Video Entertainment Market Outlook - FY17 - SVOD drives the growth of the market as Physical continues to decline - Venture Insights
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Video Entertainment Market Outlook – FY17 SVOD drives the growth of the market as Physical continues to decline August 2017
August 2017
Executive Summary
Premium Pay-TV
• The Australian Video • We expect Premium Pay-TV revenues to start to decline through to 2022.
Entertainment market is • Subscriber numbers will drop as consumers move to the new Foxtel Now offering, which offers the same
plateauing, as growth continues premium content yet at a reduced price, or alternative SVOD services.
for SVOD alongside losses for • There will also be an ongoing churn of subscribers due to less constraining contracts.
traditional media • ARPU will show a slight decrease due to increased unbundling of services on offer.
SVOD
• We anticipate the market to reach
• SVOD continues to grow rapidly, driving overall growth of the Video Market.
A$5.3b by 2022
• Strong uptake of Netflix continues, with the service anticipated to reach over 4 million Australian
• Pay-TV will begin to decline as subscribers by 2020.
cheaper similar offerings become • Competition in the market continues; The two standout players, Netflix and Stan, continue to dominate.
Presto struggled to compete and closed in January 2017. Amazon Prime video entered the market in
available through VOD December 2016, but has been unable to gain much traction, although this is anticipated to grow,
especially if combined with Amazon Retail. The release and rebranding of Foxtel Now is set to increase
• Streamed digital media (SVOD, competition in the market as consumers can access premium Pay-TV content at a fraction of the price.
TVOD and EST) are growing
strongly at the expense of TVOD and EST
physical media (Blu-ray and • TVOD and EST continue to grow steadily, and are likely to gain traction as further piracy laws come into
effect.
DVDs)
• TVOD/EST is increasingly becoming a preferred method to access video content which is not available
• SVOD subscriptions are on SVOD.
anticipated to reach over 6 million Physical Media
by 2020, driven predominantly by • The physical market continues to decline, with an anticipated CAGR of -10.6% through to 2022.
Netflix • Physical rental has dropped significantly over the past few years and the market will be negligible by
2022.
• Strong competition remains in the • Physical retail will decrease, although a market for this product will continue as consumers enjoy the
xVOD market as we see new physical “ownership” of content.
players entering and established Cinema
players exiting • The lure of cinema will remain, however, consumers turn to cheaper xVOD offerings in favour of
expensive ticket prices.
• Consumer spending per
• Cinema attendance is undergoing a long term decline. Although this has rebounded slightly in the past
household on video is set to drop two years future decline is anticipated to occur and could be significant if the time period from cinema
to A$518 by 2022 release to xVOD shortens.
1708_198 Video Entertainment Market Outlook 2
August 2017
Summary
The overall Video Entertainment market remains steady, with slight declines
anticipated, as SVOD continues to grow
• The Video Entertainment Market grew Fig. 1: Video industry revenue by platform (A$m)
slightly in FY16 to $5.4b, driven by
ongoing uptake of SVOD, an increase in
A$m
people attending the cinema and a
steady Pay-TV subscriber base. 6,000 6%
• We anticipate the market to remain
steady at a CAGR of -0.7% between
FY17-22 to reach a total of A$5.3b. 5,000 4%
• The market was previously undergoing
decline, driven predominantly by the
physical media sub-sector, however, due 4,000 2%
to the strength and uptake of SVOD, the
market has witnessed growth since FY15.
• Looking ahead, the slight decline in the 3,000 0%
market will be driven by:
– Continued decline of Physical Media.
– Pay-TV losing subscribers to cheaper 2,000 -2%
SVOD services.
– A continued increase in xVOD
revenue, to counter some of the 1,000 -4%
losses in Physical and Pay-TV, as
more consumers purchase one or
more SVOD subscriptions and opt to
watch new film releases via TVOD - -6%
2011A 2012A 2013A 2014A 2015A 2016F 2017F 2018F 2019F 2020F 2021F 2022F
services.
– In the next five years we expect Premium Pay TV SVOD/IPTV
xVOD (SVOD, TVOD and EST) TVOD/EST Physical Media
services to grow to 26% of the
Cinema Video market revenue growth
overall market, up from 9% in 2016.
Video spend per household growth
Source: VENTURE INSIGHTS, COMPANY
Note: CAGR refers to CAGR over the FY17-22 period
1708_198 Video Entertainment Market Outlook 3August 2017
Summary
Digital media is growing strongly partially offsetting the loss from traditional media
• The Video Entertainment Market is expected to decline slightly Pay-TV: subscriber revenue to decrease at a -3.3%
• Premium Pay-
at -0.7% CAGR through to 2022. CAGR dropping to A$2.3b in 2022 from A$2.7b in 2016.
