Apple TV+, Disney+, and Video Services Share of Wallet

We are on the cusp of a behavioral change with how pay for video entertainment content. Linear TV is a dead man walking, with age groups under 49 cutting the cable cord at increasingly rapid rates. The baby boomer generation seems to be the one holding out, for now, to their traditional cable packages. In a recent advertising report, I read, which was referencing the latest Nielsen data point on cord-cutting, featured this great one-liner “it appears the only demographic still clinging to linear TV models is the 50+ demographic which also happens to be one of the least interesting age brackets for the bulk of advertising spends.”

Wrapped up in this conversation are three things I want to share. There is what we know about this emerging consumer behavior, what we are learning, and the key questions going forward.

What We Know
As I mentioned briefly, one of the key things we now know is that cord-cutting is accelerating. Thanks to reports sent to cable networks and cable services companies I have access to, I’ve observed a steady YoY decline in linear pay-TV subscriptions. For example, in 2017, the QoQ average in pay-TV declines were approximately 1.5%. Fast forward to 2019 and that average is now 6.3%. This line has been on a steady decline since 2015 and, at this point, it is safe to assume it will continue its rapidly increasing rate of decline.

We also know this rate of traditional pay-TV decline is highest among younger generations. According to more data from Nielson, who tracks ratings of traditional TV shows, the under 35 age bracket has seen a ~40% since 2012 and this demographic, at the moment, make up only 32% of traditional TV show viewership on linear TV packages.

Another strong data set helping us shape what we know is that households with streaming video services consume less traditional TV in terms of hours per day. And, in what should be entirely obvious, the more streaming services you subscribe to the less traditional TV you watch. A brief highlight of this data is households with no streaming video services consume 6.3 hours of traditional TV per day. Households with one streaming service consume 3.2 hours of traditional TV per day, and households with more than one streaming video services consume 2.6 hours of traditional TV per day. The key observation is here is just one subscription streaming video service cuts traditional TV viewing hours in half.

From the hard behavioral data and data facts I’m seeing, what I outline above is what we know, next to what we are learning.

What We Are Learning
While we have quite a bit of data at this point, in terms of interest and intent to cut the cord, along with reasons why I’m considering this data more in the learning areas than data facts as above. It is reasonable to assume that the data points that look at future behavior and intent are leading indicators, but to the extent is still speculation.

That being said, intent to cut the cord is high. Again, the proof will be if these segments actually do or if their cable/pay-TV provider incentives them to stay. However, among households who stream between 10-20 hours of streaming TV per week, intent on cutting the cable increases dramatically with 24% of that segment signaling intent to move away from traditional TV.

Earlier this year, we ran our own media services research study and found, in total, 43% of consumers have considered in some fashion cutting the cord and going all-in on streaming. Barriers include the deal they get in cable, or worries about missing out on content, but of that 43% who have considered cutting the cord, 33% indicated they are strongly considering making the switch.

When it came to which age brackets have the strongest intention, it should be no surprise, it is again the 35 and under demographic with the strongest intent and consideration to cut the cord.

What we are learning about motivating factors is also important, since it feeds into the broader debates about the future. As of now, the sweet spot for the number of video subscription services is 1-3 with 72% of consumers in our research panel indicating that range. I’ve seen more granular research reports that back up these findings and indicate very few households subscribe to four or more streaming services. In those reports, it appears two streaming services is where the bulk of the market has landed today.

I include this in what we are learning part because I don’t personally believe 1-3 subscription services is where the market will settle. It looks like that if you just use today’s data, but I’ve been arguing that as consumers cut the cord, it will free up a budget which will then go to other subscription services. I could do a deep dive on the data around customer satisfaction for pay-tv services, and consumer sentiment where they don’t feel they get what they pay for, but for the sake of this piece just know the average ARPU for Pay-TV services is $90 per month, with low satisfaction.

My argument is consumers will still be willing to spend that $90 a month on video services they feel they value and get value from. This means there is room for Netflix, Disney+, Amazon Prime (even though it isn’t a la carte but a bundle with Prime), and Apple TV+, from a share of wallet perspective. This is why I don’t think these services compete in a winner take all scenario. However, they will be competing for viewing time.

The Key Debates
I’ll leave a few bullets as the key debates to simply offer where I know the major questions are circling for providers.

  • How many services will consumers subscribe to in the future? We know it isn’t infinite, so the question is just how many.
  • What will be the sweet spot in pricing? While it seems pricing may vary, and promotions will come in especially in the case of Disney + building Hulu, and ESPN, etc., there is likely to become a standard pricing scheme that consumers can wrap their head around. We simply don’t have that yet.
  • Will a master bundle still be attractive or will it simply be a la carte services? A big debate is around subscription fatigue, which some consumer studies seem to suggest is already setting in. Knowing we will all still have to pay for broadband, there is a debate around bundling broadband with these services in an attempt to bring back some kind of bundle since bundling is a tried and true value proposition for consumers.
  • Can customer acquisition costs stay lower than traditional Pay TV? One assumes the answer here is yes since cable and satellite companies pay upwards of $350 to acquire customers. But the marketing spends to drive awareness, will add costs and these costs will be higher for some companies. One could argue the way cable companies acquire customers with the cost is low cost to free hardware. Which requires massive upfront costs to the provider. Similarly, streaming services cost to acquire customers is largely based on original content, which is extremely expensive. Therefore, where cable companies use hardware, streaming companies will use original content. Original content costs more in RND, and I’d factor that into customer acquisition costs.
  • These are the main debates I think have the most relevance. There are others, and still more to observe and learn as this shift takes place.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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