Big-3 SVOD Original Content Spending to Triple by 2022

According to a new report, the Big-3 SVOD players – Netflix, Hulu, and Amazon Prime Video will triple their content budgets from licensed content to originals, to spend $10 billion annually by 2022.
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The Big-3 SVOD players – Netflix, Hulu, and Amazon Prime Video – will shift an increasing percentage of their content budgets from licensed content to originals. According to a new report published by The Diffusion Group, by 2022, the amount invested in originals will triple to $10 billion annually.

"The Big-3 SVOD players own 60% of TV streaming time," notes Brad Schlachter, TDG senior advisor and author of the new report. "And they are looking to maintain if not grow this share by creating compelling originals that serve both to attract new users and retain existing subscribers even as subscription rates increase."

Just how important are originals to retaining subscribers? According to TDG's original research, extremely important. Among Netflix subscribers, 21% rank originals as "absolutely critical" in their decision to keep using Netflix, while 41% rank them as "very important." "The data is unequivocal," says Schlachter, "though it varies among the Big-3 SVOD providers."

Much like HBO decades ago, the Big-3 now have a much better understanding of the limits of licensed content and the benefits of a viable slate of originals. "Of course, not all originals find an audience or generate a huge buzz," says Schlachter. "But when they do, it can change the fortunes of a company. Just look at what The Handmaid's Tale did for Hulu, or what House of Cards did for Netflix."

As studios like Disney pull their most compelling content from Big-3 SVOD libraries, the necessity of a strong slate of originals becomes all the more obvious. But the Big-3 are not the only players eyeing a larger slice of the originals on-demand streaming market. In fact, companies as diverse as Facebook and Apple are investing in original TV-quality programming to distribute directly to consumers. Certainly Disney's initiatives to launch its own D2C 'channels' will make it a potent competitor in this space.

The MENA region too is expected to be affected by the global trend of content owners and operators going direct to consumer, in an effort to bypass the Pay-TV operators and content aggregators. According to a report by IHS Markit, although Netflix and Amazon Prime Video launched subscription video services in the MENA region in 2016, the global giants have started slowly together capturing just 21 per cent of the market by 2017.

MENA is currently a relatively small market for SVOD services, with just 1.3 million subscribers forecast by year-end 2017. But it is growing fast with a projected compound annual growth rate (CAGR) of 35 per cent from 2016 to 2021, according to the IHS Markit report, A slow start for MENA subscription video.

The Middle East region of over 417 million people has a very diverse mix of wealthy countries such as Qatar and Kuwait and those with much less disposable income such as Syria and Yemen. Similarly, North African markets are considerably different from those in the Middle East where pay-TV, Internet and subscription video penetration varies quite significantly. For example pay-TV UAE market penetration is in the 70's, but there are big populations in North Africa where penetration is just 5%-10%.

While per capita income and spending power is the fundamental reason for the difference in subscription services growth, other factors such as content preferences, payment and language have an impact as well. In addition, a wide range of premium services is less likely to survive in MENA, while content piracy is still common. These factors combined with a lack of localisation have resulted in a relatively weak entrance, for the SVOD giants who are still calibrating their regional content strategies.

Established regional players, too, are struggling to rack up subscribers with their OTT offerings, despite making some impressive moves to integrate with the local telecommunication companies to solve the payments and accessibility issues. Current market leaders in the MENA subscription video market are regional broadcaster MBC’s Shahid Plus and Starz Play. Local brands Icflix and Seevii, global incomers iflix and Viu, and pay-TV operator OSN with WAVO and beIN connect are also competing for share.

No single player currently has the optimal portfolio to address the key issues of accessibility and value. A greater investment in local Arabic content as well as addressing the income disparities between MENA countries will be vitally important if subscription service providers are to effectively combat piracy and gain the upper hand.

In a recent interview with Digital Studio, Starz Play CEO Maaz Sheikh said, “It is an execution game. If you can deliver the right content with the right quality and deliver the right experience across the range of platforms and conveniently packaged together with easy payment options. If you are 10/10 on all these factors, then you will build critical volume for the service.”

In its current state, the MENA subscription video market is anticipated to grow relatively rapidly through 2021, but with only 4.2 million subscribers by then. Compared with the SVOD growth in APAC, it will still not stand out globally with just over 1 per cent of global standalone subscriptions.

