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There are two major categories of paid online video content: Pay-per-view video-on-demand (PVOD) and subscription video-on-demand (SVOD) services. SVOD has emerged as the major category of paid online content in Australia. The entry of SVOD providers Netflix, Presto TV and Stan in early 2005 saw rapid update of SVOD services in 2015 and 2016, especially in 2015. Netflix has emerged as the SVOD dominant operator, but both Stan and Presto have built up a significant customer base, and both have the substantial financial resources of their backers at their disposal. During 2016 the growth of Stan outpaced the growth of other local SVOD services such as Netflix and Presto. While Netflix grew rapidly in 2015, growth slowed down in 2016.
Pay TV is also under increasing structural pressure from SVOD providers such as Netflix. There are conflicting interests and priorities between Foxtel and its major shareholders. Foxtel has its roots in media via its shareholder News Corp ownership, while Telstra is a telco. Telstra will place increased importance on building its own bundle plays and is now pushing Telstra TV. Foxtel will continue to see declining ARPU as the proportion of its pay TV customers decline due to the migration to other SVOD providers which have much lower ARPU and existing pay TV customers migrate to its cheaper Foxtel Presto Service.
Rapid increase in rate of adoption of SVOD is occurring where high quality broadband is already available. NBN will accelerate this trend as the mass deployment of high quality (fibre) broadband takes place via NBN will significantly decrease cost of delivery of SVOD. BuddeComm predicts that the rate of SVOD growth will begin to taper off and eventually level off in around five years time.
Globally VOD still a niche play, not attracting mass market audiences. With such a large number national and international players competing consolidation is starting to take place. For example Quickflix has been forced to exit the market in 2016. In particular restricted bandwidth / access speed is a key inhibitor to growth. Due to lack of market differentiation in terms of product offerings, Streaming video on demand (SVOD) as a product is becoming a more commoditised in nature. This places a limit on price growth.
Companies mentioned in this report:
Telstra, Optus, Internode, TransACT, TPG, FOXTEL, VOD, Quickflix, Netflix, ABC, Ninemsn, Hulu, iiNet, SBS, Seven Media, Apple, BBC, FetchTV, Getflix, Google, Netbay, Ten Network, YouTube, Fairfax, Nine Network, Stan
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