The State of the Streaming Market 2019
Just 4 or 5 years ago, streaming services were being labelled as supplementary to pay TV, an inexpensive add-on that would offer viewers alternative content. The reality now is that over-the-top (OTT) is on a decidedly upward trajectory while its competition is not.
TV viewing has been steadily sliding across Europe, a trend which UK media regulator Ofcom identifies as not a blip but a "structural decline" in the 2018 version of its annual "Communications Market Report".
People across the UK watched an average of 88 minutes of non-broadcast content on their TV each day, with 16–34-year-olds viewing 2 hours, 37 minutes of on-demand—including 59 minutes of YouTube, on PCs, phones, and tablets—according to Ofcom's annual report on how communications services are changing in the UK.
These patterns are repeated everywhere. Conviva's "State of the Streaming TV Industry Report" (registration required) for Q3 2018 shows that streaming TV consumption globally has more than doubled in a year.
While European internet users are less likely to watch video on a smart TV or smartphone than their US counterparts, according to research from Ampere Analysis, overall, viewers continue to prefer mobile devices for consuming short-form content and connected TVs for consuming long-form programming.
More significantly, a growing segment of TV viewers has also started to associate OTT with both high-quality on-demand content and start-over functions.
"The increasing capabilities of mobile devices to deliver video content mean consumers now expect a compelling and consistent experience from their traditional TV service provider across devices, blurring the lines between traditional linear TV and online video," finds the latest PayTV Innovation Forum report from Nagra and MTM (registration required).
"The demand for quality is pushing connected TVs to the top in terms of device share, commanding more than 50% of total viewing hours at the expense of PCs that have lost 7% while mobile remains relatively flat," Conviva CEO Bill Demas notes in a press release announcing the "State of the Streaming TV Industry" report.
The report enforces the understanding that viewer engagement is directly related to the content's streaming quality, with rebuffering a key factor.
"It's clear that viewers are less tolerant of a poor experience, as 13% of U.S. and 16% of global viewer attempts result in an exit before the video starts," Demas warns. "Providers must increasingly focus on the streaming TV experience to match viewers' rising standards."
Conviva did chart "significant overall improvements" in streaming quality, with video start failures down 33% year on year (YoY), as were buffering rates (down 41%); meanwhile, it found picture quality (bitrate) had increased by a quarter.
No TV for Generation Edge
We know Millennials are fleeing traditional TV but Nielsen figures from November showed post-Millennials ("Generation Edge") abandoning TV in even bigger numbers, which eroded to 18% over the past year, according to Ooyala principal analyst Jim O'Neill.
Ofcom also reports the steepest fall in TV viewing among children and young adults. Children's viewing fell by 15% in 2017 to an average of 1 hour, 24 minutes, while 16–24s' viewing fell by 12% to an average of 1 hour, 40 minutes. This means that over-54s, who make up just 28% of the UK population, accounted for 51% of broadcast TV viewing in 2017.
Alarmingly for broadcasters, "[O]lder viewers are starting to catch that wave, because streaming content to connected devices and to mobile phones continues to grow cross-generationally," says O'Neill.
Programming is the primary weapon to attract and retain audiences—but it costs.
"Cost—more than anything else—is going to be the determinant in who thrives in the new OTT environment," O'Neill predicts. "Content distributors who can't maximise ROI or who can't afford a continuous stream of new content are going to simply disappear."
Ofcom's "Communications Market Report" has found that drama is still capable of attracting 8 million-plus viewers in the UK, but many smaller shows have dropped below 5 million. Outside of live sports (decreasingly available on free-to-air channels), "TV shows with mass appeal are now increasingly difficult to generate" it states.
That said, October 2018 saw a record-high 334 million requests for BBC iPlayer, bolstered by high-ranking drama like Killing Eve and the start of the 37th run of Dr Who.
Current market pressures are increasing the cost of content at a time when original content is in demand. Even Netflix could be trapped in a cycle of its own making.
Ampere Analysis says cost of acquiring subscribers to Netflix in the U.S. has shot up from $60 to $100, according to Advanced Television, as the streamer's content budget nudged $13 billion in 2018.
