IHS: Pay-TV Subs Topped One Billion in 2017 For the First Time

OTT video may be all the rage, but pay-TV continues to hold its own globally.

Digital pay TV subscriptions globally, including cable, satellite, telecom and online TV, exceeded one billion for the first time in 2017, according to new data from IHS Markit.

The milestone comes despite burgeoning growth of over-the-top (OTT) subscription video services, like Netflix, Hulu and Amazon Prime Video. SVOD services added three subs for every new pay-TV sub.

Western Europe added eight OTT subscriptions for every pay-TV addition, while in Central and Eastern Europe the number of OTT and pay-TV additions were equal. Overall pay-TV growth was fueled by the Asia-Pacific region and China – the latter driven by online TV.

“Traditional pay TV operators have shown resilience in the face of increased competition, through continued investment in set-top functionality, exclusive content and on-demand services,” Fateha Begum, associate director of TV media, said in a statement.

While OTT penetration remains low in the Middle East and Africa, the region will grow rapidly in the coming years, as both international and local players leverage their original content and partner with local pay-TV operators and telecoms, said Irina Kornilova, principal analyst of home entertainment.

“We expect to see OTT subs growing globally over the next five years, as Amazon and Netflix continue to invest in local and localized content, and as [online TV] operators start to appear and grow outside the U.S.,” she said.

Meanwhile, pay-TV subs in North America continued to decline, losing 3 million homes in 2017, while OTT subs increased by nearly 30 million.

“Pay-TV services in North America continue to be affected by cord cutting, primarily due to higher average prices for pay-TV subs, compared to other global regions,” Begum said.

Report: TV Production Mergers on the Rise

With ownership of TV programming rights a vital asset in the burgeoning demand for episodic programing across broadcast, pay-TV and subscription streaming, production company mergers have grown nearly 20% compound annual growth rate in the past five years – from 42 deals in 2013 to 102 deals in 2017, according to new data from IHS Markit.

Citing ongoing advertising pressure and audiences migrating to on-demand platforms, IHS says broadcasters are exploring new revenue sources from content production and distribution. With increased competition between traditional linear channels and online players, creating TV content is a stronger option than licensing from third parties.

The United Kingdom ranked the most active market in terms of number of mergers and acquisitions. However, in terms of deal value, the United States and China led.

“Both large and small companies are trying to find ways to internationalize, which is why Chinese companies have been gobbling up production studios in the United States, and the major Hollywood studios have been building local production networks in key foreign markets,” Tim Westcott, director of research and analysis for programing, said in a statement.

Increased investment in content by Netflix, Amazon and other content buyers has spearheaded M&A activity among content creators. Indeed, deals for scripted producers have grown nearly 30% — from 15 deals in 2013 to 54 in 2017. In comparison, acquisitions of unscripted producers have grown 8%, due to the shift of M&A activity to scripted producers.

The top mergers and acquisitions were led by ITV Studios and Fremantle Media, both of which have invested in a large number of start-up content-production companies. Of the 77 start-up companies launched between 2013 and 2017, 32 were drama specialists. Nearly half of these 32 drama specialists were launched in 2017, reflecting a significant surge in scripted drama investment.

Liberty Global invested in global producers All3Media, ITV and Lionsgate, while Vivendi took an interest in Banijay Group and 21st Century Fox acquired a 50% stake in Endemol Shine.

“These deals … highlight the strategic importance of owning content producers, for all those wanting to attract and retain viewers, subscribers and the revenue they deliver,” said senior research analyst Aled Evans. “The global producer networks offer these start-ups co-production finance mechanisms, worldwide contacts and funding. In return, the investor company gains rights for programming to sell internationally.”

Amazon Bridging the Netflix Divide?

Reed Hastings’ “awfully scary” competitor – Amazon – is gaining traction, narrowing the divide with the subscription streaming video pioneer, according to some observers.

With more than 100 million subscribers worldwide and growing, Netflix wouldn’t appear to have concern about any competitor. But Amazon is much more than over-the-top video. It is an ecommerce behemoth capable of treating video as a loss leader.

“How are they doing so many business areas so well?” Hastings told CNBC last May. “They are trying to repeal the basic laws of business. They are awfully scary I would say.”

Indeed, there were about 44 million subscribers to Prime Video, with a little more than 30 million from the United States and 11 million from Germany, Japan and the United Kingdom, according to IHS Markit.

Prime Video subscriptions are projected to grow to 78 million by 2021.

More importantly, Amazon Prime, which includes video, music and other services, is now available in 16 countries. Prime members account for almost 99% of the total Prime Video subscription user base.

In fact, Amazon’s attempt at standalone Prime Video internationally has struggled as due to geographic content license challenges. IHS says Prime Video offering are not consistent across countries, with details of both Prime and Prime Video modules differing significantly by country.

Yet, Prime Video boasts a higher subscriber count in a few select markets than Netflix – due primarily to the perceived value of the bundled Prime ecosystem.

Using the value of the Prime bundle, Prime Video have already managed to surpass Netflix subs in Germany, India and Japan, according to IHS.

Prime Video has grown beyond catalog TV shows and movies. It now features à la carte third-party video services through Amazon Channels, live sports and user-generated content.

This diversity of content enables Amazon to tap into markets and customers that global rival Netflix has yet to reach.

“Although predominantly an e-commerce company, Amazon is making full use of its video services to spread its brand name across the world, push its Prime product in localized markets and draw people into the Amazon ecosystem,” Max Signorelli, research analyst, home entertainment, IHS Markit, said in a statement.