Australia / Analyst Insights
Screen Squeeze: More Consumers Are Switching to SVOD Services

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by William Chapman
Jun 22 2020

Competition among subscription television services has intensified over the last five years as expanded broadband internet access has enabled subscription video on demand (SVOD) services to successfully launch and expand in Australia. While Netflix was not the first SVOD service to operate in Australia, its launch into the Australian market in March 2015 has upended the Pay Television and Internet Protocol Television Services industry. A substantial share in this growth has come at the expense of Foxtel, the industry’s largest and once-dominant player. Nevertheless, strong growth among SVOD services is expected to support industry revenue growth of 3.6% in 2019-20 and 3.3% in 2020-21. Physical distancing measures imposed to curb transmission of COVID-19 are anticipated to support these growth trends as consumers spend more time at home.

Falling discretionary incomes and shifting consumer preferences regarding how and when TV and film content is viewed have encouraged consumers to switch to SVOD services over the past five years. SVOD services, such as Netflix and Stan, offer large libraries of films and TV shows for consumers to stream when and where they want, at a low monthly cost with no lock-in contracts. In response, Foxtel has launched several new products and strategies over the past five years in an effort to retain subscribers and revenue. The company leveraged its contracts to broadcast live sport to launch Kayo, a streaming platform dedicated to sports that allows consumers access to sport content for which Foxtel holds exclusive rights.

The COVID-19 pandemic is anticipated to pose a significant challenge to Foxtel, for several reasons:

  • Postponements and cancellations of major sporting leagues and events, both in Australia and globally, have eroded one of the company’s major competitive advantages.
  • Falling discretionary incomes are anticipated to accelerate the shift in consumer preferences towards SVOD services as consumers seek greater value for money.
  • Weaker economic conditions have substantially reduced demand for advertising, which forms a significant revenue stream.

In response to these deteriorating demand conditions, Foxtel has launched new strategies and services aimed at stemming further losses. The company has recently launched subscription packages that include access to Netflix, repositioning Netflix as a supplement to Foxtel’s offerings rather than a direct substitute. In late May 2020, Foxtel launched a new SVOD service called Binge as a direct competitor to Netflix and Stan. The service offers a range of local and international content to which Foxtel holds streaming rights, including the company’s exclusive rights to original content produced by US-based network HBO. Foxtel signed a contract extension with HBO’s parent company WarnerMedia in early May 2020, which is speculated to give Foxtel exclusive access to HBO content through 2025. This arrangement is forecast to support Foxtel’s revenue over the next five years.

An increasingly competitive SVOD market is projected to constrain revenue growth for the Pay Television and Internet Protocol Television Services industry over the next five years. Global media companies are increasingly seeking to launch their own streaming platforms to capitalise on their extensive content libraries, such as The Walt Disney Company’s Disney+ service. Rising saturation will likely encourage consumers to switch between services to watch particular programs rather than maintain ongoing subscriptions.

Pay-TV providers such as Foxtel are forecast to continue facing strong competition from both SVOD service providers and from firms in the Free-to-Air Television Broadcasting industry. Competition for programming rights is projected to intensify as more SVOD services enter the market and as free-to-air television broadcasters seek to boost advertising revenue by airing popular programs and sporting events. Although revenue for the Pay Television and Internet Protocol Television Services industry is forecast to continue growing over the next five years, the major players will likely find it increasingly difficult to protect their market shares.

 

IBISWorld reports mentioned in this release:

Pay Television and Internet Protocol Television Services in Australia
Free-to-Air Television Broadcasting in Australia
News Australia Holdings Pty Limited
Nine Entertainment Co Holdings Limited
Walt Disney Company (Australia) Pty Limited

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