Streaming services and pay TV platforms are set to grow exponentially in the next few years while free-to-air broadcasters continue to lose viewers, albeit at a modest rate.
Netflix is predicted to hit 3 million subscribers if it achieves a similar market penetration- 36%- as it has in the US. And by 2017, 37% of homes will subscribe to pay TV channels, up from just 31% today.
That’s the outlook from Citi media analyst Justin Diddams. In a briefing to clients he says, “We continue to believe that TV is not dying but it’s certainly getting harder to deliver revenue growth from advertising spend and with competition escalating as new entrants arrive in Australia it appears harder to deliver earnings growth.”
Citi's report is in line with market researcher IHS's projections which have been updated after Netflix's launch. In a study commissioned by the Australian Home Entertainment Distributors Association, IHS expects the SVOD market will climb, in US dollars, from $6.1 million last year to $18.2 million this year and $39 million in 2016, reaching $65.6 million in 2018.
Diddams forecasts free-to-air viewing will decline by 2% per year over the next three years. For every 1% increase in pay TV penetration he expects a drop of 0.5% in total FTA viewing.
He notes that globally, Netflix households spend on average of 56 hours per month watching Netflix shows, versus FTA viewing which averages 97 hours per month in Australia.
Diddams sees Netflix and other streaming services as complementary to existing TV platforms and believes the main casualties from SVOD will be DVD rentals and purchases.
He is bullish about the growth of pay TV after Foxtel’s repricing and bundling initiatives last November and renewed marketing campaigns from Fetch TV and Optus.
By 2017 he predicts Foxtel will have 3 million subs (up from 2.7 million) and 600,000 homes will subscribe to other pay services.
“Increasing pay TV penetration isn’t the death knell for FTA broadcasters but it could certainly distract viewers and impact audiences,” he said.
Diddams has a buy rating on Nine Entertainment, viewing the broadcaster as a potential takeover target for content owners, and on News Corp due to Foxtel’s growth prospects. He has a neutral rating on Seven West Media.