New data from Digitalsmiths shows that Netflix’ sluggish US growth hasn’t rubbed off on the rest of the SVOD industry. It also demonstrates that TV Everywhere continues to make slow progress, and a small but significant group consider online a viable alternative to pay TV.
SVOD continued growth despite Netflix in the doldrums
Netflix growth has slowed considerably in the US. The company increased subscribers just 0.3% in Q2 2016. That is not true of the SVOD industry overall. Digitalsmiths says that 63.9% now have access to at least one SVOD service. Users increased 3.2% quarter-over-quarter, 6.2% year-over-year, and 13% since Q2 2014.
With 53.7% of survey participants saying they use it, Netflix continues to dominate. Amazon (24%) and Hulu (11.8%) round out the top three. HBO Now has already built up a strong user base just 17 months after it was launched on Apple TV. 5.6% say they use the service. Shomi, a joint venture of Canadian operators Shaw and Rogers, also makes a strong a showing. 3.7% of respondents say they use the service just 16 months after it expanded availability to anyone with an Internet connection.
Skinny and reduced bundles remain very much a minority interest. 1.5% of respondents say they use Sling TV, and 1.4% say they use Playstation Vue. These numbers did not change between Q1 and Q2 2016. This supports the general idea that “pay TV lite” doesn’t seem to be resonating with consumers yet. Of course, that could change with new skinny services from DirecTV later this year, and Hulu in early 2017.
TV Everywhere makes incremental progress
Digitalsmiths finds that TV Everywhere (TVE) adoption continues to make very slow progress. Overall awareness crept up less than a percent, to 48.2%, over the last quarter. Operator TVE apps had similarly sluggish adoption, with 26.2% of respondents saying they had them on their devices. That’s a year-over-year increase of just 2.2%.
Programmer TVE apps performed a little better than operator apps. 30.2% of survey participants say they have one on their connected device. This is 2.4% higher than Q2 2015. Top apps include CNN, with 6.1% saying they have the app, ABC (5.8%), and HBO Go (5.2%.)
Around 50% have an operator app, programmer app, or both on their device. Overall, this performance must be very disappointing to the pay TV industry. It has been 7 years since Comcast and Time Warner first announced the initiative. During that period the overwhelming majority of pay TV customers have adopted at least one SVOD service, and are paying for the privilege. Yet far fewer are enjoying the benefits of their pay TV operator app. This despite the fact that there is a large overlap of content with many SVOD services, and customers need pay nothing extra.
Operators may be feeling a little better about TV Everywhere next quarter. Expect to see the NBC Sports app leap to the top of the list of TV Network Apps on the back of a very successful online Rio Olympics. However, we will have to wait until 2017 to see if it has any lasting impact on TVE adoption.
Challenges remain for Pay TV
SNL Kagan says that the pay TV sector lost 812,000 subscribers in the second quarter of 2016. This, the company says, surpasses the previous record drop from 1 year ago. Digitalsmiths data certainly confirms increased interest from consumers in looking for alternatives. The number of people saying they are planning to cut pay TV service within the next 6 months moved higher, to 7.2%. In Q2 2015 just 4.5% said this.
Unsatisfied pay TV customers remain frustrated with the cost of service. Nearly 4 in 5 state pay TV is just too expensive. However, the availability of much cheaper online alternatives is becoming a factor. 76.8% of survey respondents say they would like to select only the channels they want. As well, the number of consumers saying they plan to switch from pay TV to an online app or rental service also moved higher: from 2.3% in Q2 2015 to 3.7% in Q2 2016.
On a personal note, I have found the Digitalsmiths Quarterly Video Trends report an invaluable tool in understanding the trajectory of the market. I can only hope the folks at Rovi have the wisdom to support the Digitalsmiths team in its continued delivery after the acquisition of TiVo is complete.
Why it matters
SVOD continues to expand rapidly in the U.S., even though Netflix growth is sluggish.
TV Everywhere growth remains slow, with both operator and programmer apps eking out small annual gains.
Interest in cord-cutting is increasing, and a small but significant group now consider online services a viable alternative.