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Earnings season is officially under way, and Eunice Shin has her eye on streaming service owners’ abilities to retain their subscribers.
“In a world where economic uncertainties still exist, where the quality of content continues to be hits-based and a lot of bombs, how are we thinking about churn and how are these streaming platforms keeping the customers they’ve worked so hard to gain in an increasingly competitive and price-competitive world?” said Shin, a partner at strategy consulting firm Prophet who has consulted for companies including Disney, Warner Bros. and NBCUniversal, in the latest episode of the Digiday Podcast.
It’s a big question, made all the more urgent considering the streaming market’s shift in emphasis from subscriber growth to profitability. Following the pandemic-induced streaming subscriber surge, that growth started to slow in 2021 and further in 2022, to the point that Netflix actually shed subscribers. Then, with the economic downturn and looming threat of a potential recession, investors’ pivoted their attentions to how much money companies are spending — and often, losing — on their streaming businesses, questioning whether streamers’ subscriber counts justified their programming costs.
Which is why Shin is keeping vigil on streamers’ subscriber churn rates.
“If you think about all of these streamers as they’ve launched — most of them during the pandemic — as people have spent a lot of money to acquire these customers, meaning not just marketing dollars but content dollars in content investments to be able to lure people onto those platforms, how are they doing in keeping them…. As much as you think about subscriber growth, if your churn number is high, it’s like one step forward, two steps back,” she said.
Here are a few highlights from the conversation, which have been edited for length and clarity.
Combating churn
That’s been Netflix’s strategy this whole time about giving you a sense of volume. Once you’re watching “Emily in Paris,” what’s next and what gets served up to you is super important to know, “Am I coming back to tomorrow or am I going to feel like I don’t need this streaming platform this month?”
The ideal churn rate
Everyone’s always been trying to get it at less than 5%. That’s the ideal state.
Streaming’s rebundling era
We’re moving into a world quickly of aggregation again. Everything we saw in the cable world before now I think we’re going to find ourselves in a streaming aggregation world where there’s going to be, “How do we show incremental value to consumers by signing up for something a little bit more expensive but that gets you more?”
The free, ad-supported streaming TV alternative? Not so FAST
I don’t know if this is throwing too strong of a dagger, but I think the [free, ad-supported streaming TV] services are only resonating with a certain amount of generations in our population. If you were to look at Gen Z behaviors, none of them are turning on Pluto [TV] to watch old reruns of “Gilligan’s Island” or whatever it may be. That type of content doesn’t resonate.
Last week’s release of HBO’s “The Last of Us” series is the latest piece of evidence that video game intellectual properties are the new hotness in the world of streaming video. The pilot of the show rapidly became HBO’s second-most-watched series debut ever, outpacing beloved properties such as “Succession” and “Euphoria” to reach 4.7 million viewers in a matter of days.
HBO was not the only company to benefit from the hype surrounding the release of “The Last of Us.” Interest in the show caused sales of its source material to skyrocket last week, with purchases of both “The Last of Us Part 1” and “The Last of Us: Remastered” spiking by over 200% each. For the game’s developers at Naughty Dog, this represented an unusual bonanza for a title that was originally released in 2013.
The rise of video game adaptations is certainly good news for major game developers, which boast massive backlogs of intellectual properties ripe for adaptation and rediscovery. Ubisoft is one of those developers. To learn how the company is taking advantage of the recent explosion of interest in video game adaptations, Digiday spoke to Jason Altman, the Ubisoft svp who has led the company’s film and television division since 2017 for this annotated Q&A.
This conversation has been edited and condensed for length and clarity.
There are two that I’m particularly excited about. One is our “Assassin’s Creed” series that we are working on with Netflix — I think it’s a fantastic opportunity to create a flagship series. “Assassin’s Creed” is particularly well-suited to television; I think it offers a really broad and long runway to explore “Assassin’s Creed” over the long term. You can explore the characters, the worlds and the richness of history, and I think television is uniquely suited for that.
Our other project that we are developing is a feature film based on “Just Dance” with Sony Screen Gems. I think it’s a really fun opportunity to explore the world of “Just Dance,” the world of music and the world of dance in a big fun family film.
— Altman
One of Ubisoft Film & Television’s first projects was a feature film adaptation of “Assassin’s Creed” that came out in 2016. Although the movie grossed over $240 million on a $125 million production budget, it was roundly criticized by both mainstream critics and fans of the source material, who objected to the film’s rushed world-building and convoluted story.
