Subscription Video-on-Demand: The one where the going gets tough
Digital Consumer Trends 2021
Published: 21 September 2021
Authors: Paul Lee, Suhas Raviprakash
10 minute read
With every year, accessing high-definition video over a wireless Internet connection gets ever easier for the UK’s consumers. And viewers have responded by adopting Subscription Video-on-Demand (SVOD) in ever higher numbers, with penetration reaching 76% in June 2021, an 11-percentage point year-on-year rise.
Throughout the short history of SVOD, annual growth in the UK has been strong - with 2020 in particular being a knockout year. But recent growth rates are unlikely to be sustained, even if the overall SVOD penetration rate continues to rise beyond the current 76%.
In growth’s place, we expect another metric – churn – to become increasingly prominent. As of mid-2021, 15% of respondents to our UK survey had cancelled at least one service in the prior year. In the US, whose SVOD market is more mature than the UK’s and may predict what awaits the local market, churn was 37% in the year to February 2021.
SVOD players will likely pivot from a relatively benign 2020-2021, enjoying an exceptional period of growth, to a challenging 12 months which are likely to be characterised by a bevy of barriers to growth.
First, there is the stimulus of lockdown. The pandemic accelerated demand for SVOD services in 2020, causing a surge in sign-ups and usage. Over the two years to mid-2021, access to SVOD among respondents rose by an average 10.5 percentage points per year, faster than the 7-percentage point lift in 2018-2019.
Figure 2: Access to Subscription Video on Demand services in the UK among 65-75 year olds, 2018-2021
SVOD viewing in the UK was 65 minutes per day in 2020, almost double the average in the prior year. And, in the space of 12 months, SVOD adoption among 65–75-year-olds leapt from 36% to 57%, following a 7-percentage point increase in the prior year (see Figure 2).
However, accelerated demand is typically followed by subdued growth in the subsequent period, a pattern that is beginning to emerge for SVOD. Various global providers are already reporting lower growth in 2021 relative to the stellar 2020.
Second, there is a declining pool of consumers yet to subscribe. Only a quarter of the population are yet to sign up, a fair proportion of whom may face technological and budgetary barriers to adoption.
For SVOD to be useful, that is to emulate or improve upon broadcast, it needs a superfast broadband connection (at least 30 Mbit/s) and a directly, or indirectly connected TV set, the latter most commonly being via a streaming dongle or a connected set top box.
In March 2021, 94% of UK homes had broadband and average download speed was 80 Mbit/s, but connections were unequal. For residential broadband connections 22% deliver less than 30 Mbit/s on average, with 8% even falling below 10 Mbit/s.
A slow and inconsistent broadband connection can cause streams to be interrupted, leading to frozen screens – a decidedly inferior experience to broadcast. A high-speed connection enables a stream with constancy equivalent to broadcast and unlocks 4K quality: an upgrade to terrestrial broadcast and standard pay TV.
Furthermore, on the topic of barriers to adoption, in June 2021 76% of respondents had access to a directly or indirectly connected TV: exactly the same proportion as those with SVOD. This suggests that for SVOD penetration to rise, there will need to be a commensurate growth in the ability to connect TVs.
Third, there is growing competition from free-to-use advertising video-on-demand (AVOD) services, as well as broadcasters’ on-demand services, whose libraries of content are being increasingly bolstered. Some subscribers may choose to swap out a paid-for subscription for an entirely ad-funded service.
Our research found that the majority (64%) of UK consumers interested in a hypothetical brand-new streaming service would opt for either the fully-free, or ad-subsidised tiers in preference to an ad-free but full-price option.
As of mid-2021, just a few AVOD services had launched in the UK, including pluto.tv from Viacom, which offers streamed access to dozens of linear channels, and the Roku channel which now features original content, commissioned by the vendor.
While awareness of AVOD in the UK may still be relatively nascent, their global take-up is significant. Worldwide, pluto.tv had 52 million monthly active users at the end of Q2 and Roku generated 17.4 billion viewing hours from 55.1 million users.
The US market offers a guide for the potential take-up of AVOD: as of February 2021, 55% of US consumers carried at least one advertising-supported service. The growth of AVOD may be making US consumers more price sensitive, with the leading trigger for cancellation being a price rise.
A final competitive pressure is the launch of new SVOD services. This will include mainstream services such as Paramount+, scheduled to launch in 2022, and also a new wave of niche SVOD services entering the market. Content companies and their investors will likely have been encouraged by the recent sale of Crunchyroll to Sony Pictures for $1.175 billion. Niche SVOD may prove to be analogous to the demand for magazines and blogs, albeit in audiovisual form.
Churn’s impact is likely to have varying impacts on SVOD providers. There are likely to be varying degrees of loyalty. According to our research, 70% of subscribers to one mainstream streaming service state they are unlikely to cancel; for one of their competitors, however, the opposite is true with 70% of current subscribers inclined to churn.
One of the accelerants of churn is the ease of cancellation. For many services, cancelling requires a single click: there is no need for a call to an agent who is tasked with cajoling waverers into staying. Of those who did cancel a service in the last year, 23% did so on the same day as their decision, and 45% within a week, and 69% within a month. In the US, 43% cancel on the same day. With SVOD there is no kit to return, no deposits to seek a refund for, less opportunity for a change of heart.
Whilst cancelling may be easier with SVOD than for other subscription services, it is also easier to resubscribe and a significant proportion of those who cancel may subsequently return. Among survey respondents 15% reported cancelling a service, of which over half intend to re-subscribe. Those who cancel temporarily may time their moves with the availability of specific dramas, sports seasons and budget.
Another feature of SVOD churn that has become clear in the US market is the tendency to swap between subscriptions. Among US consumers, per surveys undertaken in October 2020 and February 2021, very few (about 3%) reduce their number of subscriptions. Most both add and cancel (about a third), and a fifth just add. Price is the major reported driver of churn among US consumers, with 49% reporting that an increase in the subscription fee would prompt them to cancel.
Swapping galloping growth for churn may feel like a harsh trade for SVOD providers. But the overall market remains vibrant. Churn is in some regards a sign of maturity for what is still a relatively new field. And a service that is now enjoyed by three quarters of a major market is an impressive accomplishment.
No doubt the next 12 months will be challenging, but it will also likely include its fair share of accolades and accomplishments. The going is getting tough, but the tough will show their mettle.
Get in touch
Partner, Head of Global Research Technology, Media & Telecommunications