Video On Demand in Europe: 2018-2021 - Not So Quiet on the Western Front

Table of Contents

• Preface
• Executive Summary
• Introduction
• The state of global video development
• In the Zettabyte Era video content is still king
• The “video effect” and the need for ultrabroadband networks
• Mobile keeps surging
• The consumer choice
• The new age of cross-platform content
• New viewing habits: video streaming goes SVOD
• Main trends and new paradigms: 5G, AI
• The first wave of 5G
• 5G TV
• Artificial Intelligence and the impact on video content industry
• Machine Learning: the ultimate video user experience
• Business strategies and consolidation
• The Telcos of the future
• Consolidation: the new mantra
• The AT&T / Time Warner case: what’s next?
• The new playing field
• Amazon overturn second-filling to Netflix
• The on-demand sector in Europe
• Overview
• The UK
• France
• Germany
• Market forecast
• On demand pay services revenues
• Revenues from single transaction: TVOD
• Subscription Revenues: SVOD
• VOD revenues in the main countries (France, Germany, UK)
• VOD revenues in the other countries

Samples

Executive Summary

After several years of inception, led by visionaries and disruptive companies like Netflix, video on demand (VOD) has now become a reality not only in the United States, but also in Europe. This is a consequence of a profound, relentless process of transformation led by digital innovation, which has changed the content industry dramatically in a very short time (4-5 years), with a heavy impact both on supply side (production, distribution) and consumer demand, changing viewer’s behaviour and habits. As a result, we are now experiencing the perfect storm in the global media & telco industry.

With the growth of video viewing, especially on smartphones and tablets, traffic from these devices is growing as a high percentage of total Internet traffic. A video effect on the traffic even more pronounced because of the introduction of Ultra-High-Definition (UHD), or 4K, video streaming. With proliferation of video devices that will have a multiplier effect on traffic. An Internet-enabled HD television that draws 90 minutes of content per day would generate as much Internet traffic as an entire household today. Driven even by live video, which has the potential to drive large amounts of traffic as it replaces traditional broadcast viewing, that will grow 15-fold to reach 13% by 2021. Globally, video traffic will be 82% of all IP traffic by 2021, at a CAGR of 24%.

Mobile keeps on gaining ground behind the affordability and reliability of fixed line, but is getting there thanks to 4G, 4.5G, and soon 5G connections, muscling its way into the life of digital consumers. In 2017, there is a clear trend for viewers to watch longer content on mobile screens, and for content companies including telcos to increase the fidelity of their consumers by providing more premium mobile video content of all lengths by means of quad-play offerings. As more premium sports and linear tv programs move online and are available also on mobile devices, we expect, globally, mobile plays is going to reach a 70% market share.

It is clear that Millennials is the most interested group, in line with their mobile and OTT viewing habits, because on-demand provides people total control over what, when and where they watch, so they have long been a prime target for OTT players and marketers. The video race is still up for grabs. Video has proven to increase online publisher revenue by 20% via video ads-on content, and it extends online viewing times, enabling viewers to watch more ads. In fact, the average internet user spends nearly 90% more time on a website that has video. By 2019, online video will approach 80% of global internet traffic. The new challenge is to think “cross-media” right from the start, and to break up this door, by using digital as the connecter.

Hence, video streaming, in turn, is driving the significant decline in pay-TV subscriptions and the growth of alternative platforms that feature high-quality, original content optimized for smaller screens. Video’s proliferation on social networks and the growth of OTT streaming platforms are major drivers of digital video viewing. In fact, smartphone penetration, among Millennials in the Big 3 of Europe, is extraordinarily high, and smartphones are overwhelmingly the device of choice for internet access for video streaming.