The unspoken implication in Altman’s answer to this question is that the first “Assassin’s Creed” adaptation was held back by the limitations of feature film adaptations. Games like “Assassin’s Creed” and “The Last of Us” are extended narrative experiences that can take days to finish, and television adaptations can give those stories more time to breathe.
That said, Altman doesn’t believe that film is the superior medium for all video game adaptations; it depends on how in-depth the world of the adapted property is in the first place. “It really depends on the type of story that you’re trying to tell,” he said. “I think there have been some really fun and successful feature adaptations of video games.”
In addition to splitting its projects between film and TV, Ubisoft Film & Television also has a Paris-based unit that focuses on animated projects, including an upcoming anime series based on the “Splinter Cell” games. “Animation is more versatile,” said Ubisoft Film & Television Paris managing director Helene Juguet. “It lets us explore more indie creative areas, or test new genres, making it even more exciting to have our library of IP to play with.”
We are developing our projects for where we think they will fit best. We are really open, obviously, to all forms of distribution. But depending on the type of project, we’re looking for the type of distribution that can support the financials of the show or the movie that we’re developing. And we’re happy to explore all of them.
For example, we have our series, “Mythic Quest,” on Apple. Apple, at that time, was a new platform. We believed in what they were doing, and that they were going to offer a really premium experience with premium television, and we thought that we’d have the audience there who would appreciate that show. We’re really happy to be continuing to work with them. We just started a new companion series called “Mere Mortals” with them.
We work like many production companies work. I don’t think I can speak too much on the specifics of how the business deals work, but what we’re putting forward is a creative package, and we work with our partners to find the production budget to support the vision of that creative package, of that showrunner, of that director. We work closely with them, saying “this is the budget that we need to achieve that vision.”
— Altman
At the moment, the overwhelming majority of series-length video game IP adaptations are being released via online streaming services rather than linear television. HBO has “The Last of Us,” Netflix has “The Witcher” and Paramount+ has “Halo,” among countless other examples. Frankly, there just aren’t any examples of video games at this level of popularity that have been adapted into series for traditional linear TV.
To some extent, the lack of video game adaptations on traditional TV is at least partially a matter of streaming services such as Apple TV being more willing than their linear competitors to take a gamble on adaptations of untested intellectual properties. But it’s just good business, too. According to Nielsen’s December 2022 Gauge rankings, the majority of recent growth in TV use has been driven by gaming, with both cable and broadcast TV declining in use by a percentage point. If you’re a gamer, you probably don’t pay for cable.
Philosophically, to make a great game, you have to make a certain set of choices, and to make great film or television, I think you also have to make a very different set of choices. One of the main differences is that, in games, you have agency — you’re playing a character, and your moves are the character’s moves. In film and television, it’s a different type of experience, so you have to create empathy differently. So that difference between agency and empathy is where some of those choices lie.
I think our adaptations have the potential to reach anyone and everyone who thinks it’s cool. Games pull from popular media and popular culture, and I think you have the opportunity to appeal to both fans of the franchise, fans of the game, and also to fans of thrillers, fans of action movies.
— Altman
Walking the line between satisfying fans of the source material and making an adaptation accessible to non-gamers can be an incredibly difficult task, and a thankless one: it’s all but inevitable that at least a few fans of the original game will always be upset about the cuts or additions made to the story for television adaptation.
But striking this balance is what makes the difference between a successful video game adaptation and a flop. So far, critics have lauded HBO’s “The Last of Us” for satisfying both gamers and mainstream audiences, and the massive viewership numbers appear to back them up. A second season for the show is already practically guaranteed.
My goal, and my job, is to make great series and great television. That is my sole focus, and that is what my team is really focused on. What we do is create additional touch points, additional ways for fans to explore. And if people like it and people share it with friends and have different ways to engage with the franchise, we think that’s great.
We need to make sure an “Assassin’s Creed” series represents the franchise, but creative is the driver, right? If it serves a purpose towards broadening the audience or has positive marketing benefits or effects, I think that’s a really positive outcome, but the way we work is that it’s creative-first.
— Altman
Altman’s responsibility at Ubisoft is clearly to make good film and TV — not market Ubisoft’s games. But his answers to this line of questioning made it apparent that he does occasionally coordinate with Ubisoft’s marketing team to ensure that the ways they represent properties such as “Assassin’s Creed” line up. As streaming platforms continue to churn out film and TV adaptations of popular games, their role as a potential marketing channel for the gaming industry will only increase in prominence.
