nScreenMedia OTT multiscreen media analysis

SVOD dominant US home entertainment medium

ownership rental SVOD spend 2015 2017

SVOD is continuing to reshape the way consumers think about home entertainment. It is a driving force behind the collapse in the rental market, and instrumental in the decline of media ownership.

SVOD revenue growth powered by Netflix

The latest DEG Q1 2017 US entertainment spending numbers chart the ascendancy of SVOD in the psyche of the American consumer. Its influence can be seen everywhere in this sobering report. Year-over-year (YoY) spending on SVOD continues to grow at an impressing 26%. In the first quarter, US consumers spent $1.79B on services like Netflix and Hulu. However, there is reason to believe DEG’s number is undercounting SVOD.

Though Netflix subscriber growth has slowed, revenue growth has not. Netflix US revenue increased 27% YoY in the first quarter of 2017, to reach $1.47B.  Netflix revenue growth came from two places. Subscribers increased 8%, or about 6M, over the period. As well, Netflix increased prices on most subscribers by $2 over the period.

DEG numbers suggest the rest of the SVOD industry received just $320M in the first quarter. This number seems very low. Hulu, which was last reported to have 12M subscribers, should have generated around $350M in subscription revenue in Q1. Showtime and CBS All Access, which together have around 3M subscribers, and HBO Now, which has 2M, would add another $180M. This data suggests Q1 SVOD revenue was actually more like $2B.^

Other digital business models fair less well

Electronic video sales (or Electronic-sell through, EST) grew at about half the rate of SVOD. Consumers spent $572M on digital movies and shows in the first quarter. Digital rental revenue, on the other hand, contracted over the last year, falling 5% to $571M.

All physical media revenue fell in Q1 2017

There were across the board YoY losses in revenue for all business models involving physical media in Q1 2017. Disk sales fell 14%, to $1.2B, store rentals continued to plummet, down 22% to just $107M. Kiosk rentals did only a little better, falling 17% to $339M.

Overall, revenue generated from physical media represented just 37% of the total home entertainment spend in Q1 2017. Two years ago, it was 53% of the total home spend.

SVOD becoming dominant home entertainment business model

Ownership rental SVOD spend Q1 2017SVOD is growing at the expense of ownership and rental business models. Over the last two years, the proportion of the home entertainment spend going to SVOD has increased from 26% to 38%. Ownership spending has fallen from 44% to 37%, and rental spending has fallen from 30% to 24%. At this rate, SVOD spending could exceed rental and ownership together within two years.

Why it matters

SVOD is the dominant business model used by US consumers.

It is growing at the expense of ownership and rental.

Within 2 years, SVOD could absorb over half of the consumer entertainment dollars.

^DEG does not count any Amazon Prime subscription revenue towards its SVOD, as Prime membership provides more than just video-viewing benefits.

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