There is a “clear negative relationship” between Netflix uptake and pay TV growth, with pay TV adoption beginning to drop as Netflix penetration rises beyond 5%-10%, according to Ampere Analysis.
Speaking at the Connected TV World Summit in London last week, Ampere Research Director Richard Broughton said that there are no markets worldwide where Netflix has reached 30% household penetration where the pay TV market is still in growth.
Ampere also detected a negative relationship between subscription video-on-demand (SVOD) viewing and broadcast TV viewing, with Broughton saying: “There is almost a direct one-to-one correlation for every minute more subscription video-on-demand watched there’s a minute less of linear TV watched.”
The numbers showed that while it is “undoubtedly true” that viewing behaviour is changing fastest among younger viewers, in markets such as the UK older consumers are the most rapidly growing group of SVOD subscribers.
In the UK, 55-64 year-olds made up 8% of SVOD subscribers and 18-24 year-olds 25% in the in the third quarter of 2015. Three years on in Q3 2018, 55-64s had grown their share to 11% of SVOD subscribers while 18-24s had seen theirs decline to 21%.
Younger consumers were also found to watch more SVOD than older consumers, but once older viewers start watching online content they consume almost as much – 86 minutes per-SVOD viewer per-day among 18-24 year-olds, compared to 81 minutes for 55-64s. For all other age groups it was 84 minutes.
Looking at what is fuelling the shift from pay TV to SVOD viewing, Broughton pointed to massive content investment, claiming that over-the-top players like Netflix, Amazon, Hulu and Apple are now responsible for nearly a third of new commissioning activity across the top commissioners.
While commercial broadcasters are still the largest part of the market, OTT players were found to have overtaken top pay TV groups like HBO, AMC, Sky and leading public service braodcasters like the BBC and France Televisions.
“If we think about where the UK broadcasters and the other European broadcasters are at the moment, there is a differentiation point of certain types of content that you won’t get on subscription online video services – but that’s not going to be true forever,” said Broughton.
He presented a chart showing that while broadcasters like the BBC and ITV have a fairly even split between scripted and unscripted when it comes to new commissions, services like Netflix and Amazon are is still heavily skewed towards scripted. However, Broughton added: “Netflix’s strategy in particular has evolved”.
While Ampere found clear signs that Netflix was impacting on pay TV, the same does not ring true for cinema. In research released last year, the firm found there to be “no obvious negative impact of Netflix growth on box office takings”.
In terms of the wider audio-visual market – encompassing pay and commercial TV, public broadcasting, theatrical releases, home entertainment and OTT – Broughton said this had grown at a CAGR of 3.2% over the past five years from US$472 billion in revenues in 2013 to US$552 billion in 2018.