Search ads on TikTok at present are a mostly an experimental marketing channel to reach Gen Z consumers flocking to the app. But media buyers and agency execs expect it may be a bigger and more mainstream focus later this year as TikTok is clearly making search a priority and marketers vie to figure out how to do search well via TikTok given Gen Z’s widespread use of the platform.
“In July, Google senior vp [Prabhakar Raghavan] reported that 40% of young people go first to TikTok to search for certain categories ahead of Google,” said Jared Belsky, CEO of digital shop Acadia, when asked about younger generations’ increased interest in search on TikTok. “This is happening because of the authenticity of the content, as well as the visual nature of TikTok’s answers/responses.”
As some younger consumers are changing behavior and using TikTok as a search engine, marketers and agency execs say that it makes sense for brands to be early movers and find ways to stand out.
“With Gen Z preferring TikTok to traditional search engines as their source for information gathering, brands are going to have to re-think their search strategies,” said Amanda Shapiro, Deutsch LA senior vp, group strategy. “It’s all about content discoverability, which needs to be a consideration from development through posting.”
Brands tend to follow consumers wherever they go so doing so that makes sense. That said, how much investment or time spent on owning search on the platform, given it’s still early days, will depend on the brand and its focus on the demo spending time there. It’s unclear how much marketers are spending on paid search ads just yet though agency execs say it’s a small percentage of clients are testing out right now and doing so as an experiment.
“The most exciting part about TikTok search for media buyers is finally seeing a legitimate disruptor to Google, at least among Gen Z,” said Neil Sawhney, director of media, west at Pereira O’Dell. “That demo’s increasing preference for TikTok as a search engine is clear, so now it’s up to brands to weigh what level of experimentation is justified.”
Agency execs say that while some brands are using TikTok’s paid search ads, which have been in beta since last March, others are taking an organic, SEO-driven approach. By adjusting organic for search, some agency execs believe that marketers can test out how well search can work for their brand while the value of the paid search ads on the platform are still up for debate.
“It’s not enough placement wise to warrant much excitement,” said David Herrmann, president of Herrmann Digital, when asked for his POV on TikTok search ads. “It’s slowly coming along.”
Herrmann continued: “Essentially TikTok seems poised to compete with Google in this regard. They’ve built it into their organic side with keywords. One of my brands owns a bunch of key terms organically on TikTok (they have five of the top eight most-watched videos in a popular category). For ads purposes we always include those key terms in our ads. That’s the best way to do this. But still small potatoes right now with reach being very tiny.”
That TikTok search is often used for “how-to” type content i.e. how to use a product or how to do something as well as recommendations, brands that are looking to do organic content as an approach to search are leaning into that type of content when doing so. As for brand categories, beauty brands, food brands and travel brands, among others, are those experimenting with search.
Aaron Levy, Tinuiti’s vp of paid search, noted that, “We’re not viewing TikTok as a threat to Google Ads, but more an opportunity for horizontal expansion. [Cost-per-click]’s on Google are increasing year-on-year and the market is becoming saturated – we view TikTok as a way to reach new users at a lower cost.”
How important search ads on TikTok will be for marketers is still unclear. “The story of ‘search on TikTok’ being a threat to Google is a bit overdone though,” said Belsky. “It happens to be true in very visual categories like restaurants or recipe selection, but when you think about things like credit card or insurance research, this is just not true. Like most things in ad-land, the truth is more in the middle.”
The meal kit space took a hit after Covid restrictions ended and people ventured back out. How is Purple Carrot managing those changes?
The meal kit world was evolving in 2019. It was on the upswing a bit. Obviously, Covid came in and created very unnatural demands. For me coming in new, it’s on the reset time, where the backdrop of that natural demand is not there. I won’t say it’s slowed down to perilous levels by any means. But it’s not the organic demand, obviously, when people really didn’t have many ways to actually eat food, to get the food. We will probably be biasing towards organic growth, strengthening the brands, focusing on conversion [and] building out our LTV [Life Time Value]. It’ll be a mix of organic, local marketing. We’ll be thinking about regions, very hyperlocal, that makes sense, where our product fits well for people, where there’s a need.
What’s the current marketing mix to manage said changes?
