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Streaming Fatigue and the Fragmentation of Digital Entertainment
Streaming digital media skyrocketed in popularity during the 2010s, with its rise perhaps crowned by the bankruptcy of iconic video rental chain Blockbuster. Closely linked was the almost total collapse in the market for DVDs, including its close competitor Blu-Ray. In 2010, the same year that Blockbuster busted, former video-rental-by-mail company Netflix saw its new service, streaming video, surpass its DVD rentals. For several years, Netflix was the undisputed heavyweight champion of streaming video and television entertainment. Although competitors swiftly emerged following the birth of Netflix streaming in 2007, Netflix maintained control of 90 percent of the streaming market through 2014.
By 2014, growing rivals were chipping away at Netflix’ market dominance, especially Hulu and Amazon Prime. Since then, several other streaming companies - often created by traditional media companies themselves - have emerged and taken exclusive control of their own content. In its early years, Netflix was extremely popular because it was the primary streamer of other companies’ content. Now, many of these companies have taken back their content, requiring viewers to subscribe to those newer platforms to stream it.
Streaming Fatigue Explained
In recent years, some viewers have begun complaining about streaming fatigue, or the feeling of frustration and weariness toward finding something to watch on streaming media. Today’s streaming platforms have seemingly limitless options, ranging from newly-released content created by that platform to classic shows and movies to foreign options. Thanks to improving AI technology, platforms like Netflix can more easily dub (verbally translate foreign dialogue into English) popular foreign TV shows and movies, opening up thousands of additional hours of high-quality streaming entertainment to English-speaking viewers.
Unlike previous generations, today’s viewers do not have to make themselves content with the limited lineup of cable TV, where perhaps a few dozen options were available at any given moment. Today, virtually any streaming platform offers hundreds of options at any given moment. This can overwhelm many people’s decision-making abilities.
Economics Behind Streaming Fatigue
Economics is the study of scarcity and how to reconcile unlimited wants with limited resources. To do this, we rely on a mix of objective and subjective variables to establish the free market principles of supply and demand, which together establish a market-clearing price. Demand is more subjective and relies heavily on consumer utility, or satisfaction, which itself is influenced heavily by tastes and preferences. Another subjective determinant of demand involves “animal spirits,” or emotional and psychological factors that influence consumer confidence and expectation of future prices.
We often decide on a purchase or course of action by consciously or subconsciously determining the opportunity cost of our various options. The opportunity cost of any choice is the value of the next best alternative foregone, meaning we should pick the choice that provides the most value or utility. Fortunately, most of us can gauge our opportunity costs with relative accuracy and make decent economic decisions. But when there are too many options to choose from, such as choices of streaming entertainment, it may become difficult to make these decisions.
More Difficult to Determine Opportunity Costs
With hundreds of movies and TV shows ready to stream in an instant on multiple major streaming platforms, consumers can become exhausted by trying to weigh the opportunity cost of each option they see. Prior to a plethora of streaming choices, viewers could easily look at a dozen options in the TV guide or DVD cabinet and determine which one provided the greatest utility. This choice was greater than any opportunity cost, and thus was an economically rational choice. Today, however, viewers are confronted with many times more options, making it difficult to determine which option provides maximum utility.
Too Many Substitutes Reduces Demand for Any Single Option
A compounding factor is the fact that an increase in the availability of substitutes increases the elasticity of demand for any single option. This is known as the substitution effect. When there are hundreds of competing options, consumers may find it difficult to commit to any single one. At the first second of dissatisfaction, they can cancel the transaction and seek a substitute. As a result, consumers may find it difficult to commit to streaming a single episode of a TV show. It feels like a tremendous investment of time when there are countless ready substitutes.
Seller Responses to Streaming Fatigue: Bundling
Streaming services have become more expensive in recent years as platforms have taken control of their own content. In the early years of streaming, Netflix and other platforms allegedly got to host others’ digital content at below market prices, meaning customers got a significant deal for their dollar (i.e., consumer surplus). Now, streaming services have to pay a “fairer” price to host others’ popular content. Additionally, they have been making their own content, and costs have been rising as consumers demand continuing high-quality shows. As a result, these streaming services have begun steadily rising prices on consumers, especially as their investors demand profitability.
Thus, few consumers can continue subscribing to as many streaming services as in the past. Subscriptions that were $10 per month eight years ago may be $20 per month today, which is outpacing inflation. Since many consumers are likely to reduce their number of streaming subscriptions in the near future, sellers are trying to offer bundles to maximize their appeal. Many separate streaming services are ultimately owned by larger corporations, and thus can be easily bundled electronically and offered to consumers at prices below what each subscription would cost if sold separately. For example, Disney owns multiple streaming platforms and offers multiple bundling options at below-individual-retail prices.
Some companies may only offer one streaming service, but bundle it with other subscription services to appeal to customers. For example, Amazon Prime offers its streaming service at a discount to Prime members, and Walmart has teamed up with Paramount to offer access to Paramount+ streaming to customers who sign up for Walmart+ online shopping. Customers of different Internet or cell phone providers, such as Verizon, can get discounted access to streaming services. Consumers trying to maximize their entertainment dollar are more likely to choose subscription options that include entertainment-related bundling.
Future Implications: Market Consolidation due to Rising Costs
Many analysts predict mergers among streaming platforms in the near future due to rising costs and stagnant consumer demand. Most likely, smaller platforms will be purchased by larger ones, such as Netflix and Disney, and their libraries of content seamlessly integrated into those of the purchaser. To provide fresh content that has fewer substitutes, large streaming platforms will also likely acquire more entertainment production companies to improve their own content creation. For example, Amazon recently acquired Metro-Goldwyn Mayer (MGM), giving it access to both MGM’s studios and its catalog of popular films, including the James Bond franchise.
These mergers and acquisitions not only give the largest streamers more capital equipment to create content, but intellectual property (IP) rights as well. Popular TV shows and movies can be revived by the new streaming owner, or spun off into related content. Economically, this may be beneficial due to economies of scale as streaming mega-studios can more easily create new content without delays - they own all the IP and equipment needed! However, the trend of mergers and acquisitions raises new fears of monopolization of the film and TV industry, with a few large producers able to set higher prices due to lack of competition.
