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Since the emergence of smartphones, social media, and on-demand streaming services, physical and digital worlds have been getting closer and more interconnected. The internet is no longer something we sometimes opt into. It’s become a routine part of our lives for work, entertainment, news, and socialization. Thanks to the acceleration of enabling technologies, like high-speed networks, cloud computing and A.I., sensors and simulations, and photo-realistic rendering, the world’s biggest platform companies are now developing an unlimited digital reality—the metaverse.

Already, we see younger generations that may be poised for metaverse experiences: Gen Z and millennials have grown up with the mobile web, social media, and video games. In our studies, Gen Z prefer gaming to TV and movies, and both Gen Z and millennials are flocking to short-form videos on social media. These younger generations are already immersing themselves in virtual and social experiences that TV and movies—for all their artistry—can’t currently replicate.

In our Digital Media Trends study for 2022, we surveyed digital behaviors of consumers in the U.S., the U.K., Germany, Brazil, and Japan. We saw a consistent story: younger generations are adopting more paid streaming video services (SVOD) and ad supported (AVOD), are more engaged with social media, and rank playing video games as one of their favorite forms of entertainment. At the same time, they are more likely to churn, cancelling SVOD subscriptions when content dries up or subscription costs mount. And they are more likely to resubscribe when new content or discounts are available. In every country we surveyed, SVOD subscribers—particularly Gen Z’s and Millennials—are getting savvier about how to get the most value out of entertainment for the least amount of money. Ultimately, people only have so much entertainment time and there are a lot of options.

This puts streaming video providers and studios in a difficult position. They are spending enormous amounts on content acquisition and development. Subscriber growth in North America has slowed for many providers, and global expansion brings additional cultural and economic challenges. Even now, more investors and shareholders are realizing that subscriber count is merely one component of profitability for SVOD—and no guarantee. Yet, our study shows that SVOD subscribers are growing more frustrated with losing content to other services, having to manage multiple subscriptions to get more of the content they want, and being unable to find relevant content due to poor recommendations.

Streaming providers are under pressure to retain subscribers with options like tiered pricing, more ad-supported offerings, VIP and rewards programs, bundling services, and better recommendation engines. Each of these options has its own costs and implications for the business and its profitability.

While SVOD businesses spend billions of dollars to reach increasingly fragmented and distracted audiences, top social media services are entertaining billions of users with near-infinite streams of highly personalized user-generated video feeds that cost little or nothing to produce and are free to users. These experiences can be passive and interactive, bite-size and full-size, individual and highly social, and lit up by trending topics and swarming behaviors. They amplify user-generated content with social connectivity, have empowered communities and small businesses, and made fame much more accessible and attainable.

In contrast to big budget studios, user-generated content on social media is cheap, personalized, and highly engaging. Our study found that half of U.S. consumers say they always end up spending more time watching user-generated content than they planned, jumping to 70% for Gen Z. With social video streams, user-generated content discovers you. So do ads. The same learning algorithms that get better at personalizing content also deliver targeted advertising and account recommendations, further expanding revenues.

Compared to social media, streaming video still looks mostly like TV. But if social media broke open the TV screen to make fame more accessible, video games enable us to act in the movie. In every country we studied, Gen Z rank playing video games as their favorite form of entertainment. Both Gen Z and Millennial gamers play an average of 11 hours a week globally. Casual mobile gaming has expanded the video game industry, but social gaming is the focus of its future. Globally, many gamers we surveyed agree that gaming helps them stay connected to others and make new connections, and that personalizing their gaming avatar helps them to express themselves.

Video games offer people an outlet for self-expression, immersion, connection, and relaxation, and game companies have monetized these qualities effectively. The pandemic has only underscored the value of socialization in digital worlds. Many brands, franchises, and artists are moving into top gameworlds to deliver innovative experiences. Many forward-thinking musicians are showing what these worlds are capable of, releasing new music on in-game radio stations and delivering larger-than-life in-game concerts to millions of fans across the globe.

This is where the consumer demand of the metaverse—or metaverses - starts to come into focus. For more people, and especially younger generations, entertainment is increasingly social, interactive, personalized, and immersive, bringing in characteristics of the real world and amplifying and unleashing them with the endless possibilities of the digital. If we step back, social media and social gaming already look much more like metaverses than streaming video does.

If so much capital is being marshalled by the largest platform companies on the planet to bring the metaverse to life, and if younger generations are already tilting towards that future, ably supported by continuous innovation from social media and social gaming, what will become of streaming video providers? How will they adapt to this changing entertainment landscape?

For now, streaming video services have lots of room to grow, and the theatrical experience continues to engage. But as streamers spend to chase increasingly fickle subscribers across global markets, they may also need to expand their capabilities and portfolios to better serve younger generations and to meet them where they play in the future. Ultimately, media and entertainment executives—and especially streaming video providers—should be thinking hard about how people socialize around entertainment and how entertainment itself is becoming more social, interactive, and immersive.

Kevin Westcott is vice chair, Deloitte LLP and U.S. technology, media and telecom leader. Jana Arbanas is vice chair, Deloitte LLP and U.S. telecom, media and entertainment sector leader.