The research and analyst firm Ampere Analysis has studied the 20 largest TV subscription markets to establish what it believes is the theoretical ceiling for SVOD stacking behaviour and sets the figures at approximately eight services per household in the U.S. and between two and five SVOD services per home in Europe. The firm stresses that the ceiling is theoretical, and few territories are likely to see stacking numbers reach these heights.
The factor that will determine where the ceiling is set is how successful Pay TV operators are in holding onto key sports and film rights, as well as other flagship content. “To reach maximum capacity, SVOD spend will have to replace Pay TV spend,” the company explains.
The SVOD ceiling in the U.S. (i.e. the most services the average home will take) falls dramatically to 4-5 if you assume that Pay TV operators retain the majority of key sports rights, for example.
Ampere Analysis has based its modelling on the fact that household spend on TV services is very static in many markets, meaning there is a finite budget for everyone to fight over. The more Pay TV continues to take from the (stable) household entertainment income, the less SVOD providers can, meaning less of the streaming services per home.
“Despite cord-cutting, the average U.S. household has continued to spend an almost identical amount on TV services every year – $900 — as they switch from individual high cost cable and satellite contracts to multiple lower-price SVOD services,” Ampere Analysis explains. “This stability in expenditure, mirrored in many other markets worldwide, leads us to conclude that the fundamental determinant of stacking behaviour will be household entertainment budgets, and this allows the calculation of a theoretical ceiling for SVOD uptake.”
The company continues: “Pay TV operators and networks currently control the majority of key sports rights in many major markets and our past analysis has indicated that OTT players are unlikely to be able to wrest control of major domestic events in most developed markets. As a consequence, consumers who want to watch sport will have to continue subscribing to Pay TV services. This reduces the available budget for SVOD.”
The continued availability of exclusive Pay TV content is the limiting factor for SVOD stacking, in short. Despite this, Daniel Gadher, Research Manager at Ampere Analysis says there is a solid growth opportunity in Pay TV markets. He adds that pricing is another key determinant for stacking levels – lower average SVOD prices, driven by competition, will mean that household budgets will stretch to more SVOD services.
The picture is different in markets where total household spend on TV is still growing (and that includes some major markets outside the U.S.) “However, the underlying rate of change is relatively low. In these markets, we expect growth in household outlay on entertainment to increase the ceiling for SVOD services by just 20% -30% over the next five years,” Ampere Analysis says.
The SVOD stacking ceiling study covers the U.S., Canada, Argentina, UK, Denmark, Norway, Australia, Netherlands, Poland, France, Germany, Japan, Sweden, Italy, Brazil, Mexico, Spain, China, India and Russia. The study predicts that after accounting for factors such as sport and future growth in spending, the UK and Germany have an average household capacity of approx. three services at current price points. “This apparently low capacity still translates into a sizeable number of subscriptions —88m capacity in the UK and 124 million capacity in Germany.”
In the USA, even four to five services per household would translate to a total of 510m-640m possible subscriptions. In total, covering the 20 markets assessed, Ampere Analysis estimates that a realistic SVOD stacking ceiling leaves room for a further 3 billion SVOD contracts.