June 8, 2020
Well before Netflix and Amazon came on the scene, Time Warner Cable launched the first commercial video-on-demand (VoD) service in the US in 1999. Shortly thereafter, Comcast began its "Philly-Vision" VoD experiments. Today, just about every satellite, cable and IPTV operator provides a large library of on-demand content. What began with a few pay-per-view movies on-demand has grown into libraries of hundreds of thousands of free, pay and subscription-based titles.
In addition to pay-per-view revenue, on-demand now generates both subscription and advertising dollars for the operators and programmers. In 2019, Canoe Ventures reported over 27 billion ad impressions from VoD advertising, making it a substantial revenue generator for the industry.
On-demand has also proven to be a significant retention tool for the industry. Almost every provider has its own research showing that subscribers who actively use on-demand services stay longer, spend more or both. As a result, operators have tried for nearly two decades to drive consumers to watch more on-demand programming. Initially, this was challenging because many consumers assumed that they would get charged extra for every piece of VoD content that they viewed. Today, this is no longer a major concern.
With the launch of over-the-top (OTT) streaming on-demand services, VoD really came into its own. Driven largely by Netflix, consumers have now come to expect on-demand content as a core piece of any video programming package. Year after year, VoD has continued to grow and has taken more and more of consumers' video consumption time.
However, even with all this momentum, live and DVR programming have continued to drive more viewing hours than VoD. As of Q4 2019, Nielsen Media still reported that the average American spent approximately 38 hours a week with video and the largest contributor to that time was live TV, racking up almost 26 of those 38 hours.
In the minds of consumers, if not in total viewing hours, the first half of 2020 may prove to be the tipping point in the conversion to on-demand. When only OTT (streaming) usage is taken into account, Conviva now reports that on-demand accounted for a staggering 72% of viewing time in Q1. The COVID-19 virus may have proven to accomplish what cable companies, Netflix, Amazon and Disney+ couldn't: It may have changed how Americans define television and what they think of as their primary source of entertainment.
Driven by both the response to COVID-19 stay-at-home orders and the nearly complete elimination of live sporting events, VoD has become pre-eminent in consumers' minds. In Q2, when Americans sit down to watch television at home, their first thoughts are often about what series to start (or continue) on Netflix, Amazon, Disney+, etc., as opposed to what might be on NBC, Discovery or ESPN tonight. This is a major change in mindset and may set the tone for TV going forward. We'll have to wait for the various reporting services to deliver their Q2 usage data to get the full tally on hours watched. But it is not too difficult to judge what the consumer is thinking.
Whether this inversion has already happened (in Q2) or will happen in the next few quarters, it is likely to cause major changes in how TV is watched, sold and purchased. The major multi-channel video programming distributor (MVPD) services have always been built around a "live-first" world. On-demand has always been the add-on, after-thought or bonus service. If consumers now view on-demand as the primary service and live TV as the add-on, almost everything may need to change.
What, then, becomes the major selling point? If it isn't 200-plus linear channels, what attracts the next set of new customers? It could be the number of on-demand shows, premium "known" content, access to other VoD applications, integrated guides and search, flexibility, price point or something else entirely. If we also assume that a near-term economic recession is likely (as many experts predict), we can expect that flexibility and low-, or no-, commitment price points will likely attract a large number of customers.
Whatever it turns out to be, it seems certain that the world is changing faster than we could have predicted just a few months ago. MVPDs will need to reinvent their marketing and offerings strategy quickly, and perhaps repeatedly, over the next few years. Consumers are thinking about TV differently than they have for the last 30 to 40 years and pay-TV providers of all stripes will need to adjust. The services that pull ahead could come from the ranks of traditional cable operators, satellite or IPTV services, streaming services or even those not known for video delivery today. In any case, their offers and business models will likely look very different than the "basic cable" and satellite TV packages of the last few decades.
— Mitch Weinraub, Founder, Weinraub Media
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