Video Steps into the First On-Demand Recession

A much-cited phrase used to quantify the recent run of cable and satellite TV subscriptions cancellations in the US has been “horrific”. In Q1 the leading publicly-reporting traditional pay-TV providers reported a record 1.8 million decline in the first quarter, the worst quarterly report on record. 

The leading providers have been hit doubly hard in the previous three months by the ongoing global COVID-19 pandemic. Firstly, their core video offerings have been impacted by the shutdown in TV production and live sports – the two core sources of premium content for the TV operators. Secondly, with the US Department of Labor recording its highest rate of unemployment since records began in 1948 and GDP declines of up to 40% estimated, the long-term high-margin subscription contracts of traditional pay-TV are now expensive nice-to-have rather than need to haves for US consumers worried about their monthly outgoings.

A contract-free subscription video on-demand (SVOD) service at up to one twentieth of the cost of the $100+ annual traditional pay-TV subscriptions is the push into cord-cutting that legacy cable and satellite subscribers have needed to make the switch.

Recessionary impacts in an on-demand environment

The global economy was already feeling the strain from the tail end of the longest bull market in history, record corporate debit levels, and the fallout from the trade war between the US and China. All this against a macro-economic environment which still bore the credit scars of the 2008 great recession. The COVID-19 enforced lockdown has become the final recessionary tipping point. 

What makes this recession different for the entertainment industry in particular is the fact that it is occurring during the midst of the mainstreaming of on-demand forms of entertainment consumption. US monthly SVOD subscriptions became mainstream for the first time, reaching 51% in Q4 2019 (Source MIDiA Research Brand Tracker). MIDiA Research consumer survey data shows that this process has increased into Q1 2020. It has resulted in the mainstreaming of on-demand functionality for consumers who have been used to the linear scheduled world of pay-TV. 

Enhanced functionality, combined with dramatic cost savings have created the perfect conditions for traditional pay-TV cord-cutting, with annualised rate of cord-cutting now at 7.6%. To put this in context, a decade of this rate of cord-cutting will result in the complete evisceration of the existing pay-TV subscriber base.

On demand is significant for the consumer because it means more control over both their consumption experience and the costs of accessing that content. However for the entertainment industry, it will inevitably  result in lower margins for entertainment distribution services. The historic high-margin business of traditional pay-TV is rapidly being consigned to history. In its wake the shift to leaner, dramatically cheaper, on-demand services first identified by MIDiA Research back in February 2016 is now inexorably becoming a firm reality.