The Problem with Direct-to-Consumer Streaming Services

BLOGSep 27, 2021

Matt Smith

How and where consumers watch their favorite video content has changed dramatically. Organizations striving to monetize content via direct-to-consumer (DTC) distribution models need to embrace new practices to drive profitable revenue growth.

Direct-to-consumer (DTC) streaming services grew significantly in 2021, and are expected to continue to soar. The analyst firm Parks & Associates predicts that 43% of U.S. broadband households with traditional pay TV are likely to switch to a virtual multichannel video programming distributor (vMVPD) in the next 12 months.

Although the lion’s share of DTC growth is from goliaths like Disney, Netflix, and Hulu, we are seeing more specialty and niche programming services sprout up every month. Traditional broadcasters moving in, too. For example, AMC’s streaming services, comprised of highly targeted services like Acorn TV, collectively grew 157% in 2020.

The challenge for media companies is not how to grow DTC revenue; trends clearly indicate the industry is moving in that direction. Instead, they need the tools to maximize profit within a completely new DTC operating model.

Consumers Want Content, Not Services

To better understand these changing dynamics, we should establish a baseline example from where we’ve come.

If we remove the “v” from vMVPD, we arrive at a multichannel video programming distributor (MVPD). These are the companies that have traditionally offered programming packages containing a group of networks for a given price.

For networks whose content was historically available only via MVPDs, the audience was well-defined and addressable strictly through select distributors. Revenue was dictated by subscriber counts and revenue share agreements. Profit was much easier to calculate and predict than it is today.

As smartphones became globally relevant and over-the-top (OTT) streaming delivery grew, audiences became reachable in a way other than via a cable or satellite dish. The game changed and a tectonic shift began.

Devices from the likes of Roku, Apple, Google, as well as the emergence of smart TVs, further transformed content distribution. With audiences changing how they consumed content (hello binge watching) and where they wanted to consume it (anywhere and everywhere), networks began to realize that they too had to change — eventually building their own apps and syndicating their content to OTT streaming platforms.

While DTC distribution is the logical path forward for nearly all content owners, there’s a major catch. Today’s audience members, particularly younger demographics, can’t name the network associated with their favorite show. They simply know where they can consume it and how many seasons are available at what price. To them, the notion of a traditional network or long-term subscription is a foreign concept.

Content owners are as hungry for viewers as viewers are for content, but the ecosystem that connects them looks radically different than it did before.

Networks Know: DTC Success Is No Cakewalk

As it turns out, the “direct” to consumer path is not so direct.

In this new world of smart devices and platform proliferation, DTC is far from a greenfield opportunity that’s all upside. Launching, maintaining, and finding success in the DTC space is a challenging game with moving targets.

Fortunately, the challenges aren’t a Pandora’s box of mystery. Let’s explore them.

  • Content licensors distributing to linear DTC channels (over-the-air or digital) such as FAST need to negotiate new contract rights to account for new entities, terms, and payments that differ from traditional broadcast distribution agreements. Many times, these DTC agreements will have shorter terms (windows) than broadcast agreements. A marketplace where rights holders want to find as many monetizable distribution platforms as possible ultimately means more agreements, more complex deal terms, and more distributors to manage. Lastly, more partners distributing more of content means that licensors will have a mountain more data to analyze and track. Properly managing and analyzing data in DTC applications is paramount. Knowing who is watching what, when, where, how much they paid, the resulting royalty payments, and an endless number of related data points will make or break DTC strategy. Without it, content licensors are essentially driving without a dashboard.
  • Digital “native” content owners that came to be in the OTT world are accustomed to DTC complexity. But new revenue sharing models like AVOD are disrupting business. Having access to the large platforms and potential audiences is great, but that doesn’t mean content owners are able to garner all the data they need about content performance. How can you make the best programming and placement decisions if you can’t get granular data as frequently as you need it? How do you make the best licensing decisions when there’s a “data middleman” standing between you and your audience? Maximizing content performance is no longer a quarterly planning exercise; it’s a continuous process that requires real-time understanding of audience behavior, detailed demand forecasting, and sophisticated pricing and revenue shares. The scope of data management and analysis required to maneuver through the “fast lanes” of DTC already surpass human ability. Technology such as artificial intelligence (AI) is on the rise among content owners who understand the level of insight required to win audience share in a noisy, crowded market.

Data is an incredibly valuable asset to be leveraged in today’s DTC universe, but some organizations can get overwhelmed quickly when not armed with the appropriate tools to parse and process that data. From multiple content IDs and metadata fields to “super aggregators” that offer multiple streaming services in a single interface, DTC is complicating things for everyone.

The Solution: Turn Many into One

So how can media companies successfully launch, maintain, grow, and profit from DTC distribution?

Organizations must come to terms with the reality that multiple systems in their individual silos cannot scale. Many businesses have disparate tools — maybe even business units — for each distribution model. As long as data is spread across discrete systems spanning business intelligence (BI), payment processing, content performance, audience analysis, agreement management, and so on, content owners don’t stand a chance of profiting from DTC distribution.

In order to properly analyze and identify trends, behavior, and prescriptive solutions, get your data into one system… and be confident it’s capable of handling everything so you’re not stuck in the same position when yet another revenue model emerges in two years.

Don’t be held hostage by your data. Instead, harness its power and run your DTC business with increased intelligence.