• Average household spend on video is expected to drop slightly TVOD/EST revenue to grow at a 5.5% CAGR to reach
• TVOD/EST:
(-2.4% CAGR), as cheaper SVOD services are adopted by a A$277m by 2022.
wider proportion of the population, whilst more expensive Pay- Blu-ray): revenue to contract at a
• Physical Media (DVD / Blu-
TV subscriptions decline. -10.6% CAGR to reach A$447m by 2022 as consumers
• Expectations for individual platforms over the next five years migrate spending to xVOD.
are: • Cinema: revenue to decline at a -1.3% CAGR, to
SVOD/IPTV revenue to grow at a 16.3% CAGR to reach
− SVOD/IPTV: A$1.2b by 2022, driven by a lower number of cinema
A$1.1m by 2022; growth is still rapid though beginning to attendances per capita.
moderate.
Fig. 2: Video industry revenue forecasts by platform
Video market forecasts (A$m) 2016A 2017F 2018F 2019F 2020F 2021F 2022F CAGR (FY17–22)
Premium Pay-TV 2,747 2,730 2,681 2,598 2,504 2,406 2,312 -3.3%
SVOD/IPTV 281 517 730 827 925 1,022 1,100 16.3%
TVOD/EST 204 212 223 236 249 263 277 5.5%
Physical Media 880 781 694 618 553 497 447 -10.6%
Cinema 1,259 1,265 1,252 1,237 1,222 1,205 1,186 -1.3%
Total video market revenue 5,372 5,506 5,580 5,516 5,453 5,392 5,323 -0.7%
Video market revenue growth (%) 3.6% 2.5% 1.3% -1.1% -1.1% -1.1% -1.3%
Source: VENTURE INSIGHTS, COMPANY
Note: CAGR refers to CAGR over the FY17-22 period
1708_198 Video Entertainment Market Outlook 4August 2017
Summary
Average household spend on Video Entertainment is declining as dollars are shifting
from physical to digital media
• Average Australian household spend on Fig 3: Household spending on video entertainment
video is expected to drop at an expected
-2.4% CAGR through to FY22; resulting in a 2006 2016 2022 Example of Supplier
decrease in actual spend from A$584 in
FY16 to A$518 in FY22. This will be driven
by reduced Pay-TV subscribers and a shift TOTAL A$580 A$584 A$518
towards cheaper SVOD services.
• Consumer spending is shifting from
traditional physical media to digital video
sources, most specifically SVOD. Pay-TV A$197 A$297 A$225
• This shift is evident across the entire video
spectrum:
− Following significant price cuts in 2014, SVOD A$0 A$33 A$107
Premium Pay-TV has now released a
new SVOD service, offering unbundled
Pay-TV content at a fraction of the
overall subscription price in an attempt TVOD/EST A$0 A$22 A$27
to access more of the SVOD market.
− Physical media (the retail and rental of
DVDs and Blu-ray) are continuing to
experience massive declines as Physical A$272 A$95 A$44
consumers transition their dollars to
more convenient and cheaper xVOD
services.
− Cinema is starting to lose revenue to Cinema A$111 A$136 A$115
digital offerings, as consumers opt to
wait for new releases to reach VOD in
favour of paying increasing cinema
prices.
Source: Company Website, VENTURE INSIGHTS, COMPANY
Note: CAGR refers to CAGR over the FY17-22 period
1708_198 Video Entertainment Market Outlook 5August 2017
Summary
The total Subscription TV market is growing, streaming revenue will overtake physical
by FY2018
• The total Subscription TV market (which we define as Pay-TV + SVOD + TVOD) is growing, with the majority of growth driven by the SVOD market.
• To date, Pay-TV has not felt significant pressure from xVOD services, as consumers have opted to purchase xVOD subscriptions in addition to Pay-
TV, with the impact of xVOD instead being felt by the physical media sub-sector, as consumers opt towards the more convenient and cheaper
option (VOD).
• Going forward, and with the additional SVOD offering of Foxtel Now, Venture Insights anticipate SVOD to largely impact the revenue of Pay-TV as
consumers opt for one or multiple SVOD subscriptions in favour of more expensive and constricting Pay-TV contracts.
• SVOD revenue is anticipated to grow substantially through to 2022, and will surpass that of Physical media in 2018.
• The rise of xVOD services falls hand in hand with the continued penetration of smart devices and improvements in internet services which
collectively provide improved access to OTT offerings.
