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Disney, Apple streaming services face promo pressure

The market for video streaming is flattening across the board after spiking during the beginning of the pandemic. And now, new subscription VoD services that relied on year-long promotions are at risk as the free rides approach the finish line, according to a new report from MoffettNathanson.

Disney+'s rapid success (60.5 million subs worldwide at last count) spurred Disney to reorganize its media and entertainment division and emphasize streaming, but daily usage of the service fell 300 basis points (bps), to 26% in Q3 2020, after falling 200 bps in Q2 2020, according to the study, which includes data gathered from 19,252 respondents between July and September.

"This continued fall in frequent usage points concerns us as Disney+ approaches the lapping of its first year promotional subs with few hours of limited content," Michael Nathanson, analyst with MoffettNathanson, explained in his "SVOD & AVOD Tracker" for Q3 2020.

The study estimates that, in Q3 2020, 18% of Disney+ subs still access the OTT services via Disney's promotional offering with Verizon.

While that's worrisome for Disney+, it's even more so for Apple TV+, as it is the only SVoD service that sources the majority of its subs from promotions – 59% in Q3 2020, according to the study.

"We remain concerned about future subscriber churn if there is a slow device cycle and users choose not to renew on their own," Nathanson wrote, noting that WarnerMedia's HBO Max, launched in late May, could also find itself in danger of losing momentum if subs can't be enticed to renew in the coming months.

The HarrisX study indicates there is reason for concern for new SVoD players, finding that 44% of Disney+ users planned to re-subscribe and 18% said they didn't plan to renew. Apple TV+'s churn potential was even worse, with only 32% planning to renew when promotional periods end.

Shifting to free, ad-based VoD streaming, that part of the market continues to click along. The study found that services such as The Roku Channel (Roku's aggregated, ad-supported service), NBCU's Peacock and Pluto TV are used by 10% to 20% of Netflix subs as a way to complement their paid subscriptions.

From a broader view, US streaming penetration has expectedly flattened out, at about 75%, versus spikes earlier in the year during the early phases of the pandemic. The return of live sports and a slowdown on production and releases of new original content from streaming services are also playing roles, Nathanson said. However, Disney+ should get some help in the customer acquisition and retention department when season two of "The Mandalorian," an original series set in the "Star Wars" universe, premieres on October 30.

Netflix remained at the top of the SVoD heap, with 70% penetration, followed by Amazon Prime Video (50%), Hulu (39%) and Disney+ (30%). By September, Apple TV+ was up to 10% penetration (versus 6%) in June, while HBO Max is up to 9% in the wake of its national debut.

Will Google tighten the platform race?

Roku and Amazon (Fire TV) continue to dominate the streaming platform market, accounting for 43% and 37% of the market, respectively, according to the study.

But Nathanson notes that Google's new, more powerful Chromecst with Google TV streaming player could threaten Roku and Amazon's dominant position.

"While Alphabet's older Chromecast products were designed primarily to cast content onto screens from mobile devices, their new Chromecast with Google TV product is a standalone smart TV operating system to compete more directly with Roku and Amazon Fire," he wrote.

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— Jeff Baumgartner, Senior Editor, Light Reading

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