Online entertainment accelerates, boosted by lockdown

Have COVID-19 and the resulting lockdowns fundamentally altered our digital entertainment usage? This insight from our 2020 Digital Consumer Trends survey charts the dramatic rise in subscription video-on-demand (SVOD), console, PC and mobile gaming. As UK media and entertainment businesses look to the future, we consider which of these changes will endure and what that means for the sector – from content creation to distribution.

* according to Ofcom

Digital consumption trends initiated or accelerated during the pandemic are likely to mould consumer relationships with digital entertainment for years to come. The migration of entertainment online has accelerated among the UK’s 28 million households, with huge gains for digital. Two of the biggest beneficiaries have been video-on-demand (VOD), with Subscription Video On Demand (SVOD) faring particularly well, alongside an uptake across all types of video games (mobile, console and PC).

The abrupt restrictions placed on the wider entertainment and leisure industries in March 2020 caused consumption of indoor alternatives such as video games and over-the-top (OTT) technology (specifically SVOD) to surge. Consumers looked to digital entertainment to provide a welcome distraction, and also to connect them to friends and family. Once people can meet up again, go shopping and take holidays as they did in 2019, media consumption behaviours will, no doubt, re-adjust, but not to pre-lockdown levels. Subscriptions have been taken up, for some users the online experience has been tried out for the first time, smart TV penetration is rising steadily and consoles have been purchased. Streaming services, vendors and broadcasters have nimbly adapted to unrivalled disruption – overcoming challenges faced in distribution, content production and supply chains. The foundations for greater on-demand consumption have been laid.

SVOD viewing trends

Our 2020 Digital Consumer Trends survey was conducted in May, when a comprehensive lockdown was firmly in place in the UK. This period saw a rapid surge in consumers’ digital adoption, further consolidating streaming services as a key player within in-home digital entertainment. Our survey data records two notable tipping points in the migration to VOD.

The first is that the majority of respondents (52 per cent) had access to Netflix, demonstrating how mainstream SVOD has become. We expect Amazon Prime Video to reach a similar milestone in 2021: access to Prime increased from 28 per cent to 39 per cent in the year to May 2020, with the growing demand for e-commerce lifting subscriptions overall. Additionally, as UK consumers looked for new ways to connect during lockdown, watch-along extensions such as Teleparty offered a sought-after communal dimension to SVOD.

A second tipping point this year has been the increased VOD uptake among older age groups. For many years all forms of VOD usage, and indeed a move from linear TV, had been concentrated among younger age groups.

As of May 2020, over half (51 per cent) of 55-64 year-olds and 36 per cent of 65-75 year olds had access to at least one SVOD service, up 12 and 10 percentage points respectively from the previous year (see Figure 1). In 2018, slightly under half of 45-54 year olds had access to SVOD; by May 2020, two-thirds had access. Figure 1 shows how fast older age groups are catching up, with a one-year lag in many cases. In 2018, 52 per cent of 35-44 year olds had access. A year later 45-54 year olds were at 53 per cent. In 2020, SVOD uptake among 55-64s reached 51 per cent.

These shifts matter as older viewers’ behaviour has a disproportionate impact on national viewing trends; older age groups watch far more linear TV. In 2019, over-55s (32 per cent of the population) watched an average of 312 minutes (5.2 hours) of TV per day, accounting for 56 per cent of all linear viewing. By contrast, 16-24-year-olds average 70 minutes daily. The nation as a whole (aged 4 plus) averaged 183 minutes daily. If over-55s were to switch a tenth of their linear viewing for SVOD, this would cause a major decline in linear viewing minutes per capita.

But what about actual viewing trends? According to Ampere, for both the UK and US markets, SVOD minutes among 55-64 year olds in Q3 2020 matched that of 45-54 year olds the previous year. In the UK, 55-64 year olds spent about 20 minutes a day watching SVOD; in the US it was about 40 minutes. In both cases, this was up 50 per cent year on year. There was a similar catch up observed when comparing 45-54 year olds to 35-44 year olds in both markets.

Arguably 20 minutes of SVOD viewing per day among 55-64 year olds in the UK is trivial relative to average 274 minutes per day spent watching broadcast TV. But should these trends continue, it would have a material effect. 40 per cent annual growth in this age group in 2020 and 2021 implies 39 minutes of SVOD daily in 2022, and 55 minutes by 2023. Across the population aged 4+, SVOD daily minutes averaged 18 minutes in 2017, 26 in 2018 and 34 minutes by 2019, up 89 per cent over two years. As of June 2020, SVOD minutes were up 71 per cent year on year. Ofcom has noted that almost a third of 55-64 year olds used SVOD in the early lockdown period, up from 25 per cent prior to the lockdown.

The challenge to traditional TV

In April 2020, linear TV viewing on a television set averaged 3 hours 46 minutes per day, up 32 minutes (14 per cent) year on year. In the same month, SVOD consumption also increased, by 37 minutes per day, to an average of 71 minutes, up 92 per cent. Over the coming weeks, viewing volumes fell back. In June, linear TV was 11 per cent higher than in 2019, while SVOD and other non-broadcaster content (including YouTube and video games) was still up 71 per cent. Underpinning the rising demand for SVOD were 12 million additional VOD subscriptions added during the first lockdown, with 3 million adults subscribing for the first time.

One major explanation for traditional TV’s weaker performance relative to SVOD is that COVID-19 constrained the flow of content. Tentpole productions, such as Strictly Come Dancing, have had shorter runs (9 weeks, down from 13) and smaller casts (12 celebrities, instead of 15). EastEnders episodes are now shorter, at 20 minutes instead of 30. COVID-19 has also constrained story lines, due to the need to avoid close contact between actors, as well as the need to isolate those whose age means they are classified as vulnerable, such as Coronation Street actors Ken Barlow and Rita Sullivan. In addition, productions have become more expensive, with higher insurance premiums adding significantly to costs.

