At IBC, research consultancy Ampere Analysis presented global data to conference delegates to account for the growing interest in the direct-to-consumer Pay TV market, where brands offer their content direct to viewers instead of distributing via an intermediary.
Richard Broughton, Research Director at Ampere, noted that Pay TV subscriptions had continued to increase worldwide (from 674m to 923m between 2010 and 2016) despite rapid growth in subscription video-on-demand contracts over the same period (from 15m to 230m). Ampere was projecting revenues for the global Pay TV sector to grow from $200bn in 2016 to $234bn by 2021, with subscription OTT increasing from $16bn to $44bn over the same period.
These increases were partly down to the fact that consumers were increasingly willing to spend on multiple services, he said. By Q3 2017, 40% of respondents to its online panel indicated they had both Pay TV and subscription OTT, compared with a quarter in Q3 2015.
However, pointed out Broughton, this buoyant global picture disguised the fact that Pay TV growth was uneven and “actually largely driven by Asian markets. It’s driven by China and India, in particular, and if we look at some of the developed markets, in other markets like the U.S. we start to see a contrary trend.”
In fact, Ampere’s estimates suggest that the U.S. Pay TV market peaked at just under 100m subscribers around 2013/14. “It’s on the downward trajectory now, so the number of subscribers is declining year-on-year. In fact, Q2 this year was one of the worst on record for the U.S. Pay TV industry,” said Broughton. By 2022, Ampere estimates traditional Pay TV subscriptions will have declined to roughly where they were in 2004, at around 90m.
Broughton explained that this decline in the U.S. was now being compensated for by the emergence of ‘virtual MSOs’ such as Sling, Direct TV Now and Hulu’s live TV service, which aggregate channels into Pay TV packages. But while this was stabilising subscriber numbers, “the economics of these services is cheaper,” said Broughton. “They’ll typically retail at half the monthly price of a traditional Pay TV subscription, so maybe $30-$40 instead of the $70-$80 that Pay TV subscribers are typically used to paying. And that puts pressure on the channel businesses that are reliant on [traditional] Pay TV.”
Broughton added that, “In Europe, we’ve seen similar sorts of trends. So, although they’re not seeing exactly the same decline in subscribers, we are seeing the margins under pressure. Pay TV operators are typically used to operating at double-digit subscription income margins. Now they are down to single digits. Pressure of sports rights inflation has been a key factor in that.”
On the face of it, OTT providers such as Netflix, Amazon and Hulu, who are investing heavily in content – and between them account for nearly three-quarters of subscription OTT spend worldwide – represent a logical alternative market for channels and content providers, indicated Broughton.
But according to Ampere’s analysis, Netflix (which on its own accounts for 47% of global subscription revenue) has significantly changed the profile of its catalogue – reducing its size (from 8,000 titles in June 2015 to 6,500 in July this year) and its age (from 12+ years since release to 6 years over the same period). This, combined with a growing focus on ‘original’ or exclusive content, may render Netflix-type supply options more problematic for content-suppliers.
“Pressure is being placed on those core Pay TV business models, either in the U.S., in terms of subscribers, or in Europe in terms of margins and the ability to spend on channels and content acquisition,” concluded Broughton. “Many of the major subscription players are honing their investments: […] they want the new stuff, they want the good stuff, they actually want their own stuff. […] So, if you’ve got the brand and you’ve got the content, these factors all mean that direct-to-consumer is increasingly attractive as a business model.”
Broughton said that the most obvious gaps in the OTT market currently relate to sport, and entertainment genres, particularly reality TV. “Large entertainment shows are typically absent from many of the big subscription TV players,” he suggested.
Photo: Ampere Analysis shows the increased spending on Originals at two of the SVOD majors