Advanced Television

SVoD market success dependent on premium TV

January 8, 2014

In the US video entertainment market, Netflix has morphed into a full-fledged premium TV network, looking more and more like the spitting-image of HBO.  They each attract and retain loyal subscribers with award-winning original TV series, and exclusive high-profile movies.   HBO has expanded into the on-
demand world of Netflix, with its HBO GO service.  Netflix is in negotiations with pay-TV operators to become part of the pay-TV service bundle.  Head-to-head competition appears to be inevitable.  Therefore, it seems counter-intuitive to suggest that the long-term success of Netflix, and other subscription video-on-demand (SVoD) services, could actually be dependent on the success of premium TV networks, like HBO.  But it is, according to SNL Kagan.

The primary reason for this co-dependency is consumer TV viewing behaviour.  For decades, the premium TV networks have maintained relatively stable market share equating to 30 per cent-40 per cent of US pay-TV households.  The main type of content has always been movies.  As the overall importance of movies has declined over the past decade, HBO and Showtime have increased their investment in original TV series.  This shift to original programming has created a loyal subscriber base, but has not yielded tremendous subscriber growth.  Most households have been unwilling to pay extra for premium TV.

The past year has seen an explosion in premium original TV programming, with Netflix, HuluPlus, and Amazon all investing in large-budget productions with star actors and cinematography that rivals theatrical movies.  These original premium and SVoD TV series have the potential to accomplish what HBO has been unable to do alone, that is change the TV viewing behaviour of main stream consumers.

Key highlights from SNL Kagan’s research include:
– Netflix has matched HBO market penetration at 40 per cent (US Internet users)
– Approximately half of HBO and Showtime subscribers also use Netflix
– Two-thirds of HBO users subscribe to multiple premium TV networks
– The majority of Comcast’s Streampix subscribers also have subscriptions to premium TV channels, as well as Netflix
– Nearly half of Netflix subscribers also subscribe to HBO
– Only 1 in 4 Netflix households subscribes to a second SVoD service (HuluPlus or Amazon)

Categories: Articles, Markets, Premium, Research, VOD