Early on we’ll still be in the demand capture stages. We’re looking at ways to expand affiliate partnerships, things along those lines where our message gets out to a really relevant audience at a controlled [customer-acquisition-costs]. Maybe ballpark 20% of the mix could come from something like that. I wouldn’t be surprised to see 20%-plus come from customer sharing. We’re doing a lot of work on the virality side to really focus on what that factor looks like, how people share within their network, when they share, what the costs look like in that space. We probably have a 20% allocation from search. [For] programmatic paid social, the display channels, we’ll throw in another 20% there. That left me with about another 20% to really start thinking about influencers, partnerships, developmental channels, CTV and different sorts of areas.
With the social landscape changing so quickly, does that impact how Purple Carrot is thinking about marketing?
It’s harder than ever to track. It’s harder than ever to target. When we think about those, and really what the cost is, there’s the trade off of how good attribution is and how much you’re willing to invest in a not perfectly tracked channel. [Where] media costs have gone to with the lack of tracking leaves us in a state where I think there’s other ways to to deliver your message more effectively, or differently. — Kimeko McCoy
Although once considered the future of shopping, social commerce and livestream shopping has yet to take off the way marketers predicted it would. Facebook, Instagram and TikTok last year all took a step back from social commerce, and apparently, so are shoppers, according to new research from The Influencer Marketing Factory. Find out how in the data points below:
“The world changes every year or two in our industry, so maybe you have people that were brought in during the huge bubble. There are a lot of people receiving very good paychecks that maybe aren’t contributing to the top or bottom line like they were in 2021 or 2022.”
— A source referencing the growth of tech companies in the wake of the Covid-19 pandemic when asked about Google’s layoffs.
The Trade Desk was once seen by agencies as the helpful, friendly alternative to the might and heft of Google when buying inventory programmatically. Seems those happy days have faded in recent months, as several media agencies complain the ad-tech firm has become less transparent, more expensive to use — and perhaps so big that they have begun to fear it.
Why fear it? Because The Trade Desk has made efforts over the last year to generate a closer and more direct relationship with brands — media agencies’ clients. But also because, besides seeking out negotiating clout on their own, there’s not much media agencies can do since The Trade Desk has become such an important part of programmatic buying and selling of inventory.
None of the media agencies or analysts Digiday reached for this story would speak for attribution, due to continued existing relationships with The Trade Desk (TTD).
A TTD representative refuted the agencies’ complaints, saying the firm has done nothing different in the last year that would provoke them — and added that no agencies have voiced complaints about these issues.
“Our agency partners are our closest allies in the transformation of the media business to a more data-driven ecosystem built on trust, transparency, and objectivity within the open internet,” said the representative.
For many agency traders, TTD’s concentration of power is both from a business perspective, because it performed more consistently than, and grew steadily relative, to other vendors, but also because it did a solid job early on of positioning itself as the anti-Google (whose DV360 is a rival to TTD) and a champion of the open web.
Now the tables are almost turned, not only because agencies point to poorer customer service assistance from TTD, but improved customer service from Google. That latter development may have more to do with Google experiencing its first-ever revenue downturn in 2022, which has perhaps necessitated a kinder and friendlier approach to agencies and clients. Still, the end result, to media agencies, is that TTD comes across as less helpful than it used to be.
So what are the complaints?
All the agencies reached for this story agreed TTD is approaching clients more directly. One pointed to The Trade Desk’s increasingly close relationship with Walmart as a direct threat.
In February 2022, TTD launched OpenPath, which worked with a number of publishers to provide advertisers with direct access to their inventory. Agencies are grumbling this effectively cuts them out of the buy-sell equation. (Although one agency exec noted TTD’s move hurts other programmatic vendors more than it hurts agencies.)
TTD sees it quite differently. “To help our agency clients drive objective value in digital advertising, The Trade Desk has long pioneered and championed supply chain improvements that increase transparency, most recently with the launch of OpenPath,” responded TTD’s rep. “As a result, the relationships and alignment on the buy-side that we have with our agency clients have never been stronger.”
One agency exec said TTD completely changed how they charge for data, shifting from a CPM fee to a percentage of media fee. Another agency corroborated that, saying that fees for data that’s essential to making investments smart, valuable and effective end up costing considerably more than they used to, as much as double the cost of other (non-Google) DSPs.
A third exec expressed frustration TTD charges “a significant amount of fees” in order to use its UID 2.0 solution (TTD’s proposed post-cookie identifier solution), and doesn’t leave room for negotiation — they’re simply put forth as take it or leave it.
