Is the SVOD market really saturated? Not by a long shot

SVOD market

There are multiple ways to interpret data sets about streaming video and especially the SVOD market. How you do so can radically change your insights.

Case in point: This recent research from Hub Entertainment Research, “The Best Bundle.”

The company found respondents watched TV and movie content from 4.5 different sources, a number that includes pay TV. Not surprisingly, younger consumers – between 18 and 34 – watch from more sources, 5.5, and households (HH) with kids watch content delivered from 5.2 sources.

Three-quarters of viewers have a traditional pay-TV bundle, a whopping 9% drop from 84% a year ago, which is really startling, despite all of the cord cutting that’s been reported over the past several quarters.

Not surprisingly, the beneficiaries from eroding pay-TV subscriptions are players in the SVOD market, specifically the Big 3 streaming plays, Netflix, Amazon Prime Video and Hulu.

Netflix, which 62% of respondents watch, is up from 61% a year ago, according to Hub’s research, Amazon Prime Video, is at 37% from 32% in the past 12 months, and Hulu, scored 26% from 18% in 2018.

Hub found that 70% of respondents watch at least one of the Big 3 streaming services and that nearly half, 42%, watch two or more of them. Those numbers were 69% and 35% respectively in 2018, so modest growth.

Hub also reports that 24% of the survey respondents said they “already had too many online TV subscriptions,” up from 14% a year ago. And, it points out that about one-third (36%) said they’d “probably” or “definitely” drop a subscription before they added a new one.

Oh, the humanity! (Think Hindenburg disaster here.)

Saturation, right?

The media immediately took that point to conclude that the SVOD market in the U.S. was saturated.

Consider these headlines:

Frankly those reports were, to a large extent, spurred on by Hub’s own take on the data, positing at one point: “More than a third (or respondents) say they wouldn’t add a new platform without first cutting a subscription they have now.”

And, as Peter Fondulas, principal at Hub and co-author of the study, said in a statement: “The TV landscape is approaching zero-sum status, with more consumers insisting they’d drop an existing service before adding a new one.”

But, Michael Greeson, head honcho at research firm TDG, offered a different perspective at the Pay TV Show last month in Denver.

He pointed to recent TDG research that found two-thirds (66.5%) of consumers felt the number of subscriptions they had were just enough, and only 10% indicated they planned to cancel one.

Simon Murray, principal analyst at researcher Digital TV Research also believes the US is a long way from SVOD saturation, saying: “I think that the saturation point is beyond the last forecast year of 2023. In fact, we forecast 8.5 million SVOD subscription additions in 2023 alone—so still plenty of growth left.”

Users are still adding services… by churning

The saturation argument, um, holds no water – since even Hub’s own data points out that nearly two-thirds (64%) of respondents to its survey said that if they were to subscribe to a new TV service they would “probably” or “definitely” keep all current subscriptions.

The reality is that consumers have gotten comfortable building their own bundles and moderating them by churning regularly to get the hottest content when they want it, akin to stirring the pot to make sure a stew doesn’t burn.

Finished with Homeland? Churn out of Showtime and into CBS All Access or HBO to catch up on whatever it was that you missed while you were engrossed in Homeland for a few weeks.

It won’t be any different with Disney+ or with the new WarnerMedia service.

A Parks Associates report in September, showed churn rates steady at 18%, with the average subscription lasting 30 months.

And churn, as former Sling CEO Roger Lynch noted during a presentation a couple of years ago said, is not the enemy of SVOD services, just one of the realities.

“We don’t think of it as churn,” he said, just as the cost of doing business, a much lower cost than for pay-TV operators.

Customer acquisition in the pay-TV industry can run as high as $1,000 per subscription, including advertising, marketing expenses, equipment, installation services, and new customer promotions. While subscriber acquisitions for virtual MVPDs like YouTube, DirecTVNow, Sling and Hulu are a fraction of that because there are no truck rolls or hardware to install.

For SVOD services like Netflix and Amazon Prime Video, costs are even lower. Netflix, for example, pays about $100 per US subscriber, and $45 for international subscribers, according to Ampere Analytics.

The bottom line

Users will churn through services as they lose interest or when they come to the end of a series. They’ll likely return when, for example, new content is available.

Discovery and recommendation are crucial, something you need to have to succeed. A “What’s next,” or, “We suggest” section is effective in retaining customers and keeping them engaged.

Despite – or because of – the allure of a la carte, there’s a race going on to see who the next “best aggregator” is, who will replace pay TV in that role.

Roku will play there, Google and Amazon, too. Apple may be the wild card.

Is the SVOD market really saturated? Not by a long shot.

Stay tuned.

Jim O’Neill is Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn