For many of us, the last few weeks have been some of the most unfamiliar and disruptive times we have experienced in our lifetimes. With most of the world now living in lockdown it’s fair to say that our behavioural habits have been tested. Whether it’s how we choose to source our weekly shop, our daily exercise regime or even watching TV, virtually everything has been impacted.
With that in mind, I wanted to take a deep dive into the potential protracted repercussions COVID-19 will have on the SVOD (Subscription Video On Demand) market, as well as the knock-on effects it subsequently has on advertising & sports.
UK Market
The UK SVOD market is dominated by Netflix which according to Ofcom has an estimated 11.5 million households subscribing which equals 40% of UK households. It’s worth noting that nearly 25% of Netflix subscriptions in the UK are part of a Sky (satellite TV) subscription. The proportion of UK homes with a subscription to at least one of Netflix, Amazon Prime Video or Now TV passed 50% for the first time in Q4 2019, standing at 50.5%
All three providers continue to see year-on-year growth, with Netflix still the largest service, increasing almost +20% since Q4 2018. Amazon Prime Video grew by just over 35% versus Q4 2018 to over 7 million homes, with Now TV also seeing almost +8% year-on-year growth to close to 1.7 million UK homes. In Q4 2019, 6.03 million UK homes (21% of homes) subscribed to two or more SVOD services, up 1.72 million year-on-year.
Covid-19 effect
With millions now confined to their homes, the market dominant SVOD providers have taken necessary measures to ensure their services can cope with the surge in demand. Amazon’s Prime Video joined YouTube and Netflix in reducing the speed of its streams across the UK and Europe to ensure broadband networks could handle the surge in usage.
There has also been a peak in global subscribers since lockdown measures have been enforced. According to Strategy Analytics, global demand for subscription streaming video services will benefit from a 5% bump from the coronavirus pandemic. That translates into an additional 47 million subscriptions by the end of the year.
The Walt Disney Co. said its new Disney+ streaming service has attracted 26.5 million subscribers in the first quarter since its launch last November — a threshold it took rival Netflix five years to achieve. According to streaming analytics firm Antenna, Disney+ signups have more than tripled over the previous week, between March 14th and March 16th. Disney+ saw the biggest jump in subscriptions, with Netflix also seeing a 47% increase in new signups.
Michael Goodman, Director, TV & Media Strategies at Strategy Analytics gave his account on the Covid-19 impact on the SVOD market. “In the near term, the coronavirus will actually boost SVOD subscriptions as well as viewing of these services, as an ever-growing number of consumers adopt social distancing or are forced into quarantine. In the mid-to-long term much depends on the length of the pandemic and resulting economic damage. As businesses shut down and individuals are laid off, consumers are going to have to make hard decisions about how they spend their money and as wonderful as Netflix, Amazon Prime Video, Disney+ and other SVOD services may be, they are not essential services.”
Source: https://medium.com/antennaanalytics/the-impact-of-covid-19-disney-sign-ups-spike-d178456435eb
Advertising Impact
Even prior to the outbreak of the coronavirus, the number of UK households subscribing to SVOD platforms and moving away from TV was increasing. There will be several industries which are impacted by the knock-on effect of this. Usually, a captive TV audience means consumers are more attentive to brand messages – which may still be the case now. But longer term, ad revenues are expected to tumble.
According to Mediatel, ITV became one of the first to raise the alarm when it forecasted a slump in future advertising revenues of at least 10% for April, with travel companies deferring their advertising campaigns. ITV also has rights to the UEFA Euro 2020 football championships (which has been postponed a year), which would further weigh on revenues. Meanwhile, ITV announced that it would be expanding BritBox – its joint SVOD service created with the BBC.
The share prices of major advertising agency groups WPP, Interpublic, Omnicom and Publicis Groupe have all hit multi-year lows. JP Morgan is also cutting its European media sector ‘earnings by share’ forecast by 15% in 2020, and 8% in 2021. In a note to analysts and investors the bank said, “Broadcasters, Outdoor and Agencies see 2020 cuts of 25-35% while Internet, publishing and entertainment are more resilient.
And, sports?
Another industry hugely effected by Covid-19 is the Sporting industry. With almost all live sports and events businesses being postponed, companies like Sky are offering temporary freezes on Sky Sport’s for their customers. Streaming service DAZN is the first rights holder to tell sporting leagues they will cease payment due to cancelled games and other events. While DAZN isn’t offering refunds to customers who have purchased annual subscriptions, it is allowing members to pause their membership for up to four months
Not all live sport is shut down. Esports have definitely capitalised on this opportunity. The esports community are taking their tournaments online to continue competitions, which traditional sports are simply unable to do. “Esports now has an opportunity to build its presence among sports fans that ordinarily would be consuming other content,” notes Conrad Wiacek, Head of Analysis and Consulting at Sportcal.
Futuresource Consulting expects a boost in viewing of game streaming sites Amazon Twitch, YouTube Gaming and Microsoft Mixer. Twitch viewership has seen a 12% year-on-year increase compared with March 2019, the analyst reports, with a rapid growth in viewers in the last two weeks. Crucially, however, there has also been an increase in the number of paying subscribers (who pay $5 per month for additional channel and social features), of which Amazon takes a significant cut.
Conclusion
No matter how many articles or reports you read, ambiguity around the long-term impact of Covid-19 remains high. While it’s safe to say that the world economy will take years to recover, there will also be huge opportunities for businesses to capitalise on. Until some of the fog clears, questions will remain; will the recent trend in growth of SVOD remain once Covid-19 has passed? What will the knock-on effect be to the advertising & sports industries moving forward? Only time will tell but as a consumer, I look forward to seeing what the future holds for the world of streaming.
I am keen to speak to anyone in the industry who has a view or opinion on the content above. I will be following up with a further series of interviews which will consider their opinions and experiences of working in this marketplace. For more information please email: tom.orr@dartmouthpartners.com