Pay TV for pocket money
The proliferation of pay TV customers
Pocket money averages £11.20 per week in the UK.1 The nation’s 11-16 year olds, some of whose income is topped up by part-time work, have an average disposable income of £16.30 per week.2
Pay TV starts at £5 a month, or £50 for a 12-month subscription. Pay TV, delivered online, and focused on a specific genre, costs less than a tenth of average pocket money.
For a fiver, subscribers could have the run of 6,000 reality TV episodes on Hayu, or access new episodes of anime programmes within an hour of their first broadcast in Japan on Crunchyroll Premium, or a repository of archive and exclusive history programmes on Dan Snow’s HistoryHit television service3, or a trove of programmes on royal families on True Royalty, described by one commentator as a monarchist Netflix.4
For only a pound more, viewers can access broader libraries of content, such as Netflix Basic at £5.99. NOW TV, provides access to 11 pay TV channels for £7.99 per month.5
The modest cost of specialist SVOD will likely catalyse a surge in pay TV subscriptions over the next five years. Any person with a connected screen and a credit card, or access to one, could become a subscriber. There are an average two connected screens – smartphones, PCs, TVs and tablets – for every person in the UK now.
Another stimulus will be the take-up of superfast broadband, now available to approaching 95 per cent of UK homes. Superfast is 30 Mbit/s or faster. To watch HD drama on a TV set, a 2 Mbit/s constant connection is needed. A 30 Mbit/s connection could support multiple concurrent streams to a range of connected devices.
By 2023, Deloitte predicts there may be three separate video subscriptions per household that pays for TV, with teens as well as adults each being potential subscribers. As no single person may be paying or overseeing all subscriptions paid for by each member of the household, the aggregate number of subscriptions may proliferate invisibly.
Traditional pay TV and SVOD overlap: in Q3 2017, 40 per cent of Virgin Media homes had Netflix;6 in Q1 2018, 71 per cent of those with an SVOD subscription also had pay TV.7 This behaviour is similar to that in US households: one survey found that 40 per cent of pay TV homes also had an SVOD service.8
Households also own multiple SVOD subscriptions. As of Q1 2018, 51 per cent of SVOD users subscribed to two or more of the major services (Netflix, Amazon Prime Video or NOW TV), and 12 per cent subscribed to all three.9 The proportion of subscribers with multiple SVOD services has risen since October 2016, when only 40 per cent of subscribers to the largest SVOD services (Netflix, Amazon Prime and NOW TV) had access to two more of these services, and eight per cent had all three. Some individuals, with sports fans likely over-indexing in this category, may have multiple subscriptions for just one genre.
A football fan wanting to be able to watch each English Premier League (EPL) match in the 2018-19 season would need to subscribe to all of Sky Sports, BT Sport and Amazon Prime.10 If she were also interested in watching Barcelona and Juventus, and other teams inLa Liga (the Spanish league) and Serie A (the Italian league), she would additionally need to subscribe to Eleven Sports. This company, while a newcomer to the UK market, has been headquartered here for years, and has amassed 17 million subscribers in the markets in which it operates.11 A subscription to Eleven in the UK costs £5.99 a month, and £59.99 per year.12
The need for multiple subscriptions may be replicated in multiple markets. In the US, streaming has enabled football fans to access all major European leagues: the cost of this, per a New York Times analysis, would be $850 per year.13
Eleven has also acquired the rights to the PGA championship (available online only), with Sky holding the rights to the PGA tour until 2022, at which point it is expected to move to an SVOD service from Discovery, which has acquired rights in a ten-year global deal worth $2 billion.14
By 2023, almost all commercial broadcasters are likely to have launched a direct to market subscription service, either under their own brand, or in collaboration with other partners.
Broadcasters will be monetising in three ways: via advertising (the dominant revenue source today), via SVOD (offering the absence of advertising, among other benefits)15 and through wholesale agreements with traditional pay TV providers.
