Few would question that OTT SVOD growth is strong in the U.S. and Europe, but understanding exactly how fast might not be so easy. Two estimates this week try to read the tea leaves. One seems right on the money, the other not so much!
Based on data from The Convergence Consulting Group, Home Media Magazine made the somewhat confusing statement, “Subscription streaming is projected to account for 49% of the video rental market in 2015.” It’s likely the author was trying to say that North American SVOD and the video rental market is forecast to be the same size, in dollar terms, this year. According to DEG numbers it looks far more likely that the SVOD market will be considerably larger than the movie rental market by the end of the year.
DEG numbers for 2014 say that the total U.S. rental market (which includes physical disk rentals from brick-and-mortar stores and kiosks, and transactional VOD from pay TV and online) was $5.3B last year. DEG says SVOD revenues (not including Amazon Prime Video) were $4B in 2014. However, the trajectories of the two markets are completely opposite. Rental revenue declined last year by over 11% while SVOD revenue grew 26%.
Where will we be by the end of this year? nScreenMedia estimates that rental revenue will fall to $4.6B in 2015, while SVOD revenue will grow to $5B. And if Netflix’ first quarter 2015 results are any guidance, SVOD could do even better than that.
Juniper Research says worldwide SVOD revenues will grow from $8B in 2014 to $31.6B by 2019, led by continued growth in the established markets of North America and Europe. It is growing so fast in the UK, for example, that the regulatory body Ofcom is considering relaxing the rules on traditional TV providers as competition increases.
Of course, the majority of SVOD revenue today is generated by Netflix. The company earned $5.5B overall in 2014. Of that, $4.7B came exclusively from streaming, with the rest coming from U.S. DVD subscriptions. 2015 is likely to see the company’s revenue grow to close to $7B with $6.5B coming from streaming subscriptions. If Netflix achieves $7B this year it will have close to doubled revenue in 4 years.
Can it keep up the pace? To do it, it will need to keep subscriber growth solidly in the double digits. With U.S. subscribers growing in the 5% range, International markets will need to pick up the slack. Signs are good they may do that. Netflix has announced it will launch in just about every country in world within 2 years and it is starting to shift marketing budget from the U.S. to International to help spur growth.
It is also very likely there will be far more direct-to-consumer SVOD services by 2019. Everywhere Netflix goes, local SVOD providers follow. And with mainstream TV content providers like HBO and Viacom launching services of their own, consumers are liable to have far more SVOD choice in 2019.
Consumers already show a proclivity to subscribe to multiple SVOD services. Centris marketing found in Q2 of 2014 that 14% of SVOD users subscribed to more than one service, up from 11% the previous year.
Taking all this data together, a tripling of revenue from SVOD services over the next 4 years sounds entirely plausible.
Why it matters
There is no doubt the SVOD market is expanding rapidly around the world.
How fast that expansion will proceed is the subject of many forecasts.
One analyst group forecast says that SVOD revenue in the U.S. will equal movie rental revenue this year. It looks like SVOD revenue will actually exceed movie rental revenue by almost 10%.
Another group forecasts a tripling of worldwide SVOD revenue by 2019. This estimate seems entirely plausible based on current trends.