2014/01/08 SVOD Market Success Dependent on Premium TV
By Keith Nissen
Competitive markets are typically viewed in terms of winners and losers. Companies battle against one another for market share. In the US video entertainment market, Netflix has morphed into a full-fledged premium TV network, looking more and more like the spitting image of HBO. They each attract and retain loyal subscribers with award-winning original TV series, and exclusive high-profile movies. HBO has expanded into the on-demand world of Netflix, with its HBO GO service. Netflix is in negotiations with pay-TV operators to become part of the pay-TV service bundle. Head-to-head competition appears to be inevitable. Therefore, it seems counter-intuitive to suggest that the long-term success of Netflix, and other subscription video-on-demand (SVOD) services, could actually be dependent on the success of premium TV networks, like HBO. But it is.
The primary reason for this co-dependency is consumer TV viewing behavior. For decades, the premium TV networks have maintained relatively stable market share equating to 30%-40% of US pay-TV households. The main type of content has always been movies. As the overall importance of movies has declined over the past decade, HBO and Showtime have increased their investment in original TV series. This shift to original programming has created a loyal subscriber base, but has not yielded tremendous subscriber growth. Most households have been unwilling to pay extra for premium TV.
The past year has seen an explosion in premium original TV programming, with Netflix, HuluPlus, and Amazon all investing in large-budget productions with star actors and cinematography that rivals theatrical movies. These original premium and SVOD TV series have the potential to accomplish what HBO has been unable to do alone, that is change the TV viewing behavior of main stream consumers.
Table 1 presents the cross-use of pay-TV, premium TV and online subscription VOD services. Examining the data leads to the following observations:
- Netflix has matched HBO market penetration at 40% (US Internet users)
- Approximately half of HBO and Showtime subscribers also use Netflix
- Two-thirds of HBO users subscribe to multiple premium TV networks
- The majority of Comcast’s Streampix subscribers also have subscriptions to premium TV channels, as well as Netflix
- Nearly half of Netflix subscribers also subscribe to HBO
- Only 1 in 4 Netflix households subscribes to a second SVOD service (HuluPlus or Amazon)
- The majority of HuluPlus and Amazon subscribers also have premium TV subscriptions
- A large portion of Redbox Instant by Verizon subscription service users also have premium TV and SVOD subscriptions
Table 1. Cross-Use of Pay-TV, Premium and Subscription TV Services
A recurring theme among these observations is that consumers who view premium TV tend to also use SVOD services. In fact, as Figure 1 illustrates, the more premium TV subscriptions a household has, the more likely it is that they will have an SVOD subscription, as well.
Figure 1. Premium TV Subscriptions by SVOD Use
MRG Analysis:
The plethora of original TV programming being introduced has the potential to change the TV viewing behavior of those who do not currently subscribe to premium TV or SVOD services. They are the 50% of US pay-TV households without a DVR; those who rarely, if at all, view online catch-up TV and never even consider renting a movie. Just as favorite TV shows shift between broadcast TV networks from year to year, it will be increasingly hard to ignore the high-quality entertainment that these premium TV series deliver.
Subscription-based premium TV programming will most certainly play a substantial role in the next-generation TV experience. It will not be winner take all. Rather, as main stream consumers alter their TV viewing habits, premium TV and SVOD services will both reap the benefits.
