The spend on both original and licensed content from SVoD platforms has surpassed TV. Speaking at Cable Congress, Ben Keen, VP and chief analyst at IHS, presented the company’s findings. They include ad-supported and subscription OTT service revenues to exceed $35 billion by 2018, with total SVoD subscriptions in Europe passing 70 million by 2019. In terms of the breakdown, bundled OTT subs are expected to account for 30 million of those subscribers, with the other 40 million being standalone SVoD subs.
Discussing Netflix in particular, Keen said that 20% of the company’s content spend was allocated on original programming – a figure which now outspends the BBC, HBO and Discovery. Only Sky spends more on content, and that is almost solely down to the massive contracts it signs to secure sports rights, which it then uses as a selling point for its satellite service. Amazon is also getting up there, and now outspends Germany’s ProSiebenSat.1 Group, according to Keen.
The conversation also touched on the gulf between OTT revenues and pay TV, with OTT clocking in at $33 billion and traditional TV netting annual revenues of $273 billion.
In cable, Keen noted that total subscribers have declined since 2009, with numbers in Central and Eastern Europe falling in the past two years, following the trend seen in Western Europe. Cable’s share of the total TV market has also fallen from about 70% a decade ago to around 40% today.
According to Keen, and we certainly aren’t disagreeing with him, cable has been gouged by IPTV in Europe, and by satellite particularly in the central zones and the EU. Keen noted that cable was still a growth industry for Europe. “The industry has been transformed by the transitions to digital. Over 70% of European cable TV revenue is now digital, and ARPU has increased.” He might perhaps change his view when he collects and sifts through the latest revenues for European cable operators (see last week’s Faultline).
He went on to say that the cable industry has almost doubled in size in the past ten years, adding $12.72 billion in value – largely through the growth of cable broadband, itself a contributor to the growth of OTT.
Elsewhere, Evercore ISI’s Ken Sena has declared that Netflix will be forced to spend an additional $1.5 billion on content this year, due to increased competition. Pointing to Apple’s deal with HBO Now, Snapchat’s new Discover video platform, and Amazon acquiring the rights to Seinfeld, Sena says the impact of these will push Netflix’s free cash flow to negative $677 million, compared to the Wall Street average prediction of negative $97 million.
Sena points out that one off his sources has cast doubt on the success of Netflix’s original programming. It is claimed that only 25% of Netflix’s 28 million domestic subscribers have watched a single episode of the first series of flagship House of Cards. Of that 7 million, apparently only half sat through more than three episodes. Netflix insists that it has viewing numbers that would make any broadcast network happy for House of Cards and other estimates put the number viewing the second series closer to 13.4 million.
But if Sena is right, it makes Netflix’s decision not to release viewing data more understandable. The wider industry narrative would have you believe that original content is driving subscribers to the OTT platforms, but if viewing rates are really this low, it would appear that the ease of watching thousands of hours old TV content for less than $10 per month is the real driving factor behind Netflix’s success – and not Bojack Horseman, Orange is the New Black, or even House of Cards, but rather established successes that first aired on TV, such as Breaking Bad, Community, or Sons of Anarchy. But if that’s true then why is original content being chased so hard by Netflix’s rivals.