that video streaming services are not as enticing to younger people who prefer to get their entertainment kicks from gaming, music streaming and social media.

Generation Z Could Reshape the Entertainment Landscape

Video games use has been amplified during the pandemic. Deloitte found that 87% of Gen Z, 83% of Millennials, and 79% of Gen X said they play video games at least weekly. More than half of this group said that video games have taken away time from other entertainment activities. When they aren’t playing video games — and even when they are — Gen Z is streaming music. One study showed that half of young adults ages 18 to 29 are streaming music every day.

It seems that teens to 30-year-olds are becoming less engaged with more traditional video formats. They have grown up with social media, instant messaging, video games, and live-streaming influencers. In fact, suggests Deloitte, Gen Z could be viewed as early adopters who are influencing the behaviors of Millennials and Generation X — and possibly younger generations that follow them. This begs the question: Are M&E companies prepared for a future that could be shaped by Generation Z?

The myriad alternative options to streaming box sets and feature length movies are “dividing and fragmenting the market considerably” warns Deloitte.

“Media companies should be prepared to evolve and take a diversified approach, starting with gaming. They should spend time and resources getting to know the fluid and multifaceted entertainment habits of Gen Z and designing experiences to attract them.”

What does that mean? Deloitte Vice Chairman and report co-author Kevin Westcott elaborates, “The services most likely to thrive in the months and years ahead aggregate a lot of entertainment, not just their own, and offer different models to different kinds of subscribers. I think that’s the direction we’re going to go.”

It may not be Disney, Warner Bros or even Netflix which is best positioned to compete. Rather it is the crossover of film and TV with gaming, social and other formats forged by companies such as Amazon, Facebook and Google which may have longer term traction.

“The Metaverse being built by companies such as Epic Games, Facebook’s Oculus and Roblox (and Alphabet, Apple and Microsoft) will almost certainly be where Gen Z and its successors spend more of their time,” predicts NextTV analyst David Bloom. That Metaverse in the making surely will have places to jointly and virtually watch long-form and episodic video programming. But it’s hard to see Hollywood studios being the center of that looming virtual universe.