The Netflix beast is a product of its environment. For decades, the US population has grown accustomed to the idea of paying for television. At its peak, the cable TV industry in America had achieved 89% American household penetration. This willingness to pay for access to content on top of the growing expectation that people should have control over what they watch created environmental conditions that contributed to the evolution of how TV is defined in the US. It gave rise Netflix and SVOD. But SVOD is a gluttonous beast. One that must compete for the resources of content and subscribers to sustain itself. Resources that the US has been able to supply. But the Australian media landscape is a different ecosystem. While it is easy to succumb to the fear that SVODs will kill off traditional TV, there is reason to believe that SVODs will starve due to fragmented content and limited subscribers. But could this new environmental pressure spur Australia’s own TV evolution?
It’s pretty easy to succumb to the doomsday hype of the international Netflix giant coming down under. We’ve seen partnerships. We’ve seen consolidation of exclusive content. We’ve seen our local media powerhouses do whatever it takes to ensure that they can snatch a seat on the SVOD bandwagon as it rolls into Australia. But does this coming SVOD revolution mark the death of TV and the advertising backbone that has sustained it? Is the looming SVOD shadow over the TV industry being cast by a mountain or a molehill? Excuse the blatant optimism, but I am inclined to say the latter.
Subscription video services have a monetisation model devoid of creativity. They rely on subscriptions and subscriptions alone to bring in the mullah. It makes it easy to balance the books and has the potential to be quite lucrative in a market like the US where there is a whopping 115 million households that will potentially buy the product. In comparison, Australia will only have 9 million households to market to by 2016. This means that the maximum revenue potential for the entire SVOD market is roughly $1.1 billion (based on a $10p/m subscription) in Australia. However, even in America the penetration of SVOD services only sits at around 35%. A number that is starting to plateau year on year. Assuming that Australia can match that level of penetration that would set a more realistic revenue potential at $385 million. That’s a pretty small pool of resources to be sharing, especially when TV ad revenue brought in $3.5 billion in agency billings alone in 2014.
On the topic of limited resources, by the time March comes along we are going to have four major players in the SVOD space (Stan, Presto, Quickflix and NetFlix). All of them with their own suite of secured and exclusive content. But, none of which will have the seemingly all-encompassing selection of their US counterparts. This fragmentation will simply force interested customers to choose between subpar offerings.
One of the scariest figures for the Australian media networks is the 200,000 Netflix subscribers that already exist in Australia through VPN services, and this is all off the back of a $0 marketing budget. However, when Netflix starts restricting these Australian accounts from accessing the American service they are going to have 200,000 disgruntled past customers who will blame the Australian SVOD movement for enforcing the perceived tyranny of content rights that has made Australia one of the biggest pirating countries in the world.
So no, I don’t think the SVOD beast is going to mark the extinction of TV. The fragmented content subscriptions that are appearing don’t seem financially viable in the Australian market. Already we have seen evidence that Stan is contributing to the declining audience figures of Nine’s Gallipoli. Since the show has been available on Stan, the free to air viewing audience has dropped by 52% compared to its debut. If this decline continues across other properties, the networks simply won’t have a financial incentive to let SVOD services become the norm. Especially when their more profitable ad supported model is being cannibalized.
I am glad that the TV industry is getting scared. This invasion of innovation and technology will hopefully spur the industry to evolve. The SVOD infrastructure seems like the perfect foundation for a new ad funded model that blends the programmatic, targeting and measurement benefits of digital advertising with traditional television.
With a web-augmented and data fueled TV and ad experience the TV industry could have something financially viable on their hands. They could give people the tailored and on-demand content that they desire. They could banish the Nielsen family and create a robust and reliable TV measurement model. They could continue to sell us that precious ad space.
If the networks use this opportunity to evolve, the arrival of SVOD services could be the best thing to happen to Australian TV since Kerri-Anne Kennerly.
This article was also published in Mumbrella.