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Streaming Growth Hits Its High Point

Study: U.S. saturation will spark global expansion, serve niche offerings 5/30/2016 8:00 AM Eastern

All good things must come to an end. And “all” includes the crazy subscriber growth that the U.S. streaming-video market has enjoyed in recent years.

 

The party’s far from over, but there are hints that the revelry is starting to simmer down.

 

After riding a solid wave of growth, the U.S. video streaming market for subscription services is showing signs of staturation for the first time, Strategy Analytics found in a fresh study and forecast.

 

U.S. consumers will spend $6.62 billion on videos-treaming services such as Netflix, Amazon Prime and Hulu in 2016, the study said. Though that’s a $1.19 billion (22%) increase compared to 2015, it also marks the first time that the amount spent on those services will be lower than the previous year’s increase of $1.21 billion.

 

“It shows that, whilst actual market saturation is a few years off yet, the domestic U.S. streaming subscription market is now on the backside of the adoption curve,” Michael Goodman, digital media director at Strategy Analytics, said.

 

He said he expects the incremental increase in annual spending on streaming services will decline from this point on.

 

STREAMING MAJORITY

 

Nearly 60% of U.S. broadband homes subscribe to a video-streaming service, Goodman noted.

 

“We put market saturation at 85% of broadband households — similar to saturation levels for pay TV,” he said. “Within five years, annual growth will fall below 8%.”

 

Netflix has a commanding 53% of the market, according to Strategy Analytics, ahead of Amazon Prime Video (25%) and Hulu (13%). Nearly 40% of U.S. homes subscribing to a video-streaming service take at least two of those offerings, the research firm estimated.

 

Those three providers will be forced to alter their customer-acquisition strategies as U.S. subscriber growth inevitably slows, Goodman said.

 

But none of the Big Three SVOD services are standing still. Netflix’s global expansion is well underway — it launched service in 130 additional markets in January. Amazon has been less aggressive with Prime’s international strategy, but its new standalone SVOD service could serve as a springboard to new markets.

 

Hulu briefly toyed with international expansion (it sold its Japan business in 2014). Instead, it’s diversifying domestically, with a linear, multichannel OTT TV service expected to launch next year.

 

Goodman believes that Hulu eventually will also have to look beyond the U.S. for growth opportunities. HBO and Starz have also made some strides outside the U.S.

 

FILLING A NICHE

 

While trends indicate that the larger SVOD players will find growth harder to achieve in the coming years, Goodman said he believes there’s ample opportunity for complementary, more niche-oriented SVOD services that cost $2 to $5 per month to gain ground in the market. A prime example is Seeso, the new comedy service from NBCUniversal Digital Enterprises that costs $3.99 per month, Goodman said.

 

Since not all streaming services report revenues and subscriber information, the Strategy Analytics model is based on a mix of public data and survey data. In all, more than 100 lines of code are fed into the model, according to Goodman.

 

Despite showing signs of slowing down, video streaming is, by far, the fastest-growing home video segment. The Strategy Analytics prediction of 22% growth compares to ongoing declines in the DVD market and mixed results for renting and purchasing TV shows and movies via downloading.

 

The $19.09 billion U.S. consumers are expected to spend this year on home video (or $13.42 per home per month) represents a 3.6% increase over 2015, Strategy Analytics said.

 

A bright spot is the ad-supported VOD business, which is expected to rise 21%, to $8.82 billion in 2016, pinning the aggregate home-video market at 27.3 billion, up 8.3%.

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