Fig 4: Total Subscription TV market: xVOD vs. Pay-TV Revenue (A$m) Fig 5: Streaming Media vs. Physical Media Revenue (A$m) and YoY
and YoY Growth Growth
4,000 60% 2,000 60%
TVOD
1,800
Physical
Media
3,500 50%
50%
SVOD 1,600
3,000 40%
1,400
40%
2,500 TVOD 30%
1,200
Premium
2,000 30% 1,000 20%
Pay-TV
800
1,500 10%
20%
600
1,000 SVOD 0%
400
10%
500 -10%
200
- 0% - -20%
2016A 2017F 2018F 2019F 2020F 2021F 2022F 2016A 2017F 2018F 2019F 2020F 2021F 2022F
SVOD & TVOD percentage growth SVOD & TVOD percentage growth Physical Media percentage growth
Source: VENTURE INSIGHTS, COMPANY
Note: CAGR refers to CAGR over the FY17-22 period
1708_198 Video Entertainment Market Outlook 6August 2017
Premium Pay-TV
Revenues were up slightly in 2016, but we expect them to fall steadily from 2017
• Following price cuts in late 2014, subscriber numbers increased for Foxtel, driving revenue growth across 2015 and 2016.
• However, in 2016 and 2017 Foxtel experienced a slight loss in subscribers, dropping to 2.8m, which is potentially a knock-on effect of the company losing
their EPL sporting rights to Optus, who in turn witnessed growth in their subscribers during this time, although not sufficient to outweigh the loss of Foxtel.
• In a bid to recapture subscribers, Foxtel has undertaken multiple investment initiatives, with the most recent being a merger with Fox Sports, whereby
NewsCorp will hold 65% of the merged entity with Telstra holding 35%. However, as of yet, these initiatives have only resulted in retaining current
subscriber levels, rather than attracting more. However, the outcome of the newest initiative is yet to be seen.
• As subscriber numbers have remained flat, revenue for both Foxtel and Optus TV has been through the bundling of their TV services with internet
providers. Telstra offers Foxtel via their T-Box and Optus offers Fetch. These bundled services are anticipated to witness considerable growth going
forward as the penetration of high speed internet improves.
• Additionally, in order to access the lower price band SVOD market, Foxtel has released their own SVOD service (Foxtel Now), which offers unbundled
content from the Premium Pay-TV provider. The consequences of this move will be discussed in more detail on the following page.
• To date, SVOD services have not caused as much pressure as anticipated on the market. Instead of moving to SVOD services, consumers have instead
continued with their Pay-TV subscriptions, purchasing SVOD subscriptions additionally in order to access a greater amount of video content.
• However, Venture Insights anticipate SVOD services having an increased impact on Pay-TV subscriptions into the future. Additionally, should household
disposable income shrink moving forward, it is likely Pay-TV subscriptions will be dropped in favour of SVOD.
• Looking ahead, subscriber numbers are anticipated to continue to reduce as more subscribers move to the newly created Foxtel Now service (which
offers an almost identical service at a reduced price) or alternative SVOD services.
• We forecast Premium Pay-TV revenues to fall at -3.7% CAGR from $3.2b in FY16 to $2.7b by FY22. The assumptions that underlie our forecasts are:
• SUBSCRIBERS will drop at a -3.4% CAGR to FY22 as more subscribers transition to cheaper VOD services (specifically Foxtel Now). However, there will
also be an underlying ongoing churn of subscribers due to less constricting contracts and subscribers moving too / from SVOD services.
• ARPU will decline slightly at a -0.5% CAGR to reach A$93 by FY22 from A$98 in FY16 (excl. advertising revenue). The lower ARPU will be driven by
increased unbundling of offerings from Foxtel, specifically Kids and Documentary packs which were not available previously, allowing subscribers to
more easily “pick and choose” the content they want to purchase.
Fig 6: Premium Pay-TV forecasts
Pay-TV Forecast 2016A 2017F 2018F 2019F 2020F 2021F 2022F CAGR (FY17–22) Source: VENTURE INSIGHTS,
COMPANY
Households (000's) 9,241 9,413 9,585 9,756 9,929 10,101 10,272 1.8%
Note: CAGR refers to CAGR over
Premium Pay-TV penetration (%) 30.6% 29.5% 28.1% 26.7% 25.4% 24.0% 22.7%
the FY17-22 period
Subscribers - Premium (000's) 2,829 2,772 2,689 2,609 2,517 2,429 2,332 -3.4%
ARPU - Premium (A$) 98 96 95 95 94 94 93 -0.5%
Revenue - Premium (A$m) 3,247 3,219 3,123 3,014 2,901 2,786 2,668 -3.7%
Revenue pcp growth (%) 4.6% -0.9% -3.0% -3.5% -3.7% -4.0% -4.2%
1708_198 Video Entertainment Market Outlook 7August 2017
Premium Pay-TV
Foxtel has re-entered the video on-demand market, launching their own SVOD
offering
• Foxtel announced the planned closure of their jointly owned streaming Fig 7: Premium Pay-TV subscriber trend
service, Presto, in October 2016 and since have heavily marketed Foxtel 3,000
Play, their independently owned SVOD (renamed Foxtel Now in June 17).
