As part of the LDeX media insights series, David Sidebottom, Senior Analyst: Entertainment Content at Futuresource Consulting shares his insights about digital ownership and the growth of premium streaming.

Ownership to access and the growth of Premium Streaming

In an increasingly digital world, it may surprise you that consumers spent almost $25 billion on DVD and Blu-ray videos (to keep) in 2013 worldwide alone. Add to this, the $12 billion spent on CDs and other packaged music, $19 billion on new packaged games and you have a packaged entertainment content market which is worth $56 billion.

However, it is widely accepted that this figure will continue to decline. The biggest challenge for many content holders is not that consumers are turning their backs on packaged media per se, but that many consumers are losing the desire to actually own entertainment media.

“Digital Ownership” has failed to capture the imagination of the consumer in the video space. Whilst iTunes has helped build a significant transactional digital market for tracks and albums, many countries worldwide (including the USA and UK) are now witnessing declines in this market.

Perhaps this should be no surprise given the huge amount of either free, streamed or on demand content that is easily and seamlessly available. The popularity of services such as YouTube, Spotify and Netflix, together with catch-up TV and Pay TV on demand services have fuelled an access or “disposable viewing” (or listening) culture. These services are typically more widely used amongst younger adults, who have yet to, and probably never will, develop an ownership mentality.

Catch-up TV services and YouTube account for the lion’s share of digital video viewing (excluding pirate services), but premium streaming subscription video services, particularly Netflix, have come of age. Last year, Futuresource estimated that 5 billion TV episodes and 2.5 billion movies were viewed via Netflix globally – this compares to less than 2 billion DVDs and Blu-rays bought outright.

This growth in premium streaming of full length video (movies and TV shows) is due to a number of key reasons, although varying significantly by country. The rollout of higher speed and consistent broadband (especially fibre), combined with the huge growth in connected devices have been two of the most prominent factors. At the end of 2013 there were 900 million tablets, 1.8 billion smartphones and 900 million connected TVs in use worldwide – whilst other devices such as games consoles, connected set top boxes and digital media adaptors such as Apple TV, Google Chromecast further supplement this connected viewing.

This combined with the introduction and evolution of quality services has propelled premium video streaming. Streaming content is no longer associated with the lo-res “dog on a skateboard” clips; consumers are now increasingly accepting it as a viable platform for delivering premium video. Similarly, prior to the launch of Spotify, streamed music was seen as far from a premium experience for many, but is now de-facto for a significant number of music listeners.

This acceptance of premium streaming and the associated shift away from this ownership mentality is best illustrated in Sweden. In 2010, almost 80% of consumer spend on music was on CD. In the space of just 3 years, the sector has been turned on its head – largely due to Spotify. In 2013, spend on such streaming music subscriptions accounted for almost 75% of total music spend – almost a reverse of 2010. With Netflix going great guns in Sweden, this mentality has translated to the video market.

Despite significant differences by country, premium content streaming is having a major impact in ma
ny markets. It is here to stay, and will shape content consumption for many years to come.

David Sidebottom, Senior Market Analyst, Futuresource Consulting