ITV’s strategy refresh in July 2018 announced a direct to consumer (DTC) target for revenues of £100 million in 2019. In the first half of 2018, DTC delivered £41 million, a £12 million increase on the prior year.16
Channel 4’s Walter Presents, a curated catalogue of foreign language shows, is a VOD service in the UK, but SVOD in the US, charged at $6.99 per month.17
UK broadcasters’ diversification into SVOD mirrors similar initiatives in other European markets. In the Netherlands, RTL’s Videoland, the second most popular SVOD service in the market, charges €8.99 per month for exclusive access to content, including, from June 2018, a season of Temptation Island.18
Production houses are likely to create direct to consumer offerings, sometimes in direct partnership with traditional pay TV providers. In Scandinavia Viacom launched Paramount+, the first pay TV window for Paramount’s new movie releases, classic films and more than 800 episodes of Viacom programming. Paramount+ was launched in conjunction with pay TV operators, with content only available to pay TV customers.19
To attract and retain subscribers, SVOD will increasingly pivot more pure content aggregators to commissioners. Hulu, the on-demand platform co-owned by Disney, 21st Century Fox, Comcast and AT&T, began as a subscription service in 2009 offering its owners’ content on-demand. Two years later it started producing original content. In 2018, it garnered 27 Emmy nominations.20
Smaller SVOD services are also curating. Britbox, an SVOD service owned by BBC Worldwide and ITV plc, which offers UK originated TV programmes overseas, has moved into original programming, with a spin-off of The Bletchley Circle. Acorn, another UK themed SVOD service, has commissioned London Kills, a crime drama set in London.21
UK developments across all facets of pay TV are likely to mirror those in the US. SVOD will increasingly be specialist, not comprehensive, and will often be complementary to traditional TV models. It will fill gaps in the market, rather than displace existing players, at least in the near term.
Disney’s ESPN+ serves two purposes. It includes content (scores, news, sports radio, podcasts and some programming) that is not available on ESPN’s traditional pay TVservices, such as the 2018 FA Community Shield,22 a relatively niche event in the US market, or live matches from the Dutch, Chinese and Australian football leagues.23
ESPN+ also enables access to live ESPN content delivered as a stream.24 In short, it is a companion, not a competitor. The Fox News’ Fox Nation service, planned for launch in the fourth quarter of 2018, is aimed at super fans wanting additional content.25
In some cases, pay TV will come as part of a bundle. Amazon Prime includes multiple subscriptions, including video. According to a survey of US subscribers, Prime Video is the second most important service, after free delivery.26 With YouTube Premium, video is charged for additionally, but it is a £2 monthly increment to YouTube Music, which costs £9.99 per month.27
Historically, pay TV required an engineer-installed set-top box (STB) and connection, with service provided to a household, and funded by a single bill payer. The advent of superfast broadband has changed this dynamic: almost every premise in the UK has access to the 30 Mbit/s and faster speeds available on superfast, and the majority of these now subscribe.28 The next broadband upgrade will be to ultra-fast, with speeds sufficient to support multiple 4K streams.29 By 2020, a fifth of UK premises should have a direct fibre connection, which will be even faster than ultra-fast.
This trend, along with a growing focus on direct to consumer by content owners and broadcasters, will lead to a steady increase in supply and demand. More people will purchase pay TV, and a growing number of these will have multiple subscriptions.
The wider television industry should be ready for this evolution - from current pay TV platforms that offer exclusive access to SVOD content, and continue to act as aggregators, to broadcasters developing a new revenue stream and the content owners that can disintermediate traditional channels to market. All players should consider what role each wants to play, and with whom they may want to partner. All players could win, and many could lose out: there is still plenty to play for.
28 As of April 2018, superfast broadband (defined as 30 Mbit/s) was available to 93 per cent of UK premises. https://www.ofcom.org.uk/__data/assets/pdf_file/0017/113543/Connected-Nations-update-Spring-2018.pdf
Summary: By 2023, Deloitte predicts there may be three separate video subscriptions per household that pays for TV, with teens as well as adults each being potential subscribers. In this podcast the news and media journalist, Ray Snoddy OBE and Paul Lee, Deloitte’s Global Head of TMT Research look at how the wider television industry should be ready for this evolution - from current pay TV platforms, to broadcasters developing a new revenue stream and content owners planning to disintermediate traditional channels to market.