i3 | October 22, 2019

Keep Calm and Stream On

While the phrase “Netflix and Chill” has nothing to do with watching TV (go ask a millennial if you don’t know) this cultural quip bears testimony to the soaring popularity of video streaming services that have reshaped the landscape of TV. Now, shifts in the tectonic plates of video content distribution are about to shake-up the industry again; but there’s no cause for panic. Instead, we see opportunity ahead.

The meteoric rise of video streaming services can be traced to a confluence of megatrends that underpin the 21st century lifestyle, including connectivity, convenience, value and everything ondemand. But how will subscription video on-demand (SVOD) services evolve and what will be the ultimate impact to the industry?

From a nearly endless list of movies and TV shows to original series, most would agree video streaming services offer tremendous value. What’s interesting is streaming services are driving consumer spending on media to new highs.

Data from IHS Markit and Digital Entertainment Group (DEG) show global spending on home video entertainment (physical and digital media combined) rose nearly 16% last year, mostly attributable to increased spending on SVOD services like Netflix, Amazon Prime Video and Hulu.

Here in the U.S. we see an even sharper trend. CTA estimates U.S. consumer spending on video streaming services this year will climb 27% to $18.2 billion. And in 2020, spending will approach $22 billion, a gain of 22%.

Fueling the increase will be subscriber growth among incumbent players, but also the highly anticipated entry of Apple (Apple TV Plus), Disney (Disney Plus), Warner Media (HBO Max) and NBC Universal (expected in 2020) to the SVOD market. And in a plot twist worthy of Stranger Things, many promise live TV offerings such as sports and news, a content realm that continues to be dominated by traditional pay TV providers.

In other words, the video stream is about to get wider and deeper and consumers are expected to wade in with their wallets open. Variety magazine suggests this dynamic portends the “Second Wave” of video streaming is on hand; suggesting the nearly simultaneous entry of so many media powerhouses on the streaming scene “has the potential to meaningfully shift where consumers access their SVOD content.” The Atlantic takes a dimmer view, heralding the arrival of the “siloed age of television.”

What may eventually happen as those silos take shape is consumers will wind up managing a mosaic of streaming service subscriptions to access the content they care about. New services like Disney Plus and HBO Max will themselves be a mosaic of networks, studios and original programming. Ironically, what this means is some SVOD services may end up looking and costing more like traditional pay TV packages. We can also expect ad supported SVOD services to emerge. It remains unclear to what extent independents like Netflix, Amazon and newcomer Apple will be able to license programming, but we can be sure they will crank out amazing quantities of original content. Case in point, Netflix spent roughly $7 billion last year on original content.

So what does this mean for the industry? Increases in consumer spending on video streaming services will likely help drive demand for upgraded devices with bigger and better screens. For example, competition among SVOD providers will likely fuel more 4K UHD streaming content, stimulating demand for 4K UHD TVs. And emerging 5G networks offering faster mobile broadband will trigger upgrades across the mobile device landscape. It all adds up to more choice for consumers and more opportunity for industry.

Sept/Oct 2019 i3 Issue Cover

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