The Big-3 SVOD players – Netflix, Hulu, and Amazon Prime Video – will shift an increasing percentage of their content budgets from licensed content to originals. According to a new report published by The Diffusion Group, by 2022, the amount invested in originals will triple to $10 billion annually.

"The Big-3 SVOD players own 60% of TV streaming time," notes Brad Schlachter, TDG senior advisor and author of the new report. "And they are looking to maintain if not grow this share by creating compelling originals that serve both to attract new users and retain existing subscribers even as subscription rates increase."

Just how important are originals to retaining subscribers? According to TDG's original research, extremely important. Among Netflix subscribers, 21% rank originals as "absolutely critical" in their decision to keep using Netflix, while 41% rank them as "very important." "The data is unequivocal," says Schlachter, "though it varies among the Big-3 SVOD providers."

Much like HBO decades ago, the Big-3 now have a much better understanding of the limits of licensed content and the benefits of a viable slate of originals. "Of course, not all originals find an audience or generate a huge buzz," says Schlachter. "But when they do, it can change the fortunes of a company. Just look at what The Handmaid's Tale did for Hulu, or what House of Cards did for Netflix."

As studios like Disney pull their most compelling content from Big-3 SVOD libraries, the necessity of a strong slate of originals becomes all the more obvious. But the Big-3 are not the only players eyeing a larger slice of the originals on-demand streaming market. In fact, companies as diverse as Facebook and Apple are investing in original TV-quality programming to distribute directly to consumers. Certainly Disney's initiatives to launch its own D2C 'channels' will make it a potent competitor in this space.

MENA Growth Remains Slow for SVOD Giants.

The MENA region too is expected to be affected by the global trend of content owners and operators going direct to consumer, in an effort to bypass the Pay-TV operators and content aggregators. According to a report by IHS Markit, although Netflix and Amazon Prime Video launched subscription video services in the MENA region in 2016, the global giants have started slowly together capturing just 21 per cent of the market by 2017. MENA is currently a relatively small market for SVOD services, with just 1.3 million subscribers forecast by year-end 2017. But it is growing fast with a projected compound annual growth rate (CAGR) of 35 per cent from 2016 to 2021, according to the IHS Markit report, A slow start for MENA subscription video.

The Middle East region of over 417 million people has a very diverse mix of wealthy countries such as Qatar and Kuwait and those with much less disposable income such as Syria and Yemen. Similarly, North African markets are considerably different from those in the Middle East where pay-TV, Internet and subscription video penetration varies quite significantly. For example pay-TV UAE market penetration is in the 70's, but there are big populations in North Africa where penetration is just 5%-10%.

While per capita income and spending power is the fundamental reason for the difference in subscription services growth, other factors such as content preferences, payment and language have an impact as well. In addition, a wide range of premium services is less likely to survive in MENA, while content piracy is still common. These factors combined with a lack of localisation have resulted in a relatively weak entrance, for the SVOD giants who are still calibrating their regional content strategies.

Established regional players, too, are struggling to rack up subscribers with their OTT offerings, despite making some impressive moves to integrate with the local telecommunication companies to solve the payments and accessibility issues. Current market leaders in the MENA subscription video market are regional broadcaster MBC’s Shahid Plus and Starz Play. Local brands Icflix and Seevii, global incomers iflix and Viu, and pay-TV operator OSN with WAVO and beIN connect are also competing for share.

No single player currently has the optimal portfolio to address the key issues of accessibility and value. A greater investment in local Arabic content as well as addressing the income disparities between MENA countries will be vitally important if subscription service providers are to effectively combat piracy and gain the upper hand.

In a recent interview with Digital Studio, Starz Play CEO Maaz Sheikh said, “It is an execution game. If you can deliver the right content with the right quality and deliver the right experience across the range of platforms and conveniently packaged together with easy payment options. If you are 10/10 on all these factors, then you will build critical volume for the service.”

In its current state, the MENA subscription video market is anticipated to grow relatively rapidly through 2021, but with only 4.2 million subscribers by then. Compared with the SVOD growth in APAC, it will still not stand out globally with just over 1 per cent of global standalone subscriptions.

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