• SVOD Services May Be Hitting Subscribers’ Limit on Willingness to Pay

    New research from GfK shows that SVOD services may be hitting subscribers’ limit on willingness to pay, in turn crimping the potential for future rate increases. GfK found the average willingness to pay was $10.82/month for Netflix, $9.10/month for Amazon, $9.96/month for Hulu ad-free and $5.01 for Hulu ad-supported.

    Adding to the pricing pressure, GfK also found that cost was the most important attribute in picking an SVOD service, cited by 75% of respondents. The second most cited attribute was “availability of specific programs” (69%) followed by “availability of new movies” (68%).

    Perhaps the most surprising - and disappointing - news for the SVOD services was that their original content initiatives seem to have only made a minor impact so far, with original and/or exclusive content only coming in 9th on the list of important attributes. On the bright side though, 12% of Netflix subscribers and 9% of Amazon subscribers said originals were a reason to subscribe (up from 3% and 4%, respectively, in GfK’s 2014 survey).

    Given the pricing pressure, GfK concluded that Netflix and Amazon may need to introduce ads in order to generate additional revenues. But Netflix has consistently rejected plans for advertising on the numerous occasions it has been asked about it. Meanwhile for Amazon video is a key part of driving and retaining Prime subscriptions, so standalone profitability is less important.

    The potential price ceiling has broader ramifications as the SVOD industry in the U.S. beings to mature, because of the billions of dollars being poured into original content. To the extent that growth slows, pricing is essential capped and content budgets soar, SVOD providers’ profitability will inevitably be squeezed. That could in turn lead to a slowing of content investments, which many in Hollywood are wary of. Scripted TV shows have soared from 36 in 2005 to 400+ in 2015, a level that some believe is unsustainable and represents a bubble.

    One other data point of interest is that 45% of regular SVOD users believe there are too many streaming services and apps to keep track of. By Parks Associates’ estimates, there were 101 SVOD services available in Q1 ’16, with countless free video sites/apps. This complexity explains the opportunity Amazon has with its Streaming Partners Program, enabling one click subscribe/unsubscribe to numerous SVOD services, with content immediately available within Amazon’s own streaming app.

    The GfK survey included 2,311 U.S. consumers from age 13-64, which included 1,007 regular SVOD users.