How the Streaming Service Subscription Model Is Evolving
Whether it's for news, scripted TV, reality shows, or live sports, it's clear that the shift to the subscription model is one of the most significant changes in the entertainment industry over the past two decades. Netflix introduced the monthly subscription model for DVDs in the late 1990s and began attracting wider audiences in 2007 with the launch of its subscription video-on-demand (VOD) service.
The appeal of the subscription model was obvious. By charging customers a recurring fee, whether at a monthly or annual basis, media companies have a clearer picture of their finances, allowing them to make more accurate forecasts and pay for new content or features based on revenue growth. They can develop long-term, valuable relationships with customers and gather a wealth of data and insights about them over time. Customers, meanwhile, enjoy convenient access to content whenever and wherever they want, custom recommendations, and a more personalized viewing experience.
Almost 20 years after Netflix launched its VOD service, subscription-based streaming services are ubiquitous. A 2024 survey of 8,000 American households found that 89% subscribe to at least one video streaming platform; other surveys have produced even higher estimates. Research by Forbes Home/OnePoll this year indicated that Americans on average maintain subscriptions to 2.9 streaming services every month.
The subscription model has evolved in recent years as media companies have sought ways to enhance revenue and buoy subscriber retention rates. The lack of ads was one of the primary draws for viewers in its infancy, but now many platforms have ad-supported tiers. Live sports, one of the last great hopes for traditional cable companies, are also increasingly being shown on subscription-based streaming platforms.
Here's a look at how the subscription model has changed in recent years.
Improving Content Recommendations
For years, the major subscription VOD platforms have leveraged data and analytics to provide personalized content recommendations to subscribers. When subscribers sign into their accounts, they'll usually see a personally curated content selection created by algorithms. These algorithms produce recommendations based on a huge amount of data: viewing history, searches, preferences, when and on what device the user watched content, time spent watching a particular title, similar users’ data, and more. Such recommendations enhance the user experience by highlighting content they are likely to enjoy; for this reason, recommendations are essential for customer engagement and retention.
The recent advancements in AI over the past few years have improved content recommendation algorithms, as AI is more adept at spotting trends in huge streams of subscriber data than humans. This has enabled streamers to fine-tune recommendations in real time based on the subscriber’s actions or even current events and trends. AI-powered natural language processing is also more adept at understanding and analyzing user preferences based on their written feedback, comments, and reviews. Additionally, AI can improve the marketing of a title to a subscriber by tailoring thumbnails and clip montage previews to their particular tastes.
Addressing Declining Subscriber Growth Rates
Growth in premium on-demand subscription services in the US was 10.1% in 2023, down from a 21.6% growth rate the year prior, according to analysis by the research firm Antenna. The binge-watching model is likely one contributor to stagnant growth, based on the percentage of re-subscribers, though a more saturated market and broader array of entertainment options are also to blame. While gross additions were up in 2023, nearly one-third of them were people who had canceled and returned to the same platform in the same year.
People who prefer certain shows can sign-up for a monthly subscription and cancel immediately, giving them 30 days to watch every episode of their favorite shows. Some streamers discovered that releasing one episode per week can slow subscriber churn. Meanwhile, many subscription-based platforms are starting to embrace advertising and different content, specifically live sports, to support revenue and subscriber growth.
Ad-Supported Plans and Tiers
Netflix, Disney+, and Hulu, among other major streaming companies, now offer premium ad-free packages and discounted ad-supported plans. This allows users the ability to skip ads if they can afford it, while still making content accessible for those on a budget. It also allows media companies to diversify their income streams from streaming platforms.
According to a recent report by MNTN Research, 84% of Peacock's 40 million subscribers were on the ad-supported plan. Similarly, by 2025, about 40 percent of Disney+ users in the US and Canada are projected to sign-up for ad-supported plans by 2025, up from just 3% in 2022.
The Adoption of Live Sports
Amazon facilitated a major shift in the streaming landscape when it acquired the non-exclusive rights to the NFL's Thursday Night Football in 2017. It now holds the exclusive streaming rights for the weekly game and has expanded its sports streaming portfolio with the rights for other NFL games, NHL and MLB teams, WNBA, and NASCAR.
Others have followed suit. Apple has a 10-year deal with MLS, and Google is paying $2 billion per year for the rights to NFL Sunday Ticket. Netflix, whose CEO Ted Sarandos famously said in 2022, "we can get twice as big as we are without sports," recently paid $150 million to stream two NFL games on Christmas Day 2024 and, beginning January 2025, will be the home of WWE Raw, which has been shown exclusively on broadcast TV for more than 30 years.
Challenges and Tools to Address Them
Subscription VOD services have many challenges to confront, like declining subscriber growth rates, competition from both other streamers and different types of entertainment, and subscriber churn. However, ad-supported plans, live content, and AI-powered recommendations are just some of the tools at streamers’ disposal to meet these challenges head-on.