Steady Growth Masks Seismic Shifts in US Video and TV Market

Video Research, Analysis and Commentary

Futuresource Consulting has unveiled some seismic shifts in the US entertainment space in two recently published reports. The USA report from the global Video Insights series goes some way to address the questions of how people might consume premium content in the future. In addition, Futuresource has published its latest “Perspectives” piece, The Battle for The Living Room, which puts into context some of these major shifts in the content and hardware industries and how they are shaping and re-aligning in-home user relationships.

Futuresource estimates that the US video and TV industry saw a 1% rise in consumer spend in 2018, taking the market up to $133 billion, equivalent to 53% of the global total, with modest annual increases expected for the future, reaching $136 billion by 2022.

 “There’s no doubt that 2018 was a significant year for the US video and TV industries,” comments David Sidebottom, Principal Consultant at Futuresource Consulting. “The entertainment landscape was redefined with companies changing their strategies and undergoing some major M&A activity. Disney’s proposed acquisition of Fox and confirmation of its direct-to-consumer service, Disney+, along with the completion of AT&T’s acquisition of Time Warner, were key moments in a turbulent twelve months. Internationally, Comcast’s acquisition of Sky brings two like-minded companies together, both considered to have best-in-class Pay-TV service offerings. It also provides Comcast with wider geographical reach and entry into key European markets. Such acquisitions and collaboration will help redefine customer relationships and play a pivotal role in the battle for the living room, but the dust isn’t going to settle any time soon.”

However, as the smart home begins to gain traction and starts to reshape the way that people consume and discover new content, the entertainment landscape could begin to fragment further.

“Many consumers don’t like the idea of relying solely on one company to control the living room and smart home,” says Sidebottom. “They may feel uncomfortable with a single brand being responsible for so much of their personal data. As a result, the wider sector will stay competitive, but there will no doubt be further consolidation. Those with big aspirations of becoming super aggregators of services will need deep pockets and the determination to evolve beyond entertainment.”

Despite challenges, the US video entertainment market continues to stand tall on the world stage, providing unsurpassed format choice; “From hundreds of streaming subscription services, to the still significant packaged rental market, the US has a unique balance of video delivery options and continues to witness steady shifts in significance across these,” says Sidebottom.

“The four video entertainment mainstays of box office, Pay-TV, SVoD and transactional video have been vying for consumer attention. SVoD is spreading its wings and for 2018 we estimate approximately 30% growth in spend, for the sixth consecutive year, as established services continue to capture consumer attention through strong programming investment and aggressive promotions. This continued growth means that consumer spend on SVoD in 2018 exceeded that of total transactional video (sell-through & rental) for the first time. A record year for box office in 2018 also means that consumer spend in this sector is also challenging that of total transactional video for the first time in a generation.”

There’s no doubt that US Pay-TV operators are under pressure, with many services placing greater emphasis on broadband delivery, third party services and Pay-TV lite operations to help maintain overall revenues. At the same time, key players are protecting their high value customers, by continued investment in premium content and rolling out advanced Set-Top Boxes to provide the ultimate TV viewing experience. Despite this, Pay-TV revenues are likely to have declined by 2% in 2018, down to $97 billion. This will slow to an average decline of 1% per year for the forecast period, as consumers shift an increasing proportion of their spend towards alternative SVoD services. That said, Pay-TV will continue to play a significant role, still accounting for over two-thirds of total entertainment spend in 2022.”

The proliferation of connected devices in the living room and streaming video subscription services have been the key drivers of this changing Pay-TV landscape.  “At the end of 2018, Futuresource estimated that there were 800 million smart TVs in use worldwide,” says Sidebottom, “and in key markets, around 90% of these were actually connected to the Internet. Around 70% of media streamer owners in the USA also have a smart TV and furthermore, according to the Futuresource consumer survey, Living with Digital, there is little difference over which is the preferred access point.”

Looking to the future, despite the growth in second screen viewing, the TV screen remains the preferred viewing platform for premium streaming services. Improvements in broadband speeds, combined with UI enhancements mean that the user experience is far better than just a few years ago, driving consumer spending on premium digital video, as the evolution in the sector continues.

About the author

David Sidebottom

David is a Principal Analyst – Media and Entertainment. David has over 20 years’ experience in a research and consultancy environment and is closely involved in researching, analysing and consulting on key content industry and consumer technology developments worldwide, with a particular focus on the evolution of digital business models in the TV, video and music industry. David works with a wide variety of high profile Futuresource clients across the content ecosystem including studios, broadcasters, technology companies, hardware vendors, service providers and industry associations. He also directs Futuresource’s long-running global consumer panel ‘Living with Digital’.