Ep. 30: Doug Shapiro - The State of Streaming: Disruption, Churn, and the Future

In a recent episode of the Retention Zone video podcast, I spoke with Doug Shapiro about the current state of the streaming industry. Shapiro, a veteran of the video business, provided insights into the evolution of streaming, the challenges faced by media companies, and the future of the industry.
Shapiro described the rise of streaming as a classic case of low-end disruption. Netflix, the pioneer of the streaming model, began with a limited, low-quality product but gradually improved its offerings, eventually introducing original programming. As Shapiro put it, "Netflix played the whole disruption playbook." The incumbents, initially dismissive of the new entrant, found themselves playing catch-up by launching their own streaming services.
However, the shift to streaming came at a cost. Shapiro noted that the profit pool in streaming is structurally smaller than in traditional TV. Media companies, encouraged by Wall Street to drive subscriber growth, aggressively pursued the Netflix model, shifting resources from the lucrative traditional TV business to the less profitable streaming market.
One of the key challenges faced by streaming services is high churn rates. Shapiro attributed this to lower consumer switching costs compared to traditional TV. "Canceling is, you know, two clicks," he said. Furthermore, a growing subset of consumers is using churn as a budget management tool, regularly canceling and resubscribing to services. Antenna, a provider of streaming churn data, has coined the term "serial churners" to describe this behavior.
To combat churn and increase revenue, streaming services are adopting a dual revenue stream model, offering both premium ad-free tiers and ad-supported tiers. Shapiro noted that this model is not new, having been successfully employed by cable TV in the past.
Despite the challenges, Netflix remains the clear leader in the streaming market. Shapiro attributed Netflix's success to its deliberate, long-term strategy and its ability to establish itself as a "must-have" service for streaming households. "Netflix's churn is off the charts low," he said, citing data from Antenna.
Looking ahead, Shapiro believes that Netflix's superior position in the market is not temporary. The company's scale, critical mass of content, and brand association with streaming give it a significant advantage over competitors.
As the streaming industry continues to evolve, media companies will need to navigate the challenges of churn, profitability, and competition. While the future remains uncertain, one thing is clear: the disruption of traditional TV by streaming services has fundamentally altered the media landscape, and companies that adapt and innovate will be best positioned for success.