The UK Television Landscape Report

VOD the almighty

13 September 2017

In October 1985, Blockbuster Video was founded. On the back of ever increasing VCR sales, home entertainment was taken to a new level. Film and TV studios were now offered new avenues to monetise their programming outside of cinema release and broadcast. Video rental was here.

The concept of leaving the house and going into a high-street store to choose a film to watch that evening might seem alien to the young of today, but this is what happened. VCR ownership was as high as 83% of all households by the turn of the century and this reflected the popularity of the rental video market.

But from strength and dominance, the days of going down to your local video store are no more and alas, Blockbuster Video closed its doors for the final time in 2013.

As we’ve seen recently (in our Q4 2016 report) with the VCR itself, PVR technology has had a significant impact. But in addition to recording our linear television, we are now able to watch our favourite programmes via broadcaster VOD applications, and also new subscription VOD services. Broadcaster VOD apps are now as embedded in our television psyche as the channel brands themselves and provide us alternative ways to make sure we don’t miss programmes on television. Digital over-the-top distribution is now the leading method outside of broadcast in which to watch high end television content. However, it is with subscription services where we see the most disruption to the old world. Offering access to archive television, movies and now high budget exclusive series commissions all in one place, it is no wonder the services of Blockbuster and others are no more.

In just a few short years, the rise of subscription VOD has had profound change on the UK television landscape. Now in over 33% of households, subscription VOD services offer complementary or, in some cases, alternative opportunities for watching high quality movies and television that are not through traditional broadcasting services. Netflix and Amazon Video are now as well known for exclusive series like The Crown, Stranger Things and Man in the High Castle as the wealth of archive content available on their platforms.

By far the most dominant of these SVOD services in the UK is Netflix. Launching in 2012, it is now in more than 26% of households. That’s a subscription base of more than 7.3m homes. Not far behind and, interestingly, closing fast, is that of Amazon Video. In Q2 it was estimated to be in 14% of all households, a growth of 112% in the last 12 months alone. The exact reasons for this are not clear but it seems pertinent to mention the correlation between the strong growth in subscriber numbers and the launch of The Grand Tour with Jeremy Clarkson. Now TV, Sky’s OTT offering, continues to grow and currently is in over 1.2m subscriber homes.



Friend or foe

The arrival of both Netflix and Amazon Video in the UK has often been used to support the ‘death of TV’ claim, with the old norms and linear distributors being replaced with a new way of watching programming. While there is evidence of the phenomenon of ‘cord cutting’ or indeed ‘shaving’ in the United States, subscription to Netflix and Amazon are more often to be additional, complementary services to pay-tv offerings, rather than alternatives. Instead of being a threat, they can offer even more content to a segment of the population who quite simply love television.

Although Netflix exists in 26% of all homes, in Sky homes that rises to 30%, 34% for YouView, and a staggering 36% for Virgin Media. In other words, you are 40% more likely to have Netflix if you subscribe to Virgin Media than the average household. A similar pattern emerges for Amazon Video, with subscribers to pay-TV services via Sky, YouView and Virgin Media more likely to have Amazon video than those without.

Interestingly, of those without a TV platform at all only 24% subscribe to an SVOD service. So, perhaps the idea of these services replacing traditional distributors are some way off the mark.

The UK has a rich heritage in high quality free-to-air television provision. Paying for television is now a mature market in the UK. So there already exists a value exchange in people’s minds for those who are likely to spend money on their television. It is little wonder then that these predispositions around paying for broadcast TV in general also correlate with paying for subscription VOD services.

And like with any commodity, price points impact on these choices and decisions. Across social grade what we generally see is that the higher the social grade of the household, the more likely you are to subscribe to these additional services. 42% of grade A households, and 47% of grade B subscribe to SVOD, compared to 23% and 13% for D and E households respectively.




Age is no barrier 

We’ve seen at a household level the cohabitation between pay-tv platforms and subscription OTT services, but a possible future concern for linear distributors may be the age cohorts of those who have access to these ‘non-linear’ facilities.

