The recipe for streaming profitability: Balancing revenue and costs like a chef

In the streaming industry, achieving profitability is akin to crafting a gourmet dish. Just as a chef combines flavors, textures and ingredients to create culinary masterpieces, streaming services must balance revenue generation and cost management to achieve profitability without compromising on quality or value. Striking this balance has proven to be challenging — just as chefs struggle for years to master a complex dish, most services haven’t yet reached profitability.

However, there are some secret ingredients for success:

High-quality content

From binge-worthy TV shows to live sports, compelling content is like mise en place is to a kitchen — the lifeblood of the platform. The No. 1 reason subscribers cite canceling their subscription is due to the lack of compelling content. That’s why platforms are doubling down on original programming, striking exclusive content deals and adding live sports and events. After all, if you’ve got the content, the subscribers will come and stick around longer.

Diverse subscription offerings

Much like a chef carefully curates a well-balanced menu, streaming platforms must offer viewers a range of subscription options, including ad-supported streaming tiers. Research indicates 6 out of 10 streaming viewers, regardless of age, prefer watching free ad-supported services rather than paying a subscription. By offering viewers the option of commercials in exchange for a lower subscription fee, streaming platforms are casting a wider net and reducing churn.

Additionally, ad-supported subscribers have been shown to generate a higher average revenue per user, a key performance and growth metric leading to long-term profitability.

Partnerships and scale

Just as restaurants offer customers prix fixe menus to showcase a curated selection of dishes, streaming services are teaming up with similar or adjacent offerings to form strategic partnerships with content creators, distribution platforms, and even competitors to expand reach and maximize revenue potential.

For example, the recently announced sports streaming joint venture of Disney, Fox and Warner Brothers Discovery illustrates a strategic alliance aimed at attracting new viewers (e.g., cord-nevers and cord-cutters) to create incremental revenue opportunities.

Cost containment

Revenue generation alone is not sufficient to ensure profitability. Just as a chef must manage costs to maintain the profitability of their restaurant, streaming platforms must adopt cost containment strategies to preserve financial health.

With global content costs at $247 billion in 2023, their highest ever, cost containment may involve optimizing acquisition costs, negotiating favorable licensing agreements, and streamlining operational expenses to reduce overhead and improve profitability.

Data-driven decisions

A restaurant is only as strong as its customer base so it’s critical to know what they think. Behind every binge-watch recommendation and personalized playlist lies a well-stocked pantry of valuable insights into viewer behavior and preferences. Considering only 1 out of 3 viewers knows what they want to watch when they turn on a streaming service, there is an opportunity for marketers to curate their experience and maximize their time on the platform.

By mining this data goldmine, streaming platforms can sharpen their content offerings, optimize their user experience and even predict when subscribers might be at risk of canceling their subscriptions.

Loyalty and retention

Streaming platforms must prioritize subscriber retention as a key driver of profitability, not unlike a restaurateur making sure customers keep coming back. Retaining existing subscribers is often more cost-effective than acquiring new ones, making subscriber churn a critical metric for measuring the health of a streaming business.

Likewise, a streaming platform must ensure its viewers have an enjoyable, premium viewing experience to keep them watching. Personalized recommendations, exclusive content offerings, low ad clutter, high-quality original programming, quality of stream delivery and early access to new releases are just a few strategies that can help platforms keep subscribers feeling valued and engaged.

Like a master chef who combines skill, creativity and passion to create culinary magic, platforms must diversify revenue streams, optimize content offerings and manage costs effectively to create a winning recipe for profitability.

This op-ed represents the views and opinions of the author and not of The Current, a division of The Trade Desk, or The Trade Desk. The appearance of the op-ed on The Current does not constitute an endorsement by The Current or The Trade Desk.