Wednesday, January 8, 2020, 12:13 PM ET|Posted by Will Richmond
These days there’s no shortage of SVOD services to choose from, with each one seeing to grab a slice of viewers’ monthly spending. And with cord-cutting on the rise, undoubtedly there IS some spending freeing up as viewers cancel their pricey pay-TV services.
But two major industry trends should keep SVOD providers from being overly optimistic about replicating anything close to Netflix’s ad-free hockey stick subscriber growth over the past decade: first, the prevalence of password sharing and second, a tolerance for advertising related to “subscription fatigue” that the proliferation of SVOD services is engendering. New data released this week by Hub Entertainment Research and The Trade Desk underscores the extent of both.
First, Hub’s research found that among all its survey respondents 31% have shared their SVOD passwords with someone who doesn’t live with them, and 42% have used such passwords. Among 13-24 year olds, 64% say they have shared SVOD passwords with someone who doesn’t live with them, with 78% of this age group saying they have used such passwords.
No surprise, Hub found that among 13-24 year olds Netflix has the highest rate of password sharing (56%) and usage rate (69%) among top services. Disney+, has the second highest sharing rate at just 31%. And note Amazon, where sharing can bleed into enabling unintended purchasing, has a sharing rate of just 14%.
Historically, SVOD providers have been relatively lenient about password sharing, reasoning that gaining exposure would ultimately lead to more paying subscribers. But as competition increases and the market saturates, getting the password sharing genie back into the bottle is going to be very tough to do, without risking some subscriber backlash.
Sharing passwords isn’t the only way viewers are seeking to contain costs. New data from The Trade Desk indicates that 59% of Americans don’t want to pay more than $20/mo for SVOD services, and 75% don’t want to pay more than $30/mo. The data adds to other research about “subscription fatigue” in the past year which is intertwined with openness/inclination toward tolerating some degree of advertising.
The Trade Desk found that 53% of respondents would be willing to watch ads every other episode of their favorite show in exchange for a reduced monthly rate, with 68% saying they’d tolerate watching ads that were relevant to their interests if that meant watching fewer ads in total.
Of course, the two best examples of viewers voting with their wallets/attention are CBS All Access and Hulu, both of which offer ad-free and light ad load SVOD services at about half the price. Both have said publicly that the majority of their subscribers opt for the lower priced, ad-supported option. The next big test cases will be NBCUniversal’s Peacock and WarnerMedia’s HBO Max. From my standpoint, it’s likely that their subscribers will follow the CBS All Access and Hulu models.
With improved targeting the ad experience is going to become ever more tolerable for many viewers. Over time, reduced frequency, better targeting and better conversion across all kinds of KPIs will also enable improved unit monetization, and therefore ever-lighter ad loads, which further improves the user experience. The market is also in its infancy for more engaging, interactive ad formats, especially on CTVs, which (dare I say) could ultimately make ads more enjoyable for viewers.
Putting the two new research reports together, password sharing is going to create headwinds for ad-free SVOD growth (at least intra-family), while viewers’ inclination to save money by tolerating ads (which are going to get better) is going to grow. Throw in all the ad-supported OTT services coming to market, and it’s hard not to conclude that not only are more streaming video views going to be ad-supported, but that this is overall a net positive for content providers, notwithstanding their current subscription enthusiasm.
For a good laugh, see below for the all-time classic password sharing video, from College Humor, remarkably, now 7 years old:
Video Research Around the Web
- U.S. SVOD Revenue Spiked 39% in Q3 to $5.5 Billion Next TV
- What Are Consumers Willing To Pay For Ad-Free TV Content? Mediapost
- What Streaming Wars? Five Services Control 83% of Connected TV Viewing Next TV
- PwC Study: Global Media, Entertainment Revenues To Sink 5.6% in 2020 Mediapost
- What the world watched in a day Think with Google
- U.S. Streaming Minutes Up 85% From Late March Through Early June Mediapost
- Two-Thirds Of Ad Execs Anticipate Lower 2021 Ad Budgets Due To Pandemic Mediapost
- HBO NOW Streaming Data In Wake of COVID-19 HBO