2,500
• The service provides access to premium Pay-TV content, including live TV
2,000
viewing, without the need for a Foxtel subscription. However SVOD
subscribers cannot record live TV or rent releases in the Foxtel store. 1,500
• Foxtel Now subscriptions start from as little as $10 and range to $104 for 1,000
all packages, with the highly desirable sports content being offered for 500
$39 a month instead of $55 a month for Pay-TV. This is considerably lower
-
than the cost of a full Foxtel subscriptions, and opens the potential
2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F 2022F
consumer market to a wider demographic.
• As a result, Venture Insights believes Foxtel will gain additional customers Fig 8: Foxtel Package Rates
that could previously not afford Foxtel Premium, with a surge to be Foxtel Price Packages February July 2017
witnessed in the first two years due to the service providing the only legal (per month) 2014 April 2016 April 2017 (Foxtel Now)
access to Game of Thrones without purchasing a full Foxtel subscription.
Entertainment* A$49 A$25 A$26 -
• However, offering the same service, albeit slightly reduced, at a lower
Pop (Now only) - - - $15
price may also seem counter productive to business as it lowers the overall
ARPU of subscribers. Lifestyle (Now only) - - - $10
• Venture Insights believe the creation of this service will encourage Kids - - A$10** $10
Premium subscribers to transfer to SVOD. Although the proportion of Sport A$25 A$25 A$29 $29***
subscribers is not anticipated to be high (around 2-3% per annum), this
shift will drive the drop in overall Pay-TV subscribers and subsequent Movies A$25 A$20 A$20 $20***
revenue. Drama A$25 A$20 A$20 $15
• However, the majority of subscribers will be retained due to: Entertainment Plus A$15 to $25 A$10 A$10 -
• The functionality of the premium service, with the offering of the set top HD A$10 A$10 A$10 -
box and ability to record live TV.
Documentaries - - A$10** $10
• The ease of use of the Pay-TV service will appeal to a number of
All Packages A$134 A$134 A$135 $104
consumers, specifically those in older demographics who may not be
so comfortable with an app-based streaming service. * The package must be purchased in addition to any other package
**Were not defined as individual packages at time of previous report
Source: Foxtel Website, VENTURE INSIGHTS *** Must be purchased alongside a Pop or Lifestyle Package
1708_198 Video Entertainment Market Outlook 8August 2017
SVOD
The market continues to grow strongly, although this accelerated growth will not last
• The SVOD market continues to show strong subscriber growth, driven
Fig 9: SVOD revenue and growth
predominantly by the continued uptake of Netflix, which offers a host of
unique content to consumers.
1,200 100%
• This rapid growth will continue over the next year, and will then start to 90%
decrease, although remaining on a positive trajectory, as market saturation 1,000
80%
is reached.
70%
• The continued uptake of SVOD will rise hand in hand with increased 800
penetration of smart devices (e.g. Telstra Box) and the NBN, which 60%
collectively allow consumers better access to SVOD services. 600 50%
• Netflix has effectively “won the war” for subscribers, with their subscriber 40%
numbers reaching over 3 million at the end of FY16. The service has 400
30%
become the “must have” SVOD service, with consumers maintaining
20%
subscriptions in the long term. 200
10%
• In contrast, all other SVOD services witness higher levels of churn as
- 0%
subscribers opt in and out of the services depending on content
2016A 2017F 2018F 2019F 2020F 2021F 2022F
availability.
Total SVOD Revenue Revenue - pcp growth
• This translates into a subscriber growth expectation of 9.3% CAGR FY17 –
22, driving a total SVOD revenue of A$1.1b by FY22, up from A$28m in Fig 10: SVOD forecasts
FY16 (16.3% CAGR 17 – 22).
CAGR
• These expectations were based on the following assumptions: SVOD Forecast 2016A 2017F 2018F 2019F 2020F 2021F 2022F (FY17–22)
– PENETRATION to grow to 55% of households with an average 1.4x Households (000's) 9,241 9,413 9,585 9,756 9,929 10,101 10,272 1.8%
paid subscriptions per household, based on a moderating growth rate. Household
penetration (%) 26% 40% 42% 45% 49% 53% 55%
– SUBSCRIBERS to grow to 7.8m by 2022, driven strongly by ongoing
growth of Netflix as well as uptake of Foxtel Now. Individual subscribers SVOD subs per HH (ratio) 1.3 1.3 1.4 1.4 1.4 1.4 1.4
will increasingly have more than one subscription in order to access
SVOD subscribers (000's) 3,308 4,739 5,125 5,724 6,364 7,015 7,418 9.4%
unique content across different platforms.
ARPU (A$) 12 11 12 12 13 12 12 2.6%
– ARPU to remain steady at a 2.6% CAGR reaching A$12 by 2022; this
reflects the current pricing of Foxtel Now ($10-$15 basic) and Stan ($10 Total SVOD Revenue (A$m) 309 529 713 811 907 1,003 1,079 15.3%
basic) as well as the recent increase of Netflix pricing, which has risen Source: VENTURE INSIGHTS, COMPANY
basic pricing to $9.99 per month. Note: Includes IPTV subscribers (ie Fetch, Foxtel on T-Box).
