“Last one in is a rotten egg,” goes the old yell that rings in the ears of anybody near a swimming pool and a bunch of a kids. A new report from Strategy Analytics says it may also apply to the video streaming market.
It reports that U.S consumers this year will spend $6.62 billion on video streaming services, like Netflix, Amazon, Hulu (and Fullscreen and YouTube Red and HBO Now and . . . ) and that’s $1.19 billion more than just the year before, or 22%.
But . . .
But 2016 will be the first year the percentage increase is less than the years before it. That’s a sign the market is reaching a saturation point.
I’d say a piddling 22% increase is still no reason to panic, but Michael Goodman, Strategy Analytics digital media director, wins the First Alarm award on this budding market change. “Although the change in increase is relatively small, its direction is extremely significant,” he wrote. “It shows that, whilst actual market saturation is a few years off yet, the domestic U.S. streaming subscription market is now on the backside of the adoption curve.”
DVDs and downloads, to buy or rent, seem to be the victims here. They’re going down while pay streamers are gaining.
For now. It’s all downhill from here for them, it would seem, at least to Goodman.
At some point, it does seem that new entrants to the pay streaming business are going to have a tough go of it. As a lot of people have noted, after consumers count up the number of $6.99 payments they’re making every month they might start wondering if they really need to pay for things like Seeso, the comedy streamer NBC operates.
We may be reaching the point that more people might start making that calculation.
Goodman says 60% of all U.S. households now get Netflix, and in broadband homes, that figure jumps to 85%., and he says Netflix tops all other competitors, owning 53% of all subscriptions, more than doubling Amazon’s 25% and stomping all over Hulu’s 13%. Goodman theorizes that Netflix is nearly topped out, and for all others, the idea is to either take market share from a competitor or convince viewers to buy more than one.
Amazon, for example, now allows would-be users to buy on a monthly basis rather than fork up the annual fee, which is a good way to lessen the sting of subscription costs. And it seems all players are looking to foreign turf to build revenue.
You wonder how Strategy Analytics’ figures hold up if more and better skinny bundles become available. In theory, at least, if I can reduce a cable bill by half that creates a larger pool of money for pay streamers to grab. I’m also a little lonely voice on this, but the growth of SVOD streamers still seems to leave opportunity for well-heeled advertising-supported streaming services to invent a palatable way for viewers to pay less and soldier though some commercial messages that could be rare, brief and because it’s possible, even kind of relevant.
Oddly, the only places seeming to be interested in really re-adjusting the ad model are TV outlets. Fox, Time Warner and Viacom are all experimenting with new, fewer-ad formula. And NBC’s “Saturday Night Live” will cut its commercial load to avoid losing viewers who don’t the commercial intrusions very funny at all.
When broadcast audiences in the mid-1950s started experiencing slower growth than the early 1950s, did anyone seriously think that network radio might rebound? No.
I wish I had a nickel for every trade press story I have read in the past, where someone trotted out the "slower growth" argument. The smart money is not betting on the legacy media.
Sixty percent of U.S. Households now get Netflix---really?
As for whether TV rebounds or not, it dpends what you are referring to. If it's average minute viewing, there will continue to be more declines---slow but steady---as more and more viewing options and "platforms" appear, but this, of course depends on the quality of the competing platforms. If we are referring to advertising dollars, then the picture is not as glum as the "TV is dying" crowd claims. Why? It's simple. Advertisers can't "follow the audience" to digital venues unless these offer content of acceptable quality, unless they attract significant audiences without the reach limits now imposed by ad blockers and, most important, unless they sell ads. At present, Netflix, which commands about 60% of the SVOD audience tonnage doesn't sell ads, nor does Amazon and Hulu is part ad, part ad-free.
When TV usurped radio's leadership position in the early 1950s, It had all three elements---better programming and more of it, huge audiences and it sold ads. Also, the big TV players---CBS and NBC---had been the dominant radio programmers. Many of the early TV shows were simply brought over from radio. I wouldn't be surprised to see the same pattern materialize in SVOD. In the meantime, advertisers who believe that TVcomercials are their best communicative vehicle have little choice but to stick with TV as their primary medium, with digital as a supportive, more selective, add-on. If sticking with TV at ever increasing CPMs is what it takes then so be it as there is no viable mass audience alternative.
No doubt we shall soon be favored wiith the usual chanting response that "attribution" is the only way, that the TV pricing model is unsustainable, that Nielsen is "buggy whip", etc.,etc. but that siren song doesn't jibe very well with the facts----in my humble opinion.
The question I've been pondering, Ed, is where TV will stabilize. Right now the erosion is a trickle. Maybe it will speed up. But in the long run, my sense is we'll see TV stabilize at 80% to 90% of where it has traditionally been.
In reality, I doubt that will seriously affect TV's impact for advertisers. There's old research that suggested about 1/3 of viewers saw most ads, about 1/3 saw a lot, and the final 1/3 mentally (or physically by leaving the room) skipped almost all ads.
So who will the long term cable cutters be? Having known a lot of folks in the least involved "1/3" (whatever the exact number), they're people today I see as highly likely to cut the cable - because they also aren't heavy enough TV viewers to get the value for paying for the bundle.
The digerati have told us digital is "disrupting" and they'll steal everybody away. But it's fundamental marketing. There's a group who get enough of the value they want from SVOD (and other options) and will get it for a price they like. But that also means they're low involvement TV people.
And this is classic consumer behavior. Ebook sales are stabilizing at around 30% of the market. A lot of people still buy CD's. I continue to read physical newspapers - wonder what number that has stabilized at? There will be a similar reality with TV. My guess is that a TV bundle will continue to offer the right price/value balance for the vast majority of people.
Doug, in my opinion a number of factors are at play. One, that almost nobody seems to discuss is the fact that a certain proportion of the population---about a third, I'd say, does something like 60% of TV viewing. Many of these people aren't as sophisticated as many of TV's critics and they like much of what they see---including many commercials. Typically, these are adults aged 45+ with limited or average educations, however a surprising number of heavy viewers are also college educated. With "couch potatos" to rely on the TV networks and stations have a solid base of consumers they can "deliver" to advertisers---not the most ideal, from a trageting viewpoint, but worthwhile, nevertheless. So my guess is that TV will retain about 75-80% of its viewing time tonnage, but less, of course, among the younger/upscale segments.
Another element, is the fairly obvious, though halting, drive by the networks and cable programmers to create a two-revenue stream--subscription fees plus ad dollars---for their premium content via SVOD. Despite their "mass audience" orientation, the networks are well suited to push into this area, with lots of existing content at their disposal, well staffed programming and research units, vast promotional platforms, great connections in the production community, etc. If they are able to at least break even on new programs via SVOD, then use the same content at low cost to generate ad revenues and syndication profits, their profits will soar. Even if this added competition reduces TV viewing time to 70% of what it is now, it wont matter as viewers will still get what they want one way or the other.
Thanks, Ed. That's a solid way to view things.