Parks Points

Consumers spend more on OTT subscriptions than transactional services

by Glenn Hower | Jun. 15, 2017

Video spending on all transactional services has seen a steady decline in the U.S. since 2012 in favor of subscription services. While average household spending on cinema tickets has remained somewhat stable, transactional services or spending on physical media sales, physical media rentals, pay-TV video-on-demand (VOD), and pay-per-view (PPV) transactions have declined as more options for viewing streaming content become available. Consumers’ spending habits on new content is forcing the industry to look at different ways to release premium content.

Currently, the content industry monetizes video primarily through windowing, or the release of content at different times through different channels, business models, and price points. The windowing strategies that content distributors employ vary greatly depending on the type of content distributed. Professionally produced premium content is categorized as motion pictures, television, and digital content.

For consumers, preferences for accessing this premium content largely depends on their wallet share for video. A closer examination of consumer spending habits on content reveals a few key trends for the way in which content generates revenue for rights holders in the digital age. Households spend an average of less than $1 per month buying and renting digital video, meaning that the industry is selling, on average, less than one movie per year to each household and renting between one and four movies to each household per year (assuming $15-20 for a purchase and $3-6 for a rental).

The only segment that displays a notable average spending increase is internet-based subscription video on-demand (SVOD), which has increased from $3.71 per month in 2012 to $6.19 per month as of 2015. This increase is not surprising, since the typical price point for a subscription service is $7-10. The concern for content providers is that revenues from transactional services are more lucrative than low-margin SVOD revenues, leading to a disconnect in value proposition between content providers and consumers.

Recently, the explosion of over-the-top (OTT) streaming video services as a preferred method of content consumption has opened up new possible avenues of revenue, necessitating radical innovation in strategy. Windowing for both motion pictures and television must evolve to capture audience share in the new digital world of video distribution.

However, the narrative is slightly different in European markets. Paid digital video services have not caught on in Europe to the same degree as in the U.S., with the possible exception of the United Kingdom. Physical media purchases outpace rentals and SVOD average spending, while average monthly expenditure on cinema tickets occurs at a similar level as in the U.S.

German, French, Spanish, and British households spend much more on physical media purchases compared to SVOD services. In the U.K., however, average monthly household spending on SVOD services is higher than its Eurozone counterparts, while the proportion of monthly expenditure more closely mirrors U.S. SVOD spending. While overall spending on physical media purchases is higher than SVOD spending in the U.K. when considering both DVD and Blu-ray, average monthly SVOD expenditure outpaces any single segment outside cinema ticket purchases.

Given the shift in many markets from transactional video to subscription video, windowing must evolve to accommodate the spending patterns in a variety of geographical and cultural markets. 

This story originally appeared on FierceCable.

Glenn Hower

Glenn Hower

Senior Analyst

Glenn Hower currently studies entertainment content and delivery services. Glenn is experienced in entertainment content production and distribution systems with a particular emphasis on radio, television, and film content.

Glenn earned his BA in music with a focus on the music business and industry from the University of Texas at Austin. He earned his MS and MBA from Texas Woman's University in Denton, Texas.

Industry Expertise: TV & Video Content Production, Content Licensing & Distribution, Television Services, Broadband Services, OTT Services, Digital Music

© 1998-2022 Parks Associates. All Rights Reserved.