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Three ways Netflix continues to set the pace in SVOD

Global Netflix

Netflix growth in the U.S. may have slowed, but it continues to drive the growth in SVOD worldwide. Here are three ways it continues to define the SVOD category.

Netflix dominating the competition in usage

New user data from Netflix suggests the service is watched much more than competitor services. The company reports that on an average day it delivers 125 million hours of video to its approximately 100 million members. That works out to an hour and quarter per day per subscriber. It also says that the busiest day ever occurred on January 8th 2017, when the company streamed 250 million hours. That’s two-and-a-half hours of video per subscriber.

Though Netflix has not broken out this data regionally, there’s reason to believe that usage is much higher in established markets like the U.S., Canada, and the UK. For example, one of the most popular devices to stream Netflix on is a Roku set-top box. In December, Roku said that it’s 14.5M active users watched 1 billion hours of video and music. That’s 2 hours and 24 minutes per day. The company says that the average active user streamed an hour-and-three-quarters a day in 2016.

Combining Netflix and Roku data suggests SVOD leader absorbs the lions’ share of streaming on Roku set-top boxes. It also implies usage of all other streaming services, including Amazon Video and Hulu, doesn’t even come close.

Taking anchor tenant status in consumer entertainment mix

Consumers are migrating video consumption to connected platforms. Over the last three years, the average U.S. consumers has increased connected device viewing from 257 minutes per week to 388. The Roku and Netflix usage data suggests that as people shift their viewing, Netflix is the first service they turn to. Sanford and Bernstein media analyst Todd Juenger agrees. He says that Netflix has become the anchor tenant of consumer online video offerings.

Being anchor tenant is a coveted spot in a consumer’s video portfolio. Consumers will pay for anchor tenant services month-in-and-month-out. Chances are they will only have a few of these. Perhaps one for scripted shows, another for movies, and one more for live sports. All other services likely will be subscribed to as needed, and then dropped at other times.

Less vulnerable to net neutrality issues

These are uncertain times for online video providers (OVPs) in the U.S. The current administration, and incoming FCC chairman Pai, are hostile to the net neutrality rules put in place by the previous FCC chairman Tom Wheeler. This has many OVPs worried that ISPs could start favoring their own services, or throttling their service.

Netflix is relatively unconcerned about this risk. Speaking to a group of journalists last week, Reed Hastings was asked about the possible removal of Title II regulations guaranteeing a neutral Internet pipe. He said he was not too worried, and went on to say:

Reed Hastings“The culture around net neutrality is very strong. The expectations of consumers are very strong. So even if the formal framework gets weakened, we don’t see a big risk actualizing, because consumers know they’re entitled to getting all of the web services.”

Netflix is one of the primary services that its nearly 50M members use on their broadband connections. It’s fair to assume any ISP that messes with Netflix access is playing with fire.

That said, there is another reason Mr. Hastings has reason to be confident. The company is working to minimize the impact of its service on the broader Internet, and on specific ISP networks.

To reduce the impact on the Internet as whole, it is working to cut the bandwidth used to stream video by making improvements in encoding efficiency. This means it will be able to stream much of its shows and movies at a lower bandwidth with no apparent loss in picture quality. 

To reduce the impact on specific ISP networks, it is providing caching servers as part of its OpenConnect CDN. It places these caching servers in the ISP network for free. They reduce the amount of traffic exchanged with the Internet (saving the ISP money), and improve performance for people streaming Netflix video on the ISP network.

Why it matters

Though Netflix growth is slowing in the US, it is continuing to lead the SVOD space.

The service is used far more by its customers than any other service, and possibly by all the other services put together.

It remains the one must-have service that people turn to when they move to online streaming.

It is less vulnerable to the uncertain U.S. climate regarding net neutrality.

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