The digital video industry is undergoing a profound transformation, as outlined in Houlihan Lokey’s comprehensive report on the state of the OTT market (Spring 2025).
The golden era of subscription-based streaming (SVOD) has waned, and platforms are now prioritizing profitability over subscriber growth. This shift is reshaping business models, content strategies, and competitive dynamics. Here’s a closer look at the key trends driving this evolution.
The Decline of the SVOD Gold Standard
For the past decade, SVOD dominated the streaming landscape, fueled by an arms race for subscribers. However, market fatigue has set in. In 2024, U.S. consumers reduced their average monthly streaming spend from $55 to $42, with one in four users canceling three or more subscriptions over two years.
The average number of services per user has also dropped to just 2–3. Rising prices, fragmented content libraries, and the perception that premium content requires additional payments are driving this churn.
The Rise of Hybrid Models and AVOD
In response, streaming platforms are pivoting to hybrid models that combine subscriptions with advertising (AVOD). Industry giants like Netflix, Max, Disney+, and Hulu report higher average revenue per user (ARPU) from ad-supported tiers than from ad-free plans. In 2024, over 50% of new subscriptions were for ad-supported formats.
Forecasts suggest AVOD revenue will reach $163 billion by 2027, surpassing SVOD. Meanwhile, free ad-supported streaming TV (FAST) platforms like Pluto, Tubi, and Roku have amassed over 180 million monthly active users in the U.S., capitalizing on cost-conscious audiences.
Content Strategy: Licensing Over Originals
The economics of content production are also shifting. Original programming, while prestigious, is expensive and risky. As a result, platforms are scaling back on originals and leaning heavily on licensed content. In just 18 months, the share of licensed content in the top-100 titles surged from 55% to 78%. Licensing offers a cost-effective way to deliver recognizable, proven hits without the gamble of developing new IP.
The Battle for Live Sports
Live sports have emerged as a critical battleground for viewer retention. Streaming platforms are investing heavily in exclusive sports rights to anchor their audiences. Netflix secured a $5 billion deal for WWE and NFL Christmas games, while Amazon and Disney inked 11-year NBA contracts.
Peacock has carved out a niche with MLB and NBA exclusives. The payoff is clear: Netflix reported 19 million new users after a single NFL weekend, with 80% retaining their subscriptions. Sports content is proving to be a powerful tool for reducing churn and driving engagement.
The “Great Rebundling”
To combat churn and enhance value, platforms are increasingly bundling their services. Max, Disney+, Hulu, Peacock, Netflix, and Apple TV+ are now often packaged together, reminiscent of traditional cable TV bundles. This “great rebundling” aims to simplify consumer choice and improve retention by offering a one-stop shop for diverse content.
The Short-Form Video Threat
Perhaps the most existential challenge to SVOD comes from short-form video platforms like TikTok and YouTube Shorts. Gen Z spends more time on these platforms than on traditional streaming services, with TikTok surpassing Netflix in daily viewing time among younger audiences. YouTube continues to lead in overall engagement.
According to 66% of marketers, short-form content is the most effective format for capturing attention. In response, major platforms are experimenting with vertical, bite-sized content to stay relevant.
The Transformer Cycle of Streaming
The streaming industry operates like a transformer, cycling through phases of consolidation, fragmentation, and rebundling.
However, the core challenge remains: without a strong value exchange or a loyal community, retention will falter in a fiercely competitive market.
Houlihan Lokey’s report underscores that only hyper-niche platforms or cultural juggernauts like MrBeast can thrive in this environment without significant strategic adaptation.
Looking Ahead
In 2025, success in streaming demands a laser focus on profitability, diversified revenue streams, and content that resonates. Whether through ad-supported models, licensed libraries, exclusive sports rights, or innovative bundles, platforms must navigate a landscape where consumer expectations are high, and competition is relentless.
The days of chasing subscribers at all costs are over—now, it’s about building sustainable, value-driven businesses.
For deeper insights, refer to Houlihan Lokey’s full report: The State of the Digital Video OTT Market, Spring 2025.
