VMVPD Market 'Never Really Took Off,' MVPD Exodus Slowing: Horowitz

The “extremely volatile” virtual MVPD market “never really took off” in the way its proponents thought it would, said Horowitz Research analyst Adriana Waterston on a Wednesday Cable & Telecommunications Association for Marketing webinar on the state of the pay-TV, over-the-top video and subscription VOD markets.

Subscriptions to at least one vMVPD dropped to 23% penetration this year from 29% in 2021, Waterston said, and 27% of users have access to a vMVPD via password-sharing, down from 34% two years ago. Seventy percent of vMVPD subs have had their service for less than a year, she said, and among those, 42% are planning to cancel it, she said, citing Horowitz consumer studies.

Though traditional pay-TV subscriber counts have “dropped precipitously” -- with penetration at 51% of U.S. TV content viewers -- “mass shedding” of MVPD subscribers will likely slow “somewhat,” she said. Those likely to cut the cord have “pretty much done it.”

Among MVPD subscribers in Horowitz’s latest study, 26% plan to upgrade service by adding set-top boxes or channels, outpacing the number of subscribers who plan to downgrade (21%), she said. About 12% plan to switch providers and 6% plan to cut the cord altogether. The subscribers who still have cable or satellite are “those hard-core, loyal customers,” she said.

In 2020, 58% of viewers subscribed to both an MVPD service and at least one paid streaming service, Waterston said. Some 23% subscribed to MVPD only; 14% subscribed only to a streaming service, and 5% had no subscriptions. In 2022, 29% subscribed to both, 21% of viewers were MVPD-only, 37% streaming only, and 13% of viewers had no subscriptions, she said.

On the SVOD side, Netflix’s dominance has been “dissipating” in a maturing and fragmented market, survey results showed. After “far-outpacing” other SVOD services for years, “Now we’re seeing that penetrations are narrowing,” Waterston said. Amazon Prime Video’s penetration among TV viewers is only 3 percentage points behind Netflix, at 42%, followed by Hulu at 31%, Disney+ at 30%, and HBO Max at 27%, she said. Discovery+ is at 17% penetration, and Horowitz sees its penetration growing “tremendously” over the next few years, after the merger with Warner.

The study showed 8% of Netflix subscribers get the service through password-sharing or bundles vs. 7% for Prime Video, 5% for Hulu and Disney+ and 6% for HBO Max. Waterston downplayed password-sharing as a negative. Companies are “putting the kibosh” on the practice, but “it really does deliver added value” to subscribers, she said, noting when an account is shared, “each service’s reach extends by 8-16 percentage points."

It remains to be seen whether the additional viewers who aren’t paying for service will start doing so as a result of password-sharing crackdowns, Waterston said. A reverse outcome could be that those who justify the cost of Netflix or other streaming services because they’re sharing with others “start to feel that that service no longer holds the same value.” Service providers have to be sensitive to these concerns because “today’s streaming marketplace is getting very expensive for consumers,” Waterston said.

The average TV content viewer watches about seven services a month, four of them paid, Waterston said; the other three are ad-supported. The cost of SVOD services “is starting to approach the cost of what MVPD cable video service actually costs,” she said. In 2020, the average monthly cost for SVOD services was $43 a month; this year, viewers estimated they were spending $76 a month. MVPD customers said they were paying $91. “The difference between $43 and $91 is much more pronounced than the difference between $76 a month, and rising, and $91,” she said.

That’s significant because several years ago, most cord cutters felt they were saving a “really good amount of money” by having dropped their MVPD service, Waterston said. Now that perception is shifting. About four in 10 cord-cutters felt they were saving a good amount, said the most recent Horowitz data, but 56% feel they’re saving only a “decent amount,” “not that much,” “none at all” or “paying more,” since cutting the cord. That will affect consumers’ perception of the value of SVOD services, she said.

Churn is “really, really a problem today” with SVOD and MVPD subscribers: 55% frequently or occasionally quit a service after taking advantage of a trial offer, Waterston said. About 49% sign up for a service for a specific show, then cancel after the show ends, she said; 42% subscribe to a service for a specific sport or event, then cancel after.

People who share passwords skew lower income. Some 58% earn under $50,000 a year, 60% cut the cord, and they tend to be young, female and multicultural, Waterston said. Those who pirate content -- via pre-configuring a set-top box, using an unauthorized website, using peer-to-peer sharing or other means -- are more likely to be middle-class, watch international and foreign-language content, skew younger, are male and tend to be family households, she said.

Content pirates are heavier TV viewers, more likely to have an MVPD service, subscribe to streaming services and are “really into TV, movies and entertainment,” Waterston said. “Is it so much that people are trying to take advantage, or is it that these people are just so hungry for content?” she said. A higher proportion of pirated content was for international content that may not be readily available, she said.

Viewers like the variety of content in streaming, the portability across devices and the ability to manage their own profiles, but pain points remain, Waterston said. Downsides include the difficulty finding content, usability, kinks that haven’t been worked out, cost and the difficulty managing so many subscriptions. Waterston admitted she found out six months in that she was double-paying for an HBO Max subscription -- through Amazon and to HBO directly: “Imagine how it’s happening to people outside of the industry," she said.

Streaming customers want universal searchability and managed services: the ability to manage and monitor all of their spending and to pay their bills to one provider, consolidated under one platform, Waterston said. They’re looking for other innovations that could be done via streaming video, including shopping, social experiences and gaming. Nearly half of survey respondents said they want to do interactive shopping from their remote; 46% wanted to be able to text and comment while watching a show, as if they were participating in a Facebook Watch event.

Consumers are excited about prospective new interactive engagements they can have in the streaming environment, and “what they want is a new vMVPD,” Waterston said. “They want a new managed video experience but with all of these enhancements." That presents an opportunity for CTAM members to “disrupt the disrupters” by offering new interactive, entertainment, shopping and social experiences that consumers will find value in, she said.

The pay-TV industry “missed the boat the first time around,” and it “failed to work together to realize the full potential of our own technology and our content,” Waterston said. Streaming capability existed, but the industry “willingly handed over that opportunity to Netflix to disrupt us. Let’s not do that this time,” she said. MVPDs need to be “nimble like a startup.”