That’s a question I get asked so often by friends and family outside of the media industry and sometimes by those in the industry too! Yesterday, I was invited to a talk with Martin Goswami who is the Director of Pay and Distribution TV – the role of that team is to generate non-advertising revenue by using their content e.g. licensing boxsets to Netflix or finding new platforms to show ITV content. The talk wasn’t necessarily relevant to us as Media planners/buyers but more interesting to see what the likes of ITV are competing with when trying to get eyeballs on their content.
Netflix are approaching 100m users globally with an equal split between USA and the rest of the world. In the UK there are just under 7m households with access to a Netflix account which is forecast to be 4m unique Netflix accounts – subscribers to Netflix can pay slightly more per month to allow their account to be used on multiple devices at the same time. In comparison, Amazon Prime have approximately 3m subscribers in the UK which is very impressive considering they started out by buying Lovefilm.com in 2011 but it was only rebranded to Amazon Prime Video and the service changed from delivery of DVDs through letterboxes to a S-VOD platform in 2014. The final major S-VOD platform in the UK is the Sky-owned Now TV platform which allows users to buy ‘packs’ (entertainment, lifestyle etc.), it is Sky’s way of allowing people who aren’t willing to pay the Sky subscription fee access to some of the Sky content. Now TV has approximately 1.3m users.
Between the three platforms there are about 10m subscribers in the UK which whilst significant, it isn’t really enough to have an impact on linear TV (yet). It’s also important to keep in mind that approximately 40% of S-VOD subscribers are subscribed to more than one of the platforms, which again reduces the overall reach of S-VOD. Below are the forecasts for subscriptions in 2020 which sees the S-VOD subscriptions at just under 14m in the UK:
– Netflix – 7.4m
– Amazon – 4.1m
– Now TV – 2.4m
Although the S-VOD services are eating into some of the linear TV viewing, the real concern about these platforms, Amazon Prime and Netflix in particular, is the amount of money they are able to and are investing into content. By the end of the year it is forecast that Netflix will have spent $6bn on content alone in 2017! At least 50% of that is on original content which is exclusive to Netflix. In the same time period Amazon are expected to spend $4.5bn on content. To put these figures into context, ITV will spend just under £1bn on content in 2017, but it is content that will be viewed by significantly more people that Netflix or Amazon’s.
The next question is how long can Amazon Prime and Netflix sustain these models of investing billions into content with not massive amounts of subscribers and no advertising on their platforms? Netflix play their cards very close to their chest on viewing figures/habits etc. but as long as demand is there they can keep making small increases to their monthly subscription fee to cover their costs. Amazon Prime are in a unique position, Amazon have suggested that each one of their Prime subscribers spends a further $250 per year on Amazon and as long as this trend continues, their spending on content to drive more Prime subscribers is very much sustainable.
ITV have introduced a similar model to the other S-VOD platforms on their ITV Hub, whereby users can pay £3.99 per month to view the content completely ad-free and get access to content a few days earlier than non-paying customers. However they will still be getting revenue from non-paying customers as they’ll have to watch adverts before and during their selected show – similar to the Spotify model.
The S-VOD market is extremely interesting and growing quickly. However it is nowhere near the size, yet, where it will really challenge viewing figures of linear TV. It is true that access to services such as Netflix have made appointment to view television even more important for brands to have presence in, to guarantee a live audience as opposed to a catch up one.