The Video Subscription Challenge In 2019

Amid all the excitement in the media world around the 2019 launches of direct-to-consumer services from such illustrious content producers as Disney and Warner Media, one clear question remains unanswered - will the public pay for these additional subscription video on demand (SVOD) services?

The general assumption is that the seemingly relentless rise of Netflix and Amazon Prime Video make continued subscription growth across the SVOD sector an inevitability.  In Netflix’s Q4 earnings call last month, the company were clear to push the continued rise both domestically and internationally in their paid subscriptions (US memberships were up 2.7% while International memberships were up 9.9% on the previous Q3 quarter). While these numbers are impressive, they hide a fundamental truth about subscriptions in the digital economy - Netflix is not only competing with Amazon and Hulu, it is also competing directly with Spotify, PlayStation Now, The New York Times and any other digital content subscription, all claiming a stake on the finite digital wallet of the US consumer.

In the Peak attention economy there is no more free time to cannibalise

In the late 1990’s a quote was attributed to the Swedish institute of national statistics (Statistics Sweden) which stated that the then newly emergent mobile phone increasing demand upon consumer’s time was “cannibalising staring out of the window.” In effect the mobile phone was creating found engagement by providing a new use case where previously one did not exist.  The rise of the listicle and other “snackable” forms of short form video content from the likes of Buzzfeed followed, with use-cases as diverse as the minutes of unutilised time when a consumer was standing in a queue waiting to make their Starbucks order. The Web 2.0 unleashed a whole array of on demand entertainment which was turbo-charged by the smartphone era unleashed in 2007 when the first iPhone was released.

Fast forward to 2019 and we have reached a period of consumer evolution where the ever-present smart-phone has meant that every available second of consumer attention can now be theoretically engaged with across a multitude of differing apps. Boredom is no longer an option for the digital native.  However, somethings remain immutable - we only have 24 hours in the day of which 7-8 hours are allocated to sleep, and of the remainder - the majority needed to allocate on week days to work. In 2019 if a new digital subscription service is coming to market it is competing directly with existing digital demands upon the consumer’s attention and therefore it finds itself having to justify why it should displace an incumbent already operating in the same space. What is going to make a drama and film focused Disney+ a superior proposition for 58.5 million US consumers who already subscribe to the drama and film focused Netflix?

In a world of multiple subscriptions product/content differentiation plus price becomes key

As consumers now have a finite digital wallet and zero free attention, the battle to lure existing subscribers away from existing SVOD services comes down to the business fundamentals of competing on product and pricing. Ideally a new direct-to-consumer service has both product innovation and exclusive premium content - a differentiated content offering by itself will fail to compete head-to-head with content aggregators such as Netflix and Amazon who are able to supplement their strong originals offerings with in-depth 3rd party catalogues. Hulu’s Live TV feature launched in 2018 is an example of bringing something new to the market which both Netflix and Amazon lack. Failing this the new services will have to compete aggressively on price - Netflix’s 10% price hike last month has fortuitously opened up the opportunity for Disney, Warner Media and Comcast/NBCU to go in with a disruptively low price point.  Whether they have the confidence to do so however (and manage the internal debate around the impact on the premium perception of their respective public brands) remains to be seen.