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Egham, UK, October 21, 2014

The Dominance of Pay TV Masks Strong Growth in Video-on-Demand Services

While pay TV is the biggest segment of the overall consumer video services market, accounting for 96.3 percent of total spending in 2014 and 94.2 percent by 2018, subscription video on demand (S-VOD) is a growing market.

We asked Fernando Elizalde, principal research analyst at Gartner, about the current and future state of the S-VOD market and how consumers’ behaviors may impact this type of service.

Q: How much is the S-VOD market worth? How does it differ regionally?

A: Of all the video media services that consumers pay directly to the service provider, the over-the-top S-VOD services have the strongest growth potential. Gartner expects consumer spending on S-VOD services to grow 28.1 percent in 2014 and 18.2 percent in 2015.

There are regional differences driven by the maturity of the S-VOD market itself, including availability of providers and content, the readiness of the broadband infrastructure and the consumer’s ability and willingness to pay. While North America and Western Europe will drive overall spending on S-VOD services, they are the slowest growing markets globally – spending on S-VOD services in North America is on pace to grow 28.5 percent in 2014 and in Western Europe spending is expected to increase 18.6 percent. In the emerging regions, where this type of services is more novel, we estimate S-VOD spending will grow 53 percent in 2014.

Q: What’s the impact on pay-TV services?

A: S-VOD will not displace pay-TV services as a whole. It is, and will be, complementary to traditional pay-TV services such as cable TV, satellite TV or IPTV. Yet, consumers will increasingly spend less in additional premium services from the pay-TV provider and divert the spending to S-VOD. However, there will be a small segment of the population, particularly those who are starting a new household and haven’t yet subscribed to pay-TV services, which will only rely on online access to video and TV content.

Q: How much do consumers spend on average on S-VOD? How often do they buy S-VOD?

A: Gartner estimates that households spend anywhere between $6 and almost $10 on average per subscription worldwide. The spending varies somewhat regionally with emerging Greater China, Sub-Saharan and Asia Pacific countries paying the least per subscription. Gartner estimates that “technology enthusiast” households, in other words, early adopters, are already subscribing to multiple S-VOD services in mature markets. In fact, technology enthusiasts in the US spend on average $15 a month on S-VOD services, while the same group in Germany spends $17. 

Q: As more S-VOD services become available in Europe, what type of content will international service providers need to produce to be successful in Europe?

A: iTunes, Amazon and Netflix are doing well as their services become available in European countries. Before Netflix’s latest expansion into Austria, Belgium, Germany, France, Luxembourg and Switzerland, the company already amassed a subscription based of nearly 5 million customers in Western Europe. We also saw that within two weeks of service, Netflix allured around 100 thousand subscribers in France, with the first month being free. In addition, the entrance of international service providers fosters service awareness, competition and better services for the consumers.

From a content point of view, some of the content from international S-VOD service providers needs to be in local language to appeal to a broader audience, but it is not a necessity. In addition, the availability of European content is enforced by the European Audio Visual Media Service Directive. The directive requires the service providers to promote the production of European content and its access, by contributing financially to the production of European content, or by reserving a share and/or prominence for European content in their catalogue. Yet, not all countries have enforced this directive. 

About Gartner

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