Subscription VoD Dominating Home Video Sector, but Pay TV Still Strong, Report Says
Worldwide spending on video, games and music is expected to reach $439 billion this year, up 17 percent from 2017, Futuresource reported Thursday. Subscription VoD from services including Amazon Prime Video, Hulu and Netflix are “rapidly dominating” the home entertainment sector, accounting for nearly half of last year’s $42 billion spent on DVD, Blu-ray, electronic sell-through, VoD and SVoD video, it said. That's up from 13 percent of home video spending in 2013. The growth trend will continue, Futuresource said, with SVoD expected to be 70 percent of home video spending by 2021, driven by households adopting multiple services.
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There’s still “significant appetite” for pay TV, a $200 billion market in 2017 vs. SVoD’s $19 billion, Futuresource said, due to availability of premium and exclusive sports content. Pay-TV spending rose 4 percent vs. 2016, with the U.S. having nearly half of global spending at $106 billion. China's 336 million pay-TV households led in subscribers, but at under $3 per month, spending was one-tenth that of U.S. pay-TV subscribers, the report said.
Key markets with a drop in pay-TV subscriber levels include the U.S. (1 percent), Canada (1 percent) and France (3 percent), Futuresource said. But U.S. subscription revenue continued to rise, fueled by price hikes and consumer migration to higher-tier packages, it said.
As the landscape continues to evolve and content owners increasingly experiment with direct-to-consumer propositions, consumers will benefit from being able to customize TV bundles with the content they want. The trend is bringing in new market entrants focused on the user experience and aggregation of best-in-class linear and on-demand content from third-party partners. At the end of 2017, there were 4.8 million U.S. “Pay-TV lite” subscribers, the report said.
"With content remaining as one of the main differentiating factors, spend to secure exclusive rights continues to soar placing added pressure on operator's margins," Futuresource analyst Tristan Veale said. That’s compounded by increased competition from online platforms Netflix, Amazon, Facebook and Twitter with “significant war chests for content acquisitions.” Combined, the FAANG (Facebook, Apple, Amazon, Netflix and Google) companies are projected to spend about $20 billion on video content in 2018, Veale said.
The increase in competitive pressures is driving merger and acquisition activity, the report said, citing Comcast's recent bid for Sky (see 1802270059) and Disney’s move to acquire 21st Century Fox (see 1712140003). “Economies of scale have never been more critical, as content distributors and owners seek to maximize return on investment through broadening reach to the widest audience possible,” Veale said.