The world is changing faster than ever. And we are going to have to adapt faster than ever too, just to keep up. But new technologies will simplify the process. The next generation of mobile communication, 5G, is expected to be the next big thing in the whole digital ecosystem, coming with the promise of an extremely reliable and wide availability of ultrafast and ultralow latency connectivity. From Blockchain to IoT through for Smart Cities and Industry 4.0, 5G will be crucial to enable, in a reliable way, advanced services, even for UHD/8K video. Further developments are related to the so-called 5G TV, the forthcoming ability to watch standard TV broadcasts over a 5G mobile network connection (rather than fixed broadband, cable, or satellite) and the ultimate development of Artificial Intelligence through Machine Learning. While Netflix and others were leveraging mainly ML for search and recommendations, the aim is now to extend it to enhancement and content production.

It is not a secret that video has become a staple of our everyday lives. The emergence of OTT video and media services has changed the telecommunication game. Not only does OTT fuel the data traffic explosion, but consumer mindshare and future telecom relevance are at stake. That is why over the past five years, some of the biggest European and US telecommunication companies have moved again into the media world. As technology and levels of connectivity have transformed, telcos have increasingly going direct-to-consumer with business deals or M&A strategies to provide new digital streaming services. The real threat may not be pressure on traditional media but on new players trying to enter the market. It is a clear indicator of an industry in transition, reshaping all the communication sector.

Platforms that invest in quality content have the edge in acquiring viewers, and online streaming services such as Netflix and Amazon Prime are becoming more and more commonplace. And they have a massive user base: at current time, Amazon, which is presumably not the leader but the front runner, has reached 100 million worldwide customers. Having this large user base allows these companies to gather a tremendous amount of data. With this data, they can make better decisions and ultimately make users happier with their service. Through their analytics, these companies may know how much content users need to watch. Hence, it drove rental chains out of business, and a new generation of “cord-cutters” are now choosing to watch everything on-demand, with no traditional-TV service at all. On this regard, Amazon looks more as a mainstream multi-genre content platform, with a strong involvement in the general entertainment and sport. As a result, cross-promoting Prime Video to regular Amazon shoppers, helped fuel a 41% YoY rise in subscribers to 4.3 million households just in one country like the UK.

Indeed, the UK’s TV landscape is still waving: subscription library services like Netflix and Amazon Prime are becoming as important as live-TV for family time. More than 9 million UK households subscribe to at least one SVOD service. Overall SVOD penetration has now reached 43% of UK households, compared to an average penetration of SVOD among TV households 17% for the Western Europe and the fact that the video library of OTT players contains recently produced content is still fundamental to convincing potential customers.

In France VOD services continue to find new audiences, with 37% of French internet users 6+ aged that access almost one VOD service, an 11% increase YoY. But French internet users are more than twice as likely to prefer pay-TV over SVOD. Actually, France is lagging behind the UK and Germany, with a market penetration rate of 10.3%.

In recent times Germany showed the most dramatic changes with the VOD services that have reached now the mass market. In this dynamic framework, Amazon appears to be gunning for a strong foothold in the German market. Together, with Netflix, having a market share of 72.8%, with Amazon taking 38.7% of the German market and Netflix 34.1%.

The publisher therefore estimates the total revenues of the VOD sector in Western Europe will increase from the € 5,475 million in 2017 to € 6,255 million in 2018 reaching € 8,816 million in 2021, with a still double-digit CAGR of 12%.

SVOD revenues in Western Europe will steadily increase, at an average annual growth rate of 15%, starting from €4,513 million in 2018 to €6,805 million in 2021.
With the increasing of pay broadcaster and OTTs in the subscription business, the TVOD is doomed to reduce its market share, that will decline from 28% in 2018 to 23% in 2021.

The publisher estimates that the total revenues deriving from the VOD offer in the joint Big 3 markets, will be of €3,572 million in 2018, increasing to €4,946 million in 2021, with an average annual growth of 11%.
In terms of revenues breakdown, the market will grow more rapidly; TVOD will grow much less, decreasing in importance in the following years. As a consequence, in 2021 the SVOD will represent the 81% of the total revenues, with the TVOD accounting for the remaining 19%.

In this increasingly crowded environment, the content market industry in Europe looks not so quiet and safe on the Western front."

Companies Mentioned

• Amazon
• AT&T
• Netflix