In 33% of all households, 49% of all children in the UK have access to an SVOD service. That’s around one in two children being able to watch high quality television that is not from a linear channel or platform. This rises even further when you look at young adults, 16-24s. Here, a staggering 60% of all young adults have access to an SVOD platform, and Netflix is clearly the preferred provider. These demographics are generally not the decision makers – or bill payers – in the home. So as these demographic cohorts age and enter new lifestages it may be worth noting whether their desires for traditional means of receiving programming change.



Next day delivery

We know that where you live in the UK can impact on how you get your television. The same is true when it comes to SVOD. Latest data continue to the trend we saw previously with the Scottish having one of the highest levels of subscriptions to Netflix, with 30% of all homes within the STV region subscribing to Netflix compared to 26% UK wide. But when it comes to Amazon Video, the Scottish trend is below the majority of England, with London and the South leading the way. Together with London, it is the South East and the South West most likely to subscribe to Amazon Video than anywhere else in the country with 17% and 18% of households respectively subscribing, compared to 13.6% for the UK.

Of course, different people have different tastes and choices but there are some regional variables at play. SVOD services are often bundled together with additional offerings to make the purchase or subscription more palatable for the consumer. Taking Netflix for example, it can be purchased as part of a Virgin Media subscription, with its own access within the Virgin Media EPG. Which is why there are correlations with regions with high Virgin Media penetration and subsequent Netflix subscription. In fact, taking the Scottish and English Borders as an example, the cable network is near non-existent within this region, and that goes some way to explaining the fact it has the lowest Netflix subscription rates of anywhere in the UK.

For Amazon Video, subscription to its service is bundled together with Amazon ‘Prime’, its next day delivery service. Therefore, areas with high e-commerce rates and use of Amazon as a retail service are more likely to be aware and use the SVOD service. This is one possible reason for the higher than average take up rates in London and the South of England.




Rise of the machines

If you’re paying additional money for premium television programming, it’s probably of little surprise that you also value your television experience and technology. Both Netflix and Amazon Video now provide an ever-increasing number of titles in 4K quality, so it makes sense that over 50% of households with 4K TVs subscribe to an SVOD service. So, when we said earlier that SVOD subscribers simply love TV, we meant it. Not only do they want the most pixels, but across the largest dimensions. Homes with a TV set of at least 50 inches are 57% more likely to subscribe to Netflix than the average household.

Interestingly, of those with Sky Q, the new multi-tuner, hybrid set-top box from Sky, 54% subscribe to an additional SVOD service to complement their services from Sky itself.



When one isn’t enough

We know from our data that SVOD subscribers love television, and not only that, they want to watch it on the largest screen and in the highest quality. And whether you include or exclude SVOD in your definition of ‘television’ or not, the same applies to SVOD programming. It’s clear that the TV set is their device of choice. But you might think, that in addition to their pay-tv channel line-ups, and their broadcaster VOD services, then there might only be need for one additional SVOD service subscription. Well, you’d be surprised. A significant number of us in the UK subscribe to not only one of either Netflix, Amazon or Now TV, but two, or indeed all three services, highlighting the strength of the individual programme titles within each of those platforms as driving factors for taking the service.

Although 7.3m households subscribe to Netflix, of those 2.2m also subscribe to Amazon. That’s the equivalent of 30% of the Netflix subscriber base also subscribing to their competitor and vice versa, 58% of Amazon’s subscriber base subscribing to Netflix. Programme commissioning and procurement for these platforms is becoming more competitive, so it will be interesting to see whether this significant complementary overlap continues. Or whether households increasingly begin to choose one or the other in the future.



The next big thing 

The last twenty or so years has seen the rise and fall of many technologies and services, previously thought of as mainstays in our lives. Blockbuster Video, once a central part in the home entertainment offering in the UK is no more. The growth in subscription VOD services shows no signs of slowing, or at least not yet, but will these trends continue? Or will the replacement for rental video be replaced itself with something new and even more convenient to consumers? With all these questions, only time will tell.