It has now been well documented that the global market for SVOD services has been booming throughout the pandemic as people across the world were simultaneously forced to stay at home, combined with the launch of new services like Disney+, AppleTV+ and HBO Max.
UK regulator Ofcom, reported that young adults watched SVOD services for an average of two hours a day in April 2020, double the time they spent one year earlier in April 2019. Ofcom also estimates that 23 percent of the British adult population subscribed to a new streaming service during lockdown.
The boom benefitted both incumbents and new entrants. In Q1 2020, Netflix added 15.8 million subscribers globally, which is more than double the 7.2 million that was expected. Newly launched Disney+ also saw huge subscriber growth during 2020, going from 26.5 million subscribers in Q1 2020, to 94.9 million in Q1 2021.
Whilst competition in the SVOD market is intensifying, Richard Broughton, research director at Ampere Analysis, says that increased competition isn’t necessarily a threat to existing streaming services. “Yes there will be some effect of increased competition in the marketplace,” Broughton said, “But to date, we’re not remotely close to the point at which all of the services are beginning to cannibalise one another.”
Danny Ledger, a principal and US entertainment subsector leader at Deloitte, predicts that the next battle in the streaming wars is going to be over profit, rather than subscriber numbers.
“What we’re seeing is that subscriber growth comes at a really heavy cost, the cost of content, the cost of marketing, the cost of infrastructure. The margins on these subscribers are razor-thin,” Ledger says. “I think right now the smart players in the market are gonna be the ones that build the best personalised experience,” he added.
Netflix continues to maintain its crown as the world’s biggest streaming service, but despite adding 40 million new subscribers in 2020, the company saw its share of the market eroded in 2020, mainly due to the success of new services like Disney+.
“Netflix is in a slightly different position than other streaming services,” says Richard Broughton. “As an incumbent, it’s already saturated. In many markets like the US and even the UK, it’s already reached the bulk of subscribers it’s ever going to get.”
“Newer services have more potential to grow their subscriber base, but it can be hard to establish yourself in the market,” Broughton says. “There’s an incumbent advantage in the sector. Services like Netflix are almost synonymous with TV. They represent a default viewing platform for many consumers.”
There’s also the question of how newer services acquire content to compete with established players. “I think the big question is scale,” says Deloitte’s Danny Ledger, “Because in order for these companies to retain customers, they’d have to have content that either comes in one of two ways. Investing in producing new content, which has been really the norm for SVOD services so far, or acquiring content.”
Producing and acquiring content is an expensive process for any new SVOD service, but Ledger says without a deep content library, streaming platforms risk seeing high churn rates.
“Maintaining loyal customers really has become the number one problem for these subscription services,” says Ledger, “We term this “the hit and run”, where we’re seeing consumers come in, they watch their hits, and then they run to the next service.”
The “hit and run” phenomenon was identified in Deloitte’s ‘Digital Trends Report’, the company surveyed the subscription patterns of US consumers. In January 2020, 20 percent of respondents who subscribed to a streaming video service had cut a service in the previous 12 months. However, by October 2020, 46 percent had cut at least one in just the previous six months.
However, at this point it’s still difficult to determine the extent to which these behaviours were shaped by the pandemic, and the degree to which they’ll persist as restrictions are eased. But Ampere’s Richard Broughton believes that SVOD viewing is unlikely to drop to pre-pandemic levels.
“While there’s definitely some evidence that people who signed up early on in lockdown then churned, when maybe they’d watched all the shows they wanted to watch on that particular service. But what I would say is that overall, that doesn’t remotely offset the upside, which was a vast number of new subscribers signing up during the pandemic,” Broughton added.