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US OTT market: First sign of saturation

May 25, 2016

The first sign that the US video streaming market is approaching saturation is revealed in a forecast from research and consulting firm, Strategy Analytics, which shows the growth rate slowing for the first time.

US consumers will spend $6.62 billion on video streaming services such as Netflix, Amazon Prime and Hulu in 2016. Although this represents a $1.19 billion (or 22 per cent) increase on 2015, it is the first time ever that the $ increase in the amount people spend on these services will be lower than the previous year’s increase – in this case, the $1.21 billion increase in 2015.

“Although the change in increase is relatively small, its direction is extremely significant,” says Michael Goodman, Strategy Analytics’ Digital Media Director. “It shows that, whilst actual market saturation is a few years off yet, the domestic US streaming subscription market is now on the backside of the adoption curve. The incremental increase in annual $ spend will decline from here on.”

Nearly 60 per cent of US broadband households subscribe to a video streaming service. Goodman notes: “We put market saturation at 85 per cent of broadband households – similar to saturation levels for pay TV. Within five years, annual growth will fall below eight percent.”

Netflix leads the market, accounting for 53 per cent of subscriptions – over double the second player, Amazon Prime Video (25 per cent) followed by Hulu (13 per cent). However, nearly 40 per cent of households subscribing to a video streaming service, subscribe to at least two.

“This multi-subscription behaviour means growth relies on cannibalising other services or getting people to subscribe to more than one – and companies seem to be betting on the latter,” says Goodman. “Most of the new services being launched today are in the $2-$5 range – clearly designed to be complementary to a Netflix or Amazon. The domestic situation is also a huge reason why international expansion is so important, this is underscored by Amazon’s recent video initiatives, and is particularly relevant for Netflix who has the least room to grow in the US.”

The 22 per cent increase in streaming subscription revenue means the format will account for 35 per cent of consumer spend on home video in 2016. DVD/Blu-Ray purchasing, the next most popular format, will decline 7 per cent to $5.67 billion (30 per cent of consumer spend) whilst disk rentals will decline 10 per cent to $2.75 billion (14 per cent share).

Downloading to buy will rise 17 per cent to $2.2 billion, downloading to rent will fall 5 per cent to $1.84 billion – accounting for 22 per cent share combined.

Overall, the $19.09 billion Americans will spend on home video is a 3.6 per cent rise on 2015 and the equivalent of $13.42 per household a month. However, advertising around paid video on demand content will rise 21 per cent to $8.82 billion. Thus, overall revenues for the home video market will grow 8.3 per cent to $27.3 billion.


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