1708_198 Video Entertainment Market Outlook 9 Netflix forecasts include VPN subscribers (ie Netflix US accounts)August 2017
SVOD
Netflix is clearly the dominant player – driving strong SVOD subscriber growth
• By 2022, we forecast the number of SVOD subscribers will reach 7.8m. This represents a household penetration of approximately 55%, which is
considerably higher than the current Pay-TV penetration of 31%.
• As commented, Netflix continues to be the clear winner in the race for subscribers and is forecast to increase to over 5 million by 2020, driving the majority
of video subscriber growth within Australia. However, recent announcements from Disney have confirmed their plans to discontinue their partnership with
Netflix in the US from 2019, opting to instead release their own rival SVOD. Although nothing is proposed for the Australian market, should this happen
locally it would have implications for Netflix’s ongoing subscriber base.
• 2016 has been a year of massive shake up within the SVOD market:
• Presto failed to succeed alongside Netflix and Stan in the increasingly competitive Australian market, closing its doors to service in January 2017.
• December 2016 saw the arrival of Amazon Prime Video. This has yet to impact the market, due to the low content offerings against other providers,
however, if released as part of Amazon Prime Commerce the user uptake of the video service could grow substantially, although not all subscribers will
utilise the video services as it will effectively be a “free” addition to the Prime offering.
• After closing Presto, Foxtel released its own SVOD service (Foxtel Play) which was rebranded to Foxtel Now in June 2017. The service offers access to
Premium Pay-TV content at a cheaper price and in an unbundled format, opening the consumer market of Foxtel to a lower price point. The service is
expected to grow substantially into the future, driven by the offering of the new season of Game of Thrones which is not available on any other SVOD.
• Fetch, with 500,000 total active subscribers at the end of 2016, rebranded from Fetch TV in March 2017, launching a new marketing campaign in order
to increase subscribers, looks to be realising strong demand moving forward.
• Quickflix entered voluntary admission in April 2016 and was saved in October 2016 when US-based Karma Media Holdings agreed to pay A$1.3m to
take over the company. The company has now refocused to provide Hollywood Blockbusters on a pay-as-you-go format.
• Subscription services for sports content (AFL / NRL) are also present in the market, however have not been included in analysis.
Fig 11: SVOD subscribers by service providers (2016) Fig 12: SVOD take-up and penetration profile
1.1% 2.2% 8,000 60%
0.2%
7.6%
50%
11.4% 8.0% 6,000
40%
4,000 7,759 30%
7,338
17.2% 6,658
5,991 20%
4,976 5,374
52.8% 2,000
3,108 10%
- 0%
Amazon Prime Others Quickflix Foxtel Play (Now) 2016A 2017F 2018F 2019F 2020F 2021F 2022F
SVOD subscribers Household penetration
Presto Stan Netflix Fetch
Source: VENTURE INSIGHTS, AHEDA
1708_198 Video Entertainment Market Outlook 10August 2017
TVOD/EST
The market is expected to grow modestly, driven by government action to limit video
piracy
• Total TVOD/EST revenues are expected to grow at a 5.9% CAGR to PIRACY LAWS DRIVING TVOD/EST
reach A$277m by 2022. • The rise of SVOD has had a knock-on effect to the amount of video
• This growth is driven by users adopting TVOD/EST services in favour piracy occurring within Australia, with numbers significantly reducing
of physical media. except in the 12-17 age group.
• Although the majority of streamed video watching will be undertaken • However, piracy is still the dominant method of accessing video
through SVOD, for content not available on SVOD (specifically new content, should it not be available on SVOD.
film releases), TVOD/EST will be the dominant method of • The Australian Government is striving to reduce piracy within the
consumption. nation, introducing a number of Anti-piracy laws in 2015. Following this,
• TVOD generates 53% of the revenue within the sector; only movie five bit-torrent websites were blocked in January 2017.
content is being purchased through this service as users opt to rent or • As the government continues to make the piracy of video content more
subscribe to SVOD in order to watch TV series. difficult, TVOD/EST is the clear option for viewing content not on SVOD.
• EST has a near 50/50 split of revenue from movie and TV content. Therefore, further anti-piracy regulations will in turn drive growth in
Rental purchases account for 47% of the total sector revenue. TVOD/EST.
