Report: US streaming returns to growth
January 19, 2023
Kantar’s Entertainment on Demand study reports that from September to December 2022, the number of US households with video streaming rose 2.5 million, reaching a total of 115.6 million households. Household penetration of video streaming is now 89 per cent.
SVoD contracted for the second consecutive quarter, but like in Q3, categorical declines are driven primarily by Netflix. With two new streaming services entering the AVoD space in Q4, the AVoD category grew the fastest in the quarter, up 17 per cent QoQ and 33 per cent YoY. The FAST category, now reaching a quarter of US households, grew 3 per cent QoQ, and 35 per cent YoY.
The acceleration of AVoD indicates streamers are looking for cost savings as they continue to grow their streaming repertoire. US households average using 5.4 streaming services as of Q4 2022, up from 5.2 in Q3. The rise in stacking is not slowing, even with concerns of costs. Going into Q1 2023, planned cancellation of US streaming is steady at 5 per cent of subscriptions, but what is driving planned cancellation is shifting. With inflation being felt across categories, planned cancellation of streaming is increasingly driven by costs. Nearly 1 in 3 planned cancellations are now driven by wanting to save money, with another 15 per cent driven by price increases of streaming subscriptions.
AVoD’s impact on the expanding streaming repertoire also lends itself to boomerang behaviour. In the latest quarter, AVoD subscriptions were 57 per cent more likely to be cancelled in Q1 2023 than SVoD subscriptions. This increase in planned cancellation is more often due to reportedly having too many subscriptions. The industry’s focus on AVoD is a double edged sword says Kantar: it provides cost savings to streamers who may otherwise cancel a service, but it also creates a growing cohort of churners and switchers who tend to be less loyal when their repertoire becomes too big.
Beyond costs, content is still key to driving new sign ups. The top growing services in Q4’ 2022 are linked to specific titles. Sports (both the NFL and Soccer), Yellowstone, and House of the Dragon were top titles driving sign up in Q4. These titles demonstrate that investment into new content and licensing are still necessary to driving growth. Expect services who cut back on investments in their content library to face additional challenges of retention and growth, and those who don’t to have a leg up on competition in the coming quarter and year.
Netflix AVoD has a slow start in US
Netflix launched its AVoD service, Netflix Basic with Ads, in November 2022. Costing $6.99 per month, it provides cost savings of $3 per month compared to its Basic without Ads, SVOD tier. This ad-based offer aims to reduce the high churn Netflix has faced over the last year, win new subscribers, and win back lost subscribers. So far, Netflix is not seeing the expected results. In the last quarter of the year, Netflix’s subscriber base continued to decline. Netflix Basic with Ads now accounts for 12 per cent of its subscriber base, but the savings of $3 a month was not enough to win new subscribers. Just 11 per cent of Netflix subscribers in Q3 traded down to Netflix AVoD in Q4; and of all new AVoD subscriptions in the quarter, only 2 per cent went to Netflix. Trading down accounted for nearly all Netflix AVoD subscription in its first two months. Netflix subscribers who traded down to AVoD tend to be less satisfied with the service. Amount of original content, variety of content, and quality of the content are sticking points with Netflix AVoD subscribers compared to the ad-free subscribers, pointing to higher churn rates among thing group in the future.
It typically takes a highly trending title to win new subscribers, whether they were previous subscribers or completely new to the service. At the next viral show, Kantar says Netflix can likely expect more growth in its AVoD service. At the moment, Netflix is still relying on Stranger Things to draw in new subscribers. Not even Wednesday or The Crown were able to bring in enough new subscribers to offset losses, despite being the top most enjoyed titles on the platform in Q4.
Wednesday was the top most enjoyed title in the month of December. It beat out White Lotus despite both titles getting significant social media attention. They key difference among the audience of the two trending titles is the proportion of Gen Z and Millennials who rated it as their top titles: Wednesday viewers were more than 2x as likely to be a Gen Z or Millennial than White Lotus viewers, driving the social media success of the show.