Worldwide subscription streaming video services are projected to reach 1.9 billion subscribers by 2028, in a market worth $171.9 billion, according to analysis from London-based ReThink Technology Research.
The data suggests that following last year’s industry hiccup when Netflix reported its first significant subscriber loss in years, the SVOD pioneer’s Q4 return to sub growth and confirmation of its advertising strategy has largely set the SVOD market at ease.
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New industry concerns revolve around the impact of lower-cost ad-supported subscription tiers on SVOD growth, as well as the growing significance of free ad-supported streaming television (FAST) platforms.
“Complicating the data is the fact that we are about to enter a phase where SVOD services have ad-supported customers, AVOD services have subscription tiers, and FAST will undoubtedly start playing with on-demand video,” read the report.
ReThink contends the streaming industry is in for more changes as VOD services increase live linear feeds, including Netflix first live-stream event featuring comic Chris Rock.
“There will be a mess of definitions,” read the report.
Disney and Netflix are now in the early stages of their advertising expansion. Both have chosen to price their ad-supported bundles at a slight price discount, to ensure that they can maintain their average revenue per user (ARPU) via advertising.
“In time, we suspect that the SVOD platforms could see significant lifts in ARPU via advertising,” ReThink wrote.
The research firm believes that since neither Netflix or Disney+ opted for an entirely free streaming tier supported by a much heavier advertising load, both platforms are holding in check a mass migration of subscribers to a free account with only an email address and basic account details.
“This would serve to keep the number of subscribers high, and potentially provide a significant boost, if the estimates of ‘freeloader’ accounts are as high as some in the industry maintain,” read the report. “As soon as a payment method is required, the success of converting a freeloader into an active subscriber plummets.”
Netflix has not broken out detail of its conversion rates, but third-party estimates suggest of the percentage of new subscribers choosing the lower cost ad-based tier remains small.
“Netflix will continue to be vocal about its profitability [as all other competing service continue to hemorrhage billions of dollars],” ReThink wrote. “To this end, ARPUs across the board need to rise, and advertising is going to play a major role in this regard.”