TTD responds that the take rate for fees has actually stayed the same at around 20% over the last eight years, at 21.1% in 2014, and fluctuating slightly up and down in ensuing years and most recently at 19.4% in 2022.
One programmatic expert at an agency noted that TTD is apparently not participating in a Google-led program that aims to bring more transparency to the DSP process — called “Confirming Gross Revenue.” The expert did acknowledge that Google and TTD are direct competitors in the DSP space, but still felt that not participating equated to having something to hide.
“We’ve built our platform to enable our clients to apply data that make their digital ad buys precise and transparent,” said TTD’s rep.
In the end, it will most likely come down to size and negotiation. If your holding company is big enough, you will likely be able to negotiate on the fees. The smaller the agency, the less wiggle room it will have to cut deals. But the whole idea of programmatic is that it’s non-guaranteed, noted one agency exec, so locking in pricing defeats the purpose.
But it’s possible that other DSPs and programmatic vendors will have the chance to gain a little ground here, said one analyst observing the tension between the two sides. Some agencies are designed to work around a programmatic workflow, and that will mean having to either work with what TTD offers — or try to find it elsewhere.
One agency executive at a programmatic specialty shop disagreed with most of the other agencies’ arguments, chalking up the sentiments to resentment about clout. “Whether it’s The Trade Desk or Google or Amazon, people tend to not like it when platforms become very powerful,” said the exec “Nobody likes losing leverage.”
The exec did acknowledge that all DSPs, not just TTD, need to reconsider the amount of fees applied to larger guaranteed campaigns that don’t involve retargeting, frequency capping or other work DSPs do.
“I kinda could get comfortable with paying 20% of my media budget through a DSP for that retargeting campaign, but I’m not at all comfortable paying 20% of my TV budget to a DSP that’s just a workflow tool,” said the exec.
So far, Digiday+ Research has uncovered a lot of optimism among agencies this year: They think revenues will rise, that their clients’ ad spend will grow and that their companies will fare better than the overall industry.
But a Digiday survey of 79 agency professionals conducted in December found that agencies actually don’t anticipate significant growth in ad spend this year, even after most agencies increased services in 2022.
The percentage of agency pros who expect advertisers to spend more this year plummeted from last year, according to Digiday’s survey. This year, a little more than a third of respondents (39%) said they agree advertisers will spend more in 2023. That’s a big difference from 2022, when more than three-quarters (76%) said so. Meanwhile, the percentage of agencies who disagree that ad spend will grow in 2023 shot up to 38% from just 2% in 2022.
And, looking more closely at the data, the differences of note in this case don’t just fall in the middle (i.e. somewhat agree and somewhat disagree as opposed to strongly agree and strongly disagree), as they have with past surveys. This year, agencies expect differences in 2023 ad spend across the board — with results largely indicating an overall drop in ad spend this year.
For instance, last year, nearly a quarter of respondents to Digiday’s survey (23%) said they strongly agreed that advertisers would spend more in 2022. This year, that percentage fell to 6%. Meanwhile, the difference between last year and this year among agencies who somewhat agreed advertisers would spend more in the coming year is 20 percentage points: Last year 53% of agency pros said they agreed somewhat that advertisers would spend more in 2022, and only 33% said so this year.
On the other end of the scale, the percentage of respondents who somewhat disagree that advertisers will spend more this year saw a big jump over last year. More than a third of agency pros (37%) said they somewhat disagree that ad spend will grow in 2023, compared with just 2% last year.
Despite this somewhat gloomy forecast on 2023 ad spend, we already know that most agencies actually added to their full-time staff in 2022, and it turns out that many also added to their service offerings as well.
In fact, there wasn’t much of a change from 2021 to 2022 as far as the percentage of those who increased services: 62% of agency pros told Digiday they increased the number of services their companies offered in 2021, and a very comparable 60% said so in 2022. This is a very high number of agencies who said they grew their service offerings last year, despite the fact that they don’t expect nearly as much growth in ad spend for 2023.
There are some changes to note when it comes to agencies’ service offerings between 2021 and 2022. Specifically, the percentage of agencies who said they kept the number of services they offer steady (i.e. neither increased nor decreased services) rose from a third in 2021 to 41% in 2022. And — very surprisingly in the face of falling ad spend — zero respondents to Digiday’s December 2022 survey said their agency decreased the number of services they offer, either somewhat or significantly. In other words, not one agency pro chose either option that indicates their services decreased in 2022.