World television market: OTT services keeping American players in the lead

The United States: global OTT market leader

Still overshadowed by Netflix, which is present in 190 countries, and iTunes with services in 112 countries, Amazon is steadily building up its global OTT footprint through its e-commerce platform.

American OTT video services’ global footprint as of 31 December 2015

The United States: world’s largest OTT video market

With the exception of Starz, which lost 900,000 subscribers between 2014 and 2015, the top premium cable channels in the US continue enjoy a steady increase in subscriber numbers, and this despite stiff competition from OTT services. Between 2012 and 2015, HBO reported a 16.4% increase in subscribers to its linear channel, while Showtime and Starz reported a +1.3% and +0.7% increase, respectively.

But the momentum for signing up new customers is clearly with OTT services. During that same period, Netflix paying customers grew by 70% while Hulu Plus subscribers rose by an impressive 269%.

The top OTT services’ subscriber numbers in the United States in 2015 (million)

With its extremely dynamic national market, populated by consumers who are willing to pay for their TV content, the United States has become the world’s largest video on demand (VOD) market. Thanks to the popularity of Netflix, as well as Hulu Plus, Amazon Prime Video and more recently HBO Now, the US singlehandedly accounts for 57.5% of global VOD subscription revenue. If download to rent/own (DTR/DTO) are less popular with American viewers, the country still accounts for 47.8% of all DTO and DTR revenue.

Also noteworthy is that the United States continues to generate more than half of the world’s pay-TV revenue.

But the North American market is also showing the first signs of flagging, while growth in other parts of the world is progressing steadily.

Popularity of on-demand viewing in the US providing a global springboard for local players

If OTT services have not been adopted to the same extent in other parts of the world as they have in the United States, viewers across the planet are watching more and more on-demand programming and less and less live TV.

Although the balance between the two still tips heavily in favour of “classic” linear TV programming, which accounts for 86% of viewing time in the US, it is by now a foregone conclusion that VOD is not a passing phase, nor confined only to millennials.

Consumers in Europe, as well as in South America and in certain Asian and African markets, are also embracing OTT video. If national services have developed in most corners of the world, very few have managed to hold their own against the global juggernauts that are Netflix for SVOD and iTunes for DTO and DTR.

It does indeed appear that series are the main incentives for signing up for SVOD services. Which means the ability to attract new subscribers and keep them depends on being able to offer exclusive, high quality programming, which is something few players can do.

Netflix became the world’s second largest investor in programme production and acquisition in only a few years, outdone only by sport channel ESPN. Netflix spent 5.8 billion USD on content acquisitions and original productions in 2015, compared to the 5.5 billion USD that ESPN spent on acquiring TV rights and HBO’s budget which is estimated at 2 billion USD. At the same time, the company’s spending on original series continues to rise. Netflix invested 120 million USD in 2016 on its new series, The Get Down, or 7.5 million USD per episode, which makes it the new American titan’s most expensive show to date, ahead of Marco Polo which had a budget of 90 million USD.

But growing budgets coupled with slowing growth at home are making the search for outlets outside North America imperative. Clearly, the wealth of its library is one of the main reasons for Netflix’s global success, although international development costs and especially marketing costs are in no way detracting from the company’s profitability.

If Amazon and HBO are following, albeit more discreetly, in Netflix’s footsteps, it is hard to see what European player today could rival them, and most are put off by the size of the investment required and the meagre prospects for ROI in the short term. Vivendi appears to be struggling to build a pan-European offering, while Sky is advancing cautiously with plans to launch its Now TV streaming service in Spain by the end of the year, which would make the country the only market where it only sells an OTT product, with no satellite service to back it up.

The TV market did not enable the emergence of any major pan-European service. Will OTT give Europe’s industry a second chance?