COVID-19 has made life more complex for casts and crew alike, for example participants and programme makers involved in 2020’s Great British Bake-Off formed part of a bubble of over 100 people that lasted the six weeks of filming. It has made production timelines less predictable, given the need to shut down shoots if one person tests positive. It has also altered the spirit of some genres, such as comedy and sports, which have had to shoot without the audiences that formed a crucial part of their character. Even locations have had to be shifted: this year’s I’m a Celebrity moved to Wales, from its traditional subtropical home of New South Wales.

The pandemic has also impacted revenues from advertising and pay-TV sports subscriptions. Q4 is forecast to be only minimally down from the previous year, with a 2.7 per cent decline in TV ad spend - the lowest of all media. However, this follows a 15.7 per cent decline in Q3. Lower revenues have sharply reduced content budgets at the same time when production costs have increased.

The impact of COVID-19 on supply can be quantified in the proportion of new programmes shown. In August 2020, 21 per cent of programmes shown on the top ten channels were new. The previous year, the proportion was 41 per cent. In September this year, the volume had decreased to 20 per cent, while a year ago it was 33 per cent.

COVID-19 has been difficult for all content productions, but national broadcasters, with smaller individual budgets, arguably have less resource and flexibility to adapt than global producers such as Netflix. As of July, Netflix was already indicating that it did not expect an impact on supply for the remainder of the year, and signalled that it will increase the volume of original content it launches in each quarter of 2021. It was also able to bid for content initially intended for cinematic release, such as Enola Holmes. Some film studios may target new OTT distribution platforms and models such as premium VOD (PVOD).

A game a day keeps the lockdown at bay

The games sector has thrived in 2020, filling a vacuum ushered in by lockdown. Hardware and software sales have risen, as games play (including Esports) has surged in the absence of outdoor alternatives. Global revenues for 2020 are forecast to reach a record $174.9 billion (£131.8 billion), up an impressive 20 per cent year on year.

Mobile games are expected to generate $86.3 billion in revenues this year, about half of the total, with the volume of downloads reaching an all-time high. Between March and September, over one billion games were downloaded every single week.

Console games are the second most popular games category. In 2020, they are expected to generate $51.2 billion in revenues, representing nearly 30 per cent of the overall industry, and a 21 per cent increase year on year. Growth in ownership of games consoles has been significant, increasing by ten percentage points from 2015 to reach 39 per cent in 2020 (for more detail, see The connected home: Just getting started).

Adoption will likely grow in the short term due to the launch of major new consoles from Sony and Microsoft in November 2020. The form factor for consoles is changing, with the arrival of disc-less models. These offer lower-cost access to latest generation consoles. Another possible form factor is access via dongles inserted into HDMI ports on TVs. These would provide access to cloud-based games meaning players would only have to purchase a controller, rather than an entire console.

Just like TV and films, console and PC-based video games are being increasingly monetised by online distribution. Where TV has SVOD and broadcaster VOD (BVOD), the video games market has multi-player networks and in-game content purchases. Electronic Arts (EA)’s digital post-sale services’ share of revenues increased from 40 per cent in 2018 to 51 per cent in 2020. Digital revenues overall (including digital downloads of copies of games, in lieu of physical discs) reached 78 per cent in 2020, up from 67 per cent in 2018. EA Play had 6.5 million paid subscribers and hopes to double this in the next 12 months.

The challenge for the media and entertainment sector

Consumers generally prefer change to be slow and steady, but 2020 has denied them that option. The first lockdown imposed behavioural changes and encouraged experimentation as a refuge from monotony. This has made the entertainment market far less predictable, and requires content providers, particularly traditional broadcasters, to be far more nimble and reactive.

Broadcasters need to balance addressing traditional supply (broadcast) with bolstering on-demand services: promoting two modes of usage is tricky. BVOD applications need to keep pace, in terms of content range and ease of use, with global OTT providers serving hundreds of millions of users. It may no longer make sense for each broadcaster to develop their own on-demand platform. In France three major broadcasters have recently launched a joint SVOD platform called Salto. In Germany, ProSiebenSatEin and Discovery launched Joyn in 2019, which offers live streams from over 50 TV channels.

Content providers should prepare for the possibility of permanent shifts in consumption patterns. Had the lockdown only lasted a fortnight, as some had anticipated, then many of these viewing and games playing behaviours would have subsided. The longer restrictions last, the more enduring these new behaviours will become, and the greater the investment in indoor entertainment, such as a new console, TV or both. Once the pandemic is finally over, the norm will likely have permanently shifted from the pre-lockdown pattern.

A key question to consider is whether, post-lockdown, adoption curves and usage levels for VOD (and declines in broadcast TV), will revert to the historical long-term pattern, or if the rates of change will continue to increase. From 2015 to 2019, average daily viewing of broadcast TV for the month of December declined at a predictably steady rate of about 10 minutes, from 240 minutes (2015) to 200 minutes (2019). Will those declines accelerate in the wake of COVID-19?

The games sector has seen a surge in growth in 2020, and may well see strong demand for a new generation of consoles over the holiday period and into 2021. If families are unable to go on holiday, they may decide to invest instead on upgrading their home entertainment. Every console generation lasts about seven years, and the latest upgrades have the potential to generate hundreds of pounds of software and network revenue annually for each user.

The games industry has witnessed substantial innovation over the past decade. In recent years, many vendors have focused on launching subscriptions offering access to multiple games. However, this may not align with evolving gamer preferences: players may prefer to master a single title at a time, rather than flitting from a football game to massacring aliens.