Just prior to releasing last year’s SVoD forecast, Netflix confirmed its first subscriber loss – of 200,000 subs, or around 0.09% of its total. This prompted a wave of hysteria, and in the year since, Netflix’s return to growth and confirmation of its advertising strategy has largely set the market at ease.
However, the current concern is the impact of these advertising tiers on the SVoD growth, as well as the looming impact of FAST. Complicating counting is the fact that we are about to enter a phase where SVoD services have ad-supported customers, AVoD services have subscription tiers, and FAST will undoubtedly start playing with on-demand video. The clock is also ticking until these VoD services have live linear feeds, and Netflix is due shortly to launch its first live stream.
There will be a mess of definitions, and Rethink TV will attempt to provide a unified view of the market in an upcoming report – charting those different segments. For now, this report focuses on SVoD, which has had to battle with a reeling global economy.
Disney and Netflix are now in the early stages of their advertising expansion. Both have chosen to price their ad-supported bundles at a slight discount, to ensure that they can maintain their ARPU via the ads served. In time, we suspect that the SVoD platforms could see significant lifts in ARPU via advertising.
However, neither Netflix or Disney have opted for an entirely free tier, supported by a much heavier advertising load. This is significant, because the issue of account sharing has raised its head in the past year. With free options, SVoD services would be able to migrate a user from an existing SVoD subscription and into a free account with only an email address and basic account details.
This would serve to keep the number of subscribers high, and potentially provide a significant boost, if the estimates of ‘freeloader’ accounts are as high as some in the industry maintain. However, as soon as a payment method is required, the success of converting a freeloader into an active subscriber plummets.
Netflix has not broken out detail of its conversion rates, but there are nascent third-party estimates of the proportion of new additions that have chosen the ad-based tier. The coming quarters will likely provide some insight, via investor call disclosures, but the SVoD platforms will be tightlipped in the meantime.
However, Netflix will continue to be vocal about its profitability. The other services are still loss-making, with Comcast just reporting full year revenues that showed $2.1 billion earnings for Peacock, but hamstrung by an attributed loss of some $2.5 billion. To this end, ARPUs across the board need to rise, and advertising is going to play a major role in this regard.
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This is the latest forecast in the Rethink TV Archive, which now includes:
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Rethink Technology Research is an analyst firm that has established itself over its 21-year history as a thought leader in 5G, and all forms of wireless; the entertainment ecosystem and streaming media; the Internet of Things; and has now embarked on the energy marketplace. Rethink TV is our video research team, producing market forecasts, technology white papers and tracking operator-technology vendor relationships in OTT video.
Rethink TV forecasts core OTT video technologies and applications, explaining how changing business models will revolutionize video delivery. It also comprises profiles of the 100 largest operators in the world, and the technology stacks they use to deliver OTT video content. Available on an annual subscription basis, it’s designed as a tool to increase revenues from OTT video markets and survive the rethink of TV.
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