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Major channel owners made “strategically very wrong move” by jumping into SVOD arena, says analyst

Ian Whittaker, Founder of Liberty Sky Advisors believes major studios and channel owners – such as Disney and Comcast – made a strategic blunder by entering the streaming market on the subscription model. He predicts that AVOD services will continue to grow rapidly, forecasting that the percentage AVOD contributes to total broadcasting ad revenues will rise from 12% to 25% between 2020 and 2025.

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Major channel owners and studios, such as Comcast and Disney, have made a “strategically very wrong move” by jumping into the streaming arena on the subscription model believes Ian Whittaker, Founder of Liberty Sky Advisors. At Thinkbox’s TV in focus: 2022 event in London, he argued that these players now find themselves locked into a battle with other streaming services as costs continue to accelerate. Whittaker remarked that, despite it becoming increasingly clear that the “love affair of the markets with [the subscription model of] streaming looks like it’s over”, studios and channel owners will have difficulty extracting themselves from the SVOD market.

Elaborating on this theme, he stated that SVOD penetration in U.S. is already reaching saturation levels. Research by Kantar he cited shows that, while over 80% of TV households in the country have at least one SVOD service currently, this figure has only risen by a couple of percentage points over the last two years. He noted that even this small apparent increase may be skewed by customers adopting Amazon Prime, and receiving access to Amazon Prime Video as part of a subscription package.

He also made the point that, despite popular perception that traditional TV is experiencing a dramatic decline, Gauge Data from Nielsen shows that traditional TV viewing still represented two-thirds of total viewing time in U.S. for 2021.

Whittaker argued that AVOD will continue to grow rapidly over the next few years. Citing Kantar data, he showed that, in the span of two quarters (between Q2 2021 and Q4 2021) AVOD penetration in U.S. TV households increased from 13% to 18%. He forecast that, as a percentage of total broadcasting ad revenues, revenues from AVOD services will contribute 25% by 2025, rising from 12% in 2020. Additionally, the percentage of overall broadcaster ad revenue growth contributed by AVOD will dramatically increase from 27% in 2021 to 70% by 2025.

He speculated that this rapid adoption of AVOD services can be attributed to a growing interest in lower cost services in light of increasing pressure on household budgets, rising inflation affecting food and fuel prices, and rising mortgages. He also believes that increased ad spend budgets on AVOD and traditional TV represent a structurally driven growth phase, rather than simply a cyclical post-pandemic rebound.

He remarks that the decline of the SVOD model – and increasing attractiveness of the ad-supported services – is reflected also in the fact that “global addressable markets for streamers are smaller than you think”. He cite the example of Indian market, characterising the degree of competition and aggression of local players as a “bloodbath”.

Another issue is the potentially low profitability of penetrating new international markets. He said: “The subscription model is simple – revenues are the number subscribers multiplied by the ARPU (Average Revenue Per Unit). In many heavily populous countries – such as India, Indonesia and across Latin America – subscribers gained will generate a lot lower ARPU than in North America or Europe. Because cost of programming tends to be fixed that has an impact on profitability.”

Whittaker concluded with the prediction that, despite its current position as the most subscribed to streaming service globally, Netflix “will struggle in the next couple of years” as it faces competition from major broadcasters (with better cashflow) entering the streaming space.


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