Spending On SVOD Dwarfs Digital Video Rental and Purchase

While some Wall Street analysts say streaming giant Netflix is extremely overvalued (due to low profit margins, bad cash flow and slow international launches), generally speaking, the stock of subscription video-on-demand services is on the rise on Main Street.

According to a new research report released by Parks Associates on Thursday, monthly spending on SVOD services among U.S. broadband households increased from $3.71 per month in 2012 to $6.19 per month in 2015.

“Multiple content players have held onto traditional content windowing strategies for years, but OTT technologies and emerging business models have finally forced these companies to experiment with new windowing strategies,” said Parks Associates research analyst Glenn Hower said in a statement. “New models for movies include day-and-date availability, as with the [Netflix] movie ‘Beasts of No Nation,’ where it was released for streaming the same day as in the theater. For streaming TV shows like [Netflix’s] ‘Jessica Jones’ or [Amazon’s] ‘Transparent,’ viewers can watch full seasons all at once, satisfying binge-happy viewers. Consumers have quickly adopted these new habits as part of their OTT monthly subscriptions.”

According to the Hower, the typical price point for a subscription service is $7-$10, but several niche services (such as Cinedigm’s ConTV, Dove Channel and Docurama) are available for less than $5.

Digital rental and purchase of individual titles is far less popular. The study found that U.S. broadband households on average spend less than $1 per month buying and less than $1 per month renting digital video, which indicates that they purchase less than one digital video a year and rent between one and four videos per year.

“The subscription model clearly dominates in the U.S., which could create a disconnect in value propositions between consumers and content providers, who might seek out revenues from more lucrative transactional services over low-margin SVOD services,” Hower said. “Currently, they are exploiting multiple digital distribution outlets to monetize current and library TV content, including authenticated catch-up players, third-party aggregators, and direct-to-consumer subscription services. There are also bidding wars for premium library TV content, with Netflix paying a reported $118 million for ‘Friends’ and Hulu paying a reported $160 million for ‘Seinfeld.’”

Hower will be participating in the “The Future of MCNs and the Video Economy” panel at Digital Entertainment World in Los Angeles on Feb. 11, along with execs from YouTube, BuzzMyVideos, Big Frame and All Def Digital.

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