In the first week of June the UK broadcaster Channel 4 started the public beta trial of its forthcoming ad-free, subscription VOD service, All 4+, responding to research that showed strong demand for ad-free viewing of Channel 4 content. And at Videoscape Europe last week, Richard Davidson-Houston, Head of All 4 at Channel 4, inferred that all commercial broadcasters will need an ad-free option – possibly driven by the prize of bigger young audiences.
Davidson-Houston believes that ad-free viewing of box-sets could be one of the main incentives for people to pay for broadcaster content. “You might be very happy to watch yesterday’s episode of Gogglebox with advertising but perhaps not a whole box-set of Peep Show,” he said, referring to two of Channel 4’s most popular shows.
The Channel 4 executive, who leaves the broadcaster soon, pointed to the precedent set by ITV in the UK, with its ad-free subscription version of ITV Hub that launched in 2013 , and declared that the cost of taking such a service to market is relatively low. “As a broadcaster, you are in a reasonable place as long as your subscriber numbers are more than none. It is not a very high-risk play.” All 4+ will cost £3.99 per month – the same as ITV charges for its ITV Hub+ SVOD offer (a price that has not changed in four years).
Steve Forde, Director of Digital Products and Online Marketing at ITV, who is responsible for ITV Hub, ITV Hub+ and his company’s programme apps and websites, told the London conference that Hub+ was a fairly niche offering for the first four years of its life but grew rapidly from 2017 and today has 265,000 subscribers – a figure boosted again this summer by the popularity of Love Island.
With Jon Watts, Co-Founder and Managing Partner at the strategy consultancy MTM, leading a discussion about the opportunities for channel owners and broadcast groups using hybrid ‘advertising + subscription’ models, Forde made it clear that advertising remains central to ITV economics. “We need to pay for the content in some way and advertising is not the enemy. People are used to the trade-off between free content and advertising – but the user experience must be good.”
He noted that the ITV Hub+ subscriber count represents a very small proportion of the number of engaged users on the free, ad-supported ITV Hub streaming service, but that does not diminish its value – least of all to the people who use it.
“The advertising model remains robust but we see a change in viewer behaviours, driven by Netflix and Amazon, and a propensity for people to pay a monthly fee. They are learning the behaviour of watching programming without advertising. We have to strike a balance, to keep the significant number of viewers who are willing to watch with advertising but offer a genuine alternative if you want to watch without.”
ITV has seen an increase in brand positivity among people who transfer from the AVOD offer to the SVOD service, especially for those in the 16-24 age group. “They also increase the frequency of their viewing on the service,” Forde reported. ITV Hub has a younger and more female audience than the broadcast TV channels and Hub+ skews even more heavily to young and female – with the differences especially exaggerated currently, while Love Island is on air.
Forde made it clear that avoiding advertising is not the sole attraction of ITV Hub+. This is where you go for other advanced features, notably downloads of ITV content and the right to watch the broadcaster’s programming overseas. “We have addressed different viewer pain points in this service.” The download feature is especially popular in the south east of England due to long commute times there (largely in and out of London).
Gary Woolf, EVP Strategic Development at all3media International, one of the largest production companies in the UK, outlined the increasingly diverse windowing opportunities for a company that makes and licenses content, and also the need to be more flexible about rights as the broadcasters adopt different monetisation and window combinations.
There is also the direct-to-consumer opportunity to consider, as well, and all3media has its own SVOD service in the U.S., which was launched nearly two years ago and offers 10,000 hours of content for $5.99 per month. This is a place where all3media can monetise assets that have already been exploited in early windows, only under its own roof, and the service makes a profit.
Woolf pointed out that if a company already owns the content rights, this strips out much of the cost base from a streaming service. Content owners can buy off-the-shelf technology to run their platform and, as he declared, “marketing is then your biggest job”. However, marketing can be expensive. “We market to specific audiences so the amount we spend [on marketing] per subscriber is quite high.”
Addressing the main panel theme, he wondered whether a hybrid model [inferring a lower priced tier with some advertising] would get more consumers to sign-up who are currently baulking. And by reducing the number of what could be near misses, this would bring down the cost of marketing per subscriber, he acknowledged.
At Videoscape Europe, both ITV and Channel 4 agreed that there is no particular viewing pattern or content genre that determines whether you remain an AVOD user or move to SVOD. Forde revealed that ITV Hub+ and ITV Hub both see viewing across the full range of the broadcaster’s content offer and he concluded that there is no ‘one-size-fits-all’ answer to what content you put in front of or behind a pay wall.
Davidson-Houston confirmed this, adding that for Channel 4 viewers, “You are just paying for the removal of advertising or the ability to download to mobile.”
While Love Island is drawing a seasonal crowd for ITV Hub+, it is soap opera and drama fans who will deliver the greatest lifetime subscriber value on the service, Forde believes. Love Island is a powerful driver for sign-ups to the paid service, but fans of the show may only stick around for a couple of months, whereas the soap/drama lovers are expected to subscribe for 12-24 months, on average. Not surprisingly, there is now a marketing focus on this group.
Within the SVOD services themselves, the UK broadcasters are thinking about payment/packaging innovations. Davidson-Houston believes there is scope for more flexibility and likes the idea of a box-set pass that would give you access to the Peep Show library collection, as an example. Some users already have a season pass mindset, he reckons, coming into an SVOD service for a few weeks in order to watch one show or a box-set, and then unsubscribing.
Earlier in this conference, the proposition that ‘churn is good’ was thrown into the mix by an audience member, themselves quoting another executive. Referring to this, Davidson-Houston acknowledged that it sounded like a mad comment but on closer inspection has some merit – if you take the view that people taking SVOD are not subscribing but are transacting. They are deciding to subscribe in order to see a show like Love Island [on ITV], then quit the service, then effectively buy it again (in ad-free mode) the following year.
Forde is open to the idea of show-themed annual passes for ITV Hub+, which would open the market for gifting (thus, you could give someone a year’s access to Coronation Street ad-free). A Love Island pass is not on the horizon, however, and the broadcaster would need more time to analyse the subscribe and unsubscribe dynamics of the programme, anyway.
Whatever payment options unfold, Forde gave some advice to the London audience, based on six years of ITV Hub+ experience: ensure you create lots of upsell paths into the paid service. This means regularly telling people that they can get some content they are watching in an ad-free environment.
Panel chair Jon Watts wanted to know whether the $6.99 price that Disney has announced for its Disney+ direct-to-consumer offering in the US has lowered the price ceiling for SVOD in general. Woolfe at all3Media International reckons it could influence consumer perceptions but suggested that “what matters is your offer in terms of curation; whether you have something that people need enough”. Forde concurred, saying viewers will pay more if they value the content.
Videoscape Europe is the strategy event for D2C, SVOD, AVOD and vPayTV, with a focus on delivering profitable growth in premium digital video. You can find more details here.