Which Global Brands Will Dominate The UK Market for Subscription Video on Demand in 2020 and Beyond?
In the last six months of 2019 some of the biggest technology and entertainment global brands have entered the already highly competitive Subscription Video on Demand (SVoD) UK online broadcast sector previously dominated by NetFlix and Amazon.
Whilst SVoD platforms provide relatively low-cost monthly subscriptions to grow their audience base they are also required to produce new high-quality viewing content to achieve differentiation and customer growth – this double-edged sword leads to questions regarding the long-term financial viability of these media operations in the 2020s.
The new SVoD entrants include AppleTV+, Disney+ and most recently the joint venture between the BBC and ITV – BritBox. There are yet more major companies coming into the UK SVoD marketplace in 2020, including WarnerMedia, that will increase intense competition in this online broadcast medium distributed by broadband infrastructure.
To date SVoD media operations are dependent almost purely on monthly subscription fees, as opposed to above the line advertising revenues which traditional broadcasters, including ITV and Channel Four, have been reliant on to drive their commercial existence.
Content creation, and most importantly new exclusive content creation by platform, defines the lines drawn in the fundamental battleground for this new SVoD dawn in broadcasting. The year on year growth in this relatively new sector in the UK has been formidable with NetFlix now boasting penetration of 11.8million UK homes whilst Amazon Prime has reached 6.4million. The commensurate costs to compete in this most aggressive of media marketplaces in terms of new content creation is turning into a media arms race and will inevitably test the nerve and finances of even the biggest global corporations.
In terms of the end consumer/viewer the monthly cost for SVoD in the UK remains comparatively low at circa £5.99-£8.99 versus Sky Digital and Virgin Media packages. The successful SVoD business model to gain profitable traction has to be both very competitively priced, and also attract mass scale and penetration to ultimately achieve financial viability.
The conundrum faced, however, is that mass scale by market can only be delivered by producing a constant flow of new and expensive content to attract, grow and critically retain new subscribers. It is estimated that $250billion will have been invested in 2019 on new content in this his burgeoning SVoD industry, and this is investment is forecast to grow to between $250-$300billion in 2020.
This new commercial model is testing the mettle or the biggest of commercial monoliths to gain hegemony of the SVoD sector – by way of example Disney+ forecasts their breakeven model being reached by 2024 when a range of 60-90milllion individual monthly subscribers has been attained. This will be a long game driven by financial muscle and competitive attrition.
SVoD companies, due to their inherent scale and global coverage, have the ability to amortise their new content budgetary investments across key international markets, as long as their subscriptions grow as they are forecasting them to. With more major entrants into the market fighting for subscriptions though, will this become a fight to the bottom and will advertising ultimately have to be introduced on these platforms in the short term to make the SVoD model financially viable and sustainable?
This global reach and new content distribution by SVoD companies is in turn creating major challenges for local traditional broadcasters who are dwarfed by this level of content investment. This challenge in the UK is exacerbated by deficits in traditional broadcast viewing audiences, driven by structural changes in generational broadcasting consumption reducing both their advertising revenues and commensurate ratings year on year.
This in turn is causing an unprecedented impact on the linear TV advertising model, and a real problem for traditional broadcasters looking ahead into the new decade. This does, however, open up opportunities for less conventional television advertising in longer Direct Response formats, which bring incremental revenue for broadcasters and interesting new opportunities for advertisers willing to test this medium.
The fight for viewing audiences of the UK, whether from free to air platforms via SVoD or satellite/cable, is set to become even fiercer as we enter the 2020s. It is virtually impossible to predict who will ultimately dominate the SVoD UK sector, but they will certainly require bravery, very deep pockets and a long-term patient view.