SVOD not significantly eroding Pay TV subscriptions

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    Decipher’s bi-annual media consumption tracker, Mediabug, has tracked a sharp rise in subscriptions to SVOD services such as Netflix and LOVEFiLM this year, but reveals that this is not having a significant effect on ‘cord cutting’ and ‘cord shaving’ in Pay TV homes, with many consumers opting for both.

    Mediabug Wave 3 shows that while subscriptions to SVOD services are on the rise, only 5% of homes have cancelled or reduced their Pay TV subscription as a result of an SVOD subscription – well below the average churn rate – and only 6% of SVOD subscribers are thinking of doing so in the future.

    Netflix has courted subscribers aggressively this year with original content releases such as House of Cards, Arrested Development Season 4, and most recently Breaking Bad Season 5b. Mediabug reports that they are currently the dominant SVOD service in the UK by subscriber base. However, their attractive, free 30 day trial makes up a substantial proportion of their base at 39%, higher than their main competitor LOVEFiLM at 29%. With TV operators rolling out their own bundled Online VOD service to their customers – such as Sky’s ‘Sky Go’ service – the evidence is not there of an impending exodus from Pay TV.

    Director of Decipher Media Research, Dr. Hamish McPharlin, said:  ‘These findings indicate that UK audiences don’t necessarily opt for the ‘either/or’ approach to accessing their favourite content, and many choose to invest in a range of services and devices to get what they want. The recent announcement from Virgin Media that they intend to support Netflix on their TV service is a great example of the industry acknowledging this symbiotic dynamic’.

    Specific findings from MediaBug Wave 3 include :

    Usage of Sky’s set-top box service Sky On Demand continues to rise, driven by catch-up – 43% of Sky homes used Sky On Demand in September, up from 35% in February 2013. At the current rate of growth it could be regularly used by two-thirds of its base within two years, putting it on a par with Virgin Media.

    Netflix is now the ‘biggest’ SVOD service online in the UK –  Now 1 in 10 Internet users have a Netflix subscription, which makes Netflix the biggest SVOD service by subscriber base. However, only 60% are paid subscribers, compared to LOVEFiLM’s 71%. Netflix has aggressively released original content this year but their free trial offer means not every viewer attracted by original content remains as a paid subscriber.

    Online SVOD services are not eroding Pay TV subscriptions significantly – Only 5% of broadband enabled homes have reduced or cancelled their Pay TV subscription in favour of an SVOD subscription – well below the standard churn rate – and only 6% of SVOD subscribers are thinking of doing so in the future.

    Online catch-up did not grow its audience this year – Online VOD services such as BBC iPlayer and ITV Player have enjoyed a relentless increase in penetration for many years, however Mediabug data shows that the overall audience size for Online VOD did not grow this year, with audience size staying steady since February 2013.

    Digital download services are struggling to grow regular EST purchase behaviour – Around 13% of buyers of TV shows and films on iTunes purchased in the last month; a slow growth from 10.6% year on year. Smaller services such as Blinkbox, PlayStation Store and Google Play show a similar growth pattern, with evidence that growth in regular consumption is not keeping pace with ownership of enabled devices, such as smartphones and tablets.

    Now in its second year, the bi-annual tracker is based on an online consumer survey of 3,000 UK consumers and reports on how new technology is impacting media consumption. A free download of highlights from the latest report is available here.


    Editor’s comment

    This data provides yet more evidence that Pay TV and online SVOD services can co-exist. The Mediabug survey has been throwing up some very interesting insights, including the one earlier this year that UK homes with a connected Sky set-top box and a Smart TV prefer to use their STB to get catch-up content because it is easier (where the same player service is available on both devices). We seem to be in the midst of an industry re-appraisal of assumptions about the demise of traditional TV and Pay TV. To their credit, Decipher has been arguing for a long time that people were getting carried away, saying that consumers still wanted a broadcast-centric experience and that Pay TV can become the big winner from connected TV capabilities.

    In our report, Pay TV as the ‘Complete Entertainer’, we highlighted some of the data that seems to favour traditional media and platforms. The Ericsson ConsumerLab study in August 2012 said that “Consumers have access to a multitude of different on-demand services, as well as linear TV channels. These sources offer a good service, yet consumers are struggling to merge them together. People are eagerly looking for an aggregated service which can bring all content into one experience.”

    The researchers concluded that there is an opportunity for someone to take this new role. They could be an on-demand service provider, a social networking brand or a traditional TV provider. “Whoever takes this mantle will need to expand their business to support all ways that consumers watch TV.” Pay TV operators long ago mastered the art of aggregation and the Virgin Media decision to give its subscribers easy access to Netflix via an STB app points to an ambition to “bring all content into one experience”, like Ericsson talked about.

    Decipher says its findings (above) indicate that UK audiences do not necessarily opt for the ‘either/or’ approach to accessing their favourite content, and many choose to invest in a range of services and devices to get what they want.

    Earlier this year, Niclas Ekdahl, CEO at Viaplay, the online multiscreen service from Modern Times Group (owners of free and pay channels and the Viasat DTH platform), told us that dual subscription households, where consumers subscribe to a main (traditional) TV package but also to a smaller and cheaper online offer that complements it, are going to grow. He predicted that this will not lead to cord cutting.

    “It is fair to say that competition is becoming more intense,” he said. “We will see companies like Netflix establishing a comfortable position in the overall landscape and they know they can continue to offer a movie service at a relatively low price but without requiring consumers to churn from Viasat or Com Hem. People are willing to pay for both.”

    Thinkbox is another company that fought against the prevailing attitudes that online and on-demand would wipe everything else out. This is the marketing body for UK commercial TV so you would expect them to fight the corner of traditional media but they have a habit of being right. Their recent ‘Screen Life: TV in demand’ study contained a significant insight.

    “When given a choice between having the option to download a new series they liked in one go or waiting to watch it week by week on live TV, 73% of 18-24s in the research sample said they prefer to watch it week by week. This was more than the older audience of 35-55s (57%).”

    Thinkbox used a technology-centric, VOD-centric UK audience for the study and the conclusion was that young people are happy to wait to watch TV so they can enjoy a shared experience.

    Back at Viaplay, Ekdahl counters the idea that younger consumers will be happy to search for content from multiple locations and effectively become their own aggregators. “Our research suggests that our future customers do not want a user experience based on multiple apps downloads and multiple credit card relationships,” he said. “Having most of what they want in one place will still be a differentiator for a Pay TV platform.”

    These latest Mediabug findings reinforce the feeling that Pay TV has weathered the storm that blew in with the combination of online video and good connected display devices and user experiences. The post-connected TV environment is becoming clearer and it looks to be one where the old and new will co-exist.

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