How GDPR, ad fatigue and content costs are complicating the now-global streaming wars
American streaming services want to rule the world, but roadblocks such as regulatory interference and homegrown competition are slowing the takeover of the planet's living rooms.
Already disrupting the TV industry in their home markets, American streaming services are now looking overseas to open more ad inventory and grow their subscriber base.
Netflix has long had foreign operations. It’s now available in over 200 countries and territories – including India, where it’s launched a low-cost mobile-only offering.
Disney+, the entertainment giant’s answer to Netflix, will be available in Canada, Australia, New Zealand and the Netherlands starting mid-November. Disney has also hinted at an international for Hulu, which it fully acquired in May, and has plans to launch ESPN+ in Latin America.
But propping up a streaming service in a new market isn't as simple as flipping a switch.
As of 1 September, the San Francisco-based, ad-supported video on demand (AVOD) service Tubi is available in Australia. The company’s chief executive officer, Farhad Massoudi, called the move the “first of many launch initiatives to advance our global footprint.” Tubi is also available in Canada.
However, Tubi had already attempted to grow its global footprint in Europe, only to be stymied by the region’s General Data Protection Regulation (GDPR). Massoudi said the company was testing in Europe, but that quickly ended.
“Once GDPR happened we stopped our test and we decided to do an official launch when we're ready and compliant,” he said.
While Tubi had to change course entirely, GDPR forced fellow US-based AVOD service Pluto TV had to adjust its user interface. .
Viacom-owned Pluto TV came to Europe in October 2018 and is now available in the UK, Germany, Austria and Switzerland. Olivier Jollet, Pluto TV’s managing director in Europe, said the company made its data usage policies a main navigation point on the app – something it did not have to do for its US product.
Adapting to new viewing habits
American ad spend may dominate globally at $70bn a year. However, the way Americans watch TV is relatively unique.
They will accept more ads and a higher cable bill than just about any other country in the world. The average US cable bill costs $107 a month, according to Leichtman Research Group, while Nielsen measures the country's ad load to sit at a little over 11 minutes per hour.
Viacom airs the most ads among major cable operators, churning out 15 minutes per hour, according to a report from UBS TV.
Conversely, most European countries cap ad loads at 12 minutes per hour and disallow ads based on time of day.
The UK and Germany, for example, have stricter policies because a significant number of the countries’ TV stations are publicly owned. In the UK, BBC run no ads across its portfolio on home soil (funding itself through a mandatory licencing system instead), while private stations average around seven minutes of ads per hour.
So, Jollet said, the first thing Pluto TV did when coming to Europe was rethink its ad logic. It trimmed ad load to between eight and 10 minutes an hour from up to 12 minutes an hour in the US.
“If you come to Germany or the UK [without changing] ... nobody in Europe would watch your product,” he said.
Europeans also pay far less for TV than Americans do. About two-thirds of European countries have set up centralized television licenses, and while costs differ from country to country, European households pay at most around €330 a year – far less than the $1,200-plus figure in America.
Australia’s TV market mimics America’s, but Massoudi said Tubi will air only four-to-six minutes of ads per hour, the standard amount Tubi runs in the US.
Who are the (free) competitors?
Free AVOD services position themselves as respites for cost-conscious consumers in the US, where the average household subscribes to 2.8 subscription video services, according to Ampere Analysis.
Massoudi said that messaging is amplified in foreign markets where consumers are used to paying less.
“If the idea of having too many [subscription video] services in the US is a problem, I think internationally that threshold is much lower in almost all countries. That means a free service all of a sudden is a lot more compelling,” said Massoudi.
Tubi and Pluto TV will be facing competition from IMDb TV, Amazon’s recently rebranded AVOD service, which the tech giant is looking to push into European markets.
Meanwhile Mary Ann Halford, an analyst for TVRev and senior advisor for OC&C Strategy Consultants, said Europe – especially the UK – is home to strong, freewalled catch-up services, such as BBC iPlayer and ITV Hub.
