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Production disruption’s impact on pay TV and SVOD

Netflix US subs and penetration

The lack of new TV content will negatively impact subscriber growth for SVOD and pay TV services. Though pay TV will see fresh content in the form of sports first, it is SVOD that will weather the storm better.

Last week, I discussed new data from Alphonso that suggested the spike in online TV viewing could be dissipating. I speculated that the shutdown in the production of new shows could be starting to impact how much time people spend watching online TV services. However, it is not just viewing time that is affected by a lack of new content. Subscriber growth is sure to suffer too.

Both pay TV and SVOD are profoundly affected by the lack of new content. So, as production gradually resumes, which will see the benefits first, and how long-lived will they be?

New content returns to linear TV first

Certainly, it is pay TV that will receive a massive injection of new content first. Major sports leagues are beginning to engineer the return of live games. Though the first matches are likely to be in front of empty stands, they will be broadcast live to fans on TV. Moreover, fans appear ready to watch under these impacted circumstances. The German Bundesliga resumed play on May 17th. The game between Dortmund and Schalke attracted a U.S. audience of 450,000 on Fox, 725% larger than the last Bundesliga live game broadcast on the channel.

New scripted and unscripted shows are liable to return to pay TV and SVOD services on similar schedules.

The impact of the return of new content on pay TV

As to the impact of new content on the total number of viewers through both mediums, pay TV’s advantage might not help much. After all, the industry lost 5.5 million subscribers in 2019, with a full load of live sports and scripted and unscripted shows. The loss of sports and live TV shows in March could have exacerbated the problem as the industry lost 2 million more in just the first quarter of 2020.

The same forces will negatively impact pay TV in the second quarter, as live sports are only just beginning to creep back. Moreover, the third quarter and beyond looks shaky, with the fall TV season in doubt and people dealing with the lockdown-induced recession. A thin content offering and high price tag will make pay TV subscriptions prime cost-cutting targets for many.

In other words, 2020 is shaping up to be a lousy year for the pay TV industry.

The impact of the return of new content on SVOD

SVOD continued to both broaden and deepen its penetration of U.S. households over the last 15 months. About three-quarters of U.S. households had at least one SVOD service in 2019, an increase of three or four percentage points over 2018. At the same time, the number of homes stacking three or more SVOD services together grew from 33% in 2018 to 39% in 2019.

Signs are that penetration and stacking increased in the first quarter. Disney+ rocketed to 28.6 million U.S. subscribers at the beginning of February, and stay-at-home consumers are liable to have pushed the numbers much higher. At the same time, established SVOD juggernaut Netflix recorded its highest U.S. and Canada subscriber increase in two years, pushing its household penetration in the U.S. over 50% for the first time.

That said, the lack of new content is bound to impact some services. For example, Disney+ will continue to attract and retain families that come for the deep library of content. However, the company has nothing new like the Mandalorian to draw in new adults and keep existing ones. Hulu will suffer from a lack of new TV programs, its primary source of new content.

New services like HBO Max and Peacock will bring a whole new set of content to the market, although it is not clear how much will be new. The two service launches should attract millions of new interested customers. That said, the services are not immune to the production disruption and could run into trouble later in the year as the flow of new shows dries up.

In other words, the lack of new content will slow the growth of SVOD in Q2 and later in the year. Some services may even lose subscribers for the first time.

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