Monday, April 22, 2013, 10:32 AM ET|Posted by Will Richmond
At starting prices of $8/month or so, affordable subscription video on demand (SVOD) services like Netflix, Hulu Plus, Amazon, Blockbuster and others would seem to appeal to middle and lower income Americans. But a new report from Nielsen finds the exact opposite is true: wealthier homes, with household income over $100K/year, adopt SVOD services at 185% of their index, while lower income homes, with household income under $50K/year, subscribe at just 47% of their index.
Adding to the picture, "Professional" homes subscribing to an SVOD service are at 150% of their index, while "Blue Collar" homes are just 63% of their index.
The data seems to support a contention that Netflix has repeatedly made, which is that SVOD services are typically adopted in addition to - not in substitution for - pay-TV services. To the extent that pay-TV rates have continue to increase, it makes sense that only upper income homes can afford to then layer on an SVOD service on top of pay-TV.
But for SVOD services, the downside of this research is that it suggests until there's material evidence of cord-cutting, its most fertile prospect base is upper income homes. The problem of course is that there are a finite number of these homes, and once they are saturated (which they may already be), achieving significant subscriber growth will be difficult. In other words, until SVOD can truly be viewed as a pay-TV substitute, which for lower income homes would offer them monthly cost-savings relative to pay-TV, SVOD's appeal could be limited.
In a sense, this is the exact same problem that has dogged the premium TV market (HBO, Showtime, Starz, etc.) for a long time. While basic digital pay-TV rates, plus DVR, second room connections, etc, combining to easily drive monthly rates over $100, it's a significant challenge to get subscribers to also subscribe to a premium channel. Hence premium channel subscriptions have been mostly flat for years.
If, however, there were a package of content that middle and lower income homes could subscribe to that was both robust and also more affordable, this could provide a big boost to the SVOD market. That's why I continue to believe Aereo could be very disruptive; with a big chunk of viewership still on broadcast TV, middle income homes could recognize that Aereo plus Netflix (for example) could deliver a lot of what they want, but at a much lower cost. To drive this though, there would have to be a partnership between the companies that was backed with strong promotion.
We'll get another indicator of how strong SVOD adoption is later today, when Netflix posts its Q1 results.
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