Germany offers services such as RTL TV Now and a recently launched OTT app from ProSiebenSat.1. French broadcasters have come together to launch Salto, much like how the BBC and ITV have joined forces to launch BritBox in the US and Canada, which is soon to come full circle and launch in the UK.
Cathy Payne, chief executive of Endemol Shine’s global distribution arm, said it’s too early to tell which type of business model will win out. But she noted US-based streaming services should be aware they are entering an already-bloated European market.
“We need to see what model the audience will sustain,” said Payne. “I don't see linear broadcasters’ catch-up services going away any time soon.”
Differentiate through distribution
Networks are entering the streaming arena partly because of the appeal of the direct-to-consumer (DTC) relationship. But while a DTC product can offer a network more data, marketing that service can be an expensive proposition.
Noting that difficulty, Halford expects US services to partner with local distributors to minimize costs. Tubi, for example, has a distribution deal with Australian telecommunications company Telstra – an approach similar to the one Netflix took in the UK by offering its service through British distributor Sky.
Disney has also reached a carriage agreement with US telecom Charter, which could allow for “future distribution” of Disney’s streaming properties: Disney+, ESPN+ and Hulu.
Halford said NBCUniversal will likely have a built-in marketing advantage when it launches its service in the US and Europe in 2020 because the network can leverage parent company Comcast’s global distribution network.
Comcast owns Xfinity in the US and Sky in Europe, so the company should be able to integrate NBCU’s yet-to-be-named service into those TV distribution platforms.
“It gives [Comcast] an interesting advantage from a marketing point of view because they're going to be promoting [NBCU’s service] pretty cost effectively to people that are already watching its services,” said Halford. “So Comcast's not going to have to run out and acquire subscribers or create partnerships with other carriers in order to promote that service.”
Safeguarding homegrown content
GDPR effectively did to Tubi what global regulators are trying to do to all invading streaming services – protect local business.
The European Union enacted the Audiovisual Media Services Directive in December 2018, which requires all streaming services to fill their libraries with at least 30% locally produced content.
Australia’s Competition and Consumer Commission is considering similar requirements. The country already requires free-to-air networks to transmit at least 55% homegrown programming. Meanwhile, Canadian regulators are also suggesting that invading streaming services fund Canadian-based projects.
Both Pluto TV and Tubi said it’s already good practice regardless to populate their services with local content, with Massoudi saying that second-run content – programming that has already aired – is usually “a lot cheaper” outside of the US.
Second-run content is also generally pre-dubbed for non-endemic markets. Payne said dubbing can be an expensive task, averaging around €15,000 an hour in Germany, for example.
“Obviously our goal is to go global – now being part of Viacom, we plan to speed up the rollout," said Jollet, adding Pluto TV's plan to launch a service in Latin America in early 2020.
Arguably the biggest challenge will be for all-American subscription services such as Disney+ and WarnerMedia’s HBO Max (which has yet to announce plans for a European product), who need to either hope their US-heavy content resonates with foreign audiences or invest in locally-produced programming.
“The last thing all these countries want is to have their TV consumption dominated by a bunch of American programming services,” said Halford.
Netflix has made a habit of partnering with local production companies to work around these content hurdles. In Germany, for example, Netflix struck a deal with broadcasters ARD and Sky to carry Babylon Berlin, and the streaming giant tapped local producers to make German-language series Dark.
Halford noted that Disney is on somewhat solid footing because it already distributes much of its TV content internationally.
“[Disney's] new content will have localization needs, but for library content they probably have that localization taken care of,” she said.
Disney also owns 50% of Endemol Shine, an international production and distribution company. Now that streaming services need to populate their services across the global, a company such as that is likely to rise in value.
“I think Disney will ultimately realize that having a company that can produce formats in a lot of different countries can help them build out their service,” said Halford.