Fig 13: TVOD/EST forecast Fig 14: Physical Media spending shifts to SVOD Fig 15: TVOD/EST revenue mix 2016 (%)
and TVOD/EST
300 10% 2,000 60%
9% 1,800
250 50%
8%
447
1,600
497
40%
553
7% Movie
618
200 1,400
694
30% Content 49%
6% 1,200
781
150 5% 47%
880
1,000 20%
4% 800
1,356
10% 53% TV Content
1,266
1,156
100
1,046
3% 600 51%
936
0%
742
2% 400
50
513
1% 200 -10%
- 0% - -20%
2016A 2017F 2018F 2019F 2020F 2021F 2022F 2016A 2017F 2018F 2019F 2020F 2021F 2022F
Total TVOD/EST Revenue Physical Media EST Revenue Mix TVOD Revenue Mix
Total TVOD/EST Revenue growth SVOD & TVOD
SVOD & TVOD percentage growth
Source: VENTURE INSIGHTS, AHEDA Physical Media percentage growth
1708_198 Video Entertainment Market Outlook 11August 2017
AVOD
Facebook and Google drive growth in video advertising
• The AVOD market includes all digital video which has a revenue model Fig 17: AVOD forecast
based solely on advertising; including catch up TV services, social video 3000 70%
(Facebook) and YouTube (not YouTube Red).
60%
• Total AVOD revenues are expected to grow at a 19.6% CAGR to exceed 2500
A$2.5b by 2022. 50%
2000
• Growth will be driven by Facebook and Google, who are estimated to
40%
collectively hold 41% of the video advertising revenue in Australia as of
1500
April 2017.
30%
• In the US, Facebook and Google have recorded 62% and 20% YoY 1000
advertising revenue growth respectively between 2015 to 2016, with 20%
all other companies collectively only growing 9% YoY. 500 10%
• Although local growth numbers are not available; due to the global
nature of these two digital giants, it can be assumed that similar 0 0%
2016A 2017F 2018F 2019F 2020F 2021F 2022F
growth is occurring within Australia and that this will drive growth into
the future. AVOD Revenue AVOD Revenue Growth
• To support this forecast assumption, time spent watching catch up TV
services have remained steady from 2012 – 2016, whereas time spent Fig. 18: Time spent viewing Catch Up TV vs Online Video (mins/user/day)
watching online video has increased dramatically from 11
minutes/user/day to over 33.
60
Fig 16: Market Estimates for Facebook and Google share of video
advertising revenue (Jul 16 – Apr 17) 50
40
30% 30
20
59% 10
11%
0
Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16
Google Facebook Other Catch Up TV (PVR) Online Video
Source: VENTURE INSIGHTS Analysis, IAB/PwC Advertising Report, Facebook, Morgan Stanley Research, PwC Australian Entertainment and Media Outlook 2017 –
2021, OzTam, SMI
1708_198 Video Entertainment Market Outlook 12August 2017
FTA and Foxtel
The rapid growth of non-linear is a double edged sword for FTA and the Pay-TV
incumbent
• Australia has one of the highest levels of Free-to-air (FTA) TV viewing across developed markets, with weekly viewing of this content averaging
around 80% of total share of television viewing time (including catch up TV services).
• However, total audience viewing time has dropped over recent years from a height of nearly 90 hours per viewer per month 3 years ago, to 70
hours in the first quarter of 2017. This is a drop of nearly 22%. These numbers include viewing for live TV and catch-up services.
• This decline is caused by viewers transitioning to xVOD services (YouTube, SVOD, TVOD) and increasingly watching content through platforms
other than the television, as they opt to watch “what they want, when they want” in favour of traditional linear viewing.
• Despite this, linear TV still remains the dominant form of video watching, accounting for 87% of total video viewing in December 2016.
• Though we expect FTA television to be an important part of the video eco-system for a long time to come, we do believe these figures are a
reflection of the decreasing reliance of linear. For this reason, we also expect Linear Pay-TV to come under pressure going forward.
• Therefore, the ongoing success of both the FTA broadcasters and Foxtel depend on how well they can capture and monetize non-linear viewing
without excessively cannibalising their advertising or Premium Pay-TV revenues.
Fig 19: FTA TV % Share of Australian Viewers (2016 and 2017)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Wk01-06 Wk07-10 Wk11-16 Wk17-20 Wk21-24 Wk25-28 Wk29-32 Wk33-36 Wk37-40 Wk41-44 Wk45-48 Wk49-52 Wk53 Wk01-06 Wk07-10 Wk11-16 Wk17-20 Wk21-24
2016 2017
ABC Seven Nine TEN SBS Subscription TV
Source: OzTAM, VENTURE INSIGHTS
1708_198 Video Entertainment Market Outlook 13August 2017
Physical Media
Sales will decline as xVOD services steal consumers and revenue
• We expect Physical Media (DVD / Blu-ray) revenue to contract Fig 20: Physical Media forecasts
at a -10.6% CAGR to reach A$447m by 2022, at which point
rental revenue will be largely insignificant (A$4m) and retail 1,400 0%
revenue will have dropped to A$443m.
