SVOD Driving Pay-TV Growth, but Search and Discovery a Roadblock: Futuresource

Some 70% of consumers’ spending for video goes to pay-TV, said a December Futuresource report, giving the 2020 global subscription VOD spend as $55 billion. Pay-TV subscription revenue accounted for $172 billion in consumer spending this year, said analyst Tristan Veale, with the remainder divided among subscription- and transactional VOD, electronic sell-through, DVD and Blu-ray. Netflix captured almost half of all global value, he said.

SVOD’s “phenomenal growth” is driving overall momentum in home video due to a “large, well-rounded” content offering with wide appeal, and the convenience of “being able to pick up where you left off, no matter what device you decide to continue watching on,” he said. By 2024, Futuresource predicts a third of home entertainment spending will be on SVOD.

But the analyst noted challenges with managing and organizing content in the on-demand world. More companies are launching their own services to ride the wave of SVOD's success, causing a crowded landscape, he noted. “With a plethora of services across general entertainment, sports, kids and specialist services, as well as [AVOD],” the challenge for consumers and the industry will be to improve search and discovery, he said: “While multiple services can co-exist, with consumers stacking services, a deeper integration is required with distribution platforms at a metadata level, as consumers continue down the multiservice route.”

SVOD services developed a business model that meshes with contemporary living, but there’s still value in the linear model, Veale said, saying most of the content spend is directed that way. He questioned whether there’s a way to combine the two, noting SVOD services are experimenting with scheduling and acquiring spots rights, “two key pillars” of the pay-TV industry.

One aim is to improve visibility on distribution platforms, including fitting in with current electronic program guides on legacy infrastructure, while retaining consumers’ ability “to start from the beginning of the program if they wish.” SVOD service providers’ first challenge is to entice consumers to their platform, then make it easy to find the content they want. “Whichever service can make that journey easier will have a competitive advantage.”

Older viewers continue to spend most of their TV viewing time watching linear TV vs. younger viewers who have “significantly more fragmented viewing preferences,” Veale noted. SVOD and advertising-based VOD services such as YouTube get most of younger viewers’ eye share, but a “burning question” is whether younger age groups will continue to prefer VOD services or adopt habits of their parents and grandparents as they grow older, he said.

Transactional video revenue, including digital purchases and rentals, is forecast to reach $17 billion in 2020, but the category is in decline as consumers are moving away from buying physical media at a faster rate than the increased buying via digital platforms, Veale said.