Its content strategy is being angled toward local origination. From new commissioning hubs in London, Madrid, and Paris, it will raise the number of European titles it produces by a third to 221 projects, according to Ooyala's O'Neill. Amazon and YouTube are adopting similar strategies.
"In addition to giving audiences the local, original content they crave online, those assets will go a long way toward satisfying pending laws from the European Commission requiring 30% of streaming services' libraries to be sourced from Europe," observes O'Neill. Prowess in locally produced content is also the argument made for the survival of public service broadcasters (PSBs).?In a public address in March, BBC director general Tony Hall warned that the success of digital streamers threatened to undermine British values unless there was some sort of "breathtaking, seismic change."
Yet, as Ofcom reports, UK PSBs combined spend on TV content remained flat in 2017 at £7.5bn, with spend on original local programming within that total dropping to £2.5 billion.
PSBs Plot Digital Fightback
All of these factors coalesced into a growing clamour for a consolidated UK public service broadcaster SVOD service. Such a "British Netflix" would showcase the best of British programming to compete with the global growth of FAANG. By the end of 2018, Ampere forecast Netflix would reach 9.78 million UK subs, while Ofcom pegged Amazon's subscriber number as close to 5 million.
A revived venture (prevented by competition authorities from forming a decade ago as Project Kangaroo) was in discussion at ITV, BBC, Channel 4, and Channel 5 all year and would seem to be waved through by Ofcom should a proposal be agreed.
Sharon White, Ofcom's CEO, reiterated her stance at several points in 2018. "As the national broadcaster, we'd expect the BBC to take the lead on forming such partnerships," she said in November. "And for our part, Ofcom has to be a forwardlooking regulator that supports the future success of UK TV, firmly rooted in the online world."
The idea is that a single digital platform would unite the content available on each of the PSB's individual on-demand services (iPlayer, ITV Hub, All 4, My5) and make it easier for viewers to access content across a range of devices.
The BBC has partnered with ITV on the joint U.S. streaming service BritBox, while a new free Freeview mobile app for live and on-demand streaming from the PSBs, launched in January, shows that collaborative deals can be done.
Aside from being a paid-for service, the new PSB SVOD would probably have a single login and have its content pooled. Brand protection may be a sticking point for BBC and ITV.
The move, finally announced in February as a UK version of BritBox, would be similar to partnerships in France (between Rai, ZDF, and France Television) to enter a co-production pact and pool funds and in Germany, where Discovery has linked with ProSiebenSat.1 to build a paid-for programming hub.
Defending its position, Sky's chief executive of UK and Ireland, Stephen van Rooyen, warns in The Guardian that any such plans could still fall foul of the competition regulator since PSBs still command nearly three-quarters of viewing share.
Should a PSB SVOD not go ahead soon, ITV has prepped its own plans to launch its own domestic streaming business, which it reportedly thinks will net more than £200m ($254m) a year, according to Broadcast (subscription required).
Media Giants Position for DTC
The battle for Sky between Comcast and Fox was the year's biggest M&A this side of the pond, one in which Comcast emerged victorious after parting with £30.6 billion ($40 billion) and Rupert Murdoch was ousted from British TV (if not all media) for the first time in 30 years.
According to Ampere Analysis, the deal is predicated on a strategy in which streaming services and direct to consumer (DTC) offers take priority and major content creators increasingly keep their own content for their own services.
Indeed, if the combined Comcast/NBCUniversal and Sky decided to pull all owned content from Amazon and Netflix in the UK and push it to Now TV, Sky's streaming service would grow by around 20% in volume, boosting its competitive position in the UK market.
"As Comcast owns NBCUniversal (which also owns Dreamworks Animation), Comcast could decide to follow in Disney's footsteps and shift its content away from Netflix and Amazon in Sky markets and place it on its newly-acquired streaming services in the UK, Ireland, Germany, Austria and Italy," Ampere has observed.
There are more services than ever, soon to be joined by new offerings from Disney and Apple. But how many can the market support?
Companies and Suppliers Mentioned