• RENTAL
1,200
− Over the last decade, rental businesses have largely
-5%
disappeared – declining -14% CAGR 2006–14.
− Since the rise of xVOD the market has undergone 1,000
significant decline dropping from A$279m in 2014 to
A$74m in 2016. -10%
800
− This rapid decline is anticipated to continue at a CAGR of
-39% FY17-22 as the value proposition of DVD/Blu-ray
rental becomes increasingly redundant in the streaming
600
world. -15%
• RETAIL
− Retail purchases of physical media make up the largest 400
proportion of the sector revenues (92% in 2016).
-20%
− Though declining, retail sales were falling at a much more
200
moderate rate of -3% CAGR between 2006-14.
− However, following the rise of xVOD this decline has
increased and will continue at a CAGR of -9.5% from 2017- - -25%
2022. 2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F 2022F
− However, we do anticipate that there will still be a market Rental Retail Total Physical Media Revenue growth
for physical retail through to 2022, as a small percentage
of consumers will still want to physically own their video
content, despite the majority transitioning to xVOD.
Source: VENTURE INSIGHTS, AHEDA
1708_198 Video Entertainment Market Outlook 14August 2017
Cinema
Revenues witnessed a boost, but are anticipated to decline as xVOD services impact
the USP of Cinema
• Total Cinema revenue is forecast to decline to $1.19b by 2022, a -1.3%
CAGR as less consumers visit the cinema.
• Cinema has previously been on a downward trajectory, but witnessed a
strong two years throughout 2015 and 2016, with attendance and revenue Fig 21: Cinema forecasts
increasing, following a series of prominent releases. 1,400 16%
• During this time admissions rose from 3.3 admissions per capita in 2014 to
3.8 in 2015 and 2016. Likewise, ticket prices experienced robust growth of 1,300 14%
4% CAGR through 2006-14.
12%
1,200
• However, Venture Insights believes the affordability of tickets is peaking and
will taper off. 10%
1,100
• Likewise, the admissions per capita is forecast to decline going forwards,
8%
due to a host of other xVOD offerings available to consumers alongside 1,000
increasingly expensive ticket prices, with consumers opting to wait for 6%
releases to reach xVOD in order to save money. 900
• Collectively, these factors will impact cinema revenue, causing the overall 4%
decline of the market. 800
2%
• Yet, cinema will retain a proportion of audience due to its unique selling
700
point; offering exclusive access to new video content alongside the 0%
“experience” factor, meaning revenue decline will not be rapid.
600 -2%
• Going forward, the “wait times” from when a film is released in the cinema to
being released on DVD/VOD services is appearing to decrease. The 500 -4%
traditional 90 days time period is under discussion, as VOD services look for 2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F 2022F
between 10-45 days moving forward.
Cinema Revenue Cinema Revenue growth
• Additionally, rumours are mounting that xVOD services are joining with film
producers to provide an alternative for new releases; publishing films Source: VENTURE INSIGHTS, Screen Australia
directly to xVOD rather than the cinema.
• Should these changes occur, they would remove the USP of cinema, being
that it provides unique and first access to new film content. These changes
could have a significant knock-on effect to the industry, with admissions
dramatically decreasing, causing the market as a whole to come under
intense pressure.
1708_198 Video Entertainment Market Outlook 15August 2017
Glossary
Glossary of Sector Definitions
Type of Video Description Companies Revenue from
Subscription and
Pay TV Broadcast television that requires a subscription to watch Foxtel, Optus TV
Advertising
Seven, Nine, Ten, ABC, WIN,
Free to Air Broadcast television that is free to watch Advertising
SBS
On demand video that requires a subscription and is Netflix, Stan, Foxtel Now,
SVOD Subscription
delivered OTT Amazon Prime, Other
On demand video that is purchased (EST) or rented (DTR)
iTunes, Google Play, BigPond
TVOD through a single transaction (i.e. not subscription based) One off purchase
Movies,
and is delivered OTT
Digital video (delivered OTT) that is free to watch and is YouTube, iView, SBS on
AVOD Advertising
funded by advertisements, including social video Demand, Plus7, 9Now, Tenplay
Warner Home Video, Walt
Physical Video Purchase / rental of physical DVD's and Blu-Rays Disney Studios, Universal, One off purchase
Roadshow
Event Cinemas, Village
Cinemas, Hoyts Cinemas, Ticket purchases
Cinema Video content that is shown in a cinema
Reading Cinemas, Palace and Advertising
Cinemas
Source: VENTURE INSIGHTS, COMPANY
1708_198 Video Entertainment Market Outlook 16August 2017
Methodology and Definitions
Methodology and definitions
• Our forecast methodology assesses consumer viewing behaviour and focuses on ‘end-state’ behaviours (and spending patterns) at
the end of our five-year horizon. To achieve this, we have drawn on industry interviews, global comparative data and analysis
(including via our partners at Enders Analysis) as well as drawing on our previous survey of 5,300 Australian consumers
• The methodology section also contains important definitions (ie Premium versus Pay-lite) which should be understood before
reading on
• The next page provides an illustrative overview of the methodology and our forecast data. We highlight the following definitions to
be aware of:
– Pay-TV: Our Pay-TV forecasts reflect Premium Pay-TV services only, which we define as services provided via Foxtel’s HFC or
satellite service where the service is delivered to a set-top-box
– Pay-lite Pay-TV: Although this definition is not referred to within this report, historically Pay-lite was defined as services provided
via the internet and can be bundled in the sale of broadband. Pay-lite includes SVOD plus IPTV type services. These are
excluded from our Pay-TV forecasts and are included in our SVOD forecasts.
