We forecast SVOD to grow at a 33% CAGR to reach A$848m revenue by 2020. We forecast Netflix to dominate with >50% of the market but highlight Fetch’s share as one that might surprise (at 18%). These forecasts imply total SVOD content investment of A$400-500m pa, certainly well below the broadcasters.
This report provides a deep dive into our SVOD forecasts and assesses the outlook and who are the likely winners and why?
Building a billion dollar market in 5-7 years: We forecast A$848m SVOD revenue in 2020. We forecast 4.5m subscribers in 2020 with 35% of households taking an SVOD service where an SVOD household will have 1.3x services on average. While we believe SVOD operators will have reasonable pricing power, our forecast ARPU remains flat reflecting the mix shift from higher priced IPTV services to the lower priced pure SVOD services. This report also provides bull and bear-case scenarios to our base-case forecasts given the early stage of SVOD services in Australia.
Netflix is winning but IPTV isn’t doing too badly: We forecast Netflix securing a 60% subscriber market share by 2020 (from ~50% currently). We forecast PVR based services (‘IPTV’) with a 17% subscriber share and a 25% revenue share (reflecting the higher ARPU) with Fetch dominating with 11% and 18% respectively. We believe this reflects the platform aggregation benefit where users can access multiple services via a single PVR based platform. Our forecasts align with what consumers tell us (we asked 5k of them), they want convenience (and access via the TV screen), TV content and recent content. We believe the key unknown to impact these outcomes is Telstra TV – how compelling will the customer proposition be and what impact will this have on the share of SVOD and Premium Pay-TV respectively. We also highlight our expectation of a shift from Premium Pay-TV to Pay-lite services where we expect Pay-lite (SVOD including IPTV services) to account for 25% of total paid subscriber revenue from around 6% currently.
Content investment insignificant versus broadcasters: As we outlined in our recent ‘Video Market Outlook’ report we expect the growth in SVOD to be at the expense of Physical Media with some impact on Premium Pay-TV. Interestingly when we assess SVOD operator’s ability to invest in programming, we find that it will pale in significance to that of the broadcasters (FTA and Pay-TV). And while we believe the broadcaster model must evolve, this provides support for our view that it will continue to remain relevant.