TheChek News Flow

About 1.5mn accounts terminated within three months as inflation squeezes finances

British households have cancelled video subscriptions in record numbers as they curb non-essential spending to cope with the cost of living squeeze, reinforcing concerns that a pandemic-fuelled boom in streaming is over.

Consumers walked away from about 1.5mn video on-demand accounts such as Disney Plus, Apple TV Plus and Now during the first three months of the year, according to figures from analytics group Kantar.

While 58 per cent of households retain at least one streaming service, a decline of only 1.3 per cent from the end of 2021, the terminations suggest that viewers have become more discerning about subscribing to multiple platforms.

A desire to save money was the most important reason for the cancellations and young adults have become particularly wary of paying for television on top of the £159 annual licence fee, the researchers found.

The findings were “sobering” for streaming providers, said Dominic Sunnebo, global insight director at Kantar. He said streaming services had to prove their worth to consumers “in what has become a heavily competitive market”.

Households are looking for ways to trim budgets to cope with rising bills. Surging energy, clothing and food prices pushed inflation to a 30-year high in March, data from the Office for National Statistics showed last week.

Media investors have become increasingly concerned that the rapid worldwide growth of video streaming — encouraged by demand for home entertainment during the pandemic — has peaked.

Shares in Netflix, which is due to release first-quarter earnings on Tuesday, have dropped 43 per cent so far this year as global subscriber numbers have disappointed.

Consumers are re-evaluating subscriptions in response to higher charges. Several providers have raised prices in markets including the UK, in part to compensate for rising costs of labour and facilities that have made TV and film production more expensive.

Among them is Netflix, which recently implemented its second round of UK price increases within 18 months, raising standard monthly subscriptions from £10 to £11.

At the same time, options for British viewers have continued to widen. Recently introduced offerings include Peacock from Sky, which features content from NBCUniversal. Viaplay, the Scandinavian streamer, is planning to launch in the UK this year.

Many consumers are still signing up for streaming services. Kantar’s research, which was based on interviews with 14,500 people, found that about 3 per cent of British households took out a subscription during the first quarter.

However, this was a marked slowdown from the 4.2 per cent that did so in the same period a year ago.

Cancellations, meanwhile, accelerated, from 1.2mn a year ago and from 1.04mn during the final three months of 2021.

After budgetary concerns, the most frequently cited reasons given by those who terminated their subscriptions were that they did not use them often enough and that the platforms lacked new shows they wanted to watch.

The net effect was for the number of households with at least one paid subscription to decline by 215,000 compared with the previous quarter, to 16.9mn.

Britbox, Apple TV Plus and Discovery Plus had the highest churn rate — meaning they lost the most users on a gross basis.

Disney Plus had the biggest increase in its churn rate, Kantar said. Its quarterly churn tripled from the previous quarter to 12 per cent.

Netflix and Amazon’s Prime Video had the lowest churn rates in the quarter. Kantar said this was a sign they were “the last to go when households are forced to prioritise”.

A knockout bid is the best vindication of the rights of minorities

Elon Musk was already an advocate of free speech. Now he is an unlikely champion of shareholder democracy too. Twitter, which he wants to buy for about $43bn, just adopted a defensive “poison pill”. The Tesla boss responded by tweeting cryptic disdain for the gambit.

Poison pills are open to litigation. But Musk should focus on wooing Twitter shareholders financially, rather than fighting its management.

If triggered, the poison pill would destroy the value of Musk’s stake and dilute his votes. Twitter would give other investors the right to buy a flood of new shares cheaply when he, or anyone else, exceeded a 15 per cent ownership threshold.

Twitter has put shareholder rights plans, as poison pills are formally known, back in the headlines. After poison pills were developed in the 1980s, hundreds of large companies deployed them with 10-year lifespans to keep would-be acquirers at bay.

Big shareholders and investment advisers complained they were too effective in deterring activist investors and unsolicited bidders, which depressed share prices. Today, less than 2 per cent of companies in the S&P 1500 have a shareholder rights plan, according to data service Deal Point Data.

Critics of poison pills have regularly contested their validity in US courts. The mechanisms may conflict with the fiduciary duties of directors. Case law still gives boards wide latitude to use their judgment to deal with threats.

Today, poison pills are generally only invoked in the face of an interloper and have short expiration dates. Twitter’s rights plan lasts for one year. In March 2020, many poison pills were created in a hurry by companies that feared hedge funds would exploit the market crash to build big positions.

Musk has railed at the possible disenfranchisement of shareholders mulling his unsolicited offer at $54.20 a share. The Twitter board wants a breathing space to consider his bid and any rival offers without the risk of anyone acquiring control — or a blocking stake — in the open market.

The Twitter poison pill should encourage Musk to negotiate with the board at a higher price, showing meanwhile that he has finance lined up. If directors are uncooperative, the entrepreneur can run a proxy contest seeking shareholder approval for his offer. A knockout bid is the best vindication of the rights of minorities, not wrangling over poison pills.

Global co-operation is desperately needed to overcome threat from drug-resistant infections

The pharmaceutical industry rose to the challenge of Covid-19. But it has largely failed to address the threat posed by antibiotic resistance, which also kills millions. A pioneering subscription-style payment mechanism, announced by the UK last week, could provide new incentives for developers while curbing overuse.

Under the deal, the NHS in England will pay £10mn a year to Pfizer for its Zavicefta combination antibiotic. It will pay the same fixed fee to Japan’s Shionogi for Cefiderocol, an innovative antibiotic that — Trojan horse-style — uses the bacteria’s own iron uptake system to gain cell entry.

Such originality is rare. In 2020, drug companies were testing only 41 new antimicrobials compared with about 1,800 immuno-oncology drugs. Although antibiotics fuelled the growth of Big Pharma last century, the industry has retreated since. Many small innovators have collapsed.

Profiting from drugs used by the small number of patients with drug-resistant infections for a short time is difficult. The research, development and commercialisation costs of creating a novel antibiotic is more than $1bn. Cumulative revenues over 10 years are likely to be less than half that, according to consultants BCG. After taking account of factors like a 10-12 per cent investment hurdle rate and a contribution to the cost of failed drug candidates, it calculates the minimum incentive per antibiotic would need to be at least $2bn.

See the £10mn on offer from the UK in that light. By itself, the amount is hardly a game changer. Just maintaining Shionogi’s manufacturing plant for its antibiotic drug will require about $100mn in revenue a year. But if other G20 countries chipped amounts proportionate to their GDP, the figure adds up to £3bn over 10 years.

That supposes countries can agree on what constitutes a fair share, as well as the best incentive mechanism. While the subscription model has important merits, other options being discussed include one-off payments, minimum price guarantees and “transferable exclusivity vouchers”, which reward antibiotic developers with patent extensions on other medicines.

International co-operation is desperately needed to solve this market failure. There is little chance of overcoming antibiotic resistance unless Big Pharma can be induced to overcome its own resistance to antibiotic research.