Premium programming that was once the exclusive province of pay-television packages is becoming more widely available through standalone online subscription video services. These are expected to reach 100 million subscribers in 2015, with a further 77 million forecast by 2019. That may represent an opportunity as much as a threat to traditional pay-television providers.
ABI Research expects ‘over the top’ online video services to see 26% total revenue growth in 2015, with a 24% compound annual growth rate through 2019. That can be compared to a forecast 3.7% CAGR for pay television through 2020.
“Comparatively high priced pay TV bundles are losing customers to more inexpensive, IP-delivered content,” suggests Eric Abbruzzese, a research analyst at ABI Research. Customers are starting to expect similar experiences from their pay-television provider, including search and recommendations and support for mobile devices.
The firm suggests that standalone online services will allow pay-TV providers to attract new customers as well as expand their current footprint. It says those that have already embraced these ideas — notably Comcast, Dish Network, Liberty Global and BSkyB — are on track to see future growth in a slowly declining market. Operators that are passive in embracing online services face the challenge of maintaining subscriber counts even within their dedicated and satisfied customer base, while contending with other subscribers leaving in favor of progressive options.
“Until now, watching the latest Hollywood movies and TV shows has largely been the preserve of downloads, discs, and pay TV,” said Tony Gunnarsson of research firm Ovum. “Home entertainment is evolving as subscription-based VOD services reach the mass market: It is now commonplace to watch original productions such as Bosch from Amazon’s Prime Instant Video streamed to the main TV. The emergence of stand-alone — often linear — streaming propositions such as PlayStation Vue and Yaveo represent the first that truly substitute for traditional pay TV.”
Traditional television players are launching standalone services, such as HBO Now, CBS All Access and Sling TV. Ovum sees this as the reassertion of the traditional television value chain, pushing back against online services such as Amazon, Netflix and Hulu.
The Ovum forecast is based on an analysis of the mainstream online video and television services around the world. It projects essentially straight-line subscriber growth from around 43 million in 2012 to 177 million in 2019, accounting for almost 10% of households. If that trend were continued it would suggest almost 200 million subscribers in 2020 and over 290 million in 2025.
We can compare this to the growth of paid Netflix subscriptions since the launch of its online streaming service. After reaching almost a million international members, Netflix began with a base of 20.5 million streaming subscribers in the United States in October 2011. By the end of 2014 it had a total of almost 54.5 million. It is on trend to reach 65 million by the end of 2015.
That suggests that Netflix alone could account for two-thirds of the 100 million subscribers forecast by Ovum. 100 million subscribers represent a television household penetration of around 6%.
Perhaps household is not the right measure, as these online services may be aimed more at individual subscribers, or ‘members’ as Netflix terms them, even if they permit usage by others in a household.
Ovum says that services which fail to understand the increasingly complex array of choices available to the audience will struggle against those that address the need for connectivity, perhaps in hardware as well as content. There is likely to be much downward pricing pressure as the multiplay offers will ruthlessly discount bundled services that lie outside the core business of the seller.
“We are on the cusp of the next major evolutionary growth phase in visual entertainment,” according to Ed Barton, the head of TV research and analysis at Ovum. “As the industry hunts for opportunities to address slowing traditional TV subscription revenues, the major trends in technology, audience consumption, and service evolution offer glimpses of a brighter future.”
He believes that this offers significant incremental revenue opportunities and suggests “TV’s best days lie ahead.”
The annual Ovum Industry Congress takes place in London 12-13 May 2015.