– Cinema: While not specifically a home entertainment video service, we include in our model to reflect that customers have a
choice between video services consumed in the home and the cinema. Equally, and while not contained in our model here,
when we assess share of time across video/TV, we include free-to-air TV in our assessment
• We expect to publish our next update to this report in February
Source: VENTURE INSIGHTS, COMPANY
1708_198 Video Entertainment Market Outlook 17August 2017
Methodology and Definitions
Bottom Up forecast methodology
Pay-TV SVOD TVOD/EST Physical Media Cinema
DEFINITION
Premium Pay-TV - services provided Includes SVOD services (Netflix, Includes all TVOD/EST services (incl Includes DVD and Blu-ray Includes all movie theatrical
via Foxtel's HFC or satellite service Presto, Stan, Foxtel Play, Quickflix) iTunes, BigPond, Google, Fetch etc) Includes all Rental (incl. rental kiosks) and services
Pay-lite - is backed out of the Pay-TV plus Pay-lite (IPTV) type services Retail (ie JB Hifi, Dick Smith, Quickflix,
forecast (included SVOD) (Foxtel on T-Box, Fetch) Target, K-Mart, ABC Stores etc)
• Household penetration • Household penetration • Transaction volumes - across rental, • Transaction volumes - rental vs sell- • Box office admissions
• Subscribers by operator • Subscribers by operator sell-through split by movie vs TV through (retail) • Average Ticket Price (ASP)
content • Average Selling Price (ASP) - rental
• ARPU by operator • ARPU by operator • Revenue
METRICS
• Average Selling Price (ASP) - across vs sell-through (retail)
• Revenue by operator • Revenue by operator
rental, sell-through split by movie vs • Revenue - rental vs sell-through
TV content (retail)
• Revenue — across rental, sell-through
split by movie vs TV content
• ABS • ABS • Company disclosures, industry • Company disclosures, industry • Company disclosures, industry
METHODOLOGY
• Company disclosures, industry • Company disclosures, industry interviews, VI insights incl survey interviews, VI insights incl survey interviews, VI insights incl
interviews, VI insights incl interviews, VI insights incl • Company disclosure, industry • Company disclosure, industry survey
survey survey interview, retail pricing, VI insights interview, retail pricing, VI insights • Company disclosure, industry
• Company disclosure, retail • Company disclosure, retail incl survey incl survey interview, retail pricing, VI
pricing, VI insights incl survey pricing, VI insights incl survey • Revenue a calculation of above • Revenue a calculation of above insights incl survey
• Revenue a calculation of above • Revenue a calculation of above • Revenue a calculation of above
Top Down validation
• Video spending per household - assessed against historical trend, global comps (UK, USA), insights from VI survey to determine future spending
and mix by platform
• Digital disruption impact scenarios as spending moves to digital — assessed against global comps (UK, USA), insights from VI survey and global
recorded music case-study
• Revenue share by platform — assessed against historical trend, global comps (UK, USA), insights from VI survey
• Share of time across all video platforms (incl FTA) versus share of dollars — assessed against historical trends, global comps (UK, USA), insights
from VI survey, global TV viewing behaviour case-study
Source: VENTURE INSIGHTS, COMPANY
Note: References to CAGR are now presented on a FY17-22 basis, where previously they were FY15-20.
1708_198 Video Entertainment Market Outlook 18August 2017
About Venture Insights
About Venture Insights
Venture Insights provides a subscription research service covering the media, digital and telecommunications industries in Australia, NZ and
Europe, with a special focus on new disruptive technologies.
For more information go to www.ventureinsights.com.au or contact us at info@ventureinsights.com.au
About Venture Group
Venture Group (parent of Venture Insights) provides strategic consulting and corporate advisory services to companies across the media, telco
and tech sectors.
SARAH KASHER ROBIN JORDAN 333 George Street
Sydney, NSW, 2000
sarah.kasher@ventureinsights.com.au robin.jordan@ventureconsulting.com Australia
www.ventureinsights.com.au
GABBI STUBBS
gabbi.stubbs@ventureinsights.com.au
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