Reports: Netflix

The shift to digital consumption has brought SVOD (Subscription Video On Demand) to the fore. And leading the charge both domestically in the US and internationally are Netflix and Amazon Prime Video. Netflix is now in 190 territories and Amazon Prime Video is now available in 242 separate territories.

With a third of Canadians subscribing to traditional pay-TV, the country has a strong appetite for online video. This is demonstrated by the 20.3% of the population who are now Subscription Video On Demand (SVOD) subscribers. With the SVOD market already more than two thirds the size of the traditional pay-TV market, Canada is a litmus test for whether traditional pay-TV is able to co-exist with SVOD.

With Netflix on course to pass the psychologically significant 100 million subscriber mark, the company’s Q1 2017 quarterly earnings are particularly significant. With 43.2% of the global SVOD market and a presence in 190 differing territories the only major piece missing from the picture is Netflix’s failure to launch in China, the largest and fastest growing market for digital services.

In the cord-cutting era TV networks are having to think about what life beyond the traditional pay-TV ecosystem might look like. With SVOD services snapping up audiences in their millions, operators are busy focusing on higher ARPU users and demanding more rights from networks but with tightening budgets.

With content now a more difficult proposition in itself to sell directly, the overall experience becomes, for many, their central core monetisable proposition. We have already seen this development in the online world which is characterised by the transition from sales to consumption.

As the app economy matures into an amorphous content landscape, a picture emerges of how free and pure subscription models impact the bottom-line of the creative industries across music, online video, publishing and gaming. In one corner, freemium has been accused of devaluing content as a product, yet it is also credited with driving higher revenues from super-fans who previously had their spending capped by blanket pricing, at least in sectors like games (music still caps spending).

As the app economy matures into an amorphous content landscape, a picture emerges of how free and pure subscription models impact the bottom-line of the creative industries across music, online video, publishing and gaming. In one corner, freemium has been accused of devaluing content as a product, yet it is also credited with driving higher revenues from super-fans who previously had their spending capped by blanket pricing, at least in sectors like games (music still caps spending).

Netflix is the poster child of Subscription Video On Demand (SVOD) services with a rollout in 2016 to 130 territories worldwide and international subscribers accounting for 45% of users. A 2016 $1 billion bond issuance to fund increased content spend to $6 billion for 2017 underlines both the ambition and the resources being deployed by the company in its bid to grow into a mainstream international video provider.

The advent of Video On Demand transformed the business models of the broadcast and pay-TV industries. Now it is set to have an equally disruptive impact on the nature of video content itself as the old analogue limits of linear TV programming no longer apply.

Since reinventing itself as an online video subscription platform Netflix has transformed the paid video market. By delivering its online offering into consumers’ living rooms through connected TVs it removed the barrier between the TV and the internet.

Online TV viewing in the UK is now a mainstream consumer activity. This has been facilitated by near universal levels of internet connectivity and smartphone adoption and driven by the unique role played by national broadcaster the BBC. However while the UK is in the vanguard of video viewing, the dominant position of BBC’s iPlayer ad-free OTT (Over The Top) programming complicates the environment for SVOD (Subscription Video On Demand) services.

The United States is fast approaching the point where online TV viewing becomes a mainstream consumer activity. This has been facilitated by near universal levels of internet connectivity and smartphone adoption. Leading the charge on its home turf is Netflix, experiencing double digit growth since 2010.

Content Connectors, devices such as Apple TV, Google’s Chromecast, Amazon Kindle Fire TV and Roku, are set to transform the way in which mainstream consumers interact with digital content. Current adopters of these devices are the most valuable paid content consumers across all content genres, not just the video for which Content Connectors are best known.