Has The SVOD Killer Arrived?
In 2014 ESPN had 95 million subscribers and its $10.8 billion in revenues accounted for 25.7% of Walt Disney Co’s $40.2 billion revenue. In 2015, ESPN lost three million subscribers and this 3% decline in subscriptions and the historic operating margins of 40-45% for cable and satellite, underpinned by ESPN’s trophy-like exclusivity on premium live sports events, were suddenly at risk. In 2015, US pay-TV operators were paying Walt Disney Co three times as much for ESPN as they did for other cable channels. This in turn had encouraged price inflation for sports content auctions. This enabled ESPN to secure the sports rights offering, which became the most expensive part of a pay-TV package for subscribers. Furthermore, 2015 was when consumers started to leave pay-TV for the far cheaper and more flexible sports-free SVOD alternatives. According to MIDiA Research data, in 2015 the US SVOD subscriber base increased by 12.6 million, representing a 23% growth and increasing the SVOD share of the subscription video market to 38.6%.
Fast forward to 2017, US TV viewers are being offered a hybrid of SVOD and cable TV package, without the enormous price hike for sports coverage, through Philo. Philo is effectively an SVOD service with live TV integration, offering A&E, Scripps, Discovery, AMC and Viacom. At $16 per month, Philo is less than half the price of YouTube TV and Hulu’s live TV option. However, it also has noticeable omissions from its offering (no Walt Disney Co channels or Fox programming, for example). What makes Philo interesting is the combination of competitive pricing, live schedules and mainstream programming.
Streaming pay-TV without sports?
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If the canny marketing of Philo as sports-free TV-like experience actually works and the app games momentum, then both the bloated pay-TV sports-backed ecosystem and the scripted drama dependent world of SVOD suddenly look vulnerable. Both offerings would find themselves exposed as niche offerings at opposite ends of the value spectrum. Both premium-priced pay-TV and affordably priced SVOD are tied into expensive rights deals for content, while SVOD providers are locked in a content arms-race as they seek to gain market share over TV and tech rivals.
Almost certainly, SVOD is now too heavily embedded into the lifestyle of the digital consumer for TV-like streaming services to make much a dent in its adoption curve. However, the likes of Philo do highlight SVOD current narrow focus on scripted drama, which, after